外国中小企业融资论文

Business and Politics

Volume13,Issue42011Article2 US and European Public Procurement Policies for Small and Medium-Sized Enterprises

(SME): A Comparative Perspective

Max V. Kidalov,Naval Postgraduate School

Keith F. Snider,Naval Postgraduate School Recommended Citation:

Kidalov, Max V. and Snider, Keith F. (2011) "US and European Public Procurement Policies for Small and Medium-Sized Enterprises (SME): A Comparative Perspective,"Business and Politics: Vol. 13: Iss. 4, Article 2.

DOI:10.2202/1469-3569.1367

Available at:https://www.wendangku.net/doc/2b9554319.html,/bap/vol13/iss4/art2

?2011 De Gruyter. All rights reserved.

US and European Public Procurement Policies for Small and Medium-Sized Enterprises

(SME): A Comparative Perspective

Max V. Kidalov and Keith F. Snider

Abstract

This paper provides a comparative perspective of public procurement policies for small and medium-sized enterprises(SME)in the United States and Europe.Public procurement is increasingly recognized as a strategic function of public administration because of the huge amount of resources it consumes,as well as the important policy objectives it seeks to promote,including SME-related objectives.Progress towards meeting SME procurement participation goals,however, remains elusive on both sides of the Atlantic.Policy makers and administrators have little comparative research upon which to draw regarding the effectiveness of various policy approaches, a shortcoming this paper seeks to address.An institutional perspective is adopted which helps explain similarities and differences in U.S. and European SME policies.

KEYWORDS:small and medium enterprises,SME,small business,public procurement, government contracting

Author Notes:The authors gratefully acknowledge the support of the Acquisition Research Program at the Naval Postgraduate School,Monterey,CA,and thank the anonymous reviewers for their thoughtful and constructive criticisms.

INTRODUCTION

Though labeled in the past as a clerical, “back office” function, public procurement 1 is increasingly recognized as a critical area of public policy and management.2 With most nations spending about 20 percent of gross domestic product (GDP) on public procurement 3 and developing nations spending up to 50 percent,4 the sheer magnitude of resources devoted to public procurement compels attention.

Furthermore, governments use procurement to promote policy objectives such as economic goals (e.g., supporting domestic suppliers or local economic development), social goals (e.g., remedies for historically disadvantaged groups), and environmental goals (e.g., “green” procurement).5 The role that public procurement played during 2008–2009 in national responses to the global economic crisis illustrates its use as a policy lever.6

Attention to small businesses, or small- and medium-sized enterprises (SMEs, as they are known outside the United States), represents a particularly important area of public procurement policy.7 Through SME-related policies, nations seek outcomes such as assuring domestic sources of supply, redressing past discrimination, boosting local economies, promoting innovation, and enhancing competition.8

Although scholars have studied various national approaches to SME procurement policy,9 including the approach of the European Union (EU),10 little work exists from a comparative perspective. Policy-makers thus lack information on other nations’ policies, their advantages and disadvantages, and the extent to which they may be applied more broadly. Here we seek to begin to fill this gap.

1

We define public procurement as the means by which government agencies and organizations acquire supplies and services from outside sources. This definition encompasses acquisition, contracting, buying, renting, leasing, and purchasing (Thai 2001, 42–43). 2 Gordon, Zemansky, and Sekwat 2000; Snider 2006; Thai 2001. 3 Carter and Grimm 2001; European Commission (EC) 2010. 4 Schiavo-Campo and Sundaram 2000, 315. 5 Arrowsmith 1995; Arrowsmith and Hartley 2002; Knight, Caldwell, Harland, and Telgren 2003; McCrudden 2007; Snider and Rendon 2008. 6 See, for example, Bartha and Snider 2010. 7 We use SME to refer both to smaller businesses generally as well as to small businesses owned by members of disadvantaged groups such as minorities, women, native groups, and disabled veterans. We discuss formal criteria for defining an SME (e.g., the number of employees, payroll size, etc.) later in the paper. 8 Schiavo-Campo and Sundaram 2000, 320–60. 9 See, for example, Bolton 2006; Fee, Erridge, and Hennigan 2002; Parker 2002. 10 Dannreuther 1999, 2007.

1Kidalov and Snider: US and European SME Procurement Policies

Published by De Gruyter, 2011

PURPOSE, METHOD, SCOPE

This paper explores similarities and differences in SME procurement policies developed by the U.S. federal government and those developed in Europe, with emphasis on the EU. As we argue in the paper, these policies are rooted in the particular political-economic systems that have evolved on both sides of the Atlantic and in the specific policy goals that public authorities hope to achieve via public procurement. As for its conceptual contributions, the paper situates the comparison of SME policies primarily in terms of institutional theory, which enables use of recent institutional analyses of policy trends in the United States and Europe. Our goal, then, is for practitioners to gain insights into a wider array of possibilities for achieving SME-related goals and for scholars to discover fertile ground for theory building and more in-depth policy studies.

