Last reviewed 8 September 2014

Small- to medium-sized enterprises (SMEs) may be missing out on local market opportunities in emerging new “green” sectors, as John Barwise reports.

The Institute for Sustainability (IfS), which works on cross-sector collaboration to support sustainable cities and communities, says public-funded bodies are required to consider social, economic and environmental issues in procurement contracts, but argues that local SMEs often miss out because they think they are too small, cannot compete, or simply do not know where to respond to tender opportunities.

The IfS has now launched a toolkit that is designed to encourage the use of local supply chains for renewable energy and low-carbon retrofitting projects, and which will also help local SMEs to identify appropriate target customers and win more business.

Launching the new toolkit, Ian Short, IfS Chief Executive, said: “Local and smaller suppliers in many cases are more flexible and innovative, allowing them to be more responsive — and, contrary to perception, are often able to compete on price too. In addition, they often have a lower carbon footprint because of reduced travel and local sourcing solutions.”

The toolkit focuses on the market opportunities emerging for local SMEs from the new publicly-funded and private enterprise “green” sectors. It aims to overcome a number of barriers faced by SMEs, including:

  • complex and formalised buying processes and regulatory frameworks (particularly in the public sector) that mitigate against contracting with local SME suppliers

  • the danger that new Government-sponsored schemes, such as the Green Deal and the Energy Companies Obligation (ECO), will be dominated by large delivery organisations — given the financial and regulatory costs and obligations associated with this — and that large numbers of local SMEs may therefore be excluded or commercially squeezed in the supply chain

  • a lack of capacity and experience within SME suppliers to navigate and adhere to complex commercial and collaborative agreements

  • limited knowledge-sharing and co-ordination between large procurers and SME suppliers operating in the developing “green” market areas

  • a lack of knowledge and readiness among SMEs generally to compete effectively in the new “green” markets against large organisations, given that these opportunities require higher levels of technical, commercial and delivery competence (and stricter accreditation) than has been the case in their traditional markets

  • a lack of knowledge and confidence among public and private consumers about which “green” technologies and design solutions provide best value, which will in turn delay market expansion and confidence in smaller suppliers.

There are six key chapters and three appendices to the toolkit that are useful for both public and private sector buyers, and SME suppliers.

Chapter 1 — Local procurement and supply chain toolkit

This opening chapter includes a comprehensive description of the main types of buyers, including local authorities (LAs), housing associations and other public sector bodies, together with energy companies, Green Deal providers, landlords and other major contractors. Chapter 1 also explains in detail the key policy drivers that are leading to more work opportunities in the “green” sector, such as the EU’s Renewable Energy Directive, the UK’s Climate Change Act 2008, and a range of energy efficiency programmes, such as the Green Deal and ECO schemes.

Chapter 2 — Procurement: the local picture

This section includes a survey of future investment intentions of major buyers in the south-east region and their attitude towards local procurement from SMEs. More than 50 LAs took part in the survey with an overall response rate of 75% being achieved. Overall, the response from LAs was mixed, with some showing more commitment to engaging local SMEs than others. In the Thames Valley sub-region, for example, Milton Keynes Council, Wycombe District Council and Oxford City Council all spent more than 25% of their total procurement on local suppliers, but in Hampshire, most councils did not know their proportion of local spend. The survey also covers opportunities with housing associations, energy companies and major contractors.

Chapter 3 — Local low-carbon sectors and supply chains

This chapter provides a comprehensive assessment of the emerging markets for SMEs in the low-carbon and renewables (LCR) industry. It is designed to aid market expansion by helping SMEs to understand where they fit in the various “green” supply chains and how to formulate a business strategy for accessing these new opportunities. The chapter includes detailed supply chain profiles for solar, bioenergy, geothermal and onshore wind, which are identified in the low-carbon goods and services (LCEGS) analysis as the four core renewables technologies for UK deployment. As part of the analysis, it breaks down the various markets for supply chain providers, including product and materials suppliers, feasibility studies, design, installation and maintenance across all renewables. It also sets out the potential customers across both public and private sectors, and the type and scale of renewable energy they are likely to purchase. Also included is a breakdown of supply chains and potential customers for the Green Deal and ECO, both of which focus on energy efficiency as well as microgeneration.

Chapter 4 — Winning business in the low-carbon sector

This chapter is designed to help SMEs to respond to the procurement requirements and practices of large public and private sector suppliers. Guidance is divided into two sections.

Accreditation schemes

This subsection explains in detail all the requirements for Microgeneration Certification, which is a requirement for all suppliers that work with Feed in Tariff (FiT) schemes and Renewable Heating Incentive (RHI) schemes. It also explains the qualification criteria for Green Deal advisors and installers, for those suppliers intending to engage in Green Deal and ECO projects, with additional information on “quality mark” and “labelling” schemes.

Identifying and responding to opportunities

This subsection provides a comprehensive breakdown of all the procedural requirements for tendering for contracts in the “green” sector, from both public and private sector clients. The section covers low-cost projects up to £35,000 through to higher cost projects of more than £170,000, and the various contractual obligations relating to these. It explains Pre-Qualifying Questionnaires (PQQs) and how best to choose the projects that best fit the SME’s capabilities. It also explains how to set up a “bid management system and process”, which is designed to save time for SMEs bidding for several contracts of similar scale. Writing method statements and other standard criteria, such as environmental, health and safety, are explained, together with template examples of these.

Chapter 5 — Local procurement implementation tools

This section provides useful tools for driving local business growth through local procurement mechanisms. It is aimed mainly at organisations seeking to procure “green” products and services, but is also relevant to those seeking to secure these contracts. Key elements include reviewing drivers that support local procurement, how to overcome barriers to delivering local procurement, and some of the special features of ECO-funded projects. It explains how to align local procurement to overall procurement strategies across various organisation’s departments, and also provides examples of good practice.

Chapter 6 — Local procurement and supply chain case studies

Earlier chapters include examples of case studies that illustrate how various SME procurement contracts have worked in practice. Chapter 6 focuses on three larger case studies, bringing together all the major strands outlined in earlier chapters to demonstrate how local SME procurement can work.

Case study 1: Growing the green economy, Sutton Borough Council

This case study highlights what the council is doing to stimulate and grow the local “green” economy and how it is doing it. Key objects include growing the low-carbon market and reducing emissions, providing skills training and opportunities for apprenticeships, and setting up the framework to allow Sutton to leverage EU funds. The council has also set up a low-carbon hub for SMEs where businesses can access workspace and shared services, and be encouraged to form partnerships.

Case study 2: Green Deal Together, community interest company

In all, 14 LAs have joined as partners and shareholders in a Green Deal Together (GDT) company. GDT works with local Green Deal supply chains who must all be accredited, including multi-trade builders as long as they too are approved installers. Part of the company’s remit is to encourage and support local SMEs who want to get involved in the Green Deal.

Case study 3: Islington and Camden Borough Councils (iCAM) local procurement initiative 2005–11

iCAM set out to find ways to maximise procurement opportunities for local businesses. It established a local procurement code, whereby all major developments carried an s.106 local procurement obligation with a target of 10% of project costs – both councils subsequently had procurement requirements written into their supplementary planning documents. The initiative meant that developers and their main contractors secured considerable benefits for the local economies — nearly £60 million of contracts were won by local companies over a six-year period.

The comprehensive SME “green” procurement guide, produced by the IfS, provides SMEs with essential information on how to win business in the new and emerging “green” economy.