Corporate report

HMRC SME action plan 2018 to 2019

Published 9 July 2019

This corporate report was withdrawn on 27 January 2022

This action plan has been superseded by HMRC’s small and medium enterprise action plan for 2021 to 2022.

Go to Foreword by Sir Jonathan Thompson, HMRC Chief Executive and Permanent Secretary.

1. Introduction and background

1.1 The government’s small and medium enterprise agenda

Small businesses make up 98% of the business population (source: Department of Business, Energy and Industrial Strategy (BEIS) Business Population Estimates, 2016). The UK government is set to spend £1 in every £3 with small and medium enterprises (SMEs) ^{[footnote 1]}, directly or through the supply chain, by 2022.

The main objective has been to increase growth for SMEs on a micro-level, but also to drive forward the national economy at a macro-level, and various measures have been introduced to make public procurement more accessible to SMEs ^{[footnote 2]}.

The main aims are to:

• facilitate engagement with SMEs
• promote an ‘SME-friendly’ procurement process
• strengthen SME relationships with primary contractors

1.2 About HMRC

HMRC is a non-ministerial government department responsible for the collection and management of revenue to pay for the UK’s public services, as well as the payment and management of tax credits. We have an annual procurement spend in excess of £1.4 billion across 3 main categories:

• IT and Digital
• Property and Facilities Management (P&FM)
• Corporate Services

We are currently undertaking an ambitious programme of transformation, changing and improving our services to customers and increasing our efficiency and effectiveness.

Examples of our transformation initiatives

1. The professional services and contingent labour programme ensures we shape resourcing operating models in line with our Workforce Plan appropriately across HMRC varying from utilising vendor neutral vendor management systems to onsite Managed Service Provider solutions. These options allow for participation of small and medium enterprises (SMEs) through the supporting supply chain.

2. Our IT transformation programme involves modernising our technology infrastructure, including making greater use of cloud services. We have already successfully disaggregated our ASPIRE IT contract into smaller, more manageable lots and have an annual spend of around £850 million across new and existing suppliers.

3. As part of our Building our Future Locations programme, we are migrating our workforce to 13 new regional centres across the UK. When our legacy P&FM Private Finance Initiatives expire in 2021, we’ll transition to Full Repair and Insure (FRI) leases, with facilities management (FM) services provided by regional suppliers.

These and other transformational programmes across HMRC present exciting opportunities for small and medium enterprises, both through direct contractual relationships, as well as indirectly, through our prime contractors. 

2. Our SME spend

The table below illustrates our total contracted spend with SMEs between 2014 and 2018, and includes a breakdown of the proportion of direct and indirect SME spend during this period.

Financial Year	Total net procurement spend	Direct SME spend	Indirect SME spend	Total SME spend
2014 to 2015	£1.372 billion	£137million (10.0%)	£119 million (8.7%)	£256 million (18.7%)
2015 to 2016	£1.441 billion	£160 million (11.1%)	£117 million (8.1%)	£277 million (19.2%)
2016 to 2017	£1.576 billion	£216 million (13.7%)	£126 million (8.0%)	£342 million (21.7%)
2017 to 2018[footnote 3]	£1.470 billion	£151 million (10.3%)	£132 million (9.0%)	£283 million (19.3%)

We have analysed our spend profile to help us identify and target opportunities to increase SME engagement, participation and, ultimately, spend with HMRC.

This in turn will stimulate growth and innovation, and we have already seen success for our supplier base with reclassification (due to organic growth) in 2017 to 2018.

2.1 HMRC SME and non-SME spend by category in 2017 to 2018

The table below shows our top 10 categories by total procurement spend for 2017 to 2018, using the Cabinet Office ‘Common Areas of Spend’ category structure (any ‘uncategorised spend’ has been excluded from this analysis^{[footnote 4]}).

The 10 categories accounted for around 92% of our total £1.45 billion net procurement spend for the year.

