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Research Report / Water

Strengthening the efficiency of public procurement

Author(s): SAUSSIER Stéphane, TIROLE Jean

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Public procurement, the generic term used to refer to procurement contracts (traditional procurement), public service delegations (including concessions) and public private partnerships, currently represents today significant amounts of money as it is believed to account for nearly 15% of the GDP in France. Whilst the public procurement system must strive to achieve the best possible performance in terms of cost and service, its inefficiency is highlighted on a regular basis. In (actual) fact, substantial gains could be achieved through a more efficient management of the system.

The present report examines potential avenues of action, in the framework of the regulatory changes currently under way at European level, with the aim of increasing the efficiency of the public procurement system. The contracts upon which the public procurement system is based are subject to certain asymmetries of information (in that the company is more familiar with its costs and the economic environment than the public party) and contractual incompleteness (since it is impossible to foresee every possible event that might arise during the execution of the contract). This being the case, the economic analysis recommends that competitive forces be used wherever possible when it comes to selecting partners and that incentive mechanisms be put in place to establish a real commitment of the parties concerned. New European Directives regarding procurement contracts and concessions, approved in 2014 and expected to be transposed by 2016, will give public authorities greater flexibility to negotiate with companies at both the selection stage and the execution stage (renegotiation). We believe this change to be a positive and economically justified one. It is, however, crucial that it be supported by specific terms governing its management that are not currently outlined in the Directives.

Our recommendations are based on three key avenues, namely transparency, competition and expertise. The negotiation procedure must be supported by transparent information both prior to and following negotiation. During the execution stage, it must be possible for amendments to contracts to be contested without debilitating the process by facilitating an increase in the number of futile appeals. We also put forward a number of recommendations designed to encourage greater transparency where public procurement is concerned. For the purposes of intensifying competition at the tendering stage it would be useful to limit the number of electronic information platforms and to merge them towards a high-performance standardised model. At the same time, it is advisable to simplify procedures, to increase the professionalisation of public buyers and to centralise the most standard of purchases in order to benefit from economies of scale and pool the experience of public buyers. Finally, with regards to large-scale projects, we would recommend that a comparative evaluation be performed beforehand in order to determine the most appropriate public procurement tool to meet the needs of the public authorities concerned. The agency responsible for this prior evaluation would also perform ex post evaluations with a view to drawing lessons regarding the various tools and procedures available.

 This report is available both in English and in French