The principle of access within the OECD Recommendation on Public Procurement recommends that adherent countries should have in place coherent and stable institutional, legal, and regulatory frameworks, which are essential to build trust in the public procurement system and to increase participation in public procurement. This chapter reviews the institutional, legal and policy framework related to public procurement to identify bottlenecks and impediments to competition in Hungary and continues the analysis of the determinants of single bidding started in Chapter 2.
Improving Competitive Practices in Hungary’s Public Procurement
Reducing Single-bids and Enhancing Supplier Participation
OECD Public Governance Reviews
Abstract
3.1.1. Improving cooperation among main actors regarding monitoring practices of competition
The principle of access within the OECD Recommendation on Public Procurement does not only highlight the importance of using competitive procedures, but also recommends sound institutional and regulatory frameworks to increase participation to procurement processes (see Box 3.1).
The OECD Recommendation on Public Procurement recommends that Adherents facilitate access to procurement opportunities for potential competitors of all sizes. To this end, Adherents should:
Have in place coherent and stable institutional, legal and regulatory frameworks, which are essential to increase participation in doing business with the public sector and are key starting points to assure sustainable and efficient public procurement systems. These frameworks should be as clear and simple as possible, avoid including requirements which duplicate or conflict with other legislation or regulation, and treat bidders, including foreign suppliers, in a fair, transparent, and equitable manner.
Deliver clear and integrated tender documentation, standardised where possible and proportionate to the need, to ensure that: 1) specific tender opportunities are designed so as to encourage broad participation from potential competitors, including new entrants and small and medium enterprises And 2) the extent and complexity of information required in tender documentation and the time allotted for suppliers to respond is proportionate to the size and complexity of the procurement, taking into account any exigent circumstances such as emergency procurement.
Use competitive tendering and limit the use of exceptions and single-source procurement.
Source: (OECD, 2015[1]).
The public procurement system in Hungary comprises several key actors at two different levels. The first one contains key high-level institutions as follows:
The Deputy State Secretariat for Public Procurement Supervision within the Ministry of Public Administration and Spatial Development – MPASD (formerly under the Prime Minister’s Office (PMO)) is responsible for the Government’s public procurement policy, for legal drafting in the field of public procurement. It also exercises oversight functions, conducting regulatory ex ante control of public procurement procedures using EU funds and monitoring compliance with the procurement regulatory framework. It provides support and guidance to contracting authorities. It also monitors competition in public procurement through the recently adopted Public Procurement Performance Measurement Framework. It is responsible for the development and implementation of an Action Plan to increase competition and reduce single-bid procurements.
The Public Procurement Authority (PPA), established in 1995, is an autonomous state administration body reporting to Hungary’s National Assembly. The PPA is responsible for monitoring the application of the public procurement law, issuing guidance and formulating opinions on draft legislations. The PPA collects and publishes operational and statistical information through annual reports and the Official Journal of the PPA. Within the framework of its control mandate, the PPA monitors notices that are published on TED and in the Public Procurement Bulletin. The PPA carries out compliance controls on the use of negotiated procedure without prior publication, as per article 103 of the PPA. The PPA also controls the performance and amendments of contracts concluded through public procurement since 2016. Within the framework of the PPA, a Council of 17 members operates. The Council have the mandate to elect the President of the PPA for a five-year-term. The Council issues guidelines based on experiences gained during the control of procurements, especially on subjects specified in the PPL.
The Public Procurement Arbitration Board operates within the Public Procurement Authority. As an administrative quasi-judicial body, it handles the legal remedies related to public procurement.
The Competition Authority is mainly responsible for detecting and sanctioning concerted actions (cartels) in public procurement procedures.
The Integrity Authority was established as an autonomous administrative body in October 2022 as a response to the negotiation with the European Commission on the EU funds, and as part of the Hungarian Government’s commitments. It has competence to control projects and public procurement procedures financed entirely or partly from EU funds and analyse integrity risks to public procurement. The Authority also works alongside the Anti-Corruption Working Group, which was established to examine the existing anti-corruption measures and to elaborate proposals in relation to the prevention, detection, persecution, and sanction of corrupt practices.
The State Audit Office is the Supreme Audit Institution, independent from any other organisation, and controls the prudent management of public funds. The State Audit Office issued an analysis of the public procurement practices concerning competition in 2021.
EUTAF is the Hungarian Audit Authority for the European Union. Its mandate is to ensure the effective and regular use of funds received from the European Union budget and promote the efficient use and adequate absorption of funds. This mandate includes performing checks on procurement processes that are funded by EU funds.
The procurement system also has a second level of key actors which are responsible for directly implementing the procurement procedures as follows:
Centralised purchasing bodies, which are responsible for bulk purchasing for several contracting authorities. The Directorate General for Public Procurement and Supply (KEF) is the main CPB carrying out centralised public procurement activities for ministries, other government institutions and for “organisations having a separate chapter in the Central Budget Act”. The National Communication Office is in charge of procuring all communication services and organisational development services for central government bodies, as well as regional and local administrative organisations that are under the direction of the central government bodies, and SOEs. The Digital Government Agency (Digitális Kormányzati Ügynökség, DKÜ in Hungarian), was created in 2018 with the aim of unifying and centralising the Government’s ICT procurement as well as making public ICT spending more transparent.
Contracting authorities: According to data provided by MPASD, the number of contracting authorities registered in the electronic procurement system was 9 320 in 2023. 99% of these authorities are at subcentral level. In 2022, with regard to the number of the public procurement procedures, contracting authorities at local level launched the most public procurement procedures, with 37.8%.
Economic operators: Economic operators and especially small and medium enterprises play a significant role in the public procurement system in Hungary. There are more than 1.8 million registered businesses in the country, with most of them being SMEs. Most companies operate within the agriculture, real estate, scientific and engineering, trade, and constructions sectors. There are 41 898 businesses registered in the EKR, from which 88% are SMEs.
Each of these key actors play a role in influencing the level of competition. As the capacities and practices of second level actors are dealt with in another chapter (see Chapter 4), this section will focus on a better coordination among high-level institutions, and especially on their monitoring and control functions. Indeed, the evaluation principle within the OECD Recommendation on Public Procurement recommends driving performance improvements through evaluation of the effectiveness of the public procurement system from individual procurements to the system as a whole, at all levels of government where feasible and appropriate. (OECD, 2015[1])
In Hungary, several key institutions share similar mandates and an overlap between tasks of different institutions can be observed. Figure 3.1 highlights the complexity of the control and monitoring system that includes a high number of institutions with mandates for control and monitoring functions.
Having so many institutions involved in the control and monitoring of public procurement might pose the risks of overlapping mandates and conflicting approaches, methodologies, and control practices. The diverging outcome of the conflicting control practices can be a threat to the unified interpretation of the policy and legal framework and thus undermine the trust of contracting authorities and bidders in the system as highlighted by stakeholders during the OECD fact-finding meetings. The current complex structure is the result of continuous institutional changes over time and various policy interventions introduced to overcome different shortcomings in the Hungarian public procurement system.
