Exploring SMEs’ participation and success in public tenders within the defence sector Open Access

Small and medium-sized enterprises (SMEs) face a range of challenges when trying to acquire public contracts. While SMEs are critical to the economy, contributing significantly to job creation and innovation, they often struggle to compete with larger corporations in securing government contracts (Akenroye et al., 2024; Loader, 2015; Domenech et al., 2018). These challenges are compounded by regulatory barriers, complex procurement processes and a lack of transparency, all of which disproportionately affect SMEs’ chances of acquiring government contracts (Flynn and Davis, 2017b; Loader, 2017). Despite efforts to create more SME-friendly procurement policies, such as awarding contracts based on the most economically advantageous tender rather than solely on the lowest price (Stake, 2016) or dividing contracts into multiple parcels (Eßig and Glas, 2015; Glas and Eßig, 2018; Hoekman and Taş, 2020), SMEs continue to face significant obstacles, limiting their participation and success in procurement processes (Di Mauro et al., 2020; Knight et al., 2022). Limited research is devoted to the limited effectiveness of policy measures intended to improve SME participation (Akenroye et al., 2024). Moreover, conflicting findings in the literature about the effectiveness of these policies highlight the need for further investigation into the specific barriers SMEs face and the impact of various mitigation strategies (Di Mauro et al., 2020; Melnyk et al., 2021; Wu et al., 2022).

The importance of addressing these issues is underscored by the critical role public procurement plays in the European economy, with governments outsourcing around 14% of the EU’s total gross domestic product to procure goods and services (European Commission, 2021a). Yet, while SMEs represent 99% of all businesses in the EU, they only secure a third of public procurement contracts, which raises the question:

The barriers to SME participation in public procurement are well-documented, although the specific challenges SMEs face in different sectors, particularly in high-demand sectors like defense (Patil and Bhaduri, 2020), remain underexplored (Vandercruysse et al., 2023; Herron, 2025).

The defense procurement sector presents a particularly unique environment within public procurement, with specific regulatory requirements, such as security certifications and rapid response capabilities, that are often out of reach for SMEs (Eßig and Glas, 2015). Defense procurement is characterized by uncertainties and resource constraints arising from budget issues, new technologies and many laws and regulations (Hellberg, 2023). These challenges are intensified in the context of EU and NATO modernization goals, which emphasize technological and cybersecurity requirements in defense procurements (Di Mauro et al., 2020; Droff and Malizard, 2023). Despite existing literature on general procurement barriers, few studies have specifically focused on SMEs in defense procurement, which necessitates a closer examination of the unique barriers SMEs encounter in this sector (Flynn and Davis, 2015; Zsidisin et al., 2020; Herron, 2025).

In this study, we interviewed sales and project managers of SMEs to determine what hinders or slows them down from bidding for defense contracts. We then interviewed procurement professionals from the Dutch Ministry of Defense about why SMEs have a lower chance of successfully securing IT-related contracts when bidding. In this way, we aim to provide a more complete picture of the challenges SMEs face when acquiring defense contracts. With this approach, we aim to gain insight into the perceived barriers faced by SMEs when considering competing for defense contracts (participation). We also investigate the barriers and problems that prevent SMEs from winning defense contracts (success). For the Ministry of Defense, as a public procurement authority, it might be very important to implement specific strategies to mitigate the barriers faced by SMEs in the defense sector, for instance in relation to certification requirements, cyber security and contract complexity.

By focusing on defense procurement, this study adds a new dimension to the existing literature on SME challenges, and conflicting literature about the effectiveness of mitigation strategies, in public procurement. It examines both perceived and actual barriers faced by SMEs and public procurement professionals, with an emphasis on IT-related procurements, which carry additional technological and cybersecurity demands (Di Mauro et al., 2020; Droff and Malizard, 2023). Through this double lens, this study aims to provide a more holistic view on actionable insights and policy recommendations that could improve SME access to defense procurement contracts, fostering a more inclusive and competitive procurement environment, building forth on Erridge (2007), Eßig and Glas (2015) and Flynn (2018a).

Given the growing significance of defense procurement in the context of EU and NATO security objectives, it is crucial to understand what barriers SMEs face and how these barriers affect their participation and success rates in acquiring defense contracts. This study aims to contribute to this gap in the literature by exploring the challenges SMEs encounter when bidding for and winning defense-related public contracts and by identifying strategies that could mitigate these challenges.

The public sector consists of the government and organizations funded by the government, such as agencies, enterprises and other entities (Dube and Danescu, 2011). The difference between a government procurement and a private contract is that government procurements are funded with taxpayers’ money (Loader, 2017). Therefore, it is crucial that every action in its execution is fair, just and transparent (Sama et al., 2022), for which the public sector, as the contracting authority, must be able to account at all times and where the purchaser does not gain financial or political advantage (Lukáčka and Kubolek, 2018). Hence, government procurements are regulated by legislation and rules in procurement law, which stems from the principles of European law, to ensure the best value for money and to ensure compliance with the principles of equality, transparency, nondiscrimination and proportionality, with the aim of creating an internal European market in which free trade can take place (Blažo and Kováčiková, 2019; European Commission, 2021a; Goga, 2013; Lukáčka and Kubolek, 2018; Manunza, 2018; Sloots et al., 2022; Pissierssens and van Thuyne, 2021).

