The Commission's 6 strategic priorities for public procurement policy

Continuing the short game of procurement tennis with Albert Sanchez-Graells on the Commission's Communication Making Public Procurement work in and for Europe COM(2017) 572 today I will be talking about the Commission's 6 strategic priorities for public procurement policy. These are:

  • Ensuring wider uptake of strategic public procurement
  • Professionalising public buyers
  • Improving access to procurement markets
  • Increasing transparency, integrity and better data
  • Boosting the digital transformation of procurement; and
  • Cooperating to procure together.

Albert's comments on these priorities can be found here. He went for the catchy trumpesque title, whereas I went for the more listicle like one. Our views, are fairly similar in most of the priorities and I am happy he picked up on my earlier bugbear of the choice of language and lack of precision in the terminology used. He made some very critical remarks on the Commission's introduction and picked up an underlying trend (visible in other areas) of using procurement to achieve industrial policy goals. That objective is orthogonal to the idea of a single market in procurement: we achieve either one or the other, but not both at the same time. Plus, I would refer readers once more to the mounting body of evidence that buying national simply does not work

Albert's assessment of the Commission's example of "best practice" in innovative cross-border procurement (section 2) is brutal, but fair. Too much "practice" is passing off as "best practice" simply because someone somewhere says so and in absence of any evidence to back up the claim. It reminds me of a comment I felt compelled to make once to someone who is now a DG Director and was unfortunate enough to mention about a decade ago the Vasco Da Gama bridge in Lisbon as a leading example of PPP/PFI, soon after the Portuguese Audit Court published a review criticising the 15 contract amendments and extensions which always left the economic operator better off.

Ensuring wider uptake of strategic public procurement

The Commission starts by clamouring for more strategic public procurement. Albert claims, correctly (once more) that there is zero empirical evidence to justify this objective. As far as I can tell this "ambition" remains firmly grounded in the world of "policy goals" that do not have a solid reason for it. Why is it desirable? Will it leaves all better off?

My view (as well as Albert's) is that some strategic public procurement can be compatible with the single market, thus leaving us better off. This is mostly the green procurement part, since I have long accepted that internalising the true cost of pollution leads to a more complete single market than one that ignores such cost. Innovative procurement can also be compatible with the internal market but on a different basis. It is possible for procurement to function as a lead buyer for innovative products and services, but having said that those will always be the exception and never the rule for day to day expenditure (just the OJEU for innovation partnerships...). All in all, they may lead to more complex (expensive) procurement processes and also more expensive goods and services, but as long as they do internalise externalities or lead to products/services that otherwise would not exist I see them as fundamentally compatible with the single market (in this I depart slightly from Albert's reservations about higher cost while agreeing on the possible downsides for SMEs). Oh, and the amendment to the Clean Vehicles Directive 2009/33/EC could not come quick enough, but its remit is much wider than public procurement.

The problem lies with social considerations as strategic objectives. These range from the wooly to those that appear to be common sense (ie, demanding wages above the minimum wage or imposing one's minimum wage on other countries workers) or even those that are down right protectionist (demanding local labour/apprenticeships). These tend to be an anathema towards the objectives of the single market which remains (at this moment in time) at the core of the Union. I won't even talk (for now) about the exporting of European labour standards to third countries and what that does to both EU consumers and those producers, but Dani Rodrik does on his new book (p.229 I'm told!). But my worries about the growing compliance culture in procurement can be found here

Professionalising public buyers

Most of our views about this priority can be found in the first entry to this procurement tennis match (here and here). There is however an important angle we omitted the first time around. By asking for the professionalisation of public buyers the Commission indirectly recognises that procurement is today difficult and complex - thus requiring the said professionalisation and specialisation in some instances as well. 

Should we not be aiming for the opposite then? Making procurement so simple that it actually does not require that much specialist knowledge?* After all our phones today are mightly complex but said complexity is abstracted away for the benefit of the user. This goes hand in hand with my usual analogy that procurement rules are just like operating systems. And the one we use has really old roots.

*no, I'm not thinking about principles and negative obligations like in the 60s to be the solution.

Improving access to procurement markets

I share Albert's disappointment with this part of the communication. It reads (again) as a general enunciation of ideas that lack coherence or fit.

This is one of the most disappointing aspects of the October 2017 Communication. The Commission indicates that improving access to procurement is mainly geared "to increase the SME share of public procurement in line with their overall weight in the economy", in particular "in view of promoting more cross-border procurement". However, the only specific actions mentioned by the Commission concern (i) the Remedies Directive (and, specifically, its criticisable decision not to review it, see here and here), (ii) the initiative on third country access to EU procurement markets (see here), and (iii) a sectorial initiative to increase SME participation in defence and security contracts. This is puzzling. 

While those initiatives can have some effect on increasing SME access to procurement markets, they are unlikely to facilitate a step change. Much more is needed in terms of guidance and best practice on facilitating SME access to procurement domestically and in an EU cross-border context (which the Commission should undertake), and there are obvious limitations derived from the cost of having the administrative (and language!) capacity needed to export. In that regard, the proposals in the Communication do not even brush the surface of what could be done at EU-level--starting with practical guidelines on how to maximise the advantages derived from the fact that, in the Commission's own terms, "[t]he 2014 directives include measures that should facilitate the access of companies including SMEs to public procurement, also cross-border". It would certainly be helpful for the Commission to flesh that view out in more detail.

But there is more to criticise on that quote. The Commission claims we need to increase the share of SME spend in line with their overall weight in the economy, but earlier in the document it was claimed SMEs win 45% of the aggregate value of contracts above the EU thresholds. According to the OECD the added value of SMEs in advanced economies lies between 50 and 60%, so we are not exactly a magnitude away *and that is only for contracts above the EU thresholds* which are not really small or SME friendly anyway. As the Commission is worried about SME cross-border success rates (rightly so) is it proposing to lower the thresholds or remove the non-tariff trade barriers on lower contracts? No such thing is to be found in the document though.

