Public Procurement and SMEs in Lazio. A reserach

Università degli Studi di Roma "Tor Vergata"
School of Economics
Master of Science in
Business Administration
Thesis in
Economics of Procurement
Public Procurement and SMEs in Lazio: a research
Supervisor
Prof. Gustavo Piga
Co-supervisor
Prof. Simone Borra
Student
Andrea Di Schiavi
Academic Year 2014/2015

Table of contents
Introduction ............................................................................................................................. 1
Why SMEs and Public Procurement? .............................................................................................. 1
Chapter 1.................................................................................................................................. 5
1.1 SMEs and Public Procurement in EU: general considerations........................................... 5
1.1.1 Structural indicators on enterprises................................................................... 6
1.2 Principles of Public Procurement....................................................................................... 9
1.2.1 Public Procurement in Europe ......................................................................... 17
1.3 SMEs participation rate and success rate in the Public Procurement market................. 22
1.3.1 Country Differences.......................................................................................... 27
1.4 Factors and barriers influencing SMEs in Public Procurement ........................................ 28
Chapter 2................................................................................................................................ 35
2.1 Small and Medium enterprises and Public Procurement: the Directive 2014/24 EU ............. 35
2.2 SMEs and the Public Procurement. The Italian situation ........................................................ 40
2.2.1 Credit crunch: a focus ........................................................................................... 43
2.2.2 The Italian Public Procurement market................................................................ 47
2.3 The survey: statistical approach.............................................................................................. 61
2.3.1 Collaboration with Unindustria............................................................................. 62
2.3.2 The reference population ..................................................................................... 63
2.3.3 Sampling design .................................................................................................... 66
Chapter 3................................................................................................................................ 68
3.1 The survey: results................................................................................................................... 68
3.1.1 Analysis of peculiar questions............................................................................... 80
3.1.2 Communal questions for Currently suppliers, Past suppliers and Participating but
never awarded firms. .............................................................................................................. 95
3.1.3 Analysis of communal questions for the sample................................................ 100
3.2 Small Business Act: a possible solution? ............................................................................... 121

3.2.1 The U.S. Small Business Act and the Small Business Administration.................. 121
3.2.2 SBA, SMEs and Public Procurement.................................................................... 126
Conclusions .......................................................................................................................... 129
Bibliography ......................................................................................................................... 136
Index of Tables..................................................................................................................... 139
Index of Graphs.................................................................................................................... 141
Index of Figures.................................................................................................................... 142
Annex ................................................................................................................................... 143

1
Introduction
Why SMEs and Public Procurement?
Many policies arise from the participation of SMEs in the Public Procurement business,
each pursuing a theory or logic. We can carve up these reasons into two primary
categories: economic and social justifications (Nicholas and Fruhmann, 2014).
Economic motivations support SMEs because they both lead innovation and add value
(Carter et al., 1999, Erridge et al., 1998, and Hoffman et al., 1998, as quoted in Nicholas
and Fruhmann, 2014); are more adaptable and efficient in meeting the demands of
purchasers (Zheng, Walker, & Harland, 2006); create new markets and increase
competition (Caldwell et all., 2005) and because local sourcing increases benefits for local
economies (Walter, 2005, NERAS, 2005 and cited in Nicholas and Fruhmann, 2014).
Social motivations are connected with the economic ones because SMEs are the most
significant entities in our economy, and sustaining little businesses means supporting
employment and societal wealth.
These two motivations are strictly related to each other and if they are taken into
consideration and supported, they could spark a positive reaction and promote the whole
economic system.
How we will analyse, SMEs are less efficient than large firms in winning larger contracts
and this creates a misalignment with their pivotal role in the economic system. We concur
with the report commissioned by the European Commission and conducted by GHK (GHK,
2010) that suggests how unlikely is for SMEs to win bids for large contracts, but “they
could eventually win lower-value contracts to accept their ‘fair share’ of Public
Procurement overall”.
About policies
The Academicals interest and the various studies on SMEs appear to be sterile due to the
inefficiency of policies and incentives in favor of Small businesses. As it is confirmed by
previous studies, in the EU there is a deficiency of a defined address which would

2
markedly increases SMEs participation and effectiveness, not only in Public Procurement
but also for their existence (Nicholas and Fruhmann, 2014).
Lack of goals make the evaluation of this process relatively difficult, and without any
benchmarks or targets can be helpful to consider the USA or the UK experiences. The
former established the Small Business Administration in 1953, following what established
by the Small Business Act signed in the same year. It has set a goal of 23% awards by
value of public contracts to SMEs. We dedicated the last paragraph of the research to
focus deeply on the SBA policy in the USA.
The UK government (Cabinet Office 2013) is looking to achieve the goal of directing 25%
of the government spend by value to SMEs, “in recognition of the essential role that SMEs
can play in supporting growth”. This is not just a quantitative target, but rather a reform
for the procurement procedures in a simpler, more overt and less bureaucratic way in
order to increase chances of success to all businesses, “no matter what their size is.”
Optimistic signals can be distinguished in the increasing number of reports the EU is
elaborating on the topic. We use these studies as a statistic and as a referall starting point
for our inquiry. The European population of SMEs is analysed considering different factors
such as class size, type, geography and kind of business. The SMEs playfield it has been
observed even in relationship to the Public Procurement market, proving and showing
how the interest in this topic is increasing (D.J. Storey, 2008).
Even Public Procurement plays a vital function in the economic system, both for the
financial turnover generated and because it can be a major source of innovation. In most
of the cases, the public body is the main purchaser in a given country, and following the
theory of demand drives innovation, when it is oriented towards specific features and
characteristics that improves the quality of the services provided, Public Procurement has
the potential to enforce the offer counterpart. (Saviotti, P.P. Pyka, 2013; Dalpé et all.,
1992; Edler and Georghiou, 2007; Porter,1998).
To strengthen this thesis, we concentrated on few seminal studies conducted between
1980s and 90s. Some of them demonstrated how Public Procurement in the long run can
contribute to higher innovative findings than R&D centers have done so far (Rothwell and
Gardiner., 1989). Similar results emerged from an another research (Geroski.,1990) which

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concludes that procurement “is a far more effective instrument to use in stimulating
innovation than any of a broad range of frequently used R&D subsidies”.
To deliver a complete overview, we studied the research conducted by Mowery and
Rosenberg in 1979 and Rothwell in 1986 as quoted in the survey conducted by Vecchiato
and Roveda in 2013. All of these studies focus their attention on how demand can change
and address the offer when is perceived as a driver of innovation.
Moreover the connection between Public Procurement and SMEs seems to go on when it
is examined the importance given to these two topics by policy makers. During the past
decades, the inherent potential in the role of public demand has been largely neglected
by governments and by the European bodies. The cause for this lack of interest, as
pointed out by Vecchiato and Roveda, can depend on the innovation of more stringent
regulations across the EU, which discourage the habit of this instrument (Edquist et
al.,2000). In addition, the disinterest is confirmed by statistics and empirical evidences,
showing that procurement in the EU is taken into account on average three times less
than in the US in civilian sectors and in defence (Vecchiato and Roveda 2013).
The trend changed at the beginning of the new millennium (mid 2000s), because a new
interest has emerged in the EU with the use of Public Procurement as the leading factor in
innovation (Edler et al.,2006). It is not a coincidence that this new interest is closely
related to the one previously expressed for the SMEs. Such involvement, found by Edler
and Georghiou (2007) and highlighted by Vecchiato and Rovenda, derives from the
inability of the traditional supply-side system to confront the new challenges presented
by the increased competition in the marketplace.
Debates were so fertile and researchers began to investigate on the importance of
Regions and municipalities in the innovative and economic growth process. Local business
entities, in a competitive and cooperative market, facilitate learning, innovation and
competitiveness (Porter, 1990, 1998). Looking at the Italian situation, this seems to be the
foremost driver of the 2005 Constitutional reform act concerning the fifth claim of the
Italian Constitution. Without analyzing this reform which drastically changed the structure
of the Italian government shifting many powers from the centralized State to the de-

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centralized ones, we can say that federalism improves the role played by Regions, both
for social and economic prospects.
In this new playfield generated by such epochal change, it’s easy to predict how the
interaction between SMEs (main players at economic level - supply side), Public
Procurement (main players at economic level - demand side), State, Regions and
municipalities (main players at economic level - demand side) and the EU (referee -
regulation side) need to be studied to determine the critical points that can influence
these relationships. In addition a right interaction could boost our depressed economy.
The aim of this work is to understand the critical aspects affecting SMEs in Lazio, and in
doing so we could solve the following questions:
- How much are SMEs in Lazio involved in the Public Procurement market?
- Do SMEs feel this market as a competitive and a convenient one?
In order to answer to these questions we elaborated a survey submitted to thousands of
SMEs in Lazio. The research it has been supported by Unindustria (Confindustria Lazio),
which has provided the database of firms to contact.
The purpose of the survey is to provide appealing results and a clear visual picture on the
concerned topic. Moreover, it will be possible to formulate concrete solutions and to
have a better understanding of the existenting theories supporting the participation of
SMEs as a driver for innovation and dynamism. Dynamism in the marketplace means
renovation, good practices and, as a final result, better conditions for all the stakeholders
involved.
This is why, we will debated two last questions:
Ensuring a large amount of public purchases to SMEs could increase market dynamism?
and in doing so,
shall SMEs be considered a homogeneous cluster or their different dimension can affect
their conduct in the marketplace?

