Is competition in public procurement shrinking?

by Katarzyna Kuzma, Partner at DZP Infrastructure and Energy Practice

On 4 December, the European Court of Auditors published the report Public procurement in the EU. Less competition for contracts awarded for works, goods and services in the 10 years up to 2021. The title of the report is intriguing, and its conclusions are even more so.

According to the report, from 2011 to 2021, the number of contracts awarded directly (without applying any competitive procedure) increased considerably, and in 2021 they accounted for almost 16% of all procurement procedures in the EU reported on TED. Obviously, the numbers vary between the member states, but the percentage of contracts awarded directly grew considerably in several of them, e.g. Cyprus (from less than 10% to over 40%), Romania or Denmark. The energy and medical equipment sectors are mostly affected by this negative trend.

In addition, over the ten years covered by the report, the number of procedures in which only one contractor submitted its bid increased from 23.5% to 41.8%, while the average number of bidders per procedure dropped from 5.7 to 3.2. In 2021, the level of single bidding procedures in Poland (my country) exceeded 50%! Again, the situation varies depending on the business sector. The construction sector is doing relatively well in this respect, but, for instance, the health services, transport services and equipment sectors are most affected by the single bidding rates.

The report concludes that the public procurement directives from 2014 have had no positive effect on the level of direct awards / single bidding, meaning that their objectives have not been met. This conclusion is probably accurate, but the above data require an in-depth analysis. The differences between the member states show clearly that the directives are not the only ones to be blamed, as their implementation and the national practice of applying public procurement law are also very important, maybe even more than the directives themselves.

The further conclusions of the report seem to confirm it. First of all, the length of procurement procedures has increased by half since 2011 (in 2021, the average length of such procedures increased to 96.4 days). The number of SMEs participating in the public procurement procedures has not increased and the lowest price continues to be the predominant criterion to award a contract. At the same time, transparency in public procurement is still an issue, as are the proper data collection and processing on both national and EU levels.

The report includes several interesting comments on the possible causes of the poor performance in terms of public procurement, and recommended steps to be taken to improve the situation.

For me personally, the following quotes from the report are very important and, to a certain extent, self-explanatory:

The survey and interviews indicate that member states have focused their attention mostly on compliance with procurement rules rather than on performance. Our survey results indicate that member states’ awareness of competition issues was limited.

and

… there is an overall lack of awareness for competition and value for money. In particular, several of our interviewees and half of the survey respondents did not perceive the design of public procurement procedures, and its impact on competition, as an issue, as long as the relevant rules were complied with.

The starting point for any improvement is a change in the way of thinking about procurement. Both policy makers and procurement professionals, especially those representing the contracting authorities, should stop considering procurement rules as an aim in itself, just a procedure to be compliant with. The same is true for the “outside” world, meaning all representatives of public authorities and private companies who consider procurement regulation just a burden. Until this is understood and accepted, it will be difficult to achieve real results, as the public procurement regulations and the way how they are applied have a strong impact on the behavior and development of many different markets and local, national and EU economies. It is not something to be underestimated and disregarded.

The report is definitely worth reading and considering.