Small- and medium-sized enterprises (SMEs) are often struggling with digital transformation and are underrepresented in public procurement procedures. This underrepresentation causes substantial loss of economic potential. Contemporary research and development on the ongoing digitalization of public procurement is not targeting SMEs sufficiently. Therefore, this research aims to close the gap by analyzing both, literature and current digitalization projects with regard to targeting SMEs' needs. Based on practical and scientific sources, we provide a synthesis of issues that SMEs face in public procurement. Furthermore, potential technical and organizational solutions are discussed and mapped along a matrix to the identified problem areas. The evaluation of problem areas and their mapped solutions indicates that technical solutions must be integrated as part of an organizational framework in order to be effective and comprehensive for being useful and beneficial to SMEs.
Digital transformation is affecting all kinds of businesses, including in the private and public
sectors [
Public procurement processes are not covered by digital solutions in a holistic fashion. As public procurement makes up around 15% of the GDP of the European Union, improvements to it are economically vital and of high relevance. Yet, the unclear process structure, lacking technical support, and complex legal frameworks make it hard for SMEs to participate in public procurement procedures in a profitable manner. As SMEs usually do not have dedicated legal 0000-0002-8460-1027 (M. A. Wimmer)
© 2024 Copyright for this paper by its authors. Use permitted under Creative Commons License Attribution 4.0 International (CC BY 4.0). departments, fully understanding the legal obligations and connected legal risks remains a challenge. Furthermore, SMSs have less capabilities to cover the fixed costs that come with the preparation of tenders. However, a better inclusion of SMEs in public procurement offers a great economic potential as SMEs can provide specialized services and may act more flexibly. With regard to sustainability, it may also be easier to find local service providers and products by including SMEs.
This paper aims to analyze the current factors that impede SMEs from participating profitably in public procurement processes. Based on this analysis, technical solutions and recommendations for action are defined to overcome the challenges. The research is driven by the following two key Research Questions (RQ):
RQ1: Which factors are making public procurement procedures unprofitable and unattractive for SMEs?
RQ2: Which technical solution components can facilitate the digital transformation in public procurement, which are tailored towards the inclusion of SMEs?
We apply a holistic view where the participation of SMEs is considered a socio-technical system and process. The implementation of technical solution components and innovation can accomplish parts of the solution, while it is also necessary to address organizational issues in the communication between public entities and SMEs. The latter demands for a clear organizational framework. In order to design an effective solution, a clear differentiation is necessary among problems that can be solved by digital transformation, and challenges that need to be resolved by implementing organizational changes. Hence, soft factors as Governance, Risk Management, and Compliance have to be integrated in the solution. SMEs need to carefully manage their limited resources, making a good management of tendering documents and their contents paramount. The potential risks need to be clearly communicated. Also ensuring compliance to all included legal regulations is a complex endeavor that needs to be considered. To answer above research questions, this paper employs Design Science Research (DSR), which is focused on approaching the problem from practical and science-based sides at the same time, deploying both analytical and empirical methods.
The paper is structured as follows: The research design and used methodology is explained in Section 2. In Section 3, the theoretical foundations are established by analyzing literature regarding public procurement, digital transformation, and the inclusion of SMEs. This analysis provides a first theoretical overview of the problems that SMEs face, thus partly answering RQ1. In Section 4, fitting technical solution components are introduced, which address RQ2. Based on the defined technical solutions and identified theoretical issues, empirical methods are utilized in Section 5 to verify together with SMEs, if the defined solutions are fitting their needs and if they face further problems not addressed by literature sufficiently. Section 6 sums up the results and critically assesses the core contributions of the paper, concluding with further research needs.
This work employs a Design Science Research (DSR) approach [12], which includes three interconnected research cycles that are based on the Design Science Research Methodology [13]. Each iteration can be mapped to the rigor, the relevancy, and the design cycle prescribed by DSR. While each cycle proposes contributions on its own, the combination of these results leads to the final and overall contribution of this paper as the result of the design cycle.
A literature review based on Webster and Watson [14] is performed to create a rigorous overview of factors that affect the attractiveness of public procurement for SMEs. The literature review itself was conducted based on keyword search along the process of [15], using keywords such as “Digital Transformation”, “Public Procurement”, “e-Procurement”, “Governance” in combination with “SMEs” as an overarching concept. Literature databases such as SCOPUS, Web of Science, Elsevier, and Google Scholar were searched. In a second step, the found literature entries were analyzed based on their title. Articles that are not relevant for the research context were filtered out. In a second step of selection, fitting papers were selected based on their abstracts and conclusion of contributions. This led to a final selection of papers that were evaluated after a full read. In several following iterations of the research process, references from selected papers were considered to further verify and evaluate preliminary results of the analysis.