The European Commission aims to promote collaboration between businesses and governments (European Commission, 2021a). As a consequence, the procurement process becomes more complex because, in addition to achieving societal value, policy objectives must also be pursued and accountability must be provided for the decisions and choices made (Almquist et al., 2013). General criticism is focused on the excessive emphasis on accountability, regulation and commercial objectives, at the expense of socio-economic and policy goals (Vluggen et al., 2019; Erridge, 2007). Within this field, a government buyer must find the balance (Flynn, 2018a; Meynhardt, 2009), which can be a challenge, as the European Commission concluded that procurement performance is not yet at the desired level (Flynn, 2018a). Therefore, developing public value in collaboration with actors such as a supplier and user or customer is increasingly important (Erridge, 2007; Meynhardt, 2009; Malacina et al., 2022).

Governments can use different variants of procurement procedures and evaluation methods, depending on the size and type of demand. There are three procedures distinguishable above the European threshold of €140,000: open, non-open and framework agreements prescribed by law. In addition to the mentioned threshold, specific procedures can be applied after careful consideration and providing the necessary evidence. Such as: competitive dialogue, competitive procedure with negotiation, negotiation procedure, innovation partnership procedure, dynamic purchasing system, procedure for social and other specific services and competition (PIANOo.nl). While the government procurement market offers opportunities for SMEs, participation in public tenders is complex. Despite regulations, there is a complex challenge for government buyers, where the emphasis on legal and financial accountability may negatively impact fulfilling public needs (Vluggen et al., 2019).

Despite the policy measures, it appears that SMEs have limited participation in public procurement and achieve little success compared to commercial contracts (Akenroye et al., 2024; McEvoy, 2020). Loader (2013) distinguishes between external barriers in the government environment and the procurement process and internal barriers from SMEs themselves. Policy measures can conflict with innovation procurement and also with regulations, standards and requirements (Hoekman and Taş, 2020; Knight et al., 2022). This can lead to conflicting priorities (Harland et al., 2019) and bureaucracy (Loader and Norton, 2015). The European Commission (2019) also cites strict labor laws and market failures as hindering factors.

In the procurement process, several barriers emerge. SMEs have more difficulty meeting the requirements of large contracts compared to large companies (OECD, 2018; Stake, 2016). In 2019, a total of 19% of all bids were rejected because of failure to meet the quality requirements set by contracting authorities (NAPP, 2019 in Milica Dobrotă et al., 2022). Additionally, high qualification requirements, large contract volumes and durations, lack of feedback and overly specific requests all pose obstacles for SMEs in procurement processes (Loader and Norton, 2015). This may explain why preparing a bid is associated with high costs and is perceived as time-consuming by companies (Loader, 2013; Woldesenbet and Worthington, 2019), while uncertainty remains about winning a contract. Costs can be related to minimum capital requirements and resource specificity, such as application fees or the aforementioned participation requirements (Di Mauro et al., 2020). Paradoxically, Ancarani et al. (2019) suggest that administrative requirements, application fees, paperwork and the lowest price as a selection method may pose a problem but not necessarily hinder SMEs’ participation in public procurement.

Internal barriers that may play a role are described in the literature as: small scale, lack of financial resources, capacity and capability issues and limited market reputation (Hoekman and Taş, 2020; Knight et al., 2022). Smaller companies appear to be at a disadvantage (Ancarani et al., 2019; Flynn et al., 2015; Flynn and Davis, 2016; Saastamoinen et al., 2017). The lack of training/education and information also negatively influences companies’ perception of the barriers experienced (Saastamoinen et al., 2017). This can lead to a lack of trust in the procurement process, difficulty in using digital platforms (TED) and limited negotiation power (European Commission, 2021b; McGlashan, 2018). SMEs also seem to struggle with identifying opportunities in the public market (Loader, 2015).

The number of measures taken by the EU to stimulate SME participation and increase their chances implies that governments consider it important to give SMEs a fair opportunity to compete for government contracts (OECD, 2017). However, the effectiveness of these measures remains unclear (Domenech et al., 2018), but it is clear that more needs to be done to remove barriers for SMEs (Allen, 2021). Prior studies have examined the obstacles SMEs face in public procurement, highlighting themes such as high entry costs, complex qualification requirements and the competitive advantage of larger firms (Flynn and Davis, 2015; Loader and Norton, 2015). This study contributes specifically by focusing on defense procurement – a sector underrepresented in SME procurement literature but critical in light of EU/NATO’s increased spending since the Ukraine conflict. Table 1 summarizes relevant literature on barriers, showing gaps particularly in government procurement and associated challenges.

If SMEs have managed to navigate through the registration barriers, then there are also obstacles affecting the awarding of government contracts. Research indicates that SMEs are less successful in winning government contracts compared to private contracts (Hoekman and Taş, 2020; Flynn, 2018b; FreshMinds, 2008). Between 70% and 78% of SMEs indicate that they rarely or never submit bids or have worked on government contracts (FreshMinds, 2008). Between 2009 and 2010, 6.5% of the direct government spending in the UK went to SMEs, which increased to 10.5% between 2012 and 2013, while the target was 25% (Cabinet Office, 2013). Evans et al. (2022) reported that SMEs’ struggles with public tendering were largely because of a lack of understanding of public procurement principles and a lack of knowledge of successful tendering strategies. Public buyers often see larger companies as “safer” options and unconsciously tend to favor incumbent suppliers (incumbent advantage) (Schotanus, 2025). This risk-averse attitude is rooted in the desire to avoid disruption, ensure reliability and protect the public mission, rather than seeking the lowest price or the most innovative option (Coffie, 2026).

