Added on June 18, 2011 John O' Gorman

Public Procurement Is Good For You!

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A detailed review of Public Procurement across the EU has determined that the often criticised rules on procurement are actually good for you. According to a new report that is true regardless of whether you are a seller, or a buyer!

The headline message is that EU public procurement generates annual savings of approx. 5% – or some 20 billion Euro of the 420 billion Euro of the public spending it covers.

This good news comes courtesy of a report, titled ‘Estimating The Benefits From The Procurement Directives‘, produced in the wake of a Green Paper on updating public procurement rules. In order to save you time reading a couple of hundred pages, we have created a summary for sellers.

EU Procurement – ‘The Good News’

So, what has the Commission got to say about its impact on public buying in Europe? Well, let’s start with the ‘good news’. After that we will look at the other side of the story, finishing up with some statistics that profile the EU procurement market space.

Like any report this one is open to interpretation and no more so than in terms of selecting the highlights. Here is our take – you can decide if its ‘good news’ for sellers, or not:

1. Big Savings!

The headline figure is worth repeating – EU procurement saves 20 billion or 5% annually. For the buyer simply publishing a contract notice results in a saving of 1.2%, while using an open, or restricted procedure generates an extra 2.5%. That is a lot of seller margin!

2. Open for business!

The EU public procurement market has been opened up in more ways than one. Indeed, 52% of what gets spent is open to tender by any supplier, without any prequalification (the average value of contracts in these open processes is 2.1 million). The rest are limited access:

25% involves the application of prequalification criteria to restrict invitations to only those suitably qualified (the average contract value in these restricted processes is 8.2 million).
19% involve a negotiated procedure where a purchaser selects one or more potential bidders with whom to negotiate the terms of the contract
4% involves competitive dialogue with potential bidders, to develop one or more suitable solutions for its requirements and on which chosen bidders will be invited to tender (rising to 9% in 2010, with a 4 million avg. contract value)

While open tenders account for half of the value of EU public procurement spend, this makes public buyers out to be more discriminating than they really are. In volume terms open tenders actually account for almost three out of every four purchases.

3. Hurray for the regulations!

Public procurement regulations (and the principles behind them) seem to enjoy strong public support:

It has reduced corruption and favouritism – only 20% disagree
Foreign companies should have access to local markets – only 14% disagree

The report hints sellers are warming to procurement procedures, although the figures show a long way to go:

Only 40% of companies say that public procurement is more transparent than private purchasing.
Only 34% say that public procurement is fairer than private purchasing.

4. Voluntary Compliance – Because I want to!

Buyers are embracing the rules – applying the rules even when they don’t have to. Indeed, that accounts for 20% of all the contracts published in TED (Tenders Electronic Daily), or a massive 70% of all works contracts. Most sellers will point to this as evidence that buyers like to hide behind the rules.

5. Buyers want MEAT!

70% of all contract notices (and nearly 80% in terms of value) use the most economically advantageous tender criteria (MEAT) rather than lowest price. On paper at least that is what sellers want to hear.

There is of course a downside. If you would like to see what that is get our full Review Of EU Procurement Report here.