Comparative Analysis of the European Centralised Public Procurement

The role of public procurement is to ensure that public money is spent efficiently, while supporting goals important for society as a whole and economic development. It is well known that huge amounts of public money are spent by public procurement organisations, but the results of the literature also clearly show the importance of innovation (Edler and Uyarra, 2013; Uyarra and Flanagan, 2010; Rolfstam, 2013), environmental protection (Rainville, 2017; Cheng et al, 2018) or even the development of SMEs (Flynn, 2018/a; Ancarani et al, 2019; Hoekman and Taş, 2020). This paper examines a less-studied area, the organisational and economic background of public procurement, highlighting the issue of centralisation.

Public procurement-related researches have not paid much attention to the analysis of structures that form the basis of a centralised public procurement system. The stability and market-oriented characteristics of a centralised public procurement system have an impact on the innovativeness of central purchasing bodies (CPBs) and on the development of their service provider nature, which should be taken into account by countries with a less-developed public procurement culture. Economic literature has not paid much attention to the analysis of structures that form the basis of a centralised public procurement system, nor to those aspects which influence their stability and flexibility. International literature deals with the great extent of the structural study of procurement and public procurement practices (Patrucco et al., 2017, 2019; Aboelazm and Afandy, 2019; Flynn, 2018/b; Placek et al., 2018; Kakwezi and Nyeko, 2019). However, literature fails to develop such frameworks which help analyse and structure knowledge about the organisational forms. Analyses of the impact of centralisation are also appearing, where a positive linkage is found between the levels of centralisation, digitalisation and procurement performance in Italy and the USA (Patrucco, 2020). Preda (2019) makes comparisons within the European Union (EU), including one Central and Eastern European (CEE) country. These findings can also provide a basis for the evaluation and further consideration of individual European countries’ frameworks. The significance of comparing CEE and non-CEE countries is that there are differences in development between the Member States regarding structural and efficiency issues. However, in the long run, learning about the differences can also provide an opportunity to learn about more complex benefits and societal impacts.

In this study, eight non-CEE European countries were chosen to be compared with three CEE countries. In addition to the identification and overall comparison of the central procurement organisations, the investigation focused, in particular, on legal forms, the nature of use, the structure of financing, and the products and services to be procured. We shall highlight the examples that are distinctive at the European level or largely different from those of the majority. A similar analysis of the issue of implementation of the European directives (2014/23/EU, 2014/24/EU, 2014/25/EU; hereinafter, directives) has not yet been carried out, given that the legal environment expressly emphasises and supports the activities of central purchasing organisations in CEE and non-CEE countries.

The aim of the paper is to compare the public procurement practices in European countries using a ‘four-element theoretical framework’ for describing centralised procurement solutions. The theoretical contribution of the paper is to make a comparison using the model setup, which shows that there are significant differences between the practices of different countries in terms of efficiency and stability. These differences are mainly geographical and are due to economic and political governance characteristics. A further significance of the results is that they highlight the need for further research on the ability of different national models to achieve the benefits of centralised public procurement identified in the literature.

This paper will be organised as follows. After a brief literature review and explanation of the research method, we highlight four factors that are important for the design and functioning of structures. We shall discuss the CEE and non-CEE countries’ centralised public procurement characteristics in different settings. In the final section, we conclude the most important findings of our research.

The problem of centralisation in organisations is relevant in the literature. It is also reflected in both the corporate procurement–and public procurement–related researches. Recently, the pandemic situation in Europe has triggered studies (e.g. Vogler et al. 2022b; McEvoy, Ferri, 2020), while the issue of centralisation has also been addressed in several African countries (Nzimakwe, Biyela, 2021; Aboelazm and Afandy, 2019) and in the USA (Preda, 2019; Yukins et al., 2020).

Literature calls attention to a large number of advantages. According to Eriksson and Westelberg (2011), joint public procurement has an expressed positive impact on performance. Erridge (2000) reported on lower costs that can be achieved in the wake of professional training cooperation, that is, he expressly classified this mode of cooperation as a practical example of joint procurement. Kim et al. (2012) identified cooperating and opportunistic interorganisational forms of behaviour. Vogler et al. (2022a) studied pharmaceutical procurement and identified lower prices, improved bargaining power, improved governance and enhanced transparency among other advantages; so, they concluded that centralised pharmaceutical procurement (CPP) can be an effective policy tool if implemented wisely. The analysis of cooperation from the viewpoint of dependence is quite frequent. Ranjay and Sytch (2007) interpreted the so-called ‘joint dependence’ in procurement relationships. Several studies have addressed the reasons for and motivation of cooperation (Wang et al., 2005, 2006; Essig, 2000; O’Brien, 1995).