Nonetheless, the operation of the Hungarian public procurement control system also delivered several positive results, as highlighted by the first report on the performance measurement framework. For example, there is a lower proportion of single-bid procurements for EU-funded procurements than for nationally-funded contracts, which can be explained by the impact of the strict control mechanisms in place for the use of EU funds. In addition, the use of negotiated procedures without prior publication of a contract notice, which can only be used under strict conditions, is very low, accounting for an almost negligible share of public procurement. The limited use of this type of procedure is most probably due to the mandatory prior control by the Public Procurement Authority. Another positive impact is the influence that control bodies have on one another, such as for the use of Article 115 on restricted negotiated procedures. The use of such a procedure was prohibited for EU-funded projects in 2021, but its use had already decreased before this prohibition, which may be mainly due to the fact that, in view of the high correction risk associated with the use of EU funds, the control bodies have started to interpret the rule prohibiting the use of subdivision more strictly than before, so that fewer construction projects could fall under the threshold for the application of this procedure. (Government of Hungary, 2023[2])
Even with the highlighted positive elements of the control system, the current system seems to be overly complex that embeds the risks of overlaps and conflicting approaches, therefore Hungary should take a stock of the current system of control and monitoring in public procurement, and based on this mapping it should streamline the system by leveraging the coordination among control bodies so as to ensure a uniform interpretation of the legal issues that may arise in public procurement. Different bodies in Hungary have already started to cooperate regarding control and monitoring. Indeed, a Professional Consultative Forum has also been created to allow entities involved in the control of public procurement procedures to share their practical experience in audit and control, and identify common interpretative guidelines to prevent and address systemic irregularities in the use of both national and EU funds. The Forum includes representatives from the PPA, MPASD, Directorate-General for Audit of European Funds, Government Control Office, and the Digital Government Agency.
Nonetheless, the similarity of mandates among these authorities calls for further coordination to better monitor issues related to competition in public procurement and effectively address them. The existing cooperation should include other actors in the system. For example, the 2021 OECD Economic Survey highlighted that the Competition Authority is deemed as not sufficiently active in sectors with high risk of collusion, with few market studies and decisions. Only few decisions have been made in the area of public procurement, despite the high number of irregularities reported by the European Commission. In addition, important areas are exempt from competition scrutiny on grounds of national strategic interest. Business dynamics is held back by the weak enforcement of the existing pro-competitive regulatory framework, even in sectors with high risk of collusion, including public procurement. (OECD, 2021[3]) The 2024 OECD Economic Survey found similar shortcomings regarding the Integrity Authority, and cites weaknesses regarding its competencies, and warrants for a clarification of the Authority’s cooperation with other bodies. (OECD, 2024[4])
Regarding the Competition Authority, the Integrity Authority in its 2023 Annual Report mentioned that several contracting authorities reported that they had reported unwanted market practices to the Competition Authority as per Article 36(2) of the Public Procurement Act, when they had detected situations that were likely to infringe the fairness of competition. However, contracting authorities have also reported that they could not provide information on the effectiveness of the reporting mechanism due a lack of feedback from the Competition Authority. In addition to contracting authorities, the MPASD and the PPA, also have the mandate to report breaches to the Competition Authority as per Article 36(3) of the Public Procurement Act, and as such, PMO (now MPASD) signalled 126 cases involving red flags to the Competition Authority in 2022, while PPA reported 1 case. (Integrity Authority of Hungary, 2023[5])
As such, establishing a collaborative relationship between procurement policymakers, contracting authorities and the competition authority is considered a key step in preventing market practices that hinder competition in procurement. The cooperation mechanisms can include setting up a mechanism for communication, listing information to be provided when procurement officials contact competition agencies and capacity-building.
3.1.2. Harmonising methodologies for measuring single-bidding
Another issue is the discrepancy of methodology in using the data to calculate the rate of single bid procurements by PPO and MPASD. Both entities are tasked with monitoring public procurement, the PPA produces an annual report on its activities, to be submitted to the Parliament, however the data and methodology used is different from those used by the MPASD. As such, there are discrepancies in the findings regarding the rate of single-bid procurements, since the PPA includes framework agreements in the calculation, while the Single Market Scoreboard methodology, used by the MPASD, excludes them from the calculation. Another discrepancy in the methodology is the fact that the PPA bases its calculations on the number of bids within the whole procurement procedure, by adding the number of bids per lot, while MPASD calculates the rate of single bids based on the number of contracts awarded to a single bidder. As such, for instance, if there is one procurement procedure with 10 lots, and each lot received only one bid, the PPA will account this as a procurement procedure with 10 bids, while the MPASD will account 10 contracts with a single-bid. This discrepancy can drastically change the findings regarding single-bid procurement (OECD, 2023[6]).
At the same time, since a large share of procurement processes are financed by EU funds in Hungary, the Hungarian Government committed to apply the methodology that is fully aligned with the EU Single Market Scoreboard methodology. In late 2022, the Directorate General for the Audit of the EU Funds (EUTAF) audited the methodology used by the PMO (now MPASD) to measure single-bid procurements and declared that it is aligned with the EU Single Market Scoreboard methodology. Subsequently a decision from the Council of the European Union also confirmed that the methodology used by the PMO (now MPASD) was adequate and in line with the methodology used by the Single Market Scoreboard. (Council of the European Union, 2022[7])
In addition to harmonising methodologies across the relevant Hungarian stakeholders, MPASD could also consider broadening the scope of its framework, with respect to its commitments towards the EU. For example, framework agreements are usually concluded for a certain number of years, hence why competition is important both during the initial procurement to enter the framework agreement and during call-offs. The methodology for single-bidding should therefore widen its scope beyond factors included in the EU Single Market Scoreboard methodology, especially to include framework agreements at both stages (initial contract and subsequent call-offs), otherwise, the analysis may not reflect fully the state of competition in the procurement system. In this regard, the Hungarian Government should pay a close eye on any planned changes to the methodology at the EU level.
3.1.3. Leveraging the e-Procurement system to enable better accessibility to procurement opportunities and procurement data
The use of the Hungarian e-Procurement system (in Hungarian: Elektronikus Közbeszerzési Rendszer or EKR) for carrying out procurement procedures has been mandatory since 1st February 2017 for central purchasing bodies, and from 15th April 2018 for all procurement processes. All contracting authorities have to use EKR for the publication of procurement notices to facilitate access to public procurement information and tender documents, and all economic operators are required to submit their bids via EKR, both for procurement above and below EU thresholds. All communication between contracting authorities and economic operators shall be done via EKR. One functionality not covered by EKR is the evaluation of bids, however, contracting authorities have to upload the evaluation report and all supporting documents into the system.
The development of the system was overall considered a steppingstone in enhancing transparency in public procurement. EKR is indeed crucial for the monitoring of public procurement and the measurement of single-bid procurements in particular, as it represents the main source of data. The system offers access to a wide range of data, and it was recently updated to allow the structured extraction of all contract award and subcontracting data to improve data accessibility and the availability of comprehensive statistics, following a recommendation from the European Commission. (European Commission, 2023[8]) Nonetheless, the EKR system could be further developed to enhance its interoperability with other procurement data sources, but also to increase its potential for fostering competition by bringing new or better features.
In a similar fashion, for example, the Cabinet Office of the United Kingdom recognised that the poor quality of published government’s data on public contracts reduces transparency and may impact competition. Two publicly available databases are providing information on public contracts; however, information is collected inconsistently among the two databases, leading to some contracts not being published. The Cabinet Office is working on changes to the process and its standards, including consolidating to only using one database. (Cabinet Office of the United Kingdom, 2020[9])
Enhancing the governance and interoperability of procurement data
The governance of procurement data is an area for further improvement. Since 1st July 2021, the contracts uploaded onto EKR are automatically forwarded to the public registry of contracts (CoRe portal) operated by the PPA, thus creating duplication of publication. As such, creating a single data source would enable better access to information.