The Commission could (but has not) made the point to justify the increase by including only those situations where SMEs have won by themselves or in a consortium a given bidder. It has, however, decided to include in the 45% figure also sub-contracting. Sub-contracting does not really have much to do with procurement rules or (practice) since main contractors are free to decide who they want to contract with and crucially how they want to spend their contract money. So in reality the figure of SME participation rate in public procurement may effectively be much lower - but we are left in the dark by the use of a questionable statistical method by the Commission.

There are some other questionable points about SMEs and public procurement. There is no explanation why it is desirable or better to have more SMEs tendering (and therefore, increasing their transaction and opportunity costs). It appears an article of faith that more SMEs tendering is simply better but without taking into account the tradeoffs it entails.

The Commission also claims that remedies are important for SMEs, but that could be argued about any sort of economic operator taking part in public procurement. Furthermore, if they are so important maybe the Commission should have taken the opportunity to review the Remedies Directive as well.

The Commission revisits as well in this section its ongoing battle with international cross-border procurement and third country access. I do not see how the words included here ("restoring a level-playing field is more than ever necessary") make any significant difference. More so, bearing in mind the poor level of direct cross-border procurement within the single market, maybe discussions about third country access will make the Commission lose the forest for the trees. 

But all that is low level hanging fruit. There is no spark, or transformational initiative that could really make a significant difference in cross-border procurement. Here's a few:

  • What about creating a set of procurement INCOTERMS that would make it easier for economic operators to understand the obligations arising from the contract? If we have CPV codes why can't we have INCOTERMS for procurement obligations as well?
  • What about solving the issue of different contract performance regimes? Only larger economic operators can actually invest in having subsidiaries (or access to legal teams in another country) to justify the legal risks arising from contract performance. Why are we not seeing a clear pathway to harmonising public contracts rules?
  • What about language issues? Is it a coincidence that most cross-border public procurement is literally cross-border or between Member States sharing a language? Ironically the Commission flags up language as potential issue on cross-border cooperation in procurement, but not in regular procurement activity...

Increasing transparency, integrity and better data

The Commission is right that making more procurement data available is a step in the right direction and will propose the adoption of new e-forms, ie standard public procurement forms. Nothing is earth shattering new about this and it can be useful as long as the data is kept on a machine readable format and available with permissive licenses. Like, for instance the Open Contracting Data Standard which is absent from any reference...

The suggestion of mandatory public registers is in my view the correct one, but the Commission stops short of solving the biggest issue behind this idea. After all, sending contract data to the OJEU is already mandatory, it is at the compliance level that reality its the proverbial skids. There is a simple way (for contracting authorities that is) to ensure compliance: ensuring that whatever system is used to make the purchased is connected to a central system capturing the information automatically. As each country is essentially developing its own standards and approaches to electronic procurement this is sadly a pipe dream for now and - yet again - a missed opportunity to make real progress.

I do not agree that Directive 2014/24/EU has strengthened the provisions on conflicts of interest, but precisely the opposite of making it clearly legal economic operators can take part in the process even if they help out drafting the technical specifications. It remains to be seen if I am wrong about this...

The Commission is also correct in its conclusion that more data allows for collusion to be more easily spotted. That is true, since it is akin to keeping urine samples from the Olympics to re-test in the future as more advanced tests are developed. The opposite is true as well for markets where collusion is advanced. By making the data public cartel members will be tempted to develop collusive techniques that either do not show up in the data or that show in ways the enforcers have not spotted yet. Solve for the (new) equilibrium as they say...

In addition, for all the references to use more and better data, the Communication is fairly light in providing empirical data to sustain any of its proposed solutions...

Boosting the digital transformation of procurement

This is a particularly disappointing section. The Commission is correct when it states that the benefits of electronic procurement will only be reaped when the whole process undergoes a digital transformation...which means? Not much if one trusts this section. The actual solutions provided by the Commission are simply re-hashes of previous initiatives such as the Single Digital Gateway or the European services e-card. And not a word about the roll-out of the ESPD and its teething problems...

Which is a shame since integrating different systems and processes digitally can really make a difference. I think the Commission should be looking at integrated cross-border payment systems for inspiration on how the process could be re-organised in a way that functions across multiple jurisdictions. Once more, I think we should be looking at how the private sectors solves its own cross-border transaction issues.

There is also no indication the Commission understands how digital services are different from regular services and how those by definition should always be part of the single market, irrespective of their value.

Cooperating to procure together

The final section cover cross-border cooperation in procurement and exemplifies yet again the Commission interest in looking to the accessory at the expense of the principal. Cross-border cooperation in procurement will remain a niche area and one that needs significant prior work before it can justify this kind of attention. I will defer to Albert's comments about the lack of legal certainty arising from this idea.

The wooly language used doesn't help the Commission's case: 'Their [CPBs] role in the standardisation of public procurement processes and market insight also represents a key element for the professionalisation of public administrations and it enables SME-friendly procedures.' Right.

In other words, we should be solving other more pressing problems (cross-border procurement in general) before spending time with vanity projects. In a way, this is no different from all the bruah about procurement of innovation (hey, innovation partnerships, competitive procedure and competitive dialogue I'm looking at you) at the expense of the day-to-day operations in procurement. There is a lot more that needs to be done for 99% of the procurement projects *before* we should spend time on the 1%.

Appendix

Going through the Appendix I was surprised to see some suggestions that were not mentioned at all in the main body of the Communication, leaving us in the dark of what they may actually refer to.

For example, on section 3 (improving access to procurement markets) the Commission will apparently "launch pilots to boost SME participation via business intermediaries and innovation brokers" whatever that means.

On section 6 (cooperating to procure together) another pilot on SME-firendly policies in Central Purchasing Bodies, whatever that may be.

All in all, a missed opportunity.