Centralisation does not necessarily mean an organisational framework, but can also be a temporary cooperation, which also results in economies of scale. Good examples are joint procurement initiatives. O’Brien (1995) expressly identified the objectives of cost reduction and service development as leading to joint procurement agreements in the sector of public service providers. According to Wang et al. (2005), there is motivation for procurers so long as the costs of coordination are sufficiently low. The study of Wang et al. (2006) analyses the conditions which lead to the choice of a joint procurement strategy. Teabok et al. (2006) studied the triad of joint procurement–production–supply, where joint procurement clearly presupposes an economical solution. However, some results suggest that some ecologic advantages can be obtained more locally (Mélon, 2020)

The decision to go in for centralisation and its success in corporate procurement depends on a number of factors. Rosemeijer (2000) emphasised the relative homogeneity of demand and regarded the level of development and maturity of procurement as factors that have a direct impact on the mode of implementing centralisation. There are a number of interim solutions in between the individual levels of centralised procurement from the transfer of information through joint planning to the establishment of a common procurement organisation which can be very diverse with respect to the content of their cooperation. Literature on procurement regularly describes a global approach and emphasises on synergies and the efforts required for implementing a common objective. For example, Trautmann et al. (2009) investigated private companies and proposed that integration approaches should vary depending on the three contingencies of category characteristics, supply environment characteristics and interdependence of the purchasing units. Smart and Dudas (2007) reported that pooling the requirement needs proper strategies and actions. Yet, public procurement literature on centralisation is relatively scarce and the number of studies is low even when research on joint procurement is considered (Patrucco et al. 2019). The majority of existing materials analyses joint procurement, realised through the party's own initiative and by their commitment. If, however, this is not the case, but it is a matter of centralisation determined by law, the implementation of the common objective by the central procurement organisation and the users is not necessarily identifiable and there is less emphasis on synergies and the global approach.

The literature on centralised procurement points to a number of benefits and implementation issues. The relatively small number of studies and the heterogeneous research focus make it difficult to draw a picture of the characteristics of the different forms of centralisation that have been implemented. There is very little comparative analysis in the literature. Yet, SIGMA (2010) is perhaps the only one to publish a comparative analysis where it has identified the characteristic features for some EU Member States. The study's analytical framework for centralised public procurement examines several policy and procedural issues including four focuses having economic consequences: financing model, range of goods and services, legal framework and its nature of use.

Literature review reveals that the centralisation of procurement is addressed in a small number of studies, which differ significantly in their research focus (geography, research question, etc.). However, because of these very different focuses, the results are difficult to generalise or to compare. Our study aims to address this research gap by comparing the institutional arrangements for centralising procurement in European countries and highlighting the differences from economic aspects.

A ‘four-element theoretical model’ was used as the research framework for the study. These elements are the following: A)

Legal form: What type of legal entity is the CPB, and which organisation owns or controls it?

The four aspects allow to compare the nature, flexibility and adaptability of the centralised public procurement service provider. Flexibility can be linked to the non-mandatory use of a central purchasing body, the use-based financing and the legal form of the central procurement organisation, and the diversified product range allows the institution more leeway.

To study the characteristics of centralised purchasing systems in practice, the Tenders Electronic Daily (TED) analysis and case study method was chosen. Our research was focused on examining the centralised public procurement systems of 11 European countries. In selecting the countries, care was taken to include small and large, old and new EU countries, and countries from the north, south, east and west. We focused on the largest central procurement organisations, whose activities have the greatest impact on the public procurement market of the given country.

First, the research examined public procurement data available on TED (www.ted.europa.eu). In examining the TED data, we concluded that TED is of limited use for examining the activity of central purchasing organisations in each country, as in many cases, the data on the long-term procurement methods (framework agreements, dynamic purchasing systems) used by central purchasing organisations (see Table 1) are not stable and the contract size is very imprecise and difficult to assess depending on national rules. Even the European Commission's own methodology, the Single Market Scoreboard (SMS, 2019), does not take these data into account. Therefore, the pan-European TED database is currently not suitable for deeper data analysis for central purchasing organisations. However, it has been useful to examine the data to find the link between the so-called ‘call for tender notices’ (contract notice) and the ‘result notices’ (contract award notice) in a single database, which allows us to analyse the activities of central purchasing organisations in the Member States under study. Since it is mainly the framework agreements and dynamic purchasing systems that show the innovativeness of a CPB, it was possible to extract the relevant data after data cleaning and creation of a database.

