HISTORIC PRESS RELEASE : Government Contracts opened up to 500,000 SMEs – Andrew Smith [October 2001]

The press release issued by HM Treasury on 16 October 2001.

Government suppliers, including up to 500,000 newly incorporated Small and Medium sized Enterprises (SMEs), will find bidding for government business easier, following the publication of important new financial assessment guidance, Andrew Smith, Chief Secretary to the Treasury, announced today.

In another move designed to make it easier to do business with government, he also announced improvements to liability guidance that will encourage more companies to deal with government

The specific improvements include:

•  Greater emphasis on cash flow in assessing financial stability
•  liability determined by specific contract requirement rather than “unlimited liability”

Andrew Smith, Chief Secretary to the Treasury, said:

“These improvements will bring out healthy competition in the marketplace and demonstrate this Government’s commitment to fair access for all suppliers, including SMEs. This is excellent news for business and ensures best value for money for the taxpayer.”

Nigel Griffiths, Minister for Small Business at the Department of Trade and Industry, commented:

“The removal of the need for three years worth of audited accounts, and the change from unlimited liability to a value for money liability determination will mean that thousands of small and medium enterprises will now be able to access public procurement contracts.”

These improvements have been drawn up by the Office of Government Commerce (OGC) in consultation with the Small Business Service.  OGC  Chief Executive, Peter Gershon, said:

“These improvements, together with the publication in June 2001 of guidance on ‘Tendering for Government Contracts’, are a direct result of OGC’s strategy to make this market more accessible to all potential suppliers including SMEs.”

David Irwin, Chief Executive of the Small Business Service said,

“I welcome this initiative as an important step in addressing some of the barriers that small firms face when trying to sell to the public sector.  The SBS has been working closely with the OGC, and will continue to do so, to ensure that we identify and remove any further obstacles in the way of small and medium enterprises.”

The appraisal of financial stability of potential suppliers and contractors to government was previously largely based on three years profit and loss statements. This often debarred younger companies.

Under the new guidance cash flow will be emphasised more strongly in a more flexible financial assessment. This reflects good commercial practice where risk is assessed according to the specific situation, not bureaucratic formulae.

This will particularly benefit new SMEs delivering goods and services, including, but certainly not limited to, IT and consultancy.

The second improvement means that contractors’ liability will be assessed on the basis of the value for money for the particular contract, where previously it was often assumed it should be unlimited.

This unlimited liability was a barrier to competition, because it led to high insurance costs for suppliers. Invariably this simply increased the final price for the government and the taxpayer.

The main benefits of this adjustment will be in the fields of IT, management consultancy, professional advice and construction.

This all reinforces the government’s approach to procure goods and services on a value for money basis and opens up the government market, so increasing competition and innovation, benefiting the taxpayer and the wider economy.