COUNCILS, PURCHASING AND LOCAL SMEs

As we all know, local and national politicians are fond of saying that small firms are the backbone of the economy.

Yet a recent Freedom of Information request from the Federation of Small Businesses (FSB) revealed that despite such sentiments, a significant part of the public sector in Wales simply has no idea of what it was spending with small to medium sized enterprises (SMEs).


According to the business representative organisation, which has over 10,000 members in Wales, only two Welsh local authorities were able to provide a detailed breakdown of their spending with SMEs namely Gwynedd (60 per cent) and Powys (58 per cent).

Incredibly, some said that they did not even record the information on their IT systems whilst one council admitted that they would have to go through their paper records manually to get the data.
Given the importance of SMEs to local economies and the role of local councils in supporting their creation and growth through their economic development strategies, it is frankly unacceptable that the vast majority of Welsh councils simply didn’t have any idea of how they were supporting these firms through their own procurement spending.

Indeed, data from an earlier FSB report found that SMEs re-spend 49p in every £1 they receive back into their local economy as compared to 31p for every £1 received by large firms. More importantly, around a quarter of this re-spending by SMEs will be on labour and therefore supporting local jobs.
Given this, it is critical as many local firms get the chance to tender for public contracts and a range of different approaches has been suggested by the FSB to ensure this happens.

One of the more practical suggestions is to ensure that contracts are broken down into smaller lots so that a small firm can realistically bid for such work. Local councils must also ensure that it is easy for small firms to access the procurement process by making it as simple as possible.

A key part of this is ensuring that they engage fully with the SME community at all times to ensure that local firms get full support with accessing the relevant information to be able to bid for contracts and that there are regular training opportunities in the tender process. This will enable councils to not only develop the potential of their local supplier base but can also help them to build local capacity ahead of any major tender which firms could apply for.

But as the FSB pointed out, the citizens of every local authority should also be able to know how their elected council is supporting the local business community and it should become compulsory for all authorities to have mechanisms in place to record and analyse where and with which businesses (including the size of the firm) their money is spent.  Adopting this practice would also enable councils to monitor the economic impact of their spending decisions on the local economy.

To counter such arguments on supporting local firms, some of those responsible within the public sector keep coming up with excuses as to why they cannot work with SMEs.

For example, many new firms are told that they must be excluded from applying for public sector contracts because they do not have a sufficient track record. Yet there is no legal barrier to enabling new businesses to apply for public sector contracts. It’s just that buyers within public bodies seem to view such an arrangement as risky rather than as a way of engaging with entrepreneurs who would prefer to get a contract rather than a grant from a local council.

There is also the red herring of “value for money” that is raised as an excuse not to work with local firms with some saying that they are usually more expensive than those larger organisations from outside the area that are competing for contracts.

But even if this is true in most cases, there remains a duty for councils to consider the wider impact of such contracts on the local economy. For example, bidders should be asked about the impact of the contract on issues such as sustainability or local employment creation although it would seem that this rarely happens.

Therefore, more needs to be done within the current system to ensure that smaller firms get a fair crack of the whip and that there is a greater focus on utilising the procurement system for local wealth creation.

In fact, if an additional 10 per cent of all Welsh public sector contracts were to be awarded to SMEs, then that could generate funding that is more than twice the annual business support budget of the Welsh Government.

Yet we seem to have a situation where the vast majority of local authorities in Wales have no idea of how their own procurement spending could, and should, be helping local firms to create wealth and employment in their areas. As a result, they seem to have no strategy in place to ensure that their approach to procurement can be focused on supporting the local economy.

That needs to end now and many small firms across Wales will hope that this is something that Leighton Andrews, the Minister for public services in Cardiff Bay, will take into account during his review on how local authorities will be organised in the future.

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