I was invited to provide an entry on ‘public procurement’ for the forthcoming Elgar Encyclopedia of European Law co-edited by Andrea Biondi and Oana Stefan. I must say I struggled to decide what to write about, as the entry was limited to 4,000 words and there are so many (!!) things going on in procurement. Below is my draft entry with perhaps an eclectic choice of content. Comments most welcome!
The draft entry is also available on SSRN if you prefer a pdf version: A Sanchez-Graells, ‘Public procurement’ in A Biondi and O Stefan, Elgar Encyclopedia of European Law (forthcoming) available at https://ssrn.com/abstract=4621399.
Public Procurement
I. Introduction
From up close, public procurement law can be seen as the set of mostly procedural rules controlling the way in which the public sector buys goods, services, and works from the market. Procurement would thus be a set of administrative law requirements concerned with the design and advertisement of tenders for public contracts, the decision-making process leading to the award of those contracts, and the advertisement and potential challenge of such decisions. To a more limited extent, some requirements would extend to the contract execution phase, and control in particular the modification and eventual termination of public contracts. From this narrow perspective, procurement would be primarily concerned with ensuring the integrity and probity of decision-making processes involving the management of public funds, as well as fostering the generation of value for money through effective reliance on competition for public contracts.
The importance and positive contribution of public procurement law to the adequate management of public funds may seem difficult to appreciate in ordinary times, and there are recurrent calls for a reduction of the administrative burden and bureaucracy related to procurement procedures, checks and balances. However, as the pervasive abuses of direct awards under the emergency conditions generated by the covid pandemic evidenced in virtually all jurisdictions, dispensing with those requirements, checks and balances comes with a very high price tag for taxpayers in terms of corruption, favouritism, and wastage of public funds.
Even from this relatively narrow perspective of procurement as a process-based mechanism of public governance, procurement attracts a significant amount of attention from EU legislators and from the EU Courts and is an area of crucial importance in the development of the European administrative space. As procurement regulation has been developed through successive generations of directives, and as many Member States had long traditions on the regulation of public procurement prior to the emergence of EU law on the topic, procurement offers a fertile ground for comparative public law scholarship. More recently, as EU procurement policy increasingly seeks to promote cross-border collaboration, procurement is also becoming a driver (or an irritant) for the transnational regulation of administrative processes and a living lab for experimentation and legal innovation.
From a slightly broader perspective, public procurement can be seen as a tool for the self-organisation of the State and as a primary conduit for the privatisation and outsourcing of State functions. A decision preceding procurement concerns the size and shape of the State, especially in relation to which functions and activities the State carries out in-house (including through public-public collaboration mechanisms), and which other are contracted out to the market (‘make or buy’ decisions). Procurement then controls the design and award of contracts involving the exercise of public powers, or the direct provision of public services to citizens where market agents are called upon to do so (including in the context of quasi-markets). Procurement thus heavily influences the interaction between the State’s contractual agents and citizens, and becomes a tool for the regulation of public service delivery. The more the State relies on markets for the provision of public services, the larger the potential influence (both positive and negative) of procurement mechanisms on citizens’ experience of their (indirect) interaction with the State. On this view, procurement is a tool of public governance and a conduit for public-private cooperation, as well as a regulatory mechanism for delegated public-public and public-private interactions. From this perspective, procurement is often seen as a neoliberal tool closely linked to new public management (NPM), although it should be stressed that procurement rules only activate once the decision to resort to contracting out or outsourcing has been made, as EU law does not mandate ‘going to market’.
