How SMEs can win government contracts

In 2021/22, the UK Government spent £379 billion on goods and services. Around 26.5 per cent of that, or about £100 billion, was spent directly or indirectly with small and medium enterprises (SMEs). But the government’s stated target spending with SMEs, as announced in 2015, is 33 per cent.

And so, the government has missed its commitment by 6.5 per cent of the procurement budget, a not-inconsequential amount of £24.6 billion.

While the government, and large businesses supposed to feed work to smaller ones, should take responsibility for meeting the target, small businesses will also need to engage in the process.

“The government must do better but it’s a multi-faceted problem,” says Gordie Smyth, founder of Flower Accounting.

“The government can make things easier for small businesses by making the entire process more straightforward. But at the same time, not enough micro businesses apply and engage in the process. If more did, more would win.”

Some SMEs avoid government contracts

There is sometimes a reluctance to tender for government contracts, Smyth says. This may be because accepting larger contracts could involve growth that some businesses aren’t ready for at the required scale.

“Some businesses also see government work as a race to the bottom on price, but this isn’t the case,” Smyth says.

“If you review market intelligence you see that it is not always, and perhaps not even usually, the case that the lowest price wins,” he says. “The government has a range of methodologies for reviewing value. There is much more to it than just price.”

Another negative perception is that it will be disproportionately burdensome to deal with the amount of compliance, paperwork and regulations involved in government procurement processes.

“This acts as a deterrent, but it needn’t,” Smyth says, explaining that it is acceptable to include the costs associated with compliance and regulations in pricing models. “Government actually expects a cost for certain compliance activities, to ensure it is correctly accounted for.”

Tendering: You don’t know what you don’t know

There is also an education piece – businesses wanting to engage with government contracts for the first time have to know how to approach the tender process.

Smyth’s practice works with a specialist consultancy to help clients understand the processes and nuances.

“They take some of our clients through that process, handhold them and support them to win potentially life-changing contracts,” he says. “A government contract can be very big news for a business.”

Consultancies may offer services including tender identification, bid management, tender writing consulting and strategic advice to ensure their clients, once they have won a contract, are not overwhelmed by the level of commitment they have taken on.

For Smyth, being part of identifying and grasping that growth opportunity is what sets his firm apart.

“We work with clients to help them get from A to B, whatever that looks like for them,” Smyth says. “These public sector tenders can be huge in that regard of getting from A to B.

“It’s great for us as an accountancy firm to be able to sit down with our clients and talk about growth, and to put something forward that can be a very big part of their growth solution.”

So, what can small businesses do to better open themselves up for opportunities to win government contracts?

Be more aware of government contract opportunities

Without specific team members dedicated to keeping their fingers on the pulse of government requests for tenders, and to staying up to date with the most effective tender methods and styles, it can be a tough ask to expect a business to recognise such opportunity.

“Smaller businesses usually do not have dedicated resources to identify, monitor and respond to government tender opportunities,” Smyth says.

He cites the challenge of keeping up with many tender portals – just the government-run portals include Contracts Finder, Find a Tender, the Digital Marketplace, Sell2Wales, eSourcing NI and Public Contracts Scotland – as one reason his practice works with a specialist consultancy to guide clients.

Of course, there is an up-front and non-recoverable cost attached to bringing in external resources, so those costs should be well-planned, as should their potential return.

“This cost should be viewed as an investment, as part of a broader business growth or diversification strategy” Smyth says.

Consider developing a contract alliance

The simple fact is that many government contracts are of a size and scale that make them difficult for micro businesses to even imagine fulfilling.

But every project is a collection of smaller tasks, Smyth says.

“Contracts should be broken into smaller lots, which makes it more accessible for micro businesses,” he says.

This could be part of the government procurement process, prior to the request for tender. It could also be carried out by a larger provider that then engages SMEs for smaller parts of a project. Or, the project could be accepted by an alliance of smaller businesses sharing skills and specialisations to get the job done.

Have a go, and be patient

“Have a go,” Smyth says. “You don’t always need to hire expensive bid writers. Just find a tender to apply for, read the documents and submit an application. That’s it! You can then identify where you need support, if at all.”

“Why should you be patient? The rewards of public sector contracts can be significant, including multi-year contracts of guaranteed work with guaranteed payment times. So, you should take the time to approach it in a managed and systematic way, to maximise your chances of success.”

Smyth talks about the “remarkable” growth he’s witnessed as smaller businesses have taken the leap into the government arena.

“We’ve seen amazing success, with companies previously turning over tens of thousands of pounds now earning hundreds of thousands of pounds, and then millions of pounds. Some businesses have literally been made on the back of certain contract wins,” Smyth says.

“These public sector contracts can really propel a business to the next level quite quickly. And while that’s the carrot, businesses have to be prepared. They have to be ready for that level of growth, which requires careful consideration on multiple fronts, not least cash flow.”

Government work can also help businesses win non-government clients.

“Trust is something that is crucial in business,” he says. “So, for a business to say they have gone through the process to be trusted by the government, well, that’s very powerful.”

So, the problem of too few procurement pounds reaching SMEs is complex – and the solution involves several actors. Government must do better at making their procurement contracts more understandable and palatable for small businesses. Large organisations must collaborate with SMEs to deliver segments of large projects. Accountants and advisers can do better at helping clients recognise opportunities and understanding the processes for tenders and working with government. And SMEs themselves must assess their capacity for government work and prepare for success.