A Canadian study found that SMEs were relatively more successful in winning contracts when an open bidding process was used (Wu et al., 2022). Additionally, SMEs received higher contract values compared to competitive procedures. Nemec (2024) found that using open and unrestricted bidding procedures and allowing SMEs to showcase their specialization by awarding contracts based on the best price-quality ratio, positively affect the SMEs’ success in winning government contracts. The procurement procedure employed can, therefore, influence SMEs’ success in winning government contracts. The chance for SMEs decreases in restricted procurement without open competition, while negotiated procurement or competitive procedures increase the likelihood of winning (Eßig and Glas, 2015). When there is more room for competition in procurement, it has a positive effect on the success of SME bids. Innovation capability and flexibility are essential qualities for SMEs in this regard (Davis and Brady, 2015; Eßig and Glas, 2015; Loader, 2013; Glover 2008 in Loader, 2015; Schiele, 2020).

Research shows that as the volume of contracts increases, the likelihood of success for SMEs decreases (Eßig and Glas, 2015). According to Eßig and Glas (2015), this is related to the size of the business as an admission requirement, which increases as the complexity and size of the procurement increase. This also applies to the defense and technology sectors, where SMEs must compete with large companies that create vendor lock-ins (Allen, 2021; Eßig and Glas, 2015). The European Commission (2021b) identifies poorly formulated selection criteria, a lack of information about proposed solutions and a lack of measurement mechanisms for monitoring execution as significant barriers for SMEs.

The challenge for public organizations is how to compete with the commercial sector to be attractive to suppliers that serve both sectors (Schiele, 2020). Flexibility and improving operational processes are relevant in this regard, as is strengthening the relationship (Schiele, 2020). Investing in the mutual relationship also means investing in the knowledge of government buyers in this area; facilitating SMEs to provide feedback on the procurement process (Loader and Norton, 2015); providing training programs and technical support (Aboelazm, 2023); and also prioritizing objectives aimed at SMEs contribute to involving SMEs in government contracts (Harland et al., 2019). Manunza (2018), therefore, advocate for incentives to better define requirements and specific rules to ensure the objectivity of the scoring of specified requirements. Simplifying and consolidating procedures related to submission, evaluation, award and contract signing can also shorten the duration of the procurement phases (Aboelazm, 2023). There are also opportunities for SMEs to explore how to invest in (digital) procurement knowledge, experience and resources to determine a winning strategy (Flynn and Davis, 2017b; Milica Dobrotă et al., 2022). In addition to knowledge and competent personnel, building relationships (McGlashan, 2018) is a practical action for SMEs to compete and win government contracts. A positive perception of the relationship from SMEs can make the public sector more attractive for participation (Schiele, 2020). For this, the public sector also needs to invest in the mutual relationship, which may lead to more competitive and diverse SME bids (Eßig and Glas, 2015). Insight into perceived barriers and tensions is essential to further improve the quality and simplification of procurement processes (Hoekman and Taş, 2020; Aboelazm, 2023) Table 2.

The literature review shows that the vast majority of studies on barriers to SMEs do not pertain to the defense sector. A sector, as we indicated in the introduction, has unique characteristics and for which the procurement function presents specific challenges. More specific, defense procurement represents a distinct challenge within public procurement because of its heightened security, certification and geopolitical requirements. The defense sector is considered a high-cost, high-regulation sector (Herron, 2025) where defense procurement is challenged by many uncertainties, resource constraints, new technologies and numerous laws and regulations (Hellberg, 2023). The implementation of the EU Defence Directive (2009/81/EC) introduced specialized rules aimed at ensuring fair competition and transparency, yet SMEs often struggle to meet the technical and administrative demands imposed by these regulations (Eßig and Glas, 2015; European Commission, 2021b). But also unclear expectations create complexities and drag on resources for SMEs (Sardeshmukh et al., 2024). Addressing these barriers requires balancing security needs with inclusivity to enhance SME access to defense contracts. The importance of public procurement in the defense sector is still underscored by its significant economic and strategic implications, where the Department of Defense in the USA rewards roughly two-third of all government contracts. Research shows that increased market concentration, driven by mergers in the defense industry in the USA, has reduced competition in procurement processes, with more contracts being awarded without competition or via single-bid solicitations. Moreover, there has been a shift from fixed-price contracts to cost-plus contracts, reflecting changes in risk allocation. On the other side, the strong buyer power of the government has constrained the potential for increased acquisition costs, highlighting the critical role of procurement policies in managing market dynamics and ensuring efficient outcomes (Carril and Duggan, 2020).

Recent research on public procurement in the defense sector highlights challenges and opportunities for SMEs. The number of defense tenders has been growing over time, underscoring the need for policies to strengthen the European defense technological and industrial base (Vandercruysse et al., 2023). While dividing contracts into smaller lots can increase SMEs’ chances of winning bids, it may not necessarily attract more SME participation (Nemec, 2024). In Belgian defense procurement, price continues to function as the dominant award criterion, a practice that may inhibit the development of smaller European defense firms (Vandercruysse et al., 2023). Additionally, the use of framework agreements – particularly within the IT sector – has been shown to reduce the success rate of SMEs in procurement procedures by approximately 34% (Arosa et al., 2024). To address these challenges, governments are implementing initiatives to support SMEs, including noncompetitive practices, subcontracting initiatives and preferential schemes (Tsikad et al., 2024). However, in the defense industry, public procurement rules can make it difficult to ensure a safe supply of equipment, necessitating new approaches to collaboration between Armed Forces and the defense industry (Hellberg, 2023). These findings emphasize the need for policymakers to balance administrative efficiency with fair market access for SMEs in public procurement processes.

