Public sector in-house companies harming competition

A new report shows that 30% of public in-house entities do not compare their own service provision costs to the market. Suomen Yrittäjät, the Finnish SME association, calls for cost comparison and the setting of a minimum ownership share.

Suomen Yrittäjät has long been concerned about the increase and expansion of publicly owned in-house companies’ operations into sectors where private companies operate. A comparison published by the Finnish Competition and Consumer Authority (FCCA) on 17 April shows the concern is justified.

“Finland differs radically from other Nordic countries in that the public sector has set up its own companies in industries that have a lot of private companies in them. I doubt taxpayers have been asked whether they want their taxes used to run launderettes, canteens, property management firms and ICT and accounting firms,” Harri Jaskari, Vice President of Business Policy at Suomen Yrittäjät, says.

The FCCA investigated the role of in-house companies in public procurement via a survey. It was answered by 91 in-house entities, 103 in-house company owners (municipalities and well-being service counties) and around 500 companies.

Of the in-house entities who responded to the FCCA survey, 30% said they did not compare the costs of supplying services by themselves to the market in any way. Jaskari considers this extremely concerning.

“The public sector has great saving potential if it genuinely compares the cost of supplying services itself to equivalent services from private companies. In Finland, we now have a ‘market’ that only admits in-house companies, one where the public sector makes direct procurements from its own companies.

“The public sector has tried to justify this by saying there’s a gap in the market and claiming that private companies are unable to provide the same goods and services. However, the FCCA survey shows that almost 90% of respondent companies are ready to expand their operations if the markets opened up.”

Jaskari says that the Government should now rapidly execute the parts of its programme which would allow in-house entity procurements to be made only when they are the most economically advantageous.

“A minimum ownership percentage (10%) for ownership of in-house entities would slow down the wild in-house boom. Opening up competition would strengthen growth and save taxpayer money.”

Room for examining ground rules

The FCCA has said that the ground rules for in-house companies need to be reviewed, as procurement entities make direct procurements costing millions of euros based on shareholding of under a tenth of a per cent.

In the most recent case, the Market Court found in March that Sarastia was not an in-house entity of the Vantaa and Kerava Well-being Service County, as the county owned 0.04% of the company. By law, procurements made by in-house entities do not need to be put out to competitive tender if the procurement unit exercises dominant influence in the company. The Market Court found that the county did not exercise such dominant influence.

“Direct procurements from in-house companies erode the local and national market, but they also cost the taxpayer dearly. In-house procurements are often claimed to be more economically advantageous, but how can we be sure of the overall saving if the public sector doesn’t even compare its own costs to the market?” Jaskari asks.

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