Another suggested improvement could be the integration of remedies data from the PPAB’s database into EKR. Indeed, the full text of the decisions of the PPAB are currently published on PPAB’s website, in PDF format. The database of the decisions is searchable, using different searching options, and is free of charge, however, interviews with stakeholders indicate that the searchability of decisions could be further improved. (OECD, 2023[6])
The Arbitration Board also publishes the most relevant elements of the submitted applications as well as the calendar of the hearings. As such, linking PPAB’s database to EKR could help enhance transparency and access to information to bidders, who in turn can be informed if certain procedures are subject to a remedy process. It can also ease the process of monitoring public procurement under the performance measurement framework as most data would be grouped in one place (OECD, 2023[6]) In Mexico for instance, the e-Procurement platform Compranet covers the entire procurement cycle and allows both for the possibility to file a formal complaint against procurement procedures and the disclosure documentation associated with formal complaints. (OECD, 2014[10])
In addition, certain data sources pertaining to the qualification of bidders are owned by both the PPA, the Integrity Authority, and the Competition Authority. As such, the automatic integration of these data sources into EKR to justify the absence of grounds for exclusion is one of the measures foreseen by the Government’s action plan to increase competition in public procurement from 2023-2026. The creation of a single platform for all procurement data has shown to increase participation in public procurement in certain countries. Box 3.2 presents the example of Korea.
In 2002, the Public Procurement Service (PPS), the central procurement agency of Korea, introduced a fully integrated, end-to-end e-procurement system called KONEPS. This system covers the entire procurement cycle electronically (including a one-time registration, tendering, contracts, inspection and payment) and related documents are exchanged online. KONEPS links with about 140 external systems to share and retrieve any necessary information, and provide a one-stop service, including automatic collection of bidder's qualification data, delivery report, e-invoicing and e-payment. Furthermore, it provides related information on a real-time basis. All public organisations are mandated to publish tenders through KONEPS. In 2012, over 62.7% of Korea’s total public procurement (USD 106 billion) was conducted through KONEPS. In KONEPS 45 000 public entities interact with 244 000 registered suppliers.
According to PPS, the system has boosted efficiency in procurement, and significantly reduced transaction costs. In addition, the system has increased participation in public tenders and has considerably improved transparency, eliminating instances of corruption by preventing illegal practices and collusive acts. For example, the Korea Fair Trade Commission runs on KONEPS, the Korean BRIAS system which is the automated detection system for detecting suspicious bid strategies. According to the integrity assessment conducted by Korea Anti-Corruption and Civil Rights Commission, Integrity perception index of PPS has improved from 6.8 to 8.52 out of 10 as the highest score, since the launch of KONEPS.
Source: (OECD, 2016[11]).
Finally, while the Hungarian e-procurement system has improved considerably with the introduction of the EKR system, its coverage of all public procurement transactions could be further enhanced to be made machine-readable and to include full procurement data, including tackling incomplete entry of centralised procurement and awards within framework agreements. Research indeed shows that open procurement data promote competitive bidding. (Duguay, Rauter and Samuels, 2023[12]) Currently, the data content of contract award notices is made available in a machine-readable format. Therefore, it is recommended for Hungary to make the full public procurement data available in EKR in a machine-readable format (i.e. using csv file format rather than a combination of tabular and pdf formats). This also implies that the full public procurement data content, including bidder number, loosing bids, tender descriptions, among others, should be readily available in the EKR publicly available dataset. The introduction of eForms (see below) is expected to address this recommendation but at the time of drafting the report the results still cannot be seen. This issue is worth revisiting after gaining enough experience about the changes brought by the implementation of eForms.
Developing EKR further to include additional functionalities
Beyond the coverage of EKR data and the interoperability of procurement data among systems, other enhancement could be brought to EKR. The Government’s action plan to increase competition in public procurement itself already foresees several measures to further develop the EKR system to reduce single-bid procurements (see Table 3.1).
The proposed measures are in line with good practices in the European Union. For example, the option to set up automatic notifications has been found to enhance accessibility for SMEs and facilitate cross-border tendering for foreign economic operators who might not know individual contracting authorities as well as national economic operators. A better search by CPV code would also improve access to procurement opportunities, as some firms, and particularly SMEs, are sometimes not familiar with CPV classification. As such, good practices include avoiding browsing through a CPV tree, including CPV code descriptions, allowing CPV research by key words, and showing the number of items contained within each matching category and its sub-categories. The possibility for registered users to access procurement documentation anonymously would remove technical and administrative pre-requisites and barriers to accessing tender specifications, which in turn would significantly ease access to calls for tenders and make public procurement more accessible. In addition, the e-Procurement Golden Book of Good Practice recommends offering light registration through email for economic operators that want to keep up to date about changes to tender specifications or wish to ask the contracting authority questions. (PWC, 2013[14])
Another recommendation regarding EKR is provided by the Integrity Authority in its 2023 Annual Report, which states that in an effort to build trust of economic operators in the procurement system, EKR could ensure that the identity of the bidders would not be revealed to the contracting authorities before the bid submission deadline. The report also mentioned that the Integrity Authority collected information regarding cases where either the contracting authority or a competing bidder – who probably got information from the contracting authority – contacted another bidder in the procedure to try to convince that bidder not to participate in the public procurement procedure. (Integrity Authority of Hungary, 2023[5]) Therefore, this functionality of the system could significantly have an impact on competition, and the full encryption of the bids until the bid submission is strongly recommended. As such, the e-Procurement Golden Book of Good Practice also suggests formal organisational procedures and non-disclosure agreements to ensure segregation of duties and full confidentially of tenders as well as data logging to maintain an audit trail of any access or attempted access to tenders stored on the platform. (PWC, 2013[14])
To further enhance trust in the procurement system, the time gap between the bid submission deadline and the actual opening of the bids can be also reconsidered. This gap currently can be considered quite large as there is a 2-hour window. This gap is explained by the precautionary measures that were deemed necessary when EKR was first launched, to avoid malfunctions of the system at the time of bid opening, but these malfunctions did not materialise in practice. This gap can seriously impact the trust and legal certainty of bidders in the system, thus impacting competition. Now, that EKR has been in use for several years, the system should be enhanced to have the bid opening shortly after the bid submission deadline (for example, not longer than 15 – 30 minutes). The MPASD has already made a commitment to reduce this time gap in its response to the report of the Integrity Authority. Furthermore, the revised Government Action Plan on increasing the level of competition in public procurement, adopted by the Government on 28 March 2024, mandated MPASD to introduce this change and set up strict deadlines for the actions necessary, such as end-October 2024 for the preparation of the legislative changes and end-June 2025 for the deployment of the actual changes in the EKR.
Another feature of the EKR that could be improved is the fee that contracting authorities need to pay. Indeed, contracting authorities have to pay a uniform system usage fee of HUF 40 000 (approx. EUR 102) per each public procurement procedure initiated. As such, the use of EKR can become costly for smaller contracting authorities, or for contracting authorities with a high number of procedures each year. The maintenance costs of the system could be ensured by requesting the contracting authorities to pay an annual fee for the use of EKR, and not to pay per procedure. (European Bank for Reconstruction and Development, 2015[15]) Beyond fees for using EKR, Hungary should also take stock of other fees foreseen by the legislation, especially those due to the PPA (see Table 3.2).
