A thriving local business sector is a key driver of economic regeneration. The New Economics Foundation has calculated that every pound spent with local businesses generates an additional £1.15 for the local economy, compared to 23p for each pound spent with non-local contractors. Councils can play a critical role in supporting local businesses by using their significant spending power with local suppliers, as well as by providing advice and other support.

How does Sheffield rate as a council which supports local companies? The answer isn’t clear. In 2013 Sheffield won a government award as one of the best councils to do business with. But more recently the Spend Small report, published by the Centre for Entrepreneurs and Spend Network, rated Sheffield 149th out of 150 councils for the percentage of council spend going to small businesses.

Leigh Bramall, Sheffield’s cabinet member for business, skills and development, is adamant that the Council does understand the importance of supporting and investing in local firms, listing a number of initiatives – the launch of Business Sheffield as a one-stop shop for business advice, the Council’s policy of encouraging large contractors to sub-contract to local firms, and Buy4Sheffield, a partnership of eight public sector organisations targeted at local small and medium-sized enterprises (SMEs). Sheffield also has a SME loan fund which offers up to £25k. Banks are often reluctant to finance small firms, so the fund is well targeted, although it could be better promoted and the interest rate charged (10-14% across three years) is not particularly cheap.

From the perspective of small businesses, the Sheffield branch of the Federation of Small Businesses say that support from the Council has definitely improved over the last five years, whilst the Sheffield Chamber of Commerce report that their members have not raised significant concerns regarding the Council, other than the bureaucratic processes.

This all sounds promising but doesn’t explain why Sheffield fared so badly in the recent Spend Small report. Matt Smith, from the Centre for Entrepreneurs, states that, “In creating the Local Authority Spend Index, we have used open data and transparent definitions of what constitutes company spend and small firms … For the very first time we are cutting through councils’ opaque statistics to give a true picture of direct spend with small firms.”

Sheffield Council disputes the figures used in the research, claiming that in 2012-14 approximately 17% of its direct spend has been with small businesses, rather than the 4.33% quoted in the report. Whilst both parties acknowledge that it would be helpful to resolve their differing positions, this is unlikely to happen soon. Councillor Bramall is waiting for the Centre for Entrepreneurs to respond to his Twitter invitation to a further discussion, whilst the Centre is waiting for the Council to publish its own calculations.

Councillor Bramall has also argued that the Spend Small report does not take account of the business sub-contracted to local firms from larger contracts. Whilst the value of this work is monitored, the relevant figures were not immediately available.

Stoke-on-Trent Council also has a number of large contracts with national suppliers, but still achieved fourth place in the Spend Small rankings with a small firms spend of 21.07%. A conversation with Steve Lovatt, Economic Development Manager in Stoke, raised some interesting points about the respective approaches of the two councils.

The Spend Small report uses the Companies House definition of a small business – companies with a turnover of less than £6.5m that employ fewer than 50 staff. This still allows for a wide spectrum of businesses, from sole traders to significant local companies. Stoke recognised that if you are towards the smaller end of this spectrum, or are setting up a new business, then a key issue is your ability to be able to win small (£5-50k) contracts from your local council.

Several years ago, Stoke prioritised a buy local policy as a key plank of their economic regeneration strategy. In order to support local businesses a significant change was made to the council’s procurement system. All contracts are now publicised on Twitter and Facebook, and any local suppliers can bid for work with a minimum of bureaucracy. Council staff are trained in assessing best value and risk management, and the system has both increased the percentage of officer spend going to local businesses and driven down costs as new, more efficient suppliers have access to the market.

By contrast, in Sheffield the procurement of goods up to £25k and services up to £50k is done by the purchasing officer getting three quotes, a process that Stoke no longer uses. This is an easy system for councils to administer, but it can lead to business repeatedly going to known suppliers, and not necessarily local firms. This process also makes it hard for new firms to win contracts, and if the same companies are always asked for quotes there is no way of knowing whether there may be better, cheaper solutions from an alternative supplier.

Compared to Sheffield, Stoke also places less emphasis on framework agreements for larger contracts. Framework agreements can be used when a council is likely to require repeat orders of a good or service. A framework agreement sets out the price and quality standards for the goods or services which are agreed with a selected supplier or group of suppliers over a set period of time, generally four years. Periodic purchases then take place under the terms of this agreement. Again this is a system that is relatively easy to administer, but has a significant downside if you are a local business not party to the agreement. You may be excluded from bidding for council work for a period of up to four years, even if you can offer new, more efficient and possibly cheaper solutions than suppliers currently on the framework.

When Stoke’s approach was discussed with Sheffield Council, the concern was expressed that if all contracts are advertised through social media, purchasing officers could potentially be dealing with hundreds of proposals – not a good use of staff time in a cash-strapped council. Ensuring that processes are manageable is relevant, but Stoke’s experience is that their approach does not result in staff being overwhelmed with proposals, and is an effective way of increasing council expenditure with local firms and achieving best value.

Sheffield does some good work supporting local businesses and Councillor Bramall is probably right in saying, “We aren’t claiming that Sheffield leads the way in this area, but we’re confident we are not the second worst council”. Encouragingly he has also said that he will ask relevant staff in Sheffield to talk to their counterparts in Stoke. Whether Sheffield changes its procurement processes ultimately comes down to a strategic decision – whether the Council wants to prioritise short-term savings by keeping a system that is very simple to administer, or whether the priority is to maximise Council spend with local small businesses and potentially achieve better value for money in the medium term.

SME Loan Fund
Spend Small report

Photo by Guy Atkinson

David Edwards