The factors hindering SME participation and success in public contracting are summarized in Figure 1. The limited participation of SMEs can be linked to a number of internal and external obstacles. The internal barriers, such as resource limitations, lack of expertise and capabilities can be traced back to the Resource-Based View of the firm (Barney, 1991) and Transaction Costs Economics (Williamson, 1989), which Di Mauro et al. (2020) for example used explaining their results showing that costs arising from asset specificity and uncertainty affect participation. The external barriers and obstacles can be associated with the Institutional Theory (Powell and DiMaggio, 1983) which can be used to explore how external obstacles like legal requirements, procurement processes and market dynamics are shaped by institutional norms and regulations, affecting SME participation.

The empirical part of this study was conducted within the Dutch Ministry of Defense, selected as a government procurement organization. This choice was informed by existing literature suggesting that large companies are more likely to engage with defense procurement, resulting in relatively low SME participation compared to broader public procurement (Eßig and Glas, 2015). Furthermore, suppliers to the defense sector have expressed limited confidence in policies intended to stimulate SME participation (Melnyk et al., 2021).

The unit of analysis comprised IT-related procurements exceeding the EU procurement threshold, using either an open or restricted procedure. This focus aligns with the theoretical framework outlined earlier, indicating that SMEs face particular constraints in these procurement types. Although this research area has previously been explored (Flynn and Davis, 2015; Kelly et al., 2021), it remains dynamic because of ongoing geopolitical developments and technological innovations. Both the government and potential suppliers continue to face challenges related to electronic procurement systems, particularly regarding the knowledge and skills needed to navigate these platforms and capitalize on economic opportunities (OECD, 2015, 2018). Selecting IT-related procurements allowed this study to focus on a highly relevant domain for defense modernization and digitalization, where technological and cybersecurity requirements create significant entry barriers for SMEs. While this focus enhances contextual depth, it also limits the generalizability of the findings.

The research problem was examined through semi-structured interviews with two respondent groups: SMEs and government representatives (Table 3). Initial respondent selection was based on a document analysis of open and restricted procurements above the threshold value (€140,000) conducted by the Ministry of Defense over the past five years, identifying cases where at least one SME had submitted a bid. Respondents were then approached through the first author’s network and expanded using snowball sampling during the early stages of data collection. For the Ministry of Defence’s purchasers and contract managers, a key criterion was that they had been actively involved in an IT-related tender above the threshold for European procurement. These respondents, from their purchasing role, possess not only the required experience with IT-related tenders but also the formal position to influence the selection and award process. The purchasing respondents are responsible for developing the award criteria. This means that when defining the needs, they compile a list of requirements and wishes. They then translate these into award criteria and determine the importance of each criterion. They play a supporting and advisory role in the final evaluation and assessment of tenders. Similar criteria applied to the other group, the sales and project managers. They all have been involved, from their position within an SME organization, in the bid for a potential Ministry of Defence contract, which also involved IT-related tenders above the threshold for European procurement. The respondents, from SMEs, all participated in a tender for a contract from the Ministry of Defence. In their role, they always assess the chances of success by comparing the award criteria with their own capabilities. They also contribute to the final draft tenders submitted to the potential client. Before the interviews, each respondent was checked for compliance with the selection criteria. SMEs were defined according to European Commission criteria: firms with up to 250 employees and an annual turnover not exceeding €50m. Because of data limitations, the requirement of majority ownership (>75%) could not be verified and was, therefore, waived (European Commission, 2019; Eßig and Glas, 2015).

Ultimately, 15 interviews were conducted: 8 with government procurement officials and 7 with SME representatives. Interviews were conducted either at the respondents’ workplaces or virtually, lasting between 45 and 60 min. With prior consent, interviews were audio-recorded. Semi-structured questionnaires guided the interviews, focusing on perceived barriers to SME participation, tendering experiences and defense-specific procurement requirements. The questionnaires in the interview schedules were developed based on themes identified in the literature review. The full questionnaires are provided in Appendix 1 and 2. The semi-structured format allowed for flexibility to probe deeper into emerging topics, facilitating a comparison between existing literature and empirical observations from both perspectives.

The sample size of 15 interviews proved sufficient to achieve thematic saturation, with no new insights emerging after the initial interviews. While the limited sample size impacts the generalizability of the results, it enabled a more in-depth examination of each interview, consistent with qualitative research standards (Saunders et al., 2015). Moreover, as this study builds on an extensively studied topic, the primary aim was to explore new developments and provide complementary insights. Despite limited resources, this smaller sample size allowed for richer qualitative analysis through detailed comparisons between the two respondent groups.

The data analysis followed a thematic analysis approach, appropriate for systematically processing and interpreting large volumes of qualitative data (Saunders et al., 2015). Interviews were transcribed verbatim, and coding was conducted using Atlas.ti software. Open coding was initially applied to identify units of meaning, followed by axial coding to organize codes into broader themes, and finally selective coding to reveal patterns and relationships among the most frequently mentioned themes. Open-ended responses were analyzed through inductive coding, while semi-structured responses were coded using both a priori codes derived from the literature and open coding. Two separate data matrices were developed, one for each respondent group, enabling systematic comparison. Through an iterative process of coding, themes were refined, alternative perspectives were identified and negative examples were explored, leading to a nuanced understanding of the factors influencing SME participation in defense procurement.

