De La Rue drops challenge to passport contract

Can't really say I am surprised by De La Rue's decision, but the motives are a joy to read:

"We've done our homework, we've taken legal advice, we've looked at, frankly, the likelihood of overturning the decision and the sensible thing for us to do is to refocus our efforts elsewhere and to move forward."

and

"Following four weeks of intense consideration and clear legal advice, we have taken the decision not to challenge the award of the UK passport contract."

Seriously, was that no evident already two weeks ago? Or was it all an outburst to be seen doing something?

Bonus points for burying the news of the profit warning with the announcement of dropping the challenge. It will be interesting to see if the "profit warning should lead to lost contracts" brigade which sprung after Carillion's demise will be calling for their pound of flesh of De La Rue now.   

Companies don't like competition and public procurement is no different

I remember - naively - thinking competition law made no sense conceptually. Surely, the idea of having a market and economic operators inside it was to enable competition for the best to win. So, why do we need competition law and by extension, public procurement rules?

The CEO of Liberty Steel provided this week with a nugget on my own naivety:

"The chief executive of Liberty Steel has called on the UK government to change public sector procurement rules, which he said fail to adequately support British manufacturers against European competitors.

Jon Bolton, who is in charge of Liberty’s Dalzell steel plant in Motherwell, fears UK public contracts are going overseas because the guidelines for steel procurement are too rigid.

Bolton said: “Guidelines for many public sector contracts are failing to properly take into account the regional economic benefit of our bids." "

Translation: we are not competitive but we are local. Give us the contracts because we are based in the UK.

And let's not forget that i) the UK is still inside the EU ii) Liberty Steel is worried with EU competitors, and not Chinese ones.

On cancer

I'm one of the lucky ones. 15 years ago I made it through. The experience  changed me profoundly, partly for the better and at a not insignificant cost. It is not something I mention publicly these days as its relative importance declines as time marches on, but my feelings about it are still best summarised by this verse in Pearl Jam's Alive:

Is something wrong, she said
Well of course there is
You're still alive, she said
Oh, and do I deserve to be
Is that the question?
And if so...if so...who answers...who answers

I still don't know the answer, but at least I had the chance to reflect (and change). As I said, I'm one of the lucky ones. Others, aren't.

A few months ago a former team mate from my years at Nottingham died in his early thirties. When I was handball club president he was one of our Erasmus student players. He subsequently came back to Nottingham afterwars for further study and work although we lost contact after I moved to Bangor. But I will still remember him as a great teamplayer. An all round great kid. One of my *kids*. It hurt. It stang. Even though we had not been in touch for a good while. He'll always be a 21 year old kid in my mind.

Yesterday it was one of my colleagues, one of the nicest people I ever worked with. This time around there was plenty of warning for those able to read the signals. A few days ago I knew her time was up. I just *knew* it. Still, it doesn't make it any easier to digest. It hurts. It stings.

Tonight I will celebrate Dora's life as I did with William's: hugging my 2 year old daughter and having a nice glass of wine, while being grateful for the time spent together and her words of wisdom. 

In the meanwhile, Offspring's Gone Away is playing in repeat and I will be making a donation to Cancer Research UK.

Timely reminder that EU public procurement remedies are still in force in the UK

Building upon two week's ago decision to award the first post-Brexit UK passports to an Franco-Dutch (Dutch-French?) company, it seems De La Rue is initiating proceedings to get the award decision reviewed.

This is yet another timely reminder EU law is still applicable in the UK since the Public Contracts (Amendment) Regulations 2009 tranpose Directive 2007/66/EC.

As for the grounds from De La Rue, based on the public reports, it seems they are either keeping their powder dry or do not have much to argue. Making generic comments such as the award price was below their cost price does not indicate any wrongdoing - only that they were not competitive enough. Even if there is an abnormally low bid, all the Home Office needs to do is investigate it and is under no obligation to exclude Gemalto.

This all reminds me of a tender I was once involved on the public side with a former colleague as legal adviser for one of the tenderers. After the result was announced he retorted to a common friend "How do I set aside the other 4 bids? Thanks for screwing my weekend!"

PS: I love De La Rue's assertion their new price is lower than that of the old contract, begging the question if they suddenly became very efficient or if they have been extracting rent since 2009. And let's not forget what 3M who lost the contract back then had to say.

PS2: As for the logic of tendering 10/11 year bog standard supply contracts, it defies me still especially with the assertion by De La Rue they were cheaper this time around than in 2009.

Public procurement is a meaty, tricky law business.

Thanks to Joelle Grogan who is running the excellent TrickyLaw series for covering public procurement and allowing me to take part!

