The role of government buyers in shaping firm productivity
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IPEC Research
The role of government buyers in shaping firm productivity
Authors
Pey-Yu Yuan
Alliance Manchester Business School,
University of Manchester
Raquel Ortega-Argilés
Alliance Manchester Business School
University of Manchester
Elvira Uyarra
Alliance Manchester Business School
University of Manchester
The Role of Government Buyers in Shaping Firm Productivity
Public procurement is a major economic force in the UK, accounting for £385 billion annually. While procurement is widely recognised for its ability to stimulate innovation, create market opportunities, and drive social value, its direct impact on firm productivity remains underexplored. This research brief examines how government contracts influence business performance, analysing trends in procurement income, supplier composition, and the effect of different government buyers—central government, local government, and the NHS—on firm productivity.
Using data from 26,411 UK suppliers between 2016 and 2019, this study uncovers key trends in supplier distribution, sectoral participation, and the non-linear relationship between public procurement and firm productivity. By understanding the dynamics of government purchasing power, both businesses and policymakers can refine their strategies to maximise economic impact and efficiency.
Key Findings
- Supplier Distribution: Local government engages the largest number of suppliers, but central government’s supplier base is expanding the fastest.
- Industry Participation: UK government suppliers are concentrated in low-R&D intensive industries, with high-tech firms significantly underrepresented.
- Procurement Income and Productivity: The relationship follows a U-shaped curve—firms earning either low or high levels of government contracts achieve greater productivity gains than those in the mid-range.
- Government Buyer Influence: Suppliers serving central government and the NHS show stronger productivity growth, whereas local government-only suppliers experience weaker effects.
Implications
For firms, winning contracts is about more than just volume—it is crucial to consider the type of government buyer. Diversifying across multiple government entities can reduce risks, stabilise revenue streams, and improve productivity outcomes.
For policymakers, procurement strategies should move beyond just awarding contracts and instead focus on reducing inefficiencies, supporting diverse supplier participation, and fostering a more innovation-friendly procurement ecosystem.
This research offers data-driven insights for businesses and policymakers navigating public procurement, exploring who supplies the government, how procurement influences firm performance, and which government buyers provide the best opportunities.
IPEC Research
Place-based collaborative opportunities and challenges for public procurement of innovation
Authors
Fumi Kitagawa
City-REDI, University of Birmingham
Public procurement is a powerful tool for economic growth, innovation, and social impact. Local governments play a crucial role in shaping regional economies by using procurement strategies to stimulate innovation, create jobs, and deliver social value.
This research brief explores how public procurement can be used strategically to address regional needs, particularly in a time of constrained public resources. The West Midlands serves as a prime example of how procurement policies can drive place-based transformation. The West Midlands Innovation Programme (WMIP) supported Digital Innovation in Public Services (DIPS) project, which presents how a region can create values through procuring innovation. The Innovation procurement partnership model demonstrates how local authorities can foster economic and social values through strategic partnerships. By integrating procurement with local industrial strategies, the region enhances SME participation, promotes green innovation, and delivers measurable social value.
Key Highlights:
- Public procurement acts as a catalyst by connecting public services with cutting-edge technologies and forward-thinking businesses.
- Innovative procurement models are enabling small and medium-sized enterprises (SMEs) to participate in public contracts, fostering economic resilience and job creation.
- The integration of sustainability goals into procurement policies ensures that public spending contributes to the region’s decarbonisation and green growth objectives.
By adopting a place-based approach, local governments can tailor procurement policies to address specific regional economic and social challenges. The findings from the West Midlands serve as a valuable guide for policymakers, businesses, and researchers seeking to maximise the impact of public procurement on regional development.
Place-based collaborative opportunities and challenges for public procurement of innovation
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IPEC Research
Public Procurement and Regional Development in the UK
Authors
Elvira Uyarra
University of Manchester
Rikesh Shah
Connected Places Catapult
This research brief discusses the implication of recent policy developments, including the National Procurement Policy Statement (NPPS) and the Procurement Act 2023, which highlight the potential for procurement to drive local economic growth and innovation. It argues that, in order to harness the full potential of public procurement for regional development, a shift towards more strategic, innovation-friendly, and regionally sensitive procurement practices will be needed. Key recommendations of this brief include:
- Decentralising Procurement: Empower local and regional authorities with greater discretion and financial capacity to make procurement decisions that align with local economic development needs.