We do not intend that the reader draw normative inferences or conclusions about what the United States and Europe ought or ought not to do in light of the other’s SME procurement policies. Space limitations preclude the sort of comparative institutional analysis that would uncover the extent to which one nation’s policies might be adopted by another.11

As an exploratory study, the comparative methodology we use in this paper relies mainly on reviews of current SME policy documents (e.g., laws and regulations) in the United States and Europe, supplemented as appropriate with literature on various national SME approaches. Because we pursue description, we make no recommendations regarding SME policy; rather, as noted previously, we seek to stimulate further comparative analysis that might make policy recommendations possible. Further, although we compare policies that are representative of U.S. and European approaches, we do not attempt to provide a comprehensive review or analysis of SME policies. Rather, our intent is to provide a broad policy survey to serve both practitioners and scholars of public procurement.

In attempting such a comparative review in limited space, we recognize that we can sketch out only some of the significant features of the SME policy terrain, an approach that risks ignoring others. In particular, we adopt the constraint of treating the United States and Europe as our units of analysis, noting and emphasizing the general SME policy tendencies that are evident in each, while by necessity ignoring many substantive features. For example, in focusing on Europe as an SME policy entity, we generally suppress attention to member states’ national SME policies and how those operate under EU principles such as subsidiarity and supranational cooperation. Another example is our focus on only

11 For such a discussion regarding innovation policies, see, for example, Lundvall, Intarakumnerd, and Vang 2006 and T?dtling and Trippl 2005.

2

Business and Politics, Vol. 13 [2011], Iss. 4, Art. 2

https://www.wendangku.net/doc/2b9554319.html,/bap/vol13/iss4/art2

DOI: 10.2202/1469-3569.1367

the U.S. federal government, which ignores SME procurement policies in all fifty states and in many local governments.

We justify this tactic, however, not only by concern for space limitations but also by borrowing from Matten and Moon 12 in their use of institutional theory to compare U.S. and European approaches to corporate social responsibility (CSR). Matten and Moon note that institutional theory facilitates cross-national analysis with its emphasis on the stable and accepted norms and structures that evolve within an organization or society.13 They argue for significant institutional commonalities (e.g., political, cultural, financial) among western European states, as well as for significant institutional differences between those states and the United States. This leads them to define distinct U.S. and European “national business systems,”14 each with its distinctive CSR approach. We likewise assume sufficient commonalities and differences to warrant treating the United States and Europe as units of analysis, and we make further use of the arguments of Matten and Moon later in the paper.

The rest of the paper is organized as follows: Following some brief background discussion on SME policy issues, we proceed in the paper to the main body of comparisons between U.S. and European structural and allocative policies. We then turn to interpreting the comparisons through the lens of the recent institutional analyses mentioned previously. We conclude with some implications for theory, policy, and practice.

BACKGROUND: SME POLICY AND TENSIONS

SMEs are critical to the U.S. and European economies, representing over 95 percent of all firms in both. In the United States, SMEs employ over half of all private-sector employees, create more than half of non-farm private GDP, produce thirteen times more patents per employee than large firms, and have generated 64 percent of new jobs over the past fifteen years.15 Similar statistics are found in Europe, where SMEs account for two-thirds of employment in the non-financial business sector. In both Europe and the United States, micro-firms (fewer than ten employees) make up more than 90 percent of all firms.16

Given their economic importance, consensus has arisen on both sides of the Atlantic that SMEs merit special policy attention, especially since large businesses typically enjoy a relatively privileged position in the economic

12

2008. 13 March and Olsen 1989; Huntington 1969. 14 March and Olsen 1989, 407–09. 15 Small Business Administration (SBA) 2011. 16 GHK 2010.

3

Kidalov and Snider: US and European SME Procurement Policies

Published by De Gruyter, 2011

policymaking of capitalist nations.17 Additionally, SMEs have come to be seen in some nations as an appropriate venue for granting preferences to specific disadvantaged groups; this concept is discussed further later in the paper.

McCrudden 18 has argued that the state, through its actions and policies, should lead and serve as an example for sustainability initiatives in the private sector. Although many firms call attention to their concerns for some aspects of sustainability, particularly environmental and social sustainability,19 they rarely express concern for economic sustainability through the maintenance of a robust SME sector. Thus, in terms of economic sustainability, firms’ competitive instincts prevail, and it remains for governments on both sides of the Atlantic to lead through interventions intended to sustain SME health.

From an institutional perspective, both the United States and Europe exhibit general social agreement that SMEs are valued components of their societies and worthy of special treatment, which has been translated into the elements of policy discussed below. Neither the United States nor Europe, however, has agreed upon the precise nature and extent of special treatment for SMEs. Reasons for this lack of consensus include competing stakeholder voices (i.e., from different SME constituencies) and uncertainty regarding policy options (e.g., Do SMEs derive more benefit from loan assistance programs or from public procurement preferences?).20

Especially critical in the SME public procurement context are tensions emanating from competing values that become embodied in competing policy objectives. For example, tensions naturally arise between SME preferences and fair competition principles.21 Policy tensions are also illustrated by the issue of contract consolidation or “bundling.”22 The practice of bundling several small procurement actions into one large contract is commonly justified as enabling savings through volume buying as well as through lower administrative costs (e.g., a smaller procurement staff).23 Typically, however, bundling puts individual SMEs at a disadvantage because only large firms or teams of firms are able to bid successfully on large contracts.

