Insights

The European Court of Auditors (the “ECA”) recently prepared a Special Report on Public procurement in the EU (the “Report”). This Report focuses on the results of an audit that was conducted by the ECA regarding the level of competition for public procurement in the EU’s single market over the last 10 years and the actions that were taken by the Commission and Member States to identify and address obstacles to competitive tendering.

One of the main conclusions reached by the ECA in its Report was that there was less competition in public procurement.

With respect to Malta, the ECA found that between 2011 and 2021:

• the use of direct awards increased;
• the share of single bidding in tenders decreased;
• the rate of rate of cross-border public procurement was below 10%;
• the share of contracts awarded based on lowest bid remained above 80%.

The Report was adopted by Chamber II, headed by Mrs. Annemie Turtelboom, Member of the European Court of Auditors, in Luxembourg during its meeting of 25 October 2023. The Report was published on 4 December 2023.

Background

The ECA conducted the audit to raise awareness regarding the level of competition that was achieved in public procurement 5 years after the deadline for the transposition of the public procurement directives into national law. Malta has transposed the respective Directives in Q4 of 2016. In its audit, the ECA made recommendations which are intended to contribute to improvements that could help the contracting authorities of Member States to obtain the best value for public money in their procurements.

The aim of the EU’s legal framework on public procurement is to ensure that a harmonised set of rules and procedures are applied when contracts are awarded. It comprises of several directives. Two directives were reformed in 2014, that is, Directive 2014/24/EU defining generally applicable public procurement rules; and Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors. Directive 2014/23/EU on the award of concession contracts was also introduced in 2014.

The point of the 2014 reform of the directives was to make procurement more flexible, with simplified procedures, thereby improving the access of SMEs to public contracts, and facilitating a more strategic use of public procurement to deliver better outcomes for societal and other public policy objectives.  Another aim of the reform was to reinforce transparency requirements and strengthen provisions on integrity to help prevent corruption and fraud.

Key Findings

The ECA concluded that there has been less competition in public procurement over the past 10 years. The level of competition for public contracts to deliver works, goods and services in the EU single market has since decreased. Furthermore, the Commission and Member States have not made systematic use of data available to identify the root causes of limited competition and only took limited action to address obstacles to competition in public procurement.

A specific issue identified by the ECA was direct awards. While the average in EU single market remained the same between 2011 and 2021, in Malta’s case the rate has since increased from close to 0% in 2011 to around 5% 2021.

ECA also found that the trend of single bidding in procurement procedures was on the increase. In fact, the average, in the EU single market, has increased from 23.5% in 2011 to 41.8% in 2021.

Malta, along with Croatia and Slovakia, were found to be outliers where the share of single bidding decreased from 2011 to 2021. However, the only 3 Member States which, at the end of 2021, had a share of single bidding which is less than 20% were Malta, Finland and Sweden. In Malta’s case the share of single bidding reduced from 30% in 2011 to around 15% in 2021.

ECA also found that there is limited volume of direct cross-border public procurement within the internal market. This relates to whether contracting authorities award public contracts to economic operators based outside that Member State. ECA concluded that while the rate was 2% in 1992, the rate has remained stable at around 5% between 2011 and 2021.

Malta had the 4^th highest rate of cross-border public procurement—close to 9% but was topped by Ireland at around 15% and Luxembourg at around 30%.

The ECA contended that the key objectives of the 2014 reform of the Directives have not been met:

• First, public procurement has not become simpler to administer, in particular, the length of administrative procedures has increased by 50% since 2011 to 2021.
• Second, the share of contracts awarded to SMEs has not increased overall.
• Third, contracting authorities are failing to implement strategic procurement.
• Fourth, integrity and transparency are still a challenge.

The promotion of strategic procurement with the goal to encourage greater consideration of environmental, social or innovative aspects had a limited impact with the share of procedures using award criteria other than price being very limited. Malta’s share of contracts awarded, based on the lowest bid, remained above 80%—which is a red flag according to the ECAin 2021. However, there was a marginal decrease from around 90% to 80%.

The ECA also found shortcomings in the Commission’s monitoring of public procurement in the EU and also that the Commission and Member States have taken limited action to address obstacles to competition in public procurement.

Key Recommendations

The ECA made 4 recommendations to the Commission:

1. To clarify and prioritise public procurement objectives;
2. To address the shortcomings of public procurement data;
3. To update the Commission tools to better monitor competition in public procurement; and
4. To deepen the root cause analysis and put forward measures to overcome key obstacles to competition and promote best practice.

The European Commission has since accepted all 4 recommendations.

A copy of the full Report, including the Commission’s replies, can be found here. [https://www.eca.europa.eu/en/publications?ref=SR-2023-28]

Please contact Clement Mifsud-Bonnici and Calvin Calleja in case of any queries. The authors would like to thank Rebecca Micallef for her help in drafting this note.