by Alistair Maughan

Look at SME suppliers

Nov 28, 20113 mins
IT Strategy

Part of the government’s ICT strategy is to encourage more use of small and medium-sized enterprises (SMEs) as service providers.

This applies both to the delivery of services to the public sector itself but also to expand SMEs’ success at delivering ICT services generally.

Of course, many companies routinely and successfully use SMEs as part of their service provider solution.

There can be many benefits of SMEs, particularly in terms of increased priority or importance of the customer relationship, more direct time and attention, and greater responsiveness.

Others are wary of relying on SMEs, based on concerns over financial stability, lack of resource depth, limited liability cover, or greater risk of change in control.

But most of the perceived issues in contracting specifically with an SME can be dealt with effectively through a combination of tighter governance and better contracts.

The potential for financial distress is often cited as an SME concern and, as in any business relationship, the potential for insolvency risk must be taken into account.

But that’s not insurmountable: it’s usually possible to implement cash flow protection measures in a contract to ensure that the supply chain surrounding an SME stays in place, or to discuss a financial early warning procedure.

At the extreme, even the cost of insurance or securing a performance bond on larger contracts is often more than covered by the difference in price between an SME and its larger competitors.

Other supposed SME issues have their solutions: low liability cover can be dealt with by insurance; change in control risk can be addressed by consent and approval clauses; and shallow resource pools can be countered by key personnel clauses.

The hardest issue to deal with is often governance-related. The owners of SMEs are often much more hands-on when it comes to delivery.

This can be a good thing but it also provides a lack of distance. Any lawyer will tell you that a personal dispute is hardest to resolve and, for many SMEs, everything is personal.

All of the issues associated with using a smaller company for the delivery of ICT can generally be predicted and mitigated, either contractually and commercially.

The problem is that it takes a little bit more effort, rather than simply relying on the obvious financial strength and resources of a larger service provider.

But if the outcome is a stronger, more successful relationship and better ICT delivery, isn’t the effort worth it?