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.

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:


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.

On procurement conferences and unconferences

Yesterday I had the pleasure of taking part on my second ever procurement unconference. For those not aware of how unconferences work, these are events where the agenda is not defined in advance but only on the day by the participants who pitch sessions they would like to chair and work on. It is chaotic, but fun and thought provoking.

The opportunity cost of taking part in the Procurement Unconference meant of course I could not be elsewhere at the same time. In this case at another procurement conference happening about an hour and half away from London. The fact two very different events on procurement ocurred in the same day got me reflecting about my choice of one over the other. And frankly, there was never any dispute about which I would pick.

In the last few years I dialled back my participation in conferences - not for altruistic reasons like Albert - but mostly for personal, selfish reasons such as health (alluded multiple times here) or a preference to dedicate my time to other matters (like taking a certain three year old to the playground).

I'm now down to mostly two conferences a year. This year it was Opatija in Croatia in May and (hopefully) Rome next month where, for the first time I can remember I will be attending a conference without any engagement whatsoever in the programme. For once, I expect to enjoy a conference as a simple participant.

Circling back to the binary choice between those two events, as mentioned earlier, there was no real choice. I never applied to the conference nor had any interest on taking part on it, to the point I sent a message to a friend simply stating: "FOMO of Conference X? 0" . Why?

My reservation towards larger events (procurement or otherwise) has grown stronger over the years. I still feel there is a need for *some* events but certainly not the number and the scope we have consistenly seen over the last decade or so. I am fairly at ease speaking about this precisely because of my involvement in setting up and running Procurement Week between 2012 and 2015. They are an analog dissemination method in an increasingly digital world.

Larger conferences still have their place though. They are usually the only time in the year when we can see in person friends and colleagues. They may be the only opportunity to chase down that author/speaker you want to talk to for whatever reason. Plus, networking. In essence, that's it in my view. Social, not content as the main reason for a large conference.

As for the content, I find it a sub-optimal avenue to expose good content. If it is already published, people moan it is not original. If it is original, then a conference is not the place to share it (certainly if you are in the UK and want to survive the REF...). Honestly, aren't we beyond working in private in our ivory tower to then go to the unwashed masses and present our work for their adulation? I know that some strive in this environment, but usually not in my age group and certainly not in the younger crowd.

If I want to get my message out there, I will hit a lot more people with a blogpost or a podcast than I can ever achieve with a 15 minute talk at a 200 pax conference with 2 or 3 parallel tracks. It really is sub-optimal communication vehicle.

But I have a have long moved from reservations to a more stringent personal position regarding a specific type of conference which seems out of place in this day and age and that is "pay to play" conferences, those where speakers are expected to not only pay their way but also pay for the privilege of speaking. We're no longer in the 1990s where access to speaking outlets were few and far between. I reserve a special circle in my conference hell for those conferences "where all speakers pay"* but then you find out some are never asked to pay.

On this I have simply become unable to compromise and wish to make this commitment publicly.

I do have a preference for non-commercial events, but recognise that there is still scope for commercial conferences to be run and that we would be worse off if all of them disappeared. But if they are running on commercial terms, then they need to run on *full* commercial terms. And that means *paying* speakers instead of seeing them as another source of revenue. No speakers, no conference.

Back to the unconference then. What do I think it is special about these type of events? For one they are smaller and self-selecting. Only the people that want to participate are there and reallistically there is not room for passengers just to simply sit and take in information without contributing. Now, if the event only attracts participants not interested in participating, the end result is predictable though.

Then, the agenda reflects the interests of the people taking part on the event and enough scope for you to literally vote with your feet and join another session. It makes for a more engaging day where your brain is teased and prodded and you have to think about issues or problems you would not have had otherwise.

And that, for me, is much more enjoyable and rewarding to be talking and learning than taking part in a succession of 15 minute monologues.

Plus, at least yesterday, the lunch was so much better than at any pay to play conference I ever attended. It just goes to show that with the righ attitude it is possible to run a great event where people are well treated and all that without shaking their pockets.

*Yes, more than one procurement conference is run on this basis.

What is wrong with procurement?

Nailing it in the head:

Vague descriptions = More complexity = less competition = worse outcomes.

For those complexity paddlers who think their special interest can be delivered by procurement in a cost free way.

National Audit Office publishes report on Brexit consultancy expenditure

Well, it looks like today is transparency day in the blog as the NAO has just published a report on the spend by Central Government with consultants for Brexit related matters. Predictably it makes for grim reading and here’s a bit of the press release (the final paragraph):

The NAO found that departments have not met the standards of transparency expected by government when publishing details of contracts for EU Exit consultancy. In December 2017, the Crown Commercial Service issued guidance to encourage greater transparency in government procurement. It recommended that departments publish basic information about the award of contracts within 90 calendar days. However, the NAO found that it has taken on average 119 days for basic details of EU Exit consultancy contracts to be published, compared to 82 days for all consultancy contracts. The NAO also found that in its review of contracts for EU Exit consultancy that some had not been published as recommended, and all that had been published were significantly redacted.

That’s one well buried lede.

On the importance of open data in public procurement

Long time readers of the blog know where I sit in the divide of more or less data being made available about procurement processes (more, of course). Having said that, I’m not impervious to the competition law arguments regarding the impact more data has on cartel formation/stability. But overall, my gut feeling is that we would come ahead especially in systems where competition authorities are effective and can use that mountain of data effectively, something that should not be taken for granted.

But let’s look at what can be done with that mountain of data then, and a good example for it can be found in Chile, where the NGO Observatorio Fiscal has been collaborating with ChileCompra in developing a risk model for public procurement:

“Red flags” are indicators of elevated procurement risk at any stage of the procurement cycle  – though they alone do not establish impropriety. Widely-used red flags include unusually short tendering periods, relatively few bid submissions, unreasonable bid bond requirements, and wide gaps between estimated and awarded contract amounts. 

This approach goes in line with my view that making more contract data raises the probability of foul play being identified, even if well after the fact, even if it may not be possible to nail the practice in the bud (or it might as the process gets refined). In essence, it can work the same way as anti-doping samples which can be checked against new techniques/newly discovered agents well after the fact.

By increasing the likelihood of discovery of malpractice, such practices will become more difficult to pull off. They won’t go away and will force rogue agents to come up with news strategies. That should be expected and has always been part of the cat and mouse game of law enforcement in some sectors (money laundering anyone?). Arguing we should not make the data available as it will lead to ‘better malpractice’ is akin to saying we shouldn’t have mechanisms to spot counterfeit money for example, lest the fake banknotes become ‘better’.

The alternative of collating the data and not making it public is not great in my view either. Someone, somewhere will have access to it and with the reasonable likelihood of public sector staff moving to the sectors they’re regulating/overseeing, there’s the risk either the data itself or