Public Procurement 2024

Transforming European Public Procurement: From Compliance to Innovation and Sustainability

It is well known that public contracts have a huge impact on the European economy: according to the latest estimates, they represent around 15% of the European gross internal product.

To ensure fairness and competition, the Treaties and the 2014 European Directives on public procurement establish a framework for awarding contracts through transparent and regulated administrative procedures. These procedures typically involve open competition, and for contracts exceeding European thresholds, require public notices in the European Official Gazette.

Pursuant to the Portuguese legal framework, namely the Public Contracts Code (PCC), approved by Decree-Law No 18/2008 of 29 January (as amended), awarding entities may choose between invitation procedures (direct award and prior consultation procedure, depending on whether only one bidder or at least three bidders are invited) or open procedures (public tender, limited tender with pre-qualification, negotiation procedure, competitive dialogue, and partnership for innovation). The different procedures shall be chosen depending on the contract’s estimated value or the material criteria, regardless of contract value, such as extreme urgency in the performance of the contract or the existence of exclusive rights (namely, intellectual property rights) – in broad terms, circumstances that prevent the awarding entity from launching an open procedure.

When the procedure is chosen according to the first criterion, the higher the contract’s value is, the more open and competitive the procedure must be; therefore, invitation procedures (even with several bidders) only allow the execution of contracts up to a maximum value of EUR150,000 (for public works contracts) or EUR75,000 (for goods and services contracts); otherwise, an open procedure (such as a public tender) is required. However, if the choice of the procedure is based on material criteria, as a rule, no thresholds apply.

While Portuguese law offers a variety of procurement procedures and encourages open procedures, there is a notable preference among awarding entities for invitation procedures. According to the annual procurement reports issued by the Institute of Public Markets, Real Estate and Construction (the regulating body on public procurement in Portugal), more than 75% of the procurement procedures launched each year are direct awards (involving invitation for submission of bid, to one entity only) and invitation procedures (involving invitation to at least three entities). Understandably, this triggers concern among the supervising bodies, including the Audit Court, which regularly issues public warnings on the need to increase competition in the Portuguese public contracts market. Several factors have been cited to explain this preference for invitation procedures, such as inadequate planning, a lack of expertise, and insufficient knowledge among the staff of awarding entities. However, despite some scandals reported in the press, corruption does not appear to be a major reason for the frequent use of invitation procedures.

The COVID-19 pandemic significantly influenced the prevailing approach to public procurement in Portugal and other European countries. The urgent need to acquire medical equipment, goods, and services to treat the disease and mitigate its spread necessitated more flexible procurement rules. Consequently, specific legal frameworks were established to expedite the execution of contracts related to COVID-19.

Similarly, the invasion of Ukraine by the Russian Federation prompted additional legislative adjustments. These measures, aimed at adapting to the crisis, include provisions allowing for the revision of prices in public contracts. This change was essential to enable private parties to withstand the inflationary pressures brought on by the war, particularly the dramatic and unforeseeable surge in energy and raw material costs.

In response to these challenges, European institutions agreed on an extensive and ambitious Recovery and Resilience Plan. This plan is designed to fund projects submitted by EU member states that align with European goals, particularly those related to public administration reform, namely through the adoption of technology to fully digitise administrative procedures, and to the “green transition” (eg, renewable powers sources, energy efficiency, use of recycled goods).

EU member states are receiving several million euros to implement this agenda, aiding in the recovery from the adverse effects of the COVID-19 pandemic and the Ukrainian-Russian war, and also helping to foster innovation and promote sustainable development. However, this initiative also presents multiple challenges. On the one hand, the public sector must speed up procedures, while ensuring strict compliance with applicable rules to effectively distribute the funds allocated from the EU budget. On the other hand, the private sector must be able to implement the funded projects, which are very demanding and ambitious and have to be implemented in very short periods. In Portugal, the execution of the Recovery and Resilience Plan has significantly boosted the national economy: according to official data, in 2023, 1,025 EU-funded contracts were executed, which is almost triple the 398 contracts executed in 2022.

Nevertheless, it is feared that the lack of resources and manpower may prevent the country from taking full advantage of all the available funding. Furthermore, the previous government resigned in November 2023 and, following the general elections in March 2024, a new government is expected to be appointed in April 2024, at the latest, which is causing further delays in executing the Recovery and Resilience Plan.

Looking forward, the focus will likely be on enhancing the execution of projects funded by the European budget and addressing the difficulties encountered since 2020, first due to the pandemic and later owing to the war. Furthermore, efforts will be made to increase sustainability in public contracts, namely by including environmental factors in the tenders’ award criteria. Traditionally, the primary focus has been on cost, but there is an increasing recognition of the importance of environmental factors. The rise in the use of environmental criteria by 11% in 2023, especially noticeable in transportation contracts, is a positive development.

In 2023, the Portuguese government approved the Sustainable Public Contracts Strategy for 2030 (Estratégia Nacional para as Compras Públicas Ecológicas 2030) and listed the sustainability criteria that should be adopted in the procurement procedures launched by bodies directly dependent on the government (central administration) and by public institutes and public companies. Given the ambitious nature of the goals set in this strategy, there will likely be increased pressure to ensure compliance. Critical to this effort is the need for effective follow-up and active supervision.

Portugal recently announced two major infrastructure projects: a new Lisbon airport and a nationwide railway upgrade. If greenlit, these projects would mark the most significant public investment in decades, attracting competition from both Portuguese and foreign companies for the lucrative contracts.