Majority of government's SME spending goes through big firms first

Cabinet Office boss John Manzoni receives grilling from Public Accounts Committee

Around 60 per cent of government's overall spending with SMEs is subcontracted through larger firms first, it emerged in a government meeting this week.

A Public Accounts Committee (PAC) meeting about how the government works with smaller companies took place on Monday, during which permanent secretory for the Cabinet Office John Manzoni was questioned.

Doing more business with smaller suppliers across government has been high on the agenda since the coalition government was formed in 2010. The supply of IT has come under intense scrutiny over that period, with initiatives such as the Digital Marketplace and the G-Cloud framework set up with this aim.

Nigel Mills, Conservative MP for Amber Valley in Derbyshire and PAC member, addressed Manzoni about SME procurement across the whole of government.

"When we promised that we would give a lot more work to small and medium-sized businesses, I have a feeling that people probably thought that we meant that we would give it directly to them so that they would be contracting with the government," he said. "Whereas in actual fact, most of this work - probably something like 60 per cent of it - is through a prime contractor that feeds the work on.

"I sense that a lot of small businesses aren't happy that some of the public sector pay for the work they do is creamed off by a prime contractor that then inflicts some other rather unfair terms on them. Do you actually think that it is a success when 60 per cent of the work that we give to SMEs is through somebody else first?"

Manzoni replied and said he thinks the figure is "fine".

"Do we have more to do? Yes," he said. "We did business with 26,000 small and medium-sized enterprises last year, and we have worked with 85,000 different companies since we started counting in 2011, and I don't think it is feasible for central government to interact individually with that number at that level - there are 5.5 million of them in this country.

"I believe there is a natural supply chain, and we have lots to do to encourage our supply chain not to hold cash and pay at the last minute, and all those sorts of things. We have to work very hard on that, but I don't think that a picture where we contract directly with all those small and medium-sized enterprises is a reasonable picture to paint."

Richard Blandford, managing director of IT SMB reseller Fordway, said the G-Cloud framework model could improve government procurement if rolled out more widely.

"CCS frameworks are very closed in a lot of cases," he said. "If you're not a prime contractor, you have to go in as a sub-contractor and the government ends up paying more because the prime contractor takes a percentage. As a general rule, the G-Cloud and Digital Outcomes tender is, in our view, a good model for public sector frameworks."

Elsewhere in the PAC meeting, Manzoni faced questions about big IT deals. National Audit Office boss Amyas Morse claimed that 51 per cent of the government's IT spending goes to the top-five IT suppliers, with 65 per cent going to the top 10. He asked Manzoni if, over time, more will be done to break up the big deals.

"That trend is very clear," Manzoni said. "The stats are like they are because we are still only in the early stages of disaggregating the big monolithic IT contracts that have been a part of the landscape for a decade. We have done a few - not many.

"What is happening today in HMRC with the Aspire contract is an example. It's happening in DWP, which is now coming up to the same stage. We can address them only as they come up for expiry, because it's at that point that we can disaggregate them and re-contract them in a different way."