“Public Contracts: An Opportunity for Young Companies?”

Public procurement is a pillar of the German economy. Amounting to around 500 billion euros annually, it accounts for approximately 15 per cent of gross domestic product. Government procurement also offers young companies enormous potential, as it ensures a stable demand market and functions as a gateway to new customer groups. In view of the future investments planned by the German government, this potential is becoming even more significant: A 500-billion-euro special fund exempted from the debt brake is projected, which is to focus on infrastructure and climate protection. Public contracts are thus becoming an even more important lever for economic transformation. Together with Lena Füner and Malte Prüfer, Dr. Bastian Krieger, head of the Junior Research Group Co-Creation at ZEW Mannheim, has examined in a recent study under what conditions young companies participate in public tenders and succeed.

“Our analysis shows: Tenders serve as a filtering mechanism – and whether a young company passes largely depends on the company’s characteristics. Firms with more employees apply more frequently and are more likely to win, regardless of the type of tender. Price-based procurement procedures favour providers of a certain size and with experience and reliable processes. By contrast, in tenders that incorporate additional quality or innovation criteria, the company profile is what counts: Firms that are demonstrably innovative – for example offering novel products to the market or founded by PhD holders – have better chances.

It is noteworthy that not only the characteristics of a young company but also those of its founders – such as education, administrative experience and team composition – clearly influence the likelihood of participation and success. And these effects vary depending on the type of tender.

For policymakers this means: Tender procedures actively shape market access. Depending on whether they focus purely on price or also consider qualitative criteria, different types of young companies are likely to benefit.

If we want young, innovative firms to have greater opportunities, we must design procurement procedures to specifically reward innovative capacity – while at the same time lowering bureaucratic barriers. Particularly for very complex tenders, clear criteria and greater flexibility for new solutions are needed.

The coalition agreement between the SPD and CDU/CSU sends a positive signal: It announces a comprehensive simplification, acceleration and digitalisation of procurement law, combined with strategic procurement management and new central platforms. The value thresholds for direct awards are to be significantly increased – to 50,000 euros generally, and to 100,000 euros for young, innovative companies. Furthermore, the proof of suitability is to be provided in a ‘digital format and in a streamlined, unbureaucratic and SME-friendly’ manner in future. With this new approach, the federal government is going to act on key levers. The decisive factor will be whether these promises are actually implemented.”