Will the UK move towards USA style set-asides for SMEs in procurement?

Far from the rosy picture painted by PM May and others, the US federal government’s set-aside programme is permanently criticised for the opacity of its direct and indirect costs to the tax payer [very clearly, see [AG Sakallaris, ‘Questioning the Sacred Cow: Reexamining the Justifi cations for Small Business Set Asides’ (2006–2007) 36 Public Contract Law Journal 685; and K Loader, ‘The Challenge of Competitive Procurement: Value for Money versus Small Business Support’ (2007) 27 Public Money and Management 307].

The system has clear explicit costs in terms of its administration and the litigation ensuing classifications of businesses as small or not (or innovative or not) in the first place. Additionally, and simply put, the main implicit cost of a small business set-aside programme, be it for innovative enterprises or of a general nature, is that it reduces competition for public contracts, and the reduction of competition resulting from this artificial division of the market comes at a cost in terms of potential higher contract prices as well as reduced incentives for innovation for non-small businesses [generally, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 60-77]. Thus, this is a very expensive system to run and, in a scenario of ever stronger competing pressures for public funds, legitimate questions can be raised about its desirability.

As I have been saying since the word "innovation" showed up 44 times on Directive 2014/24/EU (up from a grand total of 0 in Directive 2004/18/EC), it is now not much more than a simple buzzword: a receptacle of sorts unto which any and all of us can project whatever we mean by innovation.

That is not to say, however, that innovation does not have its place in public procurement or that the State should not reap the benefits of innovation, but that can be done better as part of an industrial policy and disconnected from procurement. That the State prefers to give grants or loans to companies instead of investing in them has nothing to do with procurement and how innovative it is. The fact that corporate tax rates have been coming down (thus reducing the compensation accrued by the State on the far side) has also nothing to do with procurement.

Even within procurement one does not have to throw the baby with the bath water so that the State benefits directly from innovation. After all there is a shiny new procedure with "innovation" in its name that is currently sitting idle in the procurement shelves. How many times has the innovation partnership been used in the UK? None, other than in speeches justifying why the Directive 2014/24/EU needed to desperately be transposed quickly so that contracting authorities could use the new tools provided.

Hey, here's an idea to have more innovation in procurement: set up innovation partnerships so that the State invests in the companies in the process in addition to developing the products/services needed that will be procured in the end of the partnership. Allocate money and resources into it and walk the proverbial walk.

Even then, the more we shoehorn (industrial?) policies like innovation, social, environmental into procurement the more we move into compliance territory, making procurement unwieldy, difficult and expensive for all parties involved. But those potential outcomes, of course, do not get a mention on Prime-Ministerial speeches.