Procurement policy and SME participation in public purchasing
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Procurement policy and SME participation in public purchasing Bernard Hoekman
&
Bedri Kamil Onur Taş
Accepted: 13 October 2020 # The Author(s) 2020
Abstract This study investigates the relationship between regulatory policies governing public procurement and participation by small and medium enterprises (SMEs), using a large dataset on European procurement. We find that better quality procurement regulation is associated with greater SME participation and higher probability that SMEs win contracts. Dividing contracts into smaller lots, a key feature of 2014 EU procurement regulation reform, bolsters participation by SMEs but only increases the probability of SMEs winning contracts for small value lots (€25,000 or less). Our results suggest governments seeking to enhance participation by SMEs in public procurement without explicitly favoring SMEs can do so by improving the overall quality of procurement processes. JEL classifications L26 . H57 . O12 B. Hoekman Robert Schuman Centre for Advanced Studies, European University Institute, Via Boccaccio, 121, 50133 Florence, Italy B. Hoekman (*) Centre for Economic Policy Research, London, United Kingdom e-mail: [email protected] B. Hoekman : B. K. O. Taş Economic Research Forum, Cairo, Egypt
B. K. O. Taş e-mail: [email protected] B. K. O. Taş TOBB ETU, Sogutozu cad. 43, 06560 Ankara, Turkey
Keywords Public procurement . SME participation . Good practice . Regulation . Lot size
1 Introduction Public procurement (PP) generally represents a significant share of aggregate GDP. In the European Union (EU), PP represents 13.3% percent of total EU GDP, with public authorities spending some €2 trillion per year during the 2015–2017 period on the purchase of services, works, and supplies (European Commission 2019). Most countries have put in place legislation that regulates the process through which public contracts for goods, services, and works are allocated. These generally seek to assure “value for money” and accountability for the outcome of contract award decisions. In the EU, specific directives define in some detail how procuring government entities—both EU institutions and at the member state level—must behave when undertaking public procurement that exceeds certain threshold values. The basic principles include competition, nondiscrimination, and transparency. Procurement regulation that reflects primarily “value for money” considerations may skew the allocation of contracts to large firms that are better able to incur the costs associated with procurement processes and satisfy criteria that are used to ensure bidders have the capacity and track record to implement a contract. Because smalland medium-sized enterprises (SMEs)1 constitute most 1 The OECD defines SMEs as medium-sized firms that employ between 50 and 250 workers, small firms with 10–49 employees, and micro firms with fewer than 10 employees
B. Hoekman, B. K. O. Tas
firms in any economy (Ayyagari et al. 2007), many governments have sought to address this potential bias and ensure that SMEs are
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