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Dr William McCrea (South Antrim) (DUP)
It is a pleasure to serve under your chairmanship, Mr Davies.
I congratulate those throughout the United Kingdom who have taken the bold step of starting a small or medium-sized enterprise, thereby creating employment in their local community and strengthening the local economy. I am sure that many Members agree that we should thank the House of Commons Library service for its excellent research in the debate pack, and I thank my own staff who have helped me to prepare for the debate.
By way of background, the usual definition of an SME is any business with fewer than 250 employees. There were 5.2 million SMEs in the United Kingdom in 2014, or more than 99% of all businesses. Most businesses in the UK are small, with fewer than 50 employees, rather than medium-sized, with 50 to 250 employees. In answer to a parliamentary question, the Government estimated that 21%, or £45.4 billion, of pay-as-you-earn received in respect of the 2010-11 tax year came from small businesses. There are also micro-businesses, which by definition have between one and nine employees. In 2014, there were 5 million micro-businesses, accounting for 96% of all businesses.
The economy is therefore dominated by small business. According to a 2013 report by the Federation of Small Businesses, small firms in the UK make up 99.3% of all businesses, contribute 51% of gross domestic product and employ 58% of the private sector work force. Research commissioned by the FSB with other partners in 2008 demonstrated substantial barriers to SMEs winning public sector contracts, indicating that 70% of SMEs rarely or never bid for Government procurement opportunities; 76% of SMEs felt that there were barriers to prevent SMEs from being fully aware of public procurement opportunities; and 55% of SMEs felt that the process of bidding for Government contracts required more time, effort and cost than their business could allow. Lack of awareness of opportunities was among the most important reasons for not bidding for a public contract.
Research also shows that SMEs are generally more successful in bidding to the private sector than to the public sector: 51% of SMEs reported a success rate of more than 40% when bidding for private sector opportunities, while 62% had a success rate of 20% or less when bidding for public sector opportunities.
Mr Gregory Campbell (East Londonderry) (DUP)
I thank my hon. Friend for giving way in the midst of the stats coming full and fast—he must be in full flow. He is getting to the nub of things, but does he agree that many of the SMEs, in particular out in the regions, in Northern Ireland and elsewhere, are very small and employ only one or two people? The time and expertise required to apply, therefore, is often not in place, and we need to support that.
Dr McCrea
I agree with my hon. Friend. That will certainly be part of the effort that I am endeavouring, through the debate, to achieve.
The Government plan for growth published alongside the Budget in March 2011 highlighted a number of policies stated to be of particular benefit to SMEs, including such measures as making it easier for them to access public sector procurement by eliminating the prequalification questionnaire for contracts worth less than £100,000, advertising procurement opportunities on Contracts Finder and setting an aspirational target that a quarter of Government contracts should be awarded to SMEs.
David Simpson (Upper Bann) (DUP)
My hon. Friend is certainly in the flow today, so it is hard to intervene. As well as action on procurement, does he agree that over the past number of years the Government also promised to speed up payment terms for small companies? A lot of what has been done, however, has been paying lip service. Northern Ireland has improved, but a lot of work remains to be done. Cash flow is vital to small companies if they go for Government contracts.
Sammy Wilson (East Antrim) (DUP)
I am sure my hon. Friend will touch on the matter, but does he accept that part of the problem lies with the procurement rules that we inherit from Europe as part of an attempt to create the single market? They lay down pretty draconian requirements when it comes to bidding for Government contracts. We ought to be looking at how those requirements can be amended and how we can raise thresholds to avoid some of the European regulations on procurement.
Dr McCrea
I agree, but even within the European regulations, there are things we can do and that the Government should do more of to alleviate some of the problems that my hon. Friend mentions.
In the 2013 autumn statement, the Chancellor included measures designed to benefit small businesses, including the introduction of a £2,000 employment allowance from April 2014, making it cheaper to employ staff aged under 21. That incentive, according to the Government, will benefit up to 1.25 million businesses and result in about 450,000 businesses, or one third of all employers, being taken out of paying national insurance contributions altogether.
After the autumn statement, the Government launched the “Small business: GREAT ambition” scheme in December 2013—a series of measures designed to make it easier for small businesses to expand, including the introduction of broadband vouchers worth up to £3,000 in 22 cities throughout the United Kingdom, which were designed to let more small firms access faster broadband connectivity. It is disappointing to note, however, that Malcolm Corbett, head of the Independent Networks Co-operative Association, has said:
“The scheme has not proved as successful as the Government had hoped”.
I therefore encourage those businesses eligible to avail themselves of the scheme before the March 2015 deadline to do so.
Mr Iain McKenzie (Inverclyde) (Lab)
I congratulate the hon. Gentleman on securing the debate. He touched on the need for broadband in small businesses. Especially in rural communities, we are seeing the difficulties of getting that high broadband speed. Does he feel, as I do, that that excludes a lot of small firms from bidding for contracts, especially e-procurement ones?
Dr McCrea
I wholeheartedly agree with the hon. Gentleman. The lack of an up-to-date and modern broadband connection makes it very difficult to get into Government contracts.
To promote the further growth of SMEs, following on from the recommendation in Lord Young’s report, a new scheme was designed to make it simpler for small firms to win public sector contracts, which are estimated to be worth £230 billion a year. In addition, there was a commitment to tackle the late payment of small firms to ensure that those small businesses supplying the public sector and its supply chain were paid at the same time as the large contractors.
In May 2013, Lord Young published “Growing Your Business”, a report on growing micro-businesses following on from his report on entrepreneurship and start-ups published in May 2012. The 2013 report makes a number of policy recommendations for businesses employing fewer than 25 people, including the establishment of a small business charter and, crucially, a
“new ‘single market’ commitment to ensure a simple and consistent approach is taken across public sector procurement.”
In 2012-13, the public sector spent £230 billion on procurement of goods and services, including capital assets, accounting for 34% of total managed expenditure. Of that £230 billion, approximately £38 billion was capital procurement, the rest being current. Of the current procurement, approximately £40 billion is by central Government, £84 billion by local government, £50 billion by the national health service and £13 billion by the devolved Administrations.
Hon. Members will note the public interest in several recent awards of major procurement contracts, which have attracted scrutiny and even criticism from some hon. Members. In the light of the recent difficulties, the Government set themselves a target of procuring 25% of goods and services by value from SMEs by 2015, with the flattering words that such businesses are
“a crucial engine for growth”
as they account for 99.9% of UK businesses.
Research by the FSB reveals that every £1 a public body spends with a small business generates 63p of additional benefit to the economy, compared with 40p of additional benefit when spent with a large business. Although there is much ongoing debate about the advantages and disadvantages of EU membership and whether the UK should remain within its bureaucratic quagmire, the position remains that the Government not only can but should do more to support SMEs in accessing public procurement in compliance with EU diktat.
