Has sustainability left the building? · European Law Blog – Go Health Pro

EU public procurement law is on the move. Following the announcement in the Political Guidelines of the second Von der Leyen Commission before the summer of 2024, the reform of the public procurement directives (Directives 2014/23/EU, 2014/24/EU, 2014/25/EU) is now well under way. These long-awaited reforms place this field of law, rooted in the internal market rules, at the center stage of discussions about the new course of the European Union. The Letta and Draghi reports, which came out in April and September last year, appear to have significantly shaped the contours of this reform. In this contribution, I will discuss these reports, and the more recent publications from the European Commission, in light of public procurement law. I conclude that the sustainability perspective seems to have left the building as a strong priority in Brussels and will provide some food for thought on what should still be tabled in the ongoing legislative process reforming the public procurement directives.   

The Letta and Draghi reports on public procurement

Both the Letta and Draghi reports refer to the role of public procurement in relation to the future of the EU internal market. The public procurement market, amounting to approximately 17-19% of the EU GDP,  has become an indispensable tool for the achievement of the EU’s objectives, which was also noted by former-commissioner Mario Monti in his report which referred to public procurement in 2010 as a ‘lever’ to instrumentalize public spending, by not just procuring infrastructure, housing, ICT, or healthcare, but to simultaneously achieve green and social objectives.

When we zoom in on the Letta report, a diverse picture emerges of what is deemed important for the future of public procurement law. It is somewhat hard to pinpoint the intended course of action, because the report bounces from abstract to concrete proposals, and back again. Overseeing it all, however, it is clear that a legislative reform would be required to implement them. In addition to the discussed potential of joint procurement for healthcare following the COVID-19 crisis and to leverage such collective purchasing power for critical materials, some of the persistently mentioned points of attention, such as improving access for SMEs and the position of subcontractors and social enterprises, return again to the discussions. Much of these proposals seem to follow from the European Court of Auditors report of 2023, and its conclusions on diminishing competition for public tenders. Increasing access to public procurement would within this line of thought increase competition. The most fundamental proposal in this report is related to the re-scoping of the objectives of public procurement legislation: ‘One of the first steps towards this objective is to streamline and clarify the focus of public procurement goals. By establishing a smaller, more precise set of objectives that are both clear and measurable, the EU can facilitate the efficient realisation of desired outcomes.’

This proposal could result in a serious overhaul of the public procurement directives, which are currently focused on market integration. Letta is, however, not specific about what these new or streamlined objectives must be. The content of the public procurement section of the report and its other proposals do shed light on what might have been intended here. A strong focus on innovation and innovation procurement is visible, even with potential minimum quotas, as a means to contribute to the strategic goals of the EU.  What’s more, Letta notes the importance of ‘enhancing the productivity, resilience, and sustainability of the EU economy, as well as ensuring the security of supply.’ The latter should, according to Letta, transform the directives even into a regulation to avoid implementation-related differences between the Member States, but does not support this change of legislative instrument substantively. Of interest is, finally, that a more European focus is proposed by emphasizing the need to prioritize European suppliers in the defense sector. This focus ‘strengthens European demand for domestically produced equipment, fostering the creation of European players that can compete with global defense giants’. This could be part of a review of the Directive on defense and security procurement, which is, however, currently not part of the scope of the legislative review process. Other mostly policy-oriented proposals refer to the need to drive demand for the circular transition, the need to foster fair wages and conditions, and the need to – and perhaps thus use the current legal possibility – to ‘uphold social and environmental by rejecting unusually low bids for public contracts.

Whereas Draghi’s report echoes competitiveness and innovation in general, it is far less explicit on the role of public procurement, particularly compared to Letta’s report. Nonetheless, the references to public procurement do tell a story. Similar to Letta, the defense sector is noted with an ambition to raise the share of joint procurement, but mostly also to increase the spending of this sector within the EU given that 78% is currently spent outside of its borders. A joint approach is also proposed in relation to the EU gas strategy and related procurement contracts. Draghi aims to further strengthen Europe’s procurement position by proposing to create a dedicated EU Critical Raw Material Platform, thereby joining Letta in his focus on circularity. Finally, the tech sector gains attention as ‘multiple different national rules in public procurement generate high ongoing costs for cloud providers’, leading to alleged market concentration. It is in this context that ‘explicit minimum quota for the local production of selected products and components in public procurement’ are raised as well, which would, as noted in light of Letta’s proposals, require legislative action.

