Unravelling SMEs’ participation and success in public procurement

This paper aims to investigate the role of micro, small and medium enterprises (MSMEs) within the Canadian public procurement, by seeking to identify barriers and supporting factors of MSMEs’ participation and success in public tenders.

The empirical analysis builds on a unique survey run by the Canadian federal government, which addressed firms either participating or not participating in public tenders. Model estimation on the survey data relies on sample selection methodologies, which allow separating determinants of MSMEs’ decision to participate from determinants of success.

Results provide evidence that costs stemming from asset specificity and uncertainty (e.g. costs of bidding, requirements for participation, bundling of contracts and award rules based on minimum price) affect participation in public procurement. Within MSMEs, micro-firms are the most discouraged from participating. However, after controlling for factors affecting participation, micro-firms emerge as having a higher success rate, possibly because of high specialization and joint participation with larger firms.

Because of the cross-sectional nature of the data used for hypotheses testing, endogeneity may arise if ex post variables affect ex ante decisions. This may apply if participation in procurement feeds on success in past tenders.

Findings may inform policies for the inclusion of smaller firms in the public marketplace.

To the best of the authors’ knowledge, this study is the first attempting to disentangle determinants of participation in public tenders from determinants of success. Separating the two aspects helps fine-tune SME-friendly public procurement policies, by identifying actions that effectively facilitate success of MSMEs in public tenders.