Public procurement, the purchase of goods, services and works by governments and state-owned enterprises, is increasingly used by governments as a strategic tool to deliver their mandates. In addition to carrying it out in line with standard principles and existing rules, governments are working to increase the efficiency and effectiveness of this key function. From an economic perspective, public procurement is recognised as a lever for improving the efficiency and effectiveness of public spending. In addition, the realisation of broader policy objectives (such as promoting innovation, sustainability, social inclusiveness and supporting small and medium-sized enterprises [SMEs]) is an increasingly important part of public procurement strategies for governments.
The sheer size of public procurement, representing approximately 12% of gross domestic product (GDP) in OECD countries, makes it a key economic activity, ranging from 4.9% in Mexico to 19.5% in the Netherlands. The economic weight of public procurement is more pronounced at times of economic recession: therefore, in three-quarters of OECD countries the relative size of public procurement spending in terms of GDP reached a peak in 2009, when economic recession struck most of them. Since then, the relative size of public procurement spending in OECD countries has been slowly decreasing, but remained rather constant over the last four years, both as a percentage of GDP (11.8% in 2017) and in terms of general government expenditures (29.1% in 2017).
Being under fiscal pressure, governments have been reforming their public procurement systems to optimise this significant public expenditure item. Such reforms are highly relevant for central governments, and even more for sub-central governments that make up 63% of overall public procurement spending in OECD countries, with substantial variations reflecting the institutional set-up of each country.
Public procurement has a strong impact in all forms of public service delivery, as reflected in the sectoral spending, from health to environmental protection, public order or economic affairs (comprising infrastructure, transport, communication, energy, and research and development [R&D]). Health expenditures represent the largest share of public procurement spending, accounting for around 30% in OECD countries and over 40% in some European countries (Belgium, Germany, Italy and the Slovak Republic) and in Japan. Notable exceptions include Hungary, Latvia and the United States, where economic affairs represent the largest share of public procurement spending. Economic affairs (16.3%), education (11.7%), defence (10%) and social protection (10.2%) represent the remaining largest areas of public procurement spending across OECD countries, with substantial variations between countries.