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Chapter 1
1.1 SMEs and Public Procurement in EU: general considerations
Studying the relationship between Public Procurement and SMEs without a general
overview on the industrial European structure would be a mistake.
It is not a case that the EU defines the SMEs, through a Commission recommendation
released in 2013. A SME is an independent enterprise or group of enterprises with less
than 250 employees and a total annual turnover not exceeding EUR 50 million, or a
balance sheet not exceeding EUR 43 million. The Commission goes further and breaks
down the SMEs category into three subgroups: Micro, Small and Medium enterprise. The
following table shows the main characteristics for each one.
Table 1: EU definition of SMEs and subgroups
Size Class Employees number Annual sales (EUR) or Balance Sheet (EUR)
Micro < 10 ≤ 2 million ≤ 2 million
Small < 50 ≤ 10 million ≤ 10 million
Medium < 250 ≤ 50 million ≤ 43 million
Source: elaboration on EU Commission Recommendation 6 May 2003
In the present research this definition has been used and furthermore, it applies the non-
overlapping methodology. In other words, each class size is computed considering only
firms inside the given threshold (number of employees or revenues) and the result are
four non-overlapping clusters.
The fact that the European Union provides a specific definition constitutes a proof of how
the subject is under the policy-makers' glance. The main resolutions can be found in the
European Charter for Small Enterprises, whose intention is to improve the business
environment for SMEs, in the renovated 2005 Lisbon Program and in the European Small
Business Act through its web portal (EU Small business portal).
The OECD (Entrepreneurship at a Glance 2014) defines an enterprise in the following way:
“the lowest combination of legal entities producing goods or services, with autonomy in
decision-making, especially in the allocation of its resources and providing its activities in

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one or more positions”. The basis for size-classification is the total number of people
employed, which includes the self-employed.
As stated, the EU is a key actor in such context because all the Members States must
adopt the fundamental regulations and those concerning the Public Procurement are
mandatory.
A new environment for SMEs is developing, with the mandate to facilitate and to ensure
the participation of these actors in the Public Procurement market. Sticking with the
instructions of the last available study (PWC – GHK 2014) in recent years, both the EU and
the Member States are increasing the effort to achieve this objective through the
progressive elimination of all the barriers preventing SMEs from correctly competing in
the market of public contracts. The final aim is to create a playfield where all participants
receive equal access to information and to market opportunities.
At this point some question arises and needs to be addressed to understand some
decisions taken by policy makers.
Is equality the right response for SMEs? and does equality mean fair competition
between large corporations and small firms?
As stated before, the main topic of this study is to understand if this effort is going to the
right direction, and how the regional (in Lazio) SMEs are dealing with this challenge.
1.1.1 Structural indicators on enterprises
At first impact, thinking about SMEs in relationship with Public Procurement, could lead in
the wrong idea of considering the SMEs as non-innovative enterprises unable to provide
efficient conditions to the public procurer. In the following paragraphs, we will profoundly
analyse these characteristics, but in the first case, we would have evidence of how much
what is their impact on the economic system.
SMEs are the backbone of the European economy. Granting to the last studies (OECD
2014a) the approximately 20 million European SMEs signifies about 99.8% of all
enterprises registered. They get more than half of European GDP and employ two out of
three workers in the private sector (PWC- GHK 2014).

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Graph 1: EU Enterprises by size classes. Percentage, 2011 or latest available year
Source: Elaboration of Entrepreneurship at a Glance 2014- © OECD 2014 on Eurostat Data
The image depicts how the SMEs are predominant in all the European countries. Micro
enterprises are in mostly of the cases more than 90% of the whole structure (Italy
94,63%, Germany 82,27%) and Large enterprises with more than 250 employees account
only for the 0,22% on average among these European countries.
The OECD’s data confirm how Italy is the country with the highest presence of SMEs
(99,9%) and this is explicative of the relevance of this issue.
To confirm the critical role played by SMEs in our country, the next table shows how they
affect the employment rate. Even in this case, Italian SMEs are the most significant
employers in comparison to the other Member States. More than 80% of workers, are
employed in a SME and the 50% is employed in Micro enterprises with less than ten
employees.
Graph 2: Employment by enterprise size class. Percentage, 2010 or latest available year
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1-9 60 10-19 8 20-49 10 50-249 14 250+ 8

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A last elaboration shows how much SMEs add value into the real economy. OECD defines
the Value added as the difference between output and intermediate consumption, where
total intermediate consumption is valued at purchasers‘ prices. The data in this paragraph
present the Value added by each type of enterprise (size class) as a percentage of the
Value added by all enterprises.
According to the OECD’s study, Micro enterprises added in 2011 26.7% in the economy,
Small firms 21% and Medium about 19.4%. Large participate with the remaining 32.8%.
SMEs constitute the 67.2% of the total Value added in production. As predictable, there
are many differences among Member States: In Germany Micro enterprises are less
effective in their contribution (16.5%) but it is higher in countries like Italy or Greece
(respectively with 32.5% and 41.4%). The report connects these variances with the
differences in entrepreneurship and in productivity performances across countries. Larger
enterprises, for instance, have typically a higher productivity levels compared to more
modest enterprises.
Graph 3: Value added by enterprise size. Percentage, 2011 or latest available year
Taken into account all the indicators and how the SMEs affect the real economy, now is
clear why them are so important in our industrial structure and why they are the main
actor in our economy. It is easy to realize how each single action involving SMEs, can
affect positively or negatively the country’s economy.
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1.2 Principles of Public Procurement
Until now, we defined the SMEs’ playfield and their importance in the European Union’s
economic structure.
Before discussing about Public Procurement, is required a short regression to explicate
what is it and which are its primary features.
Granting to the most common definition provided by the UK Office of Government
Commerce, and accepted by the EU, Public Procurement is the process whereby public
sector organizations acquire goods, services and works from third parties. The range goes
from the accomplishment of everyday items (e.g. temporary office staff, print-paper,
furniture or printing machines), to complex ones (e.g. construction, infrastructure, Private
Finance Initiative projects, aircraft carriers or articles for the National Defense or the
Health System). Procurement in the Public sector includes the expenditure to allow both
the private and the third sector (association) in providing critical services to citizens in
areas such How welfare, education, social care and health.
The Public Procurement process can be summed up in three main steps or stages:
 Pre-procurement process: developed in the procurer’s office and regulated by
internal procedures. In preparing the tender and the contract notice, the procurer must
follow formal rules and guidelines provided by the law.
 Tender and contract award: it is the main phase of the procurement process.
At this point the contract is assigned to the best bidder or to the selected supplier. The
contract establishment process is regulated by specific laws on Public Procurement.
During the tender, corruption and collusion could negatively affect the value and the
quality of the contract. Controlling authorities put under their glance the tender process
in order to monitor illegal behaviors.
Collusion involves the relationship between potential suppliers engaged in the tendering
process (horizontal relationship). They strain to take away the effectiveness of
competition from the process. Bid rigging is the mostly used collusive mechanism and is
the basic precept of the cartel among participants. Bidders arranging their bids chose
among themselves who the winner of the tender will be.

10
Corruption takes place between the public officials linked in the tendering process and
the bidders (vertical relationship). A bribe is the commodity money paid to officials for
granting a tender. It will usually occur during the procurement process.
According with the OECD, (OECD, 2010) “collusion and corruption are distinct problems
within Public Procurement, yet they may frequently occur in tandem, and have mutually
reinforcing effect. They are best viewed, therefore, as concomitant threats to the integrity
of Public Procurement”.
 Contract execution and follow-up: the last step in the procurement process
begins immediately after the contract is awarded and implemented. Usually the
execution is controlled and governed by national civil laws, those applied to commercial
or private contracts. For example, the specific laws on procurement normally do not fix
limits for the contract length and the sole restriction deals with frameworks agreements
(4 years), how it will be discussed afterward in this work.
Sometimes, corruption can arise even during the management of the contract (OECD
2010), for example a bribe paid to public functionaries in order to keep off or alter the
control over the correct implementation of the contract.
We summarized the process in the following representation.
Figure 1: Public Procurement process
The entire process begins with the planning and the recognition of the goods, services or
works required by the Public Administration. The purchasing process must be as public
Pre-
procurement
process
Tender process
and contract
award
Contract
implementation
and
management
Publication of
contract notice
Execution of the
contract / agreement
Regulated by specific legislation on
Public Procurement Regulated by civil
laws
Regulated by internal
procedures and specific rules

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and transparent as possible in order to get both the legal security and the best market
conditions. The publication of the contract notice fulfils this task and takes place in the
TED1
for the European market or on the CONSIP’s or on the MePa’s2
portals in the Italian
market (below threshold contracts). Of course, all the tenders above threshold must be
published in the Italian Official Journal (Gazzetta Official dell Repubblica Italiana) and
follow the provisions of the art. 66 Public Procurement Code.
Considering the publications of tenders, we meet for the first time the concept of
threshold values. The threshold is the maximum estimated value of a single purchase. An
esteem of value defines which procedure should be used: national or EU. When the value
exceeds the national threshold, competitive tendering becomes mandatory and a
contract notice will be published through the national channels of communication
(previously discussed). When the EU threshold is exceeded, the contract notice must be
published at EU level (e.g. TED). Contract below thresholds can be accomplished without
a competitive tendering and take advantage of a direct purchase order (PO).
Publications play a key part in the procurement process, not solely for the efficient result
of the tender but for the dynamic participation of all the economic agents interested in
the exchange and in the free competition belief. In this way, thresholds are a core
component in the operation.
Subsequently the 2013 EU Commission Regulation N° 1336/2013 of 13 December 2013
amending Directives 2004/17/EC, 2004/18/EC and 2009/81/EC on 2015, the following
thresholds and the applicable “Sector” and “Classical” Public Procurement directives are
effective and they will remain in force until 17 April 2016.
1
Tenders Electronic Daily (TED) database is the online version of the Supplement to the Official Journal of the European
Union, dedicated to European Public Procurement. It considers purchases above the EU-thresholds.
2
Both Italian portals where contracts notice are published. MePa is the Italian e-procurement market.

