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Less Public Procurement in Hungary

Less Public Procurement in Hungary

According to the research done jointly by the Foundation for Modern Procurement and Transparency International Hungary we have spent less than a year ago through public procurement compared to the GDP in 2010. Taking the preliminary 2010 data of KSH (Central Office for Statistics) into account currently the contracted public procurement value compared to the GDP is 5,66 % in Hungary. Nevertheless, public procurement totals up to 17 % of GDP of the EU.

The reason of this downturn, on one hand, is the 2010 amendment of the public procurement act, which had taken several fields of procurement out of the scope of the act, while maintaining the strict regulation framework, especially the low procurement threshold and the very strict obligation of aggregation. Obligatory electronic procurement that had hindered public procurements for two months from the beginning of 2010 has added to the tendency, as well as the deliberate withholding of procurements by governments, which in the light of past year’s results could be attributed to the post-effects of the crisis.

On the other hand, it can be established by considering nominal data, that more than 300 billion forints have left the procurement market, out of which 200 billion is not spent on public procurement by the public service companies. In the EU system of controlled public spending even privately owned contracting authorities with exclusive rights to carry out relevant activities are obliged to public procurement. Additionally, strict requirements are to be applied to enterprises owned by contracting authorities obliged to public procurement, while obeying public procurement rules and to conducting procurement procedures is a safe way to avoid so-called ‘prohibited state subsidies’ are to.

The escape from the public procurement market in Hungary has been going on since 2006. The process has been affected by legal amendments, and in 2009 more procurement could be taken back to the market, yet the truly large actors’ decisions still have a long-term impact. Therefore not the minor actors are needed to be focused on, but large actors “forgetting” to procure should be controlled. That is to be applied to public service providers and to those reinterpreting exceptions and applying “in-house” procurements from own companies creatively, hence avoiding their obligations.

Conditions of returning to market is the existence of rule of law and guaranteeing that governments do not intend to ease effects of the crisis by sabotaging public procurement. In order to restore trust a new public procurement approach should be developed, focusing on real procurement demands, sustainability and encouraging competition instead of over-regulation.

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