Albert Sanchez-Graells  and Pedro Telles 

 however innovative – that does not necessarily exclude SME-driven innovation, though!

Ciudadanos, one of Spain’s recently emerged nation-wide political parties, recently submitted a non-legislative proposal to the Spanish Parliament with the aim of reserving 3% of public contracts tendered in Spain to Small and Medium Enterprises (SMEs) that are ‘legally certified’ as innovative [see press clipping, in Spanish]. The aim of their proposal is to develop and apply research & development and innovation (R&D&I) projects for the provision of public services. Ciudadanos is also proposing for the innovation of solutions to be evaluated in all public tenders, that contracting authorities differentiate the award of contracts concerning ‘high technological value’ solutions, and that contracting authorities retain the possibility of mandating the subcontracting of specific parts of the tendered contracts to ‘innovative SMEs’.

This is a clear example of a policy proposal that aims to ‘mandate innovation’ rather than facilitate it and, as such, reflects a misconceived approach to the use of public procurement for industrial policy purposes/objectives. It also conflates the pursuit of innovation with the protection of SMEs, which do not necessarily go hand in hand. There is evidence coming from the US and Japan demonstrating that SME set-aside policies are expensive and oftentimes inefficient, as they result in higher levels of expenditure for the public sector. Therefore, they are generally an economically inefficient policy and a well-designed system of State aid for R&D&I projects is likely to create larger benefits and be easier to monitor due to its more transparent costs.

In any case, the main issue with Ciudadanos’ proposal is that a set-aside of contracts for innovative SMEs is contrary to EU public procurement law. Under the 2014 Directives, which Spain should have transposed by 18 April 2016 but still has not, there are only two provisions allowing for contractual set-asides. First, contracts can be reserved for sheltered workshops and economic operators whose main aim is the social and professional integration of disabled or disadvantaged persons. Second, contracts for the provision of social and special services (mainly in the education and healthcare areas) can be reserved to providers with a clear mutual or collective structure. None of these possibilities includes ‘legally certified’ innovative SMEs and, consequently, the creation of a 3% set-aside programme as the one proposed by Ciudadanos would infringe EU law.

The infringement of EU law would clearly derive in the case of innovative SME reservations of contracts covered by the EU harmonised rules (that is, works contracts above €5mn and services and supplies contracts above €134,000 if tendered by the Spanish central government and €207,000 if tendered at Autonomous Community or local level). However, even in the case of contracts with values below those thresholds, non-Spanish tenderers could challenge the preference for innovative SMEs if it was easier for a Spanish than, say, a French or Portuguese SME to get ‘legally certified’ as innovative in Spain. This legal risk seems structurally unavoidable in an SME set aside programme, in addition to the practical issues of how to go about ‘legally certifying’ SMEs as innovative. Therefore, this part of Ciudadanos proposal should simply be dismissed by the Spanish Parliament.

The rest of Ciudadanos’ proposals—that is, the development of policies aimed at encouraging the reduction of participation requirements so that SMEs have no difficulties in meeting selection criteria, as well as the inclusion of innovation-oriented clauses in the technical specifications of public tenders (including the option of submitting innovative variant offers), and the use of innovation-rewarding (functional) award criteria are all in line with EU law and policy, are welcome provided they comply with basic requirements of transparency, non-discrimination, objectivity and proportionality. To this end, Pedro has done work in the past on reducing transaction costs in low value public contracts and the UK’s Government Digital Service is leading the way to do so today. Having said this, the 2014 Directives have already taken significant steps to limit the discrimination against SMEs. For example, it has reduced the turnover requirement to a maximum of two times the value of the contract or lot and introduced the mandatory use of the European Single Procurement Document, also obviating the scope for further procedural innovation. More specifically on innovation and public procurement, entities like the Procurement Innovation Platform, with the support of the European Commission, have developed case studies and guidance for contracting authorities seeking to facilitate the procurement of innovation.

The real difficulty in the delivery of this type of programmes, though, is that innovative procurement and innovation-supportive activities by the public administration more generally are very costly and demanding in terms of skills and time. Indeed, one of the implicit costs of innovative procurement is that the public sector needs to be atop the technological learning curve and willing to incur costs derived from the risk that innovative solutions may not work, or may require fine-tuning and adjustment. Innovative procurement also demands a cultural change in purchasing organisations in dealing with risk, in addition to changing how quality, cost or value are traditionally measured. The extent to which the Spanish public sector is, generally, in a position to actively engage in this type of public procurement is open to question. How would procurement failure be tolerated by the public sector and politicians? Certainly, there are some very interesting practices—such as Barcelona’s participation in the Smart Procurement European Alliance (SPEA), together with Birmingham (UK) and Eindhoven (NL) or the work coming out of CityMart with Spanish and international cities—but this is not reflective of the approach and skillset of most contracting authorities in the country. It is unfortunate then that Ciudadanos is only looking at fostering change in the supplier side but has not provided policies to improve public procurement practice and capabilities. It is also unfortunate that Ciudadanos has not raised other measures that could foster SME participation, such as a reduction or waiver of offer and performance bonds, which is a point that goes back to the contracting authorities’ attitude towards procurement risk.

Overall, then, it would seem that truly horizontal procurement policies, such as boosting the skillset and human capital of contracting officers, or actively seeking to change their attitude towards risk and the excesses of financial stonewalling of the participation in public tenders, may be a much better investment than any cost derived from the creation of an innovative SME set aside programme. Innovation is easy to talk about, but hard to deliver.

Versión española de esta entrada

Foto: María Lluch