SME action plan 2018 to 2019
Published 28 January 2019
© Crown copyright 2019
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1. Introduction to MHCLG
The Ministry of Housing, Communities and Local Government’s job is to create great places to live and work, whilst giving more power to local people so that they are able to shape what happens in their communities.
MHCLG has 6 ministers who set and direct strategy and implementation of our policies and account for them to Parliament and to the public, led by Secretary of State the Rt Hon James Brokenshire MP.
The MHCLG Board, chaired by the Secretary of State and attended by our ministers, non-executive directors and the executive team, advises and supports ministers on the operational implications and effectiveness of policy proposals, oversees the progress of our work programmes and makes sure that MHCLG is equipped to successfully meet its commitments.
The core responsibilities of MHCLG focus on:
- driving up housing supply
- increasing home ownership
- devolving powers and budgets to boost local growth in England
- supporting strong communities with excellent public services
MHCLG’s single department plan sets out how MHCLG is performing against its objectives.
MHCLG publishes extensive data, relating to its corporate activities including expenditure, on its website.
2. Background
What is an SME?
Micro, small and medium-sized enterprises (SMEs) refer to businesses whose personnel numbers and turnover fall below certain limits. According to the European Commission these limitations are defined as “enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro.”
3. Target
This action plan outlines MHCLG’s commitment to contribute to the wider central target of raising the share of central government procurement spend with SMEs to 33% by 2020.
This target includes both direct and indirect spend with SMEs. Currently MHCLG Group which includes the core department, Planning Inspectorate and Homes England, reported that 22.8% of its total spend was made to SMEs during 2017-18, a very small decrease of 0.1% from 21.9% reported for the previous year 2016-17 (Table A).
Based on the trend over the previous 2 previous financial years, MHCLG Group has set a target for an increase of 0.5% in SME spend each year, until the financial year 2021-22. This target is expected to be revised during 2019 as the department develops its commercial blueprint and detailed commercial pipeline which, it is envisaged will provide a clear indication of future spend commitments. Spend data for MHCLG core only relates to spend MHCLG manages and can directly influence (Table B).
Table A: SME spend data for MHCLG Group
| Financial year | Total procurement spend (£m) | Direct SME spend (£m) | Direct SME spend as % | Indirect SME spend (£m) | Indirect spend as % | Total SME spend (£m) | Total SME spend as % of total procurement spend |
|---|---|---|---|---|---|---|---|
| 2015-16 | 253 | 49 | 19% | 5 | 1.9% | 54 | 21.2% |
| 2016-17 | 165* | 25 | 15% | 13 | 7.7% | 38 | 22.9% |
| 2017-18 | 156* | 29 | 18.6% | 7 | 4.2% | 36 | 22.8% |
*Total procurement spend, has reduced significantly due to Machinery of Government changes which moved MHCLG fire policy related spend to Home Office and also MHCLG’s adoption of Ministry of Justice estates management service resulting in circa £25 million p.a. being managed by the Ministry of Justice.
Table B: SME spend data for MHCLG Core only
| Financial year | Total procurement spend (£m) | Direct SME spend (£m) | Direct SME spend as % | Indirect SME spend (£m) | Indirect spend as % | Total SME spend (£m) | Total SME spend as % of total procurement spend |
|---|---|---|---|---|---|---|---|
| 2015-16 | 133 | 9 | 6.6% | 3 | 2.4% | 12 | 9% |
| 2016-17 | 60* | 6 | 10.3% | 4 | 7.1% | 10 | 17.4% |
| 2017-18 | 55* | 9 | 16% | 2 | 3.1% | 11 | 19.5% |
*Total procurement spend, has reduced significantly due to Machinery of Government changes which moved MHCLG fire policy related spend to Home Office and also MHCLG’s adoption of Ministry of Justice estates management service resulting in circa £25 million p.a. being managed by the Ministry of Justice.
4. SME action plan
Current actions being taken to improve SME spend figures
1. The Crown Commercial Service (CCS) and MHCLG’s procurement function take active steps to ensure that SMEs are made aware of all procurement opportunities.
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Large suppliers who are successfully rewarded government contracts are now required to advertise all subcontracting opportunities on Contract Finder. This allows SMEs further opportunity to engage with the department’s procurement process indirectly.
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CCS ensures that their framework contacts have, where possible, SME representation.
2. The procurement process and documentation have been synthesised so that they are user friendly.
- In house procurement templates have been revised and improved with the aim of ensuring documentation issued to suppliers is clearly written and constructed.
3. MHCLG’s procurement function undertakes pre-market engagement activities that seek to promote forthcoming procurement events and also gather feedback from potential suppliers. This is viewed as a key method of ensuring SMEs, as well as other potential suppliers, participate in procurements.
- The awarding of a post production video editing service to an SME with a contractual value of £340,000 shows the effectiveness that pre-market engagement can have.
4. Consideration is given to how requirements, when possible and appropriate, might be ‘lotted’ or disaggregated i.e. structured/sub-divided so as to appeal to SME suppliers.
- The department’s ‘IT Modernisation’ programme provides a clear indication to the benefits of ‘lotted’ contracts. The departments ICT Services are currently provided under a single contract with Fujitsu. By delivering this procurement via multiple contracts it opens up the opportunity for SMEs to tender. The benefits in relation to increasing SME spend has started to materialise with a contract to provide a new ICT Service Desk for the department, valued at approximately £2.2 million, having just been awarded to an SME (Little Fish UK Ltd).
5. A procurement manager from MHCLG attends the Cabinet Office led ‘SME Champions Board’ and provides information and guidance to the wider team. Performance of suppliers on prompt payment to their subcontractors promptly is being included as part of the technical assessment criteria in major government contracts. The objective being to identify and possibly exclude bidders that fail to pay SMEs promptly. Prompt payment of subcontracts increases market competition and SMEs ability to tender.
6. Certain requirements are actively promoted directly with SME suppliers and suggestions, such as forming consortia to bid collectively for larger contracts, are made.
Future actions that need to be taken to improve SME spend figures
1. MHCLG needs to create SME spend targets for each financial year until 2020 as well as develop a comprehensive commercial blue print and pipeline to 2022. MHCLG has not previously had the information to be able to provide such analysis. However, it is currently developing both areas to fulfil departmental obligations. While this information is being prepared, the procurement team has based its SME spend targets on the overall trend identified through historic figures; these broadly point to an annual increase of circa 0.5%
2. There needs to be further engagement with the SME business community. MHCLG procurement team will aim to improve market engagement with SME through activities such as supplier days, webinars and mentorship schemes. These are recognised as valuable ways in which to engage with SME suppliers.
Challenges to improving the SME spend figures
1. The key challenge with this initiative is that no department has any actual control on spend it can make with SME organisations. This is due to European Union public procurement legislation and the need to maintain competition and transparency within the market. It is not possible therefore to guarantee that government contracts, of any significant value, can be restricted for award to SME organisations.
2. SME spend figures are temperamental. A number of factors influence the actual spend with suppliers e.g. duration of contracts, volume of activity within a contract and the changing status of a supplier.
- A significant example of this is the reclassification of Redfern, the department’s travel management supplier. This supplier’s growth over the last few years means that it is no longer classified as an SME. This will result in a reduction of approximately £1.5 million of the department’s total reported direct spend with SMEs for the 2017-18 financial year.