Second, we used the case study method to analyse the Member States’ central public procurement models. In the course of the research, we solicited the opinions of national experts and analysed and compared them. Using the expert panel method, we looked for experts who have been involved in public procurement for more than 10 years and whose CVs show that they have been involved in centralised public procurement, whether on the contracting authority, bidder or research side. In selecting the experts, it was important that the experts understood and were familiar with the four-element framework. Part of the training of the experts was presentation of the framework and the precise identification of the criteria for comparison in the given country. The experts were a mix of lawyers and non-lawyers. The communication was in English, and the terminology (e.g. CPB) was uniformly labelled for experts to ensure the same vocabulary. Following training, they prepared their national studies on the basis of a standard template, which was refined in several cases for the purpose of comparison. In writing the study, it was also necessary to provide legal provisions to support the descriptions to ensure verifiability. Before finalisation, the sources and references of the papers were checked and a comparison of the final studies could be started. The comparison was enabled by questions of identical structure. The analysis focused not so much on the legal background, although it presumed that the everyday activities of central procurement organisations are determined by nearly identical procedural rules and obligations as all the 11 countries are EU Member States.

The most important central procurement organisations concerned included the following (each CPB meets the definition of a central purchasing body as defined in Article 37 of Directive 2014/24/EU):

Austria – Bundesbeschaffungs GmbH (BBG, 2001)

Assistance in selection of the procurement organisations was provided by national experts, as in several cases (Finland, Sweden, Germany, Romania, etc.), there are a number of central procurement agencies supplying individual regions characteristically upon municipal initiative. In this case, we tried to focus on major organisations covering the entire country. The above data also includes the date of establishment of the given organisation, which can be useful information during the analysis. We do not have precise data specifically on the size of the centralised procurement market. According to interviews, for example, in Austria, contracting authorities have spent around €1.2 billion in recent years through the central procurement organisation (BBG). In France, the procurement value of the most important central purchasing body UGAP's public procurement procedures has been around €2.4 billion in recent years, representing 10% of French gross domestic product (GDP). In Germany, the main central purchasing body, BBA, procured around €1 billion, while in Italy, Consip, procured around €18 billion.

In the course of the research, we divided the countries into two groups. The countries that procured in accordance with European public procurement rules were included in a group, while the three post-communist countries were examined in a separate group. The former comprise the non-CEE (1–8) block and the latter form the CEE block (9–11). The object of the study is to show to what extent the centralised models belonging to the CEE block are similar to their non-CEE counterparts, whether some development direction can be detected in the CEE block and whether the trend that strengthens centralisation can be detected, similar to the practice of non-CEE countries.

Every year, over 250,000 public authorities spend around 14% of GDP on the purchase of services, works and supplies in the EU, which takes about €2 trillion per year (EU, 2022).

If we look only at the activity of CPBs, the available TED database shows that CPBs in each Member State are very active in providing services to contracting authorities. They supply them with goods and services, typically using long-term procurement models, that is, framework agreements and dynamic purchasing systems. The two long-term models have the potential to enable large volumes and a wide variety of products to be procured by large purchasing organisations, with strong IT support, to supply themselves or their institutions. While the scope of a framework agreement is more fixed, the DPS acts as a pre-qualification system where new applicants can register at any time. Central purchasing organisations typically choose between the two models and also conduct specific public procurement procedures, depending on the type of services they provide and the extent to which they wish to serve their markets and contracting authorities in a flexible manner and at economies of scale.

Looking at the data from European countries, it can be seen that the value and number of procedures are increasing. However, if only the CEE countries are separated, the proportions change.

Fig. 1:

In terms of value, when comparing the amount of public money spent by central purchasing organisations using the long-term procurement model with the amount spent using the non–long-term procurement model, it can be seen that overall, CEE countries achieved a higher value than non-CEE countries between 2017 and 2019. However, the value of framework agreements, in particular, is hypothetical that should not be taken as a basis because it does not actually mean that this money will be spent by the contracting authority.