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Table 2: EU thresholds and sectors
“Sector Directive” – Water, energy, transport and postal Services
Works contracts EUR 5,186,000
All Supplies and Services contracts, all design contests EUR 414,000
Central
Government
authorities
“Classical Directive” – Contracts for public Works, public supply and public service
Works contracts, Works concessions contracts, subsidized Works contracts 5,186,000 EUR
All contracts concerning Services listed in Annex II B, certain telecommunications Services and
R&D Services; all design contests concerning these Services and all subsidized Services 207,000 EUR
All contracts and design contests concerning Services listed in Annex II A except contracts and
design contests concerning certain telecommunications Services and R&D Services 134,000 EUR
All Supplies contracts awarded by contracting authorities not operating in the field of defense 134,000 EUR
Supplies contracts awarded by contracting authorities operating
in the field of defence
Concerning products listed in
Annex V 134,000 EUR
Concerning other products 207,000 EUR
Sub-central
contracting
authorities
Works contracts, Works concessions contracts, subsidized Works contracts 5,186,000 EUR
All service contracts, all design contests, subsidized service contracts, all Supplies contracts 207,000 EUR
Contracts for social and other specific Services such as health care, educational, cultural or
religious Services 750,000 EUR
Source: elaboration on EU Directive 2004/17/EC
According to the EU Commission (EU Commission’s web portal) the thresholds remained
fixed to the levels imposed by the international World Trade Organization framework
agreement on procurement. Any increase in the thresholds means that a larger
proportion of procurement would cease to be advertised at EU level, resulting in less
competition. This result would be a disaster for both CAEs (in most of the cases less
competition means higher prices) and for SMEs.
The competitive tendering process is the focal moment where the outcome of the
procurement activity becomes effective. The public procurer must achieve the Value for
Money (VFM) in each tender it organizes. In performing thus, must be respected the legal
obligations provided by the EU and the national or local legislation.
VFM in procurement is pivotal to ensuring the optimum utilization of budgetary resources
which are scarce in many P.A. (UK Office of Government Commerce, 2008). Effectiveness
is the main driver in this process and should be achieved both the qualitative and the
quantitative results of cost reduction and right specification.

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In Public Procurement, it is not only a matter of buying at the lowest whole-life costs, but
also the value added benefit must be clear and justifiable to taxpayers. The value added
criteria allows the P.A. in paying a higher price respect the lowest available, but this extra
expenditure must be clear and justifiable and the benefits shall be concrete.
VFM incorporates affordability: goods or services that are too expensive cannot be
purchased. This seems to be intuitive but it reaches a higher relevance regarding the
budget constraints the European States are facing in this tough period of crisis. Spending
review is the rational response to such crisis and some needs were reconsidered in order
to save money.
Value for money is primarily gained through the competitive process but during the
tendering stage the result of the procurement activity can change completely in a right or
wrong direction.
The first concern is about mismanagement, fraud and corruption. The OECD countries
demonstrated their will to react in approving a formal OECD’s Recommendation entitled
Principles for Enhancing Integrity in Public Procurement (OECD 2008). Those principles are
directed to policy makers but are also a general guideline for sub-national governments
and for all Public Procurement agencies. Those principles are a policy instrument for
enhancing integrity in the Public Procurement market. They address various risks to
integrity in all the three main phases seen before. Procedures that enhance transparency,
sound management, prevention of misconduct, accountability and control, they all lead
to preventing the waste of public resources How well as corrupt practices. Attempts to
enhance good governance and integrity in Public Procurement are fully part of an
efficient and effectual management of public resources and the accomplishment of the
VFM goal.
According to the OECD each public procurer must follow ten critical aspects and
principles:
The first Principle calls on governments to “provide an adequate degree of transparency
in the entire procurement cycle in order to promote fair and equitable treatment for
potential suppliers”. Transparency means easy access to documents and process in order

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to facilitate the controlling activity performed by the Authorities and inspectors. This
activity ensures the fair game between potential contractors and is performed during the
entire procurement process.
The second Principle stresses that governments should “maximize transparency in
competitive tendering and takes precautionary measures to enhance integrity, in
particular for exceptions to competitive tendering” (e.g. Extreme urgency or national
security cases). Public procurers should establish clear guidelines in choosing the
procurement method used for each type of tender to ensure both fair competition and
transparency. During emergencies (e.g. natural disasters), these provisions play a pivotal
role.
The third Principle states that governments need to guarantee a fair use of public
finances and in accordance with the functions designated. In declaring so, the OECD
focuses the matter of budget constraints and the justifiability of the public money.
Control is provided by internal audit bodies, supreme audit institutions and/or
parliamentary committees. For example, when an infrastructure is to be built, a court of
audit may verify not only the legality of the spending decision but also whether the
infrastructure responds to a real need.
The fourth Principle calls on governments to “ensure that procurement officials meet high
professional standards of knowledge, skills and integrity”. The role of public officers is
critical in reducing mismanagement, waste and corruption. In this perspective, the role of
procurement officials achieves a higher layer of importance and it will benefit from
specialized knowledge and professional credentials.
The fifth Principle requests governments to “put mechanisms in place to prevent risks to
integrity in Public Procurement”. Risks to integrity can pertain to potentially vulnerable
positions, activities, or projects. For these reasons the anti corruption agency has to
define a risk map to identify the critical points along the procurement process.
The sixth Principle encourages close co-operation between government and the private
sector to hold high standards of integrity, especially in contract management. When
governments set standards, they must be sure that they will be respected. Moreover,
governments should enhance the collaboration with the potential suppliers to take

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advantage of their knowledge and experience. Potential contractors should also be
encouraged to reinforce integrity in their relationship with the government using codes of
conduct, an integrity training program for employees, corporate procedures to report
fraud and corruption, internal controls, certification and audit by a third independent
party.
The seventh Principle asks governments to “provide specific mechanisms for the
monitoring of Public Procurement and the detection and sanctioning of misconduct”. In
doing so the public procurer enforces the advices of the previous Principles. This could
lead to the establishment of procedures for reporting misconducts by protecting the
anonymity of the individual.
The eighth Principle highlights the importance for governments to set up a well-defined
chain of duty in concert with efficient control mechanisms. This advice emphasizes the
importance in defining duties and responsibilities for instance forcing the internal
reporting activity. When the operational chain is defined is possible to see where the
procurement process can be affected negatively by corruption or bribes.
The ninth Principle stresses that governments should “handle complaints from potential
suppliers in a fair and timely manner”. In defining this Principle, the OECD members
should encourage the collaboration with potential contractors in order to keep the
relationship effective and based on long term time horizon.
The tenth Principle calls on governments to “empower civil society organizations, media
and the wider public scrutinize Public Procurement”. With this last Principle the OECD
would encourage the civil society, the media and the wider public in participating in the
procurement process as an observing referee, establishing a control chain able to put
under the glance the process. If the process is transparent, taxpayers will be more
confident and less skeptical concerning the public expenditure’s management.
Going back to the process, the preliminary phase must tailor the tender according with
the type of the good, service or work it will be procured. In this step it is also pivotal the
choice between tendering processes (sealed bid tendering, combinatorial tendering
process, two- stage sealed bid, online auction, electronic tendering procedure) and a

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negotiated transaction. Of the choice of the qualitative and quantitative awarding criteria
has to be settled (M.E.A.T. or lowest price).
The size of the contract is probably one of the main questions faced by CAEs. The decision
of splitting a contract into smaller lots will determine the effectiveness of the purchase
and the whole procurement process. According to the study conducted by the EU Public
Procurement Learning Lab, as cited by Dimitri and Piga (2006), Institutions spilt contract
into lots to: i) promote participation in a competitive tendering and in future Public
Procurement (if a firm wins once, it will participate in the future, ii) to optimize transport
costs if high distance between buyers and many suppliers occurs and, iii) foster the SMEs
participation in the Public Procurement market. This last point it has been the most
recognized among the ten CAEs interviewed (nine out of ten agree).
Concerning the contract length, this choice may reflect the features of the good being
procured (Carpinetti, Piga, Zanza 2006) taking into account specific legislation. The EU
Directive states that the duration of a framework agreements is limited to 4 years and
may have a longer duration in “exceptional cases duly justified, in particular by the subject
of the framework agreement.” (UE Commission- Directorate general). This four-year limit
exists to ensure that the European Public Procurement market is opened up periodically
to new competitors (PWC- GHK 2014).
Subcontracting is another key factor during the procurement design stage. If the procurer
allows the use of subcontractors, it would also face different regulations and key aspect
to monitor. Many contracts are too large to be handled by Micro enterprises and in this
case only Medium or Large enterprises may have the capacity, the experience, and the
management tools to procure such projects. However, SMEs may then participate as
subcontractors. Division in smaller lots would be a solution, but that is frequently not
feasible and/or effective. In the case of smaller lots, “SMEs are sometimes in a
disadvantaged position due to the obscurity of procedures, lack of a relevant track record,
insufficient financial reserves, and problems caused by late payments” (EIM Business &
Policy Research, 2009).

