Blog / Five myths about SMEs and public sector procurement

February 18, 2013

Far from being a bad fit for the public sector, SMEs hold the key to key to innovation and can bring jaw-dropping cost savings.

Civil servants have often been wary about working with smaller companies, especially when it comes to high-profile areas like public sector software development. Why risk working with a small company when you can collaborate with a big, well-known one? Well, it turns out that SMEs have advantages that larger ones don’t – and fewer downsides than people assume.

Myth 1: They run out of capacity, just when you need to ramp the project up

On the contrary, SMEs are used to flexing their muscles and punching above their weight when they need to. They have strong networks of collaborators they are able to call on when the going gets tough. Smaller organisations don’t have the bureaucracy – and stodgy methodology – that prevents larger ones from jumping at a moment’s notice to bring in some help. Agile in the public sector is still in its infancy, but it has already established a strong track record of delivering on time and under budget.

Myth 2: They are too small to take contractual obligations and litigation seriously

Not true – but as it happens, SMEs are less likely to get into a situation where litigation is necessary in the first place. They’re more used to collaborating with their customers to achieve what’s required, and they don’t like wasting valuable time in contractual wranglings before they even start. They tend to trade on reputation to gain new work, instead of relying on a long-running contract to keep them afloat. That means they’re more prepared to be flexible, and to deliver what the customer wants – not what was carved in stone in a contract years ago.

On the same subject, although SMEs rarely let themselves end up in court, they still have Professional Indemnity cover if the worst comes to the worst. Usually it doesn’t: they’re keen to resolve the situation quickly rather than have the lawyers slog it out, and a government client is a more reasonable customer than most.

Myth 3: But they just don’t understand large scale, high volume, public-facing systems…

Most banks, trading platforms and high-volume internet companies work with individual specialist contractors or specialist SMEs to scale their systems. There’s no reason the same shouldn’t be true for public sector procurement too.

Myth 4: They are more expensive

Their rates may be higher per person, but that doesn’t necessarily translate to overall cost. There’s good evidence that top developers are far better value for money, with the best being four times as productive for less than twice the cost – as veteran IT consultant Tom De Marco shows in his book, Peopleware. Not only that, but smaller teams are typically more productive. The result: find yourself a top-quadrant team of four and they can outperform a bottom-quadrant team of 16.

Myth 5: If we stop the project, they may go out of business

It’s not impossible, though they’re more likely to go under if you don’t give them the contract in the first place. Either way, guilt isn’t a good reason to continue a project – and your concerns may be misplaced anyway. SMEs are more resilient by nature, and the economic turmoil of the last couple of years has hardened them even further. When we start to see the long-awaited green shoots of recovery, it will be the small businesses that are creating them. If you want to mourn the loss of businesses past, spare a thought for Lehman, Northern Rock, HMV, Woolworths, Blockbusters, Jessops, Comet, Clinton Cards, Millets, JJB Sports, Blacks Leisure… none of which were SMEs. On the other hand, if you want to reap the benefits of agile governance you might want to look past the monoliths to the lean, hungry outfits that have outlived and outperformed their larger rivals.