PhD opportunity at Manchester Institute for Innovation Research

My good friend Dr. Elvira Uyarra sent me this opportunity for prospective Ph.D students interested in working in public procurement at the Manchester Institute for Innovation Research:

This project seeks to exploit unstructured data from patents, publications and new open sources of “big data” to investigate the influences of public procurement on innovation. It will address the following major questions:

  • To what extent, and how, are government actors strategically using public procurement to pursue industrial policy goals?

  • How does public demand shape the innovative performance of firms?

  • How does public procurement influence industrial structure, industrial renewal and diversification?

Applications are sought from UK, EU and international candidates with an outstanding academic background, particularly in economics, data science, innovation studies or a related discipline. Demonstrable quantitative skills will be essential and an interdisciplinary background will be an advantage. The candidate should be willing to attend specialist innovation policy courses as well as advanced training in data science, and be familiar with key programming languages (e.g. STATA and R), social network analysis techniques, and/or have some experience with text mining or other work with unstructured data.

More information on entry requirements and application process can be found here: Public procurement and innovation: measuring policy and impact

Application deadline: 29th March 2019

I don't have any extra information other than what is above so if you’re interested or have any query please follow the link above.

Spain publishes guidance for low value contracts

Spain’s current public procurement law imposes strong transparency requirements for most contracts below the financial thresholds, restricting the use of non-transparent procedures to contracts value at below €15,000 (services) or €40,000 (works) only. My take is that overall this is a positive step and one that I regret Portugal not following.

That does not mean the move is painless or without difficulties. To clarify the requirements and operational implications of the move, Spain’s Procurement Regulator Body (something Portugal should have copied too…) published its first ever binding guidance specifically on Art 118 of the Spanish Public Contracts Law.

The guidance makes a very restrictive interpretation of the grounds enabling the use of the non-transparent procedure, from the requirements (deemed as cumulative) to the potential loopholes of contract splitting or recurrent yearly contracts with the exact same object. Julio Gonzales has a few extra comments (in Spanish) on the Global Politics and Law blog.

UK (re)joins the GPA

The GPA members and the UK have reached an agreement allowing for the country to acceed to the Agreement if and when it leaves the European Union. This agreement ensures a continuity of the international procurement legal regime for UK-based undertakings and those based on the GPA members.

Back in 2017 myself and Albert Sanchez-Graells concluded that the UK was not a party to the current GPA in its own right and would have instead to apply for accession. Our colleague Ping Wang from Nottingham reached a similar conclusion.

In the paper we posited that the accession could follow a streamlined process but we assumed that even then it would take a significant amount of time. In this instance we were proved wrong, with the accession ocurring quicker than we anticipated.

Regarding possible change to the UK's legal regime(s) post-Brexit, we remain convinced that the accession to the GPA limits the scope of the changes that can be introduced.

Department For Transport sued for *that* ferry contract

Eurotunnel is suing the Department for Transport due to the ferry contract(s) awarded back in December without proper tendering procedures. This turn of affairs is not really surprising and a logical consequence of the poor handling of those contracts.

The merits of the actual complaint, they appear obvious. In my opinion, the use of the negotiated procedure without prior publication based on the grounds for extreme urgency was not legal since said urgency arose from a lack of timely action by the Government. In other words, incompetence by the contracting authority is never a ground to use a non-transparent procedure. It has been public since March 2017 that the departure date from the Union is scheduled for 29 March 2019, therefore the lack of preparation for the consequences of the default scenario for such departure (no-deal Brexit) runs from that moment as well and is not unforeseen (or unforeseeable). This is pretty much well established at EU level and probably one of the reasons why the rules about contract notice transparency are as draconian as they are.

As Albert and myself said back in 2016 about Regulation 32(2), the negotiated procedure without prior notice is exceptional in nature and as such its grounds need to be interpreted strictly as not to create competitive distortions. And the latter seems to be exactly what happened in this instance.

PS: As for piling on Chris Grayling for spending £800k on consultants to prepare the contracts that is probably uncalled for based on the total amount being procured and that time was of the essence (which is different than saying the grounds for the negotiated procedure were met). And let’s not forget one of them actually flagged up Seaborne Freight lack of trading history as a risk factor. That no one heeded such advice, on the other hand, is more than fair game.

