A cursory glance at the visitor statistics for ISE 2008 showed that almost 90% of attendees came from companies with less than 250 employees, which is the European Union’s threshold size for its definition an SME. Here, Ron Burges, MD of BiP Solutions introduces the first in a series of articles on how SMEs can approach government contracts.
Selling to the public sector is often considered too difficult and such opportunities too remote by many companies that could and should be considering the public sector a key potential client.
This series of articles, which will appear within InAVate Magazine over the coming months, is designed to assist companies in identifying and tendering for new business opportunities with the public sector.
First, let me dispel a few myths:
SMEs cannot win public sector contracts
Not true – local government in the UK alone is estimated to have over 800,000 suppliers, the vast majority of whom are SMEs.
The public sector is remote
Not true, public sector organisations are all around you – local government covers every area of the EU, the Ministry of Defence in Britain has over 200 establishments across the country. There are thousands of health trusts and government departments such as tax offices region-wide, colleges and universities are to be found in every major town and city, as are social services and countless numbers of non-departmental public bodies. If you care to look out of your window you will find your business is surrounded by potential public sector clients, and if you take time to consider what they do you will realise that they buy virtually every possible product and service, including those of your business.
So why is there among the small business community the perception that small businesses cannot sell to the public sector?
Well, a lot of the reason lies with the perception of what constitutes an SME. The European Commission definition is of an organisation with fewer than 250 employees and less than €50 million turnover. In other words, 99 per cent of all companies in the UK and Europe are SMEs. Without supplies and services from SMEs the public sector would grind to a halt.
When talking about small companies not getting a chance to enter the public sector marketplace, we are in fact really talking about micro-SMEs, companies with fewer than ten employees and a turnover of less than €2 million. These are the companies that in general, for one reason or another, find it very difficult to enter the public procurement arena. They are also the companies that make up the European AV industry. 55% of the visitors to ISE fit into that category.
In fact, the European Commission has recognised that the broader category of ‘SME’ is not appropriate when trying to identify those at the very small end of the market spectrum, and from 1 January 2005 adopted a new definition, which includes precise financial thresholds for these micro-enterprises. Thus the EC now recognises the essential role of micro-businesses and their importance in the development of the Community’s economy.
Now that we know who we are talking about, let us look at the problems faced by these micro-businesses, which will be the engines of the region’s future growth and prosperity:
1. Contracts let by public bodies are too large for small and micro-businesses.
2. Public sector opportunities that do exist are either not advertised or are not advertised openly.
3. The process of application is too cumbersome and time-consuming.
4. The requirements that have to be met are expensive and onerous.
5. Subcontractor opportunities are impossible to identify or access.
And this is the public sector buyer’s perception:
a) Small businesses represent too much risk.
b) They cannot be relied upon.
c) They have no track record.
d) They are too small for the type of contracts we offer.
e) They do not respond to opportunities.
f) They do not understand how we buy, nor wish to spend the time learning.
All good arguments, whether from a supplier or a buyer perspective.
So how do we develop processes and practices that can be employed by both small and micro-businesses and the public sector to overcome these problems and allow dynamic micro-SMEs to offer their innovation and unique user benefits to the public sector, as well as letting the public sector benefit from high-quality, innovative small businesses?
There is no doubt that public sector organisations could ease the tendering process to encourage small businesses to bid for their contracts.
Often no-cost process changes liberate public procurement opportunities for small and micro-businesses and provide added value for the public sector - a true win/win scenario.
One such change involves a simple process that my company, BiP Solutions Ltd has been advocating for some time and which has now been adopted by the Ministry of Defence; one which not only saves them time and money but also allows SMEs to more easily identify contract opportunities suitable to their size.
Value-banding is cost-free and proven to save both suppliers and buyers time and money.
One of the biggest problems businesses face comes when they see a contract notice but cannot gauge whether or not it is too big for them. Often they make the mistake of not pursuing it because they believe it is too big, or else they do pursue it and waste precious time chasing something beyond their capabilities. For many it is a lose-lose scenario.
Let us first look at how public sector contracts are valued. We often refer to contracts that are sent to the Official Journal of the European Union as high value; well, that is often not the case.
What contracts am I talking about? Most central government bodies must notify the European Union of contracts valued at above approximately €125,000. For most non-central government public bodies this figure is €200,000. The important point to note is that this figure is not the annual total value of the contract, but the total potential value of the contract for the life time of that contract.
So a contract for a central government body with a value of €120,000 for three years is really only worth €40,000 a year: a sum well within the range of most micro-SMEs.
When you consider the annual value and not the total value you see that many opportunities which appear at first sight to be high value and beyond the abilities of micro-SMEs are in fact well within their capability.
The difficulty still remains of finding out exactly the value of these contracts. Public authorities are always wary of telling suppliers the budget they have in mind because, rightly or wrongly, they believe that all bids will then come within a few pounds of the budget limit. Authorities may well have a point but there is a very simple and effective way round this problem, and it is a way that has recently been adopted by the UK MoD after being proposed to them by BiP Solutions, as official publishers of MoD contract information. It is called value-banding.
If a public organisation uses value-banding then suppliers can easily identify what opportunities may fit their capabilities, and they no longer need waste their time applying to tender for contracts that are well out of reach with their capacity.
Value-banding is a simple mechanism that can be adopted by any public sector body at no cost and delivers to them the benefit of receiving bids from companies more appropriate to the opportunity offered.
The ministry has found that value banding has reduced the number of expressions of interest it has to deal with. Large companies can clearly identify small contracts, which are not really of interest to them and small companies can stop wasting time applying for large contracts out of kilter with their capabilities.
The adoption of value-banding is a win for all parties. It will increase appropriate competition for public contracts and at the same time it will save small companies from wasting the most costly resource they have – time - on chasing contracts that are inappropriate to their business, allowing them instead to identify and concentrate on those that are.
Value-banding is a simple solution that should be adopted by all public bodies – it costs nothing, yet realises huge benefits to all parties. If the uk MoD can do it, and it saves them time and resources, then all public bodies should introduce the same system.
Contract opportunities suitable to micro-SME businesses will then soon become visible. This one simple process change, if introduced across the public sector, could revolutionise access to public contracts for micro-SMEs.
Next month: An insight into other process changes, which could deliver benefits to suppliers.