The Golden Age for SMEs: 1. Contracts Regulations

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1 The Golden Age for SMEs: Winning more business 1 through the Public Contracts Regulations

2 The Golden Age for SMEs: Winning more business through the Public Contracts Regulations By Michael Crosby Supply Communications Executive Follow us on Connect on LinkedIn Michael Crosby: uk.linkedin.com/in/michaelcrosby2/ Supply: 2

3 The Golden Age for SMEs: Winning more business through the Public Contracts Regulations Contents Introduction 3 Introduction 4 The Golden Age for SMEs 8 Lord Young s SME improvements 10 The new Public Contracts Regulations - The big changes - Using the changes to your advantage 14 More about Supply In 2010, Prime Minister David Cameron put small businesses at the heart of his campaign to transform the UK s financial situation. The Coalition s Programme for Government stated: The Government believes that business is the driver of economic growth and innovation, and that we need to take urgent action to boost enterprise, support green growth and build a new and more responsible economic model. Key to the Prime Minister s plans was the appointment of Lord Young to the position of special Enterprise Advisor in After three independent reports into the state of UK business, Lord Young s research into SME concerns and practices in particular has informed government legislation, culminating in the passing of the Public Contracts Regulations 2015 into law. In his most recent publication, The Report on Small Firms , Lord Young said: This is the golden age for small firms there has never been a better time to start and grow a business. This report from the Supply National SME Engagement Programme examines the current economic landscape for small firms, new political initiatives designed to boost business across the UK and, in particular, how the Public Contracts Regulations will improve the marketplace for SMEs. This is the golden age for SMEs, and this SME Report explains how your firm can be part of it. 3

4 The Golden Age for SMEs According to recent research, there really hasn t been a better time to be an SME in the UK. In The Report on Small Firms , Lord Young reveals new stats to back up his assessment that we are now in the golden age for small firms. According to Lord Young, there are now an estimated 5.2m small firms active in the UK, a new record and an increase of 760,000 since the last General Election in There are also a record number of people in work at 30.8m, with small firms alone accounting for 48% of all private sector employment. So what are the reasons for this SME boom? A growing economy One of the key factors in creating more opportunities for SME growth has been the returning health to the UK economy. According to Chancellor George Osborne in his last Autumn Statement, the UK deficit has been 'cut in half' since The deficit is projected to fall to 75.9bn in , 40.9bn in and 14.5bn in before reaching a 4bn surplus in By , the Chancellor projects that the UK s surplus will reach 23bn. Borrowing is also set to fall from 97.5bn in to 91.3bn in , while debt as a share of GDP is set to rise from 80.4% this year to 81.1% next year, before falling in every year thereafter, reaching 72.8% in Overall, the UK economy is set to grow by 3% this year, up from the expected rise of 2.7% announced in the previous Budget Statement in May Chancellor George Osborne, GOV.UK, speech 4

5 Through the storm we have stayed the course. Now Britain is on course for surplus. On course for lower taxes. On course for more jobs. On course for higher growth. On course for a truly national recovery. A long-term economic plan, on course to prosperity. Chancellor George Osborne 2 A quarter of government work now goes to SMEs In 2011, the Coalition Government set itself the challenge of awarding 25% of government contracts by value to small firms by To achieve this, the Government put various plans into effect in an attempt to encourage more small firms to bid for government work, the majority of which were outlined at length in our previous report: Winning UK Tenders: A Supply Growth Guide for Among the initiatives which have already been successful are: The launch of the British Business Bank Reforming Business Rates and doubling Small Business Rate Relief National Insurance contributions cut for 450,000 SMEs The launch of Start Up Loans Funding for Lending Scheme expanded 100m of Broadband Connection Vouchers let And much more... At the beginning of 2015, the Cabinet Office was proud to announce that this ambitious 25% target had not only been achieved, but beaten. 2 Chancellor George Osborne, GOV.UK, speech 5

In the financial year 2013-14, a total of 26.1% of central government spending representing 11.4bn in value went to SMEs. This breaks down as 10.