UK Competition and Markets Authority finds cartel in construction

This may not come as a surprise to anyone working in this area of practice, but the CMA has provisionally found guilty two companies operating in the construction sector, specifically in the pre-cast concrete drainage sector. These two companies have admitted being part of a cartel whereas a third one is also under investigation but has not admitted any wrongdoing.

Stanton Bonna and CPM together had 90% plus of the market from 2010 and have agreed to pay fines as part of their settlement for their price coordination practice.

It remains to be seen if the companies will be debarred from future public contracts based on Reg. 59 PCR 2015/Art. 59(4) of Directive 2014/24/EU but I suspect the grounds are too narrow to allow for such interpretation.

UK publishes anti-corruption strategy update

The UK adopted in late 2017 a anti-corruption strategy for the 2017-2022 period. One year on from the publication of the original strategy, an update has just been released.

Reducing corruption in public procurement and grants was and remains a key objective of the strategy, but whereas the original strategy included some loftier ambitions, the update provides some information on how the strategy is being pursued.

Some of the information is interesting to say the least, such as attributing an increase in 31% of the number of notices being published on ContractsFinder to a specific single Procurement Policy Note and that the open contracting standard work appears to be ongoing but without any firm commitments on the deployment of the open contracting data standard for example.

The CMA cartel screening tool also gets mentioned (and I think correctly - brownie points for it to be available on GitHub) as does the National Fraud Initiative and its work with local authorities to identify risk factors.

Going forward, the bit I am personally more interested in is buried under goal 3 - greater confidence in efficient and legitimate contract management an area that is sorely lacking attention. Not necessarily only regulatory attention, but also that of the practical type. The update mentions a Contract Debarment trial that was successfully completed in June 2018 and that a preferred approach will be forthcoming in 2019. Contract debarment is an area fraught with practical difficulties and one I think needs to be tackled centrally and not at authority level.

Finally, the update also promises specific guidance on how to apply exclusions in public procurement in December 2018, so that means within the next couple of weeks. This is once more welcomed but in all honestly should have been produced in 2015 or 2016 soon after the Public Contracts Regulations 2015 came into force

New report on the scale and nature of contracting in the UK

The Institute for Government published today a report on the UK government procurement practice, specifically on the scale and nature of public expenditure via public procurement. Here’s the abstract:

Government procurement: the scale and nature of contracting in the UK reveals that four departments – the Ministry of Justice (MoJ), the Department for Transport (DfT), the Department for International Trade (DIT) and the Department for Environment, Food and Rural Affairs (Defra) spent more than half of their entire budgets with external suppliers last year.

Across government, the money is spent on a wide range of things from goods such as stationery and medicine to the construction of schools and roads, and from back office functions such as IT and human resources to frontline services such as probation and social care.

The report finds that the largest suppliers are winning more and more government business. Last year, roughly a fifth of all central government procurement spending was spent with ‘strategic suppliers’ – companies that receive over £100m in revenue a year from government – up from around an eighth in 2013. This is risky for government, given that its top three suppliers have all experienced financial difficulties in recent years.

Despite the scale of spending on procurement and outsourcing – and increasing financial problems in parts of the sector – the data available on procurement and outsourcing is poor. Every day, public bodies procure hundreds of millions of pounds’ worth of goods, works and services. With a clearer picture of how much is spent, on what and with which suppliers, government could make better-informed spending decisions and make significant savings

Today is 'electronic procurement day' in the EU

Although the general deadline for transposition of the 2014 public procurement Directives was April 2016, Article 90 of Directive 2014/24/EU provided the Member States more time to get their act together in what concerns electronic procurement.

Well, the deadline for transposition of the remaining electronic procurement obligations contained in the Directive is today.

Now the million dollar question in the Member States that are yet to transpose (or implement) such provisions is: which have direct effect?

Asymmetric retaliation in the UK GPA accession

Last week, Bloomberg ran an article claiming the USA and two other countries were blocking the UKs accession to the GPA agreement. Yesterday, it doubled down on the story stating New Zealand and Moldova as the two other members blocking the UK. and provided more information about why Moldova is making life difficult for the UK. The Moldovan reasons are simply delicious and a prime example of asymmetric retaliation. In hindsight, they capture beautifully the zeitgeist of Brexit. All in all, what myself and Albert predicted about a year ago in our paper is panning out: UK going for a straightforward accession as possible but with the flank exposed to demands from current members.

