Governments spend the equivalent of about 13% of economic output on public procurement across OECD countries, but a new analysis warns that weak competition can limit the value they receive and make it harder for suppliers to enter the market.
The Organisation for Economic Co-operation and Development points to contracts attracting only one bid, non-competitive procedures and concentrated supplier markets as signals that buyers should examine. Its October report argues that opening the process to more qualified firms requires attention long before a contract is awarded.
The sums involved are substantial. In 2024, public procurement accounted for approximately 30% of government expenditure across OECD countries. Decisions about how contracts are designed can therefore affect public services, taxpayers and businesses that supply them.
What is public procurement?
Public procurement is the process through which governments and other public bodies purchase goods, services and construction. A contract might cover school meals, road maintenance, hospital equipment or software.
In a competitive tender, a buyer describes what it needs and invites suppliers to submit bids. The buyer evaluates them against published criteria, which may include quality, delivery and price. Our guide to business-to-government sales explains how companies work with public buyers.
Competition can help a buyer compare alternatives and reduce dependence on a small number of suppliers. Yet the lowest price is not the only consideration: a contractor must also be capable of delivering a reliable service.
Why some firms do not bid
The OECD identifies obstacles throughout the purchasing process. A contract may be so large that a smaller business cannot deliver it alone. Detailed technical requirements may unintentionally favor an existing product, while complex registration and documentation can consume time before a company knows whether it will win.
Payment terms matter too. A supplier may need to pay employees and buy materials well before it receives money from the public body. For a smaller business with limited cash reserves, the financing requirement can make an otherwise attractive opportunity impractical.
These barriers do not mean that every contract should be divided among smaller firms. Some projects need a single supplier capable of coordinating complex work, and dividing purchases can add administrative costs or sacrifice economies of scale.
How buyers can widen competition
The OECD recommends examining markets before issuing tenders, communicating requirements clearly and designing contracts around the outcome needed. Where appropriate, dividing a large purchase into separate lots can allow companies to compete for work they can actually perform.
A buyer could also review whether qualification requirements are proportionate to the risk. Asking for excessive turnover or an unnecessarily narrow track record may exclude capable entrants without improving delivery.
Monitoring results matters. A single bid can indicate a design problem, but it does not prove collusion or excessive pricing. There may be few qualified suppliers, an urgent need or other circumstances that limit participation. The OECD advises using several indicators, interpreted in context.
The implications for suppliers
Businesses considering public work should look beyond the advertised contract value. The costs of preparing a bid, meeting reporting requirements, obtaining guarantees and financing delivery can determine whether the work is viable.
For public buyers, the question is how to preserve appropriate safeguards without making participation needlessly difficult. The UK’s AI procurement challenges illustrate a different approach to engaging smaller suppliers around defined public-sector problems.
Broader access alone cannot guarantee better results. But if a capable supplier never reaches the bidding stage, the public buyer cannot compare its offer with the alternatives.