From an even broader perspective, public procurement represents a more complex and multi-layered regulatory instrument. Given the enormous amounts of public funds channelled through public procurement, and the market-shaping effects that can follow from the exercise of such buying power, procurement regulation is often used as a lever for the promotion of policies and goals well beyond the narrower confines of procurement as a regulated administrative process. In the EU, procurement has always been an instrument of internal market regulation and sought to dismantle barriers to cross-border competition for the award of public contracts. More recently, and in line with developments in other jurisdictions, procurement has been increasingly singled out as a tool to promote environmental and sustainability goals, as well as social goals, or as a tool to foster innovation. Procurement is also increasingly identified as a tool to foster compliance with human rights along increasingly complex supply chains, or to address social inequality, such as through gender responsive procurement. In the face of the challenges posed by the mainstreaming of digital technologies, and artificial intelligence in particular, procurement is also increasingly identified as a tool of digital regulation. And, against the background of rule of law challenges within the EU, procurement conditionality has added to the fiscal control effect traditionally linked to the use of EU funds to subsidise procurement projects at Member State level. From this perspective, procurement is either an enforcement (or reinforcement) mechanism, or a self-standing regulatory tool for the pursuit of an increasingly diverse array of horizontal policies seeking to steer market activities.
Relatedly, given the importance of procurement as an economic activity, its regulation is of crucial importance in the context of industrial and trade policies. The interaction between procurement and industrial policy is not entirely straightforward, and neither is the position of procurement in the context of trade liberalisation. While there have been waves of policy efforts seeking to minimise the use of procurement for industrial policy purposes (ie the award of public contracts to national champions), in particular given the State aid implications of such uses of public contracts under EU law, and while there is a general push for the liberalisation of international trade through procurement—there are also periodic waves of protectionism where procurement is used as a tool of international economic regulation or, more broadly, geopolitics. Most recently, the EU has aggressively (re)regulated access to its procurement markets on grounds of such considerations.
It would be impossible to address all the issues that arise from the regulation of public procurement in all these (and other potential) dimensions within a single entry. Here, I will touch upon some the issues highlighted by recent developments in EU law and policy, and in relation to contemporary debates around the salient grand challenges encapsulated in the need for procurement to support the ‘twin transition’ to green and digital. I will not focus on the detail of procurement rules, which is better left to in-depth analysis (eg Arrowsmith [2014] and [2018], Steinicke and Vesterdorf [2018], or Caranta and Sanchez-Graells [2021]). There are a few common threats in the developments discussed below, especially in relation to the increasing complexity of procurement policymaking and administration, or the crucial role of expertise and capability, as well as some challenges in coordinating them in a way that generates meaningful outcomes. I will briefly return to these issues in the conclusion.
II. Procurement, Trade, and Geopolitics
A constant tension in the regulation of procurement concerns the openness of procurement markets. On the one hand, procurement can be a catalyst for trade liberalisation and there are many economic advantages stemming from increased (international) competition for public contracts—as evidenced in the context of the World Trade Organisation Government Procurement Agreement (WTO GPA) (Georgopoulos et al [2017]). In the narrower context of the EU’s internal market, public procurement openness is taken to its logical extremes and barriers to cross-border tendering are systematically dismantled through legislation, such as the most recent 2014 Public Procurement Package, and its interpretation by the Court of Justice. While there is disparity in national practice, the (complete) openness of procurement markets in the EU tends to not only benefit EU tenderers, but also those of third countries, who tend to be treated equally with EU ‘domestic’ tenderers.
On the other hand, the same (international) competition that can bring economic advantages can also put pressure on (less competitive) domestic industries or create risks of uneven playing field—especially where (foreign national champion) tenderers are propped up by their States. In some industries and in relation to some critical infrastructure, the award of oftentimes large and sensitive public contracts to foreign undertakings also generates concerns around safety and sovereignty.
A mechanism to mediate this tension is to make procurement-related trade liberalisation conditional on reciprocity, which in turn leverages multilateral instruments such as the WTO GPA. This is an area where EU law has recently generated significant developments. After protracted negotiations, EU procurement law now comprises a set of three instruments seeking to rebalance the (complete) openness of EU procurement markets.
