The Challenge
The Commission believes that the public sector must be opened up so that the private sector is seen as a vital partner. Public sector procurement should be made more amenable to SMEs in Wales as the amount of funding that is available through public sector contracts dwarfs any grants or financial support that the public sector can offer Welsh firms.
The Evidence
According to recent research[1], the public sector in Wales spends £5 billion per annum on goods and services (with 31 per cent spent on goods, 50 per cent on services, 14 per cent on capital and 5 per cent on food). Local government is the largest spender, accounting for approximately 44 per cent of the total, followed by health 28 per cent and education 10 per cent. Whilst the Welsh Assembly Government is on record in stating that 50 per cent of this spending goes to firms based in Wales, there is no data available as to the level of spending within Welsh SMEs, although this is expected to be far lower.
The Way Forward
As the FSB (Federation of Small Businesses) in Wales has suggested, there needs to be a proactive culture of preference for Welsh companies to help develop the indigenous SME sector. The Commission therefore recommends that the Welsh Assembly Government should set targets, as the US Federal Government has done through its Office of Government Contracting, for spending its annual budget with local small firms. It should also explore whether some procurement exercises can be reserved exclusively for the SME sector.
Case Study
The OFFICE OF GOVERNMENT CONTRACTING (USA)
The Office of Government Contracting (GC) works to create an environment for maximum participation by small, disadvantaged, and woman-owned businesses in federal government contract awards and large prime subcontract awards. GC advocates on behalf of small business in the federal procurement world. Each year, the US government spends billions of dollars in goods and services purchases from private firms. To foster an equitable federal procurement policy, government-wide small business goals, in terms of a percentage of annual expenditure, are established for federal agencies. The Small Business Administration (SBA) negotiates the goals annually with each federal agency on an individual basis and the overall small business goal is 23 per cent. Under the Small Business Act, federal agencies conduct a variety of procurements that are reserved exclusively for small business participation. For example, the Small Business Reserve Programme requires state agencies to reserve 10 percent of its contracting dollars for bid solely by small businesses i.e. small businesses will be able to bid for public contracts without competing with larger, more established businesses. For all procurement actions expected to exceed the $100,000 simplified acquisition threshold, prime contractors are required to make a "best effort' attempt to make use of small, disadvantaged, and women-owned small businesses as subcontractors if the opportunity exists under the contract. For procurement actions expected to exceed $550,000 ($1 million for construction), the winning contractor is required to provide the agency’s contracting officer with a written plan that establishes a small business subcontracting goal. The plan details how the winning contractor will make use of small business in each subcontract category and provide for timely payments. GC also administers several programmes and services that assist small businesses in meeting the requirements to receive government contracts and plays a major role in the formulation of federal procurement policies that affect small businesses.
[1] Ringwald, M. et al. (2009) Barriers to Procurement Opportunity Research, Report prepared for Welsh Assembly Government – Value Wales.
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