Public purchasing

The annual value of contracts placed by public sector authorities in the European Union – at national, regional and local levels – has been estimated (by the European Commission) to represent around 16 per cent of the Union’s gross domestic product (GDP). Worth some € 2.1 trillion in 2010, this is a sum roughly equivalent to the size of the French economy. For this reason, the successful application of the principle of non-discrimination in the public purchasing of goods and services has long been an ambition of the Commission, with a direct bearing on both competition policy and the single market. Before the Community took action, virtually no significant contracts in the member states went to foreign suppliers. Public purchasing is also being liberalised internationally, notably under the Government Procurement Agreement (GPA), first negotiated in the World Trade Organisation (WTO) in 1996: some € 370 billion of the € 2.1 billion of public purchasing within EU member states currently falls under the GPA threshold. Of this latter figure, the EU has opened up 84 per cent to international competition, whereas the comparable ratios for the United States and Japan are only 12 and 23 per cent.

Two directives adopted in 1971 and 1977 established the ground-rules for public purchasing within the Union. The principles established were: i) Community-wide advertising of contracts to help develop real competition between economic operators in all the member states; ii) the banning of technical specifications liable to discriminate against potential foreign bidders; and iii) the application of objective criteria for the selection of tenderers and the award of contracts. Public supply and public works contracts above a certain value had to be advertised in the Official Journal, tendering pro­cedures were harmonised, and public authorities were obliged to explain why they might not choose the lowest bidder. However, certain key sectors – telecommunications, energy, water, transport and military equipment, together representing over three-quarters of all contracts – were excluded from the system. In practice, many public authorities still found ways of favouring local suppliers even in the sectors that were included: for example, by sub-dividing contracts so that they fell below the threshold for notice in the Official Journal, by inserting skilfully drafted special requirements into the specifications, or by abusing ‘fast track’ procedures for awarding urgent con­tracts.

Accordingly, as part of the single market programme, EU legislation on public purchasing was revised (in 1988, 1992 and 1993) to tighten up various rules, open up some of the so-called ‘excluded sectors’, and standardise arrangements with the new GPA. The legislation was further strengthened by the passage of a new directive in 2004, with opportunities to submit applications electronically. Efforts are now being made to liberalise military purchasing, the last significant excluded sector. Around € 370 billion in contracts – representing over three per cent of EU GDP in 2009 – are now covered by EU public procurement rules. Some 150,000 invitations to tender are published each year in the Official Journal, compared with 20,000 on the late 1980s. On average, five bidders respond to each public procurement tender published, with the resulting saving to public authorities estimated to be in the order of six per cent, although the percentage of cross-border contracts awarded still remains stubbornly low (at less than two per cent). The current threshold values range between € 125,000 for supplies and services, and € 4.85 million for public works contracts. The EU’s public purchasing system extends to the countries of the European Economic Area (EEA) and to some others associated with the Union.

September 2012

Copyright: Anthony Teasdale, 2012

Citation: The Penguin Companion to European Union (2012), additional website entry


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