The sustainability perspective has left the building

What emerges from the above is a scattered picture of various proposals to change public procurement legislation, which perhaps is custom for these broad overarching reports on the future of the European project. What emerges though, is that these reports sit in stark contrast to the European wind that blew under the first Von der Leyen Commission based on its EU Green Deal, which was mainly driven by environmental concerns. This shift has seemingly also had an effect on what is tabled in relation to sustainable public procurement in the Letta and Draghi reports, or better said: what is not tabled. Although strategic procurement is frequently mentioned, ‘strategic’ in this context seems to primarily refer to values other than sustainability, such as productivity, supply security, and strategic autonomy. More market integration and more competition seems to be the adagio. Letta considers, for instance, that ‘achieving the full potential of public procurement necessitates a completely integrated market within the EU’ and headlines the procurement sections with ‘a more European and more strategic public procurement market’. Draghi’s report shows a similar focus on linking sustainability with competition by mentioning ‘decarbonization and competitiveness’ in the same breath. Because the emphasis is more on innovation, defense, R&D, and strengthening European production, the position of sustainability in public procurement appears marginalized in Letta and Draghi’s vision for a future European internal market. Even though the proposals related to circularity and raw materials can indeed have a sustainability angle as well, it appears that even those proposals are driven mainly by considerations related to security of supply and strategic autonomy.

Published in between the Letta and Draghi reports, the European Commission presented a similar picture in the Political Guidelinesof the second Von der Leyen Commission. Interestingly, the proposals in these guidelines seem to represent a step back in time, where efficiency is emphasized by noting that ‘1% efficiency gain in public procurement could save EUR 20 billion a year’. In addition to a focus on a single market for defense and the leverage function of procurement to drive innovation, a procurement preference for European products for certain strategic sectors is tabled, thereby following some of Letta’s thoughts already back then. None of this is surprising by the way: the dominant theme in public procurement law debates currently revolves around geopolitical developments, amongst other things due to the Russian invasion in Ukraine and the need to curb undesirable influence from foreign nations in the EU. This also sparked the introduction of the Foreign Subsidies Regulation (FSR) and the International Procurement Instrument (IPI). An more inward looking European focus does offer some advantages from a sustainability perspective, as shorter supply chains can contribute to their achievement of sustainability goals. Nevertheless, it seems that geopolitical threats are taking precedence over long-term solutions for the planet and the fight against climate change. This mirrors the situation in regular procurement procedures, where sustainability often is sidelined when budgets dominate or in crisis situations where urgent procurement is needed.

This stance by the European Commission is further echoed in its Competitive Compass that coins the reforms of the public procurement directives as one of its flagship initiatives. The Compass solidifies the focus on joint defense procurement, but notes importantly that ‘the planned review of the Public Procurement Directives aims at reinforcing technological security and domestic supply chains, as well as simplifying and modernising rules, in particular for start-ups and innovative companies.’  Letta’s proposals to focus on the productivity, resilience, and sustainability of the EU economy, as well as ensuring the security of supply are clearly represented here. The European preference mentioned before is also solidified in the Compass, which is noted as well in the context of clean production and circularity as a ‘mandate or preference in public procurement’. Sustainability has left the building it seems as a major point for these reforms, as the relationship between achieving sustainability objectives and the role of these rules as an enabler or barrier is not mentioned. With some acrobatic skills, one might be able to include sustainability into the phrase ‘simplifying and modernising rules’, but that seems rather far-fetched.

The even more recent Clean Industrial Deal, which further details the Commission’s plans, does add some more context to the course of the EU. It appears more ‘sustainable’ than the reports mentioned before by referring to key points of circular economy, energy renewables and decarbonization, but continues its frame of competitiveness and simplification. As noted before in the other pieces of communication, it also considers public procurement as an instrument ‘to help overcome barriers to market entry and to support sustainable and resilient industrial ecosystems.’ Without delving it too much detail, a need to focus on ‘non-price criteria for sustainability, resilience as well as EU content requirements in line with the Union’s international legal commitments can align national spending with the EU’s broader decarbonisation and competitiveness agenda, ensuring that public spending benefits, innovation, sustainability, prosperity and creation of high-quality jobs.’ is noted. The reference to ‘non-price criteria’ is, thus, to be interpreted broadly, and not just towards sustainability objectives in terms of green and social procurement. This reading is similarly confirmed by the reference to the revision of the public procurement directives, which ‘will allow for sustainability, resilience and European preference criteria in EU public procurement for strategic sectors.’  However, this Deal mostly tables ideas outside the scope of the revision of these directives, including a welcome increase in lifecycle assessment development by the Commission that was seemingly abandoned as a priority in recent years, a focus on labels to decrease carbon footprints, and the additional reference to the private sector as a buyer as well.  

