Getting SMEs and start ups into public procurement: promises from the EIC and persistent market frictions

Brussels, November 15th 2024

Summary

›European Commission and EIC initiatives aim to open procurement markets to innovative SMEs but structural barriers remain.
›The EIC Innovation Procurement Programme runs SPIN4EIC, InnoBuyer and InnoMatch offering training, matchmaking and pilot funding.
›EU audits show competition in procurement has weakened over 2011 to 2021 with higher rates of single bidding and direct awards.
›Practical measures such as breaking large contracts into lots, e-procurement portals and factoring schemes show positive effects but are uneven across countries.
›Data and monitoring gaps in TED and the Scoreboard limit evidence based policy making and make root cause analysis difficult.

Introduction

Public procurement is central to EU industrial and climate ambitions. President Ursula von der Leyen singled it out in 2024 as a lever to create lead markets for green and strategic technologies and signalled a forthcoming revision of the Public Procurement Directive with start-ups and innovators in mind. A number of EU initiatives have since sought to lower the barriers that keep innovative small and medium sized enterprises out of public tenders. These initiatives range from local e-procurement platforms and buyer training to EU funded procurement pilots and targeted assistance for EIC beneficiaries. The challenge is that deep structural frictions remain, and available data shows competition has fallen rather than risen across the single market.

Why SMEs and start-ups struggle to win public contracts

EU documentation and audits identify a cluster of practical obstacles. Many public contracts are too large or technically specified in a way that favours established suppliers. Administrative complexity and compliance costs are high. Providers often lack information and experience about tendering. Financial constraints, including bid securities and slow public payments, reduce the pool of credible bidders. Finally, contracting authorities still often do not prioritise SME access in procurement design or take proactive steps to run SME-friendly processes.

Key barriers identified by EU studies and audits:Commonly reported obstacles include contract sizes and bundling that exceed SME capacity, limited access to information and e-procurement tools, burdensome documentation, costly standards and certification, low usage of lots and split awards, restricted market engagement, and limited feedback or dialogue from buyers. The European Court of Auditors in 2023 found that the share of contracts awarded to SMEs did not increase overall from 2016 to 2021 despite the 2014 directive reform and urged measures to make contracts more attractive to small firms.

Practical reforms and good practices across Europe

Member states have implemented a variety of measures to improve SME participation. These include mandatory splitting of large contracts, national e- procurement portals that reduce repetition of administrative work, invoice factoring to ease cash flow for SMEs, and targeted training for public buyers. The results are mixed but instructive.

Breaking large contracts into lots:Dividing a big procurement into smaller lots is widely considered one of the most effective ways to open opportunities to SMEs and start-ups because it lowers financial and technical entry barriers. Germany for example legally requires splitting where feasible, and the practice has been credited with increasing SME participation. However, splitting creates additional complexity for contracting authorities and may not always be feasible for technically integrated projects.

E-procurement portals and once only data entry:Central platforms make tenders easier to find and reduce administrative friction. The Netherlands’ TenderNed allows suppliers to enter their data once. Ukraine’s Prozorro links to a Factoring Hub to provide advances on public invoices and to share procurement data with financiers to support SME access. Such digital tools reduce transaction costs but adoption and integration remain uneven across member states.

Training and buyer professionalisation:High quality training for procurement officials improves contract design and can help include SMEs. Austria’s Public Procurement Excellence Programme and its successor PPE+ Europe provide training for central purchasing bodies and public buyers. Professionalisation is a necessary but not sufficient condition to change systemic incentives inside purchasing organisations.

Innovation procurement as a demand signal for startups

Innovation procurement covers procurement of R&D or of market new products and services and is explicitly intended to give buyers access to solutions that are not yet widely available. Procurement mechanisms used include Pre-Commercial Procurement for R&D, Public Procurement of Innovative Solutions where buyers purchase market-ready novel solutions, and the innovation partnership procedure which combines R&D and subsequent purchase phases. The EU has been promoting these instruments to steer demand toward greener, digital and socially valuable innovations.

Pre-Commercial Procurement (PCP):PCP is used when public authorities jointly buy R&D services to develop solutions they expect will deliver public policy goals. The AI4Cities project is a prominent example. It aggregated a buyers group of six European cities and provided around 4.6 million euros in a PCP that funded R&D to develop AI solutions for urban emissions reduction while creating commercial opportunities for participating SMEs.

