Interview with Francesco Decarolis about reputation and corruption in public procurement

Episode #31 of the best (and only?) podcast about public procurement is up. This time the interviewee is Francesco Decarolis from the Einaudi Centre for Economics and Finance and we spent some quality time talking about reputation and corruption in public procurement, including how a contracting authority nudged contractors to take their reputation more seriously.

Francesco was awarded a coveted ERC Starting Grant and will be doing in depth research in this area for the next few years.

Teaching competition law differently

For the last couple of years with my colleague Richard Leonard-Davies I have been teaching competition law here at Swansea University and doing so in a very traditional and straightforward way: lectures focused on plenty of case law and seminars where we drilled down the details. As competition law is one of those topics that can be eminently practical, there was plenty of scope for improvement. As we run two separate Competition Law modules in different semesters (Agreements in the first, Dominance in the second) it is possible to make changes in only a part of the year.

About a year ago I found this blogpost by Chris Blattman on getting students to draft a Wikipedia article as part of their assessment. Blattman called this the creation of a public good while my preferred description is getting them to pay forward for the next lot. Immediately I thought, "hmmm let's see the entries for competition law" and they were very underwhelming.

Fast forward a year, a few hoops and plenty of support from Wikimedia UK and we're now in the position of starting the module with a new assessment structure that includes the (re)-drafting of a Wikipedia entry. Here's the nitty gritty:

 

Assessment 1 (2,000 words)

For the first coursework you will have to choose from the topics covered this semester and check if it has a Wikipedia entry or not. Once you have selected a topic you will need to submit it for approval to either member of the teaching team. If an entry already exists you will critically analyse the entry by providing a report which encompasses the following:

-       Why you have chosen this topic

-       What is covered in the Wikipedia entry

-       What the entry does well

-       How the entry could be improved in your view (ie, caselaw, different perspectives, more recent doctrinal developments, context)

-       What aspects of the topic were not covered but should have been included

-       What sources (academic/case-law) you would use to reference the entry

We expect the piece to be factual on its description of the area of the law you decided to analyse but at the same time critical and reflective, basing yourself in good quality academic sources for the arguments you are presenting.

 

Assessment 2 (1,000 words)

For Coursework 2 you will be expected to put in action the comments and analysis from Coursework 1, ie you will be drafting an actual Wikipedia entry that improves on the strong points identified and addresses the weaknesses as well. This entry will be drafted on your Wikipedia dashboard (to be discussed in the Coursework Workshop in March) and will have to be submitted both on Turnitin and also uploaded to Wikipedia itself before the deadline.

Regular plagiarism rules apply, so if you pick an entry that already exists you are advised to re-write it extensively, which, to implement the changes from Coursework 1 you should be doing nonetheless. It is fundamental that you make the Turnitin submission prior to the Wikipedia one

The drafting style for this entry will be very different from the first one (or any academic coursework for that matter) as you are no longer critiquing a pre-existing text, but creating an alternative one. As such, it is expected to be descriptive and thorough, providing a lay reader with an understanding of the topic at hand. For an idea, please check Wikipedia’s Manual of Style: https://en.wikipedia.org/wiki/Wikipedia:Writing_better_articles

What we are hoping for with this experiment is to get students out of their comfort zone and used to think and write differently from the usual academic work. Instead of padding and adding superfluous materials, they will be expected (and marked) to a different standard. 

But that is not the only thing we're changing as the seminars will also be quite different from the past. This year we will use WhatsApp as a competition law case study.

 

Why WhatsApp?

Well, when considering what company/product to use as a case study there had been no investigations into WhatsApp so that made it a clear frontrunner as a potential case study. It's a digital product/service which may or may not be tripping EU Competition Law rules with enough of a grey area to get people to think. So we will apply the law to WhatsApp and try to figure out if:

- It has a dominant position (and if so, in what market)

- It has abused its putative dominant position

- Its merger with Facebook is above board

- it's IP policy/third-app access policy is compliant with competition law requirements 

To this end, students will have to find information by themselves (incredible the amount of statistics freely available these days online...) and be prepared to work together in the seminar to prepare the skeleton arguments in favour/against any of those possibilities. The second half of the seminar will be spent with the teams arguing their position. 

We'll see how it goes and will comment on the whole experiment in four months or so. In the meanwhile, if you want to know more drop me a line in the comments.