Limited pilot phases were performed for developed technical solutions as part of several connected projects. In total, three sets of interviews / workshops were performed with different audiences, and three solutions were piloted and tested. First, an implementation pilot with German SMEs was conducted together with the Landesbetrieb Mobilität Rheinland-Pfalz (LBM) [16], and accompanied by workshops. Second, a workshop was conducted with procurement experts from the public sector in Germany, representing the Cooperation project for digitalization of Public Procurement [17]. Third, a workshop with SME and industry representatives was conducted during the Smart County Convention 2023 [18]. The final design cycle of the research combined the findings of both previous cycles (rigor and relevancy cycles) into a holistic solution and final contribution to this paper. Gaps between the observations from literature and the practical findings from the dialog with SMEs are identified and defined as targets for further research.
This section provides an overview of relevant theoretical concepts. Factors that might affect the attractiveness of public procurement procedures and digital transformation for SMEs as well as potential problems are analyzed in particular. Based on a literature review, the four main concepts “Digital Transformation”, “Public Procurement”, “Governance, Risk, and Compliance”, and “Interoperability” are analyzed below. Finally, a synthesis of the results and literature matrix is provided.
Digital Transformation is used as a term for the introduction of Information Systems (IS) and
digital innovations into organizations such as public bodies or enterprises [
Public Procurement includes all procurement procedures that are initiated by public bodies [23].
Such procedures generally require a tendering phase, following certain legal requirements to
ensure a fair competition for all participating economic operators [24][23]. Different types of
procedures such as open or restricted procedures may be used to suit the individual
procurement context [25][26]. Furthermore, procurement procedures in the EU that reach a
certain financial threshold must be tendered EU-wide, making cross-border interoperability a
specific concern. Procurement procedures themselves are complex processes that are grouped
into multiple process phases such Pre-Award, Awarding, and Post-Award [27]. E-Procurement
essentially considers the digital transformation of procurement procedures, to increase the
efficiency and profitability of procurement [
Governance, Risk, and Compliance (GRC) is a collection of aspects of increasing importance for
businesses and organisations of all kinds. The concept includes the effective governance of
processes, resources, and data, the management of risks, and compliance to both, internal
agreements and external legal regulations. This leads to many practices in the field being not
suitable for SMEs [_code_8], causing many procurement related problems. First, SMEs face a
hard time properly governing their resources and data to effectively create fitting tenders. Along
this, Data Governance is of special importance for SMEs and for public procurement. Data
governance covers all aspects regarding authority and control over data in the scope of an
organisation [
Chapter 4 introduces relevant technical solutions that might be applied to target challenges faced by SMEs, based on literature and relevant reports / legal regulations. These and some additional solutions are later mapped to the specific problem areas in Chapter 4.
The ESPD was legally introduced in 2014 as a means for bidders to easily provide a standardized self-declaration regarding their qualification to participate in public procurement procedures – see EC Directives 2014/24/EU [35] and 2014/25/EU [36]. It can be seen as a technical solution to reduce effort on both EO and CA sides [38]. Especially SMEs can benefit from using the EPSD, as it provides a full list of exclusion and selection criteria in public procurement in a standardized way. Furthermore, the ESPD is viable for all EU member states, thus greatly helping in crossborder interoperability, which is usually hard for SMEs. Overall, the ESPD encompasses selfdisclosed details about a company's financial standing, capabilities, and appropriateness against predefined criteria according to the European Public Procurement directives [36][35]. It replaces the need to furnish exhaustive evidence and documentation to demonstrate adherence to legal and specific standards. Under legal mandate, contracting authorities (CAs) within member states must acknowledge the qualification criteria outlined in the standardized ESPD format. Consequently, the ESPD streamlines cross-border procurement processes, facilitating easier identification and fulfillment of essential criteria for Economic Operators (EOs) [37]. Additionally, the ESPD can be extended to also request and handle evidences. As such it can be connected to a Once-Only Technical Infrastructure in context of the Single Digital Gateway regulation [53] to further reduce administrative loads from bidders and SMEs.
