SMEs in Public Procurement

OECD

• Publisher: OECD
• Year: 2018
• eBook ISBN: 9789264308190
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Part 1. Strategic Considerations for SMEs in Public Procurement

Chapter 1. Public procurement and SMEs: Why the relationship matters?

This chapter discusses the rationale behind promoting SME participation in public procurement policies, and countries’ efforts to support their involvement. Given their considerable purchasing power, governments can avail themselves of sizeable funds to pursue diverse public policy objectives while using taxpayers’ money efficiently. SMEs meanwhile form the backbone of economies worldwide and are often the primary focus of economic policies. This chapter unveils the linkages between comprehensive public procurement strategies that countries implement and the development of SMEs, highlighting the mutual benefits achieved through closer and greater engagement between small businesses and the public sector. The chapter demonstrates that while SMEs’ access to the public procurement market constitutes one of many elements that are essential for their performance, the wide array of efforts developed by countries through public procurement reforms in fact diffuses beneficial effects across the entire SME business environment, and affect multiple policy areas.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Public procurement is a complex government activity. It refers not just to the act of purchasing, but rather to a whole process – from identifying what is needed and determining who the best person or organisation is to supply this need, to seeing that what is needed is delivered to the right place at the right time for the best price, and meanwhile ensuring that all this is done in a fair and open manner (OECD, 2015[1]). The complexity of public procurement is also shaped by the variety of stakeholders involved in the processes and the system. Various interests in public procurement systems are held not only by public procurement officials and suppliers, but also by policy makers, oversight bodies, bidders and citizens.

Public bodies spend large sums of money through public procurement to meet their mandates, carry out functions, and deliver quality public services to citizens. Public procurement spending represents on average 12% of GDP, and accounts for almost one-third of government expenditure in OECD countries (see Figure 1.1). That makes governments some of the biggest purchasers of goods, services and works and emphasises their role in harnessing public procurement’s economic leverage to support sustainable and inclusive growth (OECD, 2014[2]) and transform supply-chain business models (Martin-Ortega, 2018[3]).

Figure ‎1.1. Size of public procurement in the OECD countries (2015)

In terms of GDP and general government expenditure

Note: Data are based on the System of National Accounts. Data for Australia are based on a combination of government finance statistics and national accounts data provided by the Australian Bureau of Statistics. Data for Chile are not available. Data for Costa Rica, Russia and South Africa are for 2014 rather than 2015.

Source: (OECD, 2017[4]).

Governments increasingly recognise the strategic use of public procurement. Depending on how a government carries out public procurement, its decisions can significantly affect economic and social development. Public procurement can indeed be used as a strategic tool to advance various public policy goals, from budget accountability and efficient public spending, to pursuing environmental protection (OECD, 2015[5]); supporting economic and social development; fostering innovation (Appelt and Galindo-Rueda, 2016[6]); encouraging socially responsible suppliers into the global value chain; and promoting social and gender inclusiveness. In fact, all OECD countries have integrated broader public policy objectives into their public procurement system. The OECD Recommendation of the Council on Public Procurement (2015) puts into perspective the strategic role that public procurement plays in achieving efficiencies and economic gains, as well as promoting secondary policy objectives (see Box 1.1). (OECD, 2015[1])

Box ‎1.1. OECD Recommendation on Public Procurement – Principle on Balance

The Council:

V. RECOMMENDS that Adherents recognise that any use of the public procurement system to pursue secondary policy objectives should be balanced against the primary procurement objective.

To this end, Adherents should:

i) Evaluate the use of public procurement as one method of pursuing secondary policy objectives in accordance with clear national priorities, balancing the potential benefits against the need to achieve value for money. Both the capacity of the procurement workforce to support secondary policy objectives and the burden associated with monitoring progress in promoting such objectives should be considered.

ii) Develop an appropriate strategy for the integration of secondary policy objectives in public procurement systems. For secondary policy objectives that will be supported by public procurement, appropriate planning, baseline analysis, risk assessment and target outcomes should be established as the basis for the development of action plans or guidelines for implementation.

iii) Employ appropriate impact assessment methodology to measure the effectiveness of procurement in achieving secondary policy obj...

Table of contents

• Title page
• Legal and rights
• Foreword
• Acknowledgements
• Executive summary
• Acronyms and abbreviations
• Part 1. Strategic Considerations for SMEs in Public Procurement
• Part 2. Country profiles
• About the OECD