The value of buying small and locally

Over the last four months, the Centre for Local Economic Strategies has been undertaking research work with the Federation of Small Businesses (FSB) exploring local authority procurement.

The work which follows on from similar work undertaken in 2012 has sought to identify the extent to which local authorities spend their procurement resource in their own boundary and with small to medium sized enterprises (SMEs). It has also sought to explore the relationship between local government and SMEs when it comes to procurement and particularly the processes local authorities are seeking to adopt to support SMEs in the tender process.

Using a questionnaire, we managed to collect data from 177 local authorities across England, Scotland, Wales, and Northern Ireland. Key headline figures from the analysis are:

• Authorities spend on average £172m each year on procuring goods and services;
• 70% of local authorities actively record levels of local spend;
• 31.1% of total procurement spend is spent within an authority’s own boundary on average;
• 60% of authorities actively record levels of spend with SMEs;
• On average 47% of total procurement spend by local authorities is with SMEs;
• 42% of authorities have set targets for improvement in levels of local spend;
• 91% of authorities have initiatives in place to support SMEs in tendering;
• 85% of authorities adopt different processes for below EU thresholds;
• 85% of authorities regularly or occasionally break contracts into lots;
• 95% of authorities have in place policies for the payment of suppliers;
• 39% of authorities pass on these payment policies to their supply chain.

In addition to the analysis of the survey findings, CLES has also used its procurement research elsewhere to develop figures as to the additional benefit local small firms bring to local economies in comparison to local large firms.

Of the £4.1bn spent by authorities nationally with local small firms, £2.6bn of additional benefit is generated for local economies or 63p for every £1 spent. Whereas, £4.6bn spent by authorities nationally with local large firms generates £1.86bn of additional benefit or 40p for every £1 spent. This means that small local firms generate 58% more benefit for local economies than large local firms. Projections have also been produced for increases in local and small firm spend. Increasing local spend by 5% and small firm spend by 3% would bring a further £788m of benefit for local economies.

The research highlights the continued importance of public procurement to local economies and the important stewardship role of local government in facilitating procurement policy and practice which enables local economic and wider social benefits.

The findings of the research are being launched today (Monday 8^th July 2013) at a joint FSB and Local Government Association event in London. Copies of the report can be viewed here.