High Level Conference on Public Procurement

Toespraak | 30-06-2011

Members of the European Parliament, ladies and gentlemen,

Through the ages, public procurement has always been important. A good example is the public contract of 1657 to dig the Leidsevaart, a canal connecting two important cities in Holland: Leiden and Haarlem. This was a major contract, as such canals, used by horse-drawn passenger boats , were the highways of the time. Various Dutch cities published tenders for different ‘lots’ of the contract so that different sections of the canal could be worked on at the same time. This creative approach speeded up the digging of the 30-kilometre waterway spectacularly. The Leidsevaart was opened only eight months after the contract was issued.

All this happened over 350 years ago. But the way the contract was awarded is still relevant to Europe today. We all want procedures to be swift, efficient and flexible. The European framework is an excellent starting point – there is no reason to start over.

But as Commissioner Barnier rightly says, we need to simplify and modernise the public procurement rules and improve access to public contracts for small and medium-sized enterprises.

Where do we stand?

The stakes are high. No less than 17 per cent of the European Union’s GDP is spent on public procurement. About one-fifth is covered by the current EU directives on public procurement.

There is no question about it: since the 1970s, the directives have played an important role in opening up the European market for public contracts, in stimulating competition and in lowering public expenditure. They did so by creating transparent procedures and ensuring non-discrimination. These procedures opened up new opportunities for companies. In other words, we should cherish the principles of transparency, non-discrimination and efficient markets.

But there is a downside to the current public procurement framework. The rules are very detailed and impose high costs on companies and governments. The rules are very detailed and impose high costs on companies and governments. The burdensome public procurement procedures are one of the most common problems mentioned by public authorities and businesses, especially SMEs.

And we still can hardly speak of an internal market for public procurement. Only 3.6 per cent of money spent on public contracts goes directly to companies across borders. This is partly due to language barriers – an obstacle we have to live with. But there are obstacles that we can remove.

So the time is right to review the rules on public procurement.

I believe we should do so at both European and national level, as we are doing in the Netherlands. The review should also help us meet the challenges that European economies are facing today and achieve the wider objectives of the Europe 2020 Agenda. That is what we are here to talk about.

Where do we want to go?

So where do we want to go? What do we want to achieve? Basically, we want procedures that are simpler, cheaper and smarter. Why? To stimulate growth, innovation and sustainability. And to increase opportunities for small and medium-sized enterprises.

This ties in perfectly with the Europe 2020 strategy adopted by the European Council a year ago. A long-term strategy for smart, sustainable and inclusive growth and employment.

To achieve these objectives, we need to quickly address structural weaknesses in our economies.

I would like to thank Commissioner Barnier for injecting new energy into the single market. And I welcome his Single Market Act to complete the internal market, as it will strengthen the competitiveness of European businesses. This requires us to remove unnecessary barriers and focus on taking action that contributes most to growth and jobs.

Public procurement plays a key role in the Single Market Act. That is why European leaders and the Commission want public procurement to:

• help stimulate innovation;
• support the shift towards a resource-efficient, low-carbon economy by encouraging green public procurement; and
• help improve the business climate, especially for innovative SMEs.

Smart regulation is an effective way to improve the climate for businesses and innovation.

How do we get there?

So how can we make public procurement rules simpler, cheaper and more efficient? And at the same time make them green, inclusive and conducive to growth and innovation?

In my opinion, we should:

• first, continue cutting red tape;
• second, make life easier for SMEs by raising the thresholds;
• third, modernise procedures by introducing more flexibility.

Let me address each of these proposals in turn.

First, how can we make public procurement less burdensome?

For starters, we need to maintain our ambition to reduce the administrative burden for companies. In the Netherlands, we have committed ourselves to a 20 per cent reduction of the administrative burden over four years.

One of the things we aim to introduce is the ‘self declaration’. This little piece of paper will drastically reduce the piles of paperwork previously submitted to contracting authorities. Companies participating in a tender will simply declare that they can submit all the mandatory documents if needed, from tax declarations to licences and attestations. But only the company that wins the bid – or the short-listed ones – will be asked to do so.

I believe this ‘self declaration’ is worth introducing in the directives. Research has shown that, in the Netherlands, bidding costs would be reduced by over 30 million euros if a uniform declaration form were used for all European tenders.

Second, I advocate raising the thresholds substantially for supplies and services. This would make life easier for SME’s and substantially lower the costs of European procurement procedures.

For smaller European contracts, the transaction costs for both purchasers and companies are currently excessive. How can we justify total procurement costs of 30 per cent on contracts with a value that is close to the European threshold of 125.000 euros? This is outrageous -- especially now, at a time when governments struggle to cut spending!