Procurement and innovation working together in development of driverless cars

Another example how public procurement (connected) innovation can lead to the development of significant new areas of business, this time for the development of driverless cars:

There was federal money at the inception of the self-driving vehicle, the same government largesse lurking in the origin stories of the internet, global-positioning system technology and alternative energy. Darpa has pursued the same mission since the Sputnik era: Make key investments in breakthrough technologies to promote national security.

The autonomous-vehicle challenges were designed to bring out into the world technology that had been under development for decades in labs. There was military urgency at the time. The U.S. was fighting wars in Afghanistan and Iraq, and scores of soldiers were being killed by roadside bombs. Driverless vehicles could save lives on the front lines.

An initial competition, the Darpa Grand Challenge of 2004, asked robotic cars to travel roughly 140 miles across the Mojave Desert. Carnegie Mellon’s entrant, a Hummer named “Sandstorm,” managed to travel the farthest—a whopping seven miles. At a follow-up event, in 2005, Stanford University came in first place, and Carnegie Mellon’s contenders placed second and third. Each university team included dozens of students and professors, as well as corporate sponsors.

I said public procurement connected and not procurement derived (or demand led) innovation because there is no more than a fleeting relationship between these two since the programme was sponsored by the Pentagon's DARPA which aims to develop new military technologies. This shows that perhaps those two do not really need to be connected as it is implied by approaches such as the innovation partnership and that the market likes these type of competitions as pump priming exercises.

That idea, however, does no good to address the shortcomings put forward by Mariana Mazzucato on the Entrepreneurial State. But what is the counterfactual here? Would participants have taken part if it implied some sort of IP licensing arrangement or a stake in the business (assuming one existed at the time)? Would a state intervention of such type deterred participation in the first place?

Food for thought.

Wales Audit Office publishes report on public procurement

The Wales Audit Office published its report on public procurement in Wales and on balance its findings are scathing. Here's a snippet.

In 2015-16, public bodies in Wales spent around £6 billion through procurement on a range of goods, services and works. We have concluded that national governance arrangements for procurement could be strengthened and there is clear scope for improvement in procurement arrangements at a national and local level. Public bodies also face challenges in balancing potentially competing procurement priorities, responding to new policy, legislation and technology, and in the recruitment and retention of key personnel. 

I will be looking at it in more detail in the next few days, but some of the findings should provide food for thought. Not that those working on a day to day basis would not be aware of most of the findings contained within it.

Procurement implications of the weekend's wildfires in Portugal

Picture by @edgarvnovo

Picture by @edgarvnovo

The picture above illustrates what happened to a 750 year old pine tree forest near Leiria. 80% of it burned down on Sunday. The same day, 37 people died from the multiple wildfires, adding up to the tally of almost 70 from earlier summer fires.

There's much to be said about conservation, forestry policies and eventually firefighting but I'm not an expert on those matters so I will keep my comment to what I know: procurement. There's a procurement story behind Sunday's tragedy.

According to Publico, the contract between Portugal and most private firefighting air services came to an end at the beginning of the month. Until the end of September the country had 47 available and on Sunday only 18. Had the fire happened on Sunday and the count would have been simply 2.

Again, according to Publico the contract had reached its end (4 years) and thus could not be extended or amended so that planes and helicopters could be brought into service over the weekend.

This is bullshit. Sorry, let me rephrase that: it is technically correct (in a very narrow sense) but it is still bullshit. Here's why:

1. Framework agreement could not be renewed, but that's irrelevant

I am starting from the assumption the contract between the State and the multiple private operators was a framework agreement, ie an umbrella agreement that guarantees the availability of material during certain times of the year but not the need to actually use the equipment if unnecessary. My assumption is based on the specific duration of the contract (those 4 years) and the fact the contract is not available on the BASE portal, as framework agreements do not have to be registered there (I have long railed against the black box of framework agreements in terms of data access)

It is technically correct a framework agreement can last for up to 4 years (Art. 256(1) of the Public Contracts Code) even though at least in other countries there has been considerable debate if that limitation of time covers the performance of the underlying contracts themselves. In this particular case, it might have been possible to argue that the framework had expired but the performance remained until the end of the year for example.

But even if a very risk averse procurement official would balk at the suggestion above, there is a very easy (and popular way) to ensure a contract was in place to cover the unseasonal period of hot weather affecting Portugal.

2. Direct award due to urgency

Again, my views on direct award are well known. 90% of the contracts in Portugal are awarded directly, covering slightly below 50% of the procurement spend of the country. Still, no one in the Home Ministry had the lightbulb moment of reaching out to the framework participants and offer them a short term contract with the same conditions as those in the framework. This could legally and easily have been done under article 24(1)(c) of the Public Contracts Code (the same one Lisbon City Council used as an excuse for the Miradouro de Sao Pedro public works).

This is to me the critical procurement mistake done over the last few weeks when it became apparent the fire risk would remain high in October. Just look at the twitter timeline of the Portuguese Weather Service. Since October 2nd there were no days without at least 15 local councils in the country deemed at red alert for fire risk. It was known as well that Ophelia would also hit Portugal and if it did not bring rain we all know what the wind does to the probability of wildfires... 

But sure, the problem is that a contract had ended. Speaking of which...

3. Poor management (current framework agreement)

I don't know who thought having a contract running from October to October was a great idea. It's not as if climate change suddenly happened once the contract was already underway. That the contract does not run from January to January is beyond me.

Therefore questions need to be asked about the specific duration of the contract. Even conceding the point it could not go over 4 years it could surely have been shorter. Why did it not end in December 2016 so that a new 4 year framework agreement could run from January onwards? Of course the answer is probably going to be: no one thought about it at the time and it was simply decided to make it as long as possible.

As if that was not bad enough, apparently Portugal is now without any framework agreement in place since a new "international tender" (in reality a bog standard open procedure) is being "prepared." 

