Introduction

SMEs and government In Northern Ireland there are estimated to be

purchasing in Northern 84,620 small- to medium-sized enterprises
Ireland: problems and (SMEs), employing 425,000 people and
having a percentage turnover of 74.7 per cent,
opportunities the highest figures in any region of the UK
(DTI, 2000a). Between 1998-1999, the six
Ruth Fee main Northern Ireland Civil Service
Andrew Erridge departments spent approximately £600
million on public procurement. In addition to
and Sean Hennigan this, approximately £340 million was
identified for public procurement spend for
the health service organisations. There is
obviously scope for SMEs to benefit from
government contracts in Northern Ireland,
The authors both as main contractors and sub-contractors.
Ruth Fee is Lecturer in Government, Andrew Erridge is Indeed, support for SMEs in Northern
Professor of Public Policy and Management, and Ireland which want to tender for government
Sean Hennigan is Research Assistant in Public contracts comes from three levels: local,
Procurement, all at the School of Public Policy, Economics national and regional. At the local level, to
and Law, University of Ulster at Jordanstown, cater for the needs of businesses in relation to
Newtownabbey, Northern Ireland. government contracts and in response to the
government purchasing initiatives launched in
Keywords the mid-1980s, the Central Unit on
Purchasing was established in 1986. This
Purchasing, Small- to medium-sized enterprises,
organisation developed from a purely advisory
Problem solving, Northern Ireland
body to a contracting authority and became
the Government Purchasing Service in 1990.
Abstract
In line with government policy, a prior
The aim of the paper is to examine the support options study was conducted in the autumn of
mechanisms that exist for small- to medium-sized 1995, which recommended agency status for
enterprises (SMEs) in Northern Ireland and how access to the Government Purchasing Service. The
government contracts can be improved for SMEs. The Government Purchasing Agency of Northern
paper will investigate the rationale for SME involvement Ireland (GPA) state in their business plan that
in public procurement, as well as drawing upon a series of their business is planned and managed with a
interviews carried out with government suppliers in view to assisting SMEs to sharpen their
Northern Ireland. This paper concludes that even though
competition edge (GPA, 2000). The agency
there are support mechanisms for SMEs at both a UK and
also has a target to achieve an 80 per cent
at a European level, government tendering procedures
level of satisfaction measured by a survey of
need to be simplified to ensure easier access to contracts
suppliers. The Central Services Agency for
for SMEs.
Northern Ireland manages most health
contracts in Northern Ireland. Although
Electronic access Northern Ireland is now responsible for policy
The research register for this journal is available at making in devolved areas of government,
http://www.emeraldinsight.com/researchregisters including public procurement (except for the
The current issue and full text archive of this journal is
Northern Ireland office and other security-
available at related contracts), this paper focuses on UK
http://www.emeraldinsight.com/0955-534X.htm support for SMEs only. The process of
implementing a formal review of government
procurement in Northern Ireland is currently
underway and no policies on SME or any
European Business Review
other procurement matter have formally been
Volume 14 . Number 5 . 2002 . pp. 326±334
# MCB UP Limited . ISSN 0955-534X adopted. At the national level, the UK
DOI 10.1108/09555340210444176 government has set up the Small Business
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Service which is dedicated to helping small are largest and most positive in small
business and represents their interests across producers and smallest and negative in large
government. The Department of Trade and producers.
Investment (DTI) also actively encourages As regards their share of employment, it has
SMEs to apply for government contracts become clear that small firms account for a
(DTI, 2000b). substantial and growing proportion of total
At the regional level, the European Union employment (Hart and Hanvey, 1995). In
has programmes aimed specifically at SMEs. Europe often the only reason why individual
In general terms, a key feature of the member states experienced overall
European procurement directives was to open employment growth during the mid to late
up the public procurement market to SMEs 1980s was because growth in SME
and increase competition for public contracts. employment more than offset losses in the
A new directorate-general (DG) responsible large enterprise sector. It is now the case that
for enterprise policy promotes a European more workers are employed in firms with
Charter for Small Businesses, which aims to, fewer than ten workers than in those with
inter alia, ensure access to markets on the more than 500 workers (Clay et al., 1996).
