West Midlands Business Council

Central Government Expenditure – Opportunities for West Midlands Businesses

James Watkins – WMBC, Diane Rayner – Federation of Small Businesses

January 2004

Introduction – The Opportunities for Business

Too often in public administration circles the synergy between Government funding for public services and the need for business growth is not recognised except in the narrow context of business taxes helping to fund the public services.

In reality, though, the recent increases in public expenditure could help provide an added impetus to business growth. The need for a business supply chain to help provide the services that the public services require is an identifiable aim.

The current estimate for current public spending across the UK is £419.1 billion (HM Treasury Press Release, 10/12/03). It is difficult to gain a regional breakdown of this figure, but on the basis of the 200/01 public spending figures, spending per head of population in the West Midlands region, amounted to £11,900 per person (Nuffield College Report for Office of the Deputy Prime Minister – 2002).

As business knows, though, the difficulties in accessing such central Government contracts often lies in the complex and arcane nature of the various forms that central Government departments oblige companies to go through to access contracts. Businesses have reported that the cost of dealing with this bureaucracy outweighs the other costs to the business when weighed against initial profit margin of the individual Government contract.

As a result, a number of businesses do not access these opportunities. This means that the development of a profitable relationship for companies does not develop and this is to the detriment of the long term profitability of certain businesses and also for the Government itself.

From the Government's point of view, the complex nature of its contracts arguably leads to a limit on the number of companies applying for contracts and, therefore, there is not the same level of competition to assist Government departments in gaining reasonable cost savings. This is to the detriment of the departments themselves and to SMEs – who are effectively kept out of this market place.

The Government, though, is beginning to recognise its responsibilities in this area and, as a result, the Office of Government Commerce (OGC) has been established.

Office of Government Commerce – New Start for Business

Following a Treasury commissioned review in 1999 by the then Chief Operating Officer of BAe Systems, Peter Gershon, the Treasury established the Office of Government Commerce (OGC). The purpose of OGC is to improve the potential for cost savings with procurement while also engaging a greater role for a wider range of businesses in the procurement process. As a result, OGC have introduced procedures to greatly simplify the process for companies to access Government opportunities.

Following this remit, OGC introduced a pilot project in the West Midlands region that created, in effect, a single process for a range of procurement processes with different Government departments. This pilot will end in June before a planned national roll-out of this project. It is unclear at this stage when the national roll out will happen.

Several issues therefore arise from this pilot:

- There was a low turn-out from business to this project. Is there a role for the Business Council to advertise this opportunity?

- The pilot will end in June. Could a lead agency, such as Advantage West Midlands, ensure that the benefits of the pilot are maintained beyond June before the national roll-out of the project?

The Council could also consider whether the OGC style model could lead to a standardisation of procurement procedures from local authorities in the West Midlands. With the existence of the West Midlands Local Government Association (WMLGA), the Council could consider engaging in talks with WMLGA to urge them to encourage their members to standardise procurement procedures. This is likely to have some impact with WMLGA as they served on the steering group of the OGC pilot project.

The Treasury has also announced that Alan Wood of EEF will review companies' experience of accessing public contracts within the European Union. The Wood Report will be released this summer and the Council and AWM should be prepared to consider the regional implications of this report shortly after its publication.

Actions

Therefore, for companies in our region to take advantage of the extent of public expenditure in the region, the following recommendations were agreed to by the Council:

a) Advantage West Midlands is encouraged to take the lead when the OGC pilot ends in June so there is not a return to the old style procurement procedures. AWM could also encourage more Government departments and quangos to be part of this process;

b) To address the low turn-out of companies with the pilot project, the Council member organisations should ask their members if they would be interested in these opportunities;

c) Companies could register their interest with Advantage West Midlands, who could maintain a database of companies, categorised under the type and purpose of the companies, which could be an aid to Government departments in the procurement process – as an addition to the normal tendering process;

d) The range of these companies, once registered with AWM, could lead to a database of the profile of companies on the West Midlands Regional Observatory website for statistical research purposes for future project work – if the companies concerned granted permission for details to be registered. Details could be recorded in various formats – as raw statistical data and with specific company contact details. The lack of statistical regional information concerning various aspects of the regional business base is a drawback to advancing evidence based regional policy;

e) The Council engage with WMLGA to encourage all regional local authorities to standardise their procurement procedures;

f) The Council and AWM should be prepared to respond, at an early stage, to the Treasury's report from Alan Wood of EEF on how companies can access public contracts within the European Union, when it is published this summer.