Levelling the Playing Field

1. Levelling the Playing Field Procuring from SMEs and the Third Sector Jack Hayward

2. EU Definition of SMECommission recommendation 06/05/03 Enterprise Staff Turnover Balance Sheet Total Medium <250 <- 50m eu <-43m eu Small <50 <-10m eu <10m eu Micro <10 <-2m eu <2m eu

3. The Companies Act 1985 (Small Companies’ Accounts and Audit) Regulations 2006 To qualify as small, a company must meet two of the following criteria (set out in section 247 of the 1985 Act): • its turnover in a financial year is not more than £5.6m, • its balance sheet total for that year is not more than £2.8m, and • it has not more than 50 employees.

4. Department for Business Innovation and Skills “There is no single definition of a small firm. Our statistics define SMEs as businesses with less than 250 employees. However other commonly used definitions also take turnover and balance sheet information into account”

5. Public Body Problems Resources i.e. procurement expertise Experience Financial Track record Unfamiliar with Public sector ‘mind set’ Supplier Problems Legislative compliance Awareness of opportunities ‘Form filling and bureaucracy ‘ Understanding Public sector culture Barriers to Procuring from SMEs and Social Enterprises

6. Supply of Goods Historic relationship Local economic market Small amounts Supply of Services Locally focused Using unskilled labour Little ‘out of area interest’ for small contracts Two Areas

7. The EU Threshold Cut Off Below not generally regulated but; General Treaty Principles apply Thresholds reflect Government Procurement Agreement

8. Current Thresholds Services and Supplies: • Central Government; £101,323 • Local Government;£156,442 Works: • Central Government and Local Government: £3,927,260

9. EU code of best practice for SMEs The Code highlights and develops a number of practices within the EU regulatory framework which optimise tenders for the participation of SMEs and ensure equal chances for this bidder group.

10. A recent study commissioned by the European Commission reveals that, between 2006 and 2008, the proportion of SMEs amongst companies which won public contracts above the EU thresholds was between 58% and 61% in the EU-27. In terms of estimated total contract value secured, SMEs accounted for between 31% and 38% of public procurement while their overall share in the economy, as calculated on the basis of their combined turnover is 52%.

11. Key areas of concern for EU SMEs • Reducing administrative burdens in the selection phase • a cap on certain requirements for qualitative selection, especially on financial standing. • EU is not in favour of reserving markets to specific undertakings. • Tendency to let large contracts

12. Aggregation • It is important to note that when requirements must be aggregated, it does notfollow that the whole requirement must be advertised as a single procurement. • Purchasers may split up the procurement into smaller periodic contracts to encourage participation by small or medium-sized enterprises). • The important point, however, is that all the relevant contracts, however small, must be awarded in accordance with the procedures of the regulations.

13. However In practice this may lead to a tendency to advertise the requirements as a single procurement (although possibly in lots), because of the expense and inconvenience of using the regulations' procedures for lots of separate, small contracts. This may then discourage procuring entities for dividing up requirements to encourage participation by smaller firms.

14. Overcoming difficulties relating to the size of contracts – Commission Code of Practice – Ensuring access to relevant information – Improving the quality and understanding of the information provided – Setting proportionate qualification levels and financial requirements – Alleviating the administrative burden – Placing emphasis on value for money rather than on price – Giving sufficient time to draw up tenders – Ensuring that payments are made on time

15. Article 9(5) 2004/18 and PCRreg.8(12) • designed to encourage contracting authorities to divide contracts into lots in order to provide opportunities for SMEs • where the value of a contract for works is less than one million Euros (£679,090), or for supplies or services 80,000 Euros (£54, 327), that contract may be excluded, even though the directive/regulations would otherwise apply because the total value of relevant contracts under the aggregation rules exceeds the threshold. • the contracting authority may take advantage of this exemption for contracts worth up to 20 per cent of the total value of the total value of the lots.

16. How it works A contracting authority has decided to undertake a construction project with an estimated value of £5.2 million. It proposes to award a contract for the main part of the construction, valued at £3.2 million, and four contracts worth around £500,000 each. Generally, the aggregation rules require the Regulations to be applied to all the contracts if the value of all the contracts added together exceeds the threshold. This is the case here, since the total is £5.2 million, which exceeds the threshold of £3,497,313

17. Under the exemption two of the contracts worth £500,000 may be excluded. • They are not individually subject to the regulations, since their value is only £500,000. The exemption for lots may be used since: • each is worth less than the maximum value for exempt lots,namely £679,090; and • together (totalling £1 million) they account for less than 20 per cent of the total (£5.2 million) value of the work. • The exemption can only be applied, however, to two of the lots. If it were applied to three, the exempt amount would be worth £1.5 million, which exceeds 20 per cent of the total value of £5.2 million.

