Using Public Procurement to Implement Social Policy. a First Empirical Study

Abstract: The new European directives voted early 2014 (Directives 2014/23/UE, 2014/24/UE, 2014/25/UE) are pushing for awarding contracts based, in part, on social criteria. Because of the huge amount at stake – in Europe public procurement represents on average 17% of GDP’s countries (OECD 2013) – the goal of traditional procurement, cost-effectiveness (or value-for money), is expanded in the case of social procurement to account for factors like social inclusion or subcontracting goals. The economic theory generally does not support the premise that exercising buyer power is a more efficient mechanism than (adequate) regulation when it comes to the pursuit of social (or any other) regulatory goals (Saussier and Tirole 2015). This is because of competitive distortions and the higher costs of procurement based on non-economic considerations. Imposing regulatory requirements through the backdoor of public procurement decisions significantly muddles the efficiency of the market, raising transaction costs. In this paper we shed light on those issues. We investigate the cost of a social procurement policy using a unique data set of more than 700 public procurement contracts signed by the city of Paris between 2011 and 2013. We found that including social objectives in their public procurement contracts, the city of Paris raised its procurement cost by 2 to 7% on average. This increase is relatively low. The process put in place by the city in order to minimize this price premium explains this.