EU on the threshold: public procurement reform

Public procurement is a subject close to the hearts of many at TI, and for good reason. It is an area that is highly susceptible to collusion, corruption and bribery, but the record shows that this can be remedied through a combination of more transparent procedures and effective sanctions. Experience of using integrity pacts in public procurement – a model long championed by TI – has shown that increased transparency not only improves public confidence, but is cost-effective too.

The EU has been one of the key actors in improving the way procurement is carried out by public authorities in Europe. Legislation drafted in Brussels provides the framework for approximately 20% of total expenditure on goods, works and services. This has been a good thing on the whole. According to a recent evaluation , the directives have “helped to establish a culture of transparency” through their emphasis on sound and non-discriminatory procedures. On paper at least, the legislation also provides for strong sanctions, in that a conviction for a corruption-related offence or even “improper conduct” can be grounds for exclusion from competitive tenders. The absence of central corruption registers at national level has diminished the impact of this provision, but the intent and the standard are there.

Tinkering with the rules is a habitual Brussels vice. So 7 years after the last round of legislation, Eurocrats are once again reviewing the public procurement directives. Post-crisis, the focus is firmly on growth and jobs. This means that the administrative costs of complying with the legislation and the thresholds at which the rules come into force are under scrutiny. The sums look eye-watering at first blush: the total cost to society of the procurement process covered by the legislation is €5.26Bn per annum. This is only 1.4% of the value of the tenders published, however, and as officials are keen to point out, very little of this would be recouped by repealing the EU legislation. The extra cost here is reckoned to be in the region of 0.2% of the total contract value.

So why the sudden emphasis on value for money? The EU has had a longstanding love affair with the small-to-medium enterprises (SMEs) which dominate the European economy. The evidence from the latest evaluation is that is these firms that would be overwhelmingly benefited by raising the existing thresholds so that they are no longer required to conform to the more cumbersome European procurement requirements. TI is also sympathetic to the need to reduce bureaucratic burdens for SMEs, but not at the expense of the soundness and transparency of the process.

In our contribution to the consultation on EU procurement rules, TI not only opposed an increase in the thresholds, but recommended a significant decrease. There we say that the benefits the EU legislation has brought in terms of transparency need to be spread even further. Furthermore, there have been cases where large contracts have been sliced and diced into smaller contracts to avoid such regulations.

EU officials remain unmoved. At a recent briefing they pointed to the benefits for SMEs of lifting the thresholds, pointed to national legislation in Ireland and Denmark that improves transparency under the threshold, and denied that there was evidence of manipulation of contracts to evade troublesome procurement requirements.

The battle is not over yet. A major conference in Brussels yesterday heard the views of a wide range of experts, including TI associates.  Now that the consultation results are in, the Commission will publish its proposals later this year. Then the modifications will be discussed by the European Parliament and national governments. Only then will we see whether greater public accountability will be sacrificed in the interests of economic expediency.

Carl Dolan, EU Policy Officer, TI liaison office to EU