 

New comparative report on separate operational units is out

Kirsi-Maria Halonen has written an excellent report for the Swedish Competition Authority on the the issue of separate operational units and how they work in different jurisdictions:

In Swedish legal literature the definitions of contracting authorities and separate operational units have often been misunderstood to be synonyms. It has been submitted that in the context of public procurement rules these separate operational units would also be separate contracting authorities. This approach seems to be contradictory to the European Commission’s views as well as views presented in the Swedish legislative proposal (Prop. 2015/16:195). According to the above- mentioned Commission’s policy guidelines the separate operational units are part of a contracting entity, not contracting entities as such. In addition, the wording of Art. 5 (2) of Directive 2014/24 clearly states that units are not contracting authorities but rather a part of it.

A difference between the concepts of a contracting authority and of a separate operational unit should be made - aggregation rules apply within the same contracting authority, but not among different contracting authorities unless such contracting authorities have decided to run a joint contract award procedure.

Full report available for download here.

Procurement conferences in the horizon

There's a few procurement related conferences coming up in the next few months:

1. Procurement Week 2017 - London, March 21-23

2. Procurement beyond price: Sustainability and CSR in public purchasing (Copenhagen, May 4th and 5th)

3. Global Revolution VIII - Nottingham, June 12-13

I will be chairing a session on transport for Procurement Week 2017 and delivering a paper on the compliance implications of social considerations for the Copenhagen one.

Links I Liked [Public Procurement]

1. Commission publishes Report on the Remedies Directives effectiveness. I suspect this is the capping stone to justify not revising the Remedies Directives which, for me is a mistake. There is a significant difference between "speedy access to review mechanisms" and "speedy final decisions". And that before even mentioning the opportunity costs of cheap litigation (Portugal) or of very expensive litigation (UK),

2. Commission launches consultation about ex ante assessment of large infrastructure projects. I can already see the line of defense if project goes south "but the Commission said we were doing everything well!" Frankly, I am quite puzzled by this proposal at least in the current format.

3. Scottish Government publishes its Procurement Strategy 2017-19. Very pro EU, except when talking about local businesses and community benefits.

4. Welsh Government puts out Brexit whitepaper.  As for procurement, it is keen in keeping access to the European Investment Bank for obvious reasons, while at the same time, railing against the current procurement rules which limits the use of procurement proactively as a tool to generate economic activity as to keep public sector expenditure in Wales (p.32). That would not be a problem if not for the stated claim that Wales also wants full access to the Single Market. I think they mean "one way street access" to the Single Market.

New Public Procurement Podcast episode is up

Podcast #30 of the Public Procurement Podcast is up on the usual place. This time, the interviewee is Niels Uenk, part-time Researcher at the Public Procurement Research Centre a joint interdisciplinary research centre of the universities of Utrecht and Twente. Before joining academia Niels worked 5 years as international consultant in supply chain and logistics optimization. He specialises in public procurement of long term / social health care services.

Links I Liked [Public Procurement]

1. Big tech's grip loosens on UK.gov IT spend.

2. World Bank puts out it "Benchmarking Public Procurement 2017" report. Albert has the lowdown of it.

3. The best way to build big is to start small. Agreed, way too many initiatives in public sector are based in delusions of grandeur when there is plenty of low hanging fruit yet to be picked.

4. A more transparent public procurement (Catalan only). Mostly about how perspectives on public procurement have changed in Catalonia, albeit those reductions are fairly minor. 

5. Compliance and public procurement (Spanish only). I suspect this will be a bigger topic in the years to come as procurement gets dragged more and more into a compliance frameset.

Commission politely asks 15 Member States to transpose Procurement Directives

The European Commission sent reasoned opinions to 15 EU countries, requesting them to fully transpose one or more of the 3 new directives on public procurement and concessions into national law (namely, Directives 2014/23/EC, 2014/24/EC and 2014/25/EC). The countries concerned are: Austria (3 directives), Belgium (3), Bulgaria (1), Croatia (3), Cyprus (2), Estonia (3), Finland (3), Ireland (1), Latvia (3), Lithuania (3), Luxembourg (3), Portugal (3), Slovenia (1), Spain (3) and Sweden (3).
— http://ec.europa.eu/growth/tools-databases/newsroom/cf/itemdetail.cfm?item_id=9057

Frankly, I find it incredible that almost 3 years after the Directives were published more than half the Member States are yet to transpose them fully. Plus, 11 Member States are yet to transpose a single Directive.

I wonder how many are aware of direct effect and indirect effect of many provisions in those Directives.

Three words, Jeremy: Government Procurement Agreement

Corbyn said Labour would stop firms with pay ratios of more than 20:1 getting government contracts. He said:

“Another advocate of pay ratios was David Cameron. His government proposed a 20:1 pay ratio to limit sky-high pay in the public sector and now all salaries higher than £150,000 must be signed off by the Cabinet Office.”

