24 September 2015

There were errors in 40 per cent of the public procurement processes used to distribute EU budget funds in 2007-2014. The European Regional Development Fund (ERDF), the Cohesion Fund (CF) and the European Social Fund (ESF) divert funds from the EU budget to development projects in Member States aimed at reducing economic and social disparities and strengthening cohesion, and investing in people. €349 Billion was allocated in 2007-2013 and a further €367 Billion in 2014-2020. Historically, approximately half of this has been used to fund projects subject to public procurement rules.

The EU Court of Auditors has recently investigated whether the member states conducting those procurements have been doing so robustly. It has effectively concluded that in very many cases they have not. It has identified serious, significant and minor errors which could affect the quality of the procurement, including the complete failure to conduct a procurement exercise (eg a road contract in Poland in which the contract was negotiated with a single provider rather than subject to an open tender), failures of advertising and transparency and failures to identify material changes to existing contracts (eg a waste water treatment installation in Spain where the specification was varied such that half the works were never tendered for).

Due to the complexity of procurement procedures, there is likely to be some sympathy for public entities required to comply with their detail. However, these errors, involving large amounts of public money paid by Member States to the EU, were in many cases not minor or incidental breaches. Seventy per cent of the breaches identified in connection with the ERDF were serious – meaning that they had the capacity to result in the wrong party being selected to deliver the relevant works.

Such breaches would in principle be subject to challenge by disappointed bidders or parties who were unable to bid for the work due to illegal direct awards. In the UK, procurement challenges can result in huge costs and delays which in turn would tie up the delivery of projects. Public bodies conducting these processes have consequently been exposing themselves to quite substantial risks to their delivery schedules as well as potential failures to obtain the best deal for the public. It is notable that despite the extent of errors identified, however, bidders did not seem to have the appetite to self-regulate the failures of public bodies by bringing such challenges.

The existence of this problem has consequently led the European Commission to take action to try to improve the quality of procurement. The rules have been changed such that, since 2014, if procurement shortcomings are identified and the Commission elects to withhold funding (or recover sums paid) to particular Member States or particular bodies, those funds will potentially be lost to the Member State entirely. The auditors have recommended that the Commission investigate more often and withhold or recover funds more often. The Commission has accepted the recommendation. This means that EU funded projects may be at increasing risk of having the funds withdrawn or recovered if the public body cannot demonstrate that procurement rules are being rigorously followed.

Overall the auditors' report highlights a deep and potentially systematic problem at the heart of EU procurement. It states that Member States are apparently not conducting procurements using EU money sufficiently robustly in accordance with procurement rules. While steps are already being taken to improve this, the risk to public projects and funds remains substantial, both from domestic challenges and Commission action. Public procurement processes across the EU are going to have to improve in quality if this issue is to be resolved.

Key contact

John Houlden

John Houlden Partner

  • Head of Public Sector
  • Head of Procurement and Subsidy Control
  • Projects

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