- Supporting Local and Innovative Suppliers: Reduce barriers to entry for SMEs and fast-growing firms by simplifying procurement processes, diversifying contract structures, and increasing pre-market engagement.
- Enhancing Data Transparency: Improve procurement data collection and publication to track spending distribution, supplier participation, and innovation impacts.
- Embedding a Pro-Innovation Approach: Move beyond rigid specifications to problem-driven procurement, fostering creative solutions through collaborative procurement models.
For further insights into procurement’s role in regional development and innovation, refer to research by the Innovation Procurement Empowerment Centre (IPEC), which continues to analyse procurement strategies, spending patterns, and policy impacts across the UK.
Public Procurement and Regional Development in the UK: Challenges and Opportunities in a New Policy Landscape
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IPEC Research
Extracting Insights from Procurement Data
Authors
Annum Rafique
City-REDI, University of Birmingham
Pei-Yu Yuan
Alliance Manchester Business School
Understanding trends in public sector spending, supplier engagement, and funding allocation effectiveness is crucial in building trust in the government. A comprehensive understanding of procurement contracts enhances accountability and provides actionable intelligence for policymakers and stakeholders, enabling them to assess the effectiveness of procurement strategies and monitor progress toward sustainability goals.
This research brief explores the methodological approach of text mining and using it for procurement contract analysis. The approach focuses on keyword-based filtering and data extraction to identify relevant contracts, providing a practical approach for researchers, policymakers, and stakeholders without specialised expertise in natural language processing (NLP) or machine learning.
Using the methodology, we analysed structured data from Tussell database for the year 2022, examining social housing retrofitting contracts in the West Midlands. To gain a deeper understanding of the procurement landscape in the West Midlands Combined Authority (WMCA) area, a subregion within the broader West Midlands, refer to the IPEC publication: “Retrofitting Social Housing in the West Midlands Combined Authority (WMCA) Area”. This report by Annum Rafique (2025) provides valuable insights into procurement challenges, supply chain dynamics, and policy considerations specific to the region.
Applying the text mining methodology to Tussell’s procurement data provided several key insights:
- Single-Supplier Contracts: Most procurement contracts involved only one supplier, limiting multi-supplier collaborations.
- Short-Term Contracts: The majority of contracts had a duration of one year or less, which is a challenge for long-term retrofitting projects.
- Regional Supplier Distribution: Many contracts were awarded to suppliers outside the West Midlands, indicating potential gaps in local supplier capacity.
- SME Participation: 65% of suppliers were SMEs, showing a positive trend toward engaging smaller firms in retrofitting projects.
These findings provide a data-driven foundation for improving procurement strategies, enabling policymakers to extend contract durations, support regional supplier development, and enhance SME participation. The insights derived from this methodology support evidence-based decision-making and reinforce procurement as a strategic tool for driving innovation, economic resilience, and the transition to a low-carbon economy.
Extracting Insights from Procurement Data – A Text Mining Approach for Social Housing Retrofits in the West Midlands
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IPEC Research
The role of public procurement on the performance of Knowledge-intensive business services
Authors
Xiuqin Li
Alliance Manchester Business School
Xin Deng
Alliance Manchester Business School
Elvira Uyarra
University of Manchester
Knowledge-Intensive Business Services (KIBS) are the cornerstone of innovation in a knowledge-based economy. Acting as facilitators, carriers, and sources of innovation, KIBS firms play a pivotal role in enhancing both public and private sector capabilities. These services encompass a wide range of expertise, from accountancy and management consultancy (Professional KIBS or P-KIBS) to IT and R&D services (Technology-based KIBS or T-KIBS).
Public procurement offers an invaluable opportunity for fostering innovation through KIBS. By serving as suppliers to government agencies, KIBS firms contribute to technological advancements, public service transformation, and regional economic growth. Our research analyses the dynamics of KIBS engagement in UK public procurement from 2016 to 2022, shedding light on patterns, trends, and opportunities.
Key Findings:
- Innovation Amplification – KIBS suppliers show significant innovation, particularly in digital and technological domains. This is evident in their strong representation in computer programming and management consultancy services.
