Tier 1 contractor? SME is for Simply Must Engage

Large construction firms are under growing pressure to increase the number of SMEs they work with, as the EU and UK government deliver three separate campaigns to encourage the use of smaller businesses.

• The EU recently unveiled a number of revisions to the EU Public Procurement Directive designed to create a level playing field for small and medium-sized enterprises. These regulations include encouraging public sector bodies to split large contracts into smaller lots so that smaller companies can bid, and only being able to specify that suppliers have a minimum turnover of up to two times the contract value.
• The use of SMEs has also been encouraged in the UK with the introduction of the Social Value Act which requires public sector clients to consider social value – including use of smaller local businesses, or apprenticeship schemes – before they procure a service.
• In June, the prime minister’s adviser on Corporate Social Responsibility and Carillion chief executive Philip Green took the campaign to the private sector by writing to 50 of the UK’s largest private sector companies, including major retailers and utility companies, asking them to reveal how their suppliers helped deliver social value in their annual reports.

Yet, despite these new regulations and guidelines, recent research conducted by independent research consultancy IFF and Achilles suggests larger companies still have reservations about working with smaller suppliers. In a telephone poll of procurement managers working for companies employing more than 250 staff, it found that 80% of those working for construction companies were not planning to increase the number of SMEs they worked with, while just 19% of large construction firms actually planned to increase the number of smaller firms they worked with.

So why are construction companies not planning to boost the number of SMEs in their supply chains? The research found 26% of construction bosses were concerned about the financial stability of SME suppliers, while others were worried SMEs might not adhere to standards and regulations, or be able to adapt to changes in projects or contracts.

Stephen Marshall, Achilles Building Confidence account manager, says: “A number of larger construction companies are actively looking for smaller entities to work with but, quite rightly, they insist that SMEs must meet the same world-class standards in terms or safety and regulatory requirements before they can even be considered for work. Yet many SMEs don’t even get off the starting blocks by refusing to apply for tenders – pre-empting that they won’t win – or avoiding the completion of necessary paperwork.”

That is a relatively common situation experienced by Achilles, which manages supplier information on behalf of 900 businesses globally. For instance, recently a power generation company was seeking to contract directly to SME tree cutting and removal companies for a lucrative package of works. To be considered, the SMEs had to undertake an audit with Achilles, which was mandated by the client to perform this service due to the high risk nature of working at height using tools. But around one in five SMEs contacted by Achilles refused to tender for the works because they were not prepared to carry out the necessary checks and paperwork. 

The good news for suppliers is that the construction industry does still recognise the advantages smaller companies can bring. The survey found SMEs were thought to be more in-touch with the customer’s needs, had more flexibility and the ability to deliver a reliable service – all factors which were seen as a major advantages when comparing smaller businesses to their larger counterparts.

But Marshall points out that smaller companies must take steps to overcome the barriers to partnering and supplying large companies. “For many suppliers it may feel like a David and Goliath sized battle, but SMEs need to be proactive in taking steps to help ensure their business is attractive and meets the needs of larger buyers,” he says.

He suggested that smaller businesses can get a foot in the door by:

• Proving financial security. Smaller enterprises need to be transparent when engaging with larger companies and prove they have the financial backing to see a project through.
• Showing demand flexibility. SMEs should ensure they have a plan which proves they can deliver under any circumstances to help allay the fear that smaller operators may not be able to cope with changing demand.
• Demonstrating ability to comply with standards and regulations. SMEs must commit to achieving and publicising the same standards, accreditations and certification as the big players and this is most efficiently done through a community model.
• Promoting their talent. Smaller businesses need to drop any shyness about promoting their talent, employee qualifications and successes.
• Plan, plan and then plan some more. SMEs need to pay close attention to their processes to ensure there are no gaps which could lead to delays.