The government has reduced the performance guarantee that SMEs must provide, which is retained by the contracting authority until the contract is completed.

The previous amount of 10 per cent of the contract value has now been reduced to four per cent since December 1, as promised in the Budget last November.

A single bond will also apply for multiple contracts.

The changes were meant to boost SME participation in public procurement contracts. SMEs win fewer contracts than they should, given their prevalence in the economy. A study commissioned by the European Commission in February 2014 found that although 63 per cent of the contracts in Malta are won by SMEs, their value is only 26 per cent.

In contrast, SMEs only get 55 per cent of contracts in the EU on average, but their value is 29 per cent of the total – although there are considerable differences between member states. In terms of the number of contracts won, SMEs’ share ranged from an estimated 84 per cent in Greece to 44 per cent in Spain.

If the share of public procurement equalled SMEs’ share of gross value added in the economy, the average would be almost double – 58 per cent of the value.

If the share of public procurement equalled SMEs’ share of gross value added in the economy, the average would be almost double

Another factor which works against Maltese SMEs is the fact that 53 per cent of above-threshold public procurement contracts were awarded to companies from outside the country between 2009 and 2011, higher than in any other member state.

The reduction in guarantees was aimed at easing one of the stumbling blocks – the negative impact on SMEs’ cash flow – but there are others.

E-procurement has made it much easier for SMEs to access tenders. The Contracts Department has also been working to reduce the time that it takes to award a public contract and, from 250 days, this has now been reduced to 115.

“We are still lagging behind the EU average and the public sector needs to simplify processes even further to increase efficiency,” a Finance Ministry spokesman said.

The ministry said that other initiatives will be taken in the coming months to help increase the share of public procurement contracts as well as to expand it, such as fiscal incentives when they employ graduates to assist in R&D, incentives for more efficient use of energy and monetary assistance for relocation.

The impact of public procurement contracts should not be underestimated: in 2011, member states spent €2.4 billion – 19 per cent of the GDP – on public works, goods and services.

Share of contracts: Percentage of total