David Simpson
Does my hon. Friend accept that, although there is a problem with procurement, in some small companies there is a lack of understanding of the procurement process? There needs to be a robust educational process, perhaps through councils, under which small, young micro-companies learn exactly what it is all about.
Dr McCrea
I thank my hon. Friend for making that point. However, to give an illustration from my own constituency experience, I often find that a small business not only finds it difficult with all the filling in of forms, but is blocked from getting into contracts. That is the issue that I want to get to the heart of, but I must first lay the foundations.
A core principle of the EU is to establish a single market that encourages trade and maximises value for the taxpayer in public procurement, obtaining the latter through increased competition by allowing companies from other EU nations to bid for contracts. As SMEs are crucial to the UK’s economic recovery, what have the Government done to encourage and assist them in accessing EU markets and public procurement in other EU member states?
EU procurement rules include transparency, fairness and non-discrimination. They apply to SMEs accessing public procurement in other EU member states, but do nothing to tackle those issues within the United Kingdom, as such rules do not apply. It remains an anomaly of the single market rules that, although under EU law one member state is not allowed to discriminate against an SME from another member state as part of public procurement of goods and services, subject to certain criteria, member states are entitled to act in a discriminatory fashion towards their own nationals.
It is admirable that the coalition Government have engaged with SMEs as one of their two main priorities concerning public procurement and that they intend to achieve that aim by making the procurement process
“much simpler, more open and less bureaucratic—so all businesses, no matter what their size, have a chance of success”.
However, the realisation of that priority, by opening doors for SMEs and providing them with the tools to apply, will make the real difference to our businesses and propel this country’s economic recovery forward.
Mr McKenzie
The hon. Gentleman mentioned Europe and the European strategy to exclude others and source products and services more locally. How does he feel about the playing of the green procurement card, which seems to be natural across Europe? Should we adopt that strategy and say that, in the spirit of green procurement, we will source as locally as possible?
Sammy Wilson
Before my hon. Friend moves on, does he accept that there is considerable merit in the point raised about the green procurement card, especially when it comes to the purchase of fresh food for schools and hospitals, which can be locally sourced? There is an environmental as well as an economic argument for sourcing such goods and services locally.
Dr McCrea
I am happy to agree with my hon. Friend on that point and am delighted that he has a genuine interest in that environmental issue. I am sure that will be noted carefully.
The old proverb says, “Give a man a fish and you feed him for a day. Teach him to fish and you feed him for life.” Although Stephen Allott, the Government’s appointed SME champion, argues that the
“big change is that procurement reform under Labour was a nice thing to have, whereas today saving money is central”,
the Government need to realise that people’s livelihoods are at stake. Owners of SMEs have often bravely given up a comfortable lifestyle and made significant investment to start up businesses from scratch. They are not mere pawns on a Government chessboard to be played when election time comes around. Much more needs to be done to upskill SMEs in the public procurement process. If a supplier has not bid before and is not very skilled at completing the tender, although it might be the best supplier, it will not win the contract. That was the point raised by my hon. Friend the Member for Upper Bann (David Simpson) a few moments ago.
Interestingly, Mr Allott has stated that the difficulty in fast-tracking the SME agenda arises because of staff cutbacks in the public sector, and notably cuts to the number of individuals in procurement. Such streamlining has led to greater aggravation. It may on occasion save the taxpayer money, but it does nothing to support SMEs. Mr Allott has gone further, stating that the pressures now borne by remaining procurement staff have led many to
“stick with the suppliers they know rather than spend time researching potential partners or having speculative meetings with untried suppliers”—
so it is not what you know but who you know. That leaves SMEs isolated while large companies continue to court those with influence.
On indirect contracts, how will the Government ensure there is a “David and Goliath” approach to prevent prime contractors from driving down prices and creaming off the best work for themselves, leaving slender pickings for their smaller partners? What will the Government’s SMEs champion be doing to help SMEs to get the best possible deal when working with large companies?
David Simpson
On the “David and Goliath” issue, when many large companies receive Government contracts, SMEs turn out to be subcontractors and are pressurised harder on pricing, so their job becomes even more difficult.
Dr McCrea
I accept what my hon. Friend says.
I turn now to what the UK Government could learn from the devolved Administrations. According to FSB research, in 2013, authorities in Northern Ireland spent on average 80% of their total procurement spending with SMEs. Details of all current Northern Ireland public sector tender opportunities are available on one centralised web portal. In addition, a number of events have been organised to encourage economic co-operation and trade, enabling local businesses to meet a wide range of public sector buyers, including buyers from central Government Departments, councils, universities and other public bodies.
In 2009, the Assembly’s Committee for Finance and Personnel conducted an inquiry into public procurement and practices in Northern Ireland. As a result of that inquiry, the Committee made 52 recommendations to the Department of Finance and Personnel in a report published in February 2010, including all the recommendations put forward by the FSB. That shows that key stakeholders such as the FSB are listened to in Northern Ireland.
According to the Cabinet Office papers “Direct and Indirect Spend with SMEs” and “Making Government business more accessible to SMEs”, the total proportion of procurement spend with SMEs by central Government Departments has increased year on year. However, that analysis fails to include public bodies outside central Government. Hon. Members need to note that there are 22 non-ministerial departments, 346 agencies and other public bodies, 70 high-profile groups and 12 public corporations that, in total, have considerable spending power.
In October 2012, when Lord Heseltine published his independent review on increasing UK growth, “No Stone Unturned”, he recommended that the Government
“should place a general duty on all public bodies”—
not just those in central Government—
“setting out the procurement standards to which they should adhere, by providing a pan-government procurement strategy, legislating if necessary.”
When the Government published a consultation on a range of measures to simplify and standardise public sector procurement in “Making public sector procurement more accessible to SMEs” and “Small Business: GREAT Ambition”, in September and December 2013 respectively, they said that they would legislate and make changes across the wider public sector. However, it is regrettable that none of those changes included placing a duty on all public bodies, not just those in central Government, to set out
“the procurement standards to which they should adhere, by providing a pan-government procurement strategy”,
as Lord Heseltine recommended, because that has not happened.
I have tried to explain my general feeling about SMEs and Government contracts to set the scene for the debate, which I was urged to secure because of an experience in my constituency. That experience has not just troubled me; it has really got to me. A local person has put all their money into trying to be innovative and to create something good as a British enterprise, but that seems to have been stamped on and put into the ground.
That small, innovative British SME in my constituency has been failed by the Government and a public body for which it is accountable—the Highways Agency. That failure has affected not just the company, but the work force on the strategic road network, the taxpayer and the British motorist. This case study illustrates: the extent of the barriers erected to prevent market entry; the power of the small number of big companies that dominate the road maintenance market on the strategic road network; the disregard for safety and efficiency exhibited by the Highways Agency; and the seeming impotence of Departments to ensure that British SMEs are treated fairly and given appropriate opportunities, in this instance to introduce new products designed specifically to improve safety for the work force and the motorist, and to secure much better value for money for the public purse.
