The participation of young firms in public procurement

Abstract Public procurement offers sizable market opportunities for young firms. Using representative survey data for 4260 young German firms, we explore the firm- and founder-level determinants of young firms’ decision to apply for public tenders, as well as the procurers’ selection of an awardee. The paper is the first to (i) focus on young firms with a limited operational history, (ii) differentiate between determinants observable and unobservable to the public procurer, (iii) distinguish between the determinants of criteria-based (innovation rewarding) and price-based (innovation hampering) tenders, and (iv) investigate founder characteristics as relevant determinants. We find that firm and founder determinants differ between the application and award stage, as well as between price-based and criteria-based tenders. Most notably, innovation-related founder and firm characteristics matter largely for criteria-based tenders—unobservable ones more at the application stage, observable ones more at the award stage. In contrast, innovation is not associated with price-based tenders. The sole determinant consistently influencing the decision to apply and the likelihood of being selected as awardee across price-based and criteria-based tenders is firm size.