06 November 2019

The government is right to look at how to increase procurement spending with small companies and local firms but wrong to blame EU rules, argues Tom Sasse.

The Conservatives are, according to a report in the Telegraph, planning to take an ‘axe to EU procurement rules’ to help small businesses and local firms win more government work after Brexit. Oliver Dowden, minister for the Cabinet Office, described this "bonfire of red tape" as a "real opportunity for a Brexit dividend".

Helping ‘left-behind’ communities is set to be a key election issue – and ensuring more money is spent with small or local firms allows the Conservatives to move onto territory held by Labour, which has long supported initiatives such as the so-called ‘Preston Model’ championed by Preston Council.

But EU procurement rules don’t prevent government from increasing spending with small or local firms – and initial reports suggest the government’s plans could make things worse, not better.

The UK doesn’t need to ‘axe EU procurement rules’ to spend more money with small or local businesses

The UK is currently signed up to EU procurement rules, which cover areas including public contracts, utilities, defence and security. These are designed to ensure a level playing field and prevent member states from awarding business unfairly to their own companies. In practice, the rules mean that commissioners in local government, central government and public bodies have to open up competition for tenders that exceed a certain value. These are published on the EU’s procurement portal – any company can then submit a bid.

But these rules don’t prevent government from increasing spending with small or local companies. The Telegraph’s report of the government’s proposals says "EU rules… require the government to award contracts to companies based on the lowest price". This is simply wrong. Authorities must run a fair process, but they can select bids based on a range of criteria including price, quality, risk, social value and other factors. The lowest price bid doesn’t always win – and often represents poor value.

Preston Council increased its spending with local businesses by £4 million in four years, from 14% of spending in 2012 to 28% in 2016, while fully complying with EU rules. It did so by using a weighting system which scored criteria, including local labour recruitment and skills and training. The government’s own ongoing work on social value is already looking at how factors like these can be better incorporated into procurement processes.

The real barrier to small companies winning contracts is changing commissioners’ behaviour

The government is right to acknowledge that it needs to do more. Our research found that the coalition government initially succeeded in increasing spending with small companies by introducing measures including abolishing pre-tender questionnaires. But this increase peaked in 2014/15 and has since fallen back. In the last five years, strategic suppliers – companies that receive over £100m in revenue a year from government – have won an increasing share of government work.

It is easy to blame EU rules for this, but the real barrier is changing behaviour among those awarding contracts. Small companies and charities still struggle to respond to bidding processes that are not well communicated, have short deadlines or require lengthy submissions. They are put off bidding when commissioners seek to transfer large risks or don’t recognise the benefits a smaller firm may bring. Large companies and charities, by contrast, have big in-house bidding teams who are expert at winning contracts.

The government’s proposals to replace EU procurement rules could make things worse  

Not only do the government's proposals take aim at the wrong target, they could make things worse for small companies. The government has floated ‘replacing six different procurement processes with a one size fits all approach’, but this could make it more difficult for commissioners to tailor processes which suit both small and large firms.

There would also be major trade-offs with a 'buy British' approach. Limiting foreign companies' access to UK markets may not represent value for money, and diverging significantly from EU procurement rules would, in turn, reduce access to foreign markets for British companies.

It is welcome that the election has reinvigorated interest in helping small businesses and local economies. But commissioners already have the power to procure in a way that supports small firms and local investment. Before taking an axe to EU procurement rules, the government should attempt a more subtle fix of its own practices.