It is clear from the evidence that the safety of the work force is not given the priority that is required. On 8 January 2015, the Highways Agency was censured for the death of a traffic officer in September 2012 and, recently, another road traffic worker was killed on the strategic road network. It is also clear that the automation of traffic management processes could be made much more efficient through the use of an automated system of cone laying and retrieval.
Between 2002 and 2006, the SME that I am speaking about focused on ensuring its compliance with all UK industry standards, which involved complex interactions with several public bodies including the Highways Agency, the Health and Safety Executive, the Department for Transport and the Transport Research Laboratory. By 2006, its manufactured system had been thoroughly tested and trialled across the UK, and it was fully compliant and market-ready. The Highways Agency funded all of the trialling, which signalled its interest in this innovative automated product.
In August 2006, the product was launched with a DFT press release and a statement from Dr Ladyman, the then Minister. He commented:
“In 2005, five road workers were killed in the course of their work on England’s motorways and major roads, making the motorway one of the most dangerous working environments in Britain…This new machine will help to give extra protection to workers and the public on our busiest roads, and help the Highways Agency to use lanes more efficiently during roadwork programmes…Road workers risk death and injury from traffic accidents every day, while making sure our roads are safe and well maintained”.
At that point, given such a press release, one would have expected that the product was well placed for adoption throughout the strategic road network.
The Highways Agency introduced the company to one of its major contractors in 2006. In the company’s view, their negotiations were not conducted in good faith. It transpired that the major contractor wished to purchase only one or two systems, because what it really wanted was the transfer of all intellectual property and manufacturing rights to itself, although what was proposed would have involved a loss for this small business.
As the months followed, it appeared that the role of the Highways Agency was to exert pressure on the company to accept the contractor’s offer at the contractor’s price, even if that involved a loss. The Highways Agency used its influence to support the major contractor, but not to support the SME, the theme behind Dr Ladyman’s statement about how road workers
“risk death and injury from traffic accidents every day, while making sure our roads are safe and well maintained”,
nor achieving a good price.
During 2008, to facilitate Highways Agency contractors to trial the new technology locally, a vehicle, system and skilled traffic management crew were made available for the entire Highways Agency network, ready to mobilise at short notice. Direct involvement with the Highways Agency failed to attract any business from the contractors.
Following my intervention in 2009, the Transport Research Laboratory, acting on behalf of the Highways Agency, presented the company with a proposed new contract. A signature on the contract would have transferred all intellectual property and manufacturing rights from my constituents to the Highways Agency, acting on behalf of the Crown. As part of the proposed contract, the agency would have been free to appoint a third-party supplier to benefit from the rights, to the loss of the original SME. The SME was expected to support the potential new supplier.
The company refused to sign the contract, but was prepared to negotiate. That led to an extended trial in 2009-10, which was carried out by the TRL and the agency. The trial was deeply flawed because untrained workers were used on the live road network, which meant that only seriously understated benefits could be derived from the use of the new product. Once again, for the benefit of the industry and to test this new technology locally, a vehicle and system was made available for the entire Highways Agency network between March and September 2010. There was professional support from about 20 depots across England, but Highways Agency contractors were not interested.
In 2011, on the company’s behalf, I, again, engaged with the Department and its then Minister, the right hon. Member for Hemel Hempstead (Mike Penning). As a result, the Highways Agency conducted a cost-benefit analysis, which suggested that there would be huge additional costs and limited benefits, due to poor value for money and little safety benefit. Following a challenge of the work, the then Minister—I give him full credit—ordered an independent review, which was carried out by Jacobs, an international consultancy. It proved extremely difficult to secure proper data from the Highways Agency—I needed to table a series of questions, as a Member of Parliament—but eventually, in February 2012, the Jacobs report concluded definitively that the product could provide significant value for money, improved traffic flow and considerable safety benefits, which was the opposite of what civil servants said to the Minister. For example, when the then Minister asked how many stoppages there would be, the civil servants said that there would be 120,000 lane closures a year, but when I asked the question, as I did again and again, the answer that I received was 26,000. They were only out by about 4:1, so of course that really means little. The cost-benefit analysis was proved completely wrong.
The company wrote to the contractors and approached the SME champion at the Department for Transport. That engagement led to a report from the contractors that displayed a total lack of interest in a product that an independent and credible evaluation had declared could bring significant efficiency savings, value for money and safety benefits. The Highways Agency arranged a meeting between the company and the contractors, but appeared to be content that its contractors, using public resources, could turn their back on efficiencies, modernisation and safety. Then, of course, the Minister was moved from the Department, and the new Minister who took over did not seem to have the same interest.
The early contractual negotiations were not conducted in good faith. They were designed to ensure that a major contractor could benefit from the intellectual property rights and manufacturing potential of an SME-driven innovation. So much for getting SMEs into Government contracts.
It appears that after the refusal to sign the contract that was offered, the product was closed out of the market, even when it was ready to be used locally across the network. The independent report by Jacobs, which identified good value for money and safety benefits, was ignored by the contractors and also, largely, by the Highways Agency. The Department proved unwilling to challenge either the agency or the contractors with any degree of rigour, despite being the funder of the agency’s contracts. All the bodies involved did not address with sufficient vigour the safety benefits that the product would have brought. In addition, the Department and the agency refused access to the minutes of the Road Workers Safety Forum trials team because that might inhibit a free and frank exchange of views by contractors. The public interest did not appear to be paramount.
The experience of this company from 2006 to the present day has created the impression that a cartel of big contractors can ignore potential value for money, efficiency and safety considerations with impunity, and that that does not matter, as they will get their pay at the end of the day. They will be paid for what they put in, but the small company or micro-business can be trampled into the ground.
The system of accountability for the expenditure of public money appears to lack any effective scrutiny or teeth. There is a real issue about the safety dimension of this experience that does not appear to have been given serious attention by any of the major public or private players. The question at the heart of the matter is about the relationship between a public body and its private contractors. How far are decisions on road safety being determined by commercial concerns, and to what extent are the Government content to allow the self-regulation of safety standards for road workers and users?
This is an important issue and I will not let it go. I will continue to try to find out exactly how this happened. I do smell something wrong in this, as it seems that some persons within Departments are happy to play along with the big contractors.
Mr Iain McKenzie (Inverclyde) (Lab)
It is a pleasure to serve under your chairmanship, Mr Davies, for what I believe is the first time. I again congratulate the hon. Member for South Antrim (Dr McCrea) on securing this very interesting debate on public procurement—having heard myself say that, I may need to get out more if I find public procurement an interesting subject to debate.
I have witnessed procurement in the public and the private sectors. Indeed, in my time in local government, I was glad that our procurement was brought into line with some of the private sector practices and brought up to date. In my local environment, we had to bring in many of the SME businesses to spread the money around and create as much opportunity as we could.