A high cost for conducting procurement processes can represent an administrative burden for contracting authorities. It is therefore recommended to take stock of the different fees for conducting a procurement process and streamline them to ease the burden for contracting authorities. It is also recommended that Hungary takes advantage of the full potential of eForms. eForms are an EU legislative open standard for publishing public procurement data, established under European Commission Implementing Regulation (EU) 2019/1780. They are digital standard forms used by public buyers to publish notices on Tenders Electronic Daily. The eForms regulation established six standard forms, covering forty notices. The standard forms (eForms) contain fields, some of which are mandatory and other optional. eForms are expected to significantly improve the quality and analysis of procurement data. The Commission highlighted that well-implemented eForms should increase the ability of businesses and other organisations to find procurement notices, reduce the administrative burden for contracting authorities, increase the ability of governments to make data-driven decisions about public spending, and make public procurement more transparent. (European Commission, 2023[16])
The European Commission also emphasised that eForms is not an 'off-the-shelf' solution that can be implemented 'as is', and policymakers in each member country must first define the national approach to the various aspects of eForms, such as also using them for contracts below thresholds, and defining the national governance structure for eForms. Therefore, eForms implementation in the EU member states should not consider as a low-level form-filling exercise, but rather as a key tool to build a procurement data architecture that facilitates the uptake of digital technologies for procurement governance and a way to collect information on many policy priorities, such as green, social and innovation procurement data (OECD, forthcoming[17])
As eForms were to be implemented by 25 October 2023 in all Member States, EKR was subsequently updated to match all required fields under eForms for all procedures above the EU thresholds but does not apply to national procedures. A user manual regarding eForms was also made available on EKR. Therefore, eForms could foster the use of a common standard and terminology, and significantly improve the quality and analysis of data in Hungary, especially if EKR takes on additional functionalities eForms can offer, as the ambition of eForms is to capture, over time, the complete public procurement cycle, including for instance voluntary forms for contract completion notices. (OECD, forthcoming[17])
3.1.4. Streamlining the process of procurement appeals
Effective remedies for challenging procurement decisions are essential to build bidders’ confidence in the integrity and fairness of the procurement system. Key aspects of an effective remedies system are timely access, independent review, efficient and timely resolution of complaints and adequate remedies. As such, another impediment to competition in Hungary identified by key stakeholders, including the Government’s action plan to increase competition in public procurement from 2023-2026, is the remedies system and particularly the fees to lodge a complaint. As mentioned in section 3.1.1 above, the Public Procurement Arbitration Board is the review body in charge of deciding legal disputes related to public procurement procedures. The Arbitration Board operates in the framework of the PPA but acts independently.
Economic operators shall pay a fee if the review procedure is initiated upon request. The administrative service fee equals to the 0.5% of the estimated value of the procurement, but at least HUF 200 000 (approx. EUR 572). The legal framework also establishes a maximum for the fee (HUF 50 000 000 (approx. EUR 128 345) in the case of public procurement above the EU threshold, and HUF 6 000 000 (approx. EUR 15 404) in the case of a procurement below the EU threshold). While the fee levels were increased to discourage unjustified complaints, it has an adverse consequence as it could indirectly discourage potential bidders from bidding by making access to remedies more difficult. Responses to the survey disseminated by the PMO (now MPASD) revealed that nearly 80% of respondents considered that the level of the administrative service fees has a dissuasive effect on the use of the remedy system. In addition, the fees can also be impossible to bear for some SMEs, hence depriving them from the right to seek remedy. (Government of Hungary, 2023[13]) As such, NGOs in Hungary are repeatedly inviting the Government to lower the fees to enable SMEs to afford the review procedure. (Transparency International, 2021[18])
Interviews with some stakeholders revealed that the amount of the fees was affordable in the past. However, the consequence was that complaints were submitted with the sole purpose of stalling the procurement process. Other instances where the losing bidder was blackmailing the winning bidder with a complaint to be included as a subcontractor were also reported. Consequently, the fee for lodging a complaint were drastically increased, and was considered too high. (OECD, 2023[6])
The Integrity Authority also raised this issue by stating in its annual report that the fees are unjustifiably high. The Integrity Authority highlights that the administrative fee for filing a complaint should be independent from the number of elements in the claim. The report also mentions that the fees for judicial review of the decisions of the PPAB are also high, as they are often calculated based on the value of the procurement procedure, while the Duty Act XCIII of 1990 regulating court fees foresees a very low fee to initiate administrative proceedings and is not applied to the review of public procurement procedures. The overall remedy system is therefore deemed having an approach that is considered too administrative, instead of using risk analysis, and struggles with technology issues due to deficiencies of data integrity. (Integrity Authority of Hungary, 2023[5])
The payment of fees per se is not an issue, as in the European Union, many Member States’ tenderers initiating review proceedings have to pay court fees, deposits, and fees of experts and legal representation. The amount of fees to be paid for a first instance procedure vary across the member states, depending on the review body, the remedy in question, the value of the contract, whether the contract value is above or below the thresholds of the EC public procurement directives, and whether the proceedings concern a supply, services, or works contract. As such, four main systems can be observed regarding the remedy systems of the Member States (see Box 3.3).
In the European Union, the calculation of fees to lodge a complaint against a procurement procedure varies from Member State to Member State, however, four main systems can be observed as follows:
No court fees: In some Member States such as Luxembourg, there are no court fees in the relevant first instance review bodies and courts. In Malta, there is no fee to lodge a complaint before the Public Contracts Review Board if it is lodged before the bid submission deadline. Tenderers only run the risk of having to pay for additional costs, such as fees for legal representation or experts.
Flat fees for all proceedings: In some Member States, there are flat fees for all proceedings, irrespective of the type or value of the contract, such as in Ireland (EUR 210) or Denmark (EUR 1 340 to EUR 2 685).
Deposit or fee calculated as a percentage of the contract amount/offer price: In some Member States there is a deposit of a certain percentage of the contract value to be paid as a fee, for example 0.5% in Latvia1, 2% in Romania, 5% in the State High Courts of Germany (second instance body), or 1% in Czechia. Such deposit is reimbursed to the economic operator if its claim is sustained.
Fee depending on the contract amount / above-below EU threshold / subject-matter of the procurement: In many Member States, the fee can more generally depend on different factors. In Slovenia, the fee is between EUR 1 000 and 4 000 depending on the type of procedure. In Estonia, the fee is EUR 640 for contracts below the EU thresholds and EUR 1 280 for contract above EU thresholds. In Poland, the National Appeals Chamber has a registration fee that depends on the value of the contract, whether it is above or below the thresholds of the EC Public Procurement Directives, and whether it is a service, goods or works contract.
1. The Latvian Public Procurement Law adopted in 2017 states in its article 70 part 3 that “a deposit shall be calculated as 0.5% of the estimated contract price, however not exceeding EUR 15 000 in case of a public works contract and EUR 840 in case of the public service contract or supply contract. If it is not possible to determine the estimated contract price or if it is not specified in the procurement documents, in case of a public works contract, the deposit shall be EUR 3 400, but in case of a public service contract and supply contract, the deposit shall be EUR 840.”
The MPASD itself is aware of the high level of remedies fees and its potential negative impact on the level of trust in the procurement system. The Government therefore declared in its action plan to increase competition in public procurement for years 2023-2026 that competition could be further enhanced if the conditions for accessing remedies related to public procurement procedures were facilitated by the legislator. As such, the revision of the administrative fees for remedy was included as one of the 14 measures of the action plan, and the amendment of the PPL containing new fees for access to remedies has been adopted by the Hungarian Parliament on 13 December 2023. (Government of Hungary, 2023[13]) However, it is still too early to evaluate the impact of the adopted changes. The Government should monitor closely how the introduced changes impact the operation of the public procurement remedies system and the number of submitted requests for remedies.
Impediments to competition in public procurement can come from the regulatory and policy framework itself, either because the framework provides legal uncertainty to bidders, which in turn are discouraged to bid due to a lack of trust in the system, or because of the administrative burden provided by the public procurement law or other legislative act. For example, in 2012, the European Commission ran a public consultation to identify the Top 10 most burdensome legislative acts which impact procurement, to increase SMEs participation in public procurement processes. (OECD, 2016[11]) As, such, this section will look at the provisions of the Public Procurement Law which may discourage bidders from participating in public procurement processes, but also assess the impact of policy measures taken by the Government to increase competition.
3.2.1. Addressing potential barriers to competition in the Public Procurement Law or its implementation in practice
Decision-making speed
The Law CXLIII of 2015 on Public Procurement (PPL) of Hungary was adopted in 2015 (effective from 1 November 2015) and it is already the fourth comprehensive public procurement law since 1995 when public procurement was regulated for the first time in Hungary.