This study clearly demonstrates that while many of the barriers faced by SMEs in public procurement are well-documented, the manifestation of these barriers in the defense sector reveals unique patterns of exclusion. Sector-specific challenges, such as security certification requirements, stringent contract specifications and limited flexibility, exacerbate more general barriers such as ambiguous evaluation criteria and lack of transparency. By explicitly mapping these sector-specific obstacles and proposing tailored strategies, this study contributes to both the academic literature and ongoing policy discussions regarding SME inclusion in strategic public procurement. The findings underscore the importance of fostering early and continuous dialogue between SMEs and contracting authorities, particularly in defense procurement, to improve and enhance SME participation.

Respondents identify a lack of knowledge and competencies regarding public procurement processes as a potential internal obstacle for SMEs, particularly for startups and smaller enterprises. Familiarity with the European Procurement Directive and experience with tendering procedures are deemed are essential for bidding on public tenders and, furthermore, to prevent SMEs from being excluded during the bidding process because of formal errors. Interview data suggest that the obstructive role of market reputation is limited, as tenders are generally evaluated anonymously. However, in closed procedures, limited access and unfamiliarity with contracting authorities can preclude SME participation. Negative perceptions of success chances further contribute to hesitation and reduced enthusiasm among SMEs. Moreover, network connections and personal relationships with contracting authorities are highlighted as significant factors influencing tender accessibility. While opinions differ, several respondents stress that strong networks not only enhance visibility but may also provide opportunities to influence requirements, a benefit predominantly leveraged by larger firms.

Respondents were asked about the external obstacles experienced when participating in public procurement. From this, it can be deduced that for SMEs, the main challenges are in the areas of requirements, the procurement process and rules and procedures. In the decision to participate in a public procurement, based on interview data, qualification requirements appear to be the most frequently mentioned potential barrier for SMEs to qualify for participation in a procurement. Specifically, it is noted that a company must provide references to demonstrate that it has successfully completed similar projects and meets certain financial criteria, such as revenue.

Technical requirements, including compliance with detailed specifications and mandatory certifications, were also identified as significant barriers because of the considerable investments and sustained effort necessary to obtain and maintain them. Although labor law and certification obligations are not currently perceived as major obstacles, several respondents anticipate that their significance may increase in the future. Security screenings associated with Ministry of Defense procurements were explicitly noted as burdensome, given their substantial demands on time, financial resources and organizational capacity.

Further, the balance between risks and rewards inherent in public contracts constitutes a notable deterrent for SME participation. In particular, the allocation of disproportionate risk to suppliers by contracting authorities was frequently cited as a challenge, with potential financial consequences rendering participation unviable for many SMEs. Contractual characteristics – such as large contract sizes, extended durations and the frequent absence of binding order volumes – further complicate SMEs’ risk assessments. While some SMEs perceive large contracts as opportunities for growth and profitability, others view the uncertainty regarding order volumes as a significant barrier, increasing their dependence on contracting authorities. The lack of binding volume commitments was specifically highlighted as a practical impediment to SME participation, compelling firms to absorb substantial risks without corresponding guarantees regarding future orders. As Respondent 9 (SME supplier) stated:

Focusing on the procurement request, respondents unanimously reported that overly specific specifications favoring a preferred supplier are common in public procurement. This practice can adversely affect SME participation, as their offerings may not align with narrowly defined requirements. Nevertheless, respondents acknowledged that stringent requirements can also ensure the participation of highly qualified bidders, thereby enhancing the quality of procurement outcomes to the benefit of both contracting authorities and suppliers. Respondents further noted that overly specific requests may lead to a limited number of submissions and increased volumes of market inquiries, potentially preventing the realization of the intended solution. The risk associated with overly specific requests is considered lower for generic products or services than for highly specialized solutions. Importantly, the barrier was not seen to lie primarily in the specificity of requests, but rather in the lack of opportunities for interaction between contracting authorities and the market during the procurement process. Insufficient dialogue regarding quantities, technical knowledge and continuity was identified as a significant barrier, with differing perceptions of procurement needs hindering SMEs from submitting distinctive and competitive offers.

Regarding measurement mechanisms, respondents indicated that they had no experience with their absence, as these are generally well articulated by contracting authorities in the Agreement Procedures Document. However, it was observed that even when measurement mechanisms are present, they may incentivize bidders to present their performance capabilities in an overly favorable manner, potentially resulting in unrealistic bids. Such misrepresentation could lead to unfair evaluations and incorrect ranking of providers, thereby negatively affecting SMEs’ chances of successful participation.

Several external factors within the procurement process were identified as significantly influencing SME participation, including bureaucracy, preparation costs, availability of resources, information accessibility and legal considerations. Respondents’ views on bureaucracy were mixed: while some noted improvements because of digitization and streamlined submission processes, others continued to perceive bureaucracy as a barrier, particularly in complex procurements. Delays caused by objections or appeals were seen as disproportionately burdensome for small and less experienced SMEs, often exacerbated by inadequate support from contracting authorities. Timing and planning of procurement publications were also reported as critical challenges. Unpredictable publication schedules, poor timing and short response windows hinder SMEs’ ability to plan resources effectively and to respond adequately to procurement opportunities. High preparation costs were additionally cited as a significant barrier. Most SMEs evaluated the feasibility of participation by weighing preparation costs and effort against the anticipated contract value. Limited organizational capacity and labor costs further constrained participation, although a minority of SMEs reported experiencing fewer difficulties in this regard. Additionally, slow payment processes within the government are a hindrance because of the risk of potential continuity problems for SMEs:

Nevertheless, most SME respondents do not perceive limited financing options as a barrier to participating in public procurement. However, large companies’ greater financial and organizational resources are noted to exacerbate disparities. Insufficient information from contracting authorities is identified as an additional barrier, impairing feasibility assessments and increasing the administrative burden and extra questions, which SMEs often struggle to manage because of limited capacity. Regarding legality, respondents highlight the inhibiting effects of government buyers’ limited subject-matter expertise, a pervasive risk-averse culture and rigid procurement rules. A lack of expertise among buyers is perceived to negatively affect bid evaluation and assessment methodologies. Risk-averse behavior, driven by fears of appeal procedures, media scrutiny and legal repercussions, further complicates SME participation. As one respondent states, the contracting authority tries to avoid legal disputes:

This can lead to delays in the procurement process, to the detriment of SMEs because of the pressure on their limited capacity and resources.

