UK government IT procurement has a strange habit. Every few years a minister stands up and announces a new drive to buy more technology from small and medium suppliers. There is always a target, usually something like a third of spend going to SMEs by a date conveniently a few years past the current parliament. And every time, the actual process departments use to buy software makes that target almost impossible to hit.
I have spent a fair bit of my career around Dynamics 365 implementations for organisations that sit close to the public sector, and I have watched small, genuinely capable suppliers get filtered out of contracts before they even get to show anyone what they can do. Not because their product is worse. Because the process was never built with them in mind.
The frameworks are the first wall
Most public sector technology spend does not go out to open tender in the way people imagine. It goes through frameworks. G Cloud, the Digital Marketplace, various departmental panels. In theory these exist to make procurement faster and fairer, and to give smaller suppliers a route in without needing an army of bid writers.
In practice getting onto a framework in the first place is a serious undertaking. You need the accreditations, the case studies, the financial standing checks, the insurance levels, and often a track record of delivering contracts of a similar size to the ones you are trying to win. That last one is the trap. You cannot get the track record without winning the contract, and you cannot win the contract without the track record. Large suppliers cleared this bar years ago and simply renew. Small suppliers hit it fresh every time and often give up before they finish the paperwork.
Framework won does not mean contract won
Getting onto a framework is only step one. The actual buying happens through mini competitions and direct award processes within that framework, and this is where things get worse rather than better.
Mini competitions ask for detailed method statements, delivery plans, resourcing models and pricing broken down in ways that take days of skilled effort to produce properly. A large systems integrator has a standing bid team whose entire job is producing this material. A ten person software company does not. Every hour spent on a bid response is an hour not spent delivering paid client work, and the win rate for a newcomer is low enough that this becomes a genuinely difficult calculation to make.
I have seen small suppliers put together excellent, well priced responses and lose to a name everyone in the room already trusts, not because the evaluation was dishonest but because risk aversion is baked into how public sector buyers are incentivised. Nobody gets fired for choosing the big four consultancy. Plenty of careers have ended after choosing the unknown SME that then had a rocky delivery.
The prime and subcontractor trap
When departments do want to bring in smaller suppliers, the usual mechanism is a large prime contractor subcontracting pieces of the work down to SMEs. This sounds sensible on paper. In reality the small supplier does the specialist technical work, often the hardest and most valuable part of the delivery, while the prime takes a substantial margin for managing a relationship that mostly involves forwarding emails.
I have worked on Dynamics 365 engagements structured exactly this way. The configuration, integration and customisation work that determines whether the project succeeds or fails sits with a small specialist team. The commercial relationship with the department, and the bulk of the margin, sits with an organisation two or three steps removed from that work. The small supplier gets some revenue and a public sector reference. It does not get the direct relationship or a straightforward route to winning the next piece of work without going through the same prime again.
Risk transfer that only big balance sheets can absorb
Public sector contracts routinely push liability, indemnity and insurance requirements that make sense for a hundred million pound infrastructure project and get applied wholesale to a fifty thousand pound piece of software configuration work. Professional indemnity cover at levels that cost more per year than the contract is worth. Liability caps set at multiples of contract value that no sensible small business insurance policy will match without a specialist broker and a serious premium.
A large integrator absorbs this without noticing. A small supplier either walks away or takes on a level of personal and business risk that is genuinely reckless relative to the size of the deal. I know founders who have simply stopped bidding for public sector work because the risk terms alone make it not worth the exposure.
What this actually costs the country
This is not just unfair to small suppliers, though it clearly is. It is bad value for the taxpayer. Small specialist suppliers are frequently faster, cheaper and more directly accountable than large integrators, because the person who built the product is often the person answering support calls. Procurement as it stands pushes public money toward organisations optimised for winning bids rather than building good software. I have written before about how UK small business policy talks a good game while making the practical reality harder, and procurement is one of the clearest examples of that gap.
What would actually fix it
None of this needs a white paper. Some of it is genuinely simple to fix if anyone with authority decided it mattered enough.
Cap bid effort proportionate to contract size
A contract worth fifty thousand pounds should never require the same depth of method statement as one worth five million. Scale the evaluation burden to the value of the work, not to a template reused regardless of size.
Publish real SME win rates by department
Not aspirational targets but actual figures, updated regularly, with someone accountable for the trend. What gets measured gets managed. What gets announced once and never checked again gets ignored.
Standardise proportionate liability terms
Templates that scale indemnity and liability requirements to contract value would remove the single biggest reason small suppliers walk away before they even bid.
Pay direct where the work is genuinely direct
If a small supplier is doing the specialist technical delivery, the contract should sit with them, not a prime three layers removed from the actual work. Subcontracting has its place on genuinely complex multi vendor programmes. It should not be the default simply because that is how it has always been done.
The bit worth being honest about
I am not arguing every small supplier deserves public sector work by default. Some are not ready for it, and government has a legitimate need for assurance on delivery and continuity that a two person company cannot always provide. But the current process does not sort suppliers by capability. It sorts them by how many people they can spare to write bid documents and how much liability they can absorb before anything has been delivered. Those are not the same thing as being good at the work.
If you run a small software or Dynamics 365 consultancy and are wondering whether public sector work is worth pursuing, go in with your eyes open about the bid effort and the risk terms before you commit real time to it. If you want a second opinion on a specific opportunity or your wider technology strategy, that is exactly the kind of conversation I have through my consulting work, and you can get in touch on the contact page any time.
