A report on the functioning of public procurement markets in the EU: benefits from the application of EU directives and challenges for the future

Economic reforms pay off. This working document presents evidence of the positive impact of Internal Market rules on the performance of public procurement markets over the past ten years. Indicators show positive developments in market transparency, increased cross border competition and price savings derived from the implementation of public procurement directives. Public procurement directives have effectively increased transparency. The number of invitations to tender and contract award notices published both doubled between 1995 and 2002. However, only 16% of the estimated public procurement is published. Transparency rates vary between Member States and for different government levels and sectors. New data suggest that previous studies may have underestimated the actual dimension of cross-border procurement. In a sample of firms involved in procurement activities, 46% carried out some type of cross-border procurement. However, direct cross-border procurement remains low, accounting for just 3% of the total number of bids submitted by the sample firms. The rate of indirect cross-border public procurement is higher, with 30% of the bids in the sample being made by foreign firms using local subsidiaries. It is important to note that domestic firms and foreign subsidiaries have similar rates of success when bidding for contracts in the country where they are located (30 and 35% respectively). This confirms the importance in Europe of bidding for contracts through subsidiaries. The new evidence also suggests that public procurement prices paid by public authorities are lower when the directives are applied. Although price dispersion for homogenous products remains quite large, the application of procurement rules appears to reduce prices by around 30%. Case studies of "typical" public procurement goods show that in general, the directives helped to increase intra EU competition. Import and export prices of these goods converged over time. For instance, in the case of small iron and steel rails export price dispersion dropped from around 21% in 1988-92 to 7% in 1998-2002. However further savings are still possible (for the six case studies considered, the equivalent of almost 12% of the value of intra-EU trade in these goods could still have been saved in 1998-2002). Given the economic importance of public procurement markets the importance of these improvements is clear. In 2002 the total EU procurement market was worth €1.5 trillion or over 16% of EU GDP. Further improvements would contribute to increase efficiency in public spending and budget deficit control. In conclusion, there is overwhelming evidence that the …