Tendering has become increasingly linked to the public sector only, but it also applies to the private sector. In a nutshell, tendering is simply the act and method of sourcing or procuring goods, services or works using a fair, formal and transparent process.
In the UK, organisations that have to comply with Public Sector Regulations, such as central government authorities, local authorities and the NHS, have to engage with a transparent means of procuring goods and services when spending taxpayer’s money. The tendering process facilitates these regulations.
What sort of business goes through the tendering process?
Virtually any sort of business can be procured through tendering. In the UK, some key types of business procured through tender include:
- Building works and maintenance
- Healthcare services
- Catering
- Digital services, e.g. marketing and web design
- Venue hire and event production
- Software and IT
- Manufacturing
Formerly, tendering was chiefly an avenue for the public sector to obtain enterprise-sized businesses that are maximally ready and able to deliver on their contracts. The process seems quite complex and convoluted, but the barriers to entry to tendering for smaller businesses are lowering.
For example, the government recently abolished the Pre Qualification Questionnaires that applied to low-value contracts of under £100,000. This is just one move in a long sequence of reform that allows SMBs and SMEs greater access to public contracts for which bigger businesses once had hegemony.
So what are some advantages to tendering, and how can smaller businesses capitalise?
1: Transparency for both parties
Tendering’s advantages for buyers as a method for sourcing business in a fair, open and transparent way also apply to sellers.
This neutral selection process creates goodwill - the obligations are clear from the start, and the selection is made based on a rigorous evaluation of that business’s criteria and credentials. This ought really to minimise the possibility that anything goes wrong or that the company cannot deliver on its promises. Suppliers will submit proposals based on what the client needs and not on their terms. This establishes a clear line of communication that benefits both parties.
2: Guaranteed pay
Goods, services and works tendered by the public sector in the UK adhere to strict rules regarding guaranteed payment.
The Prompt Payment Code has helped regulate the payment of public sector contracts since 2008. The rules surrounding the code have been gradually tightened to ensure cash flow, especially for small businesses. The current target for payment settlement for firms with fewer than 50 employees is 30-days, which should be met in 95% of cases. For larger businesses, the target is extended to 60-days which should also be reached in 95% of cases. Signatories of the code are also bound by strict payment practices designed to prevent late payments and bottlenecking.
As such, tendering public sector contracts provides peace of mind rarely found in the private sector. Small businesses that are worried about their cash flow when tendering larger public sector contracts have the reassurance that they’ll be paid on time.
3: The government is encouraging SMBs and SMEs to tender
While tendering is accustomed to establishing business between larger contracts and larger suppliers, it’s become more locally driven, introducing more opportunities for smaller companies to get involved. Namely, a Government Green Paper named ‘Transforming public procurement released in late 2020 aims to build on increasing public spend on small businesses.
The former target of spending 25% of public procurement with smaller businesses has been met and the government is looking to extend this to £1 in every £3. As such, both central government authorities and local authorities are trying to procure more public sector business from smaller businesses. Additionally, the government is realising new and innovative ways that smaller companies can meet social value criteria as per the Social Value Act 2012.
4: Experience and networking
Tendering, particularly from Local Authorities, builds experience and networking. Local Authorities may advertise smaller contracts through their websites, or you can search by region or postcode with the government’s Contracts Finder tool.
Public sector tendering also requires businesses to provide social value through their delivery of contracts. Social value includes everything from developing local programmes and initiatives, e.g. work experience, mentoring, sustainability, waste management and environmental strategies. This gives businesses a chance to build their portfolio of skills and expertise and demonstrate responsibility and operability in a wider social context.
5: Sustainability
It’s possible to win long-term contracts that run for years. These can provide excellent baseline revenue for smaller businesses whilst still allowing them to scale in the private sector. Also, because the tendering process acts as a filter for both parties, long-term contracts will only be established when there is trust and clarity over the delivery aspect.
This level of trust looks good for your business - being trusted to deliver a long-term public sector contract is a great testimonial to have if things go well. Public tender benefits go both ways, too - both parties will receive the stability of a long-term, transparent relationship with delivery capacity and social value set out from the start
Summary: the advantages of tendering
Tendering may seem convoluted and complex, and many small businesses don’t feel like they’re cut out for the task. However, the benefits of tendering are there for all to see, and the tone surrounding tendering is changing. Public sector authorities are being encouraged to assess options from smaller businesses.
Smaller businesses will need to ensure that they can deliver the contract and delivery on social value. Meeting social value criteria is also becoming easier, and with new guaranteed payment rules to boot, the tendering landscape for small businesses is looking increasingly lush and green in the years to come.
Click here to find tender opportunities today. Contracts Finder
