Director logo
procurement
The tender trap
by Peter Bartram

Politicians want more public-sector contracts to go to small businesses. But small businesses are often reluctant to submit public-sector tenders. What's the solution?

Being turned down for business you've worked hard to win is never easy. But, for a small company pitching for a public-sector contract, the frustration can, it seems, be intense.

Ken Jacobson, CEO of Vistage, a networking organisation for chief executives of small and medium-sized enterprises (SMEs), has bitter experience of bidding for public-sector contracts. Last year, he led a consortium of partners bidding for a training contract from the London Development Agency. Over a period of months, up to 10 people spent as much as a fortnight each working on the bid. It failed.

Jacobson found the process unfairly opaque. "We didn't really know what we were aiming for because there was no indication of budget. We put our toe into the water and quoted a figure we assumed a body would pay for our service. I think the way we were asked to tender was a really poor way of doing it."

For some, the irksome nature of the public-sector procurement process rankles for years after. George Shaw, now managing director of advertising and communications company Avocado Media, recalls his experience with a London borough council while running advertising agency Joslin Shaw. He'd bid for many council contracts but always unsuccessfully. He says: "In a final act of desperation, before vowing never again to submit a public-sector tender, I completed one, under invitation, from Islington, my own local authority. The terms stated that selection was purely on the grounds of cost and that no other factor would be taken into consideration. The authority wanted to know what percentage of negotiated media discounts would be rebated to it, what element of the agency's media commission would be kicked back and what the hourly cost, if any, would be for creative and production charges. I completed a lengthy tome offering to rebate 100 per cent of media discounts, the entire 15 per cent agency commission and [stating] that no other charges would be made. I volunteered that the agency's income would be derived from bank interest and the ability to secure other local authority accounts on the strength of their reference. We did not win the business and the incumbent agency kept the account. I can only conclude, from the authority's express terms, that the agency must have been paying the council for the privilege of working for it."

Stories such as these discourage thousands of SMEs from even attempting to bid for public-sector contracts. Those who've been through the process claim that it's weighted heavily in favour of larger companies, with no consideration given to the fact that smaller enterprises have fewer resources to complete lengthy tendering documents.

"The smaller the enterprise, the greater the proportion of available time and resource the effort required to submit a competitive tender is likely to represent," says Colin Coulson-Thomas, professor of direction and leadership at Lincoln University and a member of the IoD's accreditation committee and its board of examiners. Coulson-Thomas, whose books, such as Winning Companies: Winning People, have made him one of Britain's leading academic specialists in bidding for business, adds: "Public-sector procurement teams have a penchant for asking bidders to state their formal policies on matters such as diversity. This can put up the cost of a first bid. And many of those selecting suppliers instinctively play it safe by opting for an established name."

Stephen Alambritis, the chief spokesman for the Federation of Small Businesses, complains: "The biggest barrier by far for small businesses looking to get public-sector work is the amount of bureaucracy involved. The problem is that procurement in the public sector is carried out largely on a one-size-fits all basis. One size does not fit all."

Alambritis adds: "Public procurement officers cannot be allowed to simply replicate the procedures they put in place for big companies when they deal with small businesses. Small businesses can offer so much, but they don't have the manpower or the expertise to deal with complicated procurement procedures."

Further, says Alambritis, SMEs only win about two per cent of the public sector's annual £100bn business in the UK, even though SMEs account for more than 50 per cent of Britain's GDP. So should the government guarantee that SMEs win a fixed portion of the business, either directly or through sub-contracts, as happens in the US? It's a moot point. Two years ago, in a move designed to head off criticism that SMEs were being frozen out of public-sector contracts, the government launched a Web portal called Supply2.gov.uk. The site provides a central source of information for smaller public sector contracts, typically valued at less than £100,000. Since it was launched, around 70,000 contract notices have been published.

But critics point out that it's not compulsory for public-sector bodies to register their contracts on Supply2.gov.uk and there is no evidence the site has so far made a significant impact on the total proportion of public sector contracts won by SMEs. "If local procurement officers were compelled to advertise contracts on the site, small businesses would have a better chance of gaining public-sector work," says Alambritis.

Shadow chancellor George Osborne has said that his "aspiration" is to see SMEs winning 25 per cent of government business. But Osborne is yet to spell out how this aspiration will be turned into reality and it's difficult to see how the proportion of business going to SMEs could be ratcheted up from two per cent without formal quotas. Certainly, warm words won't do it.