- Typological Dynamics – Firms providing IT, engineering, and R&D services (T-KIBS) excel in central government procurement, meeting technical and digital demands. Accountancy and consultancy services (P-KIBS) support broader management and administrative needs across various government levels.
- Geographical Patterns: KIBS suppliers are predominantly concentrated in London, benefiting from urban networks and knowledge spillovers. However, non-KIBS firms display broader regional dispersion, particularly in the Southeast.
- Sectoral Growth: T-KIBS suppliers have seen robust growth, reflecting the increasing digitalization of public sector operations, including the adoption of AI and cloud technologies.
To maximise the contributions of KIBS, especially SMEs, to public procurement and innovation, the following strategies are essential:
- Streamline Procurement Processes: Simplify access for SMEs by reducing procedural barriers and enabling smaller contract lots.
- Focus on Innovation: Embed criteria that prioritise innovative solutions in public contracts.
- Promote Regional Participation: Encourage the involvement of regional KIBS firms to address geographical imbalances and foster local innovation ecosystems.
KIBS firms hold immense potential to drive innovation, economic growth, and public service transformation. However, achieving this requires a nuanced approach that balances the strengths of T-KIBS and P-KIBS, promotes regional diversity, and ensures sustainable procurement practices. By addressing these challenges, public procurement can unlock the full potential of KIBS to reshape the innovation landscape.
Exploring the roles of public procurement on the performance of Knowledge intensive business services (KIBS)
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IPEC Research
Retrofitting Social Housing in the West Midlands Combined Authority (WMCA) Area
Authors
Annum Rafique
City-REDI, University of Birmingham
The UK is at a critical point in its transition to a net-zero future, with one of the most urgent challenges being the retrofitting of social housing to transform them into energy-efficient, low-carbon homes to meet the 2050 net-zero targets. While the benefits of this transition are apparent (lower emissions, higher living standards, and cheaper energy prices), attaining it will necessitate overcoming numerous barriers. Public procurement is at the heart of this challenge: the mechanism through which funding is secured for projects, quality is maintained, and key stakeholders are aligned.
This research brief explores the procurement barriers associated with retrofitting social housing in the West Midlands Combined Authority (WMCA) area and the innovative solutions and initiatives used to overcome them. Key barriers, such as financial constraints, quality assurance concerns, and coordination complexity, are examined alongside actionable solutions implemented in the area. The WMCA area serves as a good example of how to address the intricacies of retrofitting at scale. Securing funding through initiatives such as the Social Housing Decarbonisation Fund (SHDF), as well as collaborations with industry and academia, has allowed local and regional governments in the WMCA area to address funding constraints, ensure quality assurance, and develop a skilled workforce capable of driving low-carbon transitions.
By fostering collaboration and embracing innovative procurement approaches, the area is transforming challenges into opportunities, setting a benchmark for progress in the housing sector. By leveraging these strategies, policymakers, researchers, and stakeholders can accelerate the transition to energy-efficient social housing.
Key Points from the Brief:
- Retrofitting Challenges: Financial constraints, quality assurance issues, and stakeholder coordination complexities hinder large-scale retrofitting efforts for social housing.
- WMCA’s Achievements: The region has upgraded over 2,600 homes under the SHDF and secured £700 million since 2018 to support retrofitting initiatives.
- Role of Procurement: Innovative procurement strategies are essential for overcoming barriers, driving cost efficiency, and fostering market innovation.
- Net-Zero Approach: WMCA integrates retrofitting with broader initiatives like Net Zero Neighbourhoods and Energy Capital to maximise impact.
- Future Focus: The study will develop best practices and analyse economic impacts to support efficient, scalable, and sustainable retrofit solutions
Retrofitting Social Housing in the West Midlands Combined Authority (WMCA) Area: Overcoming Procurement Barriers for a Net-Zero Future
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IPEC Research
Public procurement and SMEs’ innovation in the UK
Authors
Elvira Uyarra
University of Manchester
Pei-Yu Yuan
Alliance Manchester Business School
Xin Deng
Alliance Manchester Business School
Raquel Ortega-Argilés
Alliance Manchester Business School
Public procurement represents a pivotal mechanism for fostering innovation, constituting nearly 15% of GDP in OECD countries. In the UK, this accounts for a significant portion of public expenditure, with SMEs playing a vital yet underutilised role. This research publication investigates how public procurement influences SME innovation, with a particular focus on patenting activity from 2016 to 2019.
