In this thought leadership article, James Smith, Tech Entrepreneur and Member of the Technology Leadership Council comments on how governments can better support SMEs by becoming their best customers.

I recently highlighted an article that suggests governments should invest less in start-ups and instead, be a better customer to them. So, it was a let-down to see yet another big contract (£450m / $568m) from the Welsh government go to a single supplier, that being the non-Welsh based and ex-Capita IT solutions provider, Trustmarque Solutions. This is not to detract from Trustmarque’s accomplishment in securing a substantial contract. Rather, it’s to prompt discussion on how the Welsh government might devise support initiatives for small and medium-sized enterprises (SMEs) and embed provisions within contracts to nurture a more equitable and prosperous environment for smaller entities.

The idea is simple: to better support SMEs, governments must improve their role as customers. A pound earned through business (turnover) can be more beneficial than a pound received in investment, because governments as a customer promote trust and credibility.

Therefore, it begs the question as to how to best make this happen. One place to start is the embedding of contractual clauses across the public sector which bolster SME support.

For instance:

Set-Aside Provisions: Include clauses that set aside a specific percentage of the contract value exclusively for SME participation, ensuring that a portion of the government project is specifically allocated for smaller businesses.

Subcontracting Requirements: Mandate that larger prime contractors allocate a percentage of the work to SME subcontractors, thereby creating opportunities for smaller enterprises to contribute to larger projects and gain valuable experience.

Inclusivity Criteria: Introduce evaluation criteria that recognise and reward SME participation, innovation, and local economic impact within the contract awarding process. This can incentivise larger companies to actively engage SMEs in their projects.

Simplified Bidding Processes: Streamline the bidding and procurement processes to reduce administrative burdens on SMEs, making it easier for them to participate without being encumbered by overly complex procedures.

If these provisions were part of a standard procurement framework mandate across Wales, it should then be possible to set out clear metrics on which to measure the success of SME engagement. For example:

SME Participation Rate: The proportion of government contract value allocated to SMEs.

Subcontracting Utilisation: Reveals how well SMEs are utilised as subcontractors by major contractors.

Economic Impact: Evaluating SMEs’ contributions to government contracts—through job creation, local investments, and innovation—provides a snapshot of the wider economic advantages.

With these measures in place, assessing contracts based on their economic impact combined with direct feedback from SMEs on their experiences should provide a simple way to evaluate the impact of such policies.

I’m a big advocate for allocating either a partial or specialised segment of the contract to SMEs, as it addresses many challenges that Government departments face when engaging with smaller entities, who have limited resources and may not be fully compliant with all regulatory requirements. In return, government procurement needs to simplify the barriers that might hinder smaller companies such as timelines, accounting rules and insurance levels.

So, could the Welsh government embed contractual clauses across its public sector to bolster SME support?

Well, the answer is yes! As championed by Baroness Neville-Rolfe DBE CMG, closer SME engagement will form part of the new UK Government Procurement Bill. The Act provides for simpler procurement processes to support small businesses and innovation, and protects against national security risks in public contracts. The new bill is expected to come into force October 2024, and aims to deliver simpler, more effective public sector procurement, helping SMEs secure a greater share of approximately £300bn of UK public sector expenditure per year.

I remain hopeful that Welsh SMEs will seize the opportunity presented by the forthcoming Procurement Bill and that the Welsh Government will expand on these enactments to amplify support for the Welsh entrepreneurial landscape and foster stronger relationships between the Welsh Government and SMEs.

James is a Cardiff-based tech entrepreneur with over 30 years of experience. He began as a Senior Software Engineer at Dell, launching successful e-commerce platforms. As CTO of Adactus Limited, he developed major e-commerce systems for brands like Aviva and Pizza Hut.

Most recently, James was CEO and Co-Founder of DevOpsGroup Limited, growing it to serve over 100 global customers and achieving recognition as one of the Top 50 Fastest Growing Companies in Wales. The company was acquired by Sourced Group in 2021.

James now advises various tech start-ups, providing strategic guidance and growth support.