As a starting point, under EU law, only foreign economic operators covered by an existing international agreement (such as the WTO GPA, or bilateral or multilateral trade agreements concluded with the EU that include commitments on access to public procurement) are entitled to equal treatment. However, differential treatment or outright exclusion of economic operators not covered by such equal treatment obligation tends (or has historically tended to) be rare. This can be seen to weaken the hand of the European Commission in international negotiations, as EU procurement markets are de facto almost entirely open, regardless of the much more limited legal openness resulting from those international agreements.
To nudge contracting authorities to enforce differential treatment, in 2020, the European Commission issued guidance on the participation of third country bidders and goods in EU procurement markets, stressing the several ways in which public buyers could address concerns regarding unfair competitive advantages of foreign tenderers. This should be seen as a first step towards ramping up the ‘rebalancing’ of access to EU procurement markets, though it is a soft (law) step and one that would still hinge on coordinated decision-making by a very large number of public buyers making tender-by-tender decisions.
A second and crucial step was taken in 2022 with the adoption of the EU’s International Procurement Instrument (IPI), which empowers the European Commission to carry out investigations where there are concerns about measures or practices negatively affecting the access of EU businesses, goods and services to non-EU procurement markets and, eventually, to impose (centralised) IPI measures to restrict access to EU public procurement procedures for businesses, goods and services from the non-EU countries concerned. The main effect of the IPI can be expected to be twofold. Outwardly, the IPI will lead to the European Commission having ‘a stick’ to push for reciprocity in procurement liberalisation as a complement to ‘the carrot’ used to persuade more and more countries to enter into bilateral trade deals, or for them to join the WTO GPA. Internally, the IPI will allow the Commission to mandate Member States to implement the relevant restrictions or exclusions from the EU procurement markets in relation to the jurisdictions concerned. This is expected to address the issue of de facto openness beyond existing (international) legal requirements, and therefore galvanise the ability of the Commission to control access to ‘the EU procurement market’ and thus bolster its ability to use procurement reciprocity as a tool for trade liberalisation more effectively.
A third and final crucial step came with the adoption in 2023 of the Regulation on foreign subsidies distorting the internal market, which creates a mechanism for the control of potential foreign subsidies in tenders for contracts with an estimated value above EUR 250 million, and can also result in the imposition of (centralised) measures curving access to the relevant contracts by the beneficiaries of those foreign subsidies. This comes to somehow create an international functional equivalent to the State aid control in place for domestic tenders, as well as a mechanism for the EU to enforce international anti-dumping standards within its own jurisdiction.
This trend of evolution in EU public procurement regulation evidences that public buyers are increasingly constrained by geopolitical and international economic considerations administered by the European Commission in a centralised manner (Andhov and Kania [2023]). Whether this will create friction between the Commission and Member States, perhaps in relation to particularly critical or sensitive procurement projects, remains to be seen. In any case, this line of policy and legal developments generates increased complexity in the administration of procurement processes on a day-to-day basis, and will require public buyers to develop expertise in the assessment of the relevant trade-related instruments and associated documentation, which will be a theme in common with other developments discussed below.
III. Procurement and Sustainability
It is relatively uncontroversial that public expenditure has a crucial role to play in supporting (or driving) the transition towards a more sustainable economy, and most jurisdictions explicitly consider how to harness public expenditure to decarbonise their economy and achieve net zero targets—sometimes in the broader context of efforts to achieve interlinked sustainable development goals. However, the details on the specific sustainability goals to be pursued through procurement (as compared to other means of public finances, such as subsidies or tax incentives), and on how to design and implement sustainable procurement are more contested.
Green procurement has been a primary focus of EU public procurement policy for a long time now, and it has received even further increased attention in recent years, culminating in the attribution of a prominent role for the implementation of the EU’s Green Deal. EU procurement law has been increasingly permissive and facilitative of the inclusion of environmental considerations in procurement decision-making and the European Commission has developed sets of guidance and technical documentation that are kept under permanent review and update. Overall, EU procurement law offers a diverse toolkit for public buyers to embed sustainability requirements.
