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CCS is NOT Slapping SME’s with Price Hikes

Sometimes, press coverage of public sector procurement makes me weep, its so awful. Here is another example.

The Register leads with the headline:

Crown Commercial Services is to slap SMEs with price hikes

The article provides commentary about how CCS “pockets fees from government funding”, as though the staff are somehow siphoning the money away into an offshore account. It also links the fees charged by CCS with the government’s wider aspiration to increase the percentage of public expenditure channelled through SME’s.  Finally, it includes some anonymous criticism from a G-Cloud supplier that the fee represents a burden on small business.

Best that they did remain anonymous, as the entire article was gibberish. Here’s why:

  1. Charging fees to participate on preferred supplier lists is neither unique to CCS or to the public sector. Many large corporates, especially multinationals, do this. There’s a good debate to be had about whether charging suppliers a fee is better or worse than recovering procurement costs as overhead, but it certainly isn’t unusual.
  2. The fee has nothing to do with SME’s – it applies across the board to any supplier, large or small. It’s charged based on revenue under the framework not supplier size. Changing the fee will have no effect on whether an SME is more or less suitable for a customer’s requirement. It’s the same fee, regardless of who the customer picks.
  3. The fee will only change when old frameworks expire, and new frameworks are awarded, so suppliers will have plenty of time to review the impact and adjust their pricing accordingly.
  4. Last, but by no means least, recovering costs by applying fees is generally more efficient than recovering them through overhead (taxes). There are frictional costs involved in raising tax and distributing them to individual departments. These frictional costs are far more than the 0.5-1.0% of revenue that is being proposed. In other words – overall its likely to be cheaper for the taxpayer.

But let’s not let the truth get in the way of an (appallingly inaccurate) headline. However, its no surprise that many civil servants are nervous about dealing with the press when they can expect nonsense like this to be published.

There are many areas of public procurement that could be improved, but this isn’t one of them.