The findings indicate that SMEs frequently face cost and qualification challenges. The process of submitting bids is labor-intensive and financially demanding, posing a significant obstacle for SMEs with limited capacity or resources. Government purchasers acknowledge that preparing a bid requires substantial time and effort. However, larger companies often have dedicated procurement teams, creating an uneven playing field. Additionally, high demands such as revenue references, stock maintenance and logistics requirements disproportionately hinder SMEs. SMEs are often excluded because of a lack of large-scale contract experience, as Respondent 5 (government buyer) gives an example:

Procurement procedures also create barriers for SMEs, particularly through noncompetitive practices such as direct awards and negotiated procedures. In the case of defense procurement, exceptions allowed under the Procurement Act for Defense and Security Areas (ADVs) limit competition further, enabling specific suppliers to dominate. This exception for the Ministry of Defense, allowing deviations from competitive procurement procedures:

Another inhibiting requirement is mentioned specifically in the context of tenders from the Ministry of Defense: the ABDO certification. To work for or with Defense, a supplier must meet safety requirements. It is emphasized that this certification can be time-consuming and costly, potentially hindering SMEs from making the effort to obtain it.

Another significant barrier for SMEs lies in the strict specifications and requirements outlined in tenders. While the role of a government purchaser in facilitating access for SMEs is acknowledged, it is applied differently in practice. A contract manager adds:

While considering SMEs in public tenders is “part of Defense policy” (Respondent 2 – Government buyer), it is emphasized that policy is meant to guide tenders, and the purchaser must find a way to apply it in practice. However, most government respondents perceive a difference between policy and practice. Factors mentioned that contribute to this are differences in practice, individual interpretation of policy and rules by the purchaser and a culture of adding rules out of fear, potentially leading to overly detailed Statements of Work, leaving little room for flexibility or innovation. SMEs struggle to compete when specifications are overly restrictive or fail to consider alternative solutions. For instance, one respondent highlighted a case where functional requirements were so narrowly defined that the desired outcome was not achieved:

Government purchasers recognize the importance of facilitating access for SMEs but note inconsistencies in practice. Selection criteria such as ABDO certification, revenue references and strict compliance requirements often favor larger companies. Some respondents perceive this as deliberate exclusion of SMEs to avoid potential risks or failures. As one government buyer stated:

The selection criteria for the tender may affect the submission and awarding. Poorly formulated selection criteria appear to be a significant barrier among bidders. Interestingly, several respondents indicated that public tenders are not intended for SMEs. Instead, SMEs should focus on niche markets or subcontracting. This is reinforced by the perception that SMEs are unable to meet revenue reference requirements and standard contract terms, as outlined above. A lack of references can lead to the exclusion of SMEs, “especially when the project is of strategic importance” (Respondent 4 - Government buyer). It is even suggested that SMEs are deliberately excluded from public tenders in the name of being a good client.

The establishment of award criteria depends on various factors, such as: the tendering team, market consultation and the program of requirements. Consultation with the client and subject matter experts is essential for defining criteria and translating them into requirements and preferences, with the requirements serving as knockout criteria. Responses indicate that the MEAT (Most Economically Advantageous Tender) is the primary award method used, as one procurement officer explains:

According to Respondent 3 (Government buyer), “the need is leading.”

The findings indicate that government purchasers recognize the labor-intensive nature of the bidding phase, though this awareness diminishes during the award process. Assembling tender teams and retaining procurement knowledge present financial challenges, particularly for SMEs. While some SMEs note that bid preparation costs affect all firms equally, others highlight that limited capacity and experience negatively impact bid quality, disadvantaging smaller firms compared to larger competitors with dedicated procurement teams. Additionally, the conservative approach of government purchasers often results in incomplete market information, causing ambiguity about the desired solution and further hindering SME participation. A practical example given by Respondent 5 (Government buyer):

Although Key Performance Indicators (KPIs) and Service Level Agreements (SLAs) are standard in defense procurement, insufficient monitoring during contract execution can hinder SME participation. This lack of oversight may lead to biased bidder assessments, favoring larger companies with inflated or overstated claims.

Figure 2 shows the most important hindering factors. The participation and success of SMEs in public tendering are significantly limited by these factors. We have divided the found factors into three groups: selection criteria, project attractiveness and problematic procedures.

EU policies, such as the Small Business Act and Directive 2014/24/EU, are intended to stimulate SME participation by simplifying tendering procedures (Mutangili, 2024). Apparently, intentions and measures are ineffective, given the still limited participation and success of SMEs in acquiring public contracts. SMEs function as critical engines of innovation, although they remain underrepresented in public procurement markets in general and in defense procurement in particular (Herron, 2025). The academic literature remains fragmented, offering limited insight into how structural barriers interact (Akenroye et al., 2024) and intensify within high-cost, high-regulation sectors like the defense sector (Hellberg, 2023). Our study provides a comprehensive framework, based on empirical research, that includes the supply-side (barriers to participation as experienced by SMEs) as well as the demand-side (barriers to success of SMEs as experienced by public buyers). By identifying these obstacles, we contribute to the body of knowledge. In addition, the results contribute are useful for SMEs in their quest for public contracts and for professional defense buyer. Understanding these barriers is also of critical importance to policymakers.