We are all aware that small and medium-sized businesses are the backbone of the British economy and we need to ensure that central Government and local government do everything they can to help them through procurement procedures. The hon. Member for South Antrim gave a lot more statistics than I ever have to hand, but I can say that SMEs account for a large part of the private sector business in the UK and, I believe, 58% of private sector employment. That equates to 14 million people up and down the country being employed in SMEs.
This is about keeping things as local as possible. We know that 83p in every pound spent by local government procurers with local businesses will go back into the local economy. That in turn will stimulate the local economy and provide real employment opportunities there. It is a question of people stretching procurement as far as they can to get the biggest payback on what they are putting out there for goods and services.
SMEs are a major driving force of our economy and deserve their fair share of public sector procurement. Public sector bodies, including central Government, spend about £220 billion a year on goods and services. That indicates the complexity of the procurement. They procure everything from paperclips to chemicals—you name it. Government procurement is extremely complex.
Progress has been made in public sector procurement, and I will go on to highlight some of the advances made by the Government. I accept that steps have been taken and advances made. We have gone from almost a “catalogue” procurement process to what we see today—an approach that is more embracing of best practice and best value. I referred to a “catalogue” approach to procurement, which was simply taking something off the shelf and saying, “We have purchased from them for the last 10 years, so we’ll continue to purchase from them for the next 10.” That was not the best way to enable SMEs to get in on procurement by public bodies.
However, more could be done to improve the best-value approach. Not least is the fact that best value does not always mean the cheapest price, and what about people doing contract monitoring over the length of a contract to prove that they have a valued and performing supplier? We need to evidence contract monitoring if we are to make progress on procuring more locally and putting more into SMEs.
Public procurement is an underused tool when it comes to keeping trade as local as possible to local government and central Government spreading contracts around the country. It is essential that the Government take that on and spread the contracts as far and as wide as possible around the country. They should not simply look at a certain area where most of the spend takes place. If we are to regenerate areas, we can do so through Government procurement.
We also need to enhance contracts that we put out there by writing into the terms and conditions employment opportunities such as apprenticeships and therefore get more for the money we spend. More than half of SMEs believe that the process of tendering for Government contracts requires, as we have heard, more time and resources than their business can allow, making the tendering process too costly and time consuming.
We can take as an example what I have already highlighted—e-procurement. This is about going out and educating SMEs on what they need for e-procurement, and a common mistake is for them to fall into the same practice they used for tendering processes. As we have highlighted, broadband issues lead to difficulties when people are trying to download a tendering document, which takes a bit of time. It will bomb out at the last minute and, hey presto, they have missed out on the contract.
Sammy Wilson
The hon. Gentleman is making some thoughtful and worthwhile points, but does he not accept that the more we build into the contract and the procurement process not only price, but the qualitative issues he has talked about, as well as ongoing issues such as apprenticeships and employing the long-term unemployed, the more that adds to the complexity and the paperwork involved in the procurement process and to the monitoring of the contract? There is a balance to be struck between, on the one hand, taking the simple approach of looking at price only and, on the other, looking at quality, employment opportunities and all the other qualitative elements of a procurement exercise.
Mr McKenzie
I accept the hon. Gentleman’s point, but if procurement does one thing, it should be to get the most for what is spent. Monitoring whether we get jobs, especially apprenticeships, out of procurement would not be too difficult. The local council in my area has done that for many contracts. Those contracts have been gratefully received, and we have been really successful in keeping our youth unemployment down to a low level using those contracts.
Mr Nigel Dodds (Belfast North) (DUP)
Further to the point raised by my hon. Friend the Member for East Antrim (Sammy Wilson), there is a question of balance in those contracts. However, if contracts awarded by Belfast city council and others over the years have a clause about local employment, local people see that the council and other agencies are delivering something in their locality that is about not just a building or a project, but jobs. My hon. Friend is right to talk about balance, but it is important for local people to see a definite benefit from the public money being spent in their area.
Mr McKenzie
The right hon. Gentleman makes a good point: this is about local people seeing real value for money and getting opportunities.
Many small businesses do not bid, because they feel unable to compete with the larger suppliers and to offer lower costs. There is also the issue of understanding contracts and not making them too complex. We should go out to small businesses to help them understand contracts and what is being looked for in the terms and conditions. The issue may not be solely the cost; it may be things such as the quality of the product, the lead team or the hubbing aspects of getting the product to someone at specific times. This is not entirely about the cost factor, and a range of terms and conditions might put smaller businesses off attempting to compete with larger organisations.
I want to mention three areas where I have seen improvement in the procurement process. In 2010, the Cabinet Office set up the efficiency and reform group to make sure that Departments work together. That consortium approach to procurement is wholly sensible. It is hard to believe that each service would have been going out to procure the same commodities on differing contracts, but that could have been taking place. The Government also set a goal of ensuring that 25% of spend went to SMEs, either directly or through the supply chain, although that was downgraded to an aspiration.
Secondly, in 2011, the Government appointed a Crown representative for SMEs, with the intention of helping to redesign and improve public procurement policy and processes to bridge the gap between the Government and small suppliers. The main aims were to understand the concerns of SME suppliers, which is essential, and to open up the Government procurement process more to them. Another aim was to put together a list of tips for SMEs bidding for Government contracts, although I am never too sure that the word “tips” sits well with a procurement process.
Finally, in 2012, the Government ran a pilot of the Solutions Exchange—an online tool to enable a two-way conversation between Government and SMEs, in the hope of creating better dialogue between them.
The hon. Member for South Antrim touched on the directives coming from the EU. A set of new procurement directives, including reforms that should help SMEs, was agreed in Europe last year. There is now a need to transpose them into UK law.
Let me refer to what the FSB says about the problems facing SMEs on procurement. It says that there are four main difficulties. Access to finance—getting those loans—is still a problem. Another problem is tax simplification; tax can be difficult and confusing for SMEs. A further difficulty, which we have heard about many times, is fuel duty; the cost of fuel is crippling many small businesses. The final problem is late payments. If a payment is not made on time, that can end a small business, especially a micro-business. We have recently heard in the news about the horrendous time scales for meeting payment terms, and those are having a detrimental effect on small businesses up and down the country.
I have a couple of questions for the Minister. What is the Government’s position on the recent EU procurement directives? Will the terms and conditions in contracts be looked at with a view to including employment opportunities for young people—for example, by writing in apprenticeships? Will any person or business that has been engaged in blacklisting or in compiling blacklists of workers be excluded from bidding for Government contracts? Finally, when will the Government truly embrace e-procurement, get out there and assist SMEs as much as possible to understand and navigate the process?
Philip Davies (in the Chair)
Order. Before we move to the next speaker, I should say that I intend to call the shadow Minister no later than 3.40 pm. I am sure that DUP colleagues can allocate the remaining 24 minutes between them fairly.
Ian Paisley (North Antrim) (DUP)
It is an honour to speak under you, Mr Davies; I intend to speak for only about 23 minutes.
