Pre-Commercial Procurement

  Key Figures

Public Procurement as a part of government expenditure

Public procurement makes up an important share (15-20%) of GDP in developed economies(1). In 2002 the OECD(2) estimated the world total procurement market to be roughly equivalent to 82.3% of the world merchandise and commercial services exports. Today this amounts to $5500Bn.

Important to notice also is that as the daily operation of public services is often coordinated at local and regional level, a large portion of public procurement in Europe happens at the sub-national level. Where on average across Europe public procurement makes up around 17% of GDP, at the local/regional level public procurement can easily reach the double of that in terms of percentage of public expenditure. For the example, a study of public procurement across Baltic city metropolises(3) shows that public procurement accounts for 40% of the city budget in Helsinki and 30% in Stockholm.

 

R&D procurement expenditure gap

The procurement of R&D as a strategic tool to address mid-to-long term public sector challenges that require new solutions to be developed, is an underutilized opportunity in Europe compared to other regions in the world. A worldwide survey of business leaders, carried out for the World Economic Forum (13) provides data on public technology procurement. It assesses to what extent government purchase decisions are based on technology and to which extent they encourage innovation, rather than considering only the price. It shows Asian countries and the US have more explicit policies to orientate public demand towards promoting innovation.

For example, the US public sector is spending $50Bn(4) per year in procurement of R&D, an amount which is 20 times higher than in Europe and represents approximately half of the overall R&D investment gap between the US and Europe. This has often played an important role in improving the quality of public services and in the emergence of globally competitive companies(5).  

The difference in R&D procurement expenditure between the US and Europe is mainly due to disparities in defence/space budgets. However, US expenditure of this type is still 4 times higher in non-defence/space public sectors such as health, energy, education, transport and environment. This represents a gap of $3.4Bn in absolute terms(6). Experts(7),(8) point to untapped innovation opportunities in these non-defence sectors where Europe could take the lead.

 

Public procurement in the field of ICT

The size of the world wide contestable (9) public procurement market roughly equals the size of the global ICT market (estimated around €2500Bn). As public procurement of products and services represents more than 16% of GDP in Europe, it has significant economic leverage. In the field of ICT specifically, EU public expenditure is significant in both relative (about 20% of the IT market (10) and absolute terms (around € 87 billion in 2004 (11)), and it is expected to grow as a result of current political objectives to increase efficiency and quality of public services, and the greater demand forecast for several application areas such as eGovernment, health and education, transport/utilities and traffic safety.

The UK public sector, with total ICT expenditure estimated to reach € 21 billion, is confirmed as the leading purchaser in Europe, spending about 40% more on ICT than France and Germany, mainly due to flagship projects such as “Connecting for Health”, “Criminal Justice IT Programme”, and the “Defence Information Infrastructure Project”. Denmark and Estonia have the highest spending in proportion to population and GDP respectively. Gartner Group reported in 2003 that 65% of all expenditure in eGovernment is currently focused on maintaining current IT infrastructure, with a further 30% spent on enhancements to existing standards. Only 5% of all eGovernment expenditure is actually spent on technology-innovative projects(12).