Public Procurement in the Single European Market: Policy and Prospects

Abstract

The removal of discriminatory public procurement has presented a major policy issue for the European Community in the move towards the 1992 Single European Market. Considers three questions: why have governments traditionally adopted “buy national” purchasing policies and what are the potential benefits associated with a single market for EC public procurement?; which policies have the EC adopted to liberalize public contracting?; and how effective is the Community′s new public procurement regime?

Industrial Policy Effects and the Case for Competition

“…Although there may be situations in which discriminatory procurement has the potential to lower procurement costs and it may make sense from a practical or public preference perspective, many other studies suggest that the benefits are likely to be modest at best. Several studies argue that discriminatory procurement policies generate excessive costs for procuring entities and inefficiencies on the supply side of the procurement process that outweigh any welfare gains to society (Cox and Furlong 1997;Deltas and Evenett 1997;Uttley and Hartley 1994). Governments will likely pay higher prices for procured goods and services because without foreign competition local firms have little to no incentive to invest in technology or efficiency-enhancing improvements in production.…”

“…As a result, product and service choice and quality may be more limited in protected markets. One study finds that firms in protected markets are characterized by low product specialization, resulting in uneconomical product ranges, short product runs, and higher costs (Uttley and Hartley 1994). Arguably, local content requirements embedded in procurement tenders force manufacturers to alter the composition of the products they make.…”

Choosing the open or the restricted procedure: A big deal or a big deal?

“…The aim was to create a single transparent internal market. However there were two common practices in the EU preventing this (Erridge, Fee & McIlroy, 1998;Uttley & Hartley, 1994): preferential purchasing (preferring certain suppliers not based on economic reasons, discrimination) and protectionism by governments ("buying national" policies). Both practices prevent market competition to a certain extent or even completely.…”

Public Procurement for Innovation

“…In the 1980s, as reported by research at the time, governments had adopted protectionist procurement policies; it was also perceived that preferential public procurement had led to inefficiencies; and that significant economies would accrue from a competitive EC-wide single market. 29 The aim with the Directives was to remove these prevailing barriers to trade in public procurement practices. Through the adoption of these rules, the best bid, regardless of origin in the Union, would be awarded a contract tendered for.…”

“…Europarl, 2000). The current Directives were designed to counteract governments' protectionist procurement policies, preferential public procurement which had led to inefficiencies, and instead to promote a competitive EC-wide single market (Uttley and Hartley, 1994;Arrowsmith, 2005, pp. 120-125).…”