Improving Competitive Practices in Hungary’s Public Procurement

Executive summary

In recent years, Hungary has been among the EU countries with a high rate of single-bid procedures, according to the European Union’s Single Market Scoreboard. Although the rate dropped to 33% in 2022, it remained around 40% during 2019-2021. Interviews carried out with stakeholders in Hungary have revealed -- and the results of the Hungarian public procurement performance measurement framework confirmed -- that almost one-third of public procurement contracts above the EU threshold do not achieve their objectives because only one bid, no bids or invalid bids were submitted. The Government of Hungary has taken several steps both to address this issue and to implement the remedial measures under the rule of law procedure launched against Hungary in 2022 for the protection of the European Union budget (the so-called “conditionality procedure”) as well as its Recovery and Resilience Plan. Hungary committed to reducing the share of public procurement resulting in single bids to below 15%, both for procurement financed fully or partially from European Union funds and for procurement financed solely from national resources.

The Hungarian Government is undertaking several reforms to support these commitments, including using a monitoring tool to assess the level and cause of single bids (Single Bid Reporting Tool), developing a performance measurement framework to regularly assess the efficiency and cost effectiveness of public procurements and the reasons for limited competition in the sectors most affected by low competition, and implementing an action plan, based on international good practices, to intensify competition in public procurement.

In additionally, given OECD’s work on competition in public procurement, the Hungarian Government requested OECD’s support in assessing the root causes of low competition in Hungary, focusing on sectors that are most affected by this problem, and in providing identifying ways to enhance it. This Report provides an in-depth quantitative analysis of competition in public procurement in Hungary, a detailed assessment of the institutional and regulatory frameworks and the potential impediments to competition, and recommendations for updating Hungary’s action plan for increasing competition, including for building the capacities of contracting authorities and the private sector to improve bidders’ access to procurement opportunities.

Key findings and recommendations:

Improving public procurement data governance and data availability

• The Hungarian e-Procurement system (EKR) provides a wealth of data on competition in public procurement, and the Hungarian Government is using this data in its public procurement performance measurement framework and the Single Bid Reporting Tool. The EKR offers a structured, machine-readable search and bulk export of contract award notice data. However, data governance could be further improved by ensuring that all data pertaining to procurement are integrated into EKR in a machine-readable format. This data should include procurement data of centralised purchasing bodies, as well as contracts concluded under framework agreements (mini-competition or call-offs). Other improvements could include taking full advantage of the implementation of eForms, improving the search function in the database to enable a more structured data search and analysis, offering easy registration through email (or push notification) to economic operators, and ensuring bidder anonymity before bid opening.

Understanding the impact of centralised purchasing on competition

• Centralised purchasing represents an important part of public spending in Hungary, with three main centralised purchasing bodies (CPBs). However, little data exist on their practices and their impact on the level of competition. The Government should therefore consider conducting an in-depth analysis of the procurement practices of CPBs to better understand the impact of their operation on the level of competition in public procurement. This analysis should include issues such as participation from SMEs, market concentration, length of framework agreements or procurement planning.

Taking stock of the public procurement control and monitoring systems

• Hungary has a strong monitoring and control system for public procurement, involving several different actors, but also presenting risks of overlapping functions and potentially conflicting views. The Government would benefit from taking stock of the public procurement control and monitoring system and, if necessary, streamlining the system to avoid overlaps and ensure that interpretation of the law is harmonised among the different control bodies.

Ensuring better co-ordination amongst the key stakeholders

• The rich institutional framework in Hungary already possesses some tools and means for improving competition in public procurement. Key stakeholders would benefit from better co-ordinating their activities, especially regarding reporting of breaches in public procurement, by setting up communication channels. When it comes to public-private sector relationships, the Government could also set up communication channels or dedicated platforms (in the form of committees, working groups or task forces) with sectoral stakeholders (e.g. business associations) to better support less experienced companies and acquire essential (sector-specific, technical) knowledge.

Analysing the impact of measures to intensify competition and setting a more realistic target

• Given the ambitious commitment to reduce single-bidding to below 15%, Hungary has put in place several measures to curb low competition, including the use of mandatory market consultations and the obligation for certain contracting authorities to create action plans to curb single bidding. The Government should carry out an impact assessment to measure the real impact of these measures for creating a healthy competitive environment and reassess its target for single-bidding accordingly.

Building the capacity of key procurement stakeholders and a coherent approach to professionalising the procurement function

• In terms of capacity building, Hungary made several efforts to offer training to both contracting authorities and the private sector (especially SMEs) to improve their practices. The Government should pursue its capacity-building efforts targeting several stakeholders:

  • Improving the capacities of contracting authorities to ensure that they are preparing, planning and conducting their procurement procedures in a way that makes procurement opportunities more attractive for the business sector (with strategic planning for seasonal trends, improving the role of procurement plan as a market engagement tool, balancing tender details in technical specifications, extending bid preparation timeframes, speeding up decision making for bid evaluation, using lots, etc.). Contracting authorities would also benefit from training and practical tools on topics such as the use of quality criteria, collaborative approaches, and preventing collusion and corruption.

  • Improving the capacities of economic operators by engaging professional associations in supporting less experienced firms, facilitating consortium and subcontracting, and creating initiatives to boost SME engagement.

  • Improving the capacities of control bodies, the Competition Authority, and centralised purchasing bodies through targeted training.

Hungary recognised public procurement as a profession as early as in 2004. However, recent amendments to the public procurement legislation introduced changes to the certification framework, resulting in a less streamlined system. Hungary would benefit from adopting a more coherent approach to professionalisation of the procurement workforce, based on a professionalisation strategy. This strategy should streamline the certification system for procurement consultants and include a comprehensive vision for the development of public procurement expertise in the national public procurement market.