Industrial strategy - using the power of procurement

An entire pillar of the industrial strategy is devoted to “improving procurement”, including a renewed commitment to ensuring a third of total procurement spend is with small businesses by 2020 and to roll out the “balanced scorecard approach”. Using the power of the Government pound to support SMEs is a great idea in theory, and something the Government has already been pushing for several years.

The announcement that new guidance will be published for public buyers on how to drive innovation is welcome; too often procurement is seen as a hoop to be jumped through rather than a useful tool for spending public money wisely and an opportunity to find alternative solutions. The fear however is that further reams of "guidance" will simply not do the job. Procurement legislation needs to be written in a clearer way in the first place taking into account the practical issues faced by public buyers, suppliers and lawyers.

Government should not use these processes to interfere with or fetter the ability to make commercial and risk decisions based on professional advice (see procurement policy note which we consider gets close to this line).

The industrial strategy Green Paper also contains a new commitment to trial ways to be gather feedback on suppliers and products that would then be available to buyers and users in the public sector, in the hope that positive feedback would encourage buyers to give more consideration to SMEs. This seems a very positive step forwards if it can be made to work; in the digital age almost every consumer business receives huge amounts of feedback from its customers via TripAdvisor, Twitter, and the like – why should public sector buyers have less information? This does however need to be a balanced approached. Throw away feedback comments by a disgruntled buyer or supplier will need to be carefully sifted from the genuine constructive criticism.

The proposed measures on their own, though, may not go far enough to achieve the 2020 goal. The lack of flexibility under current procurement regimes arguably works against smaller businesses. The Green Paper points to the abolition of pre-qualification questionnaires (PQQs) in lower value contracts and the introduction of standard pre-qualification (SQ) in higher value procurements as positive steps for SME bidders, and the intention is good in terms of reducing the administrative burden on smaller bidders.

However, in practice there seems to have been unintended consequences, with the lack of flexibility that the SQ gives pushing buyers to skip pre-qualification altogether and requiring every applicant to provide a full tender, making the administrative burden worse. While most commentators expect some form of procurement regime to remain in place post Brexit (as part of any trade deal with the EU or WTO) there may be opportunities to add flexibility and make procurement more SME-friendly. It may also be possible to adjust the rules to take into account local considerations – for example, to allow local authorities carrying out public procurement to give priority to local SMEs for smaller projects; this would fit well with the emphasis the Green Paper places on devolution.

The relevance of procurement to the industrial strategy goes beyond using the power of the Government pound. The Green Paper confirms or creates a number of new streams of funding (such as the Industrial Strategy Challenge Fund), but applicants for public sector funding often struggling with negotiating the State aid rules. These can be expensive and complex to navigate with high penalties for getting it wrong. Grant applicants are sometimes left to confirm satisfaction of State Aid requirements by themselves, but to ensure maximum take up of the new funding streams there should be more detailed and useful help and guidance for applicants on how to comply with State Aid requirements (current "guidance" unfortunately does not cut it). A collaborative approach between the public body providing the funding and the grant applicant, with risk and responsibility shared (perhaps via a dedicated government advice unit), would encourage businesses of all kinds to take advantage of the new funding streams – and would fit very well with the wider industrial strategy’s emphasis on collaboration between the public and private sector.