Skip to main content
SpringerLink
Log in

Evaluating quality or lowest price: consequences for small and medium-sized enterprises in public procurement

  • Published:
The Journal of Technology Transfer Aims and scope Submit manuscript

Abstract

This study investigates the effect of evaluating the most economically advantageous tender (MEAT) in public procurement rather than lowest price. According to the European Union (EU), evaluations based on MEAT, rather than lowest price, give an advantage to small and medium-sized enterprises (SMEs) in winning public procurement contracts because such firms are viewed as sources of innovation. Thus, MEAT as an evaluation criterion is recommended throughout the EU. Using procurement data from Sweden, I find no significant effect on SME participation in procurement calls for tender as a result of the use of MEAT in firm evaluations. However, large firms significantly increase their participation when MEAT is evaluated. Even more importantly, micro, small and medium-sized firms’ probability of winning procurement contracts significantly decreases when MEAT rather than lowest price is used as an evaluative criterion. Thus, evaluation in terms of MEAT increases large firms’ bids and success rates; hence, this policy is counterproductive. The reasons SMEs are disadvantaged as a result of evaluations based on MEAT are, however, not examined in this paper and require further research.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. The term SME, which refers to Small and Medium-sized Enterprises, includes all firms with fewer than 250 employees. Thus, proprietorships, micro, small and medium-sized firms are included. Firms are categorized in the following manner: 0-9 employees = Micro firms; 10–49 employees = Small firms; 50–249 employees = Medium-sized firms; 250 or more employees = Large firms. The categories can also be accompanied by balance sheet ceilings for the different categories, but in this paper, I categorize them solely by number of employees.

  2. Meaning the Law of Public Procurement (Lagen om Offentlig Upphandling 2007).

  3. Austria, France, Germany, Ireland, Poland, Portugal and the UK are the others.

  4. Note that by this I do not mean that the quality of the procured product or service is lower but that the quality of the bid itself might be lower.

  5. Tenders Electronic Daily (TED) is an online database for public procurement in the EU.

  6. Multiple winners can be ordered, or a second competition can be used to determine who gets to supply a call-off. This is mostly used in framework agreements.

  7. Good matches mean that all covariates are very similar and that the observations only differ in the treatment variable, which here is the evaluation method (MEAT or lowest price).

  8. When the variance is larger than the mean.

  9. That is, the value is deflated by the average value of contracts and measured in 100,000 SEK (10,000 Euros) to show how the dependent variable changes when the value is increased above the average by 100,000.

  10. Except for the number of contracts, which is coarsened manually according to Fig. 1.

References

  • Albano, G. L., Russo, A. F., Castaldi, G., & Zampino, R. (2012). Small but not too much! Evaluating small and medium enterprises’ performance on the Italian Government’s E-marketplace. 14 August 2012. Available at SSRN: http://ssrn.com/abstract=2129127

  • Arrowsmith, S. (2006). The past and future evolution of EC procurement law: From framework to common code? Public Contracts Law Journal, 35(3), 337–384.

    Google Scholar 

  • Aschhoff, B., & Sofka, W. (2009). Innovation on demand—Can public procurement drive market success of innovations? Research Policy, 38(8), 1235–1247.

    Article  Google Scholar 

  • Bergman, M., & Lundberg, S. (2013). Tender evaluation and supplier selection methods in public procurement. Journal of Purchasing and Supply Management., 19(2), 73–83.

    Article  Google Scholar 

  • Bergman, M., & Nilsson, J.-E. (2011). Hur genomförs upphandlingar i Sverige? Resultat från en stickprovsundersökning. Report for an Official Report of the Swedish Government, SOU, 2013, 12. [In Swedish].

    Google Scholar 

  • Bergman, M., & Stake, J. (2015). The anatomy of public procurement in Sweden. Unpublished Manuscript.

  • Besanko, D., Dranove, D., Shanley, M., & Schaefer, S. (2009). Economics of strategy, 5th edn. New York: Wiley. ISBN-13: 978-0470373606.

  • Bodewes, W. E. J., & De Jong, J. P. J. (2003). Innovatie in het MKB. In P. Risseeuw & R. Thurik (Ed.), Handboek ondernemers en adviseurs: Management en economie van het midden- en kleinbedrijf. New York: Kluwer. [In Dutch]

  • Castellacci, F. (2008). Technology clubs, technology gaps and growth trajectories. Structural Change and Economic Dynamics, 19(4), 301–314.

    Article  Google Scholar 

  • De Jong, J. P. J., & Vermeulen, P. A. M. (2006). Determinants of product innovation in small firms a comparison across industries. International Small Business Journal, 24(6), 587–609. doi:10.1177/0266242606069268.

    Article  Google Scholar 

  • Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (30 April 2004).

  • ECORYS. (2012). EU SMEs in 2012: At the crossroads. Annual report on small and medium-sized enterprises in the EU, 2011/12. Client European Commission. Rotterdam, September 2012.

