Why is subway accessibility so expensive in the USA?

From an overall interesting article, but with these two procurement tidbits:

Some transit experts speculate that what’s driving up the costs of building new elevators is that the MTA’s procurement process is largely uncompetitive. “They have really hyper-detailed specs for everything,” said Alon Levy, a transit writer and mathematician, of the MTA’s bidding process, noting that some requirements are meant to keep contractors from taking advantage of the agency. But that also results in fewer companies wanting or being able to deal with the MTA. “If there isn’t a lot of competition, the three companies that know how to deal with the MTA can charge a premium because they have a very specific skill – namely, knowing how to deal with the MTA,” Levy said.


and

Contracting with the MTA may result in a big payday, but for some companies it’s not worth it. “The MTA historically has been a tough partner to work with. And when you factor in the cost of bureaucratic delay, red tape, and project risk, some companies say, ‘No thanks,’” said Colin Wright, a senior associate at the transit advocacy group, TransitCenter.

Excessive complexity > limited competition > higher prices.

However, those are issues also prevalent in construction projects in Europe as well, so why would they be so important in that side of the pond?


Government publishes no deal readiness report...with a couple of mentions to public procurement

The Government has just published an extensive No-Deal Readiness report that happens to mention public procurement in two instances:

Procurement: Leaving the EU presents an opportunity to design a radically new regulatory framework for public procurement which better meets UK needs, drives improved commercial outcomes, delivers greater simplification and flexibility, reduces burdens on the public sector and business, and is more transparent.

and:

The Government has already secured agreements with countries covering 72% of the trade (by value) for which we are seeking continuity if we leave without a deal. We have also secured an agreement to join the World Trade Organization’s Agreement on Government Procurement as a party in our own right ensuring continuity of access for UK business to £1.3 trillion of global public procurement opportunities.

Can you spot the contradiction in terms? You cannot really design a radically new regulatory framework for public procurement and at the same time meet the GPA commitments. You pick either one, or the other, and pin your colours to that mast. Taking into consideration Andrea Leadsom’s recent comments on tilting the playing field of UK procurement in favour of British undertakings does not make it any easier as it torpedoes the GPA commitments head on.

Clifford Chance comments on Boris Johnson's 'Buy British' pledge

Clifford Chance has commented on the Prime Minister’s promise to change public procurement rules in the UK in favour of national businesses once the country is outside the EU in a fairly detailed piece by Andrew Dean.

The article correctly explores the various alternatives for the UK going forward, depending on what type of relationship is struck between the UK and the EU, ie with a deal based on the Withdrawal Agreement or no deal at all. But the important assumption is one similar to that myself and Albert Sanchez-Graells argued two years ago already: in the context of the GPA (which the UK has decided to enter into as a standalone member) the constraints this framework imposes may limit the scope of what ‘freedom’ the UK actually has to do as it pleases.

It is no surprise then that the UK’s coverage offer for the GPA is quite similar to the current EU one, but with a couple of key differences. Dean’s piece cites them in detail, but for me the two key ones are the lack of coverage for contracts below-thresholds and the exclusion of the old Part-B services, now those subject only to the limited rules of Directive 2014/24/EU. These were already restricted in their cross-border relevance anyway so they don’t seem to be a significant change. If they should have not been covered in the first place at EU level however, that’s a different story.

And herein lies the rub of Johnson’s ‘Buy British’ pledge - within the context of GPA participation the UK will not be able to tilt the rules in the favour of its own businesses. As Dean’s argues, the only way for the UK to do so is adopting a blank canvas approach, ie not having any sort of bilateral/multilateral agreement where procurement is covered.

Andrea Leadsom’s recent interview to MLex (gated) really drives home the message that the Government does not understand how the GPA or trade deals work. It also is oblivious to the reality of numbers as most procurement spend in the UK is already done with UK companies. The bit that isn’t is not easily substitutable by national alternatives, hence being won by foreign firms.

More grievously, the Government seems not to understand the consequences of this approach. Obviously, what will happen is that British firms which are successful bidding externally will be cut off from their markets. This will affect direct cross border and possibly as well the joint-venture approach preferred in some markets.

It is also possible that procurement access will become a sticking point in future trade deals, as it has happened in the past. For what benefit? A couple of positive headlines? A less competitive national market? The loss of internationally focused businesses?

Reviving Economic Thinking on the Right

Sam Bowman and Stian Westlake have just published a pamphlet about what the right should be doing in terms of economic thinking. I have not read it fully, but spent some quality time with the procurement section, which focus on procurement of innovation.