17
1.2.1 Public Procurement in Europe
Public Procurement in EU is a large amount of the total general government expenditure.
Esteems of this value change depending on the data provider, but following the OECD
data (OECD, Government at a Glance 2013), we filled the table below.
Table 3: Public Procurement expenditure per capita, GDP and ratios in EU an OECD countries in 2011. Parentages and billion of U.S.
dollars (constant prices, base year 2005)
2011
GDP
(billion of $)
GDP
per capita
$
G/GDP% G
per capita
$
Proc/G% Procurement
per capita $
Procurement
Expenditure
(billion of $)
Austria $313.580 $37.382 50,7 $21.381 21,62 $4.622 $39
Belgium $376.849 $34.111 53,4 $20.748 25,21 $5.230 $58
Czech Republic $261.661 $24.928 43,2 $11.330 35,78 $4.054 $43
Denmark $187.249 $33.614 57,6 $23.598 23,33 $5.505 $31
Estonia $24.026 $17.998 38,3 $8.422 34,25 $2.884 $4
Finland $179.623 $33.350 55,2 $20.588 30,24 $6.225 $34
France $1.970.959 $31.174 55,9 $19.843 26,31 $5.221 $330
Germany $2.919.604 $35.693 45,3 $17.879 32,09 $5.738 $469
Greece $250.635 $22.531 52,0 $13.424 18,85 $2.530 $28
Hungary $175.305 $17.603 49,6 $10.637 26,34 $2.802 $28
Ireland $173.096 $37.836 48,2 $19.994 21,86 $4.371 $20
Italy $1.719.366 $28.360 49,9 $16.278 21,23 $3.455 $209
Netherlands $661.997 $39.657 49,9 $37.013 44,73 $9.495 $159
Norway $231.756 $46.791 43,9 $21.229 26,49 $7.103 $35
OECD $39.155.175 $31.458 45,4 $26.812 28,95 $4.702 $5.853
Poland $695.080 $18.042 43,4 $16.240 31,22 $2.864 $110
Portugal $234.673 $22.228 49,4 $12.522 24,22 $3.033 $32
Slovak Republic $114.732 $21.253 38,3 $9.243 30,54 $2.823 $15
Slovenia $52.374 $25.513 50,8 $13.882 25,05 $3.478 $7
Spain $1.259.228 $27.271 45,2 $14.503 25,59 $3.711 $171
Sweden $344.301 $36.437 51,2 $21.222 31,36 $6.654 $63
UK $2.177.134 $34.402 48,6 $17.305 30,06 $5.201 $329
USA $13.797.189 $44.281 41,7 $20.034 27,62 $5.533 $1.724
Average EU* $607.305 $29.589 49 $17.499 28 $4.590 $94
Source: own elaboration on OECD.StatExtract database (* excluding OECD total, UK and USA)
In the table, the GDP is calculated at constant prices at the national base year (2005) in
US dollars; G is Government Expenditure; G/GDP is General government outlays as a
share of GDP; Proc/G is the General government procurement (comprehensive of
expenditure on Works) as a portion of total general government outlays. For each index,
we computed the per capita value, using the esteems of the OECD. Evaluating the wealth
of each citizen and the per capita expenditure, can provide a robust indicator to use in
our study.
Before commenting the table, could be helpful to show the graphical representations of
the data with further information and trends.

18
Graph 4: General government expenditures as a percentage of GDP (2001, 2009 and 2011)
Source: elaboration on data provided by Government at a Glance 2013- © OECD 2013
For instance, all countries increased the expenditure as percentage of GDP from 2001 to
2011, but such expenditure experienced a strong reduction from 2009 to 2011 due to the
economic crisis. Of course, G is directly implied in the GDP equation and in the EU due to
the budget constraints, is the first source of expenditure revisited (and reduced) in the
case of spending review. Ireland registers the higher difference from 2001 to 2009
(+15.4%) while in Slovenia the expenditure remained almost fixed at 50% for the entire
period. Differently from the other, the Slovak Republic constantly decreased the
expenditure since 2001. Finally, Estonia has risen the public expenditure of nearly 10% of
GDP since 2001 (34,8%) to 2009 (45,5%) becoming the second largest level in the EU, with
the following reduction to a more sustainable level of 38,3% for the following two years
(2009-2011).
As it will be shown in the graph 5, we deduced from the table 3 the data concerning the
portion of Public Procurement expenditure (P) as the voice of the total public spending
(G). Using the scatter-plot graph, pointing out the trend line and the relative R squared3
,
we established the following relationships between quantities.
First, we can see how the percentage of procurement expenditure as percentage of G
ranges from 20% to 35%, with the peak in the Netherlands of 45% of G. The low R² value
(0,03) proves how the expenditure changes significantly among States, due to the
different procurement systems, regulations and other aspects. In fact, both Italy and
Netherland have exactly the same public expenditure as percentage of GDP (49,9% in
3
The square root of the R- squared express a perfect correlation when 1. When the coefficient is
zero, there is no correlation among values.
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
Austria
Belgium
CzechRepublic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Netherlands
Norway
OECD
Poland
Portugal
SlovakRepublic
Slovenia
Spain
Sweden
UnitedKingdom
UnitedStates
% 2011 2001 2009

19
2011) but there is an astonishing difference of 23,5% between the two
in terms of procurement expenditure (21,23% vs 44,73%).
Graph 5: Distribution and trend line (linear regression) between P/G and G/GDP in European countries and OECD. 2011
Source: own elaboration on OECD.StatExtract database
From such behavior, we can elaborate a first conjecture concerning the Public
Procurement expenditure in Europe: there is no correlation between Public Procurement
expenditure (P) as a share of total public expenditure (G) and the percentage of total
public expenditure (G) and GDP.
Going forward with the data elaboration we studied the relationship between Public
Procurement expenditure and the wealth of citizens among States.
Graph 6 : Distribution and trend line (linear regression) between GDP per capita and Procurement expenditure per capita among
OECD States. 2011. Value in U.S dollars
Source: own elaboration on OECD. StatExtract database
Netherlands
Germany Sweden
United KingdomOECD
Average FranceSpain
BelgiumPortugal
Ireland Austria
Italy
Greece
R² = 0,0306
0,00
5,00
10,00
15,00
20,00
25,00
30,00
35,00
40,00
45,00
50,00
44,0 46,0 48,0 50,0 52,0 54,0 56,0 58,0
P/G%
G/GDP%
Belgium
Norway
USA
Netherlands
Ireland
Austria
Sweden
Germany
Denmark
UK
Finland Average
OECD
France
Italy
Spain
Slovenia
Czech Republic
Greece
Portugal
Slovak RepublicHungary
Poland
R² = 0,6722
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
9.000
10.000
15.000 20.000 25.000 30.000 35.000 40.000 45.000 50.000
ProcurementExpenditurepercapita$
GDP per capita $

20
The relationship between GDP per capita and the Public Procurement expenditure per
capita shows a direct correlation. Increasing the wealth, the public expenditure on
procurement increases too. Among EU Member States, the average expenditure in
procurement is about 17,500 $ per citizen, with a personal GDP of 29,600 $. Given these
references, is possible to define the countries’ level. According to its GDP, Italy registers a
lower per capita expenditure, which should be close to 4,100 $ rather than 3,455 $. An
extraordinary level of expenditure is registered in the Netherlands, far 3,000 $ from that
should be according to the tendency line.
This analysis demonstrates how increasing the personal wealth, the need of procurement
increases too. This is not only a statistical truth, but something that should be taken into
consideration by policy makers and economists. This trend is confirmed by the high R²
(0.67). In the population of countries is almost impossible to find a value close to 1 due to
the heterogeneity of the systems taken into account. The wealth of the nation and the
budget constraints (e.g. The 3% threshold between GDP and public debt in the EU) can
play a great influence over the level of expenditure
The second conjecture we elaborated is: among European countries, increasing the
personal wealth (GDP per capita), the Public Procurement expenditure per capita
increases too with a direct relationship.
Other appealing results come from the analysis of the expenditure for Public
Procurement and the general level of public expenditure. Even in this case, Italy has a
lower level of expenditure for goods, works and services compared to the total amount
of G. This indicates a saving in terms of money that should be used to buy supplies and
infrastructures or a higher expense for intangible assets (not procurement relates, e.g.
public salaries) which account for a large part of the budget. As usual we find many
northern countries upon the tendency line, demonstrating how procurement is important
there.
In this model the R-squared is 0,63, approximately equal to the previous one, which led to
the same considerations.

21
Graph 7: Distribution and trend line (linear regression) between public expenditure per capita and Procurement expenditure per
capita among OECD States. 2011. Value in U.S dollar
Source: own elaboration on OECD.StatExtract database
Even in this case, we elaborated the third conjecture in relationship with the data
provided by OECD: among European countries, an increase in the public expenditure per
capita (G), lead an increase in the Public Procurement expenditure per capita.
The elaboration in the table gives also the real measure of the Public Procurement impact
over the EU economy. The sum of all national EU expenses is equal to 2,214 billion of
dollars, a value twice the Spanish GDP in 2011. Easy to understand how this large amount
of money (equals to the whole Spanish GDP) signifies a great opportunity to make
business for SMEs, and why involving SMEs in the Public Procurement process could be
vital for their survive, especially during periods of crisis. In a certain way, this is the
playfield where the smaller enterprises can try to extract enough resources to grow and
increase their value.
At this point, some questions are spontaneous: how much SMEs are involved in the
European Public Procurement process? Are European SMEs equally involved among
countries? How much SMEs are effective during the tendering process?
Answering to these questions will help in understanding the complex and challenging
market of public purchases and the relationships with SMEs.
Ireland
Belgium
Czech Republic
Denmark
Poland
Finland
France
Germany
Greece
Hungary
Austria
Italy
Neetherland
Norway
OECD
USA
Portugal
Estonia
Spain
Slovenia
Sweden
UK
Average
R² = 0,6316
$0
$1.000
$2.000
$3.000
$4.000
$5.000
$6.000
$7.000
$8.000
$9.000
$10.000
$7.000 $9.000 $11.000 $13.000 $15.000 $17.000 $19.000 $21.000 $23.000 $25.000 $27.000
ProcurementExpenditureprocapite$
Public Expenditure G pro capite $

22
1.3 SMEs participation rate and success rate in the Public Procurement market
An online survey commissioned by the European Commission, DG Internal Market and
Services on February 2014 (PWC–GHK 2014) tried to find some trends in the relationship
between European SMEs and the Public Procurement market. The first interesting result
it has been on the SMEs’ participation and success rate considering both tenders above
and below the EU-thresholds.
The participation rate was traced asking to more than 1,300 respondents how many times
they have participated in the last financial year (0, 1-4, 5-19, 20-49, 50+ times) in tenders
above or below the threshold. The results were obvious. Increasing the value of the
tender, SMEs were more unlikely to participate in such tenders and as a matter of fact,
45% of Micro and Small enterprises did not participate at all in above thresholds while
only 13% of Large and 27% of Medium, refused to submit an offer.
The situation changes completely in below threshold tenders, when only 13% of Micro
and Small enterprises did not participate. In this case, an average of 39% offered in a
range goes to 1 to 4 times and the 10% offered more than 50 times. Medium enterprises
prefer below thresholds and a 23% offered more than 50 times. In above threshold, only
the 10% maintained this such high level, rather preferring the 1-4 range (31%). Even in
this latter case, Large are equally involved because they seem to maintain the same level
of participation rate got in the above threshold tenders. As a final consideration, when
the value of the tender is below the threshold, the 86% of firms participate with at least
one offer, when the value is above thresholds, the participation fall to 69%.
The following representation took from the PWC-GHK report shows the differences
reported before.
Graph 8: Number of tenders submitted in the last financial year, by company size class (%). EU-30
Source: PWC-GHK report; SMEs' access to Public Procurement markets and aggregation of demand in the EU

