We all know that a major driver for public sector bodies at the moment is cost savings, yet there are still demands on these organisations to deliver certain services to the public. Initially some services were cut altogether and others were reduced. Often the responsibility to deliver savings was passed onto suppliers, being required to come up with more efficient ways of delivering more for less. However, there are only so many cuts to services that a council can make before the service deteriorates, so many local authorities have turned to grouping or aggregating smaller, associated contracts together in order to find further cost savings.

The theory goes that a single, larger contract will attract economies of scale.

A large company is better able to absorb cuts and deliver the service more efficiently as they can either source products at larger volumes to get discounts or have the back office infrastructure in place to drive the overhead costs down. Why pay ten separate companies ten separate fees, including ten sets of back office costs including HR, IT, legal, finance etc when you can pay one company one reduced fee?

In addition it allows local authorities to reduce the burden of contract management, giving them one contract to manage with one supplier as opposed to multiple.

The problem with this approach is that it excludes a large proportion of the market. The SMEs out there are simply not capable of meeting the requirements of such a large scale contract. This means that only the national and international companies are able to bid, leaving fewer contract opportunities available to local, smaller enterprises.

This brings its own issues for the buyers. The big players in the market are nobody’s fools. They are aware of their position and by creating these monster contracts, buyers are inadvertently tailoring them to a smaller, and therefore less competitive, market. The economies of scale that were hoped for are in no way guaranteed as the larger companies know they are one of a handful of companies that could meet these requirements and often inflate their costs accordingly.

What’s more, it puts the buyers eggs firmly in one basket, increasing the impact of performance issues. A poorly performing supplier delivering on a small contract is problematic for the buyer. However, it is manageable and can be dealt with fairly quickly and easily. The cost of change for suppliers of smaller contracts is relatively low and the process relatively painless. Scale this up to a monster contract with a supplier facing performance issues and everything changes. Now we have poor performance across a wider range of services and the cost of change becomes prohibitive and difficult to manage.

Finally there is a missed opportunity for the buyers. By encouraging SMEs to bid and win council contracts, buyers inadvertently invite a wider economic benefit to their area. Often SMEs are local businesses and with local businesses, paying local business rates, employing local workers who spend their money in the local economy, more SME appointed suppliers creates a more vibrant business market within the area.

Although the number of larger contracts is likely to rise, it doesn’t mean SMEs, like yourselves, cannot get a look in. You can still compete for these contracts but you will need help to do so and this help comes in the form of partnerships.

A  consortium is a group of businesses who partner up and work together to deliver services as a unit. Local authorities allow consortium bids for contracts but often do very little to encourage or facilitate these kinds of bids.

By working with other, similar businesses you will be in a better position to meet the demands of larger scale contracts and draw upon the shared experience and expertise of your partner organisations. Like all new endeavours, forming a consortium takes planning and requires you to select competent and reliable partners to go into business with. If done correctly it can allow you to bid for and win larger council contracts. You can share both the burden of service delivery as well as the rewards that come with a public sector contract.

Here we have condensed a fairly huge topic into a short cheat sheet to help you understand the basic steps involved in setting up a consortium.

Consortia come in many shapes and sizes however for the purpose of this article I will discuss a highly functional, uncomplicated and common model called the “lead provider model”.

Quite simply this promotes one of the partners as a lead, to represent and administer the consortium. The lead takes responsibility for the bidding and often takes an additional administrative fee from the contract to cover the extra tasks and risks associated with their position. The lead organisation will often take on a management role over the other partners and liaise directly with the buyer on behalf of the consortium as a whole. Although the lead organisation is essentially in charge, it doesn’t mean other consortium members don’t have a say. The degree to which partners get involved and have their voices heard must be discussed early on in the formation of the consortium and cemented in writing within a Partnership Agreement.