As part of the recent global government agreement sealed between several political parties, the Belgian government has announced plans to centralize public procurement at the national level. This move, aimed at maximizing economies of scale and promoting sustainable purchasing, has sparked both excitement and concern among businesses.
The Centralisation Plan
Under the new plan, the Federal Public Service for Budget and Administrative Simplification (BOSA) will play a central role in public procurement, making maximum use of framework agreements. Public institutions, including social profit institutions, scientific institutions, and other public services, will actively participate in BOSA’s expanded purchasing center. The government aims to promote innovative public procurement that considers environmental, social, and governance (ESG) objectives.
The government also did emphasise the “comply or explain” principle. In the context of public procurement, this principle means that public bodies should use the centralised procurement system (i.e. procure through BOSA, in this case). However, if they don’t, they will have to provide a clear and justifiable explanation for their deviation. They can’t simply opt out without accountability. This aims at promoting efficiency, economies of scale, and consistency.
If an institution chooses not to use BOSA’s contracts for a particular procurement, they must document and publicly justify their reasons. Acceptable explanations might include:
- Highly Specialised Needs: The goods or services required are so unique or technically complex that BOSA’s framework agreements or purchasing arrangements wouldn’t be suitable. For example, specialised scientific equipment or bespoke software development.
- Urgency: There’s an immediate and critical need for the goods or services, and going through the centralised procurement process would cause unacceptable delays. Think emergency repairs or disaster relief.
- Legal Restrictions: There might be specific legal constraints that prevent the institution from using BOSA’s services in a particular case.
Opportunities for Businesses
- Larger, More Strategic Contracts: Centralisation can lead to larger, more comprehensive contracts, offering businesses greater opportunities for growth and long-term strategic partnerships. This can be particularly beneficial for businesses looking to scale their operations and invest in innovation.
- Simplified and More Efficient Procurement: A centralised system could simplify procurement procedures, reducing administrative burdens for businesses.
- Increased Demand for Innovative Solutions: The emphasis on innovative and sustainable procurement may create new opportunities for businesses with cutting-edge solutions.
Risks for Businesses
- Intensified Competition for Fewer, Larger Contracts: While centralisation may offer the potential for larger contracts, it simultaneously creates a more competitive landscape. With fewer contracts being tendered, larger businesses will face significantly intensified competition, requiring them to invest more resources in bidding and potentially driving down profit margins. This “winner-takes-all” dynamic can be particularly challenging for even established players.
- Increased Pressure on Pricing and Margins: The concentration of procurement into fewer, larger contracts puts significant pressure on pricing. Businesses may feel compelled to offer increasingly competitive bids to secure these coveted contracts, potentially squeezing profit margins and making it harder to invest in innovation or long-term growth.
- Shifting from Multiple Opportunities to High-Stakes Bidding: Previously, larger businesses might have bid on multiple, smaller procurements. Centralisation shifts the landscape to a few high-stakes bidding situations. Failure to win one of these large contracts can have a significant impact on a business’s revenue and growth trajectory, creating a higher-risk environment.
Additional Considerations
- Short Supply Chains: The government plans to legally incorporate the promotion of short supply chains as a technical specification in public food procurement.
The legal basis and scope of this measure at the federal level require clarification. It remains to be seen whether this can be implemented solely at the Belgian level or whether these measures would be compliant with European Law.
- Threshold Increases: The possibility of raising threshold values for public procurement of agricultural, livestock, fishery, and forestry products is being explored. Similar to the short supply chain initiative, the feasibility of implementing these threshold increases at the national level needs further examination. EU public procurement directives set maximum thresholds, so any changes at the national level would likely need to comply with the European Law.
Conclusion
The centralisation of public procurement in Belgium presents both opportunities and risks for businesses.
While larger contracts and streamlined processes could benefit some, others may face challenges due to reduced competition and potential bureaucracy. The success of this initiative will depend on how effectively the government addresses these concerns and ensures a fair and transparent procurement system.
For further information, please contact:
Kevin Munungu Lungungu Bird & Bird
kevin.munungu@twobirds.com