However, the uptake of green procurement is much lower than would be desirable and progress is very uneven across jurisdictions and in different sectors of the economy. There is a growing realisation that facilitative or permissive approaches will not result in the quick generalisation of sustainability concerns across procurement practice required to contribute to mitigating the devastating effects of climate change in a timely fashion, or with sufficient scale. Informational and skills barriers, difficult economic assessments and competing (political) priorities necessarily slow down the uptake of sustainable procurement. In this context, it seems clear that technical complexity in the administration of procurement on a day-to-day basis, and limited technical skills in relation to sustainability assessments, are the primary obstacle in the road to mainstreaming sustainable public procurement. It is hard for public buyers to identify the relevant sustainability requirements and to embed them in their decision-making, especially where the inclusion of such requirements is bound to be checked against its suitability, proportionality, and its effect on potential competition for the relevant public contract.
To overcome this obstacle, it seems clear that a more proactive or prescriptive approach is required and that sustainability requirements must be embedded in legislation that binds public buyers—so that their role becomes one of (reinforced) compliance assessment or indirect enforcement. The question that arises, and which reopens age old discussions, is whether such legislation should solely target public procurement (Janssen and Caranta [2023]) or rather be of general application across the economy (Halonen [2021]).
This controversy evidences different understandings of the role of procurement-specific legislation and different levels of concern with the partitioning of markets. While the passing of procurement-specific legislation could be easier and politically more palatable—as it would be perceived to ultimately impose the relevant burden on economic operators seeking to gain public business (and so embed a certain element of opt-in or balanced regulatory burden against the prospect of accessing public funds), and the cost would ultimately fall on public buyers as ‘responsible (sustainable) buyers’—it would partition markets and eg potentially prevent the generation of economies of scale where public demand is not majoritarian. Moreover, such market partitioning would raise entry barriers for entities new to bidding for public contracts, as well as facilitate the emergence of anticompetitive and collusive practices in the more concentrated and partly isolated from potential competition ‘public markets’ (Sanchez-Graells [2015]) in ways that general legislation would not. More generally, advances in mandating sustainable procurement could deactivate the pressure for developments in more general sustainability mandates, as policymakers could claim to already be doing significant efforts (in the narrow setting of procurement).
A narrow sectoral approach to legislating for public procurement only would probably also over-rely on the hopes that procurement practices can become best practices and thus disseminate themselves across the economy through some understanding of mimicking, or race to the top. This relates to discussions in other areas and to the broader expectation that procurement can be a trend setter and influence industry practice and standards. However, as the discussion on digitalisation will show, the direction of influence tends to be on reverse and there are very limited mechanisms to promote or force industry adaptation to procurement standards other than in relation to direct access to procurement.
IV. Procurement and the ‘Digital Transformation’ of the State
Another area of growing consensus is that public procurement has a key role to play in the ‘digital transformation’ of the State, as the process of digitalisation is bound to rely on the acquisition of technology from market providers to a large or sole extent (depending on each jurisdiction’s make or buy decisions). This can in turn facilitate the role of procurement as a tool of digital industrial policy, especially because procurement expenditure can be a way of ensuring demand for innovation, and because public sector technology adoption can be used as a domain for experimentation with new technologies and new forms of technology-enabled governance.
The European Union has set very high expectations in its Digital Agenda 2030, and the Commission has recently stressed that achieving them would require roughly doubling the predicted level of public procurement expenditure in digital technologies, and artificial intelligence (AI) in particular. It can thus be expected that the procurement of digital technologies will quickly gain practical importance even in jurisdictions that have been lagging so far.
However, echoing some of the issues concerning sustainable procurement, in this second stream of the ‘twin transition’, the uptake of procurement of digital technologies is slowed down by the complexity of procuring unregulated immature technologies, and the (digital) skills gaps in the public sector—which are exacerbated by the absence of a toolkit of regulatory and practical resources equivalent to that of green procurement. In such a context of technological fluidity and hype, given the skills and power imbalances between technology providers and public buyers, the shortcomings of the use of public procurement as a regulatory mechanism become stark and the flaws in the logic or expectation that procurement can be an effective tool of market steering are laid bare (Sanchez-Graells [2024]).