Labour will go further and extend that to any company that is awarded a government contract.
— https://www.theguardian.com/politics/blog/live/2017/jan/10/jeremy-corbyns-morning-interviews-politics-live

As with Donald Trump a few weeks ago, where to start? Well, let's discounting the fact that we're still inside the EU and this measure would be deemed illegal as discriminatory and violating the principle of competition.

Even by waving away that pesky EU law the same provision would fall foul of the Government Procurement Agreement on similar grounds.

The consequence of such policy would simply be arbitrage (ie, creation of shell companies where public contracts would be routed or the use of subsidiaries) and increased complexity for public procurement.

And if is such a great idea, why is it apparently restricted to *firms*? Why not cover all potential economic operators irrespective of their legal structure. After all the pay ratio issue is not exclusive to private sector.

Deloitte offers to not tender for 6 months after Brexit criticism

A few weeks ago a two page note by Deloitte stating the lack of a Government plan for Brexit was leaked to the Times. At the time, Government replied that the note had no credibility and one would assume the matter had ended there.

But then today Deloitte apologises and offers not to tender for public contracts for the next 6 months. It looks similar to how my parents used to deal with my misbehaviours by graciously offering the possibility of picking my own punishment. This is incredible:

The accountancy firm Deloitte has taken the extraordinary step of apologising to the government and offering to stop bidding for Whitehall contracts for six months, after preparing an internal memo suggesting Downing Street had no plan for Brexit.

Deloitte said on Tuesday night it had “put forward a plan” for working with the government that was intended to “put this matter behind us”.

No 10 has not denied reports that the strategy includes a six-month moratorium on pitching for lucrative government work.

This is an example of why I am not a fan of blacklists: they can easily be used not only to punish economic operators which fall short of the standards expected but also to make them toe whatever the party line of the day.

I remember research by a colleague of mine many years ago saying she found no evidence of economic operators blacklisting in the UK and coming from a jurisdiction where public procurement litigation is par for the course I assumedperhaps it was one of those urban myths. After reading this, I am not so sure anymore.

 

Leading Portuguese e-procurement platform suspended by regulator

Gatewit, the e-procurement platform with the highest market share in Portugal has had its operational license revoked by the Regulator IMPIC. A significant number of little birdies in the country had told me over the last few months that this was the most likely outcome for the hardball business practices Gatewit had adopted.

In essence, Gatewit was milking the suppliers by charging for services which should have been free as required by Law 96/2015 (which establishes the legal framework for e-procurement platforms), "double dipping" by charging both to the contracting and economic operators. We are talking about charging the latter for simple stuff such as technical support, multiple users and the requirement of certificates produced by Gatewit where none were required.

In consequence, all contracting authorities which had contract their electronic platform solutions with Gatewit are under instructions of IMPIC to resolver their contracts immediately and hire another provider, if needed be by negotiated procedure without prior notice (what we call in Portugal a direct award). This is more than a simply suspension and implies effectively a cancellation of the license to operate.

We'll see if Gatewit complies with the obligations of releasing all data of ongoing procedures (as required by law and requested by IMPIC) or if that is going down the drain as well. If it does not, I do not see any alternative for affected contracting authorities other than cancelling the procedure due to reasons outside their control and re-starting them from scratch.

Some may see on this outcome a vindication that the multi-platform system does not work and a single centrally managed platform would have been preferable but I disagree. The fact the operational license for the largest platform was cancelled by IMPIC (with clear instructions on how to weather the storm) indicates the system is working as it should. On balance I think we're better off with multiple providers offering competing solutions and continually improving their service. My view would be different had the regulator not acted which would imply a degree of regulatory capture.

 

PS: As in Portugal all contracts have to be tendered via e-procurement platforms, this is a significant disruption for the country's public procurement practice. 

Links I Liked [Public Procurement]

1.  Government of Western Australia shows Minimum Viable Product version of its new online procurement portal. Great to see a Government taking up on cheaper, more agile ways of developing services instead of building the whole widget without external feedback. Well done.

2. Is raising the micro-purchase threshold from $3,500 to $10,000 in the USA a good idea? In general, I am against raising thresholds for the reasons highlighted in the article, but allowing 18F to expand its micro-transaction platform would not be a bad outcome.

3.  Albert publishes an article about blacklisting.

4. Chicago has an hands on approach to innovation accelerators. Now, if only anyone in Europe would use the innovation partnership for the same purpose... 

5. Speaking of innovation accelerators, the Omidyar Network invested in CityMart. 

Episode #29 of the PPP with Suvi Taponen is available

I have just uploaded the last episode of 2016 for the Public Procurement Podcast. This time the interview is with Suvi Taponen, Doctoral Researcher at Aalto University School of Business, who also works as a Procurement Consultant. She will defend her thesis entitled ‘Improving the efficiency of public service delivery through outsourcing and management’ in the beginning of 2017, and she has worked previously at Hansel, the Finnish centralised purchasing body.

