EU procurement thresholds: it's time to bring them down

A version of the presentation I delivered yesterday about thresholds on Global Revolution VII is up on the presentation's tab.  For those of you in attendance yesterday, I used Perspective on the iPad to plot the graphics. Took me (and my wife) an eternity to format the spreadsheet tables correctly so that the graphs would turn up as they were supposed to.

If I have the time I may record a re-run of the presentation and put it up somewhere as a screencast as the slides follow my spartan style with limited text on each slide.

As for the content itself, the crux of my argument regarding thresholds and the internal market is that they are a product of compromises based on assumptions done in 1970s and 1980s which no longer hold true. We take them (and their values) as received wisdom and "that they are what they are" and have not taken into account any technological developments which have increased productivity, reduced transactions costs (IT, internet) or marginal costs in many industries. Thresholds remained nominally stable for the most part, although Inflation eroded the real value for goods/supplies. However, inflation has not done so for works (there was a big jump from 1M to 5M for the works threshold in 1989) and only to a limited extent for services (thresholds introduced in 1992).

The internal market thresholds have been glued to the EU's GPA commitments over the years and in my view conceding that the internal market is a common minimum denominator determined not by internal pressure but by those GPA commitments. Why is that?

Directive 2014/24/EU includes in its Article 92 a mandate for the European Commission to review the thresholds in the next three years in accordance with "inflation", "transaction costs" and to increase the GPA thresholds. Well, as our internal thresholds are identical to the GPA ones it is obvious that the real intention here is to increase procurement thresholds across the EU (as suggested by some scholars).

There is a fundamental misunderstanding on the equation that "higher prices = cross-border interest," as cross-border interest by economic suppliers depends on a number of different variables and factors not connected at all with a fixed value. Examples: time of the year; current workload; wider economy; resource availability to take part in tender or deliver contract within timeframes expected; etc. Not to talk about the two big ones: language barriers and legal differences (outside the strict procurement process). I have always been puzzled why private companies seem to be very keen and comfortable with private cross-border trade with suppliers on other Member States, but in public procurement only around 3% of money is spent directly with suppliers based on other Member States.

Raising thresholds would be bad for four reasons:

i) It would reduce what is already a small procurement "internal market" (only 18.5% of procurement spend covered), which may be the outcome some are looking for in the first place...

ii) It would misunderstand that as we introduce more technology into our lives certain classes of products/services will become cheaper, not more expensive. I am speaking about anything that involves computing power, economies of scale and/or bits&bytes.

iii) Connected with ii), it would ignore that the digital economy in the EU is getting close to 10% according to some guesstimates and that we are now finally building a digital internal market and there is nothing intrinsically more cross-border than bits&bytes.

iv) "But, Pedro what about cross-border interest for contracts below-thresholds?" If the cross-border interest is such a good idea why don't we apply it to all public procurement contracts then? When it takes someone as smart as Andrea Sundstrand 6 cases of the CJEU (and where 6 more could have been mentioned) to create a patchwork regime for a "super-procurer" to be able to comply with the cross-border requirement, I do not really need to make a case. If 15 years after Telaustria, we are still discussing what the hell is cross-border interest and how to reliably determine it, something is really wrong with the whole idea. But you can find some further thoughts of me here.

PS: Thanks for the pushback during the presentation and forcing me to think harder about this.