4. More poor management (lack of framework agreement going forward)

How is it possible that there is no framework agreement already in place to kick in once the old one expired? Why is it still "being prepared"? It should have been prepared probably over a year ago well in advance of the end of the current one!

Open procedures take a long time, particularly in a country where litigation in public procurement procedures is a given and a lengthy affair. In consequence, Portugal may end up without firefighting air services for a good while.

No prizes for what will be done once the next fire season starts if the framework agreement is not in place (direct award under art. 24(1)(c) of course)

5. Austerity

Now, there may be a simple justification for the lapse in the air services contract: money, or better said the lack of it. I have heard multiple rumours on the grapevine that the current Government managed to get the deficit under control was not by slashing budgets but simply making it impossible for said budgets to be spent. Did the same thing happened in this instance? 

I cannot claim and won't that having more air support would have saved lives or diminished the tragedy. What I can say is that it is not because of procurement procedures or procurement rules that air support was not available on Sunday. 

In any event, there's no point in invoking malice at this moment while incompetence remains a reasonable explanation.

UK trade delegation to Washington lacked international trade experience

So claims Greepeace on its Unearthed blog. The punchline for me is this tidbit:

"One senior advisor at Dexeu was working as a procurement officer for Enfield Council as recently as March 2016."

(Local) Procurement officer =/= (International) trade negotiator.

Maybe this is why the Government Legal Department is hiring trade lawyers while offering a London salary below the starting rate of any major law firm? Brexit on the cheap. We'll see the 'value for money' of this approach soon enough.

Now, if only the Department for Exiting the European Union granted more FoI requests...

The Commission's recommendation on professionalisation of public procurement

In the second entry to our ongoing (mercifully short) procurement tennis with Albert Sanchez-Graells on the Commission's initiative to improve public procurement, I will be commenting on its recommendation on the professionalisation of public procurement (C(2017 6654 - Recommendation). This is an area of particular interest to me since I have worked extensively on it while at the Institute for Competition and Procurement Studies at Bangor University (Procurement Week, Winning in Tendering, running a Procurement Summer School in 2014 etc) and also on my work with different Masters' programmes (Bangor's Procurement Law and Strategy; Rome Tor Vergata's Public Procurement Management International Masters' or the King's College Public Procurement Regulation in the EU programme). For a few years I have been of the opinion that improving day to day practice will probably yield more results in terms of improving procurement than tinkering with the rules that are to be followed.

The Commission presented three main recommendations:

  • Defining the policy for the professionalisation of public procurement
  • Human resources - improving training and career management
  • Systems - providing tools and methodologies

Let's look at each in turn, before briefly looking into the SWD(2017) 327 - Staff Working Document accompanying the Recommendation. EDIT: Albert's entry is here.

Defining the policy for the professionalisation of public procurement

The Commission suggests that Member States should develop and implement 'long term professionalisation strategies to public procurement'  as to 'retain skills, focus on performance and strategic outcomes and make the most out of the available tools and techniques.' It is added that the strategies should address all relevant participants, be inclusive, applied in coordination with other public policies and take into account developments from other Member States. By themselves, these ideas are neither earth shattering nor particularly specific (although the provides much more detail and relevant examples).

The second recommendation under this heading is not particularly helpful either. Member States should encourage and support contracting authorities/entities in implementing those strategies, developing professionalisation initiatives and providing a structure for more coordinated, efficient and strategic procurement.

In my view, this recommendation completely misunderstands the problems in reality at least in the Member States I know. The problem is not policies or coordination opportunities between different institutions or contracting authorities. Problems start inside organisations (ie too many people with buying responsibilities, divided into silos) or in the territorial structure/organisation of the State (ie, thousands of contracting authorities, many of them very small and managing tiny budgets). These problems are not specific to public procurement but affect its performance significantly, particularly on the wider public sector.

It also misses the boat once more on the importance of institutions vs rules (or policies). As highlighted in this interview for the Public Procurement Podcast with Ana Calderon Ramirez last year, its the institutions providing the day-to-day support that make a bigger difference. Granted, the research was done in Latin America, but we should get down from our high horses assuming that we know much more about procurement than others or that there are no lessons to be taken from other parts of the world. Developing those institutions requires policies (in first instance) but then a commitment that requires money and political will to implement. A lot harder than suggesting "increased cooperation between relevant services and between contracting authorities."

Setting up a nice, shiny policy is the easy bit.

Human resources - improving training and career management

The second strand proposed by the Commission is more interesting and also further developed. It is suggested Member States should identify/create a competence frameworks for public procurers, develop appropriate training programmes and get contracting authorities to adapt human resources management and career planning.

There is nothing particularly new or innovative in the proposal, but at least it covers human resources via professionalisation/training approaches and career management. As for the prospects of making it work, I have more reservations.

Careers in procurement are (generally) poorly paid and have the wrong incentives in place. But that could be said about the public sector as a whole (with caveats). How will Member States, actually change recognition and career structures for a specific function without opening a can of worms with unions or other workers from the public sector demanding equal treatment?

As for the incentives, I find it hard those can change at short notice. Yes, public procurers are risk averse but for very good reason: no one gets dragged over the coals for just going along, but if you try to change things and fail or affect the reputation of your employer that's a career in a dead end. Again, I suspect the problem is wider (and bigger) than just public procurement and I struggle to see. Motivational schemes (as suggested) not associated with pay and progression will only go so far.

There is a comment to be made as well about the suggestion of developing a competence framework for public procurement at European level (point 3(b)). Surely, that should not be pushed downwards to Member States and should instead be done by the Commission itself - after all it is the only institution with the eagle's eye over what happens in all Member States (even if detached).

I also have concerns about the idea of a competence framework for judges and auditors. Suggesting it for the former shows complete lack of understanding on how judicial careers work in many Member States and dodges the really critical question which is the overdue reform of the remedies system which the Commission has kicked into the long grass. Which is more important, improving the mostly decent level of judges working in procurement (as part of their portfolio) or revising the system so that decisions are taken quickly?

