Public procurement is more than a quest for saving costs. It's about creating a competitive environment for suppliers that fosters innovation - all while maintaining fairness and transparency, (ultimately ensuring the best use of taxpayers' money).

However, a recent revelation by the European Court of Auditors sheds light on a worrying shift: Over the past decade, the competitive edge in bidding processes has been declining. 

What does this mean? We’re inching us closer to a landscape dominated by a handful of familiar faces vying for contracts - which should lead us to rethink our procurement strategies.

In this article, we’ll dive into the findings of the EU report, tackle the hurdles suppliers encounter, and, crucially, outline actionable steps buyers can take to breathe new life into supplier competition. 

Unpacking the European Court of Auditors' report

The European Court of Auditors' recent report on EU public procurement sheds light on significant trends over the last decade.

Let’s break down the key findings:

1. Rising trend of direct awards

In 2021, 15.8% of procurement was through direct awards, indicating a shift towards selecting from prequalified suppliers rather than open bidding. This method, known as 'direct award,' reflects buyers' preference for trusted, specialized suppliers, placing more focus on efficiency and established relationships over wider competitive processes.

Direct invites and open competitions have maintained a steady equilibrium in the market. This consistent strategy limits the pool of suppliers, which could potentially lead to fewer project bids. Which then has a direct influence on the diversity and competitiveness of public expenditures. Interestingly, data from the ECA reveals that the rate of direct awards has consistently hovered around 17.5% since 2011, which underscores the stability of this kind of public procurement method. 

2. Surge in single-bid procedures

From 2011 to 2021, procedures attracting only a single bid increased from 23.5% to 41.8%.

This indicates a decline in buyer attractiveness. In other words, leading to fewer competitive tenders and, in some cases, eliminating competition entirely. Which results in less choice and potentially higher costs for the public sector.

3. There’s a reduction in bidder numbers

The average number of bidders per procedure has fallen sharply from 5.7 to 3.2.

The effect? Limiting competition greatly affects how the B2G public procurement market works, leading to fewer suppliers in the field.

This change could lead to lasting impacts on the market by making it tougher for new suppliers to enter and trade with the public sector, which might affect the quality and affordability of public contracts.

4. It varies across regions and sectors

The report shows that competition levels vary, with sectors like construction experiencing more competition, while health services and transport see more single-bid situations.

Which calls for the need for more sector-specific procurement strategies to boost competition.

5. There’s limited cross-border procurement

Only 5% of contracts are from direct buying across country borders. This opens up a chance for saving money by allowing more cross-border buying in EU procurement.

Six supplier challenges in navigating public procurement

Exploring the public procurement field comes with major challenges for suppliers, particularly due to the high entry barriers that keep smaller SMEs from accessing public contracts.

These challenges hold suppliers back from joining in and also dampen competition and innovation in the market. 

Here's a look at the 6 main hurdles suppliers face:

1. Navigating complex bidding processes

Small and medium-sized enterprises (SMEs) frequently encounter high entry barriers and substantial costs when considering entering the public spending market, primarily due to the intricate bidding process. 

Detailed paperwork and strict administrative criteria can overwhelm these companies - keeping these smaller players from even trying.

The EU report highlights a significant issue: The time it takes to decide on a contract award has notably increased, from 62.5 days in 2011 to 96.4 days in 2021. This doesn't even include the time spent on appeal procedures against award decisions. 

A lengthy process like that adds significantly to the workload and stress involved in bidding, especially for smaller businesses. It's not just about extra paperwork, it's about the uncertainty and financial pressure that disproportionately affect SMEs.

2. Meeting high certification standards

A lot of contracts require suppliers to hold specific certifications or meet high industry standards, which can be both expensive and time-consuming for SMEs to obtain, effectively limiting their market access.

3. Overcoming information gaps

Another obstacle for SMEs is simply being unaware of available procurement opportunities. This kind of information asymmetry favors larger enterprises that have more resources to dedicate to finding these opportunities. 

4. Dealing with resource limitations

The financial and human resource demands of preparing bids, conducting market research, and meeting compliance requirements can stretch SMEs thin. In other words, making it difficult for them to compete effectively.

5. Bridging the experience divide

Less experienced SMEs can struggle with understanding the intricacies of procurement processes, evaluating risks accurately, and negotiating terms effectively. Which puts them at a disadvantage from the get-go. 

6. Improving communication

Lastly, poor communication between public sector buyers and suppliers can result in SMEs lacking the essential information to fulfill procurement criteria. 

How to revitalize supplier engagement: A strategic approach to procurement

In the complex world of public procurement, improving supplier involvement requires a blend of understanding external market forces and internal company dynamics. 

That’s why it's essential for procurement officers to effectively manage and align with internal stakeholders. 

Why? Because this alignment ensures that procurement strategies are not only understood across the organization but also fully supported. 

Steering the procurement process in a direction that focuses on fostering competition, managing suppliers effectively, and choosing functional over technical requirements is key.

How can procurement officers influence and align internal stakeholder dynamics for better outcomes?

Procurement officers are at a critical junction, dealing with pressures from both outside the organization and within. A common challenge is the broad lack of understanding about procurement among internal teams. 

Overcoming this challenge involves:

1. Highlighting the importance of competition: It’s vital to show internal teams why a competitive market is essential for the best procurement outcomes.

2. Focusing on supplier management: It's about persuading internal groups of the importance of strong supplier management to build beneficial relationships.

3. Prioritizing any functional requirements: Highlighting their alignment with business goals and their flexibility over rigid technical specifications: 

• Better overall business alignment: Functional requirements help procurement efforts support broad business objectives, improving supplier management and cost effectiveness.
• Adopting clear communication: Using simple language to describe needs helps everyone involved understand the project’s goals, bridging the gap between technical and non-technical stakeholders.
• Flexibility and adaptability: Focusing on what needs to be achieved at the time allows for easier changes as business needs grow.
• Vendor evaluation: Beginning with functional needs in vendor selection guarantees that solutions fulfill crucial requirements before delving into technical specifics. 

4. Proactive communication: Stressing the importance of announcing tenders early can prepare both the market and internal teams, improving transparency and outreach.

Strategies for enhancing procurement: Aligning business and market needs

Procurement isn't just buying and selling; it's about addressing the bigger needs of departments. 

It’s about guiding departments to see the value in competition, manage suppliers well, and prioritize practical needs over technical details. The goal is to build a procurement process that’s not only competitive but also matches the strategic goals of departments.

So, to keep competition healthy throughout the procurement process, especially during tender preparation, it’s crucial to:

1. Ensure open and early communication to make the procurement process clearer for any potential suppliers.
2. Carry out in-depth market research and outreach to understand and connect with the supplier community.
3. Customize contract opportunities to fit a wide range of suppliers, from small businesses to large corporations, which helps encourage innovation and diversity.
4. Keep evaluations fair and objective, and offer constructive feedback to help improve all future proposals.

So by focusing on these strategies, procurement officers can create a dynamic, inclusive, and innovative procurement ecosystem. A system that both supports the organization's long-term goals — and the needs of its stakeholders.

Conclusion

As we navigate the evolving terrain of public procurement, it's clear that a shift in strategies is crucial. 

By tuning into internal stakeholder expectations and focusing on essentials like competition, practical needs, and early market engagement, procurement officers are set to make the process of buying goods and services much more dynamic and appealing. 

This approach not only addresses any immediate business requirements - but also gears organizations up for more success in a dynamic, fast-paced market.  Prioritizing this change means we’ll create a lively, fair, and transparent space in public procurement.

(This article was originally posted to mercell.com and has been republished here)