Timely reminder public procurement rules still apply in the UK

It seems Gemalto, a French company has won the contract to produce the UK passports post-Brexit. FT has the scoop:


"Gemalto, a security company based in Paris, is expected to win a tender process ahead of the UK’s De La Rue, one person briefed on the decision said. De La Rue currently holds the contract for producing UK passports, worth £490m over 10 years.

Both the Sun and Daily Telegraph newspapers reported the news on Wednesday evening. Bill Cash, a pro-Brexit MP, said the decision was “incongruous to say the least” and “symbolically completely wrong”.

“The irony is unreal,” said Eloise Todd, chief executive of Best for Britain, the anti-Brexit campaign group.

The Home Office said the procurement process was ongoing, adding: “We do not require passports to be manufactured in the UK. A proportion of blank passport books are currently manufactured overseas, and there are no security or operational reasons why this would not continue.” "

While the UK is inside the EU (transition included) EU public procurement rules and general principles remain applicable. And there's no irony in that.

Updated Draft Agreement on the UK's withdrawal from the EU [Public Procurement]

The Commission published on March 19th a revised Draft Agreement on the UK's withdrawal from the EU, conveniently colour coded green, yellow and white to denote different levels of agreement between the parties. Green means the text has been agreed but is still subject to technical legal revision, yellow that the policy objective has been agreed upon but drafting changes are still required and white that no agreement has been reached yet.

As regards public procurement (Arts 71 to 74 of the Draft Agreement), the situation is as follows:

Article 71 - Green

Article 72 - All green except paragraph 2.

Article 73 - Yellow

Article 74 - Green

It seems that in what regards to public procurement, progress is being made in reaching an agreement. No major changes are visible to any of the articles in comparison with the original draft from a few weeks ago. As I said in the meanwhile, I find it odd that EU procurement rules will apply only until the procurement procedure is finalised, but not to the contract performance, thus meaning Articles 70 to 73 of Directive 2014/24/EU won't be applicable. Unfortunately, the draft remains unchanged in this point and the parties have accepted it (Draft Agreement Article 72(1) and (4)).

As for Article 72(2) where no agreement has been reached, I am puzzled as for the reasons why. Since Article 72(1) establishes the application of secondary rules to ongoing public procurement procedures, paragraph 2 only re-iterates the applicability of the principle of non-discrimination to the same set of procedures. That is the logical contextual reading of Articles 72(1) and 71 (which includes the definition of relevant rules). Another reading, however, would allow the extension of the principle of non-discrimination to contracts not covered by Article 71, that is contracts not-covered by the Directives: ie, those today subject only to the (horrible) certain cross-border interest. As I said, my guess is that those have been excluded from the scope of application of the Withdrawal Agreement via Article 71, but perhaps the definition of this scope is where the parties are yet to reach an agreement.

The only area where only policy agreement has been achieved is Article 73 pertaining to the Remedies Directives (Directives 89/665/EEC and 92/13/EEC). This can be understood in the negotiation context of the UK not wanting to be subject to the jurisdiction of the Court of Justice. This is, however, speculation on my part. 

Social audits flawed as a way of driving sustainable change

Thought provoking piece on The Guardian from an Oxfam manager about social audits as means to drive change in supply chains:

"The ethical audit industry is estimated to be worth $80 million dollars a year. The World Bank recently calculated that parallel, or duplicate, audits in the Vietnamese garment industry had added $50 to the cost of each worker per year. In terms of "lean manufacturing", audits could be seen as a form of waste, adding cost but not real value."

Funny how social/ethical audits do not seem to work for NGOs but somehow they will be great in procurement as I have seen mentioned time and time again at conferences? 

As I argued in my paper about the growth of external compliance in procurement (of which sustainable procurement is a key example), it is important to follow the money and the interests behind such proposals. I am yet to see their proponents having an honest debate about the costs and downsides of their proposals.

Procurement is complex, more cumbersome than needed, but not inane.

CityMapper which ran a on-demand bus service in London for a while had this to say about public procurement:

"It’s hard for the public sector to buy good software

Government entities need to utilise complex and bureaucratic procurement systems. These are won by companies with project managers and sales persons who are willing to deal with inane procurement processes, rather than product or technology companies that have the capability to do the best job."

It is true that there is plenty of scope for improvement on public procurement practices (transaction and opportunity costs I'm looking at you) and that economic operators without a track record have the deck stacked against them. But a system less transparent or 'inane' would be even worse for a small company to deal with. Such small company would not even know an opportunity exists and if it did, why should the public buyer listen to you when it can simply do a deal with the IBM of that particular field?

