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MEMO/11/455

Brussels, 24 June 2011

Modernisation of EU public procurement rules – FAQs

1. Why is the European Commission considering modernising the rules?

Public procurement is faced today with an evolving political and economic context and important new challenges: the public purse is shrinking, and there is a growing need to be parsimonious with public money. At the same time, there is a growing demand for procurement to be more environmentally friendly and/or more oriented towards social standards. Fostering innovation through public procurement could be a way to facilitate the transition to a knowledge-based modern economy for European undertakings.

A modernised set of public procurement rules could considerably help contracting authorities in meeting these new challenges. It would let them turn policy statements into actions, while guaranteeing a high level of transparency and fair competition between suppliers. This view is shared by a number of stakeholders, who have voiced demands for a review of the EU public procurement system to increase its efficiency and effectiveness.

Reviewing the EU public procurement regime is a complex and technical issue of great importance for the functioning of the Single Market. The Commission considered it important to consult widely in order to make sure that its policy choices are based on the experience of those who deal with public procurement on a day-to-day-basis, and that future rules provide the best possible solutions to the actual needs of contracting authorities, economic operators and society as a whole. In addition to the Green Paper consultation, the Commission undertook a comprehensive evaluation to take stock of the efficiency and cost-effectiveness of the current European public procurement.

Evaluation of EU public procurement legislation

2. What are the main conclusions from the evaluation?

The evaluation finds that EU public procurement Directives have 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 contribution to efficient public purchasing is of greater relevance given the increased focus on rational and effective use of public resources. The benefits of the legislative framework exceed the costs by four to one. In addition, there are benefits in terms of quality of procurement outcomes which it has not been possible to quantify. However, the obligations imposed by the Directives give rise to compliance costs and complexity. The evaluation reveals scope for efforts to strike a better balance between the costs of the regulatory system and the resulting benefits. The evaluation describes changes in public procurement administration at national and regional level which hold out the promise of more effective and sustainable public purchasing in future, and which need to be accompanied by supporting EU action.

3. Are the Directives delivering the expected benefits?

The evaluation finds that the Directives are effective in promoting transparency and competition in public purchasing. Over 150'000 public contracts are advertised each year at EU level (out of approximately 2 million in total). Each call for tender attracts more than 5 bids on average. Open and publicised tender procedures yield savings of 3.8% compared to less transparent or open procedures.

Overall, the benefits flowing from the Directives exceed the costs by a considerable margin. The budgetary savings form EU public procurement Directives are conservatively estimated to be in order of 20 billion€. This excludes competition-generated improvements in the quality or innovative character of procurement outcomes. This compares to a total cost of the regulatory framework of approximately 5billion€.

The Directives have been less successful in supporting cross-order procurement. Cross-border suppliers account for only 3.5% of the value of contracts which are advertised at EU level. Suppliers remain reluctant to pursue opportunities in other Member States for a number of practical and administrative reasons.

4. What does the evaluation tell us about the costs of public procurement procedures?

The total costs for public authorities and suppliers of compliance with public procurement legislation are 5.2 billion€ or 1.3% of the value of procurement covered by the Directives. There are inevitable costs associated with the organisation of public (or private) procurement. The additional costs attributable to the EU Directives are estimated to be around 1/3 of this total.

The average procurement procedure takes 108 days to complete. The average cost per procedure is approximately 28'000€ - 3/4 of which is accounted for by the costs for suppliers of preparing tenders (5.4 tenders on average). These costs can be viewed as the price to pay for creating competition in these markets. However, they may be disproportionate for small value contracts.

The evaluation reveals very significant variations in the efficiency of public procurement between Member States – with public authorities in some countries taking almost 3 times as long to complete procedures as those in other Member States. The Directives therefore can support efficient practices, and there is significant potential for better procurement through adoption of best practice.

5. Does the evaluation explain why so many public purchasers struggle with public procurement procedures?

The administration of public procurement remains very highly fragmented. There are over 250'000 public purchasers in the EU – many of them poorly equipped to engage in professional or effective public procurement. The situation is changing. The evaluation finds evidence of a trend towards concentration of public procurement in the hands of fewer procurement bodies including specialised purchasing bodies, often making extensive use of electronic purchasing tools. These developments will strengthen the capacity of the public sector to make the best use of procurement budgets.

6. Can SMEs compete successfully for public contracts?

SMEs participate effectively in tenders for EU advertised tenders. Over 60% of contracts advertised at EU level (and 34% of contract value) are won by SMEs. However, the centralisation/aggregation of public purchasing is perceived as making it more difficult for smaller suppliers to participate in public procurement markets. Some new purchasing techniques – such as framework agreements - carry the risk of raising entry barriers to SMEs. Action to assist SMEs – such as dividing contracts into lots, or assistance to help SMEs tool-up for e-procurement – are found to be effective.

