This document has been prepared for the European Commission as part of a series of short papers on regional research and indicators produced by the Directorate-General for Regional Policy (WP 12/2017).

Summary

Based on previous DIGIWHISTresearch, we use a unique database of the EU-wide Tenders Electronic Daily (TED) which describes public procurement activities across the whole EU-28 between 2006-2015, through more than 4 million records. Each dimension of good governance as well as a composite score are calculated and their validity tested by comparing them to widely used regional indicators such as GDP/capita, European Quality of Government Index (EQI), or public service meritocracy. All tests confirm that the indicators proposed, based on prior academic and policy literature, are valid.

Public procurement plays a crucial role in economic development and the quality of government across the European Union (EU): on average, it amounts to about 13 % of GDP or 29 % of government spending (European Commission, 2016; OECD, 2015). It is a genuinely cross-cutting government function concerning virtually every public body, and is also one of the principal means by which governments can influence growth rates and the quality of public services. However, our understanding of the quality of public procurement processes and outcomes is very much in its infancy, which limits governments’ capacity to intervene in pursuance of specific public procurement as well as broader developmental objectives.

In order to enhance prosperity, human well-being and the territorial cohesion of the EU, the quality of governance (or quality of institutions) is a fundamental precondition. High-quality institutions are characterised by “the absence of corruption, a workable approach to competition and procurement policy, an effective legal environment, and an independent and efficient judicial system”, as well as “strong institutional and administrative capacity, reducing the administrative burden and improving the quality of legislation” (European Commission, 2014, p. 161). Such a broad understanding of institutional quality is also underpinned by
influential academic thinking focusing on impartial policy implementation rather than the content of policies or democratic decisionmaking processes (Rothstein & Teorell, 2008). Building on this focus on policy implementation, good governance in public procurement is assessed according to four main dimensions:

• Transparency (e.g. amount of information published in procurement announcements);
• Competition (e.g. average number of bidders);
• Administrative efficiency (e.g. length of decision-making period); and
• Corruption (e.g. the use of non-open, opaque procedure types).

The new indicators enable a detailed analysis of the quality of NUTS 3 and NUTS 2 regional public procurement governance according to the four above-mentioned dimensions, while changes over the last 10 years can also be explored. We find a mixed picture of regional convergence between 2006-2015 in the EU. While some Central and Eastern European regions have converged to the EU average, many Mediterranean regions have strongly diverged and, surprisingly, some well-governed Western and Northern European regions have also experienced a strong deterioration in governance quality. Overall, governance quality and competition in particular have deteriorated across the whole EU.

Based on novel findings, a small number of tentative policy recommendations are proposed:

1. Increase competition in public procurement by encouraging market entry of both local and non-local firms; for example, through: a) better use of e-procurement and especially the complete implementation of various electronic tools, such as e-submission, e-invoicing, or e-contract monitoring; b) a more extensive use of central purchasing bodies as well as framework agreements for homogenous, standard goods; c) improving auction and tender design by better accommodating bidder characteristics, such as the needs of SMEs; and d) reducing bureaucratic controls on public procurement processes combined with better monitoring of outcomes or incentives for administrators better aligned with public goals (e.g. pay for performance).
2. Understand the broader political and institutional antecedents of governance decay and design tailored solutions; for example, through: a) increasing pay for civil servants and political office holders and improving meritocracy in the public service; b) improving political competition; and c) better regulating political finance, campaign contributions, and personal connections between bidding firms and political office holders.
3. Understand better the contribution of procurement governance quality to the effectiveness of EU funds and regional convergence to boost critical functions.
4. Improve data quality and availability to support wider data use in ongoing policy implementation and design, through:
   a) improving data scope and quality via better legislation as well as investment in IT systems; b) combining TED data with national public procurement datasets in cases where the latter are of sufficient scope and quality; and c) encouraging the regular use of public procurement analytics in EU and national policy implementation and design (e.g. Tableau).

Publication URL: ec.europa.eu/regional_policy/sources/docgener/work/201703_regional_pp_governance.pdf