In fact that what already happens for contracts below EU-thresholds. There are barely any procurement rules and contracting authorities mostly do as they please (if they prefer to jack up the transaction costs, that is their problem - not that they need to follow "complex and bureaucratic systems"). Also, EU procurement rules on utilities (like transport) are a lot more flexible than people give them credit for.

Less transparency in a procurement system increases the risk of corruption too.

How would that be a less 'inane' system?

PS: There are plenty of cities in the UK where transport systems are open to competition (Nottingham is a good example) and do not rely on public procurement at all, but I digress.

 

After Carillion, Government looks into partially changing its procurement practice

Cabinet Office minister David Lidington has told the Liaison Committee of the House of Commons the following:

“We in government have started to look at lessons in terms of how we go about contracting with companies, [and consider] whether we want to revisit the question of seeking best value for money by getting large contractors in to manage wide ranging, complex projects.

[...]

If a government department were to decide that they wanted to let smaller companies bid for a number of different contacts, that would mean more in-house resource and expertise in the procurement and management”.

I, for one, welcome the (partial) recognition that perhaps more in-house resource for procurement and contract management is not a bad idea overall. But I have not forgotten the multiple instances where Government officials had bragged how "efficient" (ie, cheap) procurement was done in the UK in comparison with other Member States.

Picking up pennies in front of the steamroller as they say.

The problem with Lidington's view is not that larger contracts are bad in themselves (or worse than a multitude of smaller contracts), is that *especially* those monoliths need more resource for procurement and management.

But bearing in mind the approach of delivering Brexit on a shoe string, that is really not going to happen.

The UK Technical Note on Other Separation Issues [Public Procurement]

The UK Government has just published a technical note detailing its approach in phase 2 to a number of different areas, including ongoing public procurement procedures.

The Government disputes the EU's assumption that Union law should be applicable to ongoing procedures and states instead that "in practical terms" the procedures should be carried out under the applicable *national* law. This is slightly disingineuous since it implies that only national rules are relevant for public procurement contracts. That is certainly not the case since contracts not covered by the EU public procurement Directives can nonetheless be subject to EU principles in certain situations (more here and here) as well as jurisprudence from the CJEU. Eventually there may be situations as well whereby direct effect of provisions from the EU Directives would be relevant as well. Neither are "national law" in the context presented by the Government in this technical note.

There are not many differences in the position expressed today by the UK Government and that of the Union a few days ago. But there are two points worth noting. 

In para 32 the Goverment (rightfully) asks for reassurances UK businesses will be able to bid for EU contracts (but strangely not those tendered in other Member States?) for procedures launched before the withdrawal. This is a reasonable request but one that requires reciprocity...

In the same paragraph, the Government also calls for these 'transitional arrangements' to be extended to existing contracts (at EU and Member State levels) instead of only ongoing procedures. When the Commission published its paper last week I noted that the 'transitional arrangements' would end with contract award notice being published and, by definition, did not cover the contract itself. While it is true most procurement rules are connected with the award stage, I made a point about Arts. 70 to 73 of Directive 2014/24/EU therefore not being applicable any longer. 

Personally, I agree with the UK Government view that contract performance for ongoing contracts at the date of exit should be subject to the current procurement rules. But that is a mix of EU and national rules...

Some thoughts on the procurement elements of the EU's Draft Withdrawal Agreement

The Commission has just published today a Draft Withdrawal Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community.

The Draft Withdrawal Agreement sets out the arrangements for the UK's withdrawal from the Union and Title VIII (Articles 71-74) refers to public procurement, namely ongoing procedures at the date of withdrawal.

Most of the content seems non-contentious with the rule of thumb being that public procurement procedures initiated before the date of withdrawal will still be subject to EU substantive and remedies rules as appropriate until they are finalised. This logic applies to traditional procedures (Article 72(1)(a)) and also to framework agreements (Article 72(1)(b)) concluded before the withdrawal. It does not seem to cover however dynamic purchasing systems though - at least not explicitly.

It is worth mentioning however what is meant by a procedure "being finalised". One would assume that for the purposes of Article 72(1)(a) it would be with the contract signature, but not necessarily:

"4. A procedure referred to in paragraph 1 shall be considered finalised:
(a) **upon publication of a contract award notice in accordance with the relevant rules** or, where those rules do not require the publication of a contract award notice, upon conclusion of the relevant contract; or

(b) upon informing tenderers or, according to the relevant rules, persons entitled to otherwise submit applications, of the reasons why the contract was not awarded if the contracting authority or contracting entity decided not to award a contract."

As contracts covered by the Directives do require the publication of contract award notices (even if compliance in practice is shoddy...) it is important to bear in mind the provision of Article 72(4)(a). 

