Small Talk: Whitehall needs to put its money where its mouth ison helping small business

  • @davidprosserind

One thing that would definitely help Britain's small and medium-sized enterprises grow into large companies one day is more business from a customer that spends £236bn a year procuring good and services. Step forward the public sector – if it were to raise the amount of business it awards to SMEs, even by a small percentage, the results could be dramatic.

That is what is supposed to have happened after the Government announced in November 2010 that its goal would be to award 25 per cent of all contracts to SMEs. It even announced some reforms to help it achieve that target – notably a streamlining of the pre-qualifying questionnaires that bidders for public sector work must complete before even registering an interest in a contract.

Sadly, however, the initiative isn't working. Just 7.8 per cent of government contracts went to SMEs during the third quarter of last year, with not a single government department coming anywhere near the 25 per cent target. At the Department for Business, which championed the goal, the proportion of contracts awarded to SMEs during the third quarter actually fell, to 13 per cent compared to 16.5 per cent in the previous quarter.

Moreover, the reality of the data may be much worse than the headline figures suggest. Colin Cram, a specialist in public sector procurement, has just revealed a string of embarrassing disclosures made to him by the Department of Business on its 25 per cent target. Not only does it acknowledge that the target is an aspiration rather than a hard and fast policy, the department reveals that the 25 per cent only applies to central government contracts. This work accounts for just £65bn of the entire £236bn public sector spend.

Worse of all, says Mr Cram, the figures just unveiled are not necessarily for contracts handed directly to SMEs. Departments are allowed to include contracts where SMEs feature somewhere in the supply chain. In fact, with that flexibility, it's quite an achievement to have kept the SME contract count so low.

The suspicion must be that some departments are paying only lip-service to what was never a particularly impressive commitment in the first place. Although some of the bureaucracy involved in bidding for public sector work has now been eased, there are other ways to help SMEs get more of these contracts. In Scotland, public bodies have been given guidance on how to design tender processes so as to give SMEs a better chance of winning.

At the very least, converting the 25 per cent target from aspiration into fully fledged policy would be an important signal of intent. Announcing that only direct contract awards count would be even better.

Camera experts in the picture

OMG, which specialises in mobile motion capture – recording movements digitally – has unveiled two new contracts in the past few days.

In a £2.27m deal with the Highways Agency, OMG's Yotta subsidiary will spend four years working to determine the condition of 140,000km of Britain's main roads.

That contract win followed a deal to supply The Imaginarum with 80 of its specialist cameras. It will also be working with the studio, founded by the actor Andy Serkis (Gollum in The Lord of the Rings, right), and the film producer Jonathan Cavendish (best known for the Bridget Jones films).

The deals could mark a turning point for IMG, which had a tough year in 2011, though it remained profitable. The stock now trades at 24p, a third more than a week ago, but still well off the 44p high of a year ago.

Telecoms punt for £2.5bn growth fund

Though it became fully operational last April, the Business Growth Fund has been taking its time to make investments. The fund is backed by Britain's five biggest banks but operates autonomously and has £2.5bn of capital with which to make investments of between £2m and £10m in fast-growing small and medium-sized businesses. In return, it gets a seat on the board plus an equity stake of at least 10 per cent.

Until this month, the fund had made only three investments. Now there is a fourth, with BGF announcing it is putting £10m into Lincoln-based GCI Telecom Group. Founder 12 years ago by Wayne Martin, who still runs the business, GCI's telecoms and data services are producing annual revenues of close to £70m.

BGF is taking a minority stake – the exact stake is undisclosed – and has also installed the telecom industry veteran John Cronin on the board of GCI as non-executive chairman.

Small businessman of the week: Price is now so important – which is good news for us

Matt Davies founded DirectFerries, a ticket retailer and independent travel provider

The downturn hasn't necessarily been bad news for everyone, particularly if you're a business exposed to the way in which people are now so much more determined to get the best possible price.

One thing we've found over the past two or three years is that everyone is after deals all the time – it used to be that people knew they would get cheaper tickets if they booked well in advance, but now they expect that all the time. Price is everything – if people are not getting the best price, they're not going, and they're waiting to the last minute to make that decision.

Our business has also been a beneficiary of the unpredictable weather and industrial action that has wreaked havoc on the airlines – the UK market was starting to get a little stagnant three years ago, but the ash cloud was a huge boost for us and that has kept on going.