Last reviewed 1 February 2012

Under EU public procurement legislation, every local and national public body that needs to buy goods and services over a certain threshold price has to invite tenders and to make this process available to suppliers in any of the Member States. The rules in place have, however, developed from directives first introduced in the 1970s and recently the European Parliament agreed that it was time for reforms to make it easier for small firms to bid. Paul Clarke explains.

The report adopted by MEPs calls for a more coherent public procurement system to help resolve some of the current legal problems with tendering, whereby the winning tenders are often the cheapest without necessarily being the most economically logical. To this end, full lifecycle costs should also be taken into account, they decided. An example of the sort of problems MEPs were debating arose in the UK recently when Bombardier's Derby factory was hit by news that a £1.4 billion contract to build trains for London Thameslink had been awarded to Siemens of Germany, the lowest bidder. Critics of the decision said that the Government should have taken other considerations into account before putting so many UK jobs at risk.

Reform proposals expected soon

The European Parliament is supporting the idea that contracts should not necessarily go to the lowest bidder, but to the most innovative, or to those offering the greatest environmental or social benefits. The European Commission had already agreed to table reform proposals before the end of 2011. Public procurement accounts for roughly 17% of EU GDP and putting taxpayers' money to the best possible use is vital to relaunch European economies and create jobs, especially in a time of crisis, MEPs told the Commission. They stressed that change would be particularly important with regard to contracts for food for hospitals, care facilities for the elderly, and services and goods for schools and nurseries where quality and production methods play an important role.

Making life easier for small firms

To reduce the administrative burden that compliance currently places on firms, MEPs propose setting up an EU-wide “electronic procurement passport” proving that the holder complies with the public procurement rules. At the moment, small and medium-sized firms (SMEs) win fewer than 38% of public procurement contracts by value — much less than their overall share in the economy (52% of combined turnover) suggests that they should. Many have complained that each time they want to submit a bid under the present system they have to go through the lengthy and costly process of proving their capability of meeting the tender requirements. They are likely to welcome proposals to introduce the use of self-declarations of compliance and of requesting original documents only from the shortlisted candidates or the successful tenderer.

Dividing public contracts into lots would also give SMEs a better chance of bidding, MEPs agreed (although it is illegal for an awarding authority to do so presently if the resulting lots are worth less than the procurement threshold and therefore do not need to be advertised). They also asked the Commission to assess “whether further rules on the award of subcontracts are needed, for example on the establishment of a chain of responsibility, specifically to avoid SME subcontractors being subject to conditions worse than those applicable to the main contractor”.

Raising the bar

Finally, MEPs have called on the Commission to reassess the appropriate level of thresholds for supply and services contracts. The current thresholds are: £3,927,260 for the procurement of works; £101,323 (supplies) and £156,442 (services).