basis of the least burdensome requirements The second area in which SMEs can
that are consistent with overriding public contribute is through innovation, which is
policy objectives. These markets include required if the goals of efficiency and
public procurement markets. Even though effectiveness in government policy are to be
support for SMEs in government purchasing met. Benchmarking against best practice in
exists at these levels, there is clear evidence the private sector will show that modern
that more support is required. This evidence strategic procurement has focused on the idea
is provided from the findings of a series of of developing relationships with suppliers who
interviews undertaken during 1999 with can provide innovation and add value to the
SMEs as part of a formal review process of process. In many markets small firms have a
government purchasing in Northern Ireland. competitive advantage in their ability to adapt
and change and closeness to their customers.
The purpose of the interviews was to ascertain
Small firms may have comparative advantage
what obstacles existed to accessing
in the earlier stages of inventive work and less
government contracts in Northern Ireland.
expensive more radical innovations. Applying
The paper examines first, the rationale for
this to government purchasing, the public
involvement of SMEs in public procurement,
sector lacks an entrepreneurial culture and it
second, the support mechanisms that exist for
is argued that greater SME involvement will
SMEs at national and EU levels, and finally
lead eventually to greater innovation, adding
outlines the findings of the interviews and the
value and reducing cost (Erridge et al., 1998).
conclusions.
Another option for involving SMEs is through
sub-contracting whereby a contract is won by
a larger company which outsources products
Rationale for involvement of SMEs in or services from small firms. In this way
public procurement SMEs can still be innovators to the public
sector as second-tier suppliers and if they are
Small firms have been identified as a
successful could build a strong relationship
significant component of economic strategies
with the prime contractor which should
for employment and the vehicle through
contribute to growth. The success of SMEs in
which jobs are created. The evidence for this sub-contracting depends on a good flow of
comes from two separate sets of studies ± information from the contacting authorities
longitudinal analyses that study job creation regarding who won the original tender, and a
and destruction and cross-sectional analysis willingness on behalf of large companies to
of the distribution of the share of sub-contract a fair proportion of work at a
employment. Baldwin and Garnett (1995) profitable price to SMEs.
note that when rates of job creation and The relationship between SMEs and public
destruction are calculated by class size, procurement is mutually beneficial and
smaller plants or firms are generally found to provides a rationale for encouraging greater
have the highest; more importantly net job involvement. The public sector offers
change (job creation minus job destruction) attractive, stable contracts and accreditation
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through association while small firms offer the grew by 7 per cent, compared with a drop of
best potential job growth and innovation. 7 per cent for non-assisted businesses. Table I
With greater involvement in public displays current spending and projected
procurement, job growth and innovation spending on SMEs in the UK.
would be further enhanced as the small The most important component of the
innovative firm has the security required to enterprise fund is the Small Firms Loan
make plans for the future and further Guarantee Scheme. Since 1981 over 69,000
potential growth. The dilemma for policy loans worth around £2,420 million in total
makers is how to encourage this participation have been guaranteed. The scheme provides
while at the same time working within the guarantees for banks and other financial
framework of fair competition, which is institutions to lend to businesses for viable
fundamental to economic policy. The propositions where there is a lack of security
following section sets out the support or track record.
mechanisms that exist for SMEs both at a
national (UK) level and at a European level. Support for SMEs selling to central
government departments
The DTI believes that there is a good case on
Support at a national level for SME value for money grounds for taking steps to
participation in public procurement remove barriers to participation by SMEs in
public procurement (DTI, 2000b). Insofar as
Support for all SMEs
it is consistent with obtaining value for
In general terms, the UK government has a
money, they should be included on
series of programmes designed to promote
appropriate lists of companies invited to
SMEs. In order to promote a culture of
quote or tender. SMEs can be encouraged to
enterprise in the UK, the government set up
participate in public sector contracts in many
the Small Business Service (SBS) in
ways which do not discriminate against larger
March 1999, seeking to:
firms and which help to improve value for
Improve ease of access to and increased take-up
of a comprehensive portfolio of information, money by increasing competition:
advice and business support services from . By improving access to procurement
Government, public, private and voluntary information.
sectors, by means of a comprehensive database . By sub-dividing large contracts in
accessible via the Internet, a telephone enquiry
appropriate circumstances so that small
line, and face to face contact (DT1, 2000c).
and medium companies can bid.