Key Findings:
- Innovation Amplification: SMEs engaged in public procurement exhibit higher patenting activity compared to their non-supplier counterparts, emphasizing procurement’s role as a demand-pull policy tool.
- Incremental and Exploratory Innovation: Government suppliers outperform non-suppliers in both familiar technological areas and novel domains, illustrating the dual role of public contracts in supporting both incremental and exploratory innovation.
- Technological Directions: Central government procurement drives advanced innovation in areas such as Physics and Electricity, while local governments focus on applied fields like Mechanical Engineering and Transportation.
SMEs constitute 99% of UK businesses yet account for only 20% of direct public procurement spending. Despite this, the research highlights procurement’s stabilizing influence on innovation, even amidst challenges such as delayed patent data capture and economic disruptions.
Central Government’s Strategic Impact: Central procurement supports cutting-edge innovation tied to national priorities, showcasing the potential of large-scale contracts to steer technological advancements.
Local Government’s Regional Focus: Local procurement enhances community-level infrastructure and applied technological solutions, aligning regional innovation efforts with broader policy objectives.
To unlock the full potential of SMEs in driving innovation, the following strategies are recommended:
- Streamlining procurement processes to increase accessibility for SMEs.
- Embedding innovation-focused criteria in public contracts.
- Enhancing local government capacity to support regional innovation ecosystems.
Public procurement and SMEs’ innovation in the UK
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IPEC Research
How to measure procurement with innovation surveys
Authors
Elvira Uyarra
University of Manchester
Oishee Kundu
University of Manchester
Pei-Yu Yuan
Alliance Manchester Business School
Xin Deng
Alliance Manchester Business School
Raquel Ortega-Argilés
Alliance Manchester Business School
Public procurement holds significant potential to drive innovation across industries. Despite its importance, the role of public procurement in fostering innovation is underrepresented in the UK Innovation Survey (UKIS). Enhancing this tool to capture procurement’s impact can yield vital insights for achieving goals such as sustainability, healthcare advancements, and economic resilience.
Key areas where improved procurement data is critical include:
- Policymaking: Robust data is needed to understand how public contracts incentivise innovation in high-impact areas.
- Measuring green innovations: With increasing focus on sustainability, it is crucial to track whether public procurement supports environmentally friendly technologies and processes.
- Reducing barriers for SMEs: Small and medium enterprises (SMEs) face unique challenges in accessing public procurement opportunities, limiting their ability to innovate through government contracts.
Innovation Procurement Empowerment Centre commissioned experts from the University of Manchester to develop evidence-base that would inform procurement processes and unlock the full potential of government spending to drive the transformation of UK economy. This research brief highlights several gaps in current edition of UKIS, which limit the understanding of procurement’s role in stimulating innovation. To address this, the following steps are recommended:
- Reintroduce and Expand the Survey Questions: Reinstate and broaden procurement-related questions to include details on contracts, revenue from public procurement, and innovation outcomes such as R&D investments or process innovation.
- Include Sustainability Metrics: Introduce questions specifically targeting green procurement practices to align with the UK’s net-zero and sustainability objectives.
- Ensure Inclusivity: Extend questions to all firms engaging with public procurement, not just those identifying cooperation with public entities, to minimize underreporting.
- Capture Barriers to Innovation: Explore challenges like contract complexity and competition, particularly for SMEs, to inform reforms that enhance innovation outcomes through public procurement.
By addressing these gaps, policymakers can better understand how public procurement fosters innovation, ultimately enabling the design of more effective policies that align with broader economic and sustainability goals.
How to measure procurement with innovation surveys: recommendations for the UK Innovation Survey
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IPEC Research
Mobilising the Power of Local Spending – East Birmingham Inclusive Growth Strategy
Authors
Conrad Parke
Centre for Local Economic Strategies (CL
The city of Birmingham is using public procurement to address its socioeconomic challenges and make its local economy more equitable. In this research brief, “Mobilising the Power of Local Spending – East Birmingham Inclusive Growth Strategy (Part 2),” Conrad Parke from the Centre for Local Economic Strategies (CLES) builds on the work outlined in the previous brief, “Working with the Anchor Institutions (Part 1),” to examine the practical application of innovative procurement strategies.
