Introducing electronic trading into local government was never going to be a straightforward task. But many councils did not anticipate that it would be such an uphill struggle to get small and medium-sized businesses on board.

Catherine Gleadow, business liaison officer for Huntingdonshire district council, says: "The big boys are already technically aware. The trick is getting to the SME market. But a lot of them don't understand the issues of what electronic trading is about and they don't understand what it means from a council's perspective."

At the moment Huntingdonshire is piloting an electronic marketplace with six suppliers. Three of them are SMEs and the rest are large, national suppliers. The companies have created basic electronic catalogues so the council can email them to order such items as stationery, computer equipment, office furniture and training packages.

This pilot is just one of the government's pathfinder schemes designed to accelerate the adoption of e-government across the UK. It finished in June and now the council intends to embark upon a major roll-out.

But Gleadow is worried that SMEs are not taking the new developments seriously enough. The council has 5,000 suppliers, and a large number of the smaller ones are not showing any desire or ability to trade electronically. "We spend £15,000 a year on chairs with one chap, and he uses a pencil and paper. He does not have anything electronic. He does not do his accounts electronically."

In a move to create an SME culture which is more responsive to the adoption of electronic trading, Huntingdonshire is teaming up with government-backed e-business development agencies including UK Online to organise subsidised training programmes. The training will cover anything from basic IT awareness to designing a website.

"What worries me is the people I have not got to," says Gleadow. "They have to be bothered. They are putting their heads in the sand. It's like pens replacing quills. This is the next evolvement of the system. It's coming; it's just a matter of time."

Local borough councils in London are also growing frustrated by the poor response they have received from SMEs to new electronic trading initiatives. As part of another e-government pathfinder project, the councils of Newham, Tower Hamlets, Redbridge, Lewisham and Barnet have clubbed together to create a joint online marketplace to buy goods and services electronically from their suppliers.

At the moment there are about 22 electronic catalogues on the system and they are from the mainly larger companies who are computer-literate. However the councils are keen to assist any SMEs who lack electronic trading know-how.

"If we are trading with them, we are doing that for a reason," says Martin Scarfe, financial adviser for Newham borough council. "Either they give us a good local service or they give us a good price. We would not want to lose that trade just because we want to implement an electronic solution."

The five London boroughs are offering to create basic electronic catalogues for free for a limited period in order to incentivise SMEs to come forward.

"The selling proposition is they will at least maintain their current levels of business. The spin-off is that there are five London boroughs rather than one. There is the potential to increase your business five-fold, but that means the other four councils have to decide whether or not you are a good supplier and cost-efficient," Scarfe explains.

The e-procurement systems that the councils are introducing are designed to drive down costs and make it easier for councils to control their expenditure. The theory is that logging on and placing orders electronically with an approved supplier in an online marketplace is simpler to manage than a paper-based system which can generate mistakes.

Erland Sanderson, managing director of Limetree Marketing, which sells computer and office supplies, has signed up to Huntingdonshire council's electronic trading initiative. The Cambridge-based company, which has a staff of nine, already sells computer supplies to the council and is hoping that the possibilities of electronic trading will mean that it can also provide other services.

Sanderson says: "We have always tried to be forward-thinking and we have never turned away anyone who wanted to do business with us." He says he fails to understand why SMEs would not want to link up electronically with their local councils. "It seems sensible to me that if someone offers you a carrot then you should follow it through. I cannot understand anyone turning down local government business."

He adds that providing information in a suitable format for the council was relatively straightforward and not too disruptive. Most of the councils who have embarked on electronic trading projects are deliberately staggering their approaches to make it as simple as possible to implement. In fact Gleadow says that Huntingdonshire is keen to overcome the notion that electronic trading is hugely complex.

"Electronic catalogues are very simple. All it is for us is an Excel spreadsheet and we load it into our accounts system. All the configuration is done at our end."

Unlike the private sector, local government has an obligation to support the businesses in its area and it is quite possible that small companies could take advantage of the current climate to acquire new and valuable electronic trading capabilities before everyone rushes in and the level of assistance becomes less accessible.

"Local councils want to support SMEs to grow their businesses and make their local areas a success. For some SMEs in the technology business this will be a no-brainer. But waste-management companies or builders, for example, who are not technology-enabled, will have great difficulties in trying to meet the requirements of local councils," says James Eaton, a senior manager for Impower, an e-government consultancy.

Aside from the London boroughs, there is talk of local councils clubbing together in the north-east and the north-west of England to form joint marketplaces for their suppliers. So what are the risks if SMEs choose to ignore these new electronic trading initiatives?

"The risks are that SMEs could lose their local authority business," Scarfe says. He adds that it is not inconceivable that those companies that remain outside of the electronic domain could in the future find themselves being charged for persisting with traditional paper-based trading practices. It appears that the virtual writing is on the wall.

Links: lgolpathfinder.gov.uk, huntingdonshire.gov.uk/Pathfinder, epilon.org.uk

E-procurement: why?

· Once e-procurement was the preserve of large companies that could afford the large systems needed to make it work.

· Today, internet-based e-procurement has lowered barriers to entry for all businesses.

· The systems reduce transaction costs and make purchasing easier - and faster - for end users, but still allow for a far higher degree of control over spending.