Such issues exemplify classic tensions between concerns for managerial efficiency (“value for money”) and concerns for political responsiveness to various constituencies.24 Thus, as with other areas of public policy, SME public

17

Anglund 1999. 18 2007. 19 See, for example, Pagell, Wu, and Wasserman 2010. 20 Beaver and Prince 2004; Parker 2002. 21 Thai 2001. 22 Government Accountability Office (GAO) 2004. 23 See, for example, Bowman, Reed, Hudgens, and Searle 2006 and Rendon 2005. 24 Loader 2007.

4

Business and Politics, Vol. 13 [2011], Iss. 4, Art. 2

https://www.wendangku.net/doc/2b9554319.html,/bap/vol13/iss4/art2

DOI: 10.2202/1469-3569.1367

procurement objectives are often contested, unclear, or misaligned. As a result, policy makers and administrators in procurement face difficult choices regarding SMEs and must make sound decisions—both economic and social—under a variety of institutional pressures.

COMPARING SME PROCUREMENT POLICIES

Our comparison of SME policies is organized according to the typology of structural policies that govern some aspect of citizens’ activities and allocative policies that confer either some value or benefits on a group (e.g., agricultural subsidies) or rearrange value or benefits between or among groups (e.g., unemployment programs).25 In general, these two broad types of public policy are distinguished by the extent of ambiguity between winners and losers. Little such ambiguity exists in allocative policies, while in structural policies, benefits find expression in abstract terms of rules and structures, with any tangible benefits likely deferred. Salisbury and Heinz argue that the more costs involved in organizing a requisite coalition on an issue, the more likely that the policy outcome will be structural rather than allocative. To give an example, the U.S. Congress would find it difficult and time-consuming to make individual procurement decisions (allocative policies); thus, it enacts legislation that designates positions for procurement decision-makers within the executive branch (a structural policy).

In this paper, we have organized our discussion of different SME procurement policy areas under headings developed by Kidalov 26 and categorized, as noted previously, as either structural or allocative. Structural policy areas include (1) general frameworks, (2) SME definitions, (3) specialized organizations to assist SMEs, (4) SME access to suitable contracts, (5) means to assure transparency of SME business opportunities, and (6) stimulation of innovation in SMEs. Allocative policy areas include (1) procurement goals and set-asides, (2) subcontracting goals and practices, and (3) promotion of economic and social sustainability. For each area, the U.S. approach is described first, followed by the European approach, followed by comments on the comparison.

25

Salisbury and Heinz 1970. 26 2011.

5Kidalov and Snider: US and European SME Procurement Policies

Published by De Gruyter, 2011

General SME Policy Framework: The United States

Enacted in 1953 at the initiative of President Eisenhower, the Small Business Act 27 and its subsequent amendments provide the basis of SME policy to maintain competition in the U.S. economy. This law emphasizes full and free competition as the essence of the American private enterprise system and unfettered competition as essential for achievement of pro-competitive economic goals. It also notes the social goal of increasing opportunities for personal initiative and judgment and the defense policy goal of strengthening national security through preservation and expansion of competition.28

To implement these goals, the Small Business Act established two related principles to govern federal contract awards. The principle of maximum practicable opportunity is implemented through structural and facilitative process-type actions such as procurement strategies, subcontracting plans and award procedures, publicizing of procurement opportunities, providing small firms with information on procurement laws and regulations, unbundling large contracts, and reserving or setting procurement opportunities aside for small firms. The second principle of fair proportion is implemented through allocative planning measures such as contracting and subcontracting goals established by Congress, the President, federal buying agencies, and the Small Business Administration (SBA), as well as through accountability reporting such as the annual Small Business Procurement Scorecard.29

General SME Policy Framework: Europe

In Europe, SME public procurement policy has been undertaken both by the EU government bodies as well as by national and local governments. Recognizing that SMEs “are a unique source of innovation and competition, … EU procurement policy allows those firms to strengthen their competitiveness and enables them to contribute more towards growth, employment, and competitiveness of the European economy.”30 In 2000, the European Council adopted The European Charter for Small Enterprises , which directed the European Commission (EC) and member states to “pursue the reforms … of a

27

U.S. Code 2010. 28 U.S. Code 2010. 29 SBA 2010. 30 GHK 2010, 5.

6

Business and Politics, Vol. 13 [2011], Iss. 4, Art. 2

https://www.wendangku.net/doc/2b9554319.html,/bap/vol13/iss4/art2

DOI: 10.2202/1469-3569.1367

true internal market, user-friendly for small business, in critical areas for development of small businesses including . . . public procurement.”31

Historically, European efforts to promote SME procurements have been subject to a number of constraints imposed by two sources. First, the European Community Treaty (as amended and now known as the European Union Treaty), which covers most public-sector procurement contracts within the EU, sets down principles to prevent discrimination against firms from any member state. Second, the EC’s procurement directives further implement the Treaty by establishing “procedures and standards (based on openness, non-discrimination, and competition) for choosing tenderers and awarding contracts.”32 A twenty-year old EC communication opined that the Treaty’s principles prohibited SME prime contracting set-asides, but encouraged transparency measures and subcontracting set-asides.33

Recently, the European Parliament and European Council attempted to minimize these constraints by issuing two directives that expressly authorize and direct procurement assistance to SMEs. The EU Public Procurement Directive 34 recognizes that social considerations, including SME participation, can be made part of the contracting process. The Defense Procurement Directive 35 goes further by tying the support for SMEs to competitiveness and national security goals.