As for the training, once more the Commission is showing up to the party quite late. It is correct in its prescription of initial and lifelong training, but I am puzzled about the need for state intervention in this area (ie, developing 'appropriate training programmes'). It is not for the lack of training opportunities and programmes (long/short) that people don't get that training - there are plenty of those in any Member State I know. It's mostly due to the lack of resources: money and time. Is the Commission putting money on the table for people to be trained?

I'm particularly puzzled by the 'multiplying the training offer via innovative, interactive solutions or eLearning tools, as well as replication schemes.' Do you really think people at the coal face have time to spend training - even if the course is free? Where is the budget to pay for their replacement time while they're doing the training? And what are those training 'replication schemes'?

Systems - Providing tools and methodologies

The final recommendation by the Commission can be classified as a number of different ideas contained within the umbrella of tools and methodologies. These cover IT, integrity, guidance/help and exchange of good practice.

Regarding the IT suggestions, there is not much to comment on other than public procurement has remained stuck in a paper mindset for the last 13 years. E-procurement was officially introduced (at least widely) on the 2004 Public Procurement Directives, but it will only be fully operational in 2018. Effectively both at EU level (and inside each Member State) the speed of adoption has been hindered by the laggards - those that do not want to do procurement online, either because of the cost of setting up new systems (public sector) or losing the competitive advantage that the 'paper barrier' entails. Meanwhile, any of us has been able order online a book from another Member State since well before 2004. Not to speak how easy it is to get stuff from further a far like eBay or Alibaba marketplaces.

Standardization (and API access) remains a critical issue for cross-border procurement and participation. That in this day and age this is still a problem is beyond me. That the Recommendation makes no mention of the use or adoption of the Open Contracting Data Standard is also worrying - indicating that on ICT we are still using mental models from 15 years ago.

Regarding the integrity, there is not much to comment other than it is simply a restatement of one of the key principles of public procurement - fighting corruption. Creating codes of ethics is not going to change practice unless incentives are changed as well. To this end, using data - and making it freely available does change the balance of risk for potentially corrupt officials: knowing that your decisions are available for anyone to see in the future, really makes you think twice about the implications from a potential corrupt deal.

The Commission also recommends the production of guidance to provide 'legal certainty' on the obligations arising from EU law or national law. I honestly cannot see guidance as providing any sort of legal certainty - it usually creates more uncertainty since the body producing it is usually not the one interpreting and applying the law. And as it is only guidance (instead of hard law) then the courts can simply disregard or simply disagree with the view professed in the guidance.

Having said that, there is a case to be made for materials like practical handbooks to be produced so that those can be used by practitioners on the day to day operations. This needs to take into account the risk that public procurers may be induced to take decisions based on guidance/views that may be challenged under judicial review for example.

Realistically, this should be done possibly on a wiki style (or something along the lines of our own commentary to the Public Contracts Regulations 2015) that can be easily kept up to date by the persons with the right access rights. Again, this takes time and money to set up and especially to keep going.

As for the 'standardised templates and tools for various procedures such as green public procurement criteria' I cannot even understand what is meant. A procedure is not a criteria, so either the Commission refers to the procurement procedure where green public criteria can be used or that the green public criteria by themselves could be subject to standardisation. I, for one, welcome standardisation over casuistic approaches but think leadership on this should come from the top instead.

Finally, Member States should promote the exchange of good practice and provide support for practitioners. I have enough experience dealing with procurement that more often than not what passes for 'good practice' means nothing other than 'practice' or 'prior practice.' Without a robust assesment/quality assurance scheme to evaluate what works (which is completely absent from the Commission's proposals) this suggestion is a risk that a practice developed can pass off as a 'good practice' without being anything but.

As two examples, I would like to point out to the illegal use of the negotiated procedure in the UK in the 1990s and after 2004 how competitive dialogue was used in practice, especially the idea that it was 'best practice' to rush to select the preferred bidder and have negotiations only with it.

A further (and more recent) example is the incorrect interpretation on the UK's guidance regarding Article 18(2) and Annex X of Directive 2014/24/EU that any international treaty dealing with social or environmental clauses can be used as a justification to refuse to award the contract.

 

The Staff Working Document accompanying the Recommendation

In this document, the Commission provides further details on each of the headings included in the Recommendation. For the most part this document is mostly a compilation of very short case studies from multiple Member States (well, summaries of case studies) that lack the necessary level of details to be actionable. They do work, however, as pointers to further resources which are available only in the national language.

As mentioned above, this resource made a lot more sense if it was made available online on a wiki style of sorts. But, once again, it seems we are stuck in paper mental models, of which the PDF is the ultimate digital representation.

One final criticism for the inward approach taken in the preparation of this document: other than an example of the EBRD, virtually all case studies mentioned are from Member States. Again, I think there is plenty to learn from other countries.

 

Open contracting in Paraguay

The first of Paraguay’s sweeping reforms were introduced in 2003 to root out rampant corruption. Procurement, which had been unregulated until then, was seen as an easy route to enrichment for the ruling party, whose members were known to have ties to the country’s former dictator, Alfredo Stroessner. Patronage in civil service was endemic too — research suggests that meritocratic hiring was non-existent in Paraguay’s public institutions before 2003; under President Nicanor Duarte, meritocratic hiring was practised in around 2% of civil service appointments. That figure rose to 26% under his successor, Fernando Lugo. A new law, passed in 2003, modernized public procurement with the introduction of a transparent system for conducting tenders in public institutions and the creation of the Dirección Nacional de Contrataciones Públicas (DNCP) as an oversight body to monitor procurement processes and publish information about all contracts online.

I'm glad they talked with my good friend Juan Pane, the engine behind a good deal of the solutions deployed in Paraguay. I was very impressed by the quality of the work done in Paraguay at a workshop last year in Buenos Aires. Whereas some have talked the talk of open contracting, Paraguay has walked the proverbial walk. 

