I used to be invited to offer an entry on ‘public procurement’ for the forthcoming Elgar Encyclopedia of European Legislation co-edited by Andrea Biondi and Oana Stefan. I need to say I struggled to determine what to write down about, because the entry was restricted to 4,000 phrases and there are such a lot of (!!) issues happening in procurement. Beneath is my draft entry with maybe an eclectic alternative of content material. Feedback most welcome!
The draft entry can also be obtainable on SSRN should you favor a pdf model: A Sanchez-Graells, ‘Public procurement’ in A Biondi and O Stefan, Elgar Encyclopedia of European Legislation (forthcoming) obtainable at https://ssrn.com/summary=4621399.
I. Introduction
From up shut, public procurement regulation may be seen because the set of largely procedural guidelines controlling the best way wherein the general public sector buys items, companies, and works from the market. Procurement would thus be a set of administrative regulation necessities involved with the design and commercial of tenders for public contracts, the decision-making course of resulting in the award of these contracts, and the commercial and potential problem of such choices. To a extra restricted extent, some necessities would lengthen to the contract execution part, and management particularly the modification and eventual termination of public contracts. From this slim perspective, procurement can be primarily involved with guaranteeing the integrity and probity of decision-making processes involving the administration of public funds, in addition to fostering the era of worth for cash by means of efficient reliance on competitors for public contracts.
The significance and constructive contribution of public procurement regulation to the satisfactory administration of public funds could seem tough to understand in abnormal occasions, and there are recurrent requires a discount of the executive burden and paperwork associated to procurement procedures, checks and balances. Nevertheless, because the pervasive abuses of direct awards below the emergency circumstances generated by the covid pandemic evidenced in nearly all jurisdictions, dishing out with these necessities, checks and balances comes with a really excessive price ticket for taxpayers by way of corruption, favouritism, and wastage of public funds.
Even from this comparatively slim perspective of procurement as a process-based mechanism of public governance, procurement attracts a big quantity of consideration from EU legislators and from the EU Courts and is an space of essential significance within the improvement of the European administrative area. As procurement regulation has been developed by means of successive generations of directives, and as many Member States had lengthy traditions on the regulation of public procurement previous to the emergence of EU regulation on the subject, procurement affords a fertile floor for comparative public regulation scholarship. Extra not too long ago, as EU procurement coverage more and more seeks to advertise cross-border collaboration, procurement can also be turning into a driver (or an irritant) for the transnational regulation of administrative processes and a residing lab for experimentation and authorized innovation.
From a barely broader perspective, public procurement may be seen as a device for the self-organisation of the State and as a major conduit for the privatisation and outsourcing of State capabilities. A choice previous procurement considerations the dimensions and form of the State, particularly in relation to which capabilities and actions the State carries out in-house (together with by means of public-public collaboration mechanisms), and which different are contracted out to the market (‘make or purchase’ choices). Procurement then controls the design and award of contracts involving the train of public powers, or the direct provision of public companies to residents the place market brokers are referred to as upon to take action (together with within the context of quasi-markets). Procurement thus closely influences the interplay between the State’s contractual brokers and residents, and turns into a device for the regulation of public service supply. The extra the State depends on markets for the supply of public companies, the bigger the potential affect (each constructive and unfavorable) of procurement mechanisms on residents’ expertise of their (oblique) interplay with the State. On this view, procurement is a device of public governance and a conduit for public-private cooperation, in addition to a regulatory mechanism for delegated public-public and public-private interactions. From this attitude, procurement is commonly seen as a neoliberal device intently linked to new public administration (NPM), though it ought to be confused that procurement guidelines solely activate as soon as the choice to resort to contracting out or outsourcing has been made, as EU regulation doesn’t mandate ‘going to market’.
