Public buyers save money with cooperative procurement

Public purchasers, such as cities, public administrations, universities and hospitals often purchase goods and services on their own, failing to take advantage of the economies of scale that could be achieved by purchasing them jointly with other public bodies (also called “cooperative procurement”). For example, instead of buying body scanners individually, hospitals could make a larger order through a Central Purchasing Body (CPB), which would help them better cope with rising healthcare costs. On the supply side, higher value contracts motivate more companies to submit bids which increases competition among enterprises. This, leads to substantial savings through cooperative procurement when compared to individual purchases.

A report by the UK National Audit Office revealed that public bodies are paying a wide range of prices for the same products and services, including a 116% variation between the lowest and highest price paid for the same broad specification of paper. This difference was 169% for LCD computer monitors and 745% for black toner cartridges. These cost differences point to significant waste attributable to poor contract negotiation, lack of adequate competition for certain goods, and a failure to leverage the collective buying power of CPBs.

In reaction to these findings, centralised purchasing and joint cross-border procurements have been facilitated by the new EU public procurement legislation which EU countries had to transpose into national legislation by 18 April 2016.

In addition, the European Commission is supporting tailored action to spread the use of CPBs to help public administrations save money. This is often done in cooperation with the CPBs Public Procurement Network, an informal EU wide platform set up in 2013 by national CPBs to exchange experience and informal cooperation. The following projects are in progress:

• Supporting the establishment of new CPBs: There are plans to assist in the setting up of CPBs in cooperation with the CPBs Network in Bulgaria, the Czech Republic and Greece. This would be done on the basis of a check list of issues to be taken into account when an authority at national or regional/local level is considering establishing a CPB.
• Supporting innovative cooperation of SMEs/start-ups to enable them to compete with bigger enterprises for public tenders, particularly in cross-border procurements which involve buyers from different EU countries.
• Facilitating green, social and innovative procurement: Since CPBs purchase innovative products in larger quantities, this helps enterprises to cover the risk of investments, facilitating innovation spillover and helping to distribute new products or technologies in the wider economy.
• Facilitating SMEs access to CPBs: To counteract the unfavourable notion of CPBs by SMEs, the Commission is developing a joint procurement training to assist SMEs in accessing tenders and to include the needs of SMEs in the development of the CBP policy. Further efforts are being undertaken to include SMEs in the Public Procurement of Innovative Solutions scheme, and to share best practice on SMEs’ participation in CPB to improve their access to funds and avoiding late payments.

With this dialogue, the Commission intends to assist EU countries in the modernisation of public procurement processes and to improve the professionalisation of staff. This will help overcome and avoid systemic weaknesses in the over 250 000 public contract awarding bodies in the EU which cause inefficiencies and fragmentation in the procurement process.

Background

Cooperative procurement offers a series of advantages:

• greater bargaining power.
• higher professionalisation (e.g. gathered skills and market intelligence).
• reduced transaction costs and improved standardisation of products (e.g. compatible IT software and systems).
• increased efficiency of procurement through the exchange of best practice, particularly by CPBs which often play an advisory role for smaller and less experienced contracting authorities.
• simplification of budget control in administrations and subsequent savings due to the involvement of CPBs.

In addition, an analysis of the number of bidders per tender on the European TED database (Tenders Electronic Daily) showed that the number for a typical individual contract award increased from 5.4 to 12 for a CPB and to 10 for framework agreements. In this way, joint procurement leads to higher visibility, which could prompt more cross-border sellers to participate in tenders.

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