23
After the analysis of the participation rate, it becomes important to study the
effectiveness of SMEs in awarding public contracts.
The PWC-GHK survey showed how the success rate does not seem to differ so much by
enterprise size class. More or less, half of tenders reported a success rate above 25% and
the 12% is effective for more than 50%. Extreme values (i.e. no success or above 75%) are
characteristic of Micro firms, but in this case this is affected by lower participation. In
above thresholds Micro firms lose 5 times more the tenders lost by Large but win twice in
more than 75% of the tenders.
In the below threshold tenders there are similar results and this could mean enterprises
are equally able to win both small and large contracts.
Graph 9: Proportion of successful tenders in the last financial year, by company size class (%)
The first conjecture we developed after the analysis of the success rate is the following:
Success rate does not seem to depend by enterprise size class. Increasing the value of the
contract, does not affect SMEs’ success rate.
A third and most complete analysis must be done in order to understand which is the real
involvement of SMEs in Public Procurement. Thanks to the TED’s database- the EU’s
portal on Public Procurement- the PWC-GHK’s report analysed the share of above and
below thresholds contract awarded by enterprise size class.
Tenders above thresholds published on TED were 154.000 in 2011 (PWC- GHK, pg. 19),
with an overall value of EUR 425 billion and an average of EUR 390 billion from 2006 to
2011.

24
The 56% of all public contracts above EU thresholds were awarded to SMEs in the EU-30
countries4
between 2009 and 2011. Micro enterprises were awarded with only the 18% of
these contracts, 21% went to Small and 44% to Large.
We found some compelling results concerning the difference between SMEs and Large
firms merging the award rate for class size, the number of tenders above thresholds, the
total value of public contracts awarded and the data on the industrial structure in EU-27.
We summarized these findings in the table 4.
Table 4: data on Public Procurement above threshold tenders and SMEs in EU; 2011
Micro Small Medium SMEs Large
number of firms (EU-27) 19.143.521 1.357.533 226.573 20.727.627 43.654
20.771.281
tenders above thrs. awarded 18% 21% 17% 56% 44%
154.000 27.720 32.340 26.180 86.240 67.760
numbers of contracts/firm 0,001 0,024 0,116 0,004 1,552
difference with Large firms 1.072 65 13 373 1
Value tenders above
threshold.(EU-30)
EUR 425.000.000.000
Percentage of award 5% 9% 14% 28% 72%
value contract awarded
(total) € 21,25 Bln € 38,25 Bln € 59,5 Bln € 119 Bln € 306 Bln
value awarded/firm € 1.110 € 28.176 € 262.609 € 5.741 € 7.009.667
difference with Large firms 6.315 249 27 1.221 1
Value per contract € 766.595 € 1.182.746 € 2.272.727 € 1.379.870 € 4.515.939
difference with Large firms 5,9 3,8 2,0 3,3 1
Source: own elaboration on PWC-GHK 2014 report and Annual Report on European SMEs 2011/2012
The elaboration provides a clear view on the distribution of public contracts both in
quantitative and qualitative terms.
The 0,2% of firms (Large) win the 44% of contracts and merging this percentage with the
number of contracts above threshold (154,000) and the number of Large firms (43,654)
we obtain a value of potentially 1.5 contracts for each large business or, in other words,
1,552 contracts every 1000 firms. The difference with SMEs is astonishing. Large firms
could win 373 times more than SMEs and 1,072 times more than Micro. Only 1 out of
1,000 Micro is able to win and manage a pubic contract. Medium-sized firms are more
competitive and are able to win 116 contracts every 1,000 firms and are 13 times less
4
The analysis covers 27 EU Member States2 and the three European Economic Area (EEA) countries (Iceland, Liechtenstein
and Norway).

25
competitive than larger enterprises. In the middle, we find the portion of Small
enterprises, with a competitive disadvantage of 65 times respect to Large firms.
The difference between SMEs and Large firms increase when is considered the aggregate
value of the contract. When the value of the contract is taken into account, for SMEs is
more difficult to win tenders.
European Large suppliers collect EUR 306 billion out of 425 billion or the 72% of the total
value for above threshold tenders. If is taken into account singularly, the value is quite
relevant. Each firm with more than 250 employees could potentially manage EUR
7,009,667 of public money derived from such contracts, a value 1,221 times larger than
the one managed by all European SMEs. The gap is huge with Micro firms, in fact they are
only able to manage an amount of money 6,315 times lower. In single terms, each Micro
firm could perform public contracts worth EUR 1,110, collecting an overall EUR 21.25
billion. Even Medium firms lose competitiveness, being 27 times less effective than Large
business, collecting potentially EUR 59.5 billion, or EUR 262,609 for each one. These
results would only give theoretical evidence on how the distribution of value should be if
each firm could be awarded with a public contract.
A more precise analysis can be done dividing the value of contracts awarded by class size,
with the number of contracts. These results are visible in the last two rows of the table,
where we find that each contract awarded to Large firm worth EUR 4,515,939.
In comparison, all the contracts awarded to SMEs, have a single value of EUR 1,379,870
3.3 times lower than managed by Large firms. This average for SMEs is supported thanks
the efficiency of Medium enterprises, which are able to win contracts for a half value
respect to those of Large. They can win contracts worth EUR 2,272,727 which is higher
than the EUR 1,182,746 managed by Small firms. As predictable, Micro firms are the most
penalized, getting contracts worth EUR 766,595, which is a business value 6 times lower
than for Large firms.
Comparing and elaborating the results between number of contracts and their value, we
can state that the concentration of public money coming from procurement is handled by
the smaller portion of business entities. The 0,2% of firms collects the 72% of value, and

26
these findings are the best way to highline the huge difference there is between SMEs
and Large firms. Of course the participation rate largely affects these results and as
outlined before it is higher for large firms. A more effective analysis could be done if TED
would release data on participation.
As discussed in the previous paragraph (1.1.1) SMEs account for more than 67% of value
added (considering only the selected countries), but they account for only 29% in the
Public Procurement market. Using the PWC-GHK’s esteems, Large firms provide 42% of
added value (not 31% as in our evaluation, but different countries were selected). This
means that if the Public Procurement marker should reflect the real economy, SMEs are
missing 29% of value in public contracts to reach their share the total gross added
produced in the real economy (58% excluding Agriculture and financial intermediation).
Graph 10: Difference between the share of SMEs in Public Procurement (average 2009-2011) and their role in the economy (EU-27)
This gap is most notable in relation to Micro and Small businesses. Micro-enterprises
account for only 4% of public contracts in terms of value, whilst accounting for 21% of
Gross Value Added (GVA) in the real economy. The difference for Small enterprises is 9%
and Micro firms are five times less effective in their share where is only two for Small
business.
These results give the right perception on how is important to re-think a new process able
to better distribute wealth among firms. This not only involves economic results, but first
of all it will have positive effects on society (employment), on innovation and on market
competition.

27
1.3.1 Country Differences
Even in this case, firms in Europe seem to be too fragmented. The volume of contracts
won by SMEs goes from 78% in Greece to 19% to Portugal (by the aggregate value of
contracts awarded). The Italian situation says 20% for SMEs and 80% for Large. The
aggregate value awarded to SMEs is 29% and 71 to Large business among EU-27’s
countries.
Figure 2: SMEs’ share of the total value of contracts awarded, and difference between the share of SMEs in Public Procurement and
their role in the economy. (2009-2011)
For the OECD, the countries analysis should be done with caution, due to the low
reliability and the high fragmentation of statistical resources at this level. Analyzing the
participation gap is possible to see how big the difference is in each country between the
participation of SMEs in the Public Procurement and their role in the real economy. Italy,
Spain and Portugal are the countries where SMEs lose more value in terms of Public
contracts in comparison to their role in the economy. On the other hand, Greece and
Latvia register a surplus (15% and 8%). The first great economy in registering a lower

28
difference is Germany, where SMEs lose only 5% in terms of Public contracts’ value
compared to their value added in the economy.
1.4 Factors and barriers influencing SMEs in Public Procurement
In this paragraph, we will discuss the main obstacles the SMEs face in participating in
Public Procurement tenders and the factors influencing in winning public contracts.
This division seems to be important because we can assign to each of the three phases of
the Public Procurement process (seen in paragraph 1.2) some obstacles the SMEs have to
overcome in order to be awarded with a public contract.
To have an complete view, we could summarize these problems in the following table.
Table 5: Obstacles in Public Procurement for SMEs
Barriers to participation in Public Procurement
- Lack of information about tendering opportunities
- Time related (short pre-tender period)
- Clarity of information
- Missing referent inside the contracting party
- Large value of contract respect to SMEs capabilities
- Administrative requirements (qualitative and
quantitative)
- Technical requirements (certifications criteria)
- Financial requirements (bank guarantees)
- No joint fulfillment in consortium
- Over-emphasis on bid price
- No explanation on refused tender submitted
- Delay in payments
- Lack of fair and objective evaluation
Factors influencing SMEs in winning public
contracts
- Type of the procurer
- Type of contract or the sector of the
good or service procured
- Tender procedure
- Use of M.E.A.T. (most economically
advantageous tender) criteria
- Overall contract value for a single
contract (lot)
Source: own elaboration on studies cited above
The list has been edited following the suggestions of seminal studies (GHK 2007; 2010)
commissioned by the EU.
Barriers to participation in Public Procurement
The survey conducted by GHK in 2010 illustrated that the most frequently encountered
barrier is the over-emphasis on price. This could lead to over-competition and to
reduction of the interest in participating in public tenders. The second obstacle is