I welcome the debate initiated by my hon. Friend the Member for South Antrim (Dr McCrea). The circumstances that he has placed on the record are astonishing. They show that a small, creative company has been really screwed, quite frankly. That company deserves explanations and honesty. I hope the Minister, who I know will genuinely look into this, will be able to give the company some reassurance and support—if not today, then at some point after he has had the chance to examine these claims.
We are trying to rebalance our economy in Northern Ireland. We are trying to attract inward investment and more private sector work. That includes growing our indigenous companies and, in particular, encouraging small companies, which are the backbone of Northern Ireland—whether they are in the agri-food sector, the creative media sector, financial services or any other sector. We are trying to help those companies to grow by one or two people each year so that the economy can really rebalance itself.
Those things can be made difficult, however, if one source of job opportunities—Government contracts—is not made more readily available to local companies. There is a saying in Northern Ireland that if someone is not working for the Government, they are not actually working. That is because so many people are employed directly or indirectly in Government or departmental activities. That includes not only the obvious things, such as health and policing, but the less obvious things, such as the technical and financial sectors, where a lot of the work relates to Government activity and Government-associated activity. It is critical that local companies are not only given the opportunity to bid competitively for these opportunities, but are, as many Members have said, encouraged and actively supported in their bids.
Our job is made much harder whenever major companies in the private sector are threatened and have to take employment away. That means that more people are put on the unemployment heap, and they will then, more than likely, have to seek public sector-related employment. I have seen that in my constituency, with the announcement that almost 1,000 jobs will be lost between now and 2017. The tobacco manufacturing company JTI, formerly Gallaher, is being closed down because of Government over-regulation—the European directives on tobacco products and the Government’s gold-plating of those directives through the plain packaging legislation. That destroys employment and opportunities, and has a knock-on impact on the economy. It affects 900 people directly, and a further 200 indirectly. There is pressure on the economy from those policies.
Earlier this month, the Prime Minister of the United Kingdom made the ambitious statement that he wanted to make the UK the factory of the European Community. I welcome that statement and ambition, and the aspiration to attract employment here—not only private sector employment, but more Government work flowing to private sector companies. I have a challenge for the Government: to make sure that in attracting companies and making these islands into the factory of Europe, they do not forget about the little island off the coast, and do not forget about Ulster. I challenge them to include Northern Ireland in their ambition, and to make sure that jobs go there. It is easy to kick back and say, “Look, this is really a matter for the Department of Enterprise, Trade and Investment in Northern Ireland or some other local devolved body to deal with.” That attitude is no longer good enough.
We are all in this together and must ensure that the national Government do as much to encourage employment and inward investment as the local, devolved Administration, who are tasked with doing the same. Northern Ireland is, of course, part of the United Kingdom and wants to play its full role in contributing to it, and delivering jobs. I would like the Minister, if he cannot tell us today, to report back to us with a specific, active strategy to attract employment for small and medium-sized enterprises and factories in Northern Ireland. That will help to rebalance the economy and ensure greater opportunities to bid for contracts—particularly Government contracts, when they come up—because more companies will be operating in Northern Ireland. Government contracts are a benefit to employment, and we want companies based in Northern Ireland to be entitled to bid, and to have the benefit of such contracts.
Both Members who have already spoken in the debate have mentioned broadband, which is critical in enabling viable bids to be made for some contracts. There are many companies at Woodside industrial park in Broughshane in my constituency; it has a local radio station, agri-food manufacturers, a fantastic company called Sunstart Bakery, which makes buns for Buckingham palace, and aeroplanes and international export businesses. Those companies deserve support, but they do not have adequate broadband, and have been campaigning for it for months. That would make the difference and allow the industrial park to continue to grow, and improve its effectiveness in fulfilling contracts. That is a key area for development.
My hon. Friend the Member for South Antrim represents the area of Aldergrove, the international gateway into Northern Ireland. It services employment not only in his constituency but in mine, and in East Antrim. There are moves afoot to try to attract a business park to that location. What an opportunity that would be for all our constituencies—a thriving business park there, supported by Government contracts and readily marketed as an area where companies could be based, with international connectivity, just 45 or 50 minutes from mainland Britain. That would be a huge opportunity for employment.
Ian Paisley
Broadband connectivity is a serious issue. The problem means that companies are deficient; some company directors send their staff home to work, because they have better broadband connectivity there than in an industrial park. That makes a mockery of the system, and the issue must be dealt with as part of a package of measures to enable the industrial parks to flow.
We are challenged by our neighbour on the island of Ireland; the Republic of Ireland has just this week announced that it intends to build a super-fast train link from Belfast to Dublin airport, so it can take business from our airports and connectivity. We must get ahead of the game. Our neighbour is entitled to compete with us, but we must beat it in the competition. We can show that we are better; we can show it a clean pair of heels. We need a kick-start, and making Government contracts readily available to Northern Ireland companies would provide one for that part of the economy. I welcome this debate for those reasons.
Jim Shannon (Strangford) (DUP)
It is a pleasure to speak in the debate, Mr Davies. I congratulate my hon. Friend the Member for South Antrim (Dr McCrea) on setting the scene, which he did clearly and specifically with reference to his own area. I thank other hon. Members for their speeches. It is a pleasure to see the Minister in his place—I look forward to his response—as well as the shadow Minister, the hon. Member for Wigan (Lisa Nandy). Yesterday some of us, in discussion with her, mentioned that there were 100 days to the general election, but she said she was more interested in the next 91 days, because in 91 days’ time something more important for her will happen. We wish her well for when that occasion arrives—congratulations.
This debate is about a topic central to economic progress, on which opportunities to speak are much sought after. SMEs are an area of great importance for Northern Ireland for many reasons. We each have numerous SMEs in our constituencies, and in Strangford they are vital to job creation. There are four or five that began from a small kernel or seed and now employ about 200 people. They are of the utmost importance, because they have been proved to be vital to rebuilding and strengthening the economy in times of much economic uncertainty, such as the past five years. Not only that, but they form the centre of any financial strategy for progress with sustainable regional and national growth. For those reasons we should in all ways promote and encourage entrepreneurship in SMEs. My concerns have to do with funding—its availability, information about it, and the ability of anyone to apply for it.
Another concern stems from the multi-level governance dimension. In the coming months much responsibility will fall to local government, with the reform of the Northern Ireland council structure. Additionally, there are concerns about forthcoming EU directives and their implications for SMEs and Government contracts. A particular European issue recently has been changes to how EU directives will affect SMEs. Figures I have been given suggest that perhaps 150 to 200 SMEs have been forced to close as a result. Perhaps the Minister will comment on that.
I cannot emphasise enough how important SMEs are to Northern Ireland’s economy; I hope that that is shown by Northern Ireland’s European entrepreneurial region status for 2015, which has a focus on SMEs. I congratulate agencies such as Invest NI, local councils and all the SMEs that contributed to achieving that status. A lot of effort went into striving for it, and that effort delivered. I thank everyone who made it a reality. It shows that we are already charging forward in investing in our people, their creativity and their innovation, all three of which are important. What has been achieved is a recognition that we need to put support for such endeavours at the top of our agenda for stimulating sustainable growth and development.