One provision of the law that goes beyond what is contained in the EU directives is the time taken by contracting authorities to evaluate bids, i.e. the time between the receipt of bid and the contract award decision. This aspect of the procurement cycle is crucial, as lengthy procedures are considered a risk since they are time and cost consuming and can cause uncertainty for both the public buyers and companies. (European Commission, 2022[22]) In Hungary, Article 70 of the PPL states that the contracting authority shall evaluate tenders within the shortest possible time limit. At the same time, paragraph 2(a) of the same article states that contracting authorities may request bidders to maintain the validity of their offer for 90 days in general, 120 days in case of construction/work contracts, or for procedures where there is an integrated control mechanism. This deadline could be indefinitely extended if the bidder considered to be the most advantageous in the light of the evaluation criteria undertakes to voluntarily maintain the validity of its bid. Beyond 150 days, however, the contracting authority has to close the process, deeming it without result as per article 75 of the PPL, if the bidder does not maintain the validity of its bid.
The data analysed for this Report also show that decision-making speed of public buyers in Hungary has turned out to be a strong predictor of single bidding probability (see Figure 3.2). The variable has been analysed by looking at each average for each contracting authority within the year and standardising it by the number of bids it received. Entities that are more efficient in the process of evaluating submitted bids and awarding contracts are associated with a lower incidence of single bidding. Compared to entities that take longer to evaluate (at least 2 months – or the last two quantiles), the analysis predicts that only 1.1% of the tenders will receive a single bid if it takes less than 3 weeks of evaluating bids and awarding contracts. Those that take between three and five weeks are also less likely to receive only one bid (3.6%). Already, when exceeding five weeks for evaluation, there is a substantial increase in the share of single bidding, 13%. The predicted share for receiving only 1 bid for contracting authorities that take more than 3 months (last quantile) is 96%.
Note: The indicator calculates the annual average organisational decision-making speed for each buyer. To mitigate challenges arising from varying bid submissions, the metric is standardised, considering the potential differences in the number of bids received by different buyers. Standardisation accounts for the varying bid volumes, providing a normalised measure of decision-making speed. More efficient and better organised buyers need less time for processing. Furthermore, in repeated interactions between bidders and buyers, bidders gain understanding of an average length of decision speed rate.
Source: Procurement data from EKR and KA
Although there is a downward trend regarding the time for contracting authorities to reach a decision to award the contract, with 33 days for below-threshold procedures and 58 days for above-thresholds open procedures according to the report on the Performance Measurement Framework from 2023, decision-making speed is still a strong predictor of single-bidding. Therefore, contracting authorities should be encouraged to speed-up the decision-making for bid evaluation. (OECD, 2024[23])
Choice of procurement procedure and the use of restricted procedure as per Article 115 of the Public Procurement Law
The PPL offers an additional choice of procurement process to contracting authorities which is not foreseen in the EU directives and can be seen as a less competitive process. Article 115 of the PPL foresees that, for works contracts below EU thresholds and up to HUF 300 million (approx. EUR 769 180), the contracting authority may use the negotiated procedure without prior publication of notice. This procedure cannot be used if the procurement is partially or fully financed by European Union funds. Although possibility for using the negotiated procedure without prior publication is offered, the contracting authority is still obliged to ensure fair competition as per the PPL and send a written invitation to bid to at least five economic operators. The PPL also states that the contracting authority cannot impose eligibility requirements, and when selecting the economic operators to be invited, the contracting authority must do so without discrimination, in accordance with the principle of equal treatment, and ensure the participation of SMEs.
The 2015 OECD Recommendation on Public Procurement states that adherents should use competitive tendering and limit the use of exceptions and single-source procurement. As such, competitive procedures should be the standard method for conducting procurement as a means of driving efficiencies, fighting corruption, obtaining fair and reasonable pricing and ensuring competitive outcomes, and only exceptional circumstances could justify limitations to competitive tendering. (OECD, 2015[1])
While the procedure as per Article 115 is theoretically competitive since the contracting authority needs to invite at least 5 economic operators, fair competition is restricted as the choice of economic operators is left at the discretion of contracting authorities. Open competition implies transparency through advertisement of procurement opportunities, where all interested economic operators get a chance to participate. Unlike negotiated procedure without prior publication as foreseen in the EU directives, the procedure under Article 115 does not need to be duly justified with specific reasons such as urgency, innovation, etc. Article 115 can be used for any procedure for works below the threshold, therefore there is no safeguard against the misuse of this procedure.
Findings from the Integrity Authority’s report also highlight that this procedure has proven not to be that competitive in practice, and to hamper SME participation in such type of procedure. Indeed, as per the responses to the Integrity Authority’s survey for its annual report, respondent have highlighted that they do not consider the procedure under Article 115 as fair and competitive, since contracting authorities are free to invite the bidders of their choice, with the perception of a clear idea of who will win the contract. Respondents have also highlighted that the competition appears fiercer and fairer when the contracting authority publishes the procurement notice, and that SMEs are often left out of these procedures. (Integrity Authority of Hungary, 2023[5])
As such, the use of procurement procedures other than open, competitive procedures should be duly justified. The Crown Commercial Service of the United Kingdom has developed a guidance regarding the choice of procedure, with open procedure being the default (see Figure 3.3).
Government Commercial Function guidance is that open competition should be used except in specific exceptional cases
In any case, contracting authorities should take precautionary measures to enhance competition and integrity when Article 115 is used, and these measures should be proportionate to the value of the contract. In general, contracting authorities should take the following recommended approach when conducting a procurement procedure, regardless of the type of procedure: (OECD, 2019[25])
1. clear and documented requirements;
2. the justification of the choice of procedure (when using non-competitive procedures) and the appropriate records;
3. a specification of the level of the authorising personnel;
4. planning of random reviews (such as ex post controls) of processes followed in cases where non-competitive procedures are used;
5. involving stakeholders and civil society to scrutinise the integrity of the process, especially for exceptional circumstances such as extreme urgency or for high-value contracts;
6. the publication of the criteria to be applied for the selection of the supplier, and the expected terms of the contract;
7. after the award of contract, a publication of the contract agreement.
Although the procedure as per Article 115 can be seen as less competitive, analysis of EKR data shows additional trends regarding single bidding within each type of procurement procedure (see Figure 3.4). Procurements conducted under Article 115 and under Article 113 (which article had been already abolished from the PPL in December 2019, with effect in February 2020) predict lower incidence of single bidding. Article 113 defined procedural rules for procurements under the EU thresholds and provided the opportunity for contracting authorities to initiate their procurement procedure by sending a summary information from 5 days to 12 months before the launching of the actual process. Potential bidders could then express their interest in response to the summary information, and the contracting authority could send the procurement notice directly to minimum 3 interested bidders, instead of publishing a tender notice.
On the other hand, restricted and competitive negotiated procedures are significantly and substantially associated with higher share of single bidding, having 5 and 10 percentage points greater likelihood to receive only a single bid.
Source: Procurement data from EKR and KA
Nonetheless, the specificity of the procedure as per Article 115 that requests the contracting authority to send invitations to bid to specific potential suppliers that the contracting authority chooses may lead to a lower incidence of single-bidding than other procedures where bidders can freely participate. This is why competition needs to be analysed as a whole, and not only through the lens of single-bidding.
In general, if a procurement process is missing a call for tender publication, it is predicted that 25.2% of these tenders will receive a single bid, compared to those tenders where there is a call for tender published, where the predicted share of receiving a single bid is 23% (see Figure 3.5). Ensuring that bidders have access to information on procurement opportunities could lead to significant and substantial reduction in the incidence of single bidding.