The government hopes that this service will However care is needed when splitting
be available to all small businesses including contracts so as not to inadvertently
those groups who may face particular reduce the contract value below EU
obstacles to starting or growing a business, procurement thresholds.
such as women and ethnic minorities. In . By taking a flexible approach when
particular, the government planned that the seeking quality assurance ± BS EN ISO
SBS will offer consultancy, advice and 9000 (BS5750) is not a mandatory
planning to help small business get on-line as requirement for government contracts
part of the £60 million package announced in and certification may be inappropriate for
the 2000 budget to encourage small firms to a number of small firms.
invest in IT and embrace e-commerce. . By paying special attention to the prompt
The DTI has also committed itself to payment of invoices and by being helpful
increasing the productivity and profitability of particularly in redirecting enquires (DTI,
SMEs assisted by business links (BL) 2000b)
partnerships, and to show year by year
improvement in the quality of services Within the UK government, departments
delivered under the BL brand. In 1998, an usually place contracts after a period of widely
independent evaluation showed that the based competitive tendering. However,
productivity of businesses assisted by BLs suppliers may not be asked to tender every
grew by 13 per cent, compared with 1 per time. Framework agreements or ``call-off''
cent for non-assisted businesses. The contracts are common and are based on an
profitability of businesses assisted by BLs estimate of a department's total requirement
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Table I Expenditure on enterprise and small firms (£ million)

1998-1999 1999-2000 2000-2001 2001-2002
outrun estimated outrun plans plans
Small firms, BLs and enterprise 152.0 180.3 225.2a 202.9
Of which:
Pump-priming grants to BLs 14.3 1.2 0.4 0
Local competitiveness budgetb 103.2 124.8 132.2 238.1
Small firms loan guarantee scheme 33.9 ± ± ±
Enterprise fund including SFLGS ± 48.5 73.5a 56.5
Phoenix fund ± 3.0 15.3 5.5
Other initiativesc 0.6 2.8 3.8 2.8
Notes: a The expenditure peak in 2000-2001 is due to the one-off grant of £20 million for the UK High Technology
Fund; b Includes expenditure on core services funding, business link head office support, regional supply network,
CWII, local competitiveness challenge, specialist counsellors, residual transfers from the innovation and technology
and support budget, centres of expertise, and the small business service and start-ups. The budget also includes
some expenditure formerly classified as pump-priming grants to business links and transfers from other government
sponsoring departments; c Includes small firm's miscellaneous, skills support and the Entrepreneurship Fund

over a stipulated period. Orders are placed commercial activities represent 64 per cent of
when the need arises during the period of the the annual turnover in the Union and they
contract. employ 70 per cent of the total workforce in
During the last few years, the government Europe. Policy makers at both domestic and
has become more aware of the needs of SMEs European level face a dilemma in their
in relation to public procurement. Both in attempts to promote the participation of
Northern Ireland and the UK in general there SMEs in public procurement. The dilemma
is an increasing opportunity for small firms to lies in the choice of the most appropriate
do business with government departments. method for the promotion of SME
Departments are not required to buy through participation in tendering procedures and the
central suppliers and are able to save money award of public contracts:
by purchasing direct from suppliers. The DTI The principal factors which have been claimed to
believes that government procurement is fair, inhibit SMEs in public procurement include the
transparent and compares well with other relatively large size of the contracts, the difficulty
countries (DTI, 2000b). However, tendering in obtaining adequate information on
to government is burdensome and costly to forthcoming contracts, the shortage of
language skills particularly in technical areas
suppliers (Gershon, 1999). Government
(Bovis, 1998, p. 234).
procurement tends to focus on ensuring the
lowest up-front cost, which does not always Other problems include the availability of
translate to best value for money over a time and the cost involved in preparing bids,
project's lifetime. Industry suggest that scarce management resources and problems,
bidding for government contracts is typically problems relating to specification of
between ten and 50 per cent more costly than standards, difficulties in other member states
bidding for comparable projects in the private in obtaining certification in obtaining quality
sector, and this additional cost can deter some assurance. Nevertheless, the European
potential bidders from competing. The Commission (1998, p. 19) has recognised the
Gershon Report (1999) recommended that importance of SMEs, both for the general
the Office of Government Commerce (OGC) benefit of national economies and also in
should consult with industry and SMEs on public procurement:
identifying burdens and taking appropriate SMEs have the potential to supply the additional
action to reduce them. competition, flexibility and capacity for
innovation essential to the successful opening up
of public procurement markets. Every effort to
make public procurement more accessible for
Support at a European level for SME business should start off from the point of view
participation in public procurement of the SME.