For one thing, local businesses in Northern Ireland were responsible for 90% of the employment increase since 2011. That figure should not be ignored; it represents an astounding one in seven of the working population being employed because of an SME. Invest NI support for local businesses has created or promoted 1,783 jobs from April to the end of November, through targets to assist in SME expansion. Arlene Foster, the Minister at the Department of Enterprise, Trade and Investment, and our friend and colleague in the Northern Ireland Assembly, has been active in that area, and has made it a priority. She is very photogenic and is regularly in the paper announcing the expansion of jobs. It is great when that happens on a regular basis in Northern Ireland.
All that should be celebrated, but there is still a long way to go before SMEs gain the clout that they need to compete against larger competitors, as my hon. Friend the Member for South Antrim suggested in his detailed and informative introduction. It is troubling that small businesses in Northern Ireland exported only 4.8% across the EU, while larger businesses exported 80%. There is clearly a gap in our efforts to assist smaller enterprises, which must be addressed with much haste, as my hon. Friend said.
Sammy Wilson
Although we are hearing about the downside to procurement and all the rest of it, there are encouraging signs in Northern Ireland. A small company that starts up in Northern Ireland will last 75% longer than a similar company anywhere else in the United Kingdom. We need to put out the message that start-ups are very successful and there is resilience.
Jim Shannon
We all value my hon. Friend’s knowledge of business life in Northern Ireland, and he makes a valuable contribution to the debate. Some 30,000 micro-businesses accounted for 89% of local companies. We must emphasise the need to look at the barriers that prevent the rise of SMEs, especially with regard to Government contracts, and address them coherently and fully. Steps have already been taken to look at the accessibility of funding, to simplify the application process and to remove the red tape of bureaucracy that bumps up the costs of application and development in public procurement.
I sometimes wonder how anyone ever gets through the early stages of a business. Years ago, there was less bureaucracy, but today we seem to be entangled with it at almost every level. On the ground, SMEs still find it difficult, costly and sometimes unfeasible to compete with larger competitors.
I congratulate the councils, Invest NI, South East Economic Development and other agencies. Financing their endeavours is only the first of many hurdles faced by SMEs, and it is vital to their success. To have that stage of the process so well accounted for by those valuable agencies is paramount. Through the assistance of such agencies, bank loans to SMEs totalled £408 million in the second quarter of 2014, which represents a rise of 29% on the previous quarter.
Although that work has been important and successful, there is still a lack of clarity about how to identify and access the many sources of available support. I would reject any process that further impeded the accessibility of money through more and more layers of bureaucracy. As of 1 April, Northern Ireland will downsize to a new system of 11 regional super-councils, through which we will do our best to simplify the process and walk SMEs through the steps of accessing Government contracts and funding.
The Northern Ireland Members present are all former Members of the Northern Ireland Assembly. My hon. Friend the Member for Upper Bann (David Simpson) reminded me when we were preparing for the debate that the Northern Ireland Assembly insisted that Government contracts in Northern Ireland must include a 30-day payment scheme for those who had contracts, many of whom previously had to wait 90 days or longer for payment. It is absolutely ridiculous that small companies should have to wait so long. We can take some credit for moving forward that process in Northern Ireland.
I welcome the fact that the UK Government have pushed forward in their goal of awarding 25% of Government contracts to SMEs. Entrepreneurship will drive our economy forward through innovation and creativity. Therefore, we really need to make the leap of innovation—of becoming a successful endeavour—an attractive idea, given the risks of setting up and upholding an SME.
My hon. Friend the Member for North Antrim (Ian Paisley) referred to broadband, which is a problem not only in his constituency but in all our constituencies. I gather from my constituents that he has had some success in banging together the heads of those responsible, and making sure that the DETI and the NIE get together and achieve success. In my constituency, we have a similar problem, and those involved in online businesses have been prevented from expanding their businesses by the lack of broadband. That seems ludicrous. I cannot understand how the problem can be so prevalent in this age of modernisation. It seems simple to me to make the connection within 100 yards of a business to help it to progress, but we find layers of bureaucracy, obstacles, obstructions and reasons for not doing so. We need to act on that system in good faith and make it better if at all possible.
I have concerns about the EU directives and their implications for our ability to invest in our vital SMEs. I acknowledge that a range of positive measures has come from the EU, and not everything is negative. I know we have lots of problems with the EU, but there are positive aspects on a regional basis, such as the merging of funding into an accessible single portal, which includes the structural funds, with an emphasis on encouraging SMEs as a pivot of national economies. However, I am concerned about the upcoming enforcement of the EU public procurement directive. The directive states that
“for public contracts above a certain value, provisions should be drawn up coordinating national procurement procedures so as to ensure that those principles are given practical effect and public procurement is opened up to competition.”
I am concerned about the implications for local, regional and national SMEs, and about our obligations to protect SMEs on a national level, given that they have put so much back into our economy—not only in growth, but in lowering unemployment levels. What exactly will that mean for the distribution of Government contracts? Will the implementation of the directive create any obligations that will impinge on our goal of awarding 25% of Government contracts to SMEs?
I welcome any measures in the public procurement directive that aim to cut red tape and assist UK companies to make the most of the single market. I hope that the promised new regulations will benefit SMEs by encouraging buyers to break contracts into smaller lots and by reducing the cost of the bidding process. The European Commission claims that they may reduce that cost by as much as 60%. SMEs in my constituency and nationwide need reassurance that the process of obtaining Government contracts will not become more elaborate, confusing or inaccessible, and that their interests will not be compromised by the implementation of the directive. I thank my hon. Friend the Member for South Antrim for giving us all a chance to contribute, and I look forward to the shadow Minister’s contribution and the Minister’s reply.
Lisa Nandy (Wigan) (Lab)
I thank the hon. Member for South Antrim (Dr McCrea) for initiating the debate. He was absolutely right to point out just what a force small and medium-sized business are across the country. There are 5 million of them, and they are what keeps our economy moving. He cited examples from his constituency, and I am sure that all hon. Members will have their own examples in mind. Taken together, SMEs are the single biggest employer in my constituency, and that situation is replicated in many towns, cities and rural areas throughout the country.
There is much more that we could do to support SMEs, which are one of the country’s greatest assets, and to unlock their talent, energy and commitment to their communities. I was interested to hear what the hon. Gentleman said about job creation in Northern Ireland over the past few years. It is fascinating to hear what small businesses manage to do despite all the problems and challenges that they face. Think what more they could do if we put in place more support and took away some of the barriers that they encounter.
