Offering transparency, equal opportunity and liability within public sector procurement, the act, passed in 2023, is planned to come into force this October. How will it change things for SMEs?

Whatever happens with the election this year, we can be fairly sure of the practical introduction of the Procurement Act 2023 given that it already received Royal Assent in October 2023. With an implementation date prescribed for 28th October 2024, it is intended to revolutionise and modernise public sector spending, through an overhaul of procurement rules and procedures.

For the purpose of this update on the Procurement Act 2023 then, and its impact on SMEs specifically, what size of organisation are we referring to here? Quite simply – the Act states that to qualify as an SME, businesses must have “fewer than 250 staff AND a turnover of less than or equal to £44m OR a £38m total on the balance sheet”.

To summarise, The Crown Commercial Service (CCS), which plays an active and valued role in public purchasing through their frameworks, has admitted that improvement is required to increase the share of work to SMEs versus existing proportions. To put this into perspective, UK public procurement spend was £379bn in 2021/22 alone.

With this in mind, we can agree that public spending is a big deal. We can also agree that SMEs (despite their vital contribution to the UK economy) are on the receiving end of a woefully disproportionate share of that revenue. In 2021/22, the same year as referenced in our previous paragraph, SMEs were awarded a measly 21% of public procurement spend.

Why is this?

Well, Alison Ring OBE FCA, Director for Public Sector and Tax at ICAEW, recommends that UK small businesses face heavy competition from much larger organisations who are in the running for the same government and public body contracts.

Despite the obvious benefits associated with diversifying public supplier bases, Ring explains that “there remain many bureaucratic obstacles in the way of smaller businesses and social enterprises achieving success with their bids. This needs addressing too, if the government is to achieve its objectives here.”

So what is the plan?

Ultimately, following the UK's exit from the EU, the purpose of the Procurement Act 2023 is to overhaul and improve public procurement.

To create a simpler and more transparent spending regime with modernised protocols in mind such as “value for money, public good, transparency, integrity, equal treatment and non-discrimination”, per the Green Paper procurement principles published in December 2020, named ‘Transforming Public Recruitment'.

How will this impact small businesses?

The intention of these reforms is to create more opportunities for small businesses to feature within public procurement via simplified buying processes, designed to simultaneously provide public bodies with access to the same levels of service and innovation as you'd typically find in the private sector.

The NPPS (National Procurement Policy Statement) readily acknowledges the essential contributions made by SMEs to their local communities and the underpinning of domestic economies too – supporting the notion that therefore more should, and could, be done to support these businesses through public contract opportunities. They advocate for this by eliminating previously insurmountable barriers within the public buying process, such as ‘unachievable' supplier requirements and criteria, which previously called time on any serious tender bid carried out by an SME at the very first hurdle. Secondly, the NPPS recommends avoiding the use of suffocating clauses within their tender processes and contractual agreements with suppliers.

The Spend Network is also firmly behind the reform, advising that proof of required insurance policies and the provision of company financial statements are now only mandated upon the successful bid for a given contract. Previously, this had been a costly barrier to entry for SMEs, as they simply couldn't afford to risk the financial outlay without certainty of being given the work. Secondly, the Act dictates contract lots as a method of refining the buying process. This allows for SMEs to compete and negotiate directly for smaller pieces of work on an exclusive, more flexible basis, versus being faced with tendering for a seismic, nationwide contract – a prospect that would have often been impossible to facilitate for the majority of small businesses here in the UK.

To further support SMEs, The Cabinet Office has stipulated that the reform will include the government's prompt-payment policy, vast improvements in the visibility, education and access to tenders, publication of SME data and successes to inspire the continuation of progress in this initiative, and in general, proactively championing SMEs in public procurement.

a pipedream or distinct possibility?

Truth be told, there is of course still some way to go until we can declare SMEs as frequent and wholly competitive participants in applying for, and winning, public contracts. This stands to reason not only from the viewpoint that the Procurement Act 2023 will take time to understand, implement and develop confidence in the eyes of the buyers, but also in that SMEs themselves will undoubtedly have considerable work to do in familiarising with these new avenues of opportunity and developing the competitiveness of their tender application processes, and their businesses, accordingly.

In the long-term, the government aspiration is to establish total parity in the contentious field of public buying and supplying. The hope is to finally pave the way for SMEs to feature strongly in a mixed field of innovative, dynamic and forward-thinking businesses supplying public bodies with their goods and services – not reserved only for the smaller, bit part contracts, but the large ones too.