This study investigates the barriers faced by SMEs in public procurement, with a specific focus on defense procurement. While several identified barriers, such as qualification requirements, technical specifications and limited interaction with contracting authorities, echo earlier work (Loader and Norton, 2015), this research provides a deeper contextualization within the high-security, high-regulation environment of defense procurement (Herron, 2025). The defense sector introduces sector-specific barriers that go beyond those encountered in general procurement. For example, security certification requirements (e.g. ABDO), logistical restrictions and resource constraints proportionately affect SMEs and create entry thresholds that are absent in general public procurement contexts. These defense-specific constraints compound the effects of generic barriers such as high preparation costs and ambiguous criteria, reinforcing systemic exclusion.

Importantly, this study offers new insights into SME behavior under such constraints. SMEs appear to evaluate procurement opportunities on not solely project scale but also the perceived risk-reward balance and contractual certainty. This nuance challenges existing assumptions, such as those by Eßig and Glas (2015), who emphasized volume and complexity as primary deterrents. In contrast, this study finds that even long-term, high-value contracts can attract SME interest – provided contractual certainty is ensured. This finding has direct policy implications, suggesting that defense buyers can improve SME participation by offering early clarity around timelines, deliverables and risk allocation.

In practice, however, procedural rigidity and exemptions under the Defense and Security Procurement Act (ADV) often lead to limited transparency and reduced competition. This benefits incumbent or large firms, while SMEs – especially those new to defense procurement – struggle to comply with inflexible Statements of Work and complex security screenings. Often dissuading their participation. Such dynamics support calls by Nemec and Džupka (2021) to subdivide contracts, yet this strategy is not consistently implemented in defense procurement. Policy ambitions to include SMEs (Sloots et al., 2022; Tsikad et al., 2024) are frequently undermined by legal complexity and institutional risk aversion.

Additional barriers identified include the lack of structured feedback during procurement, limited flexibility in requests and subjectivity in evaluation criteria. In the defense context, where buyers often lack technical expertise and rely heavily on formal compliance, this subjectivity can have disproportionate consequences. The weight of legal accountability discourages innovation and fosters conservative decision-making. This contributes to a misalignment between SME capabilities and procurement expectations, limiting the diversity and innovation potential in defense projects. Furthermore, this study suggests that insufficient contract monitoring during execution allows overpromising bidders to outperform more realistic SME offers. While earlier literature emphasized post-contract performance measurement (Davis and Brady, 2015), this research finds that a lack of monitoring during execution may have a more significant exclusionary effect.

Finally, this study reaffirms that SMEs themselves contribute to the challenge, particularly through limited knowledge of procurement regulations and insufficient investment in tendering strategies. Enhancing SME capacity in procurement law and risk analysis could significantly improve their competitiveness, especially in highly regulated sectors like defense.

In sum, this study demonstrates that while many procurement barriers are well documented, their manifestation in the defense sector reveals unique patterns of exclusion. By explicitly mapping these sector-specific challenges and proposing tailored strategies, this study contributes to both the academic literature and ongoing policy debates on SME inclusion in strategic procurement domains. This study emphasizes the importance of fostering early and ongoing dialogue and collaboration between SMEs and contracting authorities, particularly in defense procurement.

The research results indicate that high qualification requirements and the need to provide references are particularly inhibitory. High costs and the required effort in the bidding process still pose a barrier because of limited capacity, and the absence of a binding contractual commitment presents a significant risk for SMEs. Poor alignment between the contracting authority and the market hinders SMEs, mainly because of ambiguity regarding the desired solution and poorly formulated selection criteria. Key factors identified include poor timing of publication, lack of iteration and tight deadlines.

Despite a focus on legality, subjective factors such as supplier preferences, a lack of domain knowledge and risk-averse behavior by government buyers can adversely affect accessibility and evaluation for SMEs. Finally, SMEs contribute to the barriers through a lack of knowledge, experience and a poorly maintained network. By involving the market early in the procurement process, engaging in dialogue and breaking down contracts into smaller portions. For example, by carving out SME only lots within larger contracts or creating SME specific mini frameworks. Transparency and fairness can be achieved, potentially leading to alternative and innovative solutions. This can contribute to an improved procurement practice and greater opportunities for SMEs.

The findings suggest that public organizations, and in particular the Ministery of Defence, should consider the barriers faced by SMEs when crafting procurement processes. This could involve careful consideration of the procurement procedure, award method, scheduling, qualification requirements and selection criteria. For instance, announcing the publication date early and lowering the requested references to be proportionate to the requirement. Also, it is recommended to adopt a multi-criterion scoring model (e.g. 60% technical/innovation, 30% price and 10% security readiness) for defense tenders. Providing contractual certainty can also be considered, especially with inclusion of standardized risk-sharing clauses (e.g. price adjustment bands, milestone-based payments) in defense contracts to signal certainty. Additionally, better contract management practices can be implemented to enhance transparency and contract monitoring, ensuring fairer awards and equal opportunities for SMEs. For instance, by deploying real-time digital dashboards (via e-procurement platforms) to track SME performance and enforce contract terms, thereby discouraging overpromising.