7. What does the evaluation tell us about the effectiveness of public procurement in supporting other policy objectives?

There is increased focus on the use of public procurement to promote other policy objectives. Member States are actively using public procurement to support the achievement of other policy objectives. 27 out of 30 EEA MS have adopted national action plans to support green procurement. This often involves setting targets rather than quotes in terms of proportion of spend on products or explicitly favouring purchases that embody greener characteristics. Individual contracting authorities integrate these considerations into the design of individual purchases. There is a growing body of examples demonstrating that appropriate framing of procurement procedures can lead to better environmental performance. However, there are no general monitoring mechanisms or means of assessing whether these policies have successfully altered the pattern of public purchasing in the desired direction. These policies can increase the complexity of public procurement for suppliers – particularly if requirements fluctuate.

Replies to the Green Paper Consultation

8. Why is the European Commission considering modernising the rules?

Public procurement is faced today with an evolving political and economic context and important new challenges: the public purse is shrinking, and there is a growing need to be parsimonious with public money. At the same time, there is a growing demand for procurement to be more environmentally friendly and/or more oriented towards social standards. Fostering innovation through public procurement could be a way to facilitate the transition to a knowledge-based modern economy for European undertakings.

A modernised set of public procurement rules could considerably help contracting authorities in meeting these new challenges. It would let them turn policy statements into actions, while guaranteeing a high level of transparency and fair competition between suppliers. This view is shared by a number of stakeholders, who have voiced demands for a review of the EU public procurement system to increase its efficiency and effectiveness.

9. Why did the European Commission publish the Green Paper?

Reviewing the EU public procurement regime will be a major legislative project. It is a complex and technical issue of great importance for the functioning of the Single Market. The Commission sees it as important to consult widely in order to make sure that its policy choices are based on the experience of those who deal with public procurement on a day-to-day-basis, and that future rules provide the best possible solutions to the actual needs of contracting authorities, economic operators and society as a whole. For these reasons, the Commission launched on 27 January 2011 the Green Paper on the modernisation of EU public procurement policy (see IP/11/88) inviting all interested parties to contribute to an open debate on the modernisation of the rules, tools and methods for public procurement. The deadline for replies was set for 18 April 2011.

10. How was the feedback to the Green Paper?

The Green Paper has been very well received by the public. The Commission got 623 responses from a wide variety of stakeholder groups including central Member State authorities, local and regional public purchasers and their associations, undertakings, industry associations, academics, civil society organisations (including trade unions) and individual citizens. The replies can be consulted online on the website of Directorate General Internal Market and Services.

A very large majority of stakeholders welcomed the initiative of the Commission to review and update the current public procurement procedures in order to better meet the new challenges that public purchasers and their suppliers are facing today.

11. What are the main concerns voiced by stakeholders?

Stakeholders put a particularly strong emphasis on the need to simplify the procedures and make them more flexible. All stakeholder groups support measures to ease administrative burdens and formalities such as allowing a greater use of the negotiated procedure, drastically reducing the amount of documentation to be submitted by candidates and tenderers and creating a better environment for aggregation of demand and e‑procurement.

Many stakeholders demand concrete steps to improve SME access to public contracts. There is consensus that SMEs would be among the greatest beneficiaries of a reduction of administrative burdens, in particular with regard to documentation requirements. Reactions are less unanimous when it comes to targeted measures improving SME access, such as an obligation to split contracts into lots. Public authorities and parts of the business community are rather sceptical towards such mandatory measures.

The issue of strategic use of public procurement in support of other policies has provoked mixed reactions from stakeholders. While a majority of businesses and contracting authorities believe that the current rules make sufficient allowance for the introduction of considerations related to societal policy objectives, a majority of civil society organisations considers them insufficient.

However, it is possibly to identify certain basic orientations: Most stakeholder groups are against introducing binding obligations on “what to buy” in EU public procurement rules. There is, however, support for certain concrete measures such as providing a life-cycle cost approach under certain conditions. Stakeholders are also in favour of further promoting and stimulating innovation through public procurement. They recommend the use of specific instruments particularly suited for innovative procurement.

12. What happens next?

The Commission will host an important conference to debate views on possible orientations for possible reform of the EU procurement Directives on 30.06.11. Drawing on the evaluation, Green Paper responses and conference discussions, the Commission will prepare and issue its proposal for reform of EU public procurement legislation before the end of 2011. The proposal will then be transmitted to the European Parliament and Council for negotiation.

See also IP/11/785


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