In the EU, SMEs account for 95 per cent of The EU public procurement directives are
the total number of enterprises. Their intended to guarantee non-discriminatory and
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fair international competition in bidding for number of tenders actually won by SMEs.
goods, services and works above specified However the available data clearly suggest
value thresholds. They were introduced for that a considerable part of all European
works and supplies during the 1970s, but it tenders are won by SMEs.
was only with the push for a single market Bovis (1996) outlined that small and
during the 1980s that the legislative regime medium-sized firms find it difficult to
was expanded to include utilities and services, penetrate product or geographical markets as
and directives to ensure compliance with the a result of either collusive tendering by
rules. The main provisions of the directives oligopolist suppliers, or inefficient own
are: resources which could not be compared with
. EU-wide publication of contracts, so that those of large firms. Arguably, if the enhanced
firms across the Community have an competitive regime in public markets results
opportunity to participate; in industrial concentration which could bring
. the use of technical specifications which about efficiency gains for public sector
are non-discriminatory and which refer to purchasing, then there should be grounds for
Community-based standards wherever complaint about market inequalities
possible; and concerning access and opportunities for small
. the use of objective criteria for selecting and medium firms. Market access for SMEs
participants and awarding contracts. in public procurement is limited and
disproportionately low in relation to their
The opening of public procurement to
numbers throughout the EU.
competition makes it possible to obtain an
However, among the barriers still
effective allocation of public money by
hampering SMEs, lack of information is by far
ensuring the best possible results in terms of
the largest problem. However, this barrier
both quality and cost, while making it possible
seems to reduce when a high percentage of
for companies to benefit fully from the employees within an enterprise have direct
advantages of the single market. access to the Internet. Once the information
New opportunities therefore exist for SMEs
gap is filled, other barriers appear: the
as a consequence of the opening-up of the
projects are too large for SMEs, high
market for public procurement. The ENSR
administrative burdens and high costs of
Enterprise Survey 1999 reveals that in 1999,
preparing a bid. Indeed, the European
on average, one third of SMEs is aware of the
Commission itself highlighted the problems
possibilities for enterprises like themselves to
faced by SMEs in the 1998 communication
participate in tender procedures for supplying
(European Commission, 1998) such as a lack
goods, services or construction works to local,
of information about potential contracts,
national or European level (Martin et al.,
inability to draw up business plans, mismatch
1999). Also, one third of them face more
between the size of the enterprise and the
opportunities due to the opening up of the
large size of the contracts. There is also
market for public procurement although
anxiety about currency fluctuations and the
country differences exist. Of the enterprises
need to meet standards, certifications and
that are aware of public tenders, one-sixth
qualifications.
tried to participate in European tenders
during the past three years. Of all enterprises
sizes considered, the medium-sized
enterprises seemed to be more aware of SMEs and accessing public contracts in
tender procedures and also tried to participate Northern Ireland
most. About half of the SMEs that tried to
participate in one or more European tenders Although there is support available for SMEs
in the past three years did receive an order both within the UK and the European Union,
following their participation in such tender there are many problems faced by SMEs
procedures. Between 2 and 3 per cent of all when trying to access government contracts.
SMEs received orders during the past three This section outlines why more support is
years following their participation in needed for SMEs in contracting for
European tender procedures. The results of government, detailing the findings of a series
the ENSR Enterprise Survey 1999 do not of interviews undertaken during 1999 with
allow the accurate calculation of the absolute SMEs as part of a formal review process of
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government purchasing in Northern Ireland. from the documentation to site visits. This, in
The purpose of the interviews was to ascertain particular, was damaging to SMEs, which do
what obstacles existed to accessing not have the time to spend on contract
government contracts in Northern Ireland. management.
