Bids from small firms keep disappearing into a black hole, says FSB

Small firms are being shut out of billions in public contracts as bids disappear into a “black hole” of unanswered feedback and red tape, warns the Federation of Small Businesses (FSB).

In a new report Signed, Sealed, Delivered: How public procurement can unlock small business growth, FSB sets out key reforms that will build a clearer, fairer system that helps more small firms compete for public work and deliver better value for taxpayers.

While three in 10 (30 per cent) have bid for local council contracts over the last three years, only around one in 10 (9 per cent) have bid for UK Government contracts – and nearly a third (31 per cent) have not won a single tender over that period.

Despite the fact that it takes on average five days to prepare a bid, only one in 20 (5 per cent) receive comprehensive and actionable feedback on why they lost.

FSB’s report also found that:

• 62 per cent of small firms say finding suitable public contracts is difficult, with 27 per cent describing it as very difficult because the system is clunky and inconsistent, with different portals, forms, and rules across government departments.
• 43 per cent cite unreasonable eligibility requirements as a key barrier to entry.
• 35 per cent say they repeatedly waste time submitting the same information for each new bid.

For those supplying the public and private sectors, late payments are also a cause for concern – and 68 per cent of small firms experienced them in the last three months.

While the Procurement Act 2023 bans late payers from bidding for public contracts, its success will depend on how well the new rules are enforced.

FSB’s recommendations:

• Any supplier with a contract of more than £5 million per year should have a random invoice spot check every six months to ensure their payment terms are within the legal limits.
• Require Tier 1 suppliers (the major prime contractors delivering big Government projects) to set and publish three-year SME spend targets and report on their performance, so smaller firms can see fair access through the supply chain.
• Introduce a clear feedback standard so small firms always receive meaningful explanations of why they lost a bid and consequences for those who ignore it, including compensation for small firms left in the dark.
• End the ‘work for free’ culture by stopping contracting authorities from demanding unpaid work before the contract is awarded.
• Simplify and join-up procurement platforms to replace the maze of tendering sites with one clear, consistent system that’s easy for small firms to navigate.
• Establish a Cabinet Office taskforce to hold Government departments to account for missed SME spending targets and ensure each publishes an annual SME Action Plan.
• Strengthen payment rules by scoring suppliers by how they treat small subcontractors and enforcing fair-payment commitments across all government contracts, excluding large firms that fail to pay promptly.

Tina McKenzie, Policy Chair of the Federation of Small Businesses, said: “Public procurement has a huge potential to drive growth, create jobs and deliver better value for taxpayers, but right now, that potential is being squandered. Instead of feeling like an open opportunity, it can feel like a soul-destroying maze of portals, forms, and silence. You spend days putting a bid together and when it disappears into a black hole, it’s hard not to lose faith in the process.

“Our research shows just how much time and care small businesses are putting into competing for public work, but too often they’re met with duplication, silence or contracts packaged far beyond their reach. Public procurement in the UK is a £400 billion market, and it could be a powerful driver of growth, but it’s being weighed down by complexity and a culture of risk avoidance.

“We heard from firms spending days on tenders only to be asked for the same paperwork again and again, or to provide design work without pay. That effort counts for nothing when feedback never arrives. The new Procurement Act marks a turning point – giving every bidder a proper explanation of how their submission was scored and why they missed out – but that can only work if the rules are enforced.

“Big companies who pay their small suppliers late do not deserve procurement opportunities and we hope the new rules under the Procurement Act will be enforced.

“The Government needs to show it is serious about opening up opportunity with simpler systems and genuine accountability for missed SME targets, and consequences for those who shut small firms out.

“If procurement is to deliver for taxpayers, it must start by delivering for the small businesses ready to build, create jobs and grow.”