9 February 2009

I am often asked if it is worth – as a small business – trying to gain business from the public sector. It is not an easy question to answer as it comes with many caveats. I thought that I would outline a few of the main considerations:

Are you credible? The public sector is very conservative in its procurement and you will not even stand a chance of winning a contract unless you have a credible story to tell. A sole trader is unlikely to make it past the first sift of tenders for say the cleaning of a hospital if they have only ever cleaned domestic properties.

Why is the tender being publicised? Do your research and find out why the work is being put out to tender. Is it merely a cosmetic exercise done every two years where the existing contractor has been continuously employed for say 10 years. If so you need to carefully work out your chances of succeeding before spending a lot of time on drawing up your bid.

Is TUPE involved? This element is often overlooked when bidding for a contract. It is a vital consideration as you could end up with a huge extra overhead which is not needed. The rules on TUPE are reasonably clear but do not forget to include this contingent liability in your calculations.

What is the history of the tendering organisation? Not all public sector organisations are the same and they certainly do not all work in the same way. Has the tenderer a good reputation for working with its chosen contractors or are they constantly re -tendering as business finds it difficult to work with them? This is no different to working with the private sector – there are good and bad people to work with!

– Can I deal with the bureaucracy? Do not underestimate this element. There is no doubt that the public sector has a different way of working which is definitely different to the private sector! It is dangerous to generalise and again good research should help you to determine the reputation of the tenderer. Be aware that decision making is often slow, unclear (try and get someone to admit to being a decision maker!) and frustrating! If you are successful in winning a tender the documentation will be onerous. Before signing any contract ensure that you have had the best advice possible to understand your rights and obligations. Be prepared for interference! Do not expect to get a contract, deliver it accordingly and then get paid! The public sector is notorious for “monitoring”, “reporting”, “liaison meetings”, “interim reviews”, “steering group meetings” etc. Factor this into your bid. It will happen so you need to be prepared for it.

The effect on your cash flow. This is a vital element for any small business. However with a few notable exceptions the public sector is notorious for taking a long time to pay. We have several contracts paid quarterly in arrears which can mean up to 5 months before receiving funds due. Whilst there may be profit in a contract can your business afford the cash implications? Try and negotiate more regular payments. We have found some organisations to be excellent in realising the impact on small businesses and if they trust you there can often be payments in advance or at least “profile payments”.

– What is the impact on the remainder of your business? Do not put all of your eggs in the public sector basket. Political changes can mean radical rethinks and so you must retain a balanced portfolio to minimise potential risk. I have seen several companies “crash and burn” due to over reliance on one income stream. Spread your risk!

It can be very rewarding to work with public sector bodies but you need to be aware of the potential impact on your business. As I mentioned it is wrong to generalise but the above points are things that you should consider when an opportunity presents itself. If the conclusions are that it is still worth it then go for it with all you have as it can be a great boost for your business. NWES has many contracts with the public sector and we are delighted with how it has worked for our business. We have had one or two issues with some bodies but the overwhelming majority have been and are a pleasure to work with.

So do your homework and the risk is reduced.

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