One reference to some interesting data points:

Over the past two years, several of the DNCP’s online tools were launched (like the open contracting portal) or redesigned (like the public procurement portal). In that time, there’s been a notable increase in savings on procurement costs (1.4% from 2015 to 2016, which, given the size of the procurement budget, is a significant sum). Adjustments and amendments to contracting processes have dropped, from 19% of all contracts in 2013 to just 3% in 2016. Visits to the public procurement portal website have risen by 32% from 2.5 million in 2015 to 3.4 million in 2016.

Correlation is not causation, but I find it amazing that contract amendments have dropped so much. Food for thought for European procurement agencies. 

The Commission's procurement mechanism for large infrastructure projects

As per yesterday's post, myself and Albert will be commenting on the Commission's initiative to improve public procurement. Albert volleyed first with an analysis on the Commission's proposed procurement mechanism for large infrastructure projects, known as "voluntary ex-ante assessment of large infrastructure projects."

The name put forward by the Commission is terrible - latin, really? - and overcooks what is a very simple idea behind it. Effectively, the Commission is offering a free consultancy service for projects meeting specific criteria. As always, the defining criteria is price, with a set of services available depending on the contract value. The services included are:

  • a helpdesk (for contracts above €250 million)
  • a notification mechanism (for contracts above €500 million)
  • an information exchange mechanism (i.e., a repository of information, part of it widely accessible)

For the first two, it is possible for Member States to refer contracts below those values if it considers the project to be of high importance to itself or the EU as a whole. This referral may be rejected by the Commission.

The Helpdesk

The purpose of the helpdesk is to present the Commission questions related with the project's compatibility with EU public procurement rules before launching it with an official notice on the OJEU. It appears that this intervention is to happen very early in the process, certainly before even detailed plans, tender documents or specifications have been drawn up and the contracting authority might have specific questions. However, it is possible for the helpdesk to continue to help throughout the project, including amendments to contracts (which can also be done via the notification mechanism).

An answer to the queries is expected (but not guaranteed) within one month and it is anticipated this helpdesk will help the risk of delays and cost overruns with large infrastructure projects - one of the issues the Commission claims to want to achieve.

The consultancy nature of this service is evident on the language used in the name and, more importantly, on footnote 10 which reads: "[t]he views expressed by the Commission services in their assessment are not legally binding on those using the mechanism or on the Commission, and are without prejudice to the interpretation of the relevant rules by the Court of Justice of the European Union." Right, so whatever advice is provided by the Commission is non-binding for the receiver and itself. 

Therefore, my first question is: what legal certainty does this service provide? I could see a scenario whereby a contracting authority would refer a project so that it could later say to economic operators the design/rules/whatever had been pre-validated by the Commission. A sort of guarantee or 'seal of approval' for the tender documentation. Contracting authorities can still try to play this card but it is easy to call their bluff by referring to footnote 10. 

Albert correctly points out that especially in situations involving EU funding (areas where the Union already analyses and checks expenditure, but not necessarily ex ante) that this lack of responsibility can lead to litigations based on the principle of legitimate expectations or administrative estoppel (see, Judgment of 13 September 2017, Pappalardo and Others v Commission,  EU:C:2017:672, para 39).

I can only imagine the reputation risk the Commission is taking on-board nonetheless: if and when a case come before the Court of Justice it will have to justify any opinion/view expressed in the process. It might as well have made it binding to ensure that everyone really has the proverbial 'neck on the line.' Seems like that the Commission has no issues with binding opinions (and decisions) in the field of competition law for example but is terrified of doing the same in public procurement. To be honest, this would imply as well an expansion of the concept of Decisions by the Commission potentially making it unwieldy on a quick turn around basis as anticipated.

By itself, providing non-binding opinions or views within a single procedure would be bad enough, but this mechanism has a potential cascading effect since the replies will be anonymised and made available on the  ex-ante mechanism website. It won't take many instances of publications until either a clear view is formed about key issues (assuming those are common in large infrastructure projects) or competing views about what appear to be the same issue start cropping up in the database. 

Interpreting judgments from the CJEU these days seems like reading runes or listening to the oracle of Delphi, so having yet another 'legal' source of difficult to interpret or to translate to a different reality appears to be a gift we could do without. 

Albert also raises confidentiality as another important point on this topic. The Commissiom may try to guarantee confidentiality of the communications and their content, but yet another footnote (23) states the obvious: all documents produced by the Commission (or in its possession) are subject to Regulation (EC) No 1049/2001 regarding public access of documents. It is true that Article 4(2) of the Regulation provides a modicum of protection in the form of exceptions if the disclosure would undermine the protection of commercial interests of a natural or legal person, including intellectual property, unless there is an overriding public interest in disclosure. As we are talking about procurement there may well be scenarios where there may be a significant public interest in full disclosure of the documents related to this ex ante voluntary mechanism.

The notification mechanism

This mechanism is aimed at larger projects (€500 million) and is to be used once the initial tender materials have already been produced by the contracting authority. Within this process, the Commission services will review the plans produced and provide an assessment on those. Once more it is done 'without prejudice to any future legal interpretation or assessment', in case someone forgot to read footnote 10.

In addition to procurement plans, the Commission anticipates this mechanism can be used as well for contract modifications since these can be particularly complex. What is unclear is if a contracting authority can activate the mechanism for a contract amendment if it did not do so for the procurement plans or did not use the help desk either. I would say that bearing in mind the intentions of the Commission it appears that the answer would be positive - although questions remain on how the 500 million 'threshold' would be analysed (i.e., total contract value or specific modification value). I would guess that the answer to this one will depend on the level of demand for the service.