6 In the financial year , a total of 26.1% of central government spending representing 11.4bn in value went to SMEs. This breaks down as 10.3% of government spending going directly to small firms, up from 6.5% in , with a further 15.8% going to SMEs indirectly via the supply chain, creating the 26.1% total. Minister for the Cabinet Office Francis Maude said of the achievement: As part of our long-term economic plan this Government is overhauling public procurement to open things up to businesses of all sizes. I am so pleased that our reforms have ensured that innovative SMEs benefited from 11.4bn of business last year alone. Over a quarter of our spend now goes to SMEs but we know there s much more to do, and these new reforms show just how determined we are to finish the job. 3 3 Francis Maude, Government spends 11.4 billion with SMEs, GOV.UK, 6

7 The General Election With the 2015 UK General Election on the horizon, the main political parties are getting their campaigns under way, with major announcements being made almost daily, much of it designed to capture the attention of UK businesses. The main manifesto pledges announced thus far are as follows: Party Pledge Conservatives 3m apprenticeships by 2020 In/Out EU referendum Cutting Corporation Tax Labour Apprenticeship for every school leaver Ban on zero hours contracts 8 an hour minimum wage by 2020 SNP 0.5% rise in public spending Investment in infrastructure Liberal Extending the British Business Bank Democrats Long-term capital for businesses UKIP EU exit Looking favourably on UK workers Greens Sustainable jobs 10 minimum wage These pledges put small businesses at the heart of future government plans, no matter who comes to power following the 2015 General Election. As a result, businesses are feeling more confident in their future in their ability to bid for new work and in their ability to grow. With more SMEs active than ever before and with small business confidence at its peak, businesses are in a good place to take advantage of new opportunities presented by recent procurement reforms, including those suggested by Lord Young and put into legislation in the Public Contracts Regulations

8 Part 2 Lord Young s SME improvements The quarter of a trillion pound opportunity The Prime Minister s Enterprise Advisor Lord Young has been reviewing the changing face of small businesses in the UK over the past five years through a series of enterprise reports and publications. Beginning with Make Business Your Business in May 2012 and now reaching its conclusion with The Report on Small Firms , his analysis forms one of the most comprehensive and wide-reaching reviews into small business attitudes, processes and requirements in decades. According to his most recent research, there is now a quarter of a trillion pound opportunity awaiting UK businesses via public sector procurement. In spite of this massive market, Lord Young highlights a number of key problem areas in the UK procurement process which must be addressed in order to fully realise the potential for small firms to gain a share of this spend. Previous problems In , just 6.5% of government procurement by value went directly to UK SMEs, despite them making up 99% of all UK business. To inform his reports to Government, Lord Young asked UK businesses what they felt were the main hurdles they had to face when attempting to win public sector work, and what they felt could be done to improve the process. Some of the main problems consistently highlighted by SMEs included the excessive red tape faced by small firms; complicated Pre-Qualification Questionnaires (PQQs) ; the need for bespoke bids for every new procurement; and the length of time it took for payments to come through from buyers (sometimes taking as long as 90-plus days). To address these issues, Lord Young s reports made a number of recommendations: Finance The issue of SME finance is one which has been consistently raised by firms looking to do more business with the public sector. Problems have ranged from the affordability of some procurement processes to difficulties in securing bank lending. 8