The EC echoes these themes in its recent policies. In 2008, the EC issued Think Small First: A Small Business Act for Europe , a set of ten principles to assist SMEs. One of these principles calls on European authorities to “[a]dapt public policy tools to SME needs; facilitate SMEs’ participation in public procurement and better use State Aid possibilities for SMEs.”36 As part of this effort, EC staff published a voluntary European Code of Best Practices Facilitating Access of SMEs to Public Procurement Contracts (hereafter European Code of Best Practices ), which lists solutions to help SMEs in many facets of the procurement process.37

Similar policies or practices have been adopted by EU member governments, EU agencies such as the European Defense Agency (EDA), and non-EU organizations such as the European Space Agency (ESA). For instance, the UK’s “policy on SMEs is to encourage and support these organizations to compete for public sector contracts where this is consistent with the value for money policy of

31

Feira European Council (FEC) 2000. 32 UK Small Business Service and Office of Government Commerce (SBS and OGC) 2004, 2. 33 EC 1990. 34 EC 2004. 35 EC 2009. 36 EC 2008b, 10. 37 EC 2008a.

7

Kidalov and Snider: US and European SME Procurement Policies

Published by De Gruyter, 2011

the UK regulations, EU Treaty principles, and EU procurement directives.”38 In 2009, the Irish Department of Enterprise, Trade, and Employment adopted a report on SME procurement assistance, stating that “increased involvement of SMEs leads to better value for money.”39 The EDA in 2006 adopted the Code of Best Practices in the Supply Chain in order “to ensure fair opportunities especially for SMEs” and “to promote opportunities, where competition is efficient, practical, and economically or technologically appropriate on a level playing field basis for qualified and competent suppliers (both in-house and external), including SMEs.”40 At the 1997 meeting of the ESA Council, ministers called for “a special place for small business. The objective is to guarantee them a share in the Agency’s technological activities, and to facilitate their access to technical facilities and tools.”41

General SME Policy Framework: A Comparison of the United States and Europe

Both the United States and Europe have well-established, comprehensive programs and policies on SME procurement assistance. U.S. assistance measures focus on both the opportunity to participate and the actual share of participation, and European assistance measures focus more on the opportunity to participate. This, however, is changing as European assistance is becoming more focused on measurable, identifiable participation outcomes such as the extent of participation of SMEs in specific contracts. Although Europe historically has not required or encouraged SME set-asides to the same extent as the United States, European policies and practices effectively include SME participation as an element of best value for money.

Defining SMEs: The United States—An Industry-Sensitive Framework

In defining an SME for purposes of public procurement, the United States has generally taken into account industry-specific trends and conditions, which are reflected in indicators of economic activities (e.g., employment or revenue) and varying size caps for each industry as a basis for measurement. This diversity makes sense, assuming the purpose behind SME definitions is to target relief and assistance to companies most struggling to establish themselves and most

38

UK Office of Government Commerce (OGC) 2010. 39 Republic of Ireland, Department of Enterprise, Trade and Employment (ROI DETE) 2009. 40 EDA 2006. 41 ESA 2009a.

8

Business and Politics, Vol. 13 [2011], Iss. 4, Art. 2

https://www.wendangku.net/doc/2b9554319.html,/bap/vol13/iss4/art2

DOI: 10.2202/1469-3569.1367

vulnerable to anti-competitive pressures by large businesses or government officials. However, the objective of accurately reflecting industry conditions can be in tension with the objective of avoiding red tape and legal uncertainty through clear and simplified rules.

Congress provided in the Small Business Act that “a small business concern . . . shall be deemed to be one which is independently owned and operated and which is not dominant in the field of operation.”42 Further, Congress gave the SBA the authority to specify “detailed definitions or standards by which a business concern may be determined to be a small business concern” and generally prohibited federal agencies from establishing their own definitions.43

In 1957, the SBA established a 500-employee cap for all federal contracts, which Congress frequently criticized as too inflexible and unresponsive to the realities of the marketplace.44 In the early 1990s, the SBA established industry-specific size standards. Detailed size standards in over 1,000 industry categories are published in the SBA’s regulations and Table of Size Standards. Size caps generally range from 100 to 1,500 employees (full- or part-time), or from $0.7 to $35.5 million in annual average revenues. In 2009, the SBA issued a white paper, SBA Size Standards Methodology, which proposed to change existing standards in accordance with additional criteria, such as industry-specific factors.45

A company may be small in one industry category and yet large in another. Under SBA regulations, contracting officers are responsible for deciding which category best describes the “principal purpose” of the procurement.46 While the basis for a contracting officer’s decision is often complex, SME definitions are publicly available and generally applicable to contracts and subcontracts across all federal agencies.

