For start-ups, the path to public procurement contracts is fraught with difficulty
In Belgium, the business-to-government (B2G) market is estimated to be worth more than 50 billion euros a year, accounting for 10% to 15% of GDP. It is therefore essential that the rules on public procurement allow as much competition as possible.
Due to their size and stability, public procurement contracts can serve as a real growth driver for start-ups and SMEs in general. However, the path to public procurement contracts is fraught with pitfalls for such companies.
Four main entry barriers for start-ups
Public procurement law favours de facto well-established companies, for example through the so-called qualitative selection procedure. This is the stage prior to the comparison of tenders during which the contracting authority assesses whether the participating companies are capable of fulfilling the contract if it were assigned to them. The contracting authority will also verify whether each company meets the selection criteria relating, for example, to financial soundness (a given minimum turnover per year for the last three financial years) and experience (similar contracts performed during the past three years). An SME that does not meet these minimum requirements will not even be able to submit a bid.
Another entry barrier can be the scale of the contract in question. One noteworthy trend in recent years has been the pooling of public procurement, as illustrated by the proliferation of central purchasing bodies. This phenomenon is positive insofar as it simplifies administration and creates economies of scale: a single contracting authority specialising in public procurement organises a single procedure, benefiting numerous authorities. The disadvantage is the increase in mammoth contracts, which are effectively beyond the reach of SMEs.
The way in which the technical specifications are described, in other words the purpose of the contract, is also decisive in enabling SMEs, especially innovative SMEs, to take part. All too often, public procurement agencies describe the provisions or services they would like to procure in excessive detail, precluding alternative solutions that could meet their requirements just as effectively (or even better).
For example, assume a local authority would like to commission aerial photographs of its territory for topographical purposes. If the technical specifications refer to flyovers by helicopter, the contracting authority will rule out companies that take photographs using drones, even though this solution would be just as effective.
A final obstacle to start-up participation in public procurement contracts is more fundamental: very few contracting authorities make the effort to simply envisage innovative procurement. This is particularly the case when there are experimental solutions for which a specific need has not yet been identified by the authorities.
For example, companies such as PredPol, Inc. (short for "Predictive Policing") have developed software which uses databases of past offences in a city to help predict the time and place of future offences. This tool, which uses a complex algorithm and relies on big data analytics, has apparently produced convincing results in numerous US cities. As far as we know, however, the Belgian police do not use this type of software which is therefore not part of the services typically purchased through procurement contracts.
Solution: change the perception of public procurement
The majority of obstacles encountered by SMEs and start-ups when participating in public procurement contracts are not inherent to public procurement law but rather due to the way in which purchasing decisions are made by contracting authorities and public procurement is perceived by start-ups.
The SME reflex and an innovative approach need to be incorporated into public procurement law and no longer confined to the financing of research programmes. Qualitative selection criteria therefore need to be more reasonable, requirements should be described in terms of functional performance, technical variants permitted, and the flexibility offered by the regulatory framework fully utilised. Recent European directives on public procurement anticipate various changes in this respect, which will soon be transposed into Belgian law.
For their part, SMEs and start-ups are perfectly positioned to take advantage of B2G, as long as they approach the challenge seriously. Indeed, SMEs often create their own entry barriers to public procurement contracts. For instance, an inexperienced entrepreneur will often demonstrate a natural distrust for public procurement, considering it to be excessively formalistic. However, an investment by start-ups in public procurement, once incorporated into the company's business model, is beneficial not only at the national level but also at the European level, given the increasing harmonisation of the rules in this area.