The SME spend targets are designed to ensure more public sector contracts are awarded to SMEs through the tendering process. They also supplement a key objective within last year’s Backing your Business policy paper – higher spend with small- and medium-sized businesses will stimulate wider economic growth and strengthen local supply chains.
We analyse the new SME spend targets, history of central government spend with SMEs and what current and prospective bidders can do to prepare.
What are the new procurement spend targets with small businesses?
Targets are ambitious and, if fulfilled, will have a considerable impact on overall procurement spend. For instance, the Ministry of Defence has set a target to increase spending by 50% (from £5 billion to £7.5 billion) over the next two years.
Other notable direct spend targets include:
| Government department | Direct spend target |
| Cabinet Office | 30% |
| Department for Energy Security and Net Zero | 29% |
| Department for Science, Innovation and Technology | 40% |
| Ministry of Housing, Communities and Local Government | 27.5% |
| HM Treasury | 22% |
| Department for Environment, Food and Rural Affairs | 20% |
To contextualise, the Cabinet Office spent 22.1% of the 2024/25 FY budget (circa £200m) with SMEs. Although figures are not available for the other central government departments, we can assume there is a similar gap between current spend and the new targets – further supported by historic data.
History of central government spend with SMEs
Over a decade ago, the central government first outlined its ambition for £1 of every £3 to be spent with SMEs by 2020 – which it has not met every subsequent financial year.
For instance, in the 2021/22 financial year, although departmental spending was in excess of £10 billion, it represented just 14.2% of procurement spend – demonstrating consistent differences between government targets and actual spending allocation.
In 2023, we analysed the pervasiveness of this issue, alongside how – although figures were improving – total spend was at 26%, and increases were largely due to indirect rather than direct spend. In fact, direct spend has been consistently decreasing since 2022.
How will new spending targets with small businesses be supported?
As part of the policy, the government is introducing targeted support to increase inclusion of small businesses. This includes:
- A new Business Growth Service launched by the central government, introducing a ‘streamlined digital offer’ in lieu of previous business support programmes
- £4 billion boost to funding for the purposes of increasing access to finance for entrepreneurs – providing further support for those seeking to start their own business and facilitating ‘a culture which celebrates and champions entrepreneurs’
- Commitment to making SMEs a ‘national priority’ by ensuring fair opportunity to win public contracts, with action plans created for each central government department and wider agencies.
Overall, the Cabinet Office said its expectation was that departments would be spending in excess of £7.4 billion per annum with small- and medium-sized businesses by 2027/28.
What should current and prospective suppliers do next?
Invest time in being ‘bid ready’ and ensuring compliance
Public sector tenders are normally only live for a four- to six-week period – meaning every day of this live window counts enormously. Preparation and bid planning is crucial; use the lead-in time to begin considering material to use within your submission, as well as collating key documents such as accreditations, certifications and copies of accounts.
Executive Compass’s pre-bid consultancy allows organisations to gain a running start on bid and tender submissions before they go live by:
- Developing key ‘win themes’ and considering unique selling points you can offer beyond simple specification compliance
- Anticipating content which may be addressed within the quality element of the submission through structured capture planning and storyboarding sessions
- Compiling evidence such as KPIs, images of completed works and flow charts/diagrams, to be used as part of bid responses, contract examples and case studies.
Registration with the Central Digital Platform is now mandatory for all public sector buyers and suppliers – although the process is relatively straightforward, ensure you register in good time to avoid your bid being marked as a noncompliant tender.
Engage with buyers early in the procurement process
An increased number of pre-market engagement exercises and questionnaires are one of many changes resulting from the Procurement Act 2023. Alongside supporting bidders to formalise their bid pipeline, early engagement will ensure you can assess whether the tender is right for your organisation – facilitating an early ‘bid/no-bid’ decision.
Consider your competitive advantages as an SME
Far too many small business have a negative perception about their bidding prospects, resulting in common misconceptions in tendering as an SME. The pre-bid phase is where you can start to consider where your advantages and key differentiators lie as a small business – for instance, greater flexibility, local service delivery and social value through locally based employees.
How Executive Compass can support your next bid
Executive Compass has extensive experience in supporting small- and medium-sized businesses to acquire and retain contracts through public sector tendering. Our expert bid and tender writers review the specification, dissect the question set and leverage competitive advantages to support the strongest possible submission.
To find out more, contact us today to reserve a free 30-minute consultation with one of our bid professionals.