Public buyers are expected to act as responsible AI buyers and to ensure the ‘responsible use of AI’ in the public sector. The EU AI Act will soon establish specific requirements in that regard, although solely in relation to high-risk AI uses as defined therein. Implementing the requirements of the EU AI Act—and their extension to other types of uses of digital technology or algorithms as a matter of ‘best practice’—will leverage procurement processes and, in particular, the ensuing public contracts to impose the relevant obligations on technology providers. In that connection, the European Commission has promoted the development of model contractual AI clauses that seek to regulate the technology to be procured and their future use by the relevant public sector deployer.
However, an analysis of the model clauses and broader guidance on the procurement of AI shows that public buyers will still face a very steep knowledge gap as it will be difficult to set the detail of the relevant contracts, which will tend to be highly context dependent. In other words, the model clauses are not ‘plug and play’ and implementing meaningful safeguards in the procurement and use of AI and other digital technologies will require advanced digital skills and sufficient commercial leverage—which are not to be taken as a given. Crucially, all obligations under the model clauses (and the EU AI Act itself) hinge on (self-assessment) processes controlled by the technology provider and/or refer back to technical standards or the state-of-the-art, which are driven and heavily influenced (or entirely controlled) by the technology industry. Public buyers are at a significant disadvantage not only to set, but also to monitor compliance with relevant requirements.
This shows that, in the absence of mandatory requirements and binding (general) legislation, the use of procurement for regulatory purposes has a high risk of commercial determination and regulatory tunnelling as public buyers with limited skills and capabilities struggle to impose requirements on technology providers, and where references to standards also displace regulatory decision-making. This means that public procurement can no longer be expected to ‘monitor itself’, and that new forms of institutional oversight are required to ensure that the procurement of digital technologies works in the broader public interest.
V. Conclusion
Although the issues discussed above may seem rather disparate, they share a few common threads. First, in all areas, the regulatory use of procurement generates complexity and makes the day-to-day administration of procurement processes more complex. It can be hard for a public buyer to navigate socio-political, sustainability and digitalisation concerns—and these are only some of the ‘non-strictly procurement-related’ concerns and considerations to be taken into account. Such difficulty can be compounded by limited capabilities and by gaps in the required skills. While this is particularly clear in the digital context, the issue of limited (technical) capability is also highly relevant in relation to sustainable procurement. An imbalance in skills and commercial leverage between the public buyer and technology providers undermines the logic of using procurement as a regulatory tool. Implementation issues thus require much further thought and investment than they currently receive.
Ultimately, the effectiveness of the regulatory goals underpinning the leveraging of procurement hinges on the ability of public buyers to meaningfully implement them. This raises the further question whether all goals can be achieved at the same time, especially where there can be difficult trade-offs. And there can be many of those. For example, it can well be that the offeror of the most attractive technology comes from a ‘black-listed’ jurisdiction. It can also be that the most attractive technology is also the most polluting, or one that raises significant other risks or harms from a social perspective, etc. Navigating these risks and making the (implicit) political choices may be too taxing a task for public buyers, as well as raise issues of democratic accountability more generally. Moreover, enabling public buyers to deal with these issues and to exercise judgement and discretion reopens the door to risks of eg bias, capture or corruption, as well as maladministration and error, which are some of the core concerns in the narrow approach to the regulation of procurement as an administrative procedure to being with. Those trade-offs are also pervasive and hard to assess.
It is difficult to foresee the future, but my intuition is that the trend of piling up of regulatory goals on procurement’s shoulders will need to slow down or reverse if it is meant to remain operational, and that a return to a more paired down understanding of the role of procurement will need to be enabled by the emergence of (generally applicable) legislation and external oversight mechanisms that can discharge procurement of these regulatory roles. Or, at least, that is the way I would like to see the broader regulation and policymaking around procurement to evolve.
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