Procurement framework saves 20bn euros a year but only costs 5bn, claims Brussels

June 29, 2011

The EU public procurement framework saves around 20bn euros a year – "far in excess" of the costs it generates, the European Commission has claimed.

Brussels has also published a review of submissions to its recent consultation on modernising EU procurement law, which found strong support for simplifying the process.

The savings claim emerged from what the Commission described as a “comprehensive evaluation of the impact and effectiveness” of the legislation, based on existing evidence and new research.

According to Brussels, the evaluation found that EU public procurement directives had helped to establish a culture of transparency and outcome-driven procurement in the EU. “This has triggered competition for public contracts, and generated savings and improvements in the quality of procurement outcomes.”

The Commission suggested that public procurement had driven down costs by around 4%, providing 20bn euros in savings. This compared to the costs generated by the framework of 5bn euros.

But the evaluation warned that this generally positive assessment must be tempered by concerns about specific aspects of the functioning of the EU public procurement regime.

“There may be circumstances where the costs of running regulated procedures may be disproportionate to the expected benefits,” it said. “There may also be situations when aspects of the regulation give rise to unintended consequences for the wider economy – notably, the risk of market closure and concentration where long term or framework agreements are used.

“The disparity between member states in the time taken to complete procedures, and cost to public purchasers suggests that there is considerable scope, within the directives, for reducing the cost of procurement administration in many member states by aligning practice on the most efficient member states.”

The evaluation found that the worst performing member states take three times longer to complete a purchase than the best-performing.

The average public procurement procedure takes 108 days and costs 28,000 euros, it said. The cost to bidders of preparing for tenders accounts for ¾ of the total costs, while contracting authorities incur ¼ of the total. The UK has the 10th highest average costs for public authorities in the EU.

On its synthesis of the 623 submissions to its consultation on modernising procurement law, the Commission said: "While responses to the consultation reveal diverging views on the priority that should be given to each of the different objectives of the reform there is strong support for simplification, improving market access, notably for SMEs and fostering innovation.

“There is also a certain consensus that streamlining the procedures and making them more flexible is particularly important and that all actors of the procurement world could greatly benefit from it.”

The general findings from the synthesis were that a very strong majority of all stakeholder groups supported the idea of allowing a greater use of the negotiated procedure.

There was also strong support for measures to alleviate administrative burdens related to the choice of the bidder, such as requiring supporting documents for the fulfilment of selection criteria only from the winning bidders. This was seen as an effective way to improve access for SMEs and bidders from other member states.

There were mixed opinions meanwhile about the strategic use of public procurement to achieve the overall societal goals of the Europe 2020 strategy.

“Many stakeholders, especially businesses, show in general reluctance to the idea of using public procurement in support of other policy objectives, and oppose most of the ideas to foster for instance green or social procurement," the Commission said. "Other stakeholders, notably civil society organisations are strongly in favour of such strategic use and advocate radical changes to the very principles of EU public procurement policy.”

The Commission said it would prepare its legislative proposals before the end of 2011. Reform of public procurement legislation was one of 12 priority actions set out in the Single Market Act that was agreed in April 2011.

More specific findings included:

The idea of replacing the present classification of public contracts by a distinction between only two types of contracts or even by a unified concept was “clearly not supported”. A large majority of respondents considered the current structure as appropriate. Some respondents supported smaller changes and adaptations, such as reviewing and simplifying the definition of ‘works contracts’.
A majority of respondents agreed that the current approach in defining public procurers was appropriate. There was nevertheless support for a clarification and updating of the concept of “body governed by public law” in the light of ECJ case-law.
A clear majority of respondents regarded the current provisions on excluded contracts as appropriate.
There was no consensus among respondents about the handling of A/B services. “Overall, a slight majority of respondents think that the distinction between A and B services should be reviewed, with the strongest support coming from business representatives and citizens.”
The suggestion of applying the Public Procurement Directives to all services, possibly on the basis of more flexible standard regime, was rejected by a clear majority of member states, public authorities and civil society representatives, while it was supported by an equally clear majority of business representatives, citizens and legal experts. Many respondents suggest that the most appropriate solution might be to eliminate category 27 “other services”, making full application of the Directives to services the rule while reserving the limited B regime to an exhaustive list of services.
The Green Paper pointed out that the thresholds are the subject of international commitments taken by the EU in bilateral agreements and the multilateral WTO agreement on Government Procurement (GPA). Any increases could mean a corresponding increase in all the agreements concluded by the EU, which in turn could trigger potentially significant requests for compensation. A majority of contracting authorities, however, support an increase. Civil society organisations are also in favour, but members states (by a slight majority), business and citizen representatives are against.
Many contracting authorities argued that contract awards with a value just around the thresholds generally attracted little interest from economic operators from other member states but were nevertheless imposing important administrative burdens. However, business representatives suggested that higher thresholds would result in less transparency and less cross-border business opportunities.
A clear majority of respondents had misgivings about the level of detail of the EU public procurement rules. “Most respondents see the procurement rules as too detailed. Many stakeholders claim that procedures should give contracting authorities more leeway, in particular by permitting negotiations and providing less strict time limitations.”
A large majority of respondents considered that the procedures provided under the current Directives do not allow contracting authorities to obtain the best possible procurement outcomes. Many respondents complained about an “excessive level of formalisation” and called for more flexibility in the conduct of the procedure, such as possibilities to contact participants in a flexible manner to clarify open issues or to discuss elements of the offer. “The most frequent proposal for improvement is the general acceptance of the negotiated procedure with publication of a contract notice which is seen by many stakeholders as a simplification factor. Other suggestions include a stronger focus on aspects of quality and sustainability as award criteria.”
There was broad support for the suggestion to allow more negotiation in public procurement procedures and/or generalising the use of the negotiated procedures with prior publication of a contract notice. However, stakeholders were “well aware” that an increased use of negotiated procedures could have negative consequences in terms of transparency, non-discrimination and fair and objective proceedings.
Stakeholders responded positively to the questioning of the current rigid separation of the stages of selection and award. A strong majority (with the exception of business representatives) were in favour of a more flexible approach to the organisation and sequence of the examination of the selection and award criteria.
A broad majority of respondents considered that the Directive should explicitly allow contracting authorities to take into account their previous experience with one or several bidders. However, they were aware of the risks and drawbacks of such a suggestion, including the danger of favouritism and discrimination.
There were mixed opinions on the possibility of allowing a lighter procedural framework for local and regional authorities, which is allowed under the GPA rules for sub-central authorities. A majority of public authorities backed the idea, but all other stakeholders bar civil society organisations were against it.
There was no clear opinion on the award of contracts below the thresholds for application of the Public Procurement Directives. There was a majority in support of additional guidance for contracting authorities in assessing the existence or not of a certain cross-border interest in specific cases.
There was a clear majority in all stakeholder groups supporting legislative rules at EU level on the scope and criteria for public-public cooperation. “A majority favours the development of a single concept with certain common criteria for exempted forms of public-public cooperation, while a minority would prefer setting up specific rules for the different forms of cooperation, codifying the ECJ case-law.”
Stakeholders were in general in favour of a stronger and more generalised aggregation of demand. “Many respondents consider that there are various obstacles to an effective aggregation of demand and that the current public procurement legal framework does not provide sufficient tools to overcome them.”
A majority of respondents from all stakeholder groups supported the introduction of provisions defining and clarifying the conditions and legal consequences of a substantial modification of a contract during its execution. “As for the consequences, a majority favours the application of a more flexible procedure for the award of the amended contract.”
A majority of public authorities and civil society organisations are in favour of allowing public procurers to have more influence on subcontracting by the successful tenderers, while other stakeholder groups reject the possibility.
Many stakeholders considered that SME access to public contracts should be further improved. A vast majority felt that business would benefit greatly from alleviation of administrative burden related to the choice of bidder.
Stakeholders were “rather sceptical” toward more specific EU level instruments to encourage participation of bidders from other Member States. There was, however, a clear need for better recognition of certificates across borders and a better coordination of national systems in this context.
There was a clear dividing line between business and contracting authorities on the one hand and civil society on the other when it comes to the strategic use of public procurement in support of other policies. A majority of business and contracting authorities believe the current rules on technical specifications make sufficient allowance, whereas civil society organisations consider them to be insufficient.
A majority of contracting authorities, civil society organisations and member states believed that the possibility of including environmental or social criteria in the award phase should be better spelt out in the Directives.
An overall majority of stakeholders favoured maintaining the principle of “subject-matter-link”. However, a large majority of civil society organisations advocated a more flexible approach.
There was clear support for further promoting and stimulating innovation through public procurement. Respondents recommended greater use of procedures such as competitive dialogue, design contest and in particular the negotiated procedure as well as a wider allowance of variants and performance requirements in technical specifications.
Civil society organisations and a slight majority of contracting authorities called for a special procurement regime for social services. This was opposed by businesses.
A majority of business, civil society and legal experts saw a necessity for a common European definition of "conflicts of interest", and certain minimum safeguards to be enshrined in the EU public procurement rules. This was opposed by contracting authorities and members states, which considered national rules to be sufficient.
Article 45 of Directive 2004/18/EC was seen as useful for sanctioning unsound business behaviours. However, certain clarifications were needed, “notably with regard to generic notions such as ‘professional misconduct’, as well as rules on a maximum duration of the debarment”.
There were no clear tendencies on whether EU rules should explicitly address the issue of advantages of certain tenderers because of their prior association to the tender design. Possible EU rules on advantages of incumbent bidders were clearly opposed, save by individual citizens and some member states.