29
consistent with unfavourable payment terms (too long distribution over time) and late
payments. Payments delay and defer cause financial crisis especially in the SMEs’
environment.
Excessive administrative burden (onerous paperwork) is also perceived as an occurring
problem for 34% of companies, and many of them face unclear requirements set out by
public authorities. Surprising the less frequently obstacles to participation are too large
contract values and the not allowed joint fulfilment of requirements by members of the
same consortium.
The following table took from the GHK’s report better shows the differences among the
four types of firms by size classes.
Table 6: Problems faced by European bidders in procurement process (proportion of companies using the source ‘always’ or ‘often’,
in percentage)
Source: GHK 2010 Evaluation of SMEs’ access to Public Procurement markets in the EU
If the over-emphasis on price is the most common response in all cases, late payments
profoundly affect Micro enterprises rather than Large and the same happens for financial
requirements. In talking about economic aspects, this is a clear liability of smaller firms. Is
it curious how Large enterprises judge more unfair the way tenders are evaluated than
Micro ones.
In addition to the above key barriers, emerged further problems mentioned by
respondents:

30
• Ambiguity of evaluation criteria. They carry incomprehensibly weight, or are not
precisely quantifiable, leaving room for subjectivity:
• Un-rational chosen on criteria. In many cases it is not clear why it has been selected a
specific criteria, and sometimes they seem to be too inflexible (technical nature), clearly
customized and will unduly disfavour other offers, so stifling innovation and participation;
• Even using M.E.A.T. criteria, the price is sometimes dominant and qualitative criteria
are too fragmented for a large number of sub-criteria that make large quality differences
not effective on the evaluation outcome;
• Unreasonable low bids. With such level of discount offered by bidders it is impossible
to deliver the contract in providing an appropriate quality (increasing agency problems
and opportunistic risks). Companies ask for excluding such bids from the procedure;
• Importance of existing relationship. Sometimes, existing suppliers working on a
previous project phase are all but certain to being awarded with the new contract.
Besides damaging competition, sometimes this is not clearly communicated to the new
bidders, who are then participating in vain, facing costly administrative burdens;
• Corruption. The possibilities of CAEs to select their preferred suppliers are almost
endless: e.g. excluding concurring bidders on grounds of technical errors of negligible
importance, by subjective scoring, by restricting competition using disproportionately
narrow eligibility criteria (GHK 2010 Report). This fear could discourage not well-
connected potential suppliers and reduce indirectly the competition.
The analysis of the perceived obstacles by enterprise size class shows remarkable
similarities among many of the obstacles. The main fascinating result is that usually only
Micro enterprises face problems more often than the other three categories. One of the
main worries deals with competing for large contract values.
Financial requirements are significantly more often a burden for Micro businesses than
for larger companies. Micro firms are also more vulnerable to the administrative burden
of the procedure and late payments. Lack of clarity of the tender documents affects more
frequently the smaller entities.

31
In the evaluation of proposal, many companies referred to problems with the application
of the M.E.A.T. criteria. This introduces the questions about the opportunity in using the
mixed awarding model in public tenders.
Factors influencing SMEs in winning public contracts
Among European countries there are a number of common factors seem to influence
SMEs and their chances in Public Procurement. In detail the most relevant are:
 Type of procurer
 Type of contract or the sector of the good or service procured
 The tender procedure
 The use of M.E.A.T. criteria
 Overall contract value of a single contract
The type of the procurer
The study reveals how SMEs win more frequently contracts when tenders are organized
by local authorities (e.g. municipalities) than by national agencies, or central bodies, both
in terms of number and value of contracts. This tendency seems to favour Micro
enterprises. Again a confirmation on how closely related the tender is to local industry
and how greater the involvement of Micro and Small firms is.
The type of contract
As pointed out in the previous subchapters, SMEs account for a lower proportion of
above-threshold contracts. However, SMEs seem to perform better under Supplies and
Services contracts if the value share secured is considered.
About Public Works, this category also contains some of the largest contracts, involving
big infrastructure, which SMEs normally cannot access. Even in this case, when Works
contracts are divided into Small lots, they are awarded more frequently to SMEs.
The tender procedure
In terms of type of procedure, (open tender restricted tender negotiated tender
competitive dialogue), the proportion of SMEs is almost equal for all formats in terms of

32
number of contracts won. The percentage varies from 16% to 23% under all four
procedures.
However, in terms of the value of the contract awarded, the differences are more visible.
SMEs perform well in open tender, but less in restricted and negotiated procedures.
When competitive dialogue is chosen, SMEs secure only 6% of the total value of
contracts. This phenomenon is explicable by the fact that this form of tender is often
designed for large, complex projects, which Small companies usually cannot lead.
The M.E.A.T. criteria
When tenders are awarded considering the “most economically advantageous criteria’,
the situation often changes. In fact a simple analysis of CANs published on TED will give as
a result that SMEs tend to win in a linear way the same number of contracts when
M.E.A.T. criteria are applied.
However, the GHK study revealed how the connection between the use of M.E.A.T. and
SMEs’ is not so simple and easy to predict.
When the contract value is considered, the effectiveness of SMEs in awarding contracts is
significantly lower. This is led by the fact that public procurers use the M.E.A.T. criteria for
high-value contracts more often (as these are usually more complex, and quality and
other factors play a great role in the decision), and SMEs have as a consequence lower
chance of winning these tenders.
Contract value
The size of the contract is widely perceived as the most important detail SMEs have to
consider when accessing the market of Public Procurement contracts. The study confirms
how the value of a contract has the greatest influence on the effectiveness of SMEs. The
above threshold contracts are less frequently secured to SMEs (30% in 2008).
But this is not the most important result, because there is something more compelling to
highlight.
The 2010 GHK report it has been able to define the contract value where the SMEs begin
in losing competitiveness. In other terms, the upper limit of contracts’ value beyond
which SMEs start to be less able to win tenders. When the contract worth more than EUR
5 million, the share of public contracts secured by SMEs falls in a range from 21 to 29%,

33
but grows beyond 60% when the value is below 300,000 euro. The effectiveness of SMEs
starts to decrease above this level and GHK drawn the conclusions that the contract value
threshold above which SMEs are disadvantaged is around 300,000 euro. This analysis has
been further developed in the 2014 PWC’s report, which highlighted many other
information.
In evaluating the success rate for any class size in many range of contract value, we are
finally able to compare how the effectiveness of firms in awarding public contracts
change in accordance to their size.
Graph 11: Proportion of SMEs among successful bidders in EU’s tenders. Class size and contract value. Average 2009-2011
When the contract worth less than EUR 30,000, Micro firms account for 21% of successful
bidders and they are competitive until the contract worth less than EUR 100,000 (22%).
When the value increases, their effectiveness decreases significantly, passing from 19% of
successful bids if it ranges from EUR 100,000 to EUR 300,000 to 5% if the contract value
ranges from EUR 1 million to 5 million. Above this threshold, only 1 successful bid out of
100 comes from a Micro firm. Small firms are less effective in lower value contract (below
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
SuccessRate(%numberofcontractawarded)
Contract value (Euros)
Success Rate and contract value
Micro
Small
Medium
SMEs
Large

34
EUR 10,000), but are more competitive if the contract reaches EUR 300,000. From this
level, Small firms begin to lose competitiveness, and when the contract worth more than
EUR 5 million, they account only 6% of successful bids. Medium firms are one step
forward and reach their peak of effectiveness when the contract is in the range EUR
300,000 – 1 million (20%). They maintain an high level of success even though the
contract is above EUR 5 million. Above this value, they are still competitive, providing
14% of successful bids. Large firms, as predictable, are competitive when contract are big
and they reach the astonishing level of 79% of winning bids when the procurement worth
up to EUR 5 million. About the share of total value of contracts awarded, the percentages
worsen for SMEs in favor to Large firms. If the contract worth more than 5 million, 83% of
value is handled by Large corporation, less than 1% by Micro, 4% by Small and 12% by
Medium-sized firms.
These results can be a good starting point to consider future reforms in Public
Procurements regulation.
The results of these studies have a great importance in the analysis we conducted. In
order to understand the data provided by our survey, it seems to be challenging to
compare the situation in Lazio with the one at European level. In fact, we asked these
questions in order to successfully acquire a good term of comparison between the two
studies.

35
Chapter 2
In this second chapter, we are going to analyse the new playfield developed by the
European directives 2014/23, 2014/24, 2014/25, where SMEs and the Public
Administration play their role in the procurement process. We also analysed researches
and studies on the topic in order to understand it from the theoretical point of view.
While dealing with institutional references we found out some considerations from the
European SMEs Code of Best Practices on Public Procurement and from national reports
on Public Procurement released from the National Authority Anticorruption (ANAC ex
AVCP).
2.1 Small and Medium enterprises and Public Procurement: the Directive
2014/24 EU
As observed in the first chapter, we shall consider the European regulation as
characterizing the national policies of the Member States. In addition our study coincides
in time with the new directives issued in 2014 by the European Parliament and by the
Commission (OJEU 2014) and an analysis is mandatory.
The directive 2014/24 EU concerning Public Procurement reserves a great importance on
SMEs and on their participation in the Public procurement process. This process plays a
pivotal role in the European economy and are central in the document presented in 2010
by the past president of the EU Commission, Josè Manuel Barroso, “Europe 2020, a
strategy for smart, sustainable and inclusive growth” (European Commission, 2010).
Among these provisions there are specific ones directed to Member States which are
stimulated to improve “the business environment especially for innovative SMEs, including
through public sector procurement to support innovation incentives”; to increase the
Public Administration effectiveness “as an opportunity to enhance efficiency and the
quality of service. Public Procurement policy must ensure the most efficient use of public
funds and procurement markets must be kept open EU-wide”. On its side, the Commission