Bowman and Westlake do not seem overly keen in the whole idea, a view Westlake confirmed on twitter. Their assession of tight budgets and lack of connections with entrepreneurs rings true as does the assertion that adding further procurement goals are orthogonal to the act of procurement itself. In this, their view of additional procurement goals is virtually identical to mine (paper).

They are also correct in mentioning risk-aversion as a disincentive for more innovative or risky public procurement.

It is a shame then that in terms of proposals their suggestion is simply of picking a few political wishes and pipelining it into an innovation friendly environment with real procurement at the end. It is not that different from existing challenges but goes a step further (and rightly so) by elevating the whole thing at a political level. Again, that is in line with my own views and in the past I have suggested a mixed incubator + innovation partnership model to incentivise innovative procurement. A key difference of my proposal was the inclusion of some equity for the state in the startups going through the programme.

I think it is a shame that Smith and Westlake decided to simply focus on innovation in terms of public procurement. They understand the importance of competition for economic growth and their assessment of the limitations of procurement in general are correct. In addition, the argument they are making about the orthogonality of objectives between economic efficiency/other policy objectives is a defining issue for public procurement.

Public procurement represents a significant percentage of GDP in the UK and elswhere, so I feel there is a lot more that a view from the right should be doing to improve it for the benefit of the economy. In addition to the usual suspects (resources, professionalisation and incentive alignment) I would add lowering barriers to entry and transaction costs as well.

As the left seems smitten with additional procurement goals and (the right as well) industrial policy making a comeback, it is important to keep the discussion alive about the importance of procurement being used for its primary goal.

How are public contracts winners chosen in the EU?

The answer is, mostly by offering the lowest price according to a study conducted by DataLab using data from 2016 onwards:

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I don’t think the findings are surprising at all, but gave a good look at the data after seeing price + quality + qualification as the third most common category. Most countries have very low usage of that combination, except for the UK where 55% of contracts fell into that category. In other words, that category only shows up in third because of the UK.

The explanation for what was as qualification by the researchers is not entirely clear but includes “references, team, capacity, certifications, training.” I was worried this referred to general qualification of the tenderers (which would constitute an illegal award criterion) but it may well be a consequence of the UK’s preference until recently for the restricted procedure (or the “open procedure” run as a restricted procedure…).

The use of qualitative criteria is a lot more common in older Member States than newer ones, so DataLab provides three potential explanations for the lowest price preference, based on the geographical differences identified. The first is the use of EU funds which tend to have very stringent conditions attached and very tight oversight, thus favouring less risky approaches to procurement. The second are institutional differences between Member States and competing priorities, ie older Member States are more interested in improving procurement quality than simply fighting corruption. We could describe this finding as older Member States being further down in the procurement evolutionary path: you start by fighting corruption and then move onwards to achieving other goals as the country becomes more proficient in public procurement. The third one is expertise, or lack there of in procurement practitioners. Frankly, this is more of a red herring in my view since the problem of expertise is transversal to all procurement systems, particularly once you start looking at sub-central contracting authorities as well.

Finally, resources is another culprit to consider that DataLab did not point out. Expertise is one resource but not the only one, human factors, money and time are others that play part as well in the decisions of how to procure. Qualitative criteria raise complexity in procurement so you need resources to deal with those extra requirements.

Overall, I always boil down these decisions to incentives. It is easier to just compare prices, so unless the incentives are structured to move decision makers from that option, by default we will always have a significant percentage of lowest price tenders.

Food for thought.

Exploring state capture country profiles

In a great example of using available contract data and building upon other researchers’ work, Silvia Fierascu looked at the risk of state capture in public procurement over 10 years for all the 28 EU Member States:

In total, Silvia Fierascu used data from 2 million contracts from the Opentenders.eu database to calculate the risks of political and private/business capture in public procurement, using the red flag indicators developed by Fazekas and Kocsis.

UK Central Government decides to exclude tenderers who do not pay their supply chain on time

The UK Central Government has just published the Procurement Policy Note 04/19 on supplier's approach to payment in the procurement of major contracts. Effectively from September onwards, in procurement processes tendered by Central Government, all tenderers for large contracts subject to the Public Contracts Regulations 2015 and over £5M/annum will be subject to an additional exclusion ground based on their supply chain payment terms. This applies to procedures as well as appointments to framework agreements/DPS and call-offs inside these.

The compliance with this exclusion ground is to be assessed on a pass/fail basis regarding payments made to the supply chain of the tenderer in the two immediately preceding 6 month periods ('reporting periods'). If in at least one of them >95% of payments were done in 60 days or less, the tenderer passes. Between 75% and 95% it will be asked to explain its performance and demonstrates it has a plan of action to improve its performance. Below 75% it fails and is to be excluded from the procurement process.

