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Row over contracts awarded to small firms

The Federation of Small Businesses has challenged the Scottish Government over its claims that SMEs win a higher share of public contracts in Scotland than in most EU countries.

PROCUREMENT: Galen Milne, of Glasgow-based Thistle Scientific, which supplies university labs. Picture: Colin Templeton
PROCUREMENT: Galen Milne, of Glasgow-based Thistle Scientific, which supplies university labs. Picture: Colin Templeton

According to analysis by government officials, Scotland awards 46 per cent of public contracts by value to SMEs, when the UK Government has only just set a target of 25 per cent.

Responding to the launch last week of The Herald's campaign on small business issues led by public procurement, a government source said: "Given that SMEs account for around 37 per cent of Scotland's economy (44 per cent when adjusted for oil and gas) SMEs in Scotland are already successful in competing for public contracts. Very few EU countries have a higher level of spending in their SME sector."

But the FSB said the term ­"Scotland's economy" included all economic activity including the public sector, while the term "SME" covered 99 per cent of businesses in Scotland. "The argument that large businesses win a lot of public contracts because they contribute a lot to UK GDP is very strange," said the FSB's senior adviser Stuart Mackinnon. "Further, devolved spending isn't comparable to UK spending or other countries' spending — specifically, we're not paying for defence and some welfare."

He said procurement spending with micro-businesses, which accounted for 94 per cent of companies and 29 per cent of jobs in Scotland, was only four per cent of the total.

Mr Mackinnon said: "SME is too broad a term to be useful in this debate. That's why we've been arguing for buyers to break down their spending by micro, small and medium sized business. Broadly put, the smaller the business, the less likely you are to win public contracts."

Official figures show SMEs account for 55 per cent of private sector employment.

MSPs last week approved Scotland's procurement reform bill, which the Scottish Government says will be a framework to support economic growth. Small business campaigners welcome the bill's provisions for making contracts more accessible to SMEs. But they also question how effective it will be in changing the cost-saving mindset of hard-pressed public bodies and in countering the power of big companies who dominate buying "frameworks".

The committee examining the Holyrood bill reported that while the university procurement body APUC had set up 136 framework agreements, 37 per cent of contracts had been let by a purchasing body outside Scotland, and of the 152 suppliers listed on those frameworks only five were Scottish firms.

Galen Milne, whose Thistle Scientific business in Glasgow supplies university labs, said: "Tenders are written in such a way that they favour large suppliers with 400,000 items in their catalogue rather than a company like us with 10,000."

Mr Milne, one of many individuals who responded to consultation on the bill, added: "Politicians I think get it, even in Europe they get it, the issue has been trying to get the message out to be properly implemented by the procurement professionals."

Another was Colin Kirkpatrick, a director at James Wilson grocery wholesalers in Orkney. He said that although the council had joined the government's procurement system it still appeared to award most contracts locally, though at lower prices. "It seems to be more and more bureaucratic," he said. "The frozen food contract we tendered for over a year ago had a tender document of 18 pages, this year's frozen food contract is 70 pages long."

A Scottish Government spokeswoman said: "According to Scottish Government figures, the SME share of direct public procurement spending in Scotland is 46 per cent of the £10 billion we spend each year."

"However, very small businesses have no obligation to publish employment figures, therefore it is difficult to equate how much of this spend is made up by micro firms.

"Given that SMEs account for around 37 per cent of Scotland's economy (44 per cent when adjusted for oil and gas), SMEs in Scotland are already successful in competing for public contracts. Very few EU countries have a higher level of spending in their SME sector."

A Scottish Government review of construction procurement last October found: "When used inappropriately, UK-wide frameworks .... can have the effect of preventing SMEs from participating in public procurement."

Andrew Dixon at the Federation of Master Builders said: "We are seeing an increasing trend towards framework agreements and bundling of small contracts, that used to be bread and butter to small local construction firms, into larger packages that are beyond their reach."

He added: "We understand the reasons why they went down that route. But the social and economic damage it causes is that you lose all those local employers."

Meanwhile the Scottish Building Federation, lead voice of the industry, last year found that the annual cost to the Scottish construction industry of participating in public procurement was almost £100m, or 4.4% if the estimated total value of public building contracts.

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