9 To address these concerns, the Government created the British Business Bank, designed specifically to provide more finance from a greater number of sources to SMEs. In the 12 months to September 2014, the bank generated 890m of new lending to small firms. 71% of this support has been delivered by new, smaller finance providers rather than established banks and loan operators. This greater level of competition in the banking sector further opens up the market for small businesses to access finance which may previously have been deemed too risky for the big banks to take on, in turn opening up the procurement market to greater competition. In addition, the Government is supporting new and emerging financing through the Business Bank s Investment Programme, which makes investments into new finance initiatives including peer-to-peer lending. In total, 400m has been made available through the Investment Programme to boost SME lending. Support As well as physical barriers, including access to finance, SMEs also highlighted the lack of effective advice and guidance to help firms grow. Lord Young found that many small firms were not inclined to seek business support, with only 30% of SMEs accepting external advice, according to research. To help address this issue, the Government launched a number of websites dedicated to providing support and advice to businesses. GOV.UK is the central government repository for policy publications, legal compliance and departmental resources. In addition, GREAT Business is a website devoted to providing government advice and support in one place, allowing businesses to more easily access advice on finance, growth and business skills. To further encourage firms to take up the advice on offer, the Government introduced the Growth Vouchers scheme, which provides a subsidy of 50% off the cost of advice for micro SMEs which have not accepted previous government support. The Vouchers specifically target areas including finance, marketing, recruitment and leadership skills. Creating government policy Lord Young s various reports, recommendations and analyses have played a key role in informing government policy, reaching a climax with the publication of the Public Contracts Regulations 2015, which drew heavily on Lord Young s work in adapting the EU Procurement Directives into UK law. 9

10 Part 3 The Public Procurement Regulations On 26 February 2015, new Public Contracts Regulations came into force in England, Wales and Northern Ireland which will fundamentally change the way in which both buyers and suppliers do business (Scotland has responsibility for its own Regulations under devolution). There are a number of major changes taking place across the public procurement landscape as a result of this new legislation. For small firms in particular, the changes should make the procurement process more flexible, simple and transparent, allowing smaller businesses to compete much more effectively for public sector business. Background The old Regulations, determining how public authorities purchase goods, works and services, date from The Regulations aim to make the procedures for awarding public procurement contracts transparent and open to all European countries, making trade easier and levelling the playing field for businesses across the EU. However, various economic and political changes and fluctuations made it necessary to update these rules, creating an opportunity to reform procurement processes to the benefit of buyers and suppliers in order to help generate competition and efficiency. The European Union published the new Procurement Directives in 2014, which all EU Member States had to then adopt into national law. The Public Contracts Regulations 2015 represent the UK s interpretation of these Directives, informed by Lord Young s recommendations and previous research, and will now govern how firms do business. The big changes The new Regulations have a number of elements designed specifically to help small firms. In a number of ways, the new rules represent a huge opportunity for small firms in terms of reduced bureaucracy, improved payment processes and encouragement of innovation. 10

11 Here s a quick summary of the main improvements: Red tape Old rules New rules Improvement Organisations were required to provide three years worth of audited accounts and extensive supporting documentation before being eligible to bid for work. Only the winning bidder will have to provide full audited evidence. In addition, the complicated Pre- Qualification Questionnaire has been abolished for contracts under 10,000. The bidding procedure for companies will be much simpler, allowing your firm to demonstrate that you can meet the demands of the contract without the need for burdensome evidence and red tape. Turnover Smaller bidders were often excluded because contracting authorities demanded potential business partners have a high turnover, regardless of the size of the contract. Contracting authorities can no longer ask for organisations bidding for contracts to have an annual turnover of more than twice the estimated contract value, unless special risks are attached to the contract. Reducing the turnover requirement of firms bidding for work will level the playing field for smaller firms, creating greater opportunities for firms to get involved in public procurement. Payments Smaller lots Late payments from government buyers have been an issue for smaller firms in particular, especially for firms working on one contract at a time. Contracting authorities previously had a choice in whether to split contracts into lots or not, and refusal to create smaller contracts would naturally benefit larger suppliers. Everyone in the supply chain must comply with a 30-day payment period, and public bodies must publish an annual late payment report. Public authorities will be encouraged to think about SMEs from the outset in their tender processes, with smaller lots as opposed to large contracts becoming the rule. Your firm can now expect to be paid quickly for the work you ve done, ensuring your business maintains a healthy cash flow. Smaller opportunities open up more competition to smaller firms, meaning your firm could get access to contracts which were previously unattainable. 11