While the use of the notification mechanism before launching a tender seems reasonable (bearing in mind the reservations above for the helpdesk which are applicable here as well) the idea of providing this service for contract modifications is puzzling. Since the Commission anticipates to answer the query in 3 months, how is that compatible with contract modifications? Would the answer come before the negotiations are started or after they are concluded? I find it unlikely that this will have significant take up - especially due to the lack of any legal binding effect.

The same issues raised for the helpdesk apply to this mechanism as well: lack of legal certainty, potential failures on confidentiality (even worse as more detail will be held by the Commission) and an uncertainty on the value from the information/advice given.

Just like a consultancy then.

The information exchange mechanism

The final leg of the stool is provided by the information exchange mechanism. Out of the three parts of the mechanism this is the least interesting to analyse but potentially the most relevant on the long run. Its purpose is to create a reference database or repository of information related with large infrastructure projects which include tender documents, organisational documents, contracts, guidelines and key decisions from the Court of Justice. The information exchange mechanism will have two components: one the freely accessible database, the other a platform for stakeholders to exchange information.

As far as I can tell this seems a reasonable setup for what is effectively a knowledge  sharing tool. To be honest, better for it to be done centrally at EU level than mushrooming at national level.

However, as always the devil is in the details. 

First, who will populate the database and check the information provided? It appears it will be the Commission, so will it be responsible for the veracity and reliability of the information available on the database? 

Second, how will confidentiality be dealt with? Some Member States (as pointed out by Albert) have stricter views on confidentiality than the European standard. It seems that Member States (who on the Member State exactly?) have to purge all the confidential information, but is that in accordance with the national standard or the European one? 

Third, what 'guidelines' are those mentioned in the Communication? Who will produce them and in what context?

Fourth, what about language and translations? What languages will the materials be available on?

Final note

One final note for terminology. I think this is the first time I am really disappointed with a Commission Communication with the lack of care when dealing with terminology. Using latin should be a no-no (it's not an official language of the Union) and the choice of words is questionable at best.

Here's a few that puzzled me: Mechanism? Notification mechanism? Promoter (instead of contracting authority)? Notifying authority? 

PS: As highlighted by Albert, let's see if this is not the start as soft law for something which will harden up more quickly than anticipated.

 

 

 

 

 

 

 

Commission launches initiative to improve public procurement

The Commission published yesterday a Communication on Making Public Procurement work in and For Europe. According to its press release, the 4 objectives of this initiative are:

  1. Definition of priority areas for improvement
  2. Voluntary ex-ante assessment of large infrastructure projects
  3. Recommendation on professionalisation of public buyers
  4. Consultation on stimulating innovation through public procurement

All of these initiatives warrant some though and consideration, but at a glance it is refreshing to see the Commission interested in the wider picture of public procurement instead of bringing its gaze as usual to the procedural aspects of how a purchase is conducted.

I've just talked with Albert and we'll be making a short procurement tennis session on these four topics over the next few days. His first entry on the voluntary ex-ante assessment is already up.

IRS awards $7M fraud-prevention contract to Equifax

The no-bid contract, which pays $7.25 million, is listed as a “sole source” acquisition, meaning the IRS has determined Equifax is the only business capable of providing this service—despite its involvement in potentially one of the most damaging data breaches in recent memory.

By now my opinion about single source/direct award/request for quote(s) contracts should be well known to regular readers. This is yet another example of a decisions which may have been the correct one (or maybe not) but just by using a non-transparent procedure it can look terrible.

The contract itself is available here.

More from Politico:

The IRS defended its decision in a statement, saying that Equifax told the agency that none of its data was involved in the breach and that Equifax already provides similar services to the IRS under a previous contract.

”Following an internal review and an on-site visit with Equifax, the IRS believes the service Equifax provided does not pose a risk to IRS data or systems,” the statement reads. “At this time, we have seen no indications of tax fraud related to the Equifax breach, but we will continue to closely monitor the situation.”

Equifax did not respond to requests for comment.

 

 

 

 

 

The death knell for PFI contracts in the UK

This week, the shadow chancellor John McDonnell suggested a future Labour Government would bring PFI contracts in house. Details are sketchy (as always...) but the issue has been extensively covered in the media. Even the FT joined in the chorus with some pieces on the shortfalls of the scheme (here, here and here - all gated). At the very least, this conversation will give pause to potential future investors and make the current ones think twice about their portfolio.

It should not come as a surprise for regular readers that I am staunchly pro-competition and see it (with transparency) as the twin engines that should be setting the course for any public procurement legal regime. Having said that, I never warmed to the whole PFI idea and think, in general, they tend to lead to poor results. These has been my view for the past decade or so.

The reasons for them are two fold. First is asymmetry of information. Once a PFI is in place it is usually followed by the hollowing out of capacity on the public side which soon translates into an absolute inability to monitor the contract properly. Contract monitoring is a perennial problem in procurement, but even more so when it comes down to long standing contracts. In consequence, if and when a contract is re-tendered 10 or even 30 years later the public side will be putting it out without fully knowing what it needs and how it is done. Plus, from a competition perspective the incumbent has an incredible head start over everyone else (same happens with many other contracts though).

Nothing of the above is new, and Jean Tirole built a good part of his career writing about incomplete contracts in the public sector - and there are few contracts less complete than long term public contracts. Aligning interests is hard. Damn hard.

Second, there is also an issue of regulatory/supervision capture. Everyone likes to talk about relationships in public procurement and how we need more of those. I for one, digress and like to see procurement contracts as transactions with a beginning and an end. The cosier the relationship the more likely it is for the supervisor/regulator to not enforce the terms of the contract. No surprise then that we sometimes see former public officials (politicians, aides or civil servants) ending up working for the same firms they were supervising or regulating. It is just human nature.

That is not to say that all PFIs are bad or that all lead to bad results. I have seen them being well used (i.e., with a clear logic and achievable outcomes) for example in the Spanish health sector. But as with so many other procurement 'tools' designed to be used only by those who know how to handle them (competitive dialogue, I am looking at you) the overall score is negative. 