There are no provisions in the Draft Withdrawal Agreement about contracts already awarded and under performance. As such, the conclusion is that performance of contracts post-withdrawal will be subject to the national laws only thus meaning Articles 70 to 73 of Directive 2014/24/EU on contract performance will no longer apply.

New working paper on European Union Citizenship available

I have uploaded to SSRN a new working paper entitled "Protection from Exclusion: A Reassessment of Union Citizenship in the Time of Brexit" co-authored with Volker Roeben, Keith Bush, Petra Minnerop and Jukka Snell.

Here's the abstract:

"The received wisdom on Union Citizenship is statist: it is thought to be intrinsically connected with the State of nationality being a Member State of the European Union, and so no one can be a Union citizen otherwise. The purpose of this article is to challenge this conception. It argues that Union Citizenship institutionalises the idea of individual membership in the EU and its legal order, into which individuals are included and from which they cannot be excluded en masse either by the European Union or the Member States. Citizens are protected against physical exclusion by way of extradition and expulsion and, even more so, against being stripped of Union Citizenship against their will. Union Citizenship, once conferred, cannot be removed without cause in the person of the citizen, even though the rights contained therein may change over time.

This is, however, precisely the spectre of Brexit. The effect of this first withdrawal of a Member State on the citizenships of UK and EU-27 nationals remains unclear, and the statist and individualist conceptions of Union Citizenship produce diametrically opposed consequences. The statist conception implies that Brexit extinguishes the Union Citizenship of UK nationals. But the individualist conception of Union Citizenship implies that the citizenships, and the rights contained therein, will survive the end of UK membership in the EU. This ‘Continuity’ Union Citizenship becomes the salient touchstone of this conceptual shift advocated here; EU (and UK) action to preserve it, either through the Withdrawal Agreement or legislation, is declaratory rather than constitutive. If this is correct, little changes as a consequence of Brexit.

The principal argument in support of the received statist conception is that the Treaties connect Union Citizenship with EU membership of the State of nationality. But the article argues that the individualistic idea of Union Citizenship has indeed been institutionalised by the Lisbon Treaty, with the analysis proceeding in four steps. First, Union Citizenship is not just a status but a fundamental right. Any interference with it is thus subject to the principle of proportionality and cannot affect its core. Second, deciding on the acquisition and loss of Union Citizenship is not a right but a competence of the Member States. This competence is not unlimited. Third, Union Citizenship is autonomous from the nationality of a Member State. Third-Country nationals may continue to hold the rights of Union Citizenship provided a sufficiently close link exists with the EU. Fourth and finally, the EU is obligated to ensure legal certainty for citizenships beyond the end of a State’s membership in the EU, and the Lisbon Treaty confers the requisite competence in line with the international law of treaties."

This paper is based on the report we co-authored last year for Jill Evans MEP entitled "The Feasibility of Associate EU Citizenship for UK Citizens post-Brexit."

The risks arising from single bidder tenders in the UK

Ian Makgill from SpendNetwork and OpenOpps ran a twitter thread a few days ago based on a presentation he did on procurement data analysis.

The whole thread is worth reading and Ian was kind enough to send around the slide deck. One of the slides immediately captured my attention:

File 26-02-2018, 09 38 49.jpeg


It seems that from 2015 onwards there has been an increase in the total number of single bid tenders in the UK as well as a decrease in the average number of days for tenders to be submitted. As far as I can tell, Ian is implying both are correlated since the Public Contracts Regulations 2015 allow for shorter timescales to submit tenders. On another slide he argues a total increase of single bid tenders of 476% since 2012 and that is visible on the slide above as well. There is a clear trend for 2016 and 2017 which is markedly different from the years prior to 2015.

It is unclear how the increase is distributed, ie if the increase is happening across the board or if it is concentrated around specific characteristics, such as sector, project complexity or choice of procedure. It may be that, for example, in large/complex contracts the reduction in timescales affects them more than smaller contracts or the opposite - it is in the smaller contracts that the very short turnaround times really impact competition.

Single bid tenders are problematic for competition since they imply an absence of real competition during the procedure. The Economist had already pointed out in late 2016 the decrease in competition for public contracts. Lack of competition is bad by itself on a traditional open or restricted procedure but potentially much more problematic on any procedure with negotiations or dialogue such as the competitive procedure with negotiation or the competitive dialogue. 

