SMEs need more state support

A joint report from the government’s Better Regulation Task Force (BRTF) and the Small Business Council (SBC) has warned of the need for a level playing field to help SMEs win public sector contracts.

In his Budget, Gordon Brown emphasised the value of small businesses to the economy. But according to the report’s authors, little is being done to encourage small firms to win government contracts.

‘It’s no use saying that SMEs are vital to the economy, and in the same breath say they are too risky to do business with,’ said Teresa Graham, chair of the BRTF and SBC sub-group and partner at Baker Tilly.

Currently, large IT services firms, such as EDS and Capita, are awarded the majority of central government contracts. But the importance of small firms should not be underestimated, claimed Tola Sargeant, analyst at research firm Ovum Holway. ‘Many of the smaller firms have specialist knowledge that larger firms simply do not have,’ she said.

The Office of Fair Trading is considering applying special rules to markets, such as technology, where small businesses are vital in developing competition and innovation.

Such rules could ensure public sector contracts stipulate that a minimum percentage of the work should be awarded to small businesses. But Sargeant said these rules may be difficult to enforce. ‘It would be a massive logistical exercise trying to measure where contract wins have gone through sub-contracting.

The best chance for small businesses to win this business may be as part of a consortium,’ she said.

Small companies would also be helped by making it easier to submit tenders, and providing training to help them improve their bills, according to Graham.

Ovum Holway predicts that public sector IT spending is set to rise by 9% until 2005, in contrast to private sector spending, which looks as if it will remain static.

A decision on the recommendations is expected within two months. An OFT spokesman confirmed it was currently studying the report.

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