What the European Innovation Council is doing

The EIC has developed an Innovation Procurement Programme to help its funded companies access procurement markets and to help public buyers procure innovative solutions. The EIC programme includes three flagship strands that together mix training, brokered matchmaking, tailored assistance and pilot funding.

Programme	Lead or funder	Target audience	Key services	Budget and timeline
SPIN4EIC	EIC Innovation Procurement Programme; implemented by contractors including ICLEI Europe	EIC beneficiaries and public buyers	Free tailored assistance for EIC companies to identify tenders, prepare bids, IP and contractual advice. Support for public buyers to prepare innovation procurement processes; community building and matchmaking	Ongoing assistance open calls running into 2026; community and toolkits live
InnoBuyer	Horizon Europe coordination and support action, EUR 2 million	Public 'Challengers' and EIC-backed SMEs 'Solvers'	Demand-driven co-creation programme, market consultations, buyer-supplier matching and piloting of up to 15 city or public sector challenges	Allocated budget €2 million; runs to end 2025
InnoMatch	EIC Innovation Procurement Programme (Coordination and Support Action)	EIC beneficiaries and buyers	Competitive open calls to fund proof of concept demos and pilot testing of EIC innovations for buyers. Support for upscaling and replication	Supports 38 pilots up to €60,000 per pilot; runs until Sept 2027

SPIN4EIC assistance scope for EIC beneficiaries:The SPIN4EIC Assistance Action offers tailored services to EIC-awarded SMEs and other EIC beneficiaries, including market scans, tender identification, bid coaching, legal, IP and contractual guidance, and a quality check of bid documents. It does not include drafting technical documents, formal tender submission, translations, mediation or litigation. The open call is ongoing and assistance is free for eligible EIC awardees.

Assistance to public buyers under SPIN4EIC:Separate open calls invite public procurers to apply for demand-side assistance such as needs assessment, business case development, market consultations and drafting tender documents that are more accessible to innovative suppliers. Public buyers can receive up to a fixed number of expert person-days per assistance type. The call is open for EU member states and Horizon Europe associated countries.

Concrete pilots and early outcomes

The AI4Cities PCP offers examples of how municipality led procurement can seed innovations in mobility and energy. Cities in AI4Cities included Helsinki, Amsterdam, Copenhagen, Paris, Stavanger and Tallinn. Projects emerging from the PCP produced solutions such as the BEE System which shifts building energy use towards periods of higher renewable supply, Holoni’s platform to predict urban solar surplus and automate reward schemes, C-in.City’s near real-time urban emissions management platform, and the MPAT tool to optimise CO2 impacts for shared micro-mobility. These pilots show potential emission reductions and business opportunities but are limited in scale and remain experimental until wider procurement or commercial adoption follows.

A note on impact claims:Pilot projects report projected percentage reductions and improvements. Those figures are useful for hypothesis building and procurement design but should not be taken as guaranteed results at scale. Pilots typically use constrained datasets and controlled conditions. Scaling to city or national level usually reveals additional technical, regulatory and behavioural challenges.

What EU monitoring and auditors say about competition in procurement

The European Court of Auditors released a special report in 2023 that paints a worrying picture. It found that the level of competition in public procurement of works, goods and services fell across the EU over the 2011 to 2021 period and that the 2014 directive reform had not demonstrably improved competition metrics. Key red flags included high and rising single bidding rates, the frequent use of negotiated procedures without prior call for tenders, and low publication rates on TED in several member states.

Hard numbers from the ECA analysis:ECA data aggregated from TED showed single bidding across the EU rose from about 23.5 percent in 2011 to around 41.8 percent in 2021. The average number of bidders per procedure fell from 5.7 to 3.2 in the same period. Direct awards or negotiated procedures without prior call for tender accounted for about 15.8 percent of award procedures in 2021 in TED records. The ECA also highlights that TED data contains many missing or inconsistent values and that the Single Market Scoreboard lacks some indicators needed to fully analyse strategic procurement or cross border penetration.

TED data and Scoreboard limitations:The ECA found notable gaps in TED completeness and accuracy, with missing values in roughly 30 percent of contracts for fields that are not mandatory. There is no common unique identifier for suppliers across the EU which limits the ability to identify indirect cross-border procurement or ultimate beneficial ownership. The Scoreboard aggregates some indicators but lacks regional and sectoral granularity and does not monitor strategic award criteria or appeal outcomes comprehensively.

