Barriers for SME’s in Public Procurement in the EU: Turnover Requirements, Transaction Costs, and Public Procurers

Abstract

This thesis investigates the status of SME’s (small and medium-sized enterprises) in public procurement inside EU, with special focus on “shortlisting”, transaction costs and the incentive structure of public procurers. The EU directive on public procurement (Directive 2014/24/EU), seeks to make public procurers favor SME’s more in their purchasing. One attempt in that direction has been to ease the criteria’s, which can be set for the economic operators “economic and financial standing”. This means that public procures can now only demand that the minimum yearly turnover of the economic operators, is equal to or below twice the amount of the estimated contract value, unless certain exceptions apply. This thesis seek to analyze how those rules apply in the “shortlisting” phase, where the public procurers reduce the number of prequalified candidates that will get an invitation to tender, and what possible problems could emerge from those rules in light of the equality principle. Another issue that is frequently mentioned concerning public procurement, is that of the transaction costs involved. Typically, they are mentioned in conjunction with complaints about the heavy administrative burdens, associated with the bidding process. However, transaction costs are not confined to the bidding process, but is an element that affects the entire contract process. This thesis seek to analyze whether firm size have an impact on the transaction costs suffered, in order to better understand the barriers that SME’s face in procurement. It is also of importance to understand what benefits there might be, in selecting SME’s in procurement. A popular argument is that SME’s possess several advantages in e.g. innovation and market adaptability, which are qualities that seemingly fits in well with the public procurement directive, and the Europe 2020 strategy in general. The question then becomes why SME’s are still underrepresented, in public procurement statistics. This thesis seek to analyze the incentive structure of public procurers, what benefits SME’s can provide with in public procurement, and how those benefits fall into the incentive structure of public procurers.