I am delighted to be here today. I have spent a lot of time with Deloitte over the years and have seen their spectacular growth and success and I have an enduring passion for small business - my father was a farmer who went bust, but he rose from the ashes and founded a successful small consultancy business - in Brussels as it happens trading on his brilliant language skills.
Before entering politics I spent a long time in business. I was a main board and executive director at Tesco but I also worked at much smaller companies, including Dobbies garden centres and most recently at Crown Agents which provided overseas development services most brilliantly on vaccine delivery and in the Ukraine war. I know the challenges SMEs face every day, and I also know the opportunities we can unlock by making the right changes in government - particularly to the complex procurement rules that are the bane of the small businesses.
Happily I am now helping make these changes happen through the Procurement Bill which I have steered through the House of Lords and today is a great chance to discuss how the Bill and the changes I have pioneered will help small businesses get a bigger slice of the public procurement pie, both directly and through the supply chain. It's good for you and it's good for the country as a whole. By supporting your enterprise we help to grow the economy - one of the Prime Minister's five core pledges to kickstart the New Year.
I want to start with some good news. Our determination to support small businesses through opening up public sector opportunities has led to record central government spending with SMEs - the £19.3 billion spent in 2021/2022, the latest data available, was the fourth consecutive increase. I'm sorry to say it's not yet 1 in 3, it's 27%, but progress has been made and obviously we're determined to make further progress.
And it's been thanks to some fantastic collaborative working with you - the SMEs - and across government. Along the way, we have been holding departmental feet to the fire and challenging our own colleagues. What are they doing to increase their spend with SMEs and start-ups? How are they helping to overcome obstacles involved with bidding for work or contracting with central departments and agencies?
We have been listening and learning. Working with industry, trade bodies, and the Cabinet Office's own SME Advisory Panel - which hears first hand from 25 SME owners and entrepreneurs about the challenges and barriers they must overcome.
And we have been taking practical steps, such as government departments having the power to exclude suppliers from the procurement process if they cannot demonstrate a history of prompt payment to their supply chain, and using the Public Procurement Review Service, based in the Cabinet Office, to unblock overdue payments on cases that are raised with them.
But there is so much further for us to go together. After all, procurement accounts for around a third of all public expenditure each year: £300 billion., everywhere from huge projects like HS2 to local government, schools and prisons. Our focus is always on delivering the best possible value and outcomes from that investment: it is a major contributor to driving efficiency in public services. We want to see your portion of that public procurement pie chart grow even bigger - by using the Procurement Bill to help you, as well as venture capital and start-ups making a debut in contracting with the public sector.
I remember when I was at Tesco I was asked if we could help with schools, I looked into it and it was a nightmare of bureaucracy, so I said it wasn't for us, but we have to change this. Your enterprise and innovation is the hallmark of companies represented here today. It is a sad fact that productivity has largely flatlined ever since the financial crisis and we are determined to change that paradigm. If we could get productivity up we could grow the economy without pain so we do need to work on that and we want to change that paradigm.
I know how important it is to get the details of the new rules right - and to support the underlying cultural change - so that public sector contracts are properly accessible and attractive for SMEs. We understand the limitations and restrictions of a regime - or rather, regimes: there are no fewer than four, comprising 350 EU-based rules - designed primarily to support the EU single market rather than what we put first: value for money, efficiency, and doing a lot more to support British jobs. And that's why we consulted widely to get a clear sense of what needs to improve. I know we've had too many ministers in the Cabinet Office but there has been a thread of constant officials and we're moving in the right direction. We heard, for example, about:
- The inflexibility of the procedures, and the inability to negotiate and evolve bids - something that would be standard practice in the private sector;
- A cultural reluctance to work with potential suppliers, to test the market and help develop in partnership, before embarking on the procurement;
- Less obvious barriers to SME participation: seen in some procurers' practice of insisting that bidders provide three years' audited accounts when their size means they aren't required to file any; or that they have insurance to cover the contract even before putting in a bid, in case they win the contract. And possibly most important,
- The perennial problem of late payment, a particular curse for indirect suppliers.
The new consolidated regime we are putting in place - which covers everything from paperclips to hospital buildings - directly addresses these challenges, and more. Even as the Bill moved through the House of Lords, I made a number of amendments to improve it, acting on feedback from the sector and with a surprising degree of cross party support.
I know that SMEs welcomed the new provision that I instigated which explicitly requires contracting authorities to think about SMEs as routine. It means procurement teams will have to make sure there are no unnecessary barriers that might hinder smaller companies in the contract; and ensure that bidding timelines are realistic.
It also means there is more consistent and helpful feedback to unsuccessful bidders, showing how their bid compared to the winning bid, and this is something I've had complaints from not only SMEs but local government bidding for central government contracts, we always lose and we don't know why, this is not good practice. And I know many here will welcome the application of 30-day payment terms to public sub-contracts the entire length of the supply chain, regardless of whether they are written into the contract.
We have also put provisions on the face of the Bill for the new single central online platform that underpins the new system, and will achieve a step change in transparency. The platform, which will be free for all to access, will make life easier for suppliers in a range of ways. For example, it will let suppliers see forward pipelines. This will allow them to find out more, plan which contracts to go for, where to invest, and when to prepare to bid or work with partners to develop consortia and joint bids. It will establish a single place for suppliers to register and self-authenticate their key bidding information - a "tell us once" approach that will cut out needless repetitive bureaucracy.
One point in particular, for this audience, is the greater flexibility coming your way, and the simpler processes you will see, that will support innovation. Commercial teams will have more flexibility to design and run a procedure that suits the market in which they are operating, tailoring a procurement to their exact needs. Contracting authorities will find it easier to contract with partners to research, develop and eventually buy a new product and service in a single process; and they will be able to build in stages to the procurement process such as product demonstrations - something I know the tech sector has been pressing for - so for example a contracting authority would be able to invite bidders to come in, meet the buyer and showcase the new app they're developing, so that they can get a really thorough appreciation of solutions being offered by suppliers and understand what those solutions do in practice, not just on paper.
The new rules will also make clear that innovation in procurement does not apply just to buying something brand new: it can be about developing an existing product to meet fresh requirements.
We recognise, however, that changing the law is only one half of the story. Changing the culture and behaviours of public sector buyers is another. Having the flexibility to work innovatively is not the same thing as working innovatively. That's why we are investing in what I trust will be clear guidance, but also a significant training programme for contracting authorities ahead of implementation in 2024.
Businesses have a key role in unlocking value from public contracts - we look forward to continuing our work with business groups and trade associations, and our regional Growth Hubs, to ensure that the supplier community is also well prepared. I was at our Darlington economic campus last Friday and in York talking about how we can make a real difference from the Cabinet Office.
This is because I want to see SMEs right across the UK helping the recovery by being more successful and winning much more of that procurement pie.
There are exciting times ahead, from which we can all benefit.
Thank you for listening. I look forward to your comments and questions.