We consider that the greatest scope for increasing SME engagement is across the IT and Digital, and P&FM categories.

HMRC SME and Non-SME Spend by Category in the financial year 2017 to 2018 - top 10 categories by spend

Category	Total category spend	Direct SME spend	% Direct SME spend	Non-SME spend
IT	£778 million	£56 million	7%	£722 million
Facilities	£318 million	£72 million	23%	£246 million
Professional services (other)	£125 million	£10 million	8%	£115 million
Office solutions	£61 million	£100,000	0%	£61 million
Travel	£48 million	£5 million	10%	£43 million
Professional services (consultancy and contingent labour)	£45 million	£0.5 million	1%	£44 million
Print and print management	£24 million	0	0%	£24 million
Energy and fuels	£23 million	0	0%	£23 million
Learning and development	£15 million	£2 million	13%	£13 million
Personnel related	£11 million	£1 million	9%	£10 million

3. Future procurement pipeline

3.1 IT category

Around 50% of our total annual procurement spend is across the IT category. Currently, our core IT service provision remains largely with our global partners or has been insourced whilst we continue to enhance our understanding and control of our IT estate in preparation for further disaggregation and re-procurement in approximately two years’ time when we anticipate there will be increased opportunities for the SME marketplace.

Our strategic IT pipeline includes a number of IT contracts that will collectively offer significant scope for both direct and indirect SME engagement:

Contract	Total current contract value	Expiry date
Former HMRC ASPIRE contract (supplier 1)	£5.76 billion	2020
Former HMRC ASPIRE contract (supplier 2)	£3.50 billion	2020
Former HMRC ASPIRE contract (supplier 3)	£248 million	2020
Further legacy ASPIRE contract	£90 million	2020
Customer Communication Service	£82 million	2019
CHIEF services	£14.5 million	2020

We will publish a more detailed IT pipeline as it emerges.

During the intervening period, we will continue to promote indirect opportunities for SMEs to deliver our IT Services. In 2017 to 2018, our largest IT provider awarded sub-contracts worth in excess of £50 million for HMRC work to SMEs.

In addition, we are:

• encouraging all of our Tier 1 suppliers to include ‘SME showcases’ at their annual innovation days - for example, at a recent SAS innovation day, an SME demonstrating an innovative VR
• appointing a dedicated Head of Innovation - a newly-created role with direct accountability for increasing SME engagement
• requiring our prime suppliers not only to increase their use of SMEs but also to improve data collection on their use of SMEs across our estate
• indirectly enabling a large number of SMEs to develop commercial software for end users of our services, through our API development programme
• amending our internal governance processes to ensure we ‘think SME’ at key stages of the procurement lifecycle

3.2 Property and Facilities Management (P&FM) category

Approximately 20% of our procurement spend relates to property and facilities management. Due to the nature of services in this category, engagement with SMEs is more likely to be indirect, via our prime supplier contracts.

HMRC’s substantial Building our Future Locations transformation programme forms a significant part of our P&FM procurement pipeline for the coming years. Embedded within all Building our Future Locations contracts awarded is a requirement for 33% of services (by value) to be delivered via SMEs through our main contractors’ supply chains.

While there will remain areas of spend where there is limited scope for SME engagement (such as utilities, or where HMRC is restricted by central government framework arrangements), our move to regional centres provides a real opportunity for indirect engagement via larger FM providers, as well as increased direct engagement with more local, smaller suppliers. For example, HMRC is currently in the process of sourcing a Utilities Management Bureau Supplier to replace its current offering. The annual contract value is around £80k (the total contract value is £240k), with delivery via an SME a strategic driver.

During the course of the next 12 months, the majority (by value) of our current contracting arrangements that are due to expire relate to utilities spend. The long-standing £3.6 billion contract with our PFI for serviced accommodation and total FM expires in 2021, and we will continue to work with that supplier to engage with SMEs within its supply chain throughout the contract lifecycle.

