The Vietnamese government procurement market has been open for the first time to meet the country’s commitments under the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP).

Government procurement contracts at Vietnamese hospitals lure foreign firms

Government procurement is about how government spends public money on goods, works or services. This can range from buying everything from tables and chairs to materials and services used in large infrastructure projects.

Previously, foreign firms are not permitted to engage in government tenders for public contracts as Vietnam has not agreed to make its government procurement subject to the Government Procurement Agreement of the World Trade Organization.

However, the country has taken this step for the first time with the CPTPP, which has taken effect since January 1. Under the deal, companies of CPTPP countries will be able to place bids for public procurement contracts in Vietnam under the same conditions as Vietnamese companies, for a selective number of entities.

Experts said that foreign firms really want to partake in government procurement contracts as governments are often among the largest buyers of goods and services in any country. The Vietnamese government, for example, invests billions of dollars into infrastructure projects yearly, many of which must be put out to tender.

Data also showed Vietnam is one of the countries with the highest ratios of public investment to GDP in the world. Since 1995, this ratio has remained at over 39 percent annually, with a large part invested in infrastructure projects. Last year, the ratio was 35.7 percent, or US$26.45 billion, of the total capital expenditure.

While the deal’s government procurement provisions will help improve access to high-quality goods and services from CPTPP suppliers, especially in the healthcare and life sciences sectors which Vietnam’s public procurement takes up 67 percent of the total market value, it will be also a major challenge for domestic contractors as they will have to compete equally with foreign counterparts.

With the participation of foreign contractors, To Hoai Nam, vice chairman of the Vietnam Association of Small- and Medium-sized Enterprises, is concerned as most of Vietnamese contractors are largely uncompetitive so that it would make them difficult to compete with big counterparts from other CPTPP countries.

Local contractors thus will have to improve a lot to be able to succeed in the domestic market and reach the CPTPP’s large public procurement market, he said.

Same move under EVFTA

Besides the CPTPP, Vietnam is also due to liberalize its government procurement market under the Europe-Vietnam Free Trade Agreement (EVFTA), which is expected to be signed this year.

Under the EVFTA, Vietnam commits to give EU suppliers the right to bid for up to 50 percent of the pharmaceutical purchases by the Ministry of Health and many of the hospitals under its control, as well as major research facilities. However, this is a very gradual process over a period of 15 years after the FTA comes into effect.

The right to participate in Vietnam’s public tenders will initially be limited to relatively high-value contracts – those worth at least US$2.1 million or US$4.2 million depending on the procurement agency. For construction work, the initial thresholds are even higher at US$56 million. This is probably meant to protect Vietnamese small and medium-sized businesses.

According to Duong Kim Khanh, general director of pharmaceutical firm Lynh Farma in Ho Chi Minh City, many foreign firms wanted to engage in contracts at local hospitals, but failed. Therefore, Vietnam’s commitment to government procurement under the free trade deal sounds good for them.

Besides public procurement in healthcare, the EVFTA also provides access to other important government contracts. EU suppliers will be able to bid for contracts from state-run Electricity of Vietnam and those of other major infrastructure projects including roads, railways and airports.

Hanoitimes