Peter Webster – Sizing up public sector contracts

Peter Webster – Chief Executive of Corps Security

Peter Webster, chief executive of Corps Security, a regular blogger, discusses public sector contracts. He writes: “As regular readers of my blogs will know, the way that central government contracts are allocated, awarded and serviced has, for a long time, been a cause of deep concern for me. The situation can be summed up quite simply – small contracts go to small organisations, while major contracts usually go to one single industry behemoth. The one thing that should have been learned from several well publicised major contract failures was that putting all the eggs in one basket is foolhardy and risks a disaster.

It’s a lesson that appeared to have been heeded when Matt Hancock, the minister for the Cabinet Office, recently announced an ambitious new target to get more SMEs working on central government contracts. The headline is that £1 in every £3 in government spend will be with small businesses by 2020. It certainly sounds like a step in the right direction, however, when scratching the surface it means that when it comes to larger ‘super’ contracts very little will change. Why is this? Because what constitutes an SME in one industry does not necessarily translate to another.

The government defines a company as an SME if it meets two out of three criteria – it has a turnover of less than £25m, it has less than 250 employees and/or it has gross assets of less than £12.5m. Within the security sector there is a significant number of businesses with well over 250 employees – and that means that for many organisations in our industry and others that are similarly labour intensive, this latest announcement could actually make a bad situation worse.

In reality a security company with less than 250 employees is likely to have a maximum turnover of around £6m, therefore, it would be unlikely to have a professional infrastructure for compliance, health and safety or human resources. These are abilities a company will need to meet the rigors of public sector contracts.

What this latest development means in reality is that security companies with 250 people or under are unlikely to get a bigger piece of the action due to their lack of professional specialist resources whilst, at the other end of the scale, the industry’s biggest players will continue to get the larger contracts. By definition, companies in the middle with, for example, 2,000 to 3,000 employees, and the specialist resources available, will miss out at both ends of the spectrum.

Inviting a greater number companies that are bigger than SMEs, but not in the same league as G4S and Serco, to handle these large contracts would increase attention to detail, transparency, competiveness and innovation. Just as importantly, being able to benchmark across a whole range of suppliers would keep prices in check. This is in stark contrast to the status quo, which offers no impetus to innovate and simply engenders a culture of complacency.

The government is well aware of this issue, as in late 2014 The Commons Public Accounts Committee said that it was too reliant on a small number of private sector contractors to provide a swathe of public services. Margaret Hodge, the Committee’s Labour chairman, warned against quasi-monopoly suppliers becoming too important to fail, and encouraged competition through, for example, splitting up contracts to encourage SMEs to bid for work.

Although this sentiment is entirely appropriate, its fails to recognise the logistical issues that must be addressed when awarding security contracts. It would be expensive and wholly impractical to invite numerous companies with less that 250 personnel to tender for contracts where 3,000 manned guards are required. On the other hand it would make perfect sense to invite applications from three organisations that could provide 1,000 trained and fully licensed people.

This is exactly the type of situation that this latest government initiative fails to recognise – and one that could lead to problems in the future. These ‘bigger than SME’ sized companies combine the ability to carry out large-scale assignments with the kind of attention to detail that smaller organisations often display. This makes them able to hit a ‘sweet spot’ by offering the size to handle demanding contracts, but still being flexible and responsive, while delivering on their promises and reducing the potential for problems.

Although it is probably through accident rather than design, I can’t help thinking that the glaring omission in this initiative this is a missed opportunity for a significant proportion of the companies in this sector. Until a more inclusive and wide-ranging procurement policy is put in place, it could well mean that history repeats itself, and perhaps it’s time to redefine what constitutes an SME in the security industry.

Corps Security Website