The existing public procurement regime is often criticised for creating obstacles for small and medium sized enterprises (SMEs) wishing to participate in competitions for the award of public contracts.

This article was published in the Sunday Business Post on 13 April 2014.

Despite the implementation of various national and European initiatives aimed at facilitating access of SMEs to public contracts, difficulties do still exist for SMEs.  Numerous surveys conducted at both an EU and National level identify the following as some of the main issues experienced by SMEs in the public procurement market:

  • The inability to participate due to the size of the contract being tendered;
  • Disproportionate qualification requirements, in particular, financial requirements;
  • The lack of or poor quality information in tender documents;
  • The bureaucratic nature of the process and the administrative burden of participation; and
  • The reluctance of public buyers to consider new suppliers.

In order to address this and several other commonly voiced criticisms of the existing regime, the EU has issued a new set of rules for the procurement of public contracts in the form of three new directives (the Directives).  One of the main aims of the Directives is to create a simpler and more cost efficient regime and to provide a more accessible environment for smaller businesses.

Contracting authorities will be prevented under the new Directives from establishing a turnover requirement which is greater than twice the contract value. Contracting authorities often specify a minimum turnover requirement at the pre-qualification stage of a tender process.  The level required is often prohibitive for SMEs and the new Directives will restrict the contracting authorities from setting such prohibitively high turnover requirements.

Contracting authorities will also be encouraged under the new Directives to divide contracts into lots (smaller parts) when procuring contracts.  Where the procurement of a contract could have been divided into lots but has not been, the Contracting Authority will be required to explain in their OJEU advertisement why they have not split up the works or services into lots.  This measure is expected to facilitate increased SME participation in competitions for public contracts by enabling SMEs to bid for a part or parts only of a contract in circumstances where the entire contract would otherwise be beyond their capacity.

The new Directives will also introduce measures aimed at reducing the administrative burden associated with the bidding procedure.  Contracting authorities will be required to allow suppliers to “self-declare” in relation to pre-qualification requirements and only the winning bidder will be required to submit formal evidence to verify the information provided in the tender documents.

Another significant feature of the new Directives is that the criteria to be applied in awarding public contracts under the new regime will be the "most economically advantageous tender" (MEAT). Currently contracts can be awarded to either the lowest bidder or the most economically advantageous tender, with contracts generally being awarded to the lowest bidder.  The change to the MEAT criteria allows a broader focus on life-cycle costs.  This change may also benefit SMEs which sometimes struggle to compete on price alone against larger, more established operations.

Member States are also obliged under the new Directives to ensure that full electronic procurement is in place by 2018.  This will mean that contracting authorities will be required to make all procurement documents freely available by electronic means from the date of publication of the contract notice.  All communication and information exchanged during the procurement process must also be done electronically.   Electronic communication is already a feature of the public procurement process in many Member States and this measure is simply aimed at further increasing the efficiency and consistency of the process across all Member States.

The Council formally adopted the new legislative package on 11 February 2014.  The Directives will take effect 20 days after their publication in the Official Journal of the EU, after which member states will have two years to transpose the Directives into national law. 

It is widely recognised both in Ireland and at a European level that an advantage of the inclusion of SMEs in public contract competitions is an increase in competitiveness in the market for public contracts.  As pan-European competition is one of the key aims of the EU procurement regime, the changes to be introduced by the new Directives are expected to be welcomed by both SMEs and the procurement market in general. It is too early however to say whether the new Directives will succeed in achieving their intended goals and this will depend on how the new regime is applied by contracting authorities.  As with all changes, a period of uncertainty is to be expected once the Directives are transposed into national law and as both contracting authorities and suppliers seek to adapt to the new procurement landscape.