36
will work to take the maximum advantage on the demand (in market terms) enhancing a
“framework for the use of market-based instruments”.
The previous EU directive 2004/18 has been replaced by the 24/2014 because policy
makers gave more importance to the Public Procurement, for the renovated role played
by SMEs at economic and social level and for the interactions among these two actors
should take place (as analysed in the first chapter).
The new directive encourages the presence and the participation of groups of economic
operator. In this case it is important to define new requirements concerning economic
and financial standings (e.g. “the appointment of a joint representation or a lead partner
for the purposes of the procurement procedure or requiring information on their
constitution”).
The directive also provides guidelines concerning the tender design process. In the first
instance, Members agree on the increasing need for CAE in having flexibility in choosing
appropriate procurement procedures based on negotiations (e.g. increase cross-border
trade). But here takes place the first problem: Member States should provide negotiation-
based tenders where open or restricted procedures without negotiations are unlikely to
achieve a satisfactory procurement outcomes. To discourage the use of negotiated
tenders, the EU Commission remembers how the use of the competitive dialogue has
significantly increased the contract value (cost for the Public Administration) over the
past years.
The competitive procedure with negation between parties is likely to be applied to
complex projects. The same recommendation is for the procurement of services or
supplies that need adaptation or design efforts, especially when is required the purchases
of sophisticated products, intellectual services, (e.g. consultancy services, architectural
services or engineering services), or major information and communications technology
(ICT) projects.
These provisions enforce the use of restricted tenders because must be safeguarded the
strategic role of the purchase and the high technical standing.
On the opposite, for goods and services can be supplied by many operators and when the
market is highly competitive, the negotiated procedures should not be used, preferring

37
more competitive tenders (e.g. online auctions, e-procurement etc.). If these open
procedures result only in irregular or unacceptable tenders, contracting authorities
should be allowed to conduct negotiations with the aim of obtaining regular and
acceptable tenders. To reduce the effectiveness of corruption and collusion must be
achieved the equal treatment and transparency and should always be indicated the
requirements characterizing the procurement. In changing the type of procedure,
“awarding criteria and their weighting should remain stable throughout the entire
procedure and should not be subject to negotiations, in order to guarantee equal
treatment of all economic operators”.
The European Commission reinforces the role of the public demand as a leading
innovations and the R&D activity could take a new vitality if supported by a large amount
of money moved by the Public Procurement. This is aligned whit the theories evaluated in
the introduction of the present study and signifies a proof on how demand can determine
a new dynamism in the market and increase an effective competition. In this way, CAEs
should be allowed to create partnership to meet the requirements of the procurement to
supply (in terms of innovation). In doing so, the Public Administrations should create
specific guidelines and laws able to govern these new cooperative structures.
Partnerships are allowed only if they don’t reduce competition. This boundary involves
directly the SMEs because the little businesses are those more likely to be interested in
partnerships in order to compensate their lacks, both in economic and know-out terms.
The new Directive registers the tendency across the Union towards the aggregation of
demand by public purchasers, driven by the opportunity to obtain economies of scale and
better economic conditions. If this could provide many positive effects for the Public
Administration, the aggregation and centralization of purchases should avoid excessive
concentration of purchasing power and collusive behavior. Moreover, transparency and
competition, How well as market access for SMEs, should be guaranteed.
To satisfy the new opportunities created by the e-procurement, the Commission defines
some guidelines able to protect and foster the SMEs participation in a large-scale dynamic
purchasing system (DPS). The system should facilitate the activity on such portals and
should take into consideration factors determining the category concerned or a specific

38
geographic area where the supply will be performed. These precautions will allow
suppliers (especially SMEs) in applying only for those tenders that fit their characteristics,
limiting the waste of resources and increasing competitiveness.
These considerations led to the necessity to increase the use of particular labels (e.g.
European Eco-label, national eco-labels) in specific procurements. In many cases, these
certifications are a real obstacle that SMEs can’t overcome due to their cost and the effort
to dedicate in the process. The Commission wishes the labels to be accessible and
available to all interested parties and does not forget difficulties SMEs have in meeting
these criteria.
For this reason, the Commission supports the adoption of a European Single Procurement
Document (ESPD) consisting of an updated self-declaration that “could result in
considerable simplification for the benefit of both contracting authorities and economic
operators”.
These provisions are enforced in the articles 59, 60 and 61, where is encouraging the use
of the e-Certis portal the European online repository of certificates.
The aim of e-Certis is to “facilitate the exchange of certificates and other documentary
evidence frequently required by contracting authorities”, for the benefit of SMEs in
particular. When the directive was released, the database was updated on a voluntary
basis by the members and it was insufficient to ensure the delivery at full potential. This is
why the Commission pushes toward a scheduled and compulsory Maintenance program
in the first stage.
As mentioned in the 78th
point of the Directive’s introduction, we can find the evidence of
the renovated interest toward SMEs. The change in the point of view is epochal because
is the Public Procurement that should be adapted to the needs of SMEs and not vice
versa. In doing so, the CAEs should make use of the Code of Best Practices (European
Commission, 2008), another seminal document released by the Commission in June 2008.
It contains recommendations and provides aids on how they should apply the Public
Procurement framework to facilitate SMEs participation. The most important is referred
to contracts size: to enhance competition, CAEs should divide large contracts into minor
lots affordable to SMEs on the basis of quantitative criteria. In addition, the qualitative

39
one is taken into account to adapt the tender more closely to the specialized sectors of
SMEs.
The effectiveness of this decree is pointed out in the Art. 46 of the Directive:
Contracting authorities shall provide an indication of the main reasons for their decision
not to subdivide into lots and include it in the procurement document. This is a turning
point in the procurement process. The main target for the Public Administration is
dividing contracts into lots, and when it does not happen the reasons for the choice
should be defined.
Another way to foster SMEs participation is to provide mechanisms for direct payments
to subcontractors. In this way, avoiding the double passage, from CAE to Contractor and
from Contractor to subcontractors (in most of the cases is a local SMEs), those who are
creditors of the Public Administration would be motivated in participating in this market.
The 124th
point explaining the motivations leading the new Directive, gives the full vision
of the European Union on the delicate relationship between SMEs and the Public
Procurement market.
We believe important to quote the whole provision:
“Given the potential of SMEs for job creation, growth and innovation it is important to
encourage their participation in Public Procurement, both through appropriate provisions
in this Directive How well as through initiatives at the national level. The new provisions
provided for in this Directive should contribute towards an improvement of the level of
success, by which is understood the share of SMEs in the total value of contracts awarded.
It is not appropriate to impose obligatory shares of success, however, the national
initiatives to enhance SME participation should be closely monitored given its importance”
(OJEU 2014).
If the Commission declares that SMEs have a huge potential in job creation, growth and
innovation, they should be encouraged in in doing business with the Government. In
other terms, the national initiatives to enhance SMEs participation should be monitored
but the European government does not give any suggestion or guideline to follow. In our
opinion, this passive position taken by the Commission, seems to be too fragile and not
able to improve the effectiveness of SMEs in the Public Procurement market.

40
How we will analyse later, there is a huge difference between the European model and
the American one, where in the latter we could find operative directives able to
concretely support and foster the participation of small enterprises.
Positive attributes of the new Directive 2014/24 EU can be found in the effort to
harmonize the Public Procurement market among Members States (Michele Cozzio;
2014), and the affirmative action involves SMEs based on the principle think small first.
Another focal point is the simplification in terms of both administrative burden and
procedures in all the procurement stages (market access, participation, competition,
contract execution, market organization).
2.2 SMEs and the Public Procurement. The Italian situation
Italy is a Small business economy…
This is the incipit of the 2014 OECD’s report “Italy. Key issues and policies” (OECD 2014b).
SMEs are the base of the Italian economy, with nearly hundred enterprises per thousand
people – one of the highest among OECD countries. The self-employment rate is the
second highest in EU, with one-quarter of the working population as self-employed.
Briefly summarizing the data analysed in the first chapter, Italian SMEs account the 80%
of national employment and 67% of value added in the economy, respectively the third
and fifth highest share among OECD countries. Little business plays also a core part in the
balance of payment, accounting for over 50% of the total volume of Export and the 22%
of private (business related) R&D investment.
Table 7: Rate and indicator on Italian SMEs. 2014
Italian SMEs
% on total volume
Presence 99.8%
Employment rate 80%
Value added 67%
Export >50%
R&D investment (private business) 22%
Source: Elaboration of Entrepreneurship at a Glance 2014- © OECD 2014 on Eurostat Data and OECD,Italy: Key Issues and Policies 2014

41
…with a weighting of SMEs towards less productive Micro- and Small enterprises
Italy has a the higher value in the OECD area of presence of Micro firms (less than 10
employees) among SMEs (95%), a 4,5% of Small (10-49 employees) and only 0,5% of
Medium-sized enterprises among SMEs.
The OECD report focuses the attention on productivity because this indicator plays a key
role in the evaluation of the Italian economic situation. The productivity of Italian Micro
and Small firms is both lower than the one of larger size and lower than their peers in
many other key OECD economies.
The under-performance of the smallest firms negatively affects the Italian aggregate
production. Positive aspects come from the extremely good results performed by
Medium-sized companies, especially in the exports, innovation and in the productive
sectors. Unfortunately, these businesses are not enough to boost the economy as a
whole, being only the 0,5% of the total SMEs population.
As predictable, the 7 years lasting crisis, from the 2008 global financial crisis, to the
present tail of the 2011 sovereign debt crisis, drove the economy into a double dip
recession. This macro effect has been problematic, creating adverse conditions for SMEs
and entrepreneurship in general. The burden of the public debt, reaching 130% of GDP in
2013, the balance constraint demanded by the Fiscal Compact5
which defines a balanced
budget as a general budget deficit not exceeding 3% of the GDP, limited the effectiveness
of the public sector in borrowing new resources able to revitalize the economy,
depressed both in term of crude indicators and of positive expectations. Difficulties arose
even with the well-known spread effect between the long-term Italian and German
government bonds, climbed up to above 500 basis points in mid-2012, before dropping to
under 100 basis points at the beginning of 2015
These detrimental conditions caused a double-negative effect: the increase in enterprise
death rate and a contraction in enterprise birth rate. The effects were catastrophic,
5
Formaly the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union signed on 2 March 2012
by all Member States of the EU, except the Czech Republic, the United Kingdom, and Croatia (subsequently acceding the EU in July
2013). The treaty entered into force on 1 January 2013 for the 16 states which completed ratification prior of this date and of 1 April
2014, it had been ratified and entered into force for all 25 signatories

42
causing the failure for 63,000 firms between 2008 and 2010, a level equal to 1,5% in
Italy’s total firm stock, with a relative unemployment for 610,000 workers.
The first tangible effect faced by SMEs is the new and difficult playground where they
have to negotiate with banks. Access to finance has become more difficult for little and
weak businesses entities. But this is only an intermediate effect of a more complex chain
reaction we can summarize in the following representation.
Figure 3: Representation of causes and effects on Italian SMEs during crisis 2008-2011
Source: own elaboration
For the OECD, Italian banks, being large holders of national sovereign bonds, have
become more exposed to risk-rated assets, and were forced to increase their refinancing
costs “and making them less willing to lend to enterprises”. Moreover, compared with
other OECD countries, “Italian SMEs are relatively under-capitalized and over-reliant on
bank credit, making them particularly vulnerable to constrained bank lending”.