Source: Procurement data from EKR and KA
Overall, given the abovementioned potential risks arising from the use of the procurement procedure as per Article 115, such procedure should be abolished from the PPL to ensure fair competition. Alternatively, if there are strong policy considerations supporting the need for this type of procedure, as highlighted in the report of the Integrity Authority, contracting authorities should be mindful (and should be encouraged by policymakers) to ensure the participation of SMEs to these procedures. (Integrity Authority of Hungary, 2023[5])
The possibility to use conditional procedures
Contracting authorities have the possibility, as per the PPL, to launch a “conditional procurement procedure” in which they may launch a procurement process if they submitted or will submit a request for financial support/grant (tender, project proposal, amendment to the grant agreement or notice of change) but have not obtained the funds yet, and can declare the procedure invalid if in case the request for funding has not been accepted or has been accepted for a smaller amount than originally foreseen. Findings from the Integrity Authority highlight that the use of conditional public procurement is quite high in Hungary, with a share of 40.8% of procurement processes in 2022, and 44.3% in 2023 (up to June 1st) for procurement funded by EU funds, and 10.1% in 2022 and 6.5% in 2023 for procurements funded by the national budget. (Integrity Authority of Hungary, 2023[5])
As such, conditional procurement may impact competition due to the uncertainty of the outcome of the procurement process. Preparing bids is time and cost consuming to economic operators, which may not want to risk bidding for a process that may be declared unsuccessful. Lack of procurement preparation and a poor evaluation of the procurement estimate may also impact the rate of unsuccessful procedures, as the amount eventually granted may be lower than what the contracting authority has foreseen, prompting the authority to cancel the procurement process. (Integrity Authority of Hungary, 2023[5]) Conditional procurement also poses a risk of price increase on the side of the bidders as bidders try to calculate how prices (materials, staff costs, etc.) will increase, while they wait for the contract to enter into force. Bidders may also increase prices due to the fact that they need to keep their resources available for this specific contract, and may therefore not be able to accept other works while they are waiting for the contract to enter into force. In turn, this may impact competition as larger companies may be able to mobilise resources for a conditional contract, but smaller firms with lower capacity may not.
At the same time, conditional procurement may be helpful to gain time on the tendering phase, especially since tendering usually takes time. However, the uncertainty of contracting authorities regarding the amount of funding they will receive poses a risk of failed procurement processes and low competition. Therefore, it is recommended that contracting authorities use careful procurement planning before launching a conditional procedure, and foresee different scenarios given the uncertainty of the outcome. Appropriate planning could increase the legal certainty of bidders and prevent the misuse of this procedure by contracting authorities.
3.2.2. Assessing the impact of recent policy interventions introduced by the Hungarian Government to enhance competition
Several regulatory and policy interventions were made over the past two years to enhance competition in Hungary. As briefly mentioned in Chapter 1, as part of the remedial measures notified by Hungary under Regulation (EU, Euratom) 2020/2092 for the protection of the Union budget, Hungary adopted the Government Decree No. 63/2022. (II. 28.) which foresees several measures to decrease public procurements awarded with single bids. The development of an action plan to increase competition is one of the key measures and the implementation of the measures included in the action plan is ongoing. Two other measures include the introduction of mandatory market consultations for certain procurement procedures, as well as the obligation for selected contracting authorities to issue action plans to reduce single bidding.
Setting up targets for single-bid procurements
In February 2021, Government Decision 1027/2021 on policy interventions to improve the efficiency of the public procurement system defined various measures on how to intensify competition in public procurement. Amongst others, it set up the goal of reducing the proportion of single-bid procurements to less than 15% for both EU and non-EU funded procurements. The same commitment was made by the Hungarian Government towards the European Union in the conditionality procedure related to the use of EU funds.
Setting up mandatory targets for different policy objectives is a common approach in public procurement policymaking, for example this policy approach is widely used related to green public procurement (GPP). Targets associated with GPP, such as the proportion of public procurement procedures incorporating green criteria, can take different forms, including milestones, intermediate levels, or performance tiers, providing a structured framework that serves as a source of motivation. By defining achievable objectives, targets play a pivotal role in recognising accomplishments at various stages of implementation. However, targets are most effective when they are developed in consultation with the contracting authorities, as they are responsible for meeting the targets and can directly influence performance. It is important to set targets at realistic levels to ensure effectiveness, including by considering implementation challenges and market constraints (OECD, 2024[26]).
However, setting up targets without prior, in-depth analysis of the performance of the public procurement system or the preparedness of the contracting authorities and the business sector can easily result in too ambitious or unrealistic targets, unwanted procurement practices and formal compliance. In terms of GPP, it can for example result in applying irrelevant green considerations that have no impact on the environmental performance of the procured goods or services. Lithuania, for example, in 2020, set up an ambitious plan to achieve 100% of GPP by 2023 (while in 2020, only 3% of the total public procurement spending incorporated green award criteria to promote environmentally friendly purchases). When the National Audit Office of Lithuania assessed the country’s preparedness for reaching the 100% target, it came to the conclusion, that the target was set up without ex ante impact assessment of the policy intervention (especially in terms of impacts on the national finances and the availability of sustainable products). It also highlighted that neither the contracting authorities nor the market were ready to implement such an ambitious goal. In its report, the National Audit Office highlighted issues hindering the smooth implementation of the set target, such as the short transition period, rising inflation, continuing uncertainty about the future course of the geopolitical situation, the risk of higher prices, longer supply chains and procurement disruptions, and negative impacts on the construction, manufacturing and transport service sectors. The National Audit Office furthermore highlighted the risk of focusing solely on a formal attempt to achieve a 100 % green procurement target by all players of the public procurement system (see Box 3.4). (National Audit Office of Lithuania, 2022[27])
In 2021, Lithuania launched an ambitious public procurement reform to reduce the country’s carbon footprint and ensure public procurement decisions considered environmental factors. To support implementation, the Ministry of Environment developed a roadmap for the reform through a ministerial decree that defined the GPP criteria. The decree also envisaged regular reporting to track progress. Prior to the reform, in 2020, only 3% of the total public procurement spending incorporated green award criteria to promote environmentally friendly purchases. The national government aimed at increasing this percentage up to 50% by 2022, and ultimately achieving 100% of GPP by 2023 and beyond.
In 2022, the National Audit Office of Lithuania issued an assessment report about the readiness of public buyers to carry out green procurement, and in general Lithuania’s preparedness for the 100% target in terms of green public procurement. The assessment found that progress has been made in increasing the volume of green procurement, however, the conditions for 100% performing green procurement are still insufficient, as the legal regulation fails in practical implementation, the monitoring of green procurement has shortcomings, and the impact on national finances in the short term has not been assessed. It also noted that the availability of sustainable products in the short term have not been assessed in order to create a 100% green public procurement system. Green goods are up to 3.5 times more expensive than products without such characteristics and their choice is much narrower. The analysis showed that more than a fifth of the suppliers did not participate in the procurement due to the environmental protection requirements, and more than a third of the public buyers noted that the supply was insufficient. The assessment report also stated that public buyers are not yet ready to implement such an ambitious goal. In order to achieve 100% green public procurement, environmental criteria must apply even to product groups whose greenness is purely formal and which imposes an administrative burden on procurers.
Setting up targets in terms of increasing the level of competition in public procurement and decreasing the number of single bids also requires prior impact assessment as well as understanding the complexity of the competition related problems in the public procurement system. Targets that are not based on a thorough assessment can open the door to unwanted market practices (such as submitting “supporting” bids or false bids to avoid the problem of single bidding). These practices might help lowering the numbers of single bid procedures, but they are not helpful to build up a healthy competitive market environment.