18. The value of the exempt lots may not be disregarded in determining the value of the non-exempt part of the contract. Thus if the authority decided not to apply the directive/regulations to two of the £500,000 lots, the value of these lots would still need to be aggregated to decide whether the other work on the same work that forms part of the requirement should be subject to the directive/regulations. (In fact, in that case the threshold is exceeded even without the £500,000 lots).

19. Using the 20% Exemption Requires ‘buy in’ from the main contractor Procurement Officers need to be ‘skilled up’ A fair process needs to be put in place for the 20% awards otherwise potential for bribery/collusion EU Treaty Obligations

20. Above Threshold – Making it SME Friendly • Supplier days and Procurement training • Pre Qualification – Making it easier • IT – Not always so friendly for micro suppliers • Frameworks – a deterrent to the SME? • Award Criteria e.g training partnerships

21. Below Threshold and Part B • General Treaty Principles still apply (Federal Securities Case) • Standing Orders and Financial Regulations • Supplier Lists

22. Council’s services and external organisations ?Source- Interserve

23. Growth in Outsourcingsource - Interserve The proportion of councils expecting to outsource over 20 per cent is predicted to rise by 26 percent. This increase in outsourcing levels appears to be due to both the savings challenge and the councils’ realisation that they cannot meet this challenge alone. On average councils expect 34 per cent of their services to be provided by external organisations in the future compared to the current 20 per cent mean. Conservative led councils expect on average 39 per cent of their services to be provided by external organisations, whilst those with no overall control or are coalition led only expect to outsource on average 26 per cent. Councils which are Conservative led, have larger budgets, and need to make more than 25 per cent savings are likely to rely more heavily on outsourcing. Of those expecting to make more than 25 per cent savings, 37 per cent of services will be delivered via outsourcing. But even for those currently outsourcing less than 20 per cent of services expect levels to almost double.

24. In selecting a private sector partner, please choose your top five factors in order of their importance to the CouncilSource Interserve

25. Please select any of the following that you believe are a serious barrier to outsourcing in your department or across your council.Source Interserve

26. Outsourcing and the Big Society • Legislative Framework • Desire to use voluntary sector • Staff and Mutuals • ‘Cart before the Horse’ ? • Local Authority Procurement teams – fit for purpose?

27. Legislative framework • Localism Bill • Public Services (Social Enterprise and Social Value) Bill, • Big Society Bank • Apprenticeships and Skills (Public Procurement Contracts) Bill 2010 

28. Localism Bill • Right to challenge • Do we have the right vehicles for the job? • Regard to local impact • ‘Triggering a procurement’ • No sight of the draft Regulations

29. Public Services (Social Enterprise and Social Value) Bill Bill’s requirement on public sector procurers to “consider how they might promote wider economic, social and environmental well-being in a contract and how they commission such contracts accordingly” Would prompt all public sector procurement officers to consider, where relevant and proportionate, how a contract might promote or improve the economic, social or environmental well-being of the relevant area. Such legislation would provide opportunities for social enterprises

30. Big Society Bank It will operate independently of government. It will not make grants and it will be expected to make a sufficient return on its investment to cover its operating costs. It will act exclusively as a wholesaler. It will not put money directly into social enterprises, or businesses with some kind of social purpose, but will invest in funds and operations that in turn make the direct investments. We do not know what kind of social enterprises it will favour.

31. Apprenticeships and Skills (Public Procurement Contracts) Bill 2010 • An authority issuing a contract under subsection (1)— (a) may require that a minimum proportion of the apprentices employed  by the contractor are advanced apprentices, and (b) may include provisions relating to Apprenticeship Training Agencies in that contract. • A relevant contract must require the contractor to—(a) advertise all vacancies for members of the workforce in all job centres in the local authority area in which the main site relating to the relevant contract is situated, and in all job centres in neighbouring local authority areas, and (b) include in theseadvertisements details of the training on offer. 

32. “When it comes to procurement in the future, the voice of the community will be important in defining and measuring the success of our private sector partnerships.”Interserve

33. Conclusions UK cannot unilaterally alter Directive 2004/18 Commission Green Paper may alter landscape Ways are available but are procurement officers aware? Supplier Education May not be the most cost efficient way