Europe's public procurement market, an untapped potential of €2 trillion

The EU needs more competitive and strategic public procurement to unlock the full potential of a €2 trillion market (14% of EU GDP)

“The public procurement market should be leveraged as a key instrument for promoting social value, enhancing social capital and aligning with the EU’s ambitions for green and digital transformations,” the former Italian prime minister wrote.

Since reform of the framework in 2014, however, he pointed out that procedures have not been simplified, access for SMEs has not been improved and environmental, innovative and social aspects have only been taken into account to a limited extent.

According to a recent analysis by the European Court of Auditors (ECA), the public procurement market has not only failed to meet these objectives, but has actually become less competitive over the last decade, so what’s failing?

For industry group BusinessEurope, an in-depth study into the reasons for the low level of competition in the public procurement market is needed.

“Without such a study, we’re not convinced that a revision of the framework will do any good,” said Jan Rampla, advisor to BusinessEurope, arguing that the problems highlighted in the ECA report relate less to the framework itself than to ineffective enforcement and application of the rules.

Workers’ representatives, by contrast, want revision of the existing rules considered.

“The legislative framework for public procurement cannot function better in its current state,” Olivier Roethig, regional secretary of the services union UNI Europa, told Euronews.

Between 2011 and 2021, the number of bidders per procedure fell from an average of 5.7 to 3.2, and current procurement procedures now take an average of 96.4 days, up from 62.5 days.

Roethig believes that the current framework is too dependent on the “good will of public authorities”, with the result that public spending often contributes to social decline and a race to the bottom, rather than being a driver of social progress.

This is partly because most contracts are still awarded to the lowest bidder, seeking to be cost-effective rather than achieving the best value for money.

“Focusing only on the lowest price is counterproductive and short-sighted,” centre-right German MEP Dennis Radtke told Euronews, adding that important factors such as quality of service, working conditions or environmental impact are not taken into account in most member states.

“Another important consideration could be to give priority to European companies,” Radtke said, adding: “This reinforces our strategic independence and Europe as a business location.”

However, the latest available figures show that in eight member states, more than 80% of contracts were awarded to the lowest bidder.

“Over-relying on the cheapest bid can lead to sacrifices in quality, sustainability, innovation and social value,” Letta’s report also pointed out.

More worryingly, the former Italian prime minister’s report warned that the practice undermines the true potential of public spending and the development of local supply chains that can compete with cheap goods and services from countries with lower wages and social standards.

“Even companies that routinely don’t play by the rules cannot be excluded from bidding,” said MEP Nikolaj Villumsen (Denmark/The Left), adding: “This creates unfair competition for the many companies that do follow the rules.”

Letta proposed that member states streamline and clarify the focus of public procurement objectives, improve the handling of public procurement data and align the instrument with the EU’s ambitions for a green and digital transition.

The single market report also raised the possibility of transforming the EU public procurement framework into a regulation, thereby limiting the scope for national fragmentation.

“If we change the rules, we can help ensure that public procurement is used to support EU policies,” said Villumsen, so that, for example, companies repeatedly breaching health and safety regulations could be blacklisted from tendering.

EU lawmakers such as Radtke and Villumsen, who have long advocated a review of the framework, believe that social clauses should be mandatory in all public tenders to promote the creation of quality jobs and prevent exploitation and abuse in supply chains, especially in labour-intensive industries.

During the pandemic, for example, it was reported that call centre operators who tracked Covid-19 cases under a public tender by the Dutch government were underpaid and had no right to toilet breaks.

The Dutch trade union FNV also claimed that workers did not receive pension contributions and had to use their own equipment.

The case is not unique in the EU, according to a map tracking different cases over the past years.

“While socially responsible public procurement is encouraged in theory, in practice, public money does not strengthen decent work,” Roethig concluded.

On May 24, the discussion on how to improve public procurement might see some progress, as EU industry ministers will meet in Brussels to debate the future of the single market with a view to conclusions.