  • Edler, J., & Georgiou, I. (2007). Public procurement and innovation—Resurrecting the demand side. Research Policy, 36(7), 949–963.

    Article  Google Scholar 

  • European Commission. (2003). Presidency conclusions, Barcelona European council, 15 and 16 March 2002. (Aka Barcelona Strategy), SN 100/1/02 REV 1.

  • European Commission. (2006). Creating an innovative Europe: Report of the independent expert group on R&D and innovation appointed following the hampton court summit and chaired by Mr. Esko Aho (aka “The Aho-report”), Belgium.

  • European Commission. (2008a). Think small first: A small business act for Europe. COM(2008) 394. Brussels 25 June 2008.

  • European Commission. (2008b). European code of best practices facilitating access by SMEs to public procurement contracts. Commission staff working document. SEC(2008) 2193, Brussels 25 June 2008.

  • European Commission. (2011). Review of the small business act for Europe. Communication from the commission to the European Parliament, the council, economic and social committee and the committee of the regions. COM(2011) 78 final. Brussels, 23 Feb 2011.

  • European Commission. (2014). SME’s access to public procurement markets and aggregation of demand in the EU. Study prepared for the European Commission by PwC, ICF GHK and Ecorys.

  • Fagerberg, J. (1994). Technology and international differences in growth rates. Journal of Economic Literature., 32(3), 1147–1175.

    Google Scholar 

  • Fagerberg, J., & Srholec, M. (2008). National innovation systems, capabilities and economic development. Research Policy, 37(9), 1417–1435.

    Article  Google Scholar 

  • Federal Acquisition Regulation. (2005). Issued by the general services administration. Department of Defense, National Aeronautics and Space Administration, Volume 1, March.

  • Filippetti, A., & Archibugi, D. (2011). Innovation in times of crisis: National systems of innovation, structure and demand. Research Policy, 40(2), 179–192.

    Article  Google Scholar 

  • Georghiou, L., Edler, J., Uyarra, E., & Yeow, J. (2014). Policy instruments for public procurementof innovation: Choice, design and assessment. Technological Forecasting and Social Change, 86, 1–12.

    Article  Google Scholar 

  • Geroski, P. A. (1990). Procurement policy as a tool of industrial policy. International Review of Applied Economics, 4(2), 182–198.

    Article  Google Scholar 

  • GHK. (2010). Evaluation of SMEs access to public procurement markets in the EU. DG Enterprise and Industry. Final Report September 2010. Job No. 30257541.

  • Gujarati, D. (2011). Econometrics by example. Basingstoke: Palgrave Macmillan.

    Google Scholar 

  • Herrera, L., & Sánchez-González, G. (2013). Firm size and innovation policy. International Small Business Journal, 31(2), 137–155.

    Article  Google Scholar 

  • Iacus, S. M., King, G., & Porro. G. (2008). Matching for causal inference without balance checking. Available at SSRN: http://ssrn.com/abstract=1152391. doi: 10.2139/ssrn.1152391

  • Iacus, S. M., King, G., & Porro, G. (2011). Causal inference without balance checking: Coarsened exact matching. Political Analysis, 20(1), 1–24.

    Article  Google Scholar 

  • James, P., Saad, M., Douglas, A., & Phillips, W. (2012). Key characteristics of SME procurement: An empirical study. In IPSERA conference 2012, Naples, Italy, 1st–4th April, 2012.

  • Karjalainen, K., & Kemppainen, K. (2008). The involvement of small- and medium-sized enterprises in public procurement: Impact of resource perceptions, electronic systems and enterprise size. Journal of Purchasing & Supply Management., 14, 230–240.

    Article  Google Scholar 

  • King, G., Nielsen, R., Coberley, C., Pope, J. E., & Wells, A. (2011). Comparative effectiveness of matching methods for causal inference. Unpublished manuscript. Copy at http://j.mp/1BQDnUn

  • Knight, L., Caldwell, N. D., Harland, C., & Telgen, J. (2003). Academic report from the first international research study on public procurement. Bath: Centre for Research in Strategic Purchasing and Supply, University of Bath.

    Google Scholar 

  • Knoeber, C. R., & Thurman, W. N. (1994). Testing the theory of tournaments: An empirical analysis of broiler production. Journal of Labor Economics, 12, 155–179.

    Article  Google Scholar 

  • Krasnokutskaya, E., & Seim, K. (2011). Bid preference programs and participation in highway procurement auctions. The American Economic Review, 101(6), 2653–2686.

    Article  Google Scholar 

  • Laffont, J. J., & Tirole, J. (1987). Auctioning incentives contracts. Journal of Political Economy, 95, 921–937.

    Article  Google Scholar 

  • Laffont, J. J., & Tirole, J. (1993). A theory of incentives in procurement and regulation. Cambridge: MIT Press.