Framework agreements are commonly utilizing electronic catalogues for ordering after the awarding phase in public procurement. These are successfully used in practice and reduce administrative burdens for CAs and especially Eos, who are able to reuse their own catalogue systems [39]. The overall principle of electronic catalogues can also be applied to the Pre-Award phase. Peppol has introduced a standardized specification for a Pre-Award Catalogue. It is designed to enhance the efficiency of the pre-award phase by consolidating procurement information in a structured manner. This facilitates a significant increase in data consistency and quality. Introducing a catalogue request, initiated by the CA, allows for the reuse of documents for similar procedures, thus promoting efficiency. Additionally, this system enables the automatic generation, comparison, and evaluation of tenders based on existing catalogues. This is especially helpful for SMEs as it greatly reduces the burden of defining an initial offer to a procurement procedure.
Dynamic Purchasing Systems (DPS) serve as a digital special kind of restricted procurement procedures aimed at optimizing and strengthening the competitiveness of public procurement procedures for CAs [40]. At any point in time, EOs have the opportunity to participate if they meet the qualifications and criteria set by the CAs. This system not only promotes inclusivity but also enhances competitiveness. Rather than being awarded contracts directly, suppliers must engage in competition for each business opportunity within the Dynamic Purchasing System (DPS). Research findings support the notion that this requirement fosters a more competitive environment [41][42], including for SMEs.
The results of sections 3 and 4 provide a clear overview of problems for the integration of SMEs into public procurement, and potential technical solutions to mitigate those. To verify these theoretical results, two workshops were performed in order to gather practical insights from both the SME and CA perspectives as described in section 2. The first workshop focused on the CA perspective, while the second workshop was performed with multiple SME participants explaining their issues and perspectives.
Table 1 provides a consolidated overview of 21 identified individual challenges for the integration of SMEs mapped towards 13 clusters of influence factors from literature.
(G) Dynamic Procedures
To provide an additional knowledge contribution, technical solutions and organizational measures discussed in literature, current practical projects, and the workshops were mapped towards the identified problem areas. The results show that in theory most problems for SMEs can be targeted, with policy design as an exception that can only be addressed on a political level. However, many gaps cannot be addressed by technical solutions or organizational measures alone. Interestingly, these gaps overlap for the most part, and technical solutions cannot be applied to issues where organizational measures are applicable and vice versa. The results indicate a demand for solution architectures that integrate both, technical solutions and organizational measures in a holistic way (cf. [26]). However, current approaches from the public side are more focused on delivering technical innovations for SMEs. This research, however, suggest that technical solutions cannot be effectively deployed for SMEs without embedding them into carefully built organizational frameworks. Table 2 shows the entire mapping of problems and solutions in detail.
Policies for SMEs are not translated well into practice Purely price-based awarding Ambiguous evidence requirements Procedures are not planned properly based on the tendered goods Lacking room for dynamic dialog between CAs and EOs CAs are not capable of defining precise procurement documents CAs are not connected well to the business processes of Eos CAs has a big resistance to change Lacking high quality data Risks are not clearly outlined in Procurement documents Risks cannot be covered by SMEs Lacking legal capabilities by SMEs to understand regulations Increased fix costs for SMEs by needed compliance measures Different legal regulation in different countries Lacking Interoperability between procurement systems
Out of scope of paper ESPD ESPD-Extension No solution No solution No solution No solution No solution Peppol No solution Criterion based service Criterion based service Criterion based service ESPD Peppol
This research provided an analysis of problem areas and solutions for the participation of SMEs in public procurement across three cycles of research – following DSR as the underlying methodology. The approach combined findings from literature, practical projects, and empirical findings from workshops with different actor perspectives, resulting in a comparative overview of many problem areas for the participation of SMEs. Furthermore, a mapping of which solutions can be applied to which problem areas was provided. Gap identification for both technical solutions and organizational measurements was developed based on the mapping. The research strongly suggests that technical solutions need to be implemented in the context of an organizational framework to be effective.
While these results provide a better understanding for the issues faced by SMEs and how they can be addressed, a detailed concept of how to establish such an organizational framework is still missing. Further research will therefore focus on answering what kind of organizational framework is required to include SMEs specifically. Furthermore, the identified organizational measures and technical components need to be integrated and developed toward a holistic reference architecture regarding the organizational framework. A methodical framework for its development could also be derived and is published in [26]. Finally, the results of the research, especially of both workshops, need to be verified by further studies to approve the validity of the results.
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