Policy Interventions to Favor Small Firms in Public Contracting: Effects on Public Value Creation and Firm Level Outcomes

Abstract

This paper analyzes how capabilities can attenuate the pervasive effects of policy interventions to favor small firms (SMEs) in public contracting. Results obtained from a quasi-experiment in Brazil comprising 1472 service contracts show that public officer’s contract-management capabilities can moderate the effects of policy interventions and promote cost savings, increased responsiveness (government-level outcomes), and enhanced buyer-supplier coordination when favored firms are successful in public contracting. Execution capabilities of private suppliers can also attenuate the undesired side-effects of policy interventions on firm level outcomes, by moderating the severity of sanctions due to deficient provision. The paper highlights the mechanisms for leveraging performance in public-private interactions. By focusing on the interactions between public and private actors in public contracting, the study adds to the current knowledge of strategic management in the context of public organizations by demonstrating how capabilities can reconcile conflicting goals despite inherent contract incompleteness and bureaucratic rigidity.