So far it seems that the current members are willing to run down the clock to November 27th when the WTO government procurement meeting occurs. To be fair, there is no reason or incentive to do otherwise for a number of reasons. First, because the UK is not leaving the European Union until March 29th, 2019, so there may be time for an agreement until then. If ratifications are required, then agreeing now or in March does not make a significant difference.

Second, the longer the uncertainty lasts the weaker the UK bargaining position and the more willing it will be to make concessions. And herein lies the rub: those demands for concessions can come from anywhere in the spectrum of interests of the other members, effectively meaning they may be completely unconnected with procurement. Procurement is simply being used as leverage to obtain concessions elsewhere (again, read between the lines of the Moldovan reasons…).

Finally, contrary to popular perception, the UK procurement market is not that open to foreign bidders. Only large contracts are subject to the GPA rules and those tend to be of interest to large companies. And which countries have large companies operating in foreign public procurement markets? Above all, two: USA and the UK. So, the USA is effectively reducing competition for procurement contracts inside its market and also - probably more crucially - taking key players out of competition abroad. So for the USA it makes sense to make life as difficult as possible to the UK unless really good sweeteners are thrown in (NHS privatisation anyone?). So for the price of losing access to the UK market the USA is blocking competition in all other markets (exception may be EU of course) as the UK also has no Free Trade Agreements in place. As for Moldova, it sits on the other side of the spectrum. It knows its companies stand no chance in hell of winning contracts in the UK so why open its home procurement market for free? Better to try and win a concession elsewhere like, say, visas.

Overall, I suspect the overarching interest of all parties will lead to a deal sooner or later, but so far we’re still in the multidimensional chess part of the game.


PS: The irony of New Zealand being the third blocker is not lost on me. Eat your hat, brexiteers.

Regulations and Directives - food for thought

EU Law 2018 - Unit IIA Extract.png

This is a slide I will be using on Monday’s EU law lecture. I have not drilled down into the details, namely if there is any evolution or if there has been an increase on Commission’s delegated Regulations but I was suprised at the findings.

The EU legal secondary law framework is mostly one of Regulations and not Directives, with all the implications that brings.

Some thoughts on the Brexit "no deal" guidance for public procurement

The UK Government published recently a guidance note on the potential impact for public contracts access in case there is no deal with the EU before March 29 2019. There is not really much actionable information and perhaps calling it “guidance” is a slight misnomer as the document is more of a “heads up, this may happen” type of document.

Post March 29 2019, the Government implies that UK contracting authorities will be using a new UK-based e-notification service instead of OJEU/TED. However, there is no information whatsoever about this new service, who will set it up, by what date and how it will operate. In short, it adds no legal certainty to the implications of the UK departure. It might have been preferable to simply refer to the need to use Contracts Finder and similar regional portals for the time being instead of re-inventing the wheel once more.

Looking into the part about procedures ongoing at that date also yields reasons for concern. Here’s what the guidance contains:

“There will be more engagement on about how to deal with ongoing procurement procedures in the handover period between the two systems nearer the time. This will be described via appropriate communication channels and in guidance, which will be made available on GOV.UK.”

Again, not exactly reassuring. What will happen to those situations whereby the contracting authorities (and suppliers) are reliant on the European Single Procurement Document or e-Certis and associated databases to get data about economic operators taking part in ongoing procedures? And would the EU economic operators (and GPA ones) lose their status halfway through the procedure?

Finally, a word about the GPA. The guidance confirms that the UK is seeking individual accession to the agreement (as forecast by myself and Albert Sanchez-Graells). As the accession request was submitted in June 2018, the process will take time and it is simply impossible that the accession would be wrapped up by the end of March 2019. In consequence, UK economic operators would not only lose access to the EU procurement market but also to those of GPA members. As for economic operators from GPA countries, it would be up to the UK to decide how to treat them, but even if they were admitted to tendering doubts will remain about their eligibility for remedies.



New project on Curbing Corruption in Government Contracting

Liz David-Barret and Mihaly Fazekas have a new research project called Curbing Corruption in Government Contracting, funded by the Department for International Development Anti-Corruption Evidence Programme. The project aims to look at how corruption can manipulate procurement and strategies to identify variables, patterns and trends that may indicate a corruption risk.

As the project evolves, it will be possible to find on the website working papers, policy briefs, datasets and a stream of blog posts on their work. You can find them as well on Twitter.