The interviews were semi-structured,
Vague specifications
allowing respondents to elaborate on issues
Even though most suppliers had complaints
that concerned them when they tendered,
about the overly bureaucratic nature of
either successfully or unsuccessfully, for
the documentation, this was further
government contracts. A total of 12 suppliers
compounded by aspects of the
were interviewed, of which ten were suppliers
documentation not being precise enough.
of office products, machinery and IT, and two
One supplier noted:
were service providers. The interviewees were
A more precise and detailed contract description
chosen at random from a list of suppliers who should be prepared ± the technical specifications
supplied both central procurement agencies are extremely vague . . .
and departments. The questions were split
Another commented that:
into separate sections on:
Specification of the product should be clearer
. the contract documentation;
and more informative.
. the tendering process;
. staff professionalism; This was repeated by four other suppliers (six
. the contract award; in total):
. contract performance; and Pricing schedules need to be better defined and
. willingness to bid for future contracts. less open to a number of interpretations . . . and
greater detail on the evaluation criteria.
The documentation The pricing schedule was again noted by one
Bureaucracy major IT supplier as very unsatisfactory and
There was a general feeling that the that the:
documentation was bureaucratic in nature. . . . specification of equipment being quoted for
One supplier noted that he would like to needs to be tightened up ± standards,
see the documentation rewritten in plain certificates, etc. . . . .
English. Another expanded this comment A need for simplification
by saying: Three suppliers felt that the documentation
Greater accuracy is required in defining the
was straightforward enough and there were no
contract. There should be less use of contractual
government language that [government
real problems. It should be noted however
purchasers] hide behind. that, in their terms, they were ``commodity''
businesses and therefore problems should not
One supplier thought that inexperienced staff
normally arise. Indeed, one of these suppliers
were producing the documentation for the
stated that there was always a need for
contract. Reading the documentation gave an
simplification.
impression of ``going round in circles'', it
taking up to a week to read the The tendering process
documentation. One example was given of a One supplier noted that government
40 page document, a ``bureaucratic tendering processes sometimes gave some
nightmare''. Most of the information required suppliers an unfair advantage. The supplier
of bidders had been previously submitted to had been contacted on more than one
government. occasion to give a price on a piece of
Basic requirements machinery. When the supplier stated that this
Five suppliers noted that tender could not be done, the purchaser asked for a
documentation needed to be constantly ``ball-park'' figure and that the contract would
re-written for each application. There was no go out to tender. When the supplier later rang
basic requirement that was kept on record by to check when the contract would go out to
government. This was viewed to be a total tender, he was told that the item had already
waste of the supplier's time. One supplier been supplied. This had happened on a few
noted that in general there was far too much occasions where the item was worth between
time spent on the management of contracts ± £4,000 and £12,000.
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Staff professionalism contract and the commencement of the

One supplier queried the professionalism of contract; one supplier noted that it was
procurement staff, when after the company generally a panic and last minute in nature.
had been successful in winning a contract, Only one supplier felt that there was too
their particular piece of equipment was visited much time between the two dates. There was
on-site. This had not been done prior to the also an issue addressed by two suppliers who
contract award. One supplier noted that he thought that although the time between the
had got the impression that procurement staff award of the contract and the commencement
just wanted an easy job and that they had not of the contract was OK, government should
been trained to a sufficient standard, but was allow:
not aware of the experience or qualifications . . . realistic time for contractors to respond
of the purchasing staff concerned. One to adverts and invitations to tender . . . this
supplier was particularly scathing about the should be a minimum of two weeks from the
professionalism of purchasing staff, noting receipt of papers, not the issue of the invitation
that: to tender.
Health, ELBs and Local Councils only place one Another commented that:
year contracts. How can we develop a better It is very frustrating to see good invitations to
service for them over such a short time? It is only tender with insufficient time to respond.
about price, they do not look at the product. I
have to give a cheap price, for a good product, The debrief
compared with a low price of an inferior product All suppliers stated that they were debriefed
elsewhere, or lose the business. when unsuccessful in winning a contract. One
supplier noted that this should be in a
The contract award
mandatory format, as it always had to be
Clarity of the details
requested. Another stated that there was
It was noted by seven of the suppliers that the
never enough information given at the
contract award details were clear for any
debrief.
contract they had been successful in winning.