As Chapter 1 highlighted, at the end of 2022, the Hungarian Government set up a public procurement performance measurement framework that provides a solid basis for identifying and understanding the root causes of limited competition, and as a result it can support evidence-based policy interventions. In the future, when setting up the targets regarding the level of competition in public procurement or for other relevant issues, the Hungarian Government can build on the evidence that the public procurement performance measurement framework has already provided.
In terms of the targets on single-bids, the Hungarian Government should also analyse the impacts of the several various measures that the Government’s action plan to increase competition in public procurement introduced. Since the introduction of these measures, the rate of single-bid procedures decreased by 4.8 percentage points in 2023 in all public procurements and by 2.3 percentage points in nationally funded procurements. The decrease is still far away from the ambitious goal of 15%. The 15% goal also seems to be ambitious if it is compared to the performance of other EU member states. Based on TED data,1 the average rate of single bidding in all EU countries was 35.9% in 2022 and 37.2 in 2023. According to the ECA report, the single bidding rate across the EU single market was 41.8% in 2021 (European Court of Auditors, 2023[28]). Considering these factors, the 15% target for 2024 does not seem to be realistic and evidence-based. It is therefore recommended to either revise the target or set a more realistic timeline in order to achieve it.
The progress of implementation of the action plan
The action plan to increase competition in public procurement from 2023-2026 has set ambitious deadlines for each of the 14 measures included in the plan, and good progress has been made regarding their implementation (see Table 3.3).
The impact of mandatory market consultations
Government Decree No. 63/2022. (II. 28.) made mandatory the use of prior market consultations for the following cases:
In open or restricted procedures for procurement procedures above the EU thresholds, for specific goods and services (as per CPV classification) where the occurrence of single-bid procurement is prevalent (more than 30% of procurement processes in a single CPV group are single-bid procurements and the total number of procurements processes within the same CPV group exceeds 2% of all successful procurements above the EU thresholds in the previous calendar year).
In all public procurement procedures above the EU procurement thresholds, open or restricted, for contracting entities authorities under the control or supervision of the Government or an SOE 100% controlled by the State, that are most affected by single-bid procurement procedures (those that receive only one bid in more than 20% of public procurement procedures above the EU procurement thresholds, provided that they have carried out at least ten public procurement procedures in the previous calendar year).
These mandatory market consultations must be held on EKR at least seven days before the launch of the procedure. During this time, the contracting authority is obliged: 1) to publish the subject of the public procurement, the draft technical specifications and the draft contract or the main contractual conditions; 2) to provide any potential economic operator or other interested organisation with the opportunity to comment on the published documents, and 3) to prepare a summary of the opinions received, the contracting authority’s position on the opinions and the substantive amendments made to the documents based on the opinions.
Market engagement is generally viewed as a key success factor for public procurement, especially for those public procurements that are strategic and complex. Market engagement can also raise awareness among companies about public contracts and increase trust in doing business with the public sector.
However, for these to be successful, contracting authorities need practical advice and guidance on how to conduct market analysis and how to engage with the market in a way that respects the principles of transparency, non-discrimination and ensures competition. For example, in Slovakia, the Public Procurement Office has recently published, as part of the Public Procurement Methodology, an infographic for the preliminary market consultation to support both the business sector and the contracting authorities on how to conduct market consultation properly, aligned with the requirements of the legal framework. (Public Procurement Office, Slovakia, 2021[29]). In its Methodological Document about ICT procurement, the Working Group on Public Procurement and ICT Contracting also provides methodological advice to contracting authorities on how to conduct preliminary market consultation specifically for ICT projects (OECD, 2022[30]).
The European Commission also published several guiding documents to promote the use of preliminary market consultations and to explain how it can be conducted in a successful way while respecting the principles and rules of the European Union. For example, the Guidance for public authorities on Public Procurement of Innovation gives detailed guidance on the objectives and steps of preliminary market consultation. (European Commission, 2015[31]) (see Figure 3.6).
Source: (European Commission, 2015[31]).
A preliminary market consultation can take various forms. In some cases, contracting authorities might already have a good understanding and overview of the market, and so they just need some minor clarifications or updates. In other cases, extensive research is needed to gain the necessary knowledge to launch a procurement procedure. Therefore, there is not a one size fits all approach.
The Hungarian Government has also developed guidelines regarding the use of market consultations. First, the PMO (now MPASD) issued a Guidance on the use of preliminary market consultation in March 2022. The Guidance presents the legal framework, the cases where preliminary market consultations are mandatory, explores the relevant rules of the PPL, and the Government Decree on the measures to decrease single-bid procurements. It also explains how preliminary market consultations are conducted in EKR and emphasises the importance of ensuring the basic principles (transparency, competition etc.). The Guidance also gives a few tips on how to prepare the documentation before the consultation.
The PPA also issued an information notice on the practice of preliminary market consultations which generally refers to the detailed Guidance of the PMO. The notice defines the notion of preliminary market consultations, and replies to frequently asked questions, including how to initiate preliminary market consultation, where the contracting authorities may find this function in EKR. It also details what the benefits of preliminary market consultations such as reducing the risk of overpricing, avoiding the necessity of the modifications of public procurement documents, and reducing the risk of errors and irregularities. The notice also gives three concrete good practice examples of the use of preliminary market consultations in Hungary.
As such, in Hungary, market consultations as a measure to curb low competition may seem like a good practice but making them mandatory and systematic will result in an increase of competition level and in a decrease of single-bid procurements if contracting authorities are conducting them in a meaningful way respecting the goals of this tool. Contracting authorities need to understand how to establish the right conditions for effective market consultation (and for effective competition), varying approaches as needed across sectors and procurements for each individual procurement. As highlighted in the report of the Integrity Authority, the minimum time limit between the launch of pre-market consultations and the launch of the procurement process, i.e. 7 days, can be quite short for consultations to have a meaningful impact as potential economic operators may not have sufficient time to formulate comments. (Integrity Authority of Hungary, 2023[5]) This deadline was already revised by the Government Decree No. 411/2023 (VIII. 30.) that modified Government Decree No. 63/2022. (II. 28.) to increase the deadline from 7 days to 14 days effective as of 1 September 2023. To make market consultations more effective, the amendment also provides for the extension of the consultation to the draft selection and award criteria and requires the contracting authority to publish a justification if it disregards the opinion received during the consultation.
In 2023, the Government also carried out an analysis of the impact of the introduction of Government Decree No. 63/2022. (II. 28.) on competition within the framework of the Public Procurement Performance Measurement Framework and concluded that in the sectors (CPV main groups) for which the regulation required preliminary market consultation, the proportion of single bid procedures decreased substantially except for one sector. As a result, in some of the sectors, the proportion of single bid procedures has fallen below the limit laid down in Government Decree No. 63/2022. (II. 28). Accordingly, only three sectors remained within the scope of the obligation under the Government Decree. Considering the time required for public procurement procedures, the year following the introduction of the measure shows a more significant impact on statistics. While the proportion of single bid procedures in the sectors of repair and maintenance services and medical equipment, medicines and personal care products decreased compared to 2022, it increased for petroleum products, fuels, electricity, and other energy sources. In the latter cases, the market conditions may have changed so much that even the application of prior market consultations does not change the proportion of single bid procurement. (EKR, 2024[32])
As mentioned in section 3.1.3, the EKR system should be further developed to include notifications regarding these market consultations to foster optimal participation from economic operators. In addition, an in-depth analysis of the impact of such market consultations on the number of bids in these procedures would also help assess the effectiveness of this measure to better tailor its conditions of implementation.
In addition to preliminary market consultation, there are other tools for market engagement; these will be further analysed in Chapter 4.