At the same time, the difference in the number of long-term procurement models and simple public procurement procedures in CEE countries between 2017 and 2019 shows that, with the exception of Romania, Slovakia, Hungary and Estonia, fewer long-term procurement procedures are launched by CPBs in the other CEE countries. This is also an indicator of their maturity, as they try to cover needs through specific procedures.

Fig. 2:

Examining the available public procurement data and getting to know the trends is becoming more and more important. Many researches try to find a way to efficiency, to formulate proposals using data mining methods. However, real societal benefits and gains cannot be achieved by examining public procurement data alone. It is worthwhile to combine the knowledge of the institutional systems and examination of the organisational framework with the public procurement culture and practice of the given country. In international research, researchers in the EU typically do not examine CEE countries in a separate group, but are much less able to identify features that can help improve public procurement in Member States with less-developed public procurement cultures and histories. The organisational frameworks of procurement processes jointly carried out by organisations across borders or by separate organisations are at the centre of numerous procurement and public procurement research projects. As the main objective of both the corporate and public procurement activities is similar: supplying the organisation with inputs, so it may be interesting to consider the published results together.

Overall, the only official European public procurement database does not add any value to the hypotheses. Research should, therefore, be based on individual national studies. The next step in the research process is to present the results of the four-element model based on SIGMA (2010), first for non-CEE and then for CEE countries.

In the case of these 11 countries, a fully identical directive background determines public procurement regulation and accordingly, the central procurement organisations may administer identical types of procedures. A characteristic solution continues to be conducting framework agreements, which are limited and fail to provide the kind of flexibility that the contracting authorities served by the central procurement organisations would like to have.

The role of the central procurement organisation is on the increase in Europe, reinforced also by the Public Procurement Directives, which give a greater degree of freedom to the central procurement organisations. Having studied the activities of the highly important central procurement organisations of 11 European countries, we analysed four criteria in depth.

Both in the case of companies and public procurements, one of the most important objectives of centralisation is the search for more efficient solutions. More efficient solutions may appear in the efficiency of the process (the number of procedures administered in parallel declines), but this also raises the question of how the costs of the central organisation can be financed. Another area of improving efficiency is the synergy that can be achieved in the procured products.

With respect to efficiency and economies of scale, it can be established that the more advanced models focus on cooperation and on obtaining accurate knowledge of market needs, that is, in the course of centralisation, they are not satisfied with requiring the mandatory use of centralised public procurement. The characteristic subjects of procurement are greatly varied, typically the healthcare sector receives attention beside logistical services, IT products and other products and services that are indispensable from the viewpoint of running a government.

In most cases, financing is proportionate to the use of the framework agreements, charging 1%–2%; yet, it can be established that the financing of those organisations, which also undertake additional activities, can be regarded as resolved. The state participates in financing in several cases, specifying additional objectives for the central procurement organisations. Quality services or typically in the case of the health-care central public procurement organisations, the criteria of the patients override the criteria of efficiency. Similarly, market needs frequently override the criteria of economies of scale, that is, use of certain framework agreements is not made mandatory, or exemptions are provided from using the contracts of the central procurement organisations to acknowledge at the state level that a contracting authority may have needs not covered by standard framework agreements.

Opening the use of the framework agreements not only to central state actors indicates that a central procurement organisation may become a genuine service centre, even though this makes procurement hard to plan; it reduces administration for a wide range of contracting authorities and permits them to focus on genuine procurement issues and not on the complicated conduct of the procedure.

Eleven European countries under study continuously renew the activities of their central procurement organisations. Yet, the majority do not directly monitor them; instead, their expectations must be complied with by the central procurement organisations. In terms of organisational framework, these organisations exhibit more flexible, more market-like behaviour, which is exemplary for the contracting authorities. It is not fortuitous that mandatory centralisation and the free use of framework agreements give rise to so much debate, because there is a genuine risk that the organisation becomes too comfortable, if it is mandatory to make use of its services. In the absence of this, however, these organisations cannot be called to account for economies of scale, or to put it more accurately, there is a greater pressure on these organisations to provide true services to the contracting authorities, making their activities more attractive, offering the right subjects of procurement and successfully financing themselves.

This is the interaction between the financing, subject matter of procurement and efficiency criteria studied by us, for which every European country invented its own models. At the same time, synergies are utilised only at nation-state level, and they do not make use of the services of the central procurement organisations of other countries.

