The Office of Fair Trading has published preliminary research into the impact of public procurement on competition. It contains an economic analysis of the relationships between public procurement and competition.

The research uses readily available sector data to highlight areas that the OFT should consider looking at more closely. The research also draws on the methodology developed as part of a report on 'Empirical indicators for market investigations', conducted by NERA on behalf of the OFT and DTI.

The report finds that public procurement can affect competition in three significant ways:

a.  Failure by the public sector to exercise countervailing buyer power against suppliers with market power

b.  Restrictions on competition arising from procurement practices such as participation restrictions, high participation costs, excessive contract aggregation or long term contracts

c.  Excessive focus on short-run price competition at the expense of non-price, long run competition.

The report highlights the potential affects on competition where public procurement is explicitly used as an instrument of what the report terms “industrial policy or technology policy” i.e. the use of public procurement to promote innovation and investment.

The OFT is currently considering, in the light of other procurement reviews, what its next steps should be. The OFT expects to announce any further action [if any] before the end of 2004.

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