Where Are All The Small Businesses?

April 26, 2021
Procurement

While 2020 was an incredibly rocky road for many businesses globally, in public procurement it was SMEs in particular who lost out, both in terms of number of government contracts awarded to SMEs and the value of those contracts. Worse still, this appears to be a trend in public procurement outside of the effects of Covid, with SME spend and contract counts consistently decreasing since 2018.

Contract Value Comparison

YEAR SME NON SME
2018 £2,239,220,733 £64,850,231,727
2019 £1,051,043,928 £51,738,778,670
2020 £1,846,698,878 £71,939,424,264

From our analysis of UK Central Government on ContractsFinder, we’ve identified that value of business going to SMEs has decreased from £2.2 bn in 2018 to £1.8 bn in 2020. Meanwhile, for non-SMEs, business value has increased from £64.8 bn in 2018 to £71.9 bn in 2020.

Contract Difference

YEAR SME NON SME
2019-2018 dif -53.1% -20.2%
2020-2018 dif -17.5% 10.9%

This fluctuation represents a 17.5% reduction in value going to SMEs between 2018 and 2020. Non-SMEs however saw their business increase by almost 11%.

Percentage Difference

YEAR SME NON SME
2018 3.3% 96.7%
2019 2% 98%
2020 2.5% 97.5%

Despite UK  being filled with a rich selection of skilful, experienced and resourced SMEs, only a fraction of annual business in public procurement goes to them; just over 3% in 2018, a figure that has decreased to 2.5% in 2020.

When looking at contract counts across the same period, SMEs saw a reduction of contracts by nearly 19% between 2018 and 2020. Meanwhile, Non-SMEs contract counts fell slightly more: over 21%.

Contract Count Difference

YEAR SME NON SME
2019-2018 dif -11% -11.7%
2020-2018 dif -18.9% -21.1%

This means that the share of contract counts for SMEs has risen over the past two years but only by a fractional amount: 0.2%. Non SMEs still dominate the contract counts: at almost 92%.

Percentage Difference

YEAR SME NON SME
2018 8% 92%
2019 8.1% 91.9%
2020 8.2% 91.8%

In 2020, fewer companies were winning businesses, through the effects of the pandemic. The 2020 SME total contract count dropped almost 19% and overall value dropped to £1.8bn. This means that the average value per contract actually rose from £5.15m to £5.23m.

The trends are similar with non SMEs, with less companies winning contracts. However, for non SMEs, those that do win receive a lot more value in 2020. Average value per Non-SME rose from £12.9 million in 2017 to £18.2 million in 2020.

Let’s hope as we emerge from the Covid crisis, governments actively seek more SME fulfilment of government contracts. With 5.9 million SME’s in the UK accounting for three fifths of  employment and around half of turnover in the UK private sector, there are plenty of reasons to support them.

The scope of this analysis

We looked at ContractsFinder, a procurement portal for England which has tags for SMEs. Although we’d like to look beyond ContractsFinder to include a Europe-wide comparison, SME indicators are very poor or  non existent.

Even ContractsFinder’s SME indicators are not always applied and those that are are not perfect as the nature of its tagging means that a contract awarded to an SME and a large organisation will flag both organisations as SMEs. To tackle this, we have come up with our own solution that we have yet to see done elsewhere. We match winners with open data on companies and use reporting thresholds for accounts as a proxy small companies. We also augmented this data by doing additional manual and automated linking because SMEs can be above the reporting threshold and large organisations can fall below the reporting threshold.

If you’d like to discuss our work, our projects or data services, please get in touch.

Image by Sean Benesh

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