According to the report that the Commission published last week, tender costs would not exceed 6 to 9 per cent of contract value if we raised the threshold to 390.000 euro.

Raising the thresholds also allows for lighter national procedures for smaller contracts. This would especially benefit SMEs. And it fits in with the principle of subsidiarity: European procurement procedures if we must, and national tailor-made solutions if we can.

My third proposal is to introduce more flexibility. For instance, I am in favour of applying the negotiated procedure with prior notice as a more standard procedure, since it tends to be cheapest and most flexible. I would also include in the directive that a market consultation prior to a formal tender is a good practice. It allows businesses to present solutions to the purchasing authority, which can then write a tender knowing what companies can offer.

Why is this important? Because you can only make the best buy if you know what products and services are available. Big companies usually know everything about their suppliers and the market. But public authorities, especially at local level, often lack this knowledge. As a consequence, they may not get the best solution available. Better communication between purchasers and suppliers helps us to spend tax euros more effectively. And to increase sustainability and innovation.

I know that increasing the use of market consultations and the negotiated procedure requires a shift in mind-set. Until now, public purchasers have been reluctant to talk to companies prior to or during a tender, as they fear being accused of favouring one company over another. But this pitfall can be avoided by disclosing all relevant information to all participants during the tender procedure.

Avoiding unnecessary regulations

At a more philosophical level, introducing more flexibility in the procedures means accepting that reality cannot always be captured in detailed rules. The initial legalistic approach was understandable in the 1970s. Now, it is time to focus less on rules, and more on effectiveness.

This requires a professional approach to procurement. Contracting authorities have acquired a lot of knowledge and experience in the past thirty years. We should continue to build on this knowledge and experience and focus on increasing the expertise of procurement professionals. This would shift the focus from merely following the rules to buying the right thing at the right price.

Local governments can increase their professionalism and save on human resources by working together and pooling their knowledge. An inspiring example is the Southeast Brabant procurement cooperation centre BIZOB, in which eighteen municipalities work together on public procurement.

Professionalising the procurement process does not require new laws. But it could help to develop verification marks and certificates at European level, for instance on sustainability and fair trade. These could serve as references in public procurements.

The Commission could also help increase cost-effectiveness by taking measures to promote e-procurement and to increase the interoperability of national e-procurement systems.

Governments should use their purchasing power to make our economies greener, more inclusive and more innovative. But we do not believe that legally binding criteria are the best way to achieve such goals. Obligations would unnecessarily restrict the latitude given to public purchasers in finding the best way to spend efficiently and achieve policy goals. That is why we support voluntary principles on sustainable procurement. [We should always ask ourselves if public contracts are the best way to achieve our policy goals, or if they can be achieved through generic legislation or other policy instruments instead.

The Netherlands has been a pioneer in the field of sustainable purchasing. Our government is committed to achieving one hundred per cent sustainable procurement. In our experience, it is best to use functional criteria to achieve such a goal. This means telling bidders what we need and not what the products or services must look like in exact detail.

One of the practical lessons we have learned is that purchasers should be given adequate tools for achieving policy goals like sustainability, social inclusion and innovation. At the same time, they must be able to stipulate their own specific requirements and retain sufficient scope to determine the best way to reach policy targets.

So we should refrain from imposing detailed requirements at European level, and instead focus on tools to help purchasers make appropriate choices. [For instance, I would welcome it if the Commission developed a model to calculate life-cycle costs and made it available to public purchasers and companies. We should not impose a single European model, but it could certainly help purchasers make cost-effective choices.

Ladies and gentlemen,

I applaud the European Commission for launching this evaluation of European public procurement rules. Modernising and simplifying the rules is a lofty goal that should help us spend tax euros more efficiently, increase SME access to public contracts and help promote sustainability, social inclusion and innovation.

I believe modernisation requires smarter rules and less red tape, higher thresholds and more flexible procedures. Raising the thresholds to about 400.000 euro’s would drastically cut back tender costs.

History teaches us valuable lessons. 350 years after it was opened, the Leidsevaart between Leiden and Haarlem is still there. Although our modern highways have taken over their vital function, such canals were busy routes at the time. Their regular services transported millions of travellers over the years. There was only one problem with the schedule: in the 17th century, the church clocks in different Dutch cities sometimes showed widely different times. It was only in 1892 that all cities set their clocks to European time.

In a way, we are still synchronising our clocks today. To increase access for SMEs and promote sustainability, social inclusion and innovation.

To reach our goals, we need to simplify and modernise the rules. And constantly ask ourselves if rules are needed at all, and how detailed they really need to be.

I wish you a successful meeting.

Thank you.