    Google Scholar 

  • Landes, D. (1998). The wealth and poverty of nations. London: Abacus.

    Google Scholar 

  • Lankenhuizen, M., & Woolthuis, R. K. (2003). The national systems of innovation approach and innovation by SMEs. Research report H200309. SCALES.

  • Loader, K. (2011). Are public sector procurement models and practices hindering small and medium suppliers? Public Money & Management., 31(4), 287–294.

    Article  Google Scholar 

  • Loader, K. (2013). Is public procurement a successful business support policy? A review of the evidence. Environment and Planning C: Government and Policy, 3, 39–55.

    Article  Google Scholar 

  • Loader, K. (2015). SME suppliers and the challenge of public procurement: Evidence revealed by a UK government online feedback facility. Journal of Purchasing & Supply Management., 21, 103–112.

    Article  Google Scholar 

  • LOU. (2007). 1091. Lagen om offentlig Upphandling. Issued 2007-11-12. [In Swedish].

  • Manelli, A. M., & Vincent, D. R. (1995). Optimal procurement mechanisms. Econometrica, 63, 591–620.

    Article  Google Scholar 

  • McAdam, R., Moffett, S., Hazlett, S. A., & Shevlin, M. (2010). Developing a model of innovation implementation for UK SMEs: A path analysis and explanatory case analysis. International Small Business Journal, 28(3), 195–214. doi:10.1177/0266242609360610.

    Article  Google Scholar 

  • McKevitt, D. M., Flynn, A., & Davis, P. (2014). Public buying decisions: A framework for buyers and small firms. International Journal of Public Sector Management, 27(1), 94–106.

    Article  Google Scholar 

  • Mokyr, J. (2002). The gifts of Athena. Historical origins of the knowledge economy. Princeton: Princeton University Press.

    Google Scholar 

  • Morand, P. H. (2003). SMEs and public procurement policy. Review of Economic Design, 8, 301–318.

    Article  Google Scholar 

  • Myerson, R. (1981). Optimal auction design. Mathematics Operations Research, 6, 619–632.

    Article  Google Scholar 

  • Nooteboom, B. (1993). Firm size effects on transition costs. Small Business Economics, 5, 283–295.

    Article  Google Scholar 

  • North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • North, D. C. (2005). Understanding the process of economic change. Academic foundation, 2006.

  • Pickernell, D., Kay, A., Packman, G., & Miller, C. (2011). Competing agendas in public procurement: an empirical analysis of opportunities and limits in the UK for SMEs. Environment and Planning C: Government and Policy, 29, 641–658.

    Article  Google Scholar 

  • Rothwell, R., & Zegveld, W. (1981). Industrial innovation and public policy. London: Frances Printer Ltd.

    Google Scholar 

  • Schumpeter, J. (1942). Capitalism, socialism and democracy. New York: Harper & Row.

    Google Scholar 

  • Scott, D. W. (1992). Multivariate density estimation. Theory, practice and visualization. New York: Wiley.

  • Spencer, A. S., Kirchhoff, B. A., & White, C. (2008). Entrepreneurship, innovation, and wealth distribution: The essence of creative destruction. International Small Business Journal, 26(1), 9–26. doi:10.1177/0266242607084657.

    Article  Google Scholar 

  • Swedish Competition Authority. (2009). Upphandling och mindre företag. PM 2009-01-14. Dnr 385/2008. [In Swedish].

  • Vaona, A., & Pianta, M. (2008). Firm Size and innovation in European manufacturing. Small Business Economics, 30(3), 283–299.

    Article  Google Scholar 

  • Verdeaux, J. (2003). Public procurement in the European Union and in the United States: A Comparative Study. Public Contract Law Journal, 32(4), 713–738.

    Google Scholar 

Download references

Acknowledgments

The author would like to thank the Swedish Competition Authority and the Swedish Research Council for financial support.

Author information

Authors and Affiliations

  1. Södertörn University, 141 89, Huddinge, Sweden

    Johan Stake

Authors
  1. Johan Stake
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Johan Stake.

Appendix

Appendix

See Tables 6, 7, 8, 9, 10, 11, 12, 13, 14, 15.

Table 6 CEM procedure results
Full size table
Table 7 Results participation micro firms
Full size table
Table 8 Results participation small firms
Full size table
Table 9 Results participation medium-sized firms
Full size table
Table 10 Results participation large firms
Full size table
Table 11 Results participation all firms
Full size table
Table 12 Main results from participation estimations using CEM treated data
Full size table
Table 13 Probability of SME success
Full size table
Table 14 Probability of SME success (with interaction effect)
Full size table
Table 15 Estimations of probability of winning
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Stake, J. Evaluating quality or lowest price: consequences for small and medium-sized enterprises in public procurement. J Technol Transf 42, 1143–1169 (2017). https://doi.org/10.1007/s10961-016-9477-4

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10961-016-9477-4

Keywords

JEL Classification

Search

Navigation