EU wants to steer 600 billion euros in public procurement to support European industry

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BRUSSELS — The EU wants to transform public procurement into a powerful tool of industrial policy by channeling hundreds of billions of euros spent on infrastructure, schools, energy or health toward European businesses.

In its Public Procurement Act unveiled on Wednesday, Ursula von der Leyen’s Commission is following up on recommendations by economic reform guru Mario Draghi to give a lift to struggling European industry while shielding the bloc from external risks in an increasingly uncertain world.

The sums involved are huge. Public procurement represents up to 15 percent of the EU’s GDP — or around €2.5 trillion a year. Of that, some €600 billion is governed by EU rules, Executive Vice President Stéphane Séjourné told reporters.

“This is public money, which must also serve our collective goals,” the French commissioner said. “It’s the equivalent of a yearly recovery plan and about four to five times the EU budget in terms of spending.”

The Commission is also promising annual cost savings of €650 million for public authorities as three old directives and two dozen sectoral laws — spanning 900 pages — are boiled down into a single regulation running to just 200 pages. That ties in with von der Leyen’s broader second-term agenda of cutting red tape through a series of “omnibus” administrative reforms.

To harness public procurement to its strategic goal of strengthening European industry, the EU executive is betting on quality as the main driver in the awarding of public tenders. This would set a minimum quality weighting of 30 percent, rising to 50 percent for labor-intensive contracts. Environmental, social, innovation, security and resilience considerations would all count as quality.

Public authorities could still deviate from the rule if they can justify using price alone on the grounds that quality is guaranteed through technical specifications.

While public authorities can already put green or social criteria at the center of procurement, Commission research found that their use was neither optimal nor consistent across the bloc. Some contracting authorities, for example, fear litigation if they turn down the lowest-price offer.

European preference

The proposal also spells out how public authorities can favor EU goods and services — a power that they enjoy under existing rules but rarely use. Under the new rules, authorities could restrict participation, impose origin requirements, and reject tenders where EU or “covered” content accounts for less than 50 percent of the tender’s value.

The Commission’s goal is to provide greater clarity regarding how these rules are applied so that authorities can better evaluate European bids and, if necessary, exclude bids from non-covered countries, Séjourné said.

“In any case, it won’t be the European Commissioner’s fault if public procurement agencies choose Chinese buses over European ones, since everything is spelled out in the text and currently allows for the preference of European buses,” he added.

Goods that are covered by origin rules in other proposals, such as the Industrial Accelerator Act or the Critical Medicines Act would have to comply with both sets of rules.

Stealth omnibus

Séjourné described the procurement bill as “an act of radical simplification.” The Commission chose a regulation instead of a directive — over the objections of a majority of member countries. A regulation reduces the scope for divergent national transposition of EU procurement rules, making implementation in national law simpler and avoiding “gold-plating” by capitals.

The Public Procurement Act would also make it easier for companies to find and participate in tenders across the EU by introducing a network of digital platforms. There are currently 123 platforms across the bloc — either at national or at local level — and the Commission wants to make sure they all communicate with one another.

Different procedures are also simplified and boiled down to two.

The first is a standard, open procedure with offers being assessed before awarding the contract to the winning bid. The second is a “dynamic” procedure where a public authority pools companies that meet its criteria and later invites them to participate in a tender or negotiate for individual procurement opportunities.

Procuring innovation

The Commission is also seeking to address the longstanding EU problem of homegrown research failing to reach the market.

The bloc is a research powerhouse, but innovators and startups often can’t obtain the funding they need in the EU to market their products and scale up within the bloc. They turn to the U.S. for funding instead, or end up in the “valley of death,” which is when a company already has a viable product, but not the funding to market it.

The Commission’s answer is its proposed European Innovation Act, also announced on Wednesday, which aims to turn governments into major buyers of pre-commercial solutions.

“Innovative ideas developed in Europe too often fail to reach the market, scale across borders or generate new growth sectors,” it states.

The Innovation Act has been led by Bulgarian Research Commissioner Ekaterina Zaharieva, and was initially more ambitious. But the scope of the law was narrowed down after two negative opinions from the Commission’s quality watchdog, according to documents seen by POLITICO.

The EU massively lags other regions in governments procuring research or early-stage prototypes, with the proposal claiming that other regions are investing between five and eight times more than the EU in the public procurement of R&D.

One way to correct this is to create an EU-wide framework for pre-commercial procurement. Harmonizing the procedures should also allow for joint procurement by several public buyers across borders.

The Innovation Act will also seek to help companies to market their intellectual property, by establishing a new competence center in the EU’s Intellectual Property Office.

Finally, the Commission will also come up with a so-called innovation challenge. The idea is to let public authorities start with a problem rather than a product and pitch a “societal challenge” to the market.

This article has been updated.