Commission action and policy instruments

The Commission has several strands of activity. After the 2014 directives the focus was initially on transposition and compliance. A 2017 procurement strategy promised more: a push to make procurement more strategic, professionalising buyers, improving access for SMEs, increasing transparency and integrity, accelerating digital transformation and promoting joint procurement. Progress has been uneven and often slow, but activity has picked up. Recent instruments and initiatives include the Public Buyers Community and PPE+ Europe training for central purchasing bodies, the Public Procurement Data Space to aggregate procurement data across systems, and targeted support through the Technical Support Instrument and other instruments. The Commission also created guidance on innovation procurement and is integrating procurement into wider competitiveness and industrial policy debates, including work inspired by the Draghi report.

Digital building blocks and their limits:eForms and the European Single Procurement Document sought to reduce administrative burden and enable self-declarations. eForms implementation was optional initially and uptake has been slow. The ESPD service produced limited aggregate benefits due to heterogenous national adoption. The forthcoming Public Procurement Data Space is intended to improve data access but will not be mandatory for member states, limiting its ability to provide a complete picture unless national publication improves.

Assessment: strengths, risks and remaining gaps

EU programmes and country-level reforms demonstrate that practical tools can reduce barriers. Lotting, factoring, user-friendly portals and buyer training work in practice. EIC efforts to connect funded innovators with procurers address an important market failure by helping firms find lead customers and buyers to de-risk new solutions. However the scale of the EIC actions is modest relative to the size of the public procurement market which represents around 14 percent of EU GDP. Structural issues remain that neither single projects nor guidance documents can fix alone.

Key risks to watch:1) Limited adoption at scale. Many good pilots never convert to widespread procurement. 2) Data blindness. Missing TED fields and inconsistent reporting prevent robust root cause analysis. 3) Administrative capacity. Contracting authorities with limited staff or digital skills struggle to run tender designs that favour SME entry. 4) Payment and financing gaps. SMEs need timely payment and access to advance financing to compete. 5) Policy trade offs. Simplification measures may sometimes reduce competition if not carefully designed, for example by expanding negotiated procedures without safeguards.

Instrument or reform	What it does	Evidence of impact or limitation
Splitting into lots	Makes large contracts accessible to smaller suppliers	Credited with higher SME entry in countries that require it but increases planning complexity
TenderNed and national portals	Single entry and clearer tender visibility	Reduced repetition for suppliers; benefits depend on portal usability and data quality
Invoice factoring (Prozorro Factoring Hub)	Provides SMEs cash advances against public invoices	Useful in Ukraine case and reduces bidder liquidity risk
EIC Innovation Procurement Programme (SPIN4EIC, InnoBuyer, InnoMatch)	Training, bespoke assistance and pilot funding to connect EIC beneficiaries and buyers	Promising matchmaking and pilot funding but limited by budget and scale relative to overall market
Public Procurement Data Space	Intended hub for procurement data	Will improve analytics if member states contribute but participation is not mandatory

Recommendations to sustain momentum

Policymakers and programme designers should combine demand-side support with improvements in data and buyer capacity. Priorities include improving TED data quality and coverage, mandating consistent identifiers for economic operators, continuing to professionalise buyers and central purchasing bodies, expanding financing tools to cover SME cash flow needs, and designing incentives for buyers to pilot and scale proven innovations. The EIC programmes are useful but need to be embedded in a pipeline that converts pilots into public purchases at scale.

Practical steps that would make a difference:Make more TED fields mandatory and improve validation rules to reduce missing values. Agree a common supplier identifier such as EORI or VAT across TED data. Expand PPE+ style buyer training across member states and pair it with legal clinics to help contracting authorities design SME friendly tenders. Encourage central purchasing bodies to offer pre-financing, or to partner with public banks or factoring platforms. Use the Public Procurement Data Space actively to track conversion from pilot to scaled procurement and share successful contract templates and IP clauses that are startup friendly.

Conclusion

Public procurement is a strategically important market for growth, climate action and industrial policy worth roughly 14 percent of EU GDP. The policy logic for using procurement to anchor demand for innovative solutions is sound. The EIC and related projects such as SPIN4EIC, InnoBuyer and InnoMatch supply useful building blocks: training, matchmaking and seed pilots. They can improve market access for innovative SMEs if paired with stronger data, better buyer capacity, financial instruments and clear rules that make participation predictable for new entrants. Absent these systemic improvements the risk persists that many pilots will remain pilots and that procurement will not deliver the wide market creation that policymakers expect.

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