The Benefits of Public Sector Procurement from Small Businesses

The Situation

NERA was commissioned by the Small Business Service (SBS), an Executive Agency of the UK Department of Trade and Industry, to examine the contribution that small businesses make to value for money in public sector markets. The SBS wanted to understand how small businesses contribute to these markets, and how their contribution can be increased to deliver substantial savings to local and central government.

NERA's Role

NERA examined the statistical data on government procurement from small businesses, as well as economic literature on the wider benefits of small businesses, and 20 case studies of procurement from small businesses. The literature review led NERA to conclude that, in general, small businesses, especially those in innovative markets, bring wider benefits to the British economy. NERA used SBS annual statistics for 1995-2003 and UK Input-Output Supply and Use Tables for 2002 to estimate small business shares of turnover and employment in different sectors of the economy, and to derive information on government consumption in different economic sectors.

NERA found that the case studies provided several examples of procurement from small businesses, usually in competition with large businesses, where the characteristics of exceptional commitment, and often exceptional specialist skills, are strikingly demonstrated. The studies suggest that, although widening the supplier base to include more small business can demand extra procurement effort and professionalism on behalf of the procurers, it can be rewarding across a very wide spectrum of procurement.

The Result

NERA concluded that, based on the case studies, the greatest scope for improving the use of small businesses in government procurement lies in increasing procurement professionalism.