Which means that—for the time being at least—SMEs that want to win public sector business need to learn how to be cleverer at playing the system as it is. Charlie Osmond, chief executive of £6.7m-turnover research and recruitment consultancy FreshMinds, agrees SMEs often waste their time applying for contracts that they stand little chance of winning, but promises "rich pickings" for those companies who know how to go about it. Osmond, whose firm has won business from the Treasury, the Foreign and Commonwealth Office, and the National Audit Office, says that many of his best contract wins emanated from Supply2.gov.uk. But he warns: "It's important to be selective when tendering for government work so that you balance the risk/reward ratio correctly.

"The tendering process for government work can be extremely time-consuming and potentially risky as, often due to the nature of government procurement, you'll find yourself pitching blind. Briefs are frequently done by letter, budgets aren't disclosed, and your requests for dialogue will go unanswered."

Osmond points out that many government departments also insist suppliers comply with regulations or standards, such as ISO 9001. "So be prepared to make some investments and ensure that all your internal policies are up-to-date and in-line with best practice," he says.

Osmond is one of many directors who say that Office of Government Commerce (OGC) "framework agreements"—which define the terms of a contractual relationship with suppliers for a period of time—can make it very difficult for SMEs to break into a market. "Sadly, framework agreements are often dominated by big players that offer government departments very little in terms of specialist skills," says Osmond.

He adds: "Changes to the way frameworks are compiled and a renewed focus upon the importance of specialisation, creativity and innovation would go a long way to freeing up the government contract market for SMEs and providing greater choice for government buyers."

Matthew Gingell, business development director at wireless network specialist MLL Telecom, has gone through the pain of winning certification for the OGC's telecoms networks framework agreement. He says: "The whole premise of the OGC framework is that public-sector organisations can buy from a catalogue. Re-formatting your organisation's offer to fit the strict rules of the OGC purchasing procedure takes 10 times longer than you can possibly imagine. For MLL, it has been a 16-month journey."

Gingell advises any company registering under a framework agreement to appoint a "champion". He says: "Make sure one person has the job of achieving OGC certification as their sole management target. It is a major project." And he warns: "Abandon any normal negotiation tactics. This is an agreement under which, as a private-sector organisation, you accept the government's contract terms as given."

Many directors complain about the length of time it takes to get public-sector bodies to reach decisions. Neil Thompson, CEO of £300,000-turnover AppSwing, which markets a technology that allows computer applications to be accessed by mobile devices such as a BlackBerry, spent three years in discussions and negotiations with a Scottish local authority. He says: "Local authorities are large organisations, and their structures are complex." But he reckons public-sector bodies are good payers and work hard to make a project successful. "They are also very good at providing references, as they have a close-knit community."

Richard Tyrie, co-founder of £4m-turnover HR services and talent management company JGP, is another business leader who has found it tough. Invitations to tender are so prescriptive, he says, they leave little room for creativity or innovation. "We have learned to win tenders by tailoring proposals and presentations to ensure that the appropriate 'boxes are ticked' when being scored by a commissioning body. But it would be beneficial if the tendering organisation could gain more visibility of the tender scoring criteria."

Not all SMEs believe public-sector tendering is prohibitively tough, though. "Government agencies are using public money, so they need to have the information necessary to ensure companies are financially robust and well managed, that there are no criminal records or history of poor client retention, and that the experience of the staff is relevant," says Sara Render, CEO of the £2m-turnover PR company Kinross & Render, which has won contracts from the Maritime and Coastguard Agency, Ordnance Survey and the Highways Agency, among others. "Can you imagine the fuss in the newspapers if something went wrong as a result of weaknesses in the supplier company?"

She agrees public-sector tendering is time-consuming but suggests: "It gets easier once you have done your first tender and gathered all the basic information—so long as you put in place processes to continuously update your information."

But for many SMEs, the difficulty is finding the time to start.

Where to start
Probably the most important site for small and medium-sized enterprises (SMEs) seeking government contracts is Tenders Electronic Daily, which lists all tenders registered with the Supplement to the Official Journal of the European Union. www.ted.europa.eu
But those new to public-sector selling could do worse than start with the Office of Government Commerce website, which contains a wealth of detailed information about public-sector procurement processes and how to use them. www.ogc.gov.uk
The website www.Supply2.gov.uk provides a range of information services about some public-sector contracts, typically those worth £100,000 or less.
The Tendering for Success Roadshow is designed to introduce SMEs to public-sector tendering and tours main UK cities between March and June. www.supply2.gov.uk/events/s2grs08/index.html
Companies looking for contracts to supply goods and services to the 2012 Olympics should start at the website CompeteFor. www.competefor.com
GC Expo 2008, at Earls Court on 10 and 11 June 2008, is an exhibition for companies selling technology products to government agencies. www.gcexpo.com