We must acknowledge the extent to which SMEs have felt the squeeze in recent years, and the problems surrounding Government contracts, which are the focus of today’s debate, must be seen in that context. An economic policy that imposed huge front-loaded cuts on public services has undoubtedly had an impact on SMEs, because in many areas of the country—this picture is familiar to people in Wigan—that policy has created a toxic mix of unemployment, low wages and insecure jobs, which has stopped people spending money in small shops and businesses, thus costing those businesses trade and, in many cases, jobs. In a few instances, the situation has cost people their entire business, which was why I listened with interest to what the hon. Member for East Antrim (Sammy Wilson) said about the balance that must be struck between conditions on contracts and the need for simplicity. He is absolutely right to raise that point because there is a common picture throughout the country of contracts that contain unnecessary complexity that could be removed, with some concerted effort.
When we talk to SMEs, we often find that they are keen to use Government contracts as a force for social good, as my hon. Friend the Member for Inverclyde (Mr McKenzie) described when he spoke about apprenticeships and jobs, but they can need Government support to achieve that. The future jobs fund was a good example of a partnership involving public sector bodies at first, and later smaller employers that could not necessarily afford wage subsidies, but wanted to create opportunities. The programme had a significant effect on young people.
In my area, as is the case in many parts of the country, making the living wage a condition of contracts has been hugely helpful for many SMEs, partly because that means that they do not have to engage in a race to the bottom to undercut prices, because if the requirement to pay the living wage is clearly set out in a contract, such companies can compete without driving down the conditions of their work force. SMEs also benefit from that approach because if more people in towns such as mine are paid the living wage, it is more likely that they will have surplus income to spend in local shops and businesses, meaning that the cycle continues.
It is right to recognise that the picture has been very difficult for many SMEs across the country. The huge front-loaded cuts to many local authorities, health services and other public sector bodies have meant that SMEs have lost contracts. Many small businesses that could borrow money easily from banks on a short-term, sustainable basis a few years ago are now struggling due to the loss of trade and contracts. Taken together, all those things have been problematic for this group of businesses.
Despite the cuts, and although central Government are not handing out large contracts or spending huge amounts on public services, and are unlikely to ramp up that spending any time soon, there is far more that they could do by using the range of tools at their disposal. That was why the hon. Member for South Antrim was right to focus on Government contracts and procurement, which are among central Government’s biggest tools for good. Central Government spend £40 billion a year on goods and services, about 10% of which goes directly to SMEs. Over time—I am not making a party political point because this has happened over a considerable period—a trend has developed for putting in place centralised contractual arrangements that, for various reasons, have tended to shut smaller organisations out of the process altogether. As a result, businesses that are closest to their communities, and that deliver services and do the good that hon. Members have talked about, have become subcontractors in a supply chain, if they are able to compete at all. My hon. Friend the Member for Inverclyde said that he might need to get out more, and while I could not possibly comment on that, perhaps the same is true for the Government, because there is a regional and local picture to consider, too.
Sammy Wilson
Does the hon. Lady accept that, at a time of fiscal constraint, there is a need to get value for money from contracts? That sometimes means that contracts need to be centralised, but one way around that might be to encourage consortiums of small businesses to apply for larger contracts, because such contracts do not necessarily have to exclude small businesses. I sometimes wonder whether we have explored all options of how we ensure that we can have large contracts while still involving smaller firms in delivery.
Lisa Nandy
The hon. Gentleman is absolutely right. I was just about to address the difficulty that small and medium-sized companies face when bidding for public sector contracts. The hon. Member for South Antrim talked about the lengthy, expensive and unnecessarily complicated process, and the lack of support, so I will not rehearse those points to the Minister, although I am interested in his response to them.
One way in which we can ensure that small and medium-sized businesses are not shut out of the procurement process is by moving that process much closer to communities through the devolution agenda, with more commissioning at a regional level. In the past few years, local enterprise partnerships have been established in the place of the regional development agencies, which were very successful. In some areas, local enterprise partnerships still have to bed in, and we can do much more at the local, regional and national levels to make them work for local communities. I see this being played out at the local level, too, but when resources are scarce in local, national or regional government, there is a perceived tension between getting value for money and giving contracts to local providers or those that can offer over and above in relation to the social good. In reality, small and medium-sized companies are much more effective at delivering such contracts because they are rooted in their community, because they see the social impact of what they do and because they can have regard to a range of factors beyond just day-to-day profit making.
There is a good example of that, from which I hope the Government have learned. During the commissioning process for the Work programme, some smaller providers, including a number from the voluntary sector, pulled out because they felt that they could not make an impact through their contracts. We can see a good example of the problem of contracts being dominated by bigger companies, with smaller organisations acting as sub-primes, because St Mungo’s, the homelessness charity, pulled out because not one person was referred to it through the Work programme during the period of its contract. It is inconceivable to think that, had St Mungo’s been given the contract directly, it would have been unable to find people who were desperate to get into work and could have benefited from the intervention it could offer.
The hon. Gentleman was right to say that such dominance by a small number of larger companies is not effective at any level—it is not good for the public or for SMEs. This is not just about SMEs getting what they deserve; it is about ensuring that we are delivering the best value for money in our communities and across the country.
In the time I have remaining, I will address the length of time it takes for payment to reach SMEs for the services that they provide. We hear the complaint that bigger companies are contracted and small companies have to act as sub-primes. The Government could do much more to act in instances when they have made a payment to a prime provider but that has not yet reached the smaller company at the bottom of the chain.
Sammy Wilson
A possible solution when there is a substantial number of subcontractors is the greater use of project bank accounts. Rather than money being paid to the main contractor, it goes into a project bank account to be drawn out as invoices come in. In Northern Ireland, a main contractor can be excluded from applying for public sector contracts for a specified period of time if there are complaints that it is clearly not abiding by the terms of a contract.
Lisa Nandy
I would welcome the Minister’s response to the hon. Gentleman’s intervention.
Although the Government’s record on prompt payment is better than that of the private sector, the National Audit Office found a few weeks ago that the figures are skewed by the Government making prompter payments to a few large suppliers. Astonishingly, it is virtually impossible to assess the record of the Cabinet Office and many other Departments because paper invoices are not dated when they arrive, which is a method commonly used by smaller organisations. Despite the Government’s rhetoric, the situation betrays a casual attitude to something that can be make or break for many small businesses. It would be helpful to know what the Minister has done in the past few weeks to address the situation. Were the Government to pay invoices within five calendar days rather than 30, the reduced interest cost to businesses could be worth up to £88 million, according to the NAO, and the reduced cost to the taxpayer could be up to £55 million. The NAO report called for strategic leadership from the Government and I hope the Minister agrees that it is important that the Cabinet Office leads on this by ensuring that its own suppliers are paid on time.
In conclusion, the Government could draw on the success of other countries. Labour would set up a small business administration that could work to mainstream and hardwire such activity in government. That would require a huge cultural change, but there are small things that the Government could do more quickly, such as taking action on late payments, to signal their intent to unlock one of this country’s biggest assets.