From an excellent broader perspective, public procurement represents a extra complicated and multi-layered regulatory instrument. Given the big quantities of public funds channelled by means of public procurement, and the market-shaping results that may comply with from the train of such shopping for energy, procurement regulation is commonly used as a lever for the promotion of insurance policies and targets effectively past the narrower confines of procurement as a regulated administrative course of. Within the EU, procurement has at all times been an instrument of inner market regulation and sought to dismantle obstacles to cross-border competitors for the award of public contracts. Extra not too long ago, and according to developments in different jurisdictions, procurement has been more and more singled out as a device to advertise environmental and sustainability targets, in addition to social targets, or as a device to foster innovation. Procurement can also be more and more recognized as a device to foster compliance with human rights alongside more and more complicated provide chains, or to deal with social inequality, corresponding to by means of gender responsive procurement. Within the face of the challenges posed by the mainstreaming of digital applied sciences, and synthetic intelligence particularly, procurement can also be more and more recognized as a device of digital regulation. And, towards the background of rule of regulation challenges inside the EU, procurement conditionality has added to the fiscal management impact historically linked to the usage of EU funds to subsidise procurement initiatives at Member State degree. From this attitude, procurement is both an enforcement (or reinforcement) mechanism, or a self-standing regulatory device for the pursuit of an more and more numerous array of horizontal insurance policies searching for to steer market actions.
Relatedly, given the significance of procurement as an financial exercise, its regulation is of essential significance within the context of business and commerce insurance policies. The interplay between procurement and industrial coverage just isn’t solely easy, and neither is the place of procurement within the context of commerce liberalisation. Whereas there have been waves of coverage efforts searching for to minimise the usage of procurement for industrial coverage functions (ie the award of public contracts to nationwide champions), particularly given the State help implications of such makes use of of public contracts below EU regulation, and whereas there’s a basic push for the liberalisation of worldwide commerce by means of procurement—there are additionally periodic waves of protectionism the place procurement is used as a device of worldwide financial regulation or, extra broadly, geopolitics. Most not too long ago, the EU has aggressively (re)regulated entry to its procurement markets on grounds of such issues.
It might be unimaginable to deal with all the problems that come up from the regulation of public procurement in all these (and different potential) dimensions inside a single entry. Right here, I’ll contact upon some the problems highlighted by latest developments in EU regulation and coverage, and in relation to modern debates across the salient grand challenges encapsulated within the want for procurement to assist the ‘twin transition’ to inexperienced and digital. I cannot concentrate on the element of procurement guidelines, which is healthier left to in-depth evaluation (eg Arrowsmith [2014] and [2018], Steinicke and Vesterdorf [2018], or Caranta and Sanchez-Graells [2021]). There are a couple of frequent threats within the developments mentioned under, particularly in relation to the rising complexity of procurement policymaking and administration, or the essential function of experience and functionality, in addition to some challenges in coordinating them in a method that generates significant outcomes. I’ll briefly return to those points within the conclusion.
II. Procurement, Commerce, and Geopolitics
A relentless rigidity within the regulation of procurement considerations the openness of procurement markets. On the one hand, procurement could be a catalyst for commerce liberalisation and there are lots of financial benefits stemming from elevated (worldwide) competitors for public contracts—as evidenced within the context of the World Commerce Organisation Authorities Procurement Settlement (WTO GPA) (Georgopoulos et al [2017]). Within the narrower context of the EU’s inner market, public procurement openness is taken to its logical extremes and obstacles to cross-border tendering are systematically dismantled by means of laws, corresponding to the newest 2014 Public Procurement Package deal, and its interpretation by the Courtroom of Justice. Whereas there may be disparity in nationwide follow, the (full) openness of procurement markets within the EU tends to not solely profit EU tenderers, but additionally these of third nations, who are typically handled equally with EU ‘home’ tenderers.
Then again, the identical (worldwide) competitors that may convey financial benefits also can put strain on (much less aggressive) home industries or create dangers of uneven enjoying area—particularly the place (international nationwide champion) tenderers are propped up by their States. In some industries and in relation to some essential infrastructure, the award of oftentimes giant and delicate public contracts to international undertakings additionally generates considerations round security and sovereignty.
A mechanism to mediate this rigidity is to make procurement-related commerce liberalisation conditional on reciprocity, which in flip leverages multilateral devices such because the WTO GPA. That is an space the place EU regulation has not too long ago generated important developments. After protracted negotiations, EU procurement regulation now includes a set of three devices searching for to rebalance the (full) openness of EU procurement markets.