Contracting authorities are under the obligation to check the compliance of tenderers before awarding the contract, similarly to the obligation imposed by Article 18(2) of Directive 2014/24/EU.

Legal issues

The Government is positing this as a 'selection criterion' instead of an exclusion condition for good measure. EU Member States have a degree of discretion in determining selection criteria but not in setting up additional exclusion grounds. And here in lies the main problem with this approach.

A criterion which is applicable to a multitude of contracts (all above £5M) irrespective of the subject nature of the same is in essence an exclusion ground and not a criterion for the selection of a bidder.

Although selection criteria can refer to general conditions of the organisation, they need to be connected with the contract being tendered, that is relevant for the performance of the forthcoming contract. They cannot be generic in nature, with the exception of legal obligations like, say health and safety or insurance. In this particular instance, ensuring payment of invoices in 60 days is not a general rule established by law so the Government is not asking for a measure of legal compliance but compliance with a policy objective instead.

In my view this is simply an illegal exclusion ground 'disguised' as a selection criterion. But this is not the end of its legal problems.

Proportionality is a key principle of EU law and it also applies to national measures which clash with it (as is the case). Therefore, this measure needs to be assessed in the context of it being adequate, necessary and proportional in a narrow sense.

Assuming the Government wants to ensure prompt payment of suppliers, then yes this measure is adequate to achieve its end.

As for necessity, is this the minimum intervention possible to obtain the objective desired and the answer there is "probably not". The Government could have adopted a "name and shame" approach instead or created a dispute resolution mechanism specifically for those situations where late payments exist (say, for works for example).

But the proportionality in the narrow sense is the most problematic vector in this measure. There is no indication the Government took in consideration other competing principles or objectives such as the freedom to contract in this decision.

Therefore, I do not see this approach as passing muster in the context of EU law, but all this may be a moot point come November.

As for the overall logic of this approach, it is another example of the compliance creep that has been taking over public procurement rules over the last 15 years or so. That is not to say that SME/supply chain payment terms are not an issue tackling but that goes beyond just the context of public procurement.

Capita wins Defence Fire and Rescue contract

The Minister of State, Ministry of Defence confirmed yesterday to Parliament that the Government will be awarding to Capita the Defence Fire and Rescue contract, putting end to a protracted process which involved a challenge by Serco, one of the other bidders. This is going to be a £525 million, 12 year long contract.

Serco ends up receiving a £10 million out-of-court settlement from the Government, showing that perhaps challenging a decision is worth a gamble even if it does not make it to the court. And, of course, as “lessons will be learned” the MOD accounting officer has appointed and independent review of this procurement process.

Boris Johnson takes aim at procurement once more.

In a leadership hustings in Nottingham, Mr Johnson said he wanted to change public procurement rules which could see UK companies favoured when bidding for billions of pounds worth of Government work.

The obvious figure Johnson is missing here is that 97% or so of procurement is spent with British companies, so the upside of the measure is pretty much non-existent. However, any move to tilt the playing field in favour of British companies will trigger some significant downsides. First, obviously access to the EU public procurement market would be foreclosed and this would predominantly affect those companies with an international outlook. In other words, it would affect directly the “global Britain” type of companies.

Second, the UK has recently signed an agreement to join the Agreement on Government Procurement (GPA) as soon as it leaves the EU. This includes a set of commitments from the UK and naturally the assumption the current rules (which already are GPA compliant) are not rolled back. If they are, then the UK would surely have to renegotiate its participation in the agreement. In any event, I remain of the opinion that while the UK wants to stay within the GPA framework the flexibility to simply change procurement rules to its heart content is very limited.

Speaking of onboarding providers and reducing opportunity and transaction costs

Warren Smith, Global Digital Marketplace Programme Director replied to my tweet this morning about the Commission’s Single Market Scorecard:

For the Digital Outcomes and Specialists framework the Government Digital Service is getting 98% of the tenders with more than one bidder. I’m not a fan of frameworks but this shows how they can be used to increase competition.

The secret? Well, continuous improvement of course. Talking with suppliers, and reducing opportunity and transaction costs associated with procurement. That includes working on what happens before the procedure is launched, the procedure itself and, surprise, surprise, the contracts too.

Commission publishes 2018 Single Market Scoreboard

The Commission published yesterday the 2018 Single Market Scoreboard. The overall results can be found here and the procurement section is here. As usual, the caveat on poor data from TED and the ‘qualitative policy judgment’ applies, but let’s see how things are in procurement:

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There is a lot of red in that table and if we look at the countries, it is obvious the ones faring the worst are Portugal, Spain, Italy, Slovenia, Greece, Bulgaria and Romania, or PIBGRSSs. This would warrant a post in of itself, but let’s focus on the first indicator instead in this post. The Commission is, correctly in my view, paying attention to the number of single bidder tenders in the EU and the signs are not particularly positive.

