111/01
16 October 2001
GOVERNMENT CONTRACTS OPENED UP TO 500,000 SMEs - ANDREW SMITH
Government suppliers, including up to 500,000 newly incorporated Small and Medium sized Enterprises (SMEs), will find bidding for government business easier, following the publication of important new financial assessment guidance, Andrew Smith, Chief Secretary to the Treasury, announced today.
In another move designed to make it easier to do business with government, he also announced improvements to liability guidance that will encourage more companies to deal with government
The specific improvements include:
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Greater emphasis on cash flow in assessing financial stability
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liability determined by specific contract requirement rather than "unlimited liability"
Andrew Smith, Chief Secretary to the Treasury, said:
"These improvements will bring out healthy competition in the marketplace and demonstrate this Government's commitment to fair access for all suppliers, including SMEs. This is excellent news for business and ensures best value for money for the taxpayer."
Nigel Griffiths, Minister for Small Business at the Department of Trade and Industry, commented:
"The removal of the need for three years worth of audited accounts, and the change from unlimited liability to a value for money liability determination will mean that thousands of small and medium enterprises will now be able to access public procurement contracts."
These improvements have been drawn up by the Office of Government Commerce (OGC) in consultation with the Small Business Service. OGC Chief Executive, Peter Gershon, said:
"These improvements, together with the publication in June 2001 of guidance on 'Tendering for Government Contracts', are a direct result of OGC's strategy to make this market more accessible to all potential suppliers including SMEs."
David Irwin, Chief Executive of the Small Business Service said,
"I welcome this initiative as an important step in addressing some of the barriers that small firms face when trying to sell to the public sector. The SBS has been working closely with the OGC, and will continue to do so, to ensure that we identify and remove any further obstacles in the way of small and medium enterprises."
The appraisal of financial stability of potential suppliers and contractors to government was previously largely based on three years profit and loss statements. This often debarred younger companies.
Under the new guidance cash flow will be emphasised more strongly in a more flexible financial assessment. This reflects good commercial practice where risk is assessed according to the specific situation, not bureaucratic formulae.
This will particularly benefit new SMEs delivering goods and services, including, but certainly not limited to, IT and consultancy.
The second improvement means that contractors' liability will be assessed on the basis of the value for money for the particular contract, where previously it was often assumed it should be unlimited.
This unlimited liability was a barrier to competition, because it led to high insurance costs for suppliers. Invariably this simply increased the final price for the government and the taxpayer.
The main benefits of this adjustment will be in the fields of IT, management consultancy, professional advice and construction.
This all reinforces the government's approach to procure goods and services on a value for money basis and opens up the government market, so increasing competition and innovation, benefiting the taxpayer and the wider economy.
NOTES TO EDITORS
1. Financial stability assessment currently tends to focus on profit and loss and balance sheet statistics derived from audited accounts for the last three years. The new guidance advocates a more flexible approach to suppliers' provision of financial information. It also recommends more emphasis on reviewing cash flow together with the capacity of the supplier to deliver the requirement rather than focusing on just profit and loss and balance sheet statistics. This will benefit all suppliers including new SMEs.
2. Model conditions for government contracts include a clause and guidance note on contractor liability. It requires the contractor to indemnify the authority (Department) against liabilities of any loss or damage which is caused by the contractor. Since the clause places no limitation on the amount of the contractor's liability, the interpretation has been that liability should almost always be unlimited. In the past the inclusion of an unlimited liability clause has deterred companies, including SMEs, from tendering for government business.
3. Decisions on liability remain the responsibility of the individual contracting authority. In considering liability, contracting authorities need to base their decisions on value for money, reflecting the losses that might be suffered in the event of default the likelihood of those losses occurring, together with the effects of the liability requirement on competition and procurement costs.
4. The OGC was set up in April 2000 to act as a catalyst for Government Departments' commercial activities. Following an Alignment Review in April 2001, the OGC absorbed the work of PACE (Property Advisers to the Civil Estate) and CCTA (Central Computer and Telecommunications Agency). The managed services of the former TBA (The Buying Agency) became an OGC Trading Fund - OGC buying.solutions - in its own right.
5. Copies of the Supplier Financial Appraisal Guidance are available from the Office of Government Commerce Service Desk (0845 000 4999) and also on OGC website ogc.gov.uk . Contractor liability guidance is available for departmental practitioners involved at the working level.
6. Press enquiries to Malcolm Graves at HM Treasury on 020 7270 5192 or 07785 316773, Elizabeth Barling at DTI on 020 7215 6137 and Martin Day at OGC on 020 7211 1318.