Press Releases

Fair competition in the awarding of Government contracts is held back in many EU Member States

Fair competition in the awarding of government contracts is held back in many EU Member States - that's the conclusion of a report published today by Alan Wood, chief executive of Siemens plc. The report also calls for wide-ranging reforms to improve public procurement across the EU.

Launched by the Chancellor of the Exchequer in the 2003 Pre-Budget Report, the review concludes that significant obstacles stand in the way of effective competition in EU public procurement markets, to the detriment of UK and other EU businesses. Despite the existence of single market rules in awarding public contracts, the report identifies complex public procurement procedures, unfair national preference, and wavering commitment to competition and market liberalisation as key factors holding back the creation of a competitive and dynamic EU public procurement market.

Specifically, the report identifies:

• contracts awarded to national suppliers even where foreign bidders are believed to offer better quality or price;
• contract requirements shaped to suit a given, national, supplier; or pressure applied to suppliers to use locally-based sub-contractors;
• overly legalistic approaches to public procurement;
• false competition where international bids are invited but there is little intention of awarding a contract to a non-national firm;
• splitting contracts into small lots to avoid detailed procurement rules;
• 'price-squeezing' to keep foreign competition out of a market, particularly where the state has a substantial stake; and
• instructing successful bidders on the location of manufacturing for a contract.

The report proposes a range of steps to improve the functioning of public procurement markets across the EU and to ensure that UK firms can compete effectively for contracts, including:

• action to identify and spread best practice among EU Member States, including the use of scorecards, where appropriate, to measure performance;
• action by Member States to open up more markets to public procurement and remove barriers to effective competition, as well as to raise the skills of procurement practitioners and to eliminate bad practice; and
• support from the UK Government through the Office of Government Commerce and UK Trade & Investment to help business compete successfully.

Highlighting the need for action by business too, the report also highlights a number of success factors which British businesses can apply to increase their chances of winning public procurement contracts in other EU countries (see Annex A).

Launching the report, Alan Wood said:

"There is significant evidence that many of the benefits of competition in public procurement across the EU remain untapped. This must change."

"Further action is needed to identify, evaluate and report on best practice. And there is a clear need to raise public procurement skills throughout the EU, and to deliver greater market opening in services, energy, defence, and transport in other EU markets."

"Comprehensive action at the EU level should complement Government action to improve competition within UK public procurement markets, including the recommendations of the Kelly Report on public procurement in the UK." [1]

The Chancellor of the Exchequer said:

"This is an essential element of the economic reform agenda and it cannot be ducked. To be effective, economic reform must include reform of the state aid regime."

"Europe needs to do more to create a genuine single market in public procurement, in which European and international rules are fairly applied, and to allow businesses to compete and create jobs across the EU."

"This report shows clearly that there is widespread preference for domestic industries in many parts of Europe."

"And people right across Europe will want to know why their governments are paying over the odds for services and equipment simply because they have refused to open up their markets and promote competition to achieve better value for money and a better quality of service."

"Other countries must open up their markets to fair competition. We will continue to promote the benefits of market opening and greater competition to other Member States and the European Commission so that British manufacturers and British workers do not lose out."

The Secretary of State for Trade & Industry said:

"It is vital that British businesses have a fair chance to compete for public procurement contracts across the EU."

"I welcome Alan Wood's report because it identifies the barriers faced by UK companies and suggests steps that businesses, Governments and the EU must take to address these obstacles."

"This Government has a good record on delivering open and competitive markets, and we will continue to push for a level playing field across the EU so that UK companies have a fair chance at competing for and winning public procurement contracts both here and in other Member States."

NOTES TO EDITORS

The Wood Review was announced by the Chancellor of the Exchequer in the 2003 Pre-Budget Report in response to comments from industry. It investigated UK businesses' experiences of competing for public contracts in other EU countries, including their concerns about unfair discrimination and different approaches to the application of single market public procurement rules. It reported to the Chancellor and to the Secretary of State for Trade and Industry. The Terms of Reference of the Review are on: www.woodreview.org

The review was led by Alan Wood (chief executive of Siemens plc and Chair of the EEF Economic Policy Committee), with the support of the Office of Government Commerce, and he was assisted by a Steering Group consisting of members from the EEF, the CBI, TUC, Office of Government Commerce (OGC), HM Treasury and the DTI.

Public procurement markets account for some 16 per cent of EU GDP. Effective competition in public procurement is essential to the proper functioning of the Single Market.

Public contracts must be awarded in the EU according to single market procurement rules. These include principles of equal treatment for all suppliers regardless of nationality, and transparency in contract award decisions.

For press enquiries please contact either Paul Kissack (HM Treasury Press Office) on 020 7270 5245 or David Prior, OGC Press Office on 020 7271 1381 or email david.prior@ogc.gsi.gov.uk

ANNEX A

Success factors for UK firms carrying out European public procurement

• Good products and services with reliable delivery and customer support services.
• Clear commitment to public procurement markets and the resource investment required
• Structural readiness for export [2]
• Relevant export support services have been investigated and used [3]
• Market research has been carried out; issues such as country-specific regulation, customer preferences, standards have been explored
• Niche or best-in-class product or service is offered
• Internationally recognised brand
• Clear and robust country-entry strategy in place
• A strategy of starting small has been considered, to avoid head-on competition with firms already well established in the market
• Familiarity with relevant EU public procurement rules
• Familiarity with informal problem-solving mechanisms in case problems occur
• Some form of local presence is in place (distribution agreement, joint-venture, local subsidiary, sub-contracting arrangements.)
• Linguistic skills and cultural understanding of the target country
• Sales representatives are natives of the country, or at least fluent in the language, and well integrated within the local culture and business environment.
• Good relationships and dialogue are in place with potential and actual clients
• Competitive bid
• Good fit with client requirements
• Pragmatic approach to difficulties and cultural differences, and adaptability to customer requirements.

Footnotes

[1] Increasing Competition and Improving Long-Term Capacity Planning in the Government Market Place, OGC, December 2003 [back]

[2] As assessed by support services such as UKTI or Euro Info Centres for example. [back]

[3] Such as UKTI (Business Link, Regional Development Agency or overseas consulate) or Euro Info Centre. [back]