As a place to begin, below EU regulation, solely international financial operators coated by an present worldwide settlement (such because the WTO GPA, or bilateral or multilateral commerce agreements concluded with the EU that embrace commitments on entry to public procurement) are entitled to equal remedy. Nevertheless, differential remedy or outright exclusion of financial operators not coated by such equal remedy obligation tends (or has traditionally tended to) be uncommon. This may be seen to weaken the hand of the European Fee in worldwide negotiations, as EU procurement markets are de facto nearly solely open, whatever the far more restricted authorized openness ensuing from these worldwide agreements.
To nudge contracting authorities to implement differential remedy, in 2020, the European Fee issued steering on the participation of third nation bidders and items in EU procurement markets, stressing the a number of methods wherein public consumers may handle considerations relating to unfair aggressive benefits of international tenderers. This ought to be seen as a primary step in direction of ramping up the ‘rebalancing’ of entry to EU procurement markets, although it’s a gentle (regulation) step and one that might nonetheless hinge on coordinated decision-making by a really giant variety of public consumers making tender-by-tender choices.
A second and essential step was taken in 2022 with the adoption of the EU’s Worldwide Procurement Instrument (IPI), which empowers the European Fee to hold out investigations the place there are considerations about measures or practices negatively affecting the entry of EU companies, items and companies to non-EU procurement markets and, ultimately, to impose (centralised) IPI measures to limit entry to EU public procurement procedures for companies, items and companies from the non-EU nations involved. The primary impact of the IPI may be anticipated to be twofold. Outwardly, the IPI will result in the European Fee having ‘a stick’ to push for reciprocity in procurement liberalisation as a complement to ‘the carrot’ used to steer increasingly nations to enter into bilateral commerce offers, or for them to affix the WTO GPA. Internally, the IPI will enable the Fee to mandate Member States to implement the related restrictions or exclusions from the EU procurement markets in relation to the jurisdictions involved. That is anticipated to deal with the problem of de facto openness past present (worldwide) authorized necessities, and subsequently galvanise the power of the Fee to regulate entry to ‘the EU procurement market’ and thus bolster its capability to make use of procurement reciprocity as a device for commerce liberalisation extra successfully.
A 3rd and closing essential step got here with the adoption in 2023 of the Regulation on international subsidies distorting the interior market, which creates a mechanism for the management of potential international subsidies in tenders for contracts with an estimated worth above EUR 250 million, and also can consequence within the imposition of (centralised) measures curving entry to the related contracts by the beneficiaries of these international subsidies. This involves someway create a global useful equal to the State help management in place for home tenders, in addition to a mechanism for the EU to implement worldwide anti-dumping requirements inside its personal jurisdiction.
This pattern of evolution in EU public procurement regulation evidences that public consumers are more and more constrained by geopolitical and worldwide financial issues administered by the European Fee in a centralised method (Andhov and Kania [2023]). Whether or not this may create friction between the Fee and Member States, maybe in relation to notably essential or delicate procurement initiatives, stays to be seen. In any case, this line of coverage and authorized developments generates elevated complexity within the administration of procurement processes on a day-to-day foundation, and would require public consumers to develop experience within the evaluation of the related trade-related devices and related documentation, which might be a theme in frequent with different developments mentioned under.
III. Procurement and Sustainability
It’s comparatively uncontroversial that public expenditure has an important function to play in supporting (or driving) the transition in direction of a extra sustainable economic system, and most jurisdictions explicitly think about tips on how to harness public expenditure to decarbonise their economic system and obtain web zero targets—generally within the broader context of efforts to realize interlinked sustainable improvement targets. Nevertheless, the small print on the precise sustainability targets to be pursued by means of procurement (as in comparison with different technique of public funds, corresponding to subsidies or tax incentives), and on tips on how to design and implement sustainable procurement are extra contested.
Inexperienced procurement has been a major focus of EU public procurement coverage for a very long time now, and it has acquired even additional elevated consideration in recent times, culminating within the attribution of a outstanding function for the implementation of the EU’s Inexperienced Deal. EU procurement regulation has been more and more permissive and facilitative of the inclusion of environmental issues in procurement decision-making and the European Fee has developed units of steering and technical documentation which might be saved below everlasting evaluate and replace. Total, EU procurement regulation affords a various toolkit for public consumers to embed sustainability necessities.