In addition to promoting predictability and transparency in SME definitions, Congress and the SBA have established safeguards to protect SME size definitions from fraud and manipulation. These safeguards include (1) process measures such as appeals and protests;47 (2) regulations concerning SME affiliation with large businesses 48 and recertification of former SMEs that have become large through growth, mergers, or acquisitions;49 (3) prohibitions on subcontracting the majority of the work on SME set-asides to large businesses;50

42

U.S. Code 2010. 43 U.S. Code 2010. 44 U.S. House 1993. 45 SBA 2009a. 46 Code of Federal Regulations (CFR) 2010. 47 CFR 2010. 48 CFR 2010. 49 SBA 2006. 50 U.S. Code 2010.

9

Kidalov and Snider: US and European SME Procurement Policies

Published by De Gruyter, 2011

and (4) criminal and civil penalties for misrepresentation of small business size.51 Since 2010, contractors must recertify online their small business size and status annually.52

Defining SMEs: Europe—A User-Friendly Definition Framework

Within the EU framework, in relation to EU activities, the EC is responsible for promulgating SME definitions, which are not legally binding on members.53 Prior to 1996, the EU SME definition corresponded to the U.S. size standard cap of 500 employees.54 Since 1996, the EC adopted SME definitions for EU agencies such as the EDA; however, members are not required to use them.55

The EC definitions establish staff headcounts and financial ceilings that determine three categories: SME, small enterprises, and microenterprises.56 SMEs employ fewer than 250 persons, have an annual turnover not exceeding EUR 50 million, and/or have an annual balance sheet total not exceeding EUR 43 million. Small enterprises employ fewer than 50 persons, with an annual turnover and/or balance sheet not exceeding EUR 10 million. Microenterprises employ less than 10 people, with an annual turnover and/or balance sheet not exceeding EUR 2 million. Annual turnover is the annual income that an enterprise receives for sales and services after rebates, not including value-added and other indirect taxes, and annual balance sheet refers to the value of a firm’s assets.57 Employees are calculated in annual work units (AWU), a concept that parallels the U.S. concept of full-time equivalents (FTE).

Not all EU members follow the EC definitions. For instance, the UK still targets its procurement assistance for SMEs with up to 500 employees,58 while France provides assistance to high-tech SMEs with up to 1,000 employees.59

The EU definitions contain several protections against manipulation and circumvention by large businesses. These include rules governing SME affiliation with other business entities, venture capitalists, and even government authorities. The affiliation rules draw a distinction between three types of SMEs: autonomous, partner, and linked enterprises. Employees and financials from linked and partner

51

U.S. Code 2010. 52 U.S. Government (USG) 2010. 53 European Commission, Enterprise and Industry Directorate General (EC EIDG) 2005. 54 Storey 2003. 55 EC EIDG 2005, 6. 56 EC 2003. 57 EC EIDG 2005, 15. 58 UK Department of Business, Innovation, and Skills (DBIS) 2009b. 59 Jourdain 2007.

10

Business and Politics, Vol. 13 [2011], Iss. 4, Art. 2

https://www.wendangku.net/doc/2b9554319.html,/bap/vol13/iss4/art2

DOI: 10.2202/1469-3569.1367

enterprises are added fully or partially to those of the company declaring itself an SME to determine whether that company is, in fact, an SME.

The apparent clarity and predictability of the EU definition are obviated by the absence of a size enforcement process and by language that privileges a firm declaring itself an SME even if its capital is distributed in such a way that ownership determinations are not possible. The EC permits such a firm to make a good faith declaration concerning presumptions about its ownership.60

Defining SMEs: A Comparison of the United States and Europe

Europe emphasizes clarity and simplicity in its one-size-fits-all approach to SME definitions, which is a substantial advantage in the administration of SME assistance. One must question, however, whether this approach genuinely reflects industry conditions, since SME assistance could simultaneously be denied to deserving firms in some industries and extended to firms that would be considered large in other industries. From this view, the complexity of the U.S. standards is a necessary evil because it reflects considerations of industry-specific conditions and fair competition among similarly situated firms in the same industries.

The competitive effect of assistance based on these definitions is difficult to estimate. The EU has larger size caps across all industries in general, but the United States has larger overall size caps in some of its industries. Thus, although competitive impact is determined on an industry-by-industry basis, U.S. services firms (subject to revenue-based caps) would be generally disadvantaged by the EU SME definition and U.S. manufacturers (subject to employment-based caps) would be favored by it. Moreover, the EU definition favors job creation more than the U.S. definition because of differences in calculating employee-based size caps. One AWU/FTE-based European employee can equal several U.S. employees based on counting rules in the SBA regulations. Thus, the AWU/FTE method, at least in theory, enables European SMEs to create more jobs than U.S. firms.

In comparison with U.S. SME size standards, the EU definition provides less protection of independence of ownership or operation of SMEs and is more vulnerable to fraud and manipulation. The EU affiliation and anti-circumvention rules allow companies that are majority-owned by large businesses and government agencies to qualify as autonomous SMEs as long as each such investor owns less than 25 percent.

