Continuing the SAPIENS Policy Brief Series with a focus on small and medium-sized enterprises (SMEs) in public procurement

Introduction

Countries adopt various instruments to enhance SME participation in public procurement, which can broadly be categorised into preferential and facilitative measures. Preferential measures give SMEs an advantage over larger firms, such as reserved contracts, price preferences during bid evaluation, and subcontracting-with-SMEs requirements. Facilitative measures, on the other hand, do not favour SMEs directly but aim to reduce barriers, such as by improving access to information, dividing contracts into smaller lots, and limiting disproportionate qualification requirements.

These measures are widely used, but their effectiveness remains debated, raising important questions about how different countries select them to achieve similar objectives. This research examines three key approaches—reserved contract, contract division into lots, and proportionate qualification requirements—to assess their impact on enhancing SME participation. It also analyses the trade-offs associated with each measure, including the costs imposed on the public procurement process, such as increased expenses for contracting authorities or reduced competition. This comprehensive analysis enables legislators and policymakers to choose strategies based on the extent to which they wish to actively support SMEs or simply level the playing field, while also understanding the broader implications for the procurement system.

Policy Implications

To enhance SME participation in public procurement, policymakers and contracting authorities may consider the following recommendations:

• Reassess Reserved Contracts: Evaluate the long-term impact of reserved contracts and seek ways to reduce SMEs’ reliance on these measures gradually. Alternative approaches should be explored to encourage SMEs to expand and compete more effectively in the broader market.
• Refine Lot Division Design: Ensure that lot division designs are optimised to support SME participation. This includes implementing caps on the number of lots a single bidder can win and avoiding practices such as alternative bids that may disadvantage SMEs. Policymakers should balance the need for SME involvement with cost efficiency when making decisions.
• Adjust Qualification Requirements: Develop qualification criteria that effectively lower entry barriers for SMEs while also addressing potential risks of contract default or poor performance. Striking this balance is crucial for facilitating SME access without compromising the quality of procurement outcomes.