Bringing sustainability back on the legislative reform table

The absent position of sustainability is quite the contrast from the last reform of the public procurement rules in 2014. The 2011Green Paper on modernizing public procurement, which initiated this reform process, placed sustainability in the spotlight by asking stakeholders in a major part of the paper to give input on the ‘strategic use of public procurement in response to new challenges’. 39 questions out of 114 questions considered topics related to ‘how to buy’ and ‘what to buy’ in light of environmental and social considerations. As a consequence of placing instrumental procurement to the fore as one of the two focus points, the EU legislature clarified and expanded the legal discretion of contracting authorities to procure sustainably. Consider, for example, the explicit possibility of applying eco-labels (Article 43 Directive 2014/24/EU), awarding contracts based on the lowest life-cycle costs (Article 67-68 Directive 2014/24/EU), or awarding contracts through reserved procedures to social enterprises (Article 77 Directive 2014/24/EU). As a consequence, one might argue that sustainability is done and dusted due to these changes in 2014. This conclusion is, however, too hasty.

Against the backdrop of increasing urgency related to the fight against climate change, unmet sustainability objectives across the EU, and the untapped potential of sustainable public procurement in many Member States, I will – to some perhaps provocatively – table a few discussion points for the ongoing review of the directives without attempting to be exhaustive. It goes without saying that within the current rules there is still room for improvement to ensure sustainable public procurement practices, but leaving the rules untouched also seems unjustified.

Firstly, the discretion that is currently provided to contracting authorities to include environmental and social considerations must be a first discussion point. Even though more room was indeed created in 2014, the public procurement principles, as the main driver of market integration, still limit sustainable public procurement. What is the ideal balance between market integration related principles and sustainability objectives? Relevant here are, for instance, a discussion of the very limited scope of application of the reserved procedure for social enterprises in article 77 Directive 2014/24/EU (in other words: loosen the requirements related to the organization of these enterprises) or a discussion of the strictness of the equality and transparency principle when awarding contracts based on the lowest life-cycle costs in article 68 Directive 2014/24/EU (in other words: accept that life-cycles are to some extent unpredictable and provide legal room for this reality as well).        

Secondly, and more fundamentally, discuss the types of sustainable public procurement that are currently banned, such as the ban on including CSR policies in the award criteria noted in preamble 97 Directive 2014/24/EU (in other words: give entities with ambitious CSR plans a bigger shot at winning a contract), discuss the ban on local and regional procurement (in other words: consider that such geographically oriented procurement can be better for the climate, and that market integration might need to be limited in some instances) or discuss the ban on direct awards to sustainable economic operators (in other words: consider providing room for it, similarly to the many other current exemptions in these directives).

Thirdly, and finally, discuss the fact that sustainable public procurement is still a possibility and not a mandatory requirement in general. The discussions in Brussels should gear themselves to considering how mandatory requirements, thereby regulating ‘what to buy’ instead of only ‘how to buy’ can increase the uptake of sustainable public procurement. For example, this discussion can take place in the context of articles 18(2) or 69 Directive 2014/24/EU. In addition, the more than 45 sectoral pieces of legislation outside of the scope of the public procurement directives have already set this trend in motion outside the scope of the reform, by including targets and minimum mandatory requirements, such as award criteria and technical specifications. A discussion on whether the European public procurement rules should (or should not) mandate sustainable public procurement should be on the table as well.

From the above, a picture emerges in which mostly the Letta report, but also the Draghi report, have framed the scope of review for the revision of the public procurement directives in light of geopolitical developments. Despite the relevance of the current chosen starting point of the discussion, it is clear that sustainability is not high on the agenda so far – or at least not the primary point of discussion -, even though many discussion points are suitable for being tabled in Brussels.  Returning to the legislative process, the call for evidence from the Commission is was open until the 7^th of March, and the revision is set to be completed by 2026. Fortunately, this means that there is still time to consider the scope of this review, and to bring sustainability broadly back into the building. There is still much to discuss.

Prof. dr. Willem Janssen is an Endowed Professor of Public Procurement Law at Groningen University and an Associate Professor of European and Dutch Public Procurement Law at Utrecht University.