Nevertheless, the uptake of inexperienced procurement is way decrease than can be fascinating and progress may be very uneven throughout jurisdictions and in several sectors of the economic system. There’s a rising realisation that facilitative or permissive approaches won’t consequence within the fast generalisation of sustainability considerations throughout procurement follow required to contribute to mitigating the devastating results of local weather change in a well timed style, or with ample scale. Informational and expertise obstacles, tough financial assessments and competing (political) priorities essentially decelerate the uptake of sustainable procurement. On this context, it appears clear that technical complexity within the administration of procurement on a day-to-day foundation, and restricted technical expertise in relation to sustainability assessments, are the first impediment within the highway to mainstreaming sustainable public procurement. It’s arduous for public consumers to establish the related sustainability necessities and to embed them of their decision-making, particularly the place the inclusion of such necessities is certain to be checked towards its suitability, proportionality, and its impact on potential competitors for the related public contract.
To beat this impediment, it appears clear {that a} extra proactive or prescriptive strategy is required and that sustainability necessities should be embedded in laws that binds public consumers—in order that their function turns into one among (bolstered) compliance evaluation or oblique enforcement. The query that arises, and which reopens age outdated discussions, is whether or not such laws ought to solely goal public procurement (Janssen and Caranta [2023]) or fairly be of basic utility throughout the economic system (Halonen [2021]).
This controversy evidences totally different understandings of the function of procurement-specific laws and totally different ranges of concern with the partitioning of markets. Whereas the passing of procurement-specific laws may very well be simpler and politically extra palatable—as it could be perceived to finally impose the related burden on financial operators searching for to realize public enterprise (and so embed a sure component of opt-in or balanced regulatory burden towards the prospect of accessing public funds), and the fee would finally fall on public consumers as ‘accountable (sustainable) consumers’—it could partition markets and eg probably stop the era of economies of scale the place public demand just isn’t majoritarian. Furthermore, such market partitioning would elevate entry obstacles for entities new to bidding for public contracts, in addition to facilitate the emergence of anticompetitive and collusive practices within the extra concentrated and partly remoted from potential competitors ‘public markets’ (Sanchez-Graells [2015]) in ways in which basic laws wouldn’t. Extra typically, advances in mandating sustainable procurement may deactivate the strain for developments in additional basic sustainability mandates, as policymakers may declare to already be doing important efforts (within the slim setting of procurement).
A slim sectoral strategy to legislating for public procurement solely would in all probability additionally over-rely on the hopes that procurement practices can develop into greatest practices and thus disseminate themselves throughout the economic system by means of some understanding of mimicking, or race to the highest. This pertains to discussions in different areas and to the broader expectation that procurement could be a pattern setter and affect business follow and requirements. Nevertheless, because the dialogue on digitalisation will present, the path of affect tends to be on reverse and there are very restricted mechanisms to advertise or power business adaptation to procurement requirements aside from in relation to direct entry to procurement.
IV. Procurement and the ‘Digital Transformation’ of the State
One other space of rising consensus is that public procurement has a key function to play within the ‘digital transformation’ of the State, as the method of digitalisation is certain to depend on the acquisition of know-how from market suppliers to a big or sole extent (relying on every jurisdiction’s make or purchase choices). This will in flip facilitate the function of procurement as a device of digital industrial coverage, particularly as a result of procurement expenditure could be a method of guaranteeing demand for innovation, and since public sector know-how adoption can be utilized as a website for experimentation with new applied sciences and new types of technology-enabled governance.
The European Union has set very excessive expectations in its Digital Agenda 2030, and the Fee has not too long ago confused that reaching them would require roughly doubling the anticipated degree of public procurement expenditure in digital applied sciences, and synthetic intelligence (AI) particularly. It may thus be anticipated that the procurement of digital applied sciences will shortly acquire sensible significance even in jurisdictions which have been lagging up to now.
Nevertheless, echoing a number of the points regarding sustainable procurement, on this second stream of the ‘twin transition’, the uptake of procurement of digital applied sciences is slowed down by the complexity of procuring unregulated immature applied sciences, and the (digital) expertise gaps within the public sector—that are exacerbated by the absence of a toolkit of regulatory and sensible sources equal to that of inexperienced procurement. In such a context of technological fluidity and hype, given the talents and energy imbalances between know-how suppliers and public consumers, the shortcomings of the usage of public procurement as a regulatory mechanism develop into stark and the failings within the logic or expectation that procurement may be an efficient device of market steering are laid naked (Sanchez-Graells [2024]).
