Impact of New Public Procurement Directives on SMEs

The nature of the current public procurement procedures in place have been heavily scrutinised and shutterstock_289448726criticised in recent times for obstructing the path of small and medium sized enterprises (SMEs) who want to compete in tenders for public contracts. 

Despite the introduction of a multitude of UK and EU initiatives aimed at helping SMEs to get further access to public contracts, problems still remain for businesses in this area. A number of surveys performed by both UK and EU authorities have highlighted the following as some of the primary difficulties that SMEs have been faced within the public procurement market:

  • They have been unable to get involved in the procedure due to the size of the contract in question;
  • The sheer volume of low quality information in tender documents;
  • The administrative strain and bureaucracy within the process itself;
  • Apprehension by public buyers when considering new providers;
  • The high qualification standards required for SMEs;

In order to deal with these problems and other frequent issues levelled at the current procedure, the EU has decided to introduce a new set of regulations for procurement of public contracts by the way of three new directives. The primary goal of these Directives is to make the entire process of public contract acquisition cheaper and easier to access for small businesses. 

How it will affect SMEs

One of the most far-reaching effects that will be incurred by the new directives is to legitimise and check the conduct of the contracting authorities, who will now be subjected to a universal new turnover requirement which is around double the contract value. Contracting authorities typically outline a minimum turnover requirement at the pre-qualification stage of contract acquisition. The level of this requirement tends to be hugely prohibitive for SMEs and hopefully the implementation of the new Directives will allow greater access for SMEs Contracting authorities will also be pushed under the new regulations to split contracts into smaller parts  when conducting the procurement procedure and if they do not follow the procedure they will have justify why not, or risk being penalised. It is widely hoped  that the initiative will raise SME participation in competitions for public contracts by allowing them to make a bid for a part or parts-only of a contract, something unavailable to them now under the existing scheme.

The lengthy, burdensome and somewhat laborious administrative element of the bidding process will also be addressed by the new Directive. It is expected that a number of measures will be implemented in order to remedy theissue. Contracting authorities will be obligated to encourage providers to “self-declare” in the  pre-qualification stages and only the winning party will have to hand in formal evidence to verify the information  supplied within the tender documents. 

Another important aspect of the new Directives is that the criteria that will be used when awarding public contracts will be to introduce the “”most economically advantageous tender (MEAT)”. At present, contracts tend to be given to either the cheapest bidder or the bidder who provides the most economic advantages, though most tend to be awarded to the former. The modifications to the MEAT criteria should positively impact the entire procedure by encouraging broader considerations, and in particular on life-cycle costs. This alteration should also help SMEs who often struggle financially to compete with larger firms on price.
It will also be mandatory for Member States of the Directives to make sure that complete electronic procurement is set up by 2018. This will entail all contracting authorities being obligated to make every procurement document universally available on an electronic system from the date of publication of the contract notice. Moreover, every article of communication and data exchanged in the procurement procedure will also have to be performed electronically. 

The EU Council provisionally agreed to the new regulations and legislation on the 11th February 2014, and they should go a long way to levelling the playing field for SMEs when it comes to public contracts, particularly in the UK where large firm domination has marred the process for too long now. 

The New EU Procurement Directive is best for business in the UK

It can be argued that collectively, the new directives will go a long way to helping SMEs be more involved in the procurement procedure; something that has been exceedingly hard in recent times. This is despite the fact that they can supply public organisations with unique and high quality solutions for projects at lower costs than their larger counterparts. A great deal of this has been down to the fact that the procurement of public contracts is an unfair procedure in which the odds are firmly stacked in the favour of larger company’s and in turn this actuality has adversely affected the mentality of SMEs to do with this area, as they have become increasingly reluctant to participate at all due to underlying fear of failure.

The New EU Procurement Directive should hugely benefit SMEs when it comes to accessing these contracts and will make it easier for them to expand their customer footprint in the public domain. By including the EU Directive into British legislation, the government is signalling their intent to make the process of public procurement contracts a fair one in which the small players genuinely believe they can compete with the larger corporations. 

The soon-to-be introduced EU Directive and British regulations should also make the procurement procedure more considerate of social and economic factors when awarding contracts, which will in turn benefit both the EU and the UK hugely. This is because public authorities will be pushed to give contracts to businesses whose products benefit local economies and have strong benefits for society, rather than just to the cheapest business.  

The new directives should also ensure that employees in the UK are given a greater level of protection, as there will be harder provisions when turning down bids that are “abnormally low”; authorities will have to abide by the EU regulations that serve to uphold worker’s rights and their wages. 

This slicker, fairer and more transparent procurement procedure will go a long way to getting a greater number of SMEs to being more engaged in the public sector, and should provide them with a far higher number of opportunities than they were enjoying before. It should also incur a far higher level of competition within the process and illustrate just how competent SMEs are at delivering on large contracts. 

Written by: Mike Smith

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