These policies open doors to large business manipulation because the European affiliation rules for partner enterprises exclude the majority of their

60 EC EIDG 2005, 36.

11Kidalov and Snider: US and European SME Procurement Policies

Published by De Gruyter, 2011

employees from the count of the enterprise claiming SME status. The integrity of the definition is stronger in the United States, where SBA affiliation rules require counting employees of all affiliated firms. Further, the EC imposes no requirements that an SME perform the majority of its work on a public contract or subcontract, or that it provide supplies manufactured by an SME. European SME assistance programs, therefore, have the potential to serve as mere domestic preferences for firms regardless of size.

SME Assistance Agencies: The United States—A Central SME Advocate and Regulator

Since before World War II, the United States has created several agencies—the Reconstruction Finance Corporation, the Smaller War Plants Corporation, the Small Defense Plants Administration, and the SBA 61—to provide financing and technical assistance for small firms, as well as to engage their sister agencies in efforts to expand SME procurement opportunities. An independent agency with presidentially appointed and Senate-confirmed leadership, the SBA falls under the direction and supervision of the U.S. president and is not affiliated with any other federal agency. The SBA has powers to engage in cooperative intergovernmental efforts and to promulgate binding regulations.62

To emphasize the importance of SME advocacy within federal agencies, the Small Business Act directed that each agency with contracting authority establish an Office of Small and Disadvantaged Business Utilization (OSDBU) to ensure that SMEs have the maximum practicable opportunity to participate in contracts as both prime and subcontractors. OSDBUs are responsible for implementing the Small Business Act as well as agency-specific SME procurement rules and statutes, for instance, space- and defense-related goals, set-asides, preferences, and incentives.63

Finally, SME procurement initiatives are promoted and supported through the Office of Federal Procurement Policy (OFPP). The OFPP promulgates uniform procurement regulations for the federal government (the Federal Acquisition Regulation, or FAR) and is required to consult the SBA concerning the impact of such regulations on SMEs. The OFPP is charged to develop policies to help agencies achieve SME goals and to ensure maximum practicable opportunities for SME participation in small procurements 64

61

Saltonstall 1957; SBA 2009. 62 U.S. Code 2010. 63 U.S. Code 2010. 64 U.S. Code 2010.

12

Business and Politics, Vol. 13 [2011], Iss. 4, Art. 2

https://www.wendangku.net/doc/2b9554319.html,/bap/vol13/iss4/art2

DOI: 10.2202/1469-3569.1367

SME Assistance Agencies: Europe — Centralized Advocacy, National Implementation

In Europe, SME procurement assistance bodies exist at the EU level, at the non-EU agencies or institutions level, and at the individual EU member level. At the EU level, SME procurement policy is the responsibility of the EC’s Enterprise and Industry Directorate General (EIDG), the European Defense Agency (EDA), and the Community Research & Development Information Service (CORDIS). Although the EIDG is responsible for initiatives to support the growth and development of SMEs, its role has been limited to encouragement and stimulus.65 To enhance SME participation in policy-making at the EU level, the EC created the special position of SME envoy in the EIDG with the rank of Deputy Director-General. The SME Envoy promotes “think small first” strategies for public procurement, state aid to SMEs, and R&D activities in EU and member state agencies.66

European agencies and institutions that are, strictly speaking, not part of the EU structure have also created or adopted procurement policies in support of SMEs. For example, the ESA created an SME Policy Office, which instituted measures such as set-asides and subcontracting clauses “to reinforce the technical capabilities and sustainability of high technology SMEs in order to facilitate their involvement in ESA activities.”67

Other European institutions assign SME assistance duties to general industry or trade offices. For example, in the European Free Trade Association (EFTA), the Surveillance Authority monitors SME-specific assistance measures.68 In the EDA, SME assistance falls under the cognizance of the Industry and Market Directorate as one of its responsibilities for enhancement of the European defense industrial base.69

Given the EU’s traditionally limited involvement in SME procurement, member states have created their own individual SME procurement authorities. For instance, in the UK procurement-related assistance to SMEs is a responsibility of both the Small Business Service (SBS) within the Department of Trade and Industry (now the Department of Business, Innovation, and Skills (DTI/DBIS)), and the Office of Government Commerce (OGC) within the Department of the Treasury. The mission of the SBS, created in 2000, is to facilitate business start-ups and development, and the mission of the OGC is to strive to “achieve effective competition for government business by simplifying access to the

65

GHK 2010. 66 EC EIDG 2010. 67 ESA 2009b. 68 EFTA Consultative Committee 2008. 69 EDA 2009.