Furthermore, contracting authorities can provide better guidance to SMEs throughout the procurement process, digital invoicing processes, certification and knowledge sharing. They can also consider offering tender fees to offset preparation costs, thus improving accessibility for SMEs. Contracting authorities could also explore alternative procurement processes, with early announcements, extended schedules and room for multiple rounds of questions during proposal phases and post-award debrief protocols to reduce ambiguity and build SME capacity. This would allow SMEs to better plan their capacity and resources to submit competitive bids, potentially increasing their participation and chances of winning contracts. Encouraging innovative solutions and opportunities for SMEs can be achieved by finding a better balance between policy and practice, rewarding innovation and promoting mutual knowledge sharing. SMEs can also take measures to improve their accessibility and opportunities in public procurement, such as investing in staff training and hiring external expertise in (digital) procurement knowledge, experience and strategy. Additionally, as suggested by McGlashan (2018), building relationships with public clients can enhance competitiveness and opportunities. However, it should be noted that the recommendations may not be universally applicable because of the scope of this research.

While much research has been conducted, procurement practices are continually evolving. Therefore, it is essential to continue researching the causes and effects of barriers, the impact of measures and developments in practice. This research is aimed at not only promoting competition in procurement and creating a level playing field with opportunities for all companies but also achieving the ultimate goal of more efficient allocation of taxpayer funds to obtain better solutions for the public sector to serve society optimally.

This paper calls for the development of a defense-specific procurement ecology framework that integrates security, regulatory and market-structure characteristics with SME capabilities. Also, it underscores the necessity of incorporating risk–reward decision-making theory to explain how contractual certainty shifts SMEs’ participation thresholds. There is another need for an in-depth examination of the policy–practice implementation gap, drawing on institutional theories, to account for why SME-supportive measures often falter in execution, for example within different ministries. But it is possible that a specific distinction in the size of SMEs, and experienced and inexperienced SMEs, could provide different or additional insights. Another theoretical path advocates for cross-national comparisons of contract forms (e.g. fixed-price versus cost-plus contracts; framework agreements versus call-offs) to identify the regimes that most effectively facilitate SME engagement. Finally, longitudinal, mixed-methods research that combines qualitative case studies with panel data to capture the evolving dynamics of barriers and mitigation strategies over time, could enhance the generalizability of the findings from this study and may identify developments, trends and patterns over time. Collectively, these directions refine and deepen the theoretical foundations for future scholarship on SME participation in defense procurement.

This study also identifies several promising avenues for future empirical research, building on this study’s sector-specific insights. Firstly, further research can be conducted on alternative (lighter) procurement procedures such as innovative partnerships and competitive dialogues, as mechanisms to increase market engagement and reduce entry barriers for SMEs. Second, research should explore the effectiveness and objectivity of award methods such as Best Value Procurement, to ensure fair evaluation and ranking, mitigating subjectivity in contractor selection. Third, the role of informal factors – including supplier reputation, prior relationships and perceived reliability – warrants empirical scrutiny to better understand their impact on SME access and competition in public procurement. This includes assessing whether such influences can be counterbalanced by institutional safeguards or transparency-enhancing measures. A fourth research direction could specifically investigate specific procedural levers available to contracting authorities, such as early technical consultations and proportional transaction cost allocation, and how these affect SME opportunities and participation. Within this, the security screening process of the Ministry of Defence – both in terms of its deterrent effect and its impact on proposal quality – merits dedicated study, potentially extending to comparable procedures across the broader public sector.

Fifth and finally, future studies could address how procurement regimes can strike a more effective balance between risk management and innovation promotion. This includes examining how digital platforms, collaborative procurement models and adaptive contractual structures may enhance SME inclusion while preserving fairness and transparency. Such research would offer valuable insights into designing procurement systems that are both innovative and inclusive, particularly in strategically sensitive sectors such as defense.

• Short proposal round in which only the function and tendering role are noted.

• Explain the purpose of the research: obstacles that small and medium-sized enterprises (SMEs) encounter when registering and awarding IT-related public tenders above the tender limit.

• The main question of the research is: What problems and barriers do SMEs encounter when registering for (1) and awarding (2) government contracts?

• The interview is divided into two parts, where I first ask you a number of open questions about your experiences in procurement practice. I will then ask about your experience and opinion about my findings from my literature study.

• The interview questions relate to the obstacles faced by SMEs in participating in a public tender above the tender limit.

• The interview will last 45–60 min and is anonymous, so your name will not be saved or mentioned anywhere in the study.

• I would like to ask you if I can make an audio recording of the interview, so that I can transcribe the interview into text afterwards. The audio recording will only be shared with the educational institution and will be deleted after review. I will submit the transcribed interview to you to check for accuracy and completeness.

• Short proposal round in which only the function and tendering role are noted.

• Explain the purpose of the research: obstacles that small and medium-sized enterprises (SMEs) encounter when registering and awarding IT-related public tenders above the tender limit.

• The main question of the research is: What problems and barriers do SMEs encounter when registering for (1) and awarding (2) government contracts?

• The interview is divided into two parts, where I first ask you a number of open questions about your experiences in procurement practice. I will then ask about your experience and opinion about my findings from my literature study.

• The interview questions relate to the obstacles faced by SMEs in participating in a public tender above the tender limit.

• The interview will last 45–60 minutes and is anonymous, so your name will not be saved or mentioned anywhere in the study.

• I would like to ask you if I can make an audio recording of the interview, so that I can transcribe the interview into text afterwards. The audio recording will only be shared with the educational institution and will be deleted after review. I will submit the transcribed interview to you to check for accuracy and completeness.