New procurement activities being undertaken during 2019 offer further opportunities to increase our indirect engagement with SMEs, those over £10 million including:

Project	Commodity	Baseline contract spend	Potential for direct or indirect spend
Soft FM - Central Area	Facilities	£63 million	Indirect
Soft FM - North Area	Facilities	£60 million	Indirect
Soft FM - South Area	Facilities	£43 million	Indirect
Liverpool - CAT B Fit Out	Construction	£25.8 million	Indirect
GPA Hubs and HMRC Locations Programme	Professional Services Other	£25 million	Indirect
Edinburgh - CAT B Fit Out	Construction	£16.5 million	Indirect
BOF Locations Programme Brexit Furniture in Leeds	Office Furniture Fixtures and Fittings	£15.5 million	Indirect
Hard FM - Central Area	Facilities	£41.3 million	Indirect
Hard FM - South Area	Facilities	£30.8 million	Indirect
Hard FM - North Area	Facilities	£24.5 million	Indirect
Bristol - CAT B Fit Out	Construction	£10.5 million	Indirect
National Security Services	Facilities	£33.1 million	Indirect

3.3 Corporate services category

The remainder of HMRC’s procurement spend falls within the broad Corporate Services category, encompassing areas such as Travel, Print, Post and Courier services, Fleet, Financial and Banking services, Consultancy, Contingent Labour, and specialist HMRC requirements.

While there are opportunities for increasing our direct and indirect SME engagement within the Corporate Services sector, the scope to do so across this particular category is somewhat limited, the reasons for which include:

• some of our larger areas of spend (such as Financial and Banking services, Travel, Fleet, Post, Bulk Printing), where it is unlikely that specific service requirements could be delivered by SMEs

• spend in certain sub-categories being delivered through Crown Commercial Service (CCS) or Cabinet Office arrangements, such that it is difficult for us to influence which suppliers sit on the associated frameworks

Within Corporate Services, however, we have considered those areas where there is potential for both direct and indirect awards. Our strategic pipeline summarises our current procurement activity along with anticipated projects up to 2021, with several priority projects relating to Resourcing, Fleet requirements and core Customs activity being undertaken during the next 12 months.

Broadly speaking, we consider that the following areas in which we will be undertaking procurement activity provide potential for SME engagement:

Potential for direct SME awards	Potential indirect opportunities for SMEs
Specialist consultancy services	Contingent labour
Expert witnesses	Specialist logistics services under the Inland Pre-Clearance prime contract
Legal services, notably litigation support	Print services
Permanent recruitment
Specialist HR services
Learning and development
Research services
Forensic services

4. Contract finder opportunities

As part of a wider government initiative, HMRC has engaged with a number of key suppliers to promote the Contracts Finder service for their own sub-contracting opportunities.

In compliance with Procurement Policy Note 01/18 (Supply Chain Visibility), subject to certain specified qualifying criteria, HMRC has updated contractual provisions which require government contractors to advertise in Contracts Finder any sub-contract opportunities that may arise during the life of the prime contract.

5. Our SME action plan

The purpose of our action plan is to outline our SME strategy and the various initiatives we are putting in place to raise the proportion of our annual procurement spend on SMEs. HMRC is committed to contributing towards the Cabinet Office target of raising the SME share of central government procurement spend to 33% by 2022.

We have focused on 5 key areas:

5.1 Promoting the SME agenda

We have been very successful in raising the profile of the SME agenda across HMRC in 2017 to 2018 and we will continue to build on this in 2019 and beyond. Our initiatives include:

• appointing Samantha Bloyce, Deputy Director for Strategic Sourcing, as HMRC’s SME champion to promote the SME agenda across the department
• carrying out a ‘buyers survey’ to benchmark awareness levels amongst our buyers, contract managers and category leads
• updating our Standard Operating Procedures to promote the SME agenda, and holding regular SME training and awareness events for our staff