13

Kidalov and Snider: US and European SME Procurement Policies

Published by De Gruyter, 2011

government market place.”70 Concerns were raised “whether the SBS had the power and attributes to ensure that the needs of small business were understood across government, or to implement initiatives so that they would benefit small businesses,” but the UK government further diminished SBS powers and folded it within the DTI/DBIS.71 While the DTI/DBIS Enterprise Directorate “retains policy responsibility” for SME procurement assistance,72 the OGC is also responsible to “further Government policy goals, including innovation, equality, and support for [SMEs].”73

SME Assistance Agencies: A Comparison of the United States and Europe

Offices or agencies responsible for SME procurement assistance have been widely established in the United States and Europe. U.S. arrangements have emphasized agency specialization in matters unique to SMEs, relative independence, direct reporting to top decision makers, and oversight powers. European arrangements, on the other hand, have emphasized the substantive relationship between SME procurement assistance and other policies, such as innovation or development of domestic industries. Independence and direct reporting to top leadership have not been emphasized. As a result, European SME programs are more likely to be driven by non-SME concerns such as domestic preferences.

Availability of Suitable Contracts: The United States—Addressing Bundling and Consolidation

As early as the 1940s, Congress recognized that contract consolidation and bundling was an obstacle to the entry of SMEs into the federal market.74 Legislation to reduce bundling was first enacted implicitly in the Competition in Contracting Act (CICA) of 1984.75 The Comptroller General ruled that bundling violated the CICA’s requirement for full and open competition.76 Explicit anti-bundling legislation was enacted by the Small Business Reauthorization Act of

70

UK SBS and OGC 2004, 1. 71 UK HOC 2007, 3, 15. 72 UK DBIS 2009a. 73 UK OGC 2009a. 74 Saltonstall 1957, 6. 75 USG 1984. 76 General Accounting Office 1987, 2001.

14

Business and Politics, Vol. 13 [2011], Iss. 4, Art. 2

https://www.wendangku.net/doc/2b9554319.html,/bap/vol13/iss4/art2

DOI: 10.2202/1469-3569.1367

1997,77 which directed federal agencies to avoid unnecessary and unjustified bundling that might preclude SME participation in procurements as prime contractors, such as bundling that does not result in savings of 5 to 10 percent of contract value.78 Set-aside contracts for SMEs are not considered bundled under the Small Business Act, but may be found bundled under the CICA.79

In 2002, President Bush placed renewed emphasis on reducing contract sizes with his Small Business Agenda, which promoted business ownership, and one of its major elements, the Initiative Against Contract Bundling. The OFPP responded with a report entitled Contract Bundling: A Strategy for Increasing Federal Contracting Opportunities for Small Business .80 Citing statistics on the severe anti-competitive effect of bundling on the viability of the federal contractor base, the report stated that anti-bundling strategies “must recognize the combined challenges and benefits of a reduced acquisition workforce and the need to maintain an overall acquisition system that is fair, efficient, and transparent. We cannot … pursue operational efficiencies at the expense of reducing small business opportunities.”81 The overall challenge is “to find an appropriate balance between operational efficiency, opportunity, and fairness.”82 The report recommended increased management accountability through increased periodic reporting and reviews as well as regulatory changes for alternatives to bundling and written justifications for bundling.83

In 2001, Congress enacted legislation to restrict contract consolidation by the Department of Defense (DOD).84 This action prohibits consolidation of contract requirements totaling over $5 million without appropriate market research, identification of alternatives to consolidation, and senior-level determination that consolidation was necessary and justified. In October 2007, the DOD published a guidebook for contract consolidation and bundling decisions.85 The Small Business Jobs Act of 2010 lowered the DOD contract requirement threshold to $2 million until the DOD meets its small business goals and extended virtually all DOD contract consolidation procedures to the rest of the government. 86

Despite these actions, U.S. anti-bundling efforts have encountered difficulties. One problem is a lack of executive accountability.87 For example, despite

77

USG 1997. 78 OFPP 2002, 2; U.S. Code 2010. 79 GAO 2001. 80 2002. 81 OFPP 2002, 1. 82 OFPP 2002, 1. 83 OFPP 2002. 84 U.S. Code 2010. 85 Office of the Secretary of Defense (OSD) 2007. 86 USG 2010. 87 GAO 2004.

15

Kidalov and Snider: US and European SME Procurement Policies

Published by De Gruyter, 2011

promises from the Bush and Obama administrations to develop measures to monitor bundling reductions, 88 subsequent SBA procurement scorecards for 2006 through 2008 contained no such measurements. Starting with the 2009 scorecard, the SBA began requiring agencies to demonstrate that no unjustified bundling took place.89 However, in 2010, a presidential task force found that federal agencies are still having problems implementing anti-bundling legislation and need more guidance on justifying and mitigating bundling.90

Availability of Suitable Contracts: Europe— Addressing Contract Suitability

Despite the principle of equal treatment espoused by the EU and its members of firms in public procurement regardless of geographic origin or size, Europe recognizes that large contracts present SMEs with obstacles: “[T]he most important reason why SMEs do not try to participate in European tenders is that the projects are too large.”91

Historically, Europe has not had a unified policy on contract size reduction. A 2004 study 92 found that while about 85 percent of public authorities surveyed try to provide assistance to reduce contract size, the extent of these efforts varied widely among different member states. Although over 90 percent of French and German authorities considered size reductions, only 30 percent of Dutch authorities considered them; in the same study, Ireland had the highest median contract award. This suggests that larger European nations tend to be better at breakouts than smaller nations.