Public consumers are anticipated to behave as accountable AI consumers and to make sure the ‘accountable use of AI’ within the public sector. The EU AI Act will quickly set up particular necessities in that regard, though solely in relation to high-risk AI makes use of as outlined therein. Implementing the necessities of the EU AI Act—and their extension to different forms of makes use of of digital know-how or algorithms as a matter of ‘greatest follow’—will leverage procurement processes and, particularly, the following public contracts to impose the related obligations on know-how suppliers. In that connection, the European Fee has promoted the event of mannequin contractual AI clauses that search to manage the know-how to be procured and their future use by the related public sector deployer.
Nevertheless, an evaluation of the mannequin clauses and broader steering on the procurement of AI exhibits that public consumers will nonetheless face a really steep information hole as will probably be tough to set the element of the related contracts, which is able to are typically extremely context dependent. In different phrases, the mannequin clauses should not ‘plug and play’ and implementing significant safeguards within the procurement and use of AI and different digital applied sciences would require superior digital expertise and ample business leverage—which aren’t to be taken as a given. Crucially, all obligations below the mannequin clauses (and the EU AI Act itself) hinge on (self-assessment) processes managed by the know-how supplier and/or refer again to technical requirements or the state-of-the-art, that are pushed and closely influenced (or solely managed) by the know-how business. Public consumers are at a big drawback not solely to set, but additionally to observe compliance with related necessities.
This exhibits that, within the absence of necessary necessities and binding (basic) laws, the usage of procurement for regulatory functions has a excessive threat of business dedication and regulatory tunnelling as public consumers with restricted expertise and capabilities battle to impose necessities on know-how suppliers, and the place references to requirements additionally displace regulatory decision-making. Because of this public procurement can now not be anticipated to ‘monitor itself’, and that new types of institutional oversight are required to make sure that the procurement of digital applied sciences works within the broader public curiosity.
V. Conclusion
Though the problems mentioned above could seem fairly disparate, they share a couple of frequent threads. First, in all areas, the regulatory use of procurement generates complexity and makes the day-to-day administration of procurement processes extra complicated. It may be arduous for a public purchaser to navigate socio-political, sustainability and digitalisation considerations—and these are solely a number of the ‘non-strictly procurement-related’ considerations and issues to be taken into consideration. Such issue may be compounded by restricted capabilities and by gaps within the required expertise. Whereas that is notably clear within the digital context, the problem of restricted (technical) functionality can also be extremely related in relation to sustainable procurement. An imbalance in expertise and business leverage between the general public purchaser and know-how suppliers undermines the logic of utilizing procurement as a regulatory device. Implementation points thus require a lot additional thought and funding than they at the moment obtain.
Finally, the effectiveness of the regulatory targets underpinning the leveraging of procurement hinges on the power of public consumers to meaningfully implement them. This raises the additional query whether or not all targets may be achieved on the similar time, particularly the place there may be tough trade-offs. And there may be a lot of these. For instance, it may well effectively be that the offeror of probably the most enticing know-how comes from a ‘black-listed’ jurisdiction. It can be that probably the most enticing know-how can also be probably the most polluting, or one which raises important different dangers or harms from a social perspective, and so forth. Navigating these dangers and making the (implicit) political selections could also be too taxing a job for public consumers, in addition to elevate problems with democratic accountability extra typically. Furthermore, enabling public consumers to take care of these points and to train judgement and discretion reopens the door to dangers of eg bias, seize or corruption, in addition to maladministration and error, that are a number of the core considerations within the slim strategy to the regulation of procurement as an administrative process to being with. These trade-offs are additionally pervasive and arduous to evaluate.
It’s tough to foresee the long run, however my instinct is that the pattern of piling up of regulatory targets on procurement’s shoulders might want to decelerate or reverse whether it is meant to stay operational, and {that a} return to a extra paired down understanding of the function of procurement will have to be enabled by the emergence of (typically relevant) laws and exterior oversight mechanisms that may discharge procurement of those regulatory roles. Or, not less than, that’s the method I wish to see the broader regulation and policymaking round procurement to evolve.
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