Can SMEs compete for government contracts?

The government is aiming to give smaller companies a better shot at bidding for public sector contracts.

Earlier this week the Department of Trade and Industry (DTI) launched a new website listing 7,000 new contracts worth less than £100,000 which are up for grabs. Already more than 10,000 suppliers have registered on the Supply2.gov.uk website.

But how likely is it that smaller companies will be able to win out over the public sector's usual IT suppliers? Last year silicon.com revealed that 11 companies run 80 per cent of government IT in the UK - so are things set to change?

Lyn Duncan, managing director of @UKPLC, a company focused on helping companies to trade online with the public sector, says: "Public sector buyers do want to trade with SME's [small and medium-sized businesses] - especially with ones local to them. In order to be successful the suppliers need to understand the public procurement process and be realistic about what they bid for. In our experience neither side understands the other very well."

The procurement process can be a long and painful one for companies that have never experienced it before. For example, the first phase is to provide a snapshot of the company, then put in a bid to tender - which is done by filling in a document that is marked by the government. Duncan says each bid requires documentation of three years' worth of accounts, health and safety policies, and sustainability - which can take a resource-strapped small business a while to put together.

She adds: "Big companies understand all of this stuff and have dedicated bid teams as well as... tender info sitting on the shelf. This allows them to submit for lots of tenders with minimal effort. For a SME the first time they do this it seems like a massive piece of work, often putting them off for the future."

Policies and procedures for procurement frequently differ depending on which department a company is dealing with, meaning small suppliers must start from scratch each time.

There are some success stories, though. Reflex Magnetics is a small IT security company that has just won a contract with Nato, and has been working with the DTI, the MoD and the RAF for years. The company provides security software for removable devices such as memory sticks and iPods. Andy Campbell, managing director of Reflex, says a lot of a supplier's success hinges on government policy.

He says: "We had an encryption product go thorough the approval stages with CESG [the government's IT security standards checker]. That was back in 1998. It costs a lot of money to do that but back then nobody bought it until there was a policy put in place that you had to have encryption. So everybody started to buy it but by that time six or seven other companies had brought similar products out."

Campbell believes the way into central government is to avoid competing with larger companies by providing a niche product. "I suppose that if you're in a specialist area it's never been that difficult to get into central government," he says. "If you're a major player it's not a problem."

However, he says, the big IT services or outsourcing companies are presenting ever more competition: "We've been dealing with the government since 1991 but it's getting harder with all the outsourcing companies.

"The outsourcing companies are prepared to cut costs to the bone to such an extent they just put their company or product in place without looking at the best product on the market. I'm loathed to name names because we have to do business with these people."

Large outsourcing companies are also trying to work with small businesses. EDS, for example, runs its own incubator programme to tap into some of the innovation small companies.

Catherine Cremoux, head of the small business incubator programme at EDS, says: "We have a roster of about 300 UK small businesses, selected for the programme on the basis of their innovation and uniqueness. The programme is in place to bring innovation and engage the SME community on larger outsourcing contracts. At any given time, roughly 40 SMEs will be collaborating with us on major projects."