One supplier felt that the details were clear
Contract performance
because there was a culture in government of
Out of 12 suppliers interviewed, eight noted
dealing with the customer. One supplier
that the business generated through the
noted that:
contract was much less than expected, varying
All details of how much, to whom, etc. should be
on particular contracts from 40 per cent to
set out in plain English and less hiding behind
contractual language. 95 per cent less than expected levels of
business. In all of these cases the suppliers
Basis of the award
had won a tender to supply equipment under
It was noted by three suppliers that they felt
a framework arrangement. This was a real
contracts were awarded on the basis of price
issue for suppliers. One noted:
alone, even though the contract details
One off contracts are reviewed in a fair and
specified that this was not the case (they had meaningful way. Framework contracts are
been in subsequent contact with other subject to major abuse as they are poorly
suppliers after the award of the contract). ``It policed. A supplier can quote a product
is always down to the price'': which is known to be obsolete at a ``below cost''
I think an assessment of the contractors' ability, price to get on the contract then supply an
experience, ethics, level of service, back-up and alternative at a higher price. This primarily
support behind the contract being awarded comes down to purchasing staff not knowing
should be more closely investigated. what they are priced for in the technology
products.
This view was supported by another supplier:
The buyers only consider price, they have no Out of 12 suppliers, nine did not think that
interest whatsoever in service or partnerships . . . there had been sufficient return on investment
they seem totally unconcerned about reliability in the contract. One noted that ``we are
of product or whole life costs. cutting our margins to the bone anyway''.
Date of the award This seems to be further complicated by the
It was felt by three suppliers that there was amount of time it takes to complete the
never enough time between the award of the documentation.
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Willingness to bid for future contracts It was clear from the findings that the
Most suppliers stated that, in order to attract concerns of SMEs were not with lack of
orders, they would have to bid for future support mechanisms for government
contracts; seven noted that enthusiasm for purchasing, but with the actual contracting
this was waning and one noted that they process. This clearly needs to be addressed by
would no longer be bidding for government the new administration in Northern Ireland;
contracts due to many of the problems actual contracting procedures for current
encountered with tendering. suppliers are in need of modernisation and
modification. It is important that SMEs get
Electronic commerce full support and remain willing to bid for
Five suppliers noted the importance of future contracts. However, access to
eCommerce. They noted that if tender government contracts remains important to
documentation was accepted via EC, they SMEs, which have never tendered or been
would not have constantly to resubmit or successful in winning a contract. The
re-enter pieces of information previously participation of SMEs in public procurement
supplied to government. Another noted the contracts is particularly important for the
general failure of EDI: development of peripheral regions of member
This is a total waste of time . . . we do all our states and the European Union. However
dealings by post or fax. Purchasers are not there is no simple remedy for helping SMEs
interested in doing invoices by EDI . . . they to participate more fully in public sectors and
would get enormous internal resource savings
to draw the greater benefits from such an
and I could offer them further discounts.
opening up. What is required is continuing
action on a wide range of issues that can assist
them to exploit their opportunities. The
Conclusions burden falls on competent authorities
The findings of the paper clearly show that (government departments, local authorities,
the problems with government purchasing in Training and Enterprise Councils) to raise
Northern Ireland tend to cluster around three awareness and provide all the relevant
issues. First, the contract documentation is information on both national and European
too burdensome to suppliers and much time public procurement contract opportunities.
This is in addition to contracting authorities
is wasted filling in documentation with
that should also be complying with the spirit
repetitive information. Obviously there is
and the letter of the law relating to public
much scope for improvement, and
procurement legislation and simplifying
developments in eCommerce and
contracting procedures.
eProcurement should help to remedy this
situation (for example, the new directive on
Electronic Commerce (European
Communities, 2000)). Second, the use of References
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Ruth Fee, Andrew Erridge and Sean Hennigan Volume 14 . Number 5 . 2002 . 326±334

7 August, Department of Trade and Industry, Information Society Services, in Particular Electronic
available at: www2dti.gov.uk/sme4/pn2000.htm Commerce, in The Internal Market ("Directive on
DTI (2000b), Support for Business ± Help for Small Electronic Commerce"), available at: http://
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support/index.htm Gershon, P. (1999), Review of Procurement in Central
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