Private sector spending is drying up at a concerning rate. Companies that survive on private sector contracts are finding the security of those contracts more precarious by the day, particularly as they are frequently supported by a long chain of companies. If just one link in the chain collapses it can spell the end of that contract.
In order to combat the current fragility of a business model based on private sector contracts, many SMEs are looking towards the public sector to provide them with income. Bringing forward so-called capital expenditure (that is, spending that will create a tangible benefit in the future) has been one of the central planks of the government’s programme to stimulate the SME sector, and this has provided new opportunities so that more businesses benefit from secure public sector contracts.
New access for SMEs
In the past, public sector contracts have been seen as the preserve of large corporations. For example, building a power station or widening a motorway requires the expertise and commercial muscle of some of the world’s biggest companies. However, the government wishes to make the public procurement process more easily accessible to SMEs. The intention is that small and medium sized businesses should be able to benefit from the government’s significant spending power, especially at a time when the private sector is strapped for cash.
The scale of this proposal is evidenced by the Chancellor’s suggestion that 30 per cent of the budget of every government body should be spent with SMEs. This means that SMEs should now have access to at least £50 million in government contracts each year.
However, many SMEs have never been through the public procurement process, either because they did not consider their firms suitable or because they were simply not aware that it was an option. In order to make the process easier for businesses, the government has therefore launched a new website aiming to connect SMEs with public sector contracts.
The Supply2 service is the “official government lower-value contract opportunity portal.” In other words, it is a directory website listing public sector contracts, with a value of £100,000 or less, that are currently out to tender. This should be your first port of call if you wish to apply for government contracts.
Registration on the Supply2 site is free and fairly straightforward. The only potential confusion arises when you add your relevant areas of expertise. The government use the Common Procurement Vocabulary (CPV) to compare suppliers’ expertise with buyers’ requirements. CPV describes a huge variety of activities, products and services, each of which is expressed as an eight-digit code. You will need to use the search facility to assign the relevant codes to your supplier’s profile. Supply2 will then provide you with daily updates regarding new contracts in your areas of expertise, and potential buyers will be able to identify you as a suitable supplier.
The Department for Business, Enterprise and Regulatory Reform (BERR), in association with Business Link, has published guidance for small businesses wishing to apply for public sector contracts. The document, ‘Tendering for Public Contracts’, provides some valuable information on improving your chances of winning a contract. Public sector contracts are awarded on the basis of value for money, with a focus on the ‘whole life value’ of the product or service rendered. This means that the contract will not necessarily be awarded to the lowest bidder. As such, BERR recommend that prospective bidders should always contact the individual named in the Supply2 advertisement in order to clarify their requirements. This will give you a better idea of the buyer’s needs, and therefore a better idea of cost.
The procurement process
It is also worth looking at the process by which procurement occurs. In the case of lower-value contracts the process may be simplified, but the basic principles remain constant.
1. Definition of procurement strategy
The buyer will outline their precise needs and will decide the terms of the bidding process. An advert will then be lodged, with lower-value contracts appearing on Supply2 and elsewhere.
Depending on the value and nature of the contract, the buyer may require pre-qualification of suppliers. This means you may have to provide information relating to your previous work and financial position before you submit a bid.
3. Invitations to tender
The buyer will then send an invitation to tender (ITT) to all of those suppliers who sent suitable information in the pre-qualification stage. If you receive an ITT the buyer is asking to see an offer that they might potentially accept. As such, do not presume that there will be further opportunity for negotiation.
4. Evaluation of tenders and awarding of contract
The buyer will then evaluate all of the tenders that are submitted, and will announce its intended choice of supplier. This will be followed by a ‘standstill period’ in which suppliers can ask for feedback, before contracts are signed. The standstill period will last ten days. Unsuccessful suppliers should always seek feedback in order to increase their chances in future bidding processes. EU directives state that information must be provided by the buyer within fifteen days.
It is important to note that this process can take several months. As such, patience is a distinct virtue when it comes to public sector contracts.
The right insurance for the job
When considering applying for a government contract it is important to check that you have the right insurance cover before taking any action. In most cases a higher than usual level of public liability insurance cover is required so many small and medium sized businesses will need to upgrade their policies.
Simplybusiness.co.uk is one company that has recently introduced policies with £10 million of cover for SMEs. Check their website to find out how much your business insurance will cost with that increase in cover. The site is usually able to offer a range of quotes to choose from so that you can compare prices.
The size of the recent economic stimulus packages have brought home the fact that only government has pockets deep enough to mitigate at least some of the effects of the current downturn. As small businesses in almost every sector find it increasingly difficult to secure business, public sector contracts represent an effective and potentially lucrative means of survival and expansion.
However, public sector procurement follows a very rigid process to which you must adhere. Don’t be put off if your initial applications are unsuccessful; make sure you ask for feedback, and keep trying. The learning curve might be steep, but you are laying the foundations that may ultimately allow you to tap into a vast new revenue stream.