SMEs in Public Procurement

Executive summary

Governments are increasingly taking steps both to give SMEs better access to public markets and to remove barriers preventing SMEs from winning public contracts. Engaging SMEs in public procurement is beneficial both for the companies and for the public sector. On the one hand, public procurement contracts give SMEs better access to markets and help them strengthen their own capacities. On the other, the public sector can better meet its procurement needs by working with innovative, responsive and flexible SMEs. However, specific characteristics of public procurement – such as the complexity of procedures, administrative burden and high technical and financial capacity requirements – disproportionately affect SMEs and hamper their access to the market. This report highlights the main elements of a public procurement system that facilitates SME participation and supports SME development more broadly.

Key findings and recommendations

Facilitating SME access to public procurement markets

Removing the barriers to SME participation in public procurement is in line with the principles of equal treatment, open access and effective competition. Indeed, it has been part of many recent public procurement reforms in OECD countries. More specifically, government are seeking to facilitate SME access to public procurement opportunities and level the playing field, for example by ensuring the following:

• That the size of tenders do not unjustifiably discourage SME participation;

• That public procurement processes and documents are not unnecessarily complex, and are simplified according to the value and risk of the procurement object;

• That the financial capacity required of SMEs is set at a proportionate level and that SMEs’participation in public procurement markets does not excessively limit their financial conditions; and

• That the use of information and communication technologies in public procurement improves SMEs’ access to public procurement.

Balancing the use of SME-specific instruments

Some (but not many) governments have implemented explicit public procurement measures for supporting SMEs, such as dedicated financial instruments and preference programmes. These programmes usually take into account some SME-specific challenges in public procurement markets and/or market failures. However, given their impact on efficiency and competition, it is important to carry out prior assessments of market structure and government leverage and ensure that the use of these programmes is balanced accordingly. Furthermore, the participation constraints and performance of SMEs vary according to their characteristics, such as size, maturity and sector. Governments should thus consider available policy options that take into account the heterogeneous characteristics of SMEs.

Resolving the capacity equation of the public procurement workforce and SMEs

For SME strategies and policies to translate into concrete benefits, with minimal drawbacks, they need to be effectively integrated in daily public procurement operations. This, in turn, requires that contracting authorities as well as suppliers, including SMEs, have the necessary capacities and skills. To address this challenge, public procurement policy makers, often together with the private sector, provide practitioners with implementation tools, such as guidelines, and tailored training. In some countries, these efforts are reinforced through the establishment of a dedicated body to ensure effective implementation across levels of government. In addition, governments increasingly engage with SMEs on a regular basis to build a partnership grounded in a mutual understanding of needs and potential.

Monitoring and evaluating SME performance in public procurement

Monitoring and evaluating SME support measures are essential for building effective public procurement systems conducive to inclusive growth. Nonetheless, they are under-utilized. The most commonly used indicator is the overall share of public contracts awarded to SMEs, but only half of OECD countries monitor it. However, governments do not sufficiently disaggregate this indicator to take into account the heterogeneity of SMEs and the diversity of procurement needs. The proliferation of e-procurement platforms and integration of emerging technologies into e-government systems have unlocked a vast amount of data. This digital transformation, still to be fully completed, will provide an immense opportunity for evidence-based evaluation of the effectiveness of public procurement policies, especially the effects of SME-enablement programmes beyond the public procurement market. Further analysis of the procurement data in this vein could also help improve SMEs’ integration in value chains. More information in this area would provide policy makers with critical insights for choosing the appropriate tools and identifying the optimal conditions for enabling SME development.