For example, between March 2015 and January 2018 the competitive procedure with negotiations was used 458* times in the UK. It may have displaced some use of competitive dialogue (502 contract notices in the same period) but I suspect most of the substitution happened with the restricted (6,467) and open procedures (22,428) since they remain the 'standard' procedures. I would love to see how likely it is for the competitive procedure with negotiation and competitive dialogue to end up with a single bidder. However, for now a change in procedural practice does not seem to hold the smoking gun.

There are a couple of additional potential explanations for Ian's finding in addition to his implied justification of reduced timescales. At this moment I don't think either of them fully explains what Ian found. The first is an increase in pre-market engagement which has long been touted as a "great" idea for public procurement. The second is a negative competition externality arising from the increase in transparency in contract award information.

Regarding pre-market engagement, it is now clearly allowed in Regulation 40 (Preliminary market consultations) for the contracting authority to engage with conversations with potential bidder(s) before launching an official tender. I have had reservations about the negative impact of said conversations on competition and guaranteeing a level playing field in the subsequent tender procedure. Combined with the shorter timescales for tender submission, any bidder with advance information about the contract will be in a better position than the competition to participate. 

As for the second, the argument in competition law circles goes that the more information you give to the market, the easier it is for cartels to collude. Overall this idea is not to be disputed but I find it unlikely we would observe in the data such a quick increase in collusion immediately after the new rules came into being. Especially as contract award data is still patchy and not really easy to parse.

How do we go about checking the reasons behind this sudden increase in single bid tenders? First, I think we need to narrow down on which sector/types of contracts this is really happening. Then we need to test those hypothesis and there are a few (non-robust) ways of going about to do so. Comparing with the previous status quo (ie, what was happening with contracts before the legal change) and comparing with other EU Member States where this data is reliably collected like Portugal or Slovakia. Portugal has just transposed the Directives so the reduction in timescales is effective only from January 1st onwards. And while the country publishes a monthly summary of procurement data, the monthly report does not include any information about the number of bidders whereas the larger yearly one does. 

* I used data directly from the TED which mostly covers contract above tje EU financial thresholds and as such is a lot less complete than Ian's.

Annual Conference on European Public Procurement Law 2018 (March 22nd and 23rd)

The ERA - Academy of European Law yearly procurement conference is scheduled this year for the 22nd and 23rd of March in Trier with the following topics:

  • Update on latest developments in EU policy
  • Recent jurisprudence at EU and national level
  • Public procurement and EU external trade relations
  • Procurement, competition and corruption

The programme is quite interesting and looks like a good conference to attend. If you use the code ERApublicprocurement2018 on checkout you will get a 25% off.

Call for papers for the 4th Interdisciplinary symposium on public procurement

The Sorbonne Business School and and the Faculty of Economics of the University of Rome Tor Vergata have announce the 4th Interdisciplinary Symposium on Public Procurement to be held on October 25th and 26th in Paris. The call for papers is now out.

The topics are:

1. Life cycle costing in public procurement
2. Calculating the costs and savings of public procurement

3. Corruption and probity in public procurement
4. Public procurement and international trade agreements: CETA, TTIP and beyond

The final paper together with the CV must be sent by no later than July 16th, 2018. 

 

 

My new paper about direct awards in Portugal is out

This happened last week but completely forgot to mention it here. My most recent paper about the use of direct awards (negotiated procedure without notice) in Portugal is out in the newest number of the e-Publica journal. Here's the abstract:

The Portuguese Revised Public Contracts Code misses an opportunity to change the paradigm of how public contracts valued at below EU thresholds are awarded. This paper argues that the changes for low value contracts, where the direct award was replaced for some contracts by the prior consultation procedure (request for quotes) amount to little more than window dressing. This is problematic since 90.2% of all public contracts in Portugal are awarded via direct award, meaning 47.9% all public procurement expenditure is not subject to transparency. As the lack of transparency in low value public contracts is associated with procurement risks such as corruption, strategic behaviour by contracting authorities and bidders or lack of accountability, it is apparent the recent public procurement reform did not really address the behaviours behind these risks.
Portugal could have instead improved transparency in low value contracts by adapting already existing provisions within its legal framework, or following the footsteps of the Public Contracts Regulations 2015 (England and Wales) and the Draft Public Sector Contracts Law (Spain) which introduced significant transparency reforms for low value contracts. Although, there is room for improvement on these, either solution would have provided a marked improvement in the regulation of low value public contracts in Portugal.

The full PDF is available on the usual place (SSRN) but also on the e-Publica website as well.

Crown Commercial Service is looking for senior public procurement policy advisors

So it seems, although the full description is "Senior Policy Adviser - Brexit - International Agreements."

Although I have the feeling this is one of those positions where you will either end up having a ton of interesting work or none at all depending on how the Brexit negotiations end up. Deadline is December 18th.