Regarding non-CEE countries during the preparation of the interviews, the examination of the stable operation of each organisation was raised. In our view, the system of public procurement institutions is practically stable in the studied countries. The division of labour and the scope of activities of the individual actors change slightly, but the stability of the organisational background can be perceived. This is reflected in the fact that the rules have changed little in relation to the four aspects examined, mainly the system of conditions for which products can be procured independently of the central organisations. This example shows well that it does not make organisations unstable, but, on the contrary, encourages them to provide the right services and introduce innovative solutions.

The centralised models of the CEE countries can be considered clearly underdeveloped. The interviewees reported a clear lack of development and constant change. It is interesting that both the obligation and the definition of objects in the legal sense dominate; the organisational nature of the state dominates, while the centralised public procurement is constantly looking for its place in the system. All these support Karjalainen's (2011) important focus on the cost side and Patrucco's (2017) service-centric approach. There is a perceptible difference in the approach between the CEE and non-CEE countries. The CEE countries are not yet able to break out of a regulation-oriented, less-stable, less-mandatory, less-innovative model. Continuing to create new organisations or re-regulate existing ones does not necessarily mean moving forwards. The CEE examples are typically not used as a basis.

The comparison reveals that there are significant differences in the functioning of centralised public procurement organisations in CEE and non-CEE countries (RQ1), which are well described by the four elements of our research model. The answer to question RQ1, whether it is possible to identify differences between the countries under study on the basis of the four-element model, is that yes, such differences can be identified. We then turn to the answer to question RQ2.

To the question whether differences between CEE and non-CEE countries can be outlined, we can also answer yes. The trends in the two groups also differ (RQ2). Non-CEE countries are more service oriented and innovative, focusing more on new products and services. Their funding is rather market dependent, but as they meet government procurement needs, it is not risky to maintain a large pool of experts. This is also a key to their success, while in the case of CEE countries, the quasi ‘government office’ status and secure funding also make them comfortable. Continuous organisational change, even if there is room for improvement, makes it impossible to operate in a stable way. This is not always the case in the CEE region, but the trend in the countries studied shows it. A fixed scope of procurement does not necessarily in itself promote stability, since it is worth defining a flexible scope precisely to allow the CPB to respond flexibly to the needs of contracting authorities, as was necessary in the times of coronavirus disease (COVID). In neither the CEE nor the non-CEE case was the provision of logistics by CPBs typical, but the provision of market research and procurement services appeared in the CEE countries, while in the non-CEE case, we found examples of CPBs acting as quasi ‘authorities’ (DKÜ, NKOH) and dealing with procurement authorisations, procurement plan reviews and the possibility to take procedures away from contracting authorities and to carry them out themselves. The direction of operation as a public authority is even further removed from the service-oriented, innovation-driven CEE countries, which are increasingly combining framework agreements with DPS. The trend is, therefore, towards a kind of lower-level centralisation in the CEE countries, with a strong IT support by a skilled professional staff as the key to future development, for which the highly developed CPBs in non-CEE countries can provide good examples.

Our research looked at the public procurement systems in non-CEE and CEE countries. It concludes that there are significant differences between countries and between the practices of each group. The differences are both structural and efficiency related. The service-oriented approach, the connection to needs, the non-binding nature or the legal form of an independent market participant CPB is far from the CEE approach. The solutions of the CEE countries are inflexible, not service oriented, and cultural differences and a short history of public procurement do not yet allow the adoption of innovative models. The implementation of a profit-oriented Finnish or Italian example or building a think tank organisation requires stability, flexibility and openness, primarily learning about the European examples that our present research has undertaken. The stability and market-oriented characteristics of a centralised public procurement system have an impact on innovativeness. Signs that call for a profit-oriented operation, mandatory recourse, can serve as a basis for future development. It is clear that the same legal regulatory background to public procurement is not necessarily predominant in determining specific features and characteristics.

The added value of our research is the identification of characteristics that can serve as a model for developing centralised public procurement organisations. The characteristics of each country illustrate the extent to which they are going their own way, while more innovative solutions (service nature, flexible procurement scope) could build a more efficient organisation that could also increase security of supply. A major challenge in the post–COVID-19 period may be the ability of central purchasing organisations to meet demand in a crisis situation, based on a more innovative approach, a stable organisational background and efficient operations with adequate freedom of decision.

There are many studies on the benefits of centralised procurement systems. However, our research has shown that there are substantial differences between some centralised procurement solutions. A further possible research question could be whether the benefits outlined in the literature also apply to these different models.