Recently, however, both the EU and the national authorities of its member states began a concerted effort to pursue break-ups of consolidated contracts as a major tool of procurement assistance for SMEs. For instance, Think Small First: A Small Business Act for Europe invites member states to “encourage their contacting authorities to subdivide contracts into lots where it is appropriate and to make sub-contracting opportunities more visible.”93 The European Code of Best Practices 94 advocates three strategies: (1) subdividing contracts into lots and authorizing contractors to compete for an unlimited number of lots, (2) grouping or teaming small contractors, and (3) concluding framework agreements (known in the United States as multiple-award contracts) with SMEs as well as with large

88

Johnson 2006. 89 SBA 2010. 90 Interagency Task Force on Federal Contracting Opportunities for Small Business (ITF) 2010. 91 GHK 2010. 92 EIM Business & Policy Research and Austrian Institute for SME Research (EIM) 2004. 93 EC 2008b. 94 EC 2008a.

16

Business and Politics, Vol. 13 [2011], Iss. 4, Art. 2

https://www.wendangku.net/doc/2b9554319.html,/bap/vol13/iss4/art2

DOI: 10.2202/1469-3569.1367

businesses. The European Code of Best Practices also advocates greater visibility of subcontracting opportunities and greater equity in subcontracting.95 In the UK, the Office of Government Commerce issued guidance on aggregation of contracts that directed agencies to evaluate each proposed aggregation on a case-by-case basis in order to balance efficiency, government agenda, and commercial market features.96

Availability of Suitable Contracts: A Comparison of the United States and Europe

Both U.S. and European authorities have pursued limitations on contract awards in order to assure the suitability of such awards for SMEs. Although the approaches of both the United States and the EU share a concern for fairness and equality of competition, there are also substantive differences. At present, Europe is transitioning from an approach of voluntary compliance with recommendations toward an approach with more systemic competition standards and unbundling remedies, much as the United States transitioned from enactment of the CICA in 1984 to the 1997, 2001, and 2002 initiatives. U.S. anti-bundling efforts are driven by additional considerations of promoting business ownership, ensuring a robust supplier base, and making the economic strengths of SMEs available to the public sector. Although the current U.S. legislative and regulatory standards nominally provide for stronger enforcement measures than do the European standards, no comprehensive comparative bundling enforcement data is currently available. Nonetheless, further legislation appears to be the next natural step for the EU, its members, and the United States as well.97

Availability of Information for SMEs: The United States—Maximum Opportunity by Law

In the mid-twentieth century, Congress conducted studies that found “small firms have difficulty in securing adequate information on proposed procurements or in securing specifications and bid seats.”98 Congress addressed these concerns by codifying in the Small Business Act the principle of maximum practicable opportunity for SMEs, subsequently implemented through a variety of FAR

95

EC 2008a. 96 UK OGC 2009b. 97 Manuel 2010. 98 Saltonstall 1957, 5.

17

Kidalov and Snider: US and European SME Procurement Policies

Published by De Gruyter, 2011

requirements.99 Most of these provisions can be enforced through bid protests.100The FAR establishes a uniform policy for public advertising of federal contracts across all agencies. It also sets forth specific transparency and fairness policies to assist small businesses. It requires government agencies to “make every reasonable effort to find additional small business concerns” before issuing solicitations. 101 Among other things, it directs agencies to encourage “maximum response” to solicitation from small business concerns by allowing “the maximum amount of time practicable for the submission of offers”; by providing specifications, drawings, or related information; and by providing points of contact within federal agencies on contract-specific issues.102 The FAR requires agencies to “[e]nsure that delivery schedules are established on a realistic basis that will encourage small business participation to the extent consistent with the actual requirements of the government.”103

SBA regulations echo many FAR requirements and further impose on agencies the obligations to cooperate with the SBA in attainment of maximum practicable SME participation. The SBA may stop non-compliant acquisitions and appeal them to the heads of relevant agencies.104

The SBA’s Certificate of Competency Program provides independent evaluations of SMEs that may be discriminated against because they are small. The SBA is responsible for certifying to procurement agencies “all elements of responsibility … of any small business concern or group of such concerns to receive and perform a specific Government contract.”105 Government agencies are prohibited from passing over an SME for award on any such grounds without referral to the SBA, and they must accept SBA Certificates of Competency as conclusive. Matchmaking and counseling programs authorized by the SBA provide SMEs with further opportunities to obtain information on prime and subcontracting opportunities.106

1n 1976, Congress established an independent office within the SBA , the Chief Counsel for Advocacy, to promote pro-SME regulations, improve procedural transparency, and reduce regulatory burdens on SMEs. This office reviews federal procurement regulations for their effects on SMEs.107

99 U.S. Code 2010.

100

USG 1984. 101 FAR 2011 19.202-2. 102 FAR 2011 19.202-4. 103 FAR 2011 19.202-1. 104 CFR 2010. 105 CFR 2011. 106 U.S. Code 2010. 107 U.S. Code 2010. 18

Business and Politics, Vol. 13 [2011], Iss. 4, Art. 2

https://www.wendangku.net/doc/2b9554319.html,/bap/vol13/iss4/art2

DOI: 10.2202/1469-3569.1367