12 Innovation Beyond the UK Sustainability Agenda, there was very little thought given to innovation, environmental or social considerations in the previous rules beyond the need for variants while advertising the contract. The new Regulations actively encourage environmental and social considerations in the procurement process, with firms being excluded from the procedure if they do not meet environmental or social standards. Smaller firms are more likely to be able to adapt to meet the needs of a contract, incorporating new technologies, processes or materials. Encouraging this type of innovation will enable more small firms to get involved. Using the changes to your advantage Beyond these headline improvements there are several areas of improved regulation which could open up new opportunities for businesses. If your firm gains a good understanding of some of the new policies early, it could place you ahead of an increasingly competitive marketplace. Online procurement eprocurement includes publishing notices online and submitting bids electronically, and it is set to become the norm in the coming years. eprocurement can significantly simplify the way procurement is conducted, delivering greater efficiency, reducing timescales and saving on administration costs while allowing greater competition. For these reasons, the new Regulations make it clear that the future is online. By March 2016, electronic notifications and access to tender documents online will be mandatory By March 2017, electronic notification of offers made by central government buying authorities will be mandatory By September 2018, electronic notification of offers by all other public bodies (ie local government) will be mandatory Given the size of the total procurement market across the EU, the move online could greatly strengthen the economy and stimulate greater competition for businesses of all sizes. 12

13 Green procurement A major factor now being introduced by the European Union is one which should already be familiar to UK suppliers: green procurement. The new rules aim to put more emphasis on environmental considerations in procurement procedures. In bidding for public sector work, an enterprise which does not respect the environmental requirements of UK law can be excluded, and the firm which submits the lowest priced solution may not be awarded the contract if certain green considerations are not met. Your firm may submit a strong bid at a low price, yet still lose out if the product is not of Fair Trade origin, if sustainable materials are not used or if full-life costs are not factored into the bid. Social implications The new rules also include a social clause, which states that any company failing to comply with relevant social obligations may be excluded from the procurement procedure. In the construction and production sectors, buyers may now give consideration to the process by which goods are produced, and may elect to award a contract to the company which commits to employing the greatest number of disadvantaged people, social enterprises or third sector firms, if set out in the contract. More opportunities While the new Regulations require contracting authorities to publish all opportunities over 10,000 on Contracts Finder, the UK Government s official online contracts portal, they fall short of demanding that the notice be published in full. Instead, only the minimum publishing requirements need be published, meaning the full contract details could be missing on Contracts Finder. In contrast, the Supply National SME Engagement Programme is powered by the UK and ROI s largest database of contracts and sub-contracting opportunities, drawn from every public buyer and compiled by our expert research team in full as soon as they are published, including more non-ojeu opportunities than anyone else. In addition, in 2014 Supply published 41,664 opportunities in England alone, almost three times as many as Contracts Finder, making it the best way to ensure you get the most comprehensive overview of all the contracts your business could win. 13

14 More about Supply Supply gives you complete confidence that you will never miss an opportunity that could help your business grow. Given the raft of changes introduced by the Public Contracts Regulations 2015, now is the time to ensure that your small business is ready to make the most of the opportunities available. For businesses such as yours, it is important to make the most of rising confidence in the public sector procurement market and the Government s increased focus on helping SMEs grow their business. There s a Supply subscription that s right for your business whether you are a sole trader, a micro business or a small or medium-sized enterprise. You can also choose from low value or low and high value subscriptions to suit your needs. The Supply National SME Engagement Programme is your partner throughout the process of winning government contracts. From sourcing and delivering contracts relevant to you via your unique daily alert to guiding you through the process with the help of reports, blogs, newsletters and discounted training events, Supply gives you the best possible head start in winning new business. Supply published over 66,000 UK and ROI contract notices in 2014 alone, making it the clear choice to help you grow your business in the public sector. Win more Government business with the Supply National SME Engagement Programme 14

15 2014 BiP Solutions Limited (BiP) No part of this document or accompanying material may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the copyright holder. 15

What the new EU Public Procurement Directive means for SMEs: A DCO Overview

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