The Minister for Civil Society (Mr Rob Wilson)
I am grateful to the hon. Member for South Antrim (Dr McCrea) for securing this debate on such an important subject. I know that much of his concern is born from the experience of a constituency case, and it is absolutely right that he should speak up for small businesses in his constituency. I join him in congratulating all those wealth creators who take the risk of running their own businesses and, ultimately, pay for the public services that we all enjoy.
From the outset, this Government have fully recognised the vital role that small and medium-sized businesses have to play in helping us to achieve the best possible value for money when we buy goods and services. That was why we included in our initial programme for government an aspiration that by the end of this Parliament 25% of direct and indirect Government procurement of goods and services by value should go to SMEs.
That was a bold step considering that, under the previous Government, Departments had no idea how much they were spending on SMEs. After a lot of hard work, we found that it amounted to 6.5% of Government procurement of goods and services in 2009-10, or £3.1 billion. That was a shamefully low figure, given that 95.5% of private sector businesses in the UK are micro-firms—companies with fewer than 10 employees. However, those micro-businesses together accounted for 32% of private sector employment and 20% of private sector turnover.
We recognised that something had to be done to remove the barriers facing SMEs bidding for Government contracts, and we have gone a long way to removing those barriers. During the past four years, we have increased accessibility and transparency, identified and tackled poor procurement practice and provided practical assistance to help SMEs. We are now taking steps to extend those reforms further across the public sector.
In 2011, to increase accessibility, the Government established the Contracts Finder for central Government. That is a one-stop shop to enable suppliers to find procurement and subcontracting opportunities, tender documents and contracts online and free of charge. The Government have also committed, for the first time, to the publication of future contract opportunities to provide greater transparency about future public sector business, and to help suppliers to plan for and win more business.
Contract pipelines also enable the Government to secure deals that offer better value for the taxpayer by allowing for early negotiation with suppliers. The contract pipelines have developed from £40 billion of future spend in 2011 to more than £191 billion on 19 pipelines by December 2014. This information provides a view of major contracting opportunities through to 2020 and beyond, and it includes projected spend on High Speed 2 and the Thames tunnel, to give just two examples.
We have also appointed Stephen Allott as Crown representative for SMEs to be a
“strong voice at the top table”
for SMEs. He works across Government, and with SMEs and their trade associations, to get full value from SMEs and to increase the number of SMEs bidding for and winning Government contracts. We also set up the Cabinet Office SME panel to provide a regular forum for SMEs to raise the issues that concern them most and to hold our feet, as a Government, to the fire.
Mr Rob Wilson
I will continue for a little bit longer, if I may, because I have to get through a lot of questions to which I know the hon. Gentleman and others want answers.
To identify poor procurement practice, we have introduced a mystery shopper service. If a supplier encounters poor practice, such as an over-bureaucratic pre-qualification requirement or unreasonable selection criteria, they can blow the whistle and refer that to our mystery shopper service, which will raise it on their behalf with the contracting authority. We regularly publish the outcomes of mystery shopper investigations on the gov.uk website. We have now received nearly 800 mystery shopper cases, with four out of five investigations resulting in a positive outcome.
In addition, the mystery shopper service has started proactively spot checking procurements by examining procurement documents online. We have instigated nearly 500 spot checks to look at a range of aspects of procurement, and have found issues in around 20% of the checks that we have conducted, including burdensome pre-qualification questionnaires.
Some 45 of those spot checks tested compliance with the Public Services (Social Value) Act 2012 and involved asking contracting authorities to set out how they considered the requirements of the Act in the pre-procurement stage of service contracts. The sort of evidence that we look for includes whether any consultation took place with the market, and with current and potential service users, and how the conclusions drawn from such consultation were used to shape the requirement. In total, 20% of the authorities examined were unable to provide sufficient evidence of compliance, so we have advised them to ensure they consider the Act in future.
We are particularly conscious of the burden of pre-qualification questionnaires, which are used to select suppliers to be invited to tender, and the pressure that they can place on SMEs. To address that situation, we have eliminated the use of PQQs in 15 out of 17 Departments for all central Government procurement under the EU threshold of approximately £100,000. The two Departments still using PQQs—the Foreign and Commonwealth Office and the Ministry of Defence—are doing so only for security reasons. For those procurements that still require a PQQ, we have introduced a much simpler standard set of questions, which reduces the burden on suppliers and levels the playing field in terms of financial risk and evidence of experience.
We recognise that being paid promptly is vital to enable SMEs to manage their cash flows and to reduce the amount of time wasted on chasing invoices. We are determined to help businesses to manage their cash flows and to transform the culture of late payment. In 2010, to respond to the point made by the hon. Member for Wigan (Lisa Nandy), the Government reiterated our policy of paying 80% of undisputed invoices within five days and ensuring that the prime contractors pay tier 2 suppliers within 30 days as a condition of contracting with Departments. We expect our suppliers to follow our example on prompt payment and to pay their subcontractors within the 30-day limit. When this does not happen, we encourage suppliers to report late payment to the mystery shopper service.
We know that we need to do more to improve performance across the public sector, however. We have made much progress in the past four years, but following recommendations by Lord Young of Graffham, we now intend to extend these reforms across the public sector to non-devolved bodies such as the NHS and local councils in England.
We intend to introduce measures in the next few weeks to ensure that 30-day payment terms flow down the public sector supply chains into all new contracts, which will ensure that smaller suppliers benefit from prompt payment. Contracts Finder will be extended to become a one-stop shop for public sector contract opportunities. We have fully redeveloped the original site to make it more user-friendly, including by creating a powerful search facility to make it easier to find and bid for work, and providing the ability to look up contracts by location and postcode. The site will function on multiple devices.
I am conscious of the time, but I want to cover as many of the questions that were asked as possible. We heard about EU procurement rules being unwieldy, and we have negotiated a new procurement directive that will improve the chances of SMEs winning public contracts. Regulations to transpose that directive will be introduced very soon.
As for the EU procurement requirement, as part of this year’s new public contract legislation, there will be more open approaches for supplier procurement and a reaching out to more suppliers, including SMEs. The documentation required from SMEs is being reduced to make it easier for them to access opportunities. The UK engaged proactively in negotiations on a new directive on SMEs and EU markets.
I was asked about aggregating demand with regard to helping SMEs. Breaking large contracts into more manageable lots is key to ensuring that SMEs can compete for aggregated deals, and the new procurement regulations will require contracting authorities actively to consider that. The new public contracts regulations will apply across the whole public sector, apart from devolved bodies, and will include Lord Young’s recommendation to abolish PQQs. Under Lord Young’s reforms, we are requiring the public sector generally to advertise contracts on Contracts Finder. This includes an option to highlight any opportunity as applying to an SME.
The hon. Member for South Antrim talked about an individual company. The Highways Agency fully supports the use of Conemaster on its road networks. It has funded its use in road trials, as well as an analysis of its economic performance, which showed that Conemaster demonstrated a positive benefit-cost ratio of 2:1.
I think that is about as far as I will get on answering hon. Members’ questions, but I would like to say finally that we—