Small and Medium Enterprises (SMEs ) & Government Contracts: Challenges, Opportunities, International Experience

1. Small and Medium Enterprises (SMEs) & Government Contracts: Challenges, Opportunities, International Experience Daniel I. Gordon Associate Dean for Government Procurement Law The George Washington University Law School Washington, DC

2. SMEs: A Good Group to Help • Everyone wants to help SMEs • They are often viewed as the “engine” of the economy – a source of economic growth, innovation, and jobs • In many states, they also have broad political support

3. SMEs: How to help them? • Three primary paths: • Provide them procurement preferences • Reserve some procurements for them (“set-asides”) • Give them preferential treatment, typically by treating their bid price as lower than it is

4. SMEs: How to help them? • 2. Remove barriers to entry for SMEs • Train them, especially about the public procurement rules • Ensure they get key information, for example, about upcoming procurements

5. SMEs: How to help them? • Structure procurements in ways to facilitate SME participation • Focus is generally on ensuring that procurement is not large, or too broad, for SME participation

6. SMEs: How to help them? • In U.S., the law prohibits unjustified “bundling” (combining) of separate contracts into one too large for SMEs • In E.U., procurements are to be broken down into “lots” to help SMEs

7. SMEs: What helps them the most? Set-asides are the most effective form of assistance Preferential treatment is the next-most effective means Breaking procurements down in size can help Training and information-sharing are criticized as not effective enough in getting contracts to SMEs

8. SMEs: What else can be done to help? • High-level attention can be helpful – demonstrating national policy to help SMEs • U.S. has a goal of 23 % of federal contract dollars going to U.S. small businesses, and progress is tracked publicly • Assistance with practical matters (financing, prompt payment, and the like) can be important

9. Concerns about Set-Asides & Other Preferential Treatment Set-asides reduce competition, they often reduce transparency and lead to fraud and abuse (because large companies claim to be small) Even if there is no fraud, there is widespread concern that set-asides lead to higher prices

10. Concerns about Set-Asides & Other Preferential Treatment If they apply only to domestic SMEs, they may violate international agreements prohibiting discriminatory national preferences But note that set-asides (and preferences) applied to procurements below applicable thresholds may be outside the scope of international agreements

11. Concerns about Set-Asides & Other Preferential Treatment Other forms of preferential treatment raise similar concerns At the least, there is widespread concern that they lead to higher prices If they help only domestic SMEs, they may violate international agreements (for covered procurements)

12. The Challenge: Making Training and Information Sharing Meaningful The barriers to entry into the public procurement marketplace can be daunting to SMEs, so that training may represent valuable assistance Similarly, access to useful information may provide a real boost to SMEs International obligations need to be kept in mind and respected