Public procurement and contracts: new briefing paper by the House of Commons Library

The House of Commons Library has just published an interesting new briefing paper on public procurement and contracts. It is an introductory text, but one that sets up the scene well to explain how public procurement works in the UK.

The briefing paper can be found here.

It's 2018 and contracting authorities are still struggling with justifying their decisions

Arecent decision by the Technology and Construction Court (Lancashire Care NHS Foundation Trust v Lancashire County Council [2018] EWHC 1589) is a tour de force on how contracting authorities are often still unable to deal properly with the need to have good decision making models *and* keeping track of their decision making processes. Discretion does not mean arbitrariness...

Even bearing in mind that the contract at hand was for care services and as such subject to the "light touch" regime of Articles 74-76 of the Public Contracts Regulations 2015, that does not mean contracting authorities can simply run the procedure as they see fit. The award decision must follow the award criteria disclosed (it did in this case) and any element of the decision that is material needs to be logged and justified.

It is also worth noting the importance that should be given to moderation when multiple individuals are involved in the assessment process and on this point paras 30-40 of the judgment. are scathing "[a]s this summary shows, there was no consistency either in identifying what were said to be key points or in highlighting points to show that they had been influential.  The approach differed even within the record of the same question(...)."

Well.

Free lunches and public procurement

Here's an article (in Spanish) that caught my eye this morning. A couple of interesting tidbits:

"The Spanish cleaning companies Association and the Unions trust that the new Public Contracts Law covers labour costs and to guarantee the social rights of workers in all tenders from the various contracting authorities."

 Here's what is meant by it, in the words of the Association president:

"...to include in the award criteria various elements related to the service quality, such as the working conditions offered by the companies..."

I find this article interesting for a couple of reasons. First, it is very uncommon to see both business and unions agreeing on labour costs. Second, it is possible to explain it by looking at the incentives and how they are both aligned in this instance. Let's start with the companies.

Cleaning services are incredible price sensitive and (as it is claimed) 90% of the cost incurred with each contract is simply labour costs. Companies hate competition and honestly price is the most liquid of comparators wether we like it or not. Since those contracts tend to be awarded based on price, if the costs is essentially fixed (the minimum wage) then they are effectively competing in the narrow sliver of their margin (those 10%) and that is where it  hurts. No wonder they want to either take price out of the equation or dilute with "service quality" criteria. More about this in a second.

As for the unions, they simply want a better deal for their members and there is nothing wrong with that, so they also want prices to rise assuming they translate into higher wages (they won't) or at least better working conditions for cleaning staff.

So, both parties interests are aligned in reducing price importance in the equation. In other words, both want the contracts to get more expensive. One side wants better margins, the other either more pay or better working conditions.

About the "service quality" then. The second citation above is a direct citation. The example of service quality provided by the President of the cleaning companies association has nothing to do with service quality (well, at least not directly) but with working conditions instead. To conflate the two is disingenuous to say the least. Working conditions are a problem for companies like cleaning services companies due to attrition and costs of training/recruiting new staff.

It is not surprising for me that he did not pick up other award criteria for quality. No mention of efficiency (although price is a proxy for it), availability/turn around of staff in case of spike in cleaning needs, technology to manage the contract/communications, etc. It may well be, however, that he did mention them but the reporter chose that tidbit instead.

In any case this is a roundabout way of solving the fundamental problem: wages are probably too low. It will lead to worse outcomes than solving the fundamental problem. And even then, let's be honest and assume that solving that problem implies higher taxes. There are no free lunches in public procurement.

Some comments on 'Fair and Transparent Blockchain based Tendering Framework' paper

I came across this paper on Hacker News yesterday and decided to have a look at it since it merges two of my interests: distributed ledgers and procurement. The paper by Hardwick, Akram and Markantonakis proposes a theoretical framework for a tendering system based on smart contracts, running on the Ethereum blockchain.

I cannot comment on some of the substance, particularly the security arguments presented, but keeping to the theoretical framework for now I have two comments on (i)mutability and the idea behind smart contracts to provide.

(I)mutability of a tender is not a feature, but a bug.

The authors approach the problem of public contract tendering from a vector broadly in the citizen participation/open governance/system integrity/trust scope. Nothing wrong with that, and it is refreshing to see new takes on existing ideas without the constraints imposed by the current mental models.