The quality of contracting authorities’ action plans to curb single-bidding
Article 5 of the abovementioned Decree provides that where, in a case of a contracting authority, the proportion of the single-bid procurements for procedures above EU threshold exceeded 20% in the previous calendar year, the contracting authority is obliged to prepare an action plan on the reduction of the numbers of single-bid procurement in relation to the actual year. This provision is not applicable for contracting authorities that conducted less than five public procurement procedures above EU threshold in the previous calendar year. The contracting authority has to publish its action plan in EKR until 31st of March. The list of contracting authorities obliged to publish the action plan is to be established by the minister responsible for public procurement (MPASD) based on the data of EKR. MPASD needs to publish the list until 31 January, the latest on the website of EKR. At the same time, the minister also informs the PPA about the list. In 2023, 137 contracting authorities were obliged to prepare an action plan.
In the action plan, the contracting authority is expected to present the possible reasons for the high number of single-bid procurement, the planned measures, and practices in order to ensure the competition at a highest possible level, and to reduce the number of single-bid procurement to the lowest possible level. For this purpose, PMO (now MPASD) issued guidelines on how to fill the action plan. The guidelines were reviewed during the summer of 2023 based on an assessment of contracting authorities’ individual action plans, and an updated guidance was published on 20 October 2023. The guidelines include examples of possible reasons for the lack of competition, but also good practices to avoid single-bid procurements. These good practices are grouped into three categories (see Figure 3.7).
Therefore, contracting authorities when creating their action plan to curb single-bidding may choose some or all of the measures summarised in Figure 3.8, in addition to creating new ones.
For the purpose of the report, an analysis of a sample of action plans was conducted. The sample included action plans from 25 contracting authorities. The selection of contracting authorities was based on different factors such as size, sector (health, construction, IT, etc.), source of funding of the procurement processes, and geographical distribution.
The analysis considered three factors:
1. The compliance with the legal provisions of publishing the action plans in EKR;
2. The length of the action plans;
3. The content of the action plans.
Regarding the content of the action plans, the analysis looked at the following points:
whether the action plan contains a proper analysis of the causes of the high proportion of single-bid procurement;
whether the action plan proposes actual measures to be taken to tackle the issue;
whether the proposed measures are relevant and adequate for the given contracting authority;
whether it contains specific guidelines on how to implement the measures, i.e. whether it goes beyond the simple listing of the measures, or whether it only copies PMO’s Guidelines, so the action plan is really tailored to the needs of the given contracting authority;
whether the action plan contains deadlines and responsible persons or units for the implementation.
Regarding the first factor, all examined contracting authorities complied with the law, i.e. they prepared and published their action plans in EKR. In one case, however, it was unclear whether the published document was the action plan itself, or an annex to the action plan.
Regarding the length of the action plans, it varies between 2 and 13 pages. Five action plans contain only 2 pages, developed by two small municipalities, two large municipalities, and one health institution. These action plans’ content was basic, and usually lacked a proper analysis of the causes behind single-bidding, guidelines for implementation of the action plan, as well as deadlines and responsibilities for implementing the action plan. Another six action plans contain only 3 pages, which is still considered short, and these plans are generally not comprehensive. Thus, altogether 11 action plans out of 25 can be regarded as too short and general in its approach. Nonetheless, the length of the action plan does not always indicate quality as some lengthy action plans were less meaningful than shorter ones.
Regarding the contents of the action plans, 11 action plans out of 25 action plans (44%) can be considered meaningful, while only 4 (16%) can be considered irrelevant or inadequate. 40% of the examined action plans can be qualified as mediocre as they largely transpose PMO’s guidelines without any tailoring to the actual context of the contracting authority, and they lack deadlines and responsible persons or units for implementation. The best action plans included “extra” elements, like analysis of the effects of the previous measures, or plans for monitoring the new measures.
As such, the analysis shows that larger contracting authorities usually prepare more qualitative action plans, although there would still be some room for improvement, as they usually lack clear deadlines and responsible persons/units. In contrast, smaller contracting authorities’ action plans tend to lack several elements, although, in one case, a small municipality entrusted a FAKSZ (a certified public procurement consultant) to prepare its action plan, which can be deemed qualitative. Two medium-sized municipalities are also among the best ones, while two large municipalities developed less effective action plans.
As for the possible causes of the high proportion of single-bid procurement, only 4 action plans did not contain a proper analysis or did not contain an analysis at all. In most cases (84%) the contacting authorities gave a proper reasoning for the high incidence of single-bid procurement in their purchasing practices. For instance, some smaller contracting authorities listed their geographical location – remote and far from any larger town –, and the bad condition of their roads as a cause for single bid, since the costs of delivery creates additional costs to the suppliers, therefore preventing them from submitting competitive bids. Some other municipalities have also mentioned other general issues that can discourage potential bidders such as the length of contracts which may be a deterrent to economic operators, the limitation of price indexation, and the difficulty to ensure continuous availability, technical expertise, and long-term capacities of economic operators.
Two phenomena are worth highlighting:
Contracting authorities in the health sector are struggling with the monopolistic character of the Hungarian market. In some cases, it is justified, because they procure specific devices, but in one action plan, it is mentioned that the suppliers on the Hungarian market are highly specialised, and there are no suppliers which would offer a wide range of brands and products. Therefore, if the contracting authority needs a specific type of product, it can only procure it from one company. This could also potentially explain the findings from the analysis in Chapter 2 regarding single-bidding in the health sector, with some sub-markets having very strong competition and attract a high number of bidders, while other sub-markets are far less competitive with an elevated rate of single bidding.
Many contracting authorities are highly specialised, which limits their possibilities when they procure goods or services necessary to their activities. For instance, a nuclear power plant entails special security measures when procuring, but also the type of nuclear power plant in Hungary is not widespread in Europe, therefore, their possibilities to procure from a competitive market is highly limited. Furthermore, law enforcement or judicial bodies also need special and individualised software that are not common, and readily available on the market. Another example is the Media and Telecommunication Authority that needs special individual devices and software to measure the use of frequencies for control purposes; they explain that similar devices and software from different companies are available in high number on the market, however, those that are adequate for the Authority to fulfil its control functions – so they can perform very precise measurements – are very scarce.
Based on discussions held with stakeholders in Hungary, while it may be early to assess the effectiveness of the individual action plans of contracting authorities to enhance competition, this new obligation had the benefit of raising awareness among the workforce within contracting authorities, and especially the senior management of these contracting authorities which were not always aware of issues regarding competition and single-bidding. (OECD, 2023[6])
It would be beneficial to measure the real impact of these action plans, and whether they had any effect on intensifying competition at the contracting authority’s level. As such, MPASD could follow-up individually with a selection of contracting authorities on an annual basis, with a different sample every year. A reporting mechanism could also be set up so that each contracting authority reports on the efficiency of each individual measure of the action plan on an annual basis.
References
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← 1. Data source: The data is sourced from the TED Contract Award Notices database, [Tenders Electronic Daily (TED) (csv subset)], published on the EU Open Data Portal: (https://data.europa.eu/data/datasets/ted-csv?locale=en).
Population: Includes only European Union Members. Includes notices that were not cancelled.
Filter criteria (contracts not included in the calculation):
Contracting authority type is either a European Union institution/agency or another international organisation.
Involvement in the establishment of a framework agreement or specific contracts within a framework agreement.
Procurement falls outside the scope of application of the directive.
Types of procedures include "NOC" (negotiated without a call for competition), "AWP" (award without prior publication of a contract notice), or "NOP" (negotiated without a call for competition).
Contract not awarded due to specific reasons: "PROCUREMENT_DISCONTINUED" or "PROCUREMENT_UNSUCCESSFUL".
Calculation: Count of single bidders lots are divided by the total of all lots.