All over Europe there is a movement towards the major cities. Vast expanses of the countryside are emptying. This spatial transition has radical consequences for the way that public works such as bridges, roads, sports halls and schools should be tendered. The current system, whereby government bodies buy at the lowest price without regional consultation, is completely inadequate. This is the opinion of Arno van der Vlist, professor of real estate development at the University of Groningen.
Vast sums are involved in the tendering of public works. In the European Union, about EUR 600 billion is spent on public works each year. That is more than twice the gross domestic product (GDP) of Poland, and equals the GDP of the Netherlands. So there’s every reason for more research into this problem, states Van der Vlist.
Public works are important for general wellbeing – quality of life, the happiness of citizens and the ability to influence these factors. The provision of public works is mainly seen as a typical government duty. However, the spatial transition is giving government bodies major headaches. According to Van der Vlist, it is extremely complicated to tighten the screws on investment in public works in response to the situation. Government bodies are being faced with high costs: ‘It’s just not possible to build a cheap bridge because only a few cars are going to cross it. If a bridge has to be built in a thinly populated area, it is relatively expensive for the taxpayer.’
The developments outlined by Van der Vlist can be placed in an European context. ‘All across Europe you can see populations concentrating and major areas becoming very thinly populated. It’s no longer obvious that infrastructure should be financed by government bodies, because they’re getting relatively little value for money. Public works are actually being paid for by the inhabitants of the urban centres. At the same time, these kinds of project provide an important boost to the economy. In the future they will be one of the most important conditions for sustainable economic growth and will play an essential role in social cohesion within Europe.’
Many government bodies buy their public works for the lowest price, with the contractor with the lowest bid being awarded the contract. ‘The winning price may well be the lowest, but is not automatically the best for society. Awarding the contract to the lowest bid is only one side of the medal’, according to Van der Vlist. He thinks that other criteria should play a role in the procurement process. ‘Look at Groningen Seaports, for example, which concentrated on quality and not the lowest price in a recent tender round. The port authority also took into account that the successful contractor had to hire personnel from the region. Another example is Scotland, where the unemployed must be hired to work on projects. In this way such projects can turn into crucial boosts for the regional economy.’
Government bodies could also set environmental requirements in the tender process, according to Van der Vlist. ‘MEAT (most economically advantageous tender) opens up opportunities for this. This process not only looks at the price, but also attaches a lot of value to criteria such as end-user-friendliness, sustainability and project management. Actual practice, however, shows that many government bodies are struggling with how to work with this model.’
In addition, Van der Vlist feels that government bodies should work together much more to tender their public works properly. ‘At the moment it’s every man for himself. There is little coordination in the tenders from municipalities, provinces and at national level. It’s also possible to have a situation wherein government bodies compete for construction capacity, with one builder tendering for project A and another for project B. That lack of competition is bad for the price. In addition, agreements also have to be made about where new facilities are being planned exactly.’
Van der Vlist is conducting detailed research on this problem at municipalities, provinces and central government. ‘It is unclear whether there are and how high the extra costs for sustainability criteria (economic, social and environmental requirements) will be, when compared with accepting the lowest tender. We don’t even know whether the costs will actually increase. Spending more on public works and thereby saving on social or wellbeing costs may well turn out to be cheaper.’
Prof. Arno van der Vlist (Hardinxveld, 1971) studied Agricultural Economics in Wageningen. After gaining his PhD in economics at the VU University Amsterdam in 2001, he spent some time working in the property world. At the end of 2008 he became Professor of Real Estate Development at the Faculty of Spatial Sciences of the University of Groningen. His research focuses on the spatial-economic aspects of the real estate market and on construction and real estate tenders. He is a board member of the Regional Science Association of the Netherlands.
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