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Business chiefs call for radical change to help firms

MSPs will tomorrow approve new legislation intended to boost economic growth by helping small local businesses win a fairer share of Scotland's £10 billion of public spending.

Success: Stephen Park Brown, managing director of Lanarkshire IT services company NVT which has won several public agency contracts.
Success: Stephen Park Brown, managing director of Lanarkshire IT services company NVT which has won several public agency contracts.

It follows years of campaigning to reform a public procurement system seen as biased in favour of large UK companies.

But business groups are questioning whether the bill will succeed in changing the behaviour of hard-pressed public bodies focused on cutting costs.

They are also critical of the exemption from the Procurement Reform Bill of a range of quasi-public bodies including the five regional HubCos which are currently responsible for public infrastructure worth £1billion.

The Herald today begins a campaign to rescue SMEs from key roadblocks which are preventing them from making a bigger contribution to economic growth in Scotland - starting with procurement.

Nicola Sturgeon, minister responsible for the bill, says it requires authorities to "consider how the procurement process can improve the economic, social and environmental well-being of the authority's area, facilitate the involvement of SMEs and promote innovation".

Stuart Mackinnon, senior adviser at the Federation of Small Businesses in Scotland, said: "Just passing a law then leaving everyone to get on with it rarely addresses big, deep-seated problems like procurement.

"What we need is cultural change, where public buyers are encouraged to focus on the best possible outcome, look behind the lowest price and understand the impact on the local economy."

Of the £4bn spent by local authorities in 2012-13 only 27 per cent was spent with businesses within their own areas, even lower than the UK-wide figure of 31 per cent.

Scotland's micro-businesses with under 10 employees make up 94 per cent of companies in Scotland. They provide 30 per cent of the jobs, but get only 7 per cent of the public procurement cake.

Yet according to research for the Federation of Small Businesses, every pound spent with a local small business generates 63p of extra benefit to the local economy compared with 40p when spent with other firms.

The FSB says that if every local council spent an extra 5 per cent of its budget locally and committed just 3 per cent more to local firms, it would generate an extra £788m a year in local economies.

Stephen Park Brown, managing director of Lanarkshire IT services company NVT, says although the Scottish Government says SMEs win 74 per cent of contracts advertised on the national online portal Public Contracts Scotland, the figures are misleading. Mr Park Brown, whose company has won a string of high-profile public agency contracts let outside the government framework, says the Scottish Government's agency Procurement Scotland is "about the biggest exporter of public-sector cash" due to its awards to non-Scottish companies.

The FSB agrees that measured by value, only 40 per cent of contracts go to companies with up to 250 employees - or 99.2 per cent of businesses in Scotland.

Equally misleading is that the government's SME definition includes any unit based in Scotland, even if it is part of a multinational corporation

Of the £9.7bn spent by public bodies in 2013, local authorities spent over £4bn, Mr Mackinnon said. "How they react to the content of the bill will be hugely important. "They have recently been setting up a lot of ALEOs (arm's-length organisations) and said those will be excluded from the duties associated with the bill."

Also exempted are the five regional HubCos, which deliver schools, health centres and other infrastructure for the Scottish Futures Trust.

The SFT says the HubCos' key performance indicators include community benefits in recruitment, training, and opportunities for SMEs to tender for work.

But a Scottish Government review last October of construction procurement said: "We found repeated concerns about the practice of awarding main contracts for small projects to large firms who then immediately sub-contract to smaller firms.

"This can build in an unnecessary layer of overhead and profit.

"Smaller firms have also told us that in such circumstances they are often getting a raw deal from acting as a sub-contractor."

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