Episode #28 of the PPP with Baudouin Heuninckx is available

The next instalment of the Public Procurement Podcast is up, this time a relaxed conversation with my good friend Baudouin Heuninckx, Chief Counsel of the Belgian Armed Forces Procurement Division and a part-time academic at the University of Nottingham and also the Belgian Royal Military Academy. He has just published a book on defence procurement as of November 2016 entitled The Law of Collaborative Defence Procurement in the European Union.  

Full commentary to the Public Contracts Regulations 2015 is now available

The full version of the Commentary to the Public Contracts Regulations 2015 done by myself and Dr. Albert Sanchez-Graells is now available at www.pcr2015.uk. We consolidated the original separate entries from our blogs in a single comment to each of the 122 provisions of the Public Contracts Regulations 2015 as amended by the Public Procurement (Amendments, Repeals and Revocations) Regulations 2016.

We plan to update it as time goes on and the need for clarification arises, so if you do not agree with us or have any queries feel free to engage with us in the comments box for each entry.

Feel free to use it, all we ask is for it to be cited as such. Proposed citation: Albert Sanchez-Graells & Pedro Telles, (2016) Commentary to the Public Contracts Regulations 2015, available at: www.pcr2015.uk.

A big thank you to the Society of Legal Scholars without whose generous support we would not have been able to do the project.

Trump Hotel in Washington DC appears to have some lease issues

My good friends Steve Schooner and Dan Gordon from George Washington University published a very interesting piece about the legal issues surrounding the lease of the Trump Hotel near the White House.

The Post Office Lease differs from many of Mr. Trump’s other business arrangements. That’s because, in writing the contract, the federal and D.C. governments determined, in advance, that elected officials could play no role in this lease arrangement. The contract language is clear: “No ... elected official of the Government of the United States ... shall be admitted to any share or part of this Lease, or to any benefit that may arise therefrom...”   

Uh-oh. Let's wait for the tweet from the President-Elect.

Will the UK move towards USA style set-asides for SMEs in procurement?

Far from the rosy picture painted by PM May and others, the US federal government’s set-aside programme is permanently criticised for the opacity of its direct and indirect costs to the tax payer [very clearly, see [AG Sakallaris, ‘Questioning the Sacred Cow: Reexamining the Justifi cations for Small Business Set Asides’ (2006–2007) 36 Public Contract Law Journal 685; and K Loader, ‘The Challenge of Competitive Procurement: Value for Money versus Small Business Support’ (2007) 27 Public Money and Management 307].

The system has clear explicit costs in terms of its administration and the litigation ensuing classifications of businesses as small or not (or innovative or not) in the first place. Additionally, and simply put, the main implicit cost of a small business set-aside programme, be it for innovative enterprises or of a general nature, is that it reduces competition for public contracts, and the reduction of competition resulting from this artificial division of the market comes at a cost in terms of potential higher contract prices as well as reduced incentives for innovation for non-small businesses [generally, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 60-77]. Thus, this is a very expensive system to run and, in a scenario of ever stronger competing pressures for public funds, legitimate questions can be raised about its desirability.

As I have been saying since the word "innovation" showed up 44 times on Directive 2014/24/EU (up from a grand total of 0 in Directive 2004/18/EC), it is now not much more than a simple buzzword: a receptacle of sorts unto which any and all of us can project whatever we mean by innovation.

That is not to say, however, that innovation does not have its place in public procurement or that the State should not reap the benefits of innovation, but that can be done better as part of an industrial policy and disconnected from procurement. That the State prefers to give grants or loans to companies instead of investing in them has nothing to do with procurement and how innovative it is. The fact that corporate tax rates have been coming down (thus reducing the compensation accrued by the State on the far side) has also nothing to do with procurement.

Even within procurement one does not have to throw the baby with the bath water so that the State benefits directly from innovation. After all there is a shiny new procedure with "innovation" in its name that is currently sitting idle in the procurement shelves. How many times has the innovation partnership been used in the UK? None, other than in speeches justifying why the Directive 2014/24/EU needed to desperately be transposed quickly so that contracting authorities could use the new tools provided.

Hey, here's an idea to have more innovation in procurement: set up innovation partnerships so that the State invests in the companies in the process in addition to developing the products/services needed that will be procured in the end of the partnership. Allocate money and resources into it and walk the proverbial walk.

Even then, the more we shoehorn (industrial?) policies like innovation, social, environmental into procurement the more we move into compliance territory, making procurement unwieldy, difficult and expensive for all parties involved. But those potential outcomes, of course, do not get a mention on Prime-Ministerial speeches.