• establishing a cross-functional Steering Group of Commercial ‘SME ambassadors’, which meets monthly to:

  • pro-actively identify forthcoming opportunities for SMEs across the 3 category pillars (IT, P&FM and Corporate Services)
  • promote and oversee the implementation of SME-focused initiatives, both generally and across specific, targeted sourcing events
  • stimulate ideas and innovation, share best practice and coordinate commercial activity to help HMRC to achieve its SME target
• incorporating the SME agenda into our category strategies and plans
• as part of our ‘sign on’ process for all procurement activity, requiring category leads to confirm that the SME agenda has been considered as part of the sourcing strategy and that SME-focused initiatives have been incorporated wherever possible, including the use of lotting, and assessing suppliers against a sub-contracting benchmark where appropriate
• promoting the SME agenda with HMRC business units at an earlier stage in the procurement process and supporting the formulation of business requirements to encourage increased SME engagement

5.2 Simplification of the process

We are endeavouring to make it easier for SMEs to bid for our work by:

• adopting the cross-government suite of streamlined procurement documentation and the new Public Sector Contract wherever appropriate
• reviewing and amending our own terms and conditions and procurement documentation (ITT/Terms and Conditions) to ensure they are ‘SME friendly’ and make government procurement more attractive to SMEs, including by adopting a more bespoke construction
• incorporating a contractual obligation in HMRC contracts to improve visibility of sub-contracting opportunities available to SMEs in the supply chain
• dividing our contracts into smaller lots wherever possible
• following up on the results of the survey with SMEs, asking how else we can simplify procurement documentation and processes to help SMEs further

5.3 Engagement with SME supplier community (targeted activity with SMEs)

Our aim is to improve visibility of opportunities for SMEs to contract with HMRC and our supply chain through a number of different initiatives, including:

• actively supporting the government’s ‘Open for Business’ campaign by:

  • presenting at national cross-government ‘Meet the Buyer’ events
  • working with the Small Business Crown Representative, Emma Jones; the SME panel, and SME champions in other government departments to share innovative ideas and best practice and to provide support and mentoring for SMEs interested in bidding for government work
• developing our market and supplier intelligence functions to enable our category leadership teams to engage with HMRC business units and influence upstream procurement strategy decisions at an earlier stage
• developing and publishing a commercial pipeline, which will give the market advance visibility of opportunities
• increasing our use of the internet and social media to promote and signpost opportunities
• undertaking more extensive pre-market engagement for particular procurements including using Prior Information Notices (PINs), and hosting supplier information days
• using Contracts Finder to publish opportunities over £10,000
• working with CCS to identify cross-government opportunities, share commercial intelligence (for example, on emerging markets and suppliers) and capitalise on collaborative opportunities between departments, including utilising centrally-negotiated CCS contractual vehicles such as G-Cloud
• supporting and developing the use of Dynamic Purchasing Systems wherever possible
• conducting interviews with key stakeholders to understand the areas they feel are key to improving SME spend and to discuss what has been successful in the past and share lessons learnt
• presenting to potential SME suppliers, at ‘Meet the Buyer’ events and through a series of webinars, on ‘de-mystifying public procurement and the bidding process’
• identifying upstream opportunities across business areas and hosting innovation and ‘Dragon’s Den’-style events for IT and digital suppliers

Summary

Corporate services:

• engagement with larger suppliers and SMEs
• early identification of potential areas for high direct spend

IT:

• disaggregation of IT contracts
• monitoring and pipelines
• ‘Dragon’s Den’ concept
• innovation (smart technology, robotics, apps)

Property and facilities management:

• strategic use of lotting and key performance indicators (KPIs)
• creation of regional centres
• client direct packages/minor works
• engagement with larger suppliers and SMEs
• supply chain mapping

5.4 Supply chain activities

Our aim is to increase our indirect spend on SMEs through our supply chain wherever possible. Our initiatives include:

• working with CCS and a number of our key suppliers to use Contracts Finder to advertise sub-contracted opportunities
• as part of a CCS-led initiative, obtaining SME data on indirect spend directly from our suppliers, and making reporting on SME spend a contractual requirement for all of our new key suppliers
• influencing our large contractors to develop their SME networks and eco-systems
• making SME engagement (including development plans and targets) a standard agenda item at Supplier Relationship Management (SRM) meetings with key HMRC suppliers

5.5 SME spend targets (enhanced data)

We are implementing a number of initiatives to improve SME data collation, review and reporting, including:

• investing in technology and resources to facilitate SME data collation and to ensure our SME data reporting is accurate and comprehensive
• developing a procurement pipeline to enable us to understand future contractual commitments and better inform our SME spend forecasting
• creating an SME performance hub, which tracks progress against our direct and indirect spend targets and is reviewed by our Chief Commercial Officer and Commercial Senior Leadership Team (SLT) on a monthly basis, and by our Chief Finance Officer (CFO) quarterly

6. Risks to delivery of the plan

We recognise that notwithstanding our extensive programme of targeted activity to increase SME engagement, participation in sourcing events and, ultimately, spend, there are a number of challenges to be overcome. The most significant of these include:

• there are exclusivity agreements under some of our larger and longer-term legacy contracts across IT, Digital and P&FM that preclude re-procurement at the current time
• some of our critical services require 24/7 business continuity across key parts of our IT estate, which some SMEs would struggle to support

Our aspirational SME spend targets across certain areas are, therefore, largely based around indirect spend and we are, therefore, working with our key suppliers to promote the SME agenda through the supply chain.

An additional challenge, which in many respects demonstrates the ‘success’ of our SME strategy, is that of a number of our existing SME suppliers have been reclassified. These suppliers, who have now been awarded a significant amount of work across government, no longer meet the definition of SME and hence our procurement spend with them no longer contributes to our SME spend target.

Our action plan recognises the need to identify opportunities that are suitable for SME participation at a sufficiently early stage in the pre-sourcing process to enable targeting of SME-focused activity towards particular procurements.

This exercise will be facilitated by the development of a comprehensive procurement pipeline and by our newly-formed category leadership teams engaging with their HMRC business counterparts much earlier, and highlighting opportunities that are likely to be suitable for and of interest to SMEs.

While we are committed to providing more opportunities for SMEs, we are unable to guarantee that there will be new, different, or a greater number of opportunities for SMEs over the coming months or years, or that any such opportunities will result in increased SME participation or spend with SMEs, or that a particular contract or a specific number of contracts will be awarded to SMEs.

Neither the issue of this SME Action Plan, nor any of the information presented in it, should be regarded as a commitment or representation on the part of HMRC (or any other person) to enter into a contractual arrangement or to proceed with a procurement.

7. Get in touch

Email Samantha Bloyce, Deputy Director, Head of Strategic Sourcing and SME Champion, HMRC Commercial Directorate.

Go to Annex 1 - summary of proposed activities

1. See Procurement policy note – further measures to promote Small Business procurement. The UK government adheres to the EU definition of an SME, which is: micro-business = less than 10 employees and turnover under €2 million; small business = less than 50 employees and turnover under €10 million; medium-sized business = less than 250 employees and turnover under €50 million. ↩

2. See Procurement Policy Note – Reforms to make public procurement more accessible to SMEs ↩

3. HMRC’s reported SME spend for 2017 to 2018 includes an extrapolated figure in respect of its indirect SME spend, calculated and applied by Cabinet Office. See Central government direct and indirect spend with small and medium sized enterprises 2017 to 2018, published 2 May 2019 ↩

4. ‘Uncategorised’ spend (£79 million in 2017 to 2018, 5.1% of our total procurement spend) has been excluded from the table. This is spend that presently does not have a ‘natural match’ to a CCS sub-category in our spend analysis tool; a data cleansing exercise is currently being undertaken to rectify this. ↩