The single bidder indicator is considered green if less than 10% of the opportunities get one bidder and red if the number is above 20%. Looking at the colours in that graph it is clear that the situation is dire. That is not a surprise for me and fits well with the paper I am currently drafting at the moment. It is a proverbial canary in the coal mine indicating the low health of our procurement systems. If this carries on we will have ever less competitive procurement markets.

In my view the time is coming for us to have a conversation about the health of procurement and what can be done to change the situation. My general opinion is that the current approach has failed and we need to facilitate the process from onboarding to contract to payment. The traditional fixation on the procedure itself is not really working.

Construction firms call for framework cull

Construction firms are apparently unhappy with the multitude of framework agreements proliferating in the country. In their view it adds costs to the contractors businesses and suggest a ‘clearing house’ to avoid ‘unfair and overlapping’ frameworks.

It is interesting to consider the implications of this suggestion. It is true that more frameworks increase the costs an the difficulty for firms to be present in all of them, that is pretty much obvious, but let’s look at the flip side. If the number of frameworks was drastically reduced and if the remaining lasted for the usual 3/4 years without any sort of overlaps what would that do to the market?

Well, whomever got into any given framework would have 3/4 years to milk the clients and the market would be foreclosed for that period. Plus, it would make life incredibly easy for any companies wanting to set up (or maintain) a cartel. And in four years there would be no competitors left to challenge for the next framework anyway.

Perfect for the purposes stated in the final paragraph: “Now is the time to revisit this work to secure better outcomes for customers and a more sustainable industry.”

At least they’re honest.


Boris Johnson on procurement

This is the transcript of Johnson’s interview with Sky’s Sophie Ridge:

SR: It was a very simple question. Are you prepared to see borrowing go up?

BJ: If it's borrowing to finance great infrastructure projects and there is an opportunity to borrow at low rates and do things for the long term benefit of the country then we should do them. But there are some projects- don't forget in this country we are spending about £250 billion on public procurement per year of one kind or another. Don't tell me there aren't significant savings to be found in the way that we spend that money.

In a time where the main outsourcers are dropping like flies and competition is flagging where exactly Wille these ‘savings’ come from?

Now speaking about his own track record managing money, I think savings could be found on some of Johnson’s more emblematic projects. Like the Routemaster.

Plus, Garden Bridge. I will just leave it there.

New EU trade deals will cover public procurement

Like buses, we wait ages for new trade deals and then they all show up at once. Just a few days apart, the EU has concluded trade deals with Mercosur and Vietnam. The first was 20 years in the making and second probably some time less.

As for what matters to me, both deals include provisions on opening public procurement markets although the exact details are not known at the moment

Commission opens ESPD satisfaction survey

The Commission has opened a survey on the satisfaction of users with the ESPD. The findings are to be included as part of a report that will be submitted to the European Commission Regulatory Fitness and Performance (REFIT) programme.

The survey link is here and I wonder if the results will be published in full. As for my views about the ESPD, they are collated here.

Why aren't electric buses more popular?

Turns out part of the answer is connected with procurement, namely the fixation on the sticker price vs a lifecycle costing analysis:

When cities decide to implement electric buses, Gorguinpour says the cities too focus too much on those upfront costs and not enough on the “life cycle cost.” That could mean delaying the the adoption process altogether or funding small pilot tests—sometimes  with just a handful of buses—without a larger plan to scale up. “We encourage cities to do whatever they can afford,” he says. “But if you’re going to get five electric buses in your city, you should work with a group of stakeholders to come up with a strategy, to say, ‘How am I going to learn enough from these five buses to construct a plan to get me to 500 or to thousands of buses?’”

More here.

On the purposes of public procurement rules in the EU

I found this paragraph on a recent decision by the CJEU (Case C-264/18):

24      According to the Court’s settled case-law, the purpose of coordinating, at European Union level, the procedures for the award of public contracts is to eliminate barriers to the freedom to provide services and goods and therefore protect the interests of traders established in a Member State who wish to offer goods or services to contracting authorities established in another Member State (see, to that effect, the judgment of 13 November 2007, Commission v Ireland, C‑507/03, EU:C:2007:676, paragraph 27 and the case-law cited).

I would dispute the merits of the procedural focus, but other than that this statement is spot on. Procedures are coordinated to reduce trade barriers, effectively meaning the use of Art. 114 as grounds for the Directive is perfectly correct.