Economist by Economist

Author:Economist
Language: eng
Format: mobi, epub
Tags: The Economist
Publisher: Economist
Published: 2016-11-17T19:38:29.856000+00:00

The risk is all the greater because of the vast size of Europe’s government procurement market. Overall, EU countries spent €1.9 trillion on procurement in 2015, around a fifth of their GDP. States have been farming out more of their functions to private contractors for decades, partly in hopes of greater efficiency. That imperative has grown stronger in the budget crunches that followed the financial crisis of 2008-2009. Almost all European countries now contract out more than they did in 2007—roughly 20% more in Britain, France and the Netherlands. Yet a bigger share of those contracts is being harvested by just a few companies. According to the Spend Network, a British non-profit group, the top 20 firms’ share of government contracts rose from 10% in 2012 to 14% last year.

Some of the causes of dwindling competition are innocent. Governments happen to spend a lot on sectors that have been growing more concentrated, such as health care. The total value of health-care mergers and acquisitions in Europe was 60% higher in 2015 than in 2009. Little wonder that the share of single-bid health-care contracts in rich European countries jumped by seven percentage points. Transport and IT show the same pattern.

Meanwhile, the European Commission has encouraged governments to have departments team up when buying similar goods. Italy is trying to slash the number of purchasing authorities from at least 8,000 to 35. But it takes a big company to fulfil a big contract. According to the TED, tenders worth less than €10m get an average of six bids in rich European countries, whereas those worth €40m-50m get only four. Governments are also giving bidders less time to respond to tenders, which cuts the number who participate.

I scratch your back

Other explanations for reduced competition are darker. Bid-rigging may be growing more common. Antonio Capobianco, a competition expert at the OECD, a club of mostly rich countries, thinks that with fewer legitimate opportunities for increasing revenues since the euro crisis, companies may be resorting to dodgy deals. Data compiled by John Connor of Purdue University show that the number of cartels detected in Europe rose from eight per year in the 1990s to 29 in the 2000s, a shift that can only partly be chalked up to better enforcement. Although many Europeans assume such problems are confined to eastern countries, some 60% of the price-fixing cartels discovered between 1990 and 2016 were in western Europe.

Another theory is a spread of so-called “soft corruption”, where tenders are manipulated in order to award contracts to favoured bidders without technically breaking any laws. Governments may prefer a local firm to a foreign rival or set requirements so that only one supplier can meet them. This year Britain’s Nuclear Decommissioning Authority (NDA) was found to have fudged numbers and shredded vital documents to block an American contractor from winning a £7bn ($8.5bn) tender.

Other strategies abound. Associates can be alerted to upcoming contracts before the official announcement, or a tender can be issued at an inconvenient time: 50% of Slovenian contracts announced in the week of Christmas received only one bid.

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