On p.4 the authors put forward as a security feature of their proposal:

"R1) The tendering Organisation cannot change the tender once it is placed on the blockchain. If due to some unforeseeable reasons they have to change it, then they have to create a new tender (smart contract) on the blockchain." 

Keeping legal considerations out of the way, I can understand the theoretical underpinnings of this proposal for immutability. However, it is very problematic on a practical basis: time and opportunity cost for everyone involved. Going back to square one every single time a minor error with the tender is detected or due to further information having been requested by the bidders is simply inefficient and disproportionate. If the objective is to ensure the security of the process and enable auditing ex post facto, this could be achieved by allowing changes to be made to the smart contract by the contracting organisation as long as all those changed states are tracked/timestamped as well. This would allow in my view to achieve the same objective but with lower transaction costs for the parties.

Smart contracts, not contracts

Next semester I will be teaching law and blockchain (also smart contracts) and this paper is a timely reminder how prose language can be tricky to interpret. What is described here as a smart contract (ie, the set of operations between launching a tender and awarding the contract) is perceived in legal terms not as a contract at all, but pre-contractual actions which may or not impose obligations on the parties (it varies from jurisdiction to jurisdiction) but not those of a contractual nature. The contract is the end result and usually it only involves two parties (the contracting body and the private party), not all participants in the procedure.

In essence as far as I can define smart contracts they are a set of scripts that run automatically in the same way they already exist in other areas that can lead to the formation of a contract (stock buying/selling orders at a pre-defined value come to mind). They are not (necessarily) by themselves a contract. Having said that, depending on the jurisdiction it is possible that smart contracts really are contracts assuming a) all the elements for contract formation are present (again, jurisdiction specific), or b) definition of what constitutes a contract changes in the future.

Where could this be used?

Coming back to the idea behind the paper - running public tenders on Ethereum blockchain - and where it could be used. My view about the use cases for blockchain in general is that it will be useful and used in scenarios where no other current technological alternative has been deployed or where trust issues are so profound that a centralised database would be more efficient but cannot be used due to lack of trust in the operators.

In both cases I cannot see countries which have already adopted centralised electronic procurement systems to jettison those in favour of a blockchain based system any time soon. Let's not forget the public sector tends to be a laggard in terms of technology and that even today electronic procurement is not mandatory in many countries (EU, I'm looking at you...) even though buying over the internet has been commonplace for more than 15 years. Small elements of what is proposed in the paper are being trialled in Aragon (Spain) but only as a mechanism to timestamp the delivery of bids and I have in the past called for a similar system to be created to gather contract feedback data.

I suspect the potential bulk of use cases will thus be in the developing world, especially those that do not currently have electronic procurement systems and where trust is a paramount issue. It is no surprise that mobile banking (on feature phones) took off in countries without strong bank branches penetration or even internet. And if banking can be done on low bandwidth phones, there is no reason why tendering could not follow a similar development path. Plus, on the long run piggy backing on a major blockchain like Ethereum may lead to a cheaper alternative than the set up and management of a centralised system.

Another potential scenario for use is for regime transitions, ie countries that have changed regimes and where the new one wants more transparency, quickly and where trust is - once more - an issue. Ukraine takes great pride (and rightly so) on developing and using ProZorro after the Maidan Revolution but the next Ukraine may find it easier and cheaper to achieve a similar result but without the need to deploy a centralised system.

Government risk assessment of Carillion published

The Public Accounts Select Committee has published a report into the risk assessments of Carillion in the run up to its failure. Here's a snippet:

"The Carillion assessments show that:

  • Although Carillion had been rated Amber owing to performance against contracts with the Ministry of Defence and Ministry of Justice, it was not until after Carillion issued a profit warning in July 2017 that Government downgraded Carillion to Red. It appears the Government was not aware of Carillion’s financial distress until this point.
  • In November 2017, officials recommended a provisional Black rating for Carillion. However, following representations from the company, the Cabinet Office did not confirm the designation. Carillion collapsed less than two months later."

On a very strange (but welcome) transparency note, even the assessments themselves were made public.

What it appears to me is that by November 2017, plans should have been privately put in motion to forestall a potential (though not certain yet) entrance into administration, ie how to handle ongoing contracts, securing access to sites, etc. That for me is much more important than knowing exactly when the rating moved from amber to red and then finally to black.

On a final note: who and when had access to these risk assessment reports, ie only the Cabinet Office or the wider public sector which could have been tendering contracts with Carillion as a bidder.