As a conclusion, a point about the World Bank. For the last few years they have been singing the praises of PFI contracts in the developing world. I have been wary about their use even in the UK, where public sector capacity is certainly above average, so I can only shriek in horror thinking how those would be deployed in countries with limited capacity. It doesn't help that when talking with colleagues much more experienced on dealing with those countries, their view is very similar.

 

Lisbon City Council and direct awards of public works in Portugal

One of Portugal's top newspapers investigated the direct award of a €5.179.873,44 public works project by the Lisbon City Council to Teixeira Duarte, one of the largest construction companies in the country. The piece is an example of how direct award (negotiated procedure without competition or notice) is wrongly used and abused in the country. The contract covered works to repair/sustain the Miradouro de Sao Pedro de Alcantara, one of the many scenic viewpoints in the city which is alleged to be in risk of collapse.

The Council claims the urgency of the works required the contract to be awarded quickly, therefore justifying the need to award the contract directly and without competition. Needless to say, this is an exceptional use of direct award and the material justification is supposed to reflect such exceptionality. Herein lies part of the problem: that specific reason to use the direct award procedure does not appear to comply with the requirements for its use.

The Miradouro de Sao Pedro de Alcantara has been monitored since 2006, with a detailed study carried out in 2016 so there is no factor external to the Council justifying the use of the direct award procedure. In other words, if it became urgent to repair the Miradouro its because the Council did not act as quickly as it should and created itself the situation of urgency (i.e., an internal reason for the urgency). By itself, this amounts to poor management at the very least, since the detailed report was handed to the Council in December 2016 and the decision to award the contract directly taken in May, on the same date another company was commissioned to prepare the works project. And surely by coincidence it is the same exact consultancy which produced the 2016 report. The works contract itself was signed only on July 4th, again raising the question of what 'urgent' really means in the context of this contract.

But it gets worse. It appears the National Civil Engineering Lab produced an opinion sustaining that the intervention was not urgent, contradicting the consultants' view from 2016.

Without seeing the actual decision and the arguments produced by the Council, I frankly cannot accept at face value that it was a clear cut case of urgency which would justify the use of this 'exceptional' approach to procurement. 

There is, unfortunately even more to this case. According to the newspaper piece, it seems the works contract covers not only the repairs on the wall (i.e., the 'urgent' bit) but also the works at the surface. Using the contract available on BASE.gov.pt it is impossible to confirm this information. However, if true those works (~€1,000,000) were not strictly needed and therefore not urgent at all. They could (and should) have been subject to the regular public procurement rules in the country.

One final note for the value of contract: €5.179.873,44. The current EU financial thresholds for public works are €5.225.000 and until January 2016 they were €5.186.000. There* is a growing body of evidence that contracts valued close to the thresholds are more likely to have been manipulated and are associated with corruption risks.

PS: I will be publishing soon a paper about the excessive use of direct award in Portugal. Will link it here when it happens.

 

*Thanks for pointing out the typo Domingos :)

 

New paper available

This article analyses the conceptual link between law and compliance, exploring the different theories and types of compliance (corporate, state and regulatory) and how they can be found today within the EU legal public procurement framework.

The analytical focus is on Directive 2014/24/EU and within it how sustainable requirements have increased the level of compliance required, particularly regulatory compliance. Compliance was already present in previous EU public procurement frameworks, but its extent on Directive 2014/24/EU leads the authors to consider the current legal framework as subject to substantial regulatory compliance obligations external to the process of procurement. In short, procurement has been transformed in a way to enforce regulatory obligations that are not intrinsic to the process of buying.

This leads to the conclusion that questions such as the cost and trade offs from imposing compliance obligations to public and private bodies warrant further research, particularly at the legal, economic and political science intersection.

The paper was published on a special edition of the EPPPL co-edited by Marta Andrecka from the University of Copenhagen.

The EU's public procurement inception error

Thresholds. I have written a couple of times (here and here) about how the EU financial thresholds make no sense in this day and age.  Long story short, they were created in the 70s and 80s and have largely remained unchanged once EEC/European Union joined the GPA. There is no specific reason why they their value is what it is. They just are. They just exist. 

Actually, that is not true. There is an obvious reason why they exist and why the values are so high: protectionism (and politics). This is why the original works threshold 1,000,000 units of account (then ECU, then euro) threshold was transformed into 5,000,000 just before works were added to the EEC's commitments to the GPA in 1980s. 

Public procurement in the EU suffers from this incepion error to this date and in consequence we end up paying the price of a dual system that simply makes no sense. Above thresholds, we 'assume' (but never question) they are of interest for the internal market and apply the EU Directives with all the trimings. Below them, we use instead Schrodinger's 'certain cross-border' interest cat that was concocted by multiple decisions from the CJEU from Telaustria to Commune di Ancona. Depending on who turns up to a procedure (or should have) then the procedure is either subject to EU principles or not. Does it make sense to define the rules applicable to the procedure ex post facto? I think not, but then Mercury is sometimes in retrograde as well.

Over the years I have described this madness with an analogy with free movement of workers. Let's assume that when free movement is included in the Treaty, it is presumed only jobs with a €40,000/year salary are relevant for the internal market and subject to EU rules. For those lower salaries, only those with 'certain cross-border interest' would trigger the application of EU principles (and no pesky secondary legislation). What would have happened to freedom of movement? How would it have developed? Would the EU27 be united behind it in the Brexit negotiations for example?

Juncker's state of the union speech yesterday provided me with another, more modern, analogy. The Commission is considering (correctly) that non-personal data should flow freely between Member States and should not be used as a trade barrier between them. Now, if financial thresholds are such a great idea and if it is indeed necessary to make a judgment call today of what will be or not be of relevance for the internal market in a burgeoining area should we not use them? So, why are we not deploying them in the digital sectors?

Because they make no sense. Just as they do not in procurement. But at least this time around there is no inception error in the definition of internal market to regret later on.