As the coordinator of the Birmingham Anchor Network, Conrad has been working closely with procurement managers and officers from the Network partners, and this brief captures lessons and insights from their collaborative efforts to foster inclusive growth in East Birmingham.
The previous brief (Working with the Anchor Institutions. Research brief no. 11/2024 – 4) introduced the concept of anchor institutions—large public sector organisations with substantial local influence—as key players in driving economic inclusivity and highlighted the barriers to embedding social value in procurement. This brief (Mobilising the Power of Local Spending – East Birmingham Inclusive Growth Strategy. Research brief no. 11/2024 – 5) focuses on the implementation of these ideas in East Birmingham, an area with significant socioeconomic challenges and a local economy dominated by micro-enterprises.
Through initiatives such as hyper-local spending, simplifying procurement processes for smaller contracts, and fostering direct connections between anchor institutions and local businesses, the Birmingham Anchor Network is piloting approaches to address these barriers. This brief highlights the practical challenges encountered, the innovative solutions being tested, and the potential for these efforts to transform public procurement into a tool for equitable economic growth. This brief also offers an understanding of the practical application of procurement strategies, showcasing their potential to support local businesses, create jobs, and build resilient communities.
Key Points from the Brief:
- Socioeconomic Challenges in East Birmingham: Despite Birmingham’s overall economic growth, East Birmingham faces significant challenges, including high unemployment, widespread deprivation, and a business landscape dominated by micro-enterprises with fewer than nine employees. These issues underscore the need for targeted procurement strategies to foster inclusive growth.
- Challenges in Procurement Practices: The brief identifies institutional barriers, such as cost-driven decision-making, risk aversion, and resource limitations, which hinder small businesses from accessing opportunities within public sector supply chains.
- Hyper-Local Spending Initiatives: The Birmingham Anchor Network is piloting approaches to direct procurement opportunities toward businesses in specific neighbourhoods, aligning public spending with local economic needs.
- Simplifying Procurement Processes: Efforts are being made to reduce the complexity and burden of procurement processes for smaller contracts, enabling micro-enterprises and social enterprises to participate more effectively.
- Building Business-Institution Connections: The initiative emphasises fostering relationships between anchor institutions and local businesses through “Meet the Buyer” events and sharing local business intelligence to increase engagement.
- Enterprise Support Initiative: Funded by the Shared Prosperity Fund, this 14-month project focuses on testing innovative procurement solutions while providing targeted support to local businesses to help them navigate public procurement processes.
- Challenges in Procurement Practices: The brief identifies institutional barriers, such as cost-driven decision-making, risk aversion, and resource limitations, which hinder small businesses from accessing opportunities within public sector supply chains.
- Testing Collaborative Solutions: The Network is experimenting with strategies like shared procurement needs across institutions, import replacement, and progressive ideas such as breaking down large contracts into smaller, more accessible “lots.”
Practising Innovation in Public Sector Procurement: Mobilising the Power of Local Spending – East Birmingham Inclusive Growth Strategy
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IPEC Research
Sparking innovation in the market: the role of expert support hubs
By adopting innovative solutions, the public sector can make services work better for people, and cut costs
In the UK’s drive for growth, we need to make full use of the lever that public procurement of innovation offers. In the past, the UK has not done that, but the Government is making important reforms to public procurement, which will be supported by an ambitious Learning and Development plan to ensure that public sector organisations have the knowledge, skills and models to grasp the opportunities created by reform. This new report shows that national and regional hubs focused on improving public procurement of innovation have a significant positive impact, delivering more for the public and rewarding innovation by businesses. A dedicated UK Innovation Procurement Hub would help to make sure that the programme for improvement includes building capability to procure innovation better.
The Innovation Procurement Hubs explored by this research are predominantly public sector-led. They offer information and advisory services and provide networking, all of which deliver value to procurement bodies and suppliers. There are differences between approaches, and quantitative assessment is ongoing, but the hubs deliver significant added value and there is strong support for their continuation.
The UK can learn from these examples, and select what approaches best fit our needs. A Hub would develop and share information and advice on innovation procurement. It would model and replicate successful approaches. It would accumulate learning and expertise over time, continually improving the efficiency of the delivery of the services. By acting primarily in a coordinating capacity, rather than seeking to direct centrally, it would minimise unnecessary duplication.
Innovation Procurement Hubs: Examples from Europe and beyond
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