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.
Highlights
Public procurement (PP) generally represents a significant share of aggregate GDP
We find that the quality of PP regulation, as measured by indicators compiled by the World Bank and by DigiWhist—a European public sector accountability research initiative5—has a statistically significant positive relationship with small and medium enterprises (SMEs) participation in PP tenders
We use a large dataset of procurement contracts issued by European countries that includes information on whether SMEs participated in bidding and on their success in winning contracts
Summary
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. We find that the quality of PP regulation, as measured by indicators compiled by the World Bank and by DigiWhist—a European public sector accountability research initiative5—has a statistically significant positive relationship with SME participation in PP tenders.
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