43
2.2.1 Credit crunch: a focus
In talking about SMEs and the problems they are facing in the last difficult years, we
cannot avoid a focus on the impact generated by the so-called credit crunch, a situation
that implies a more difficult access to the credit market for economic agents (households
or business). According to some studies (Centro Studi Confindustria, 2014) released by
the Confindustria Center of Studies in November 2014 (with an upload in March 2015)
and elaborated on data provided by Bank of Italy, the stock of loans for business
decreased by 10%, in the last three years (2011-2014), causing a lack of EUR 105 billion
for the Italian industry (all size classes). Confindustria’s researchers predict the end of the
crunch in the late 2015, but it could last until 2016 in case of adverse scenario.
Unfortunately, to realize a growth of productive investments aligned with the pre-crises
decade, Italian enterprises need EUR 90 billion in extra funding in the next five years (until
2020). Even in case of an expansion in the loans’ market (more credit available), Italian
banks will be unable to provide a such level of monetary injection. This is why new
channels of finance are required, consistent with more capital (through a strengthening
of the AIM-MAC and the ELITE project6
), more bonds (with mini-bonds, finance bills and
territorial bonds) and a re-launch of innovative instruments for SMEs (mezzanine finance,
private equity).
To have a respectable source, we analysed the quarterly report released by the Bank of
Italy, on November 2014 n° 34, Regional Economies – Lazio (Bank of Italy 2014).
About bank loans, in the first half of 2014 continued the negative trend in funding the
non-financial private sector (households and businesses). The decline was lower than the
end of 2013 (-3.2% in June 2014, from a starting –6%) thanks to a reduction in the
contraction of corporate loans (-5.5 per cent in June 2014, from 8.8% at the end of 2013).
In the first half of 2014 the demand for credit businesses remained weak but we
registered an increased from households.
6
Finance incubator and accelerator for SMEs founded by Borsa Italiana Spa

44
Graph 12: Banks’ loans to non-financial private sector (households+ enterprises= green dotted line)
Source: Bank of Italy; Quartely report on Regional Economies- Lazio. November 2014
About credit to businesses, in the first half of 2014, the reduction of bank credit for
businesses remained wider larger for Medium than for Small (June respectively-5.9% for
the former and-1.2% for the latter); the magnitude of the drop in loans for larger
corporations was largely limited with the replacement of bank loans with fresh bonds’
issues.
Requests for investment loans were still falling and the demand for credit has been
directed mainly to support working capital and to the restructuring of debts.
On the supply side (banks), Bank of Italy found better criteria to gain access to credit but
banks have maintained a more cautious approach, especially towards the Works sector.
Caution is still present, and it is reflected in less favorable price conditions for riskier loans
and, in lesser extent, in the increase of the required guarantees.
Graph 13: Credit to enterprises; trend in demand (left) and supply (right)
In the first half of 2014 about two-thirds of the companies surveyed without changing
their demand for loans compared to the second half of 2013; it has also reduced the
percentage of firms requiring funding (15%, from a starting 23 in the same period of
2013). Based on the information provided by the Central Credit to Bank of Italy, in June

45
2014, the loans granted by banks and financial companies to businesses declined in all
major sectors of activity. The reduction was larger in the Works sector (-10.7% in June)
and for the manufacturing (-6.5%) and less pronounced for Services (-3.7%).
About quality of credits, in the last quarter of 2014 the flow of bad debts respect to the
portion of positive credits, decreased to 4,7% from the highest level of 5,4 at the end of
2013 (blue bar). Considering the pre-crisis level in June 2008, with a percentage of bad
debts equal to 1,2% (Bank of Italy, 2008) we can see a tangible trace of how the quality of
debts worsened from the banks’ point of view. During 2014, Bank of Italy registered an
improvement of this quality. Best driver of improvement was the Works sector, but the
overall level remains high.
A more effective analysis conducted from Bank of Italy shows how the total amount of
bad credits, (before we seen the flow) is equal to 26.3% of the whole amount of loans
granted. At the end of 2013 this level was equal to 25.1%. In our opinion the increase
could be determined by the combo effect of reduction of credit accorded and the
increase of bad debts. In this way is feasible an increase of such percentage of stranded
and delicate loans.
Graph 14: Bad Debts (flow) households + enterprises= blue bars
This phenomenon has been studied also at European level, in the annual report Enterprise
and Industry Italy 2013 Small Business Act Fact Sheet (European Union, 2013). Access to
credit is “one of the most problematic areas for the Italian SME sector”. Our country
performs well below the EU average, with a deteriorating trend until 2013. The study
confirms how Italian banks are less willing to provide loans to Small enterprises,
decreasing the availability of cash flows. This lack is enforced by the long payment times

46
for public authorities because How we will discuss later the total invoice payments time it
is one of the longest in Europe (117 days), twice the EU average (53 days).
Another problem persists in the difference of the applied interest rate spreads between
small and large loans and the absence of venture capital in the early stage of a SME’s life.
As it will be further discussed in the next paragraph, some policy measures have been
brought in in 2012 to ease the access of SMEs to credit and to reinforce the guarantee
system. The EU points out that these reforms, the reinforce of existing instruments (the
guarantee fund for SMEs, renewal of credit for SMEs), and extensive use of traditional
mechanisms (fiscal incentives, use of credits towards the Public Administration as
leverage to obtain liquidity for companies), are pivotal because ”Italian SMEs still suffer
from a chronic and structurally difficult access to finance”. In addition, the report point
out the fact that some of the adopted measures were not implemented effectively due to
scarce liquidity in the public sector. This last sentence is enlightening: both the private
and the public sector suffer the credit crunch, with different causes but with similar
effects.
Italian Government tried to face the crisis trough a large-scale liquidity injection plan to
rescue SMEs weather the crisis. The plan was based on (OECD 2014b):
• the national credit guarantee system was adapted to the new needs, increasing support
to SMEs loan guarantee associations; from 2009 to 2012, nearly 250,000 SME loans were
guaranteed for a value of EUR 41.5 billion. During the peak of the crisis (2012 – 2013), the
number of firms eligible for a loan guarantee increased from 32,000 to 36,000 while the
volume of guarantees increased from EUR 3 billion to EUR 4.3 billion.
• Unlock the Public Administration’s arrears payments for EUR 47.2 billion toward Italian
firms. By the end of November 2013, EUR 24.4 billion had been made available by the
central government to enable debtor public institutions to make the repayments. On
January 2015, Municipalities, Regions and Central body have been paid to creditors EUR
36.5 billion, a percentage equal to 77.6% of the total commitment. An important notice
about these payments: to be considered by the Public Administration and evaluated in
this fund, the bill must meet three criteria: the debt must be certain and collectable and it
must be considered liquidated by the Public Administration. This is a pivotal point

47
because only those debts can take advantage by the un-lock of arrears. In other words,
there are plenty and un-defined amount of P.A.‘s debts not considered in such amount
and which are still waiting to be regulated.
2.2.2 The Italian Public Procurement market
The analysis of the Public Procurement sector in Italy is fundamental to understand which
is the counterpart of SMEs and because it allows us to know the demand side of the
market. Italy has a complex system of Public Administrations, composed by different
bodies and entities. Probably is one of the biggest system at European level and accounts
for about 12,183 different unit locals. This data has been registered by the ISTAT as a
result of the National census of Industry and Services conducted in 2011 and used before
in the study. Being so appealing, we decided to enclose a table with the distribution of
P.A. among Region (see Annex). Summarizing the results, in Lazio there are 706 units.
equal to 5,79% on the total. Lombardy occupies the first place, concentrating the 16,31%
of public bodies and Valle d’Aosta is in the last with only 0,92%. Considering that in Lazio
there are 31 central administrative bodies, the percentage of 5,79% on the total is not
really heavy as the presence of Rome as Capital could do suppose.
A further analysis reported an eye-popping data. If at European level we have seen how
the Public Procurement sector is handled by only few CAEs and is supported a centralized
system of procurement, we could imagine these 12,183 public offices centralize their
demand of goods, services and works in only to few selected and efficient CAEs. The
situation is more complex than expected. In Italy there are more about 35,000 different
contracting authorities, an average of three for each public entity.
If on one hand we have a precise number of public bodies, thanks the ISTAT
Census, on the other hand, we are not able to identify and determine the correct number
of public CAEs.
The Italian vice-Minister of Transports and Infrastructures, dr. Riccardo Nencini talks
about a range between 33,000 to 36,000 CAEs (Giornale dell’Umbria; Yahoo Finance,
2015) and this is why all the sources report the level of 35,000 bodies. The real situation
appears to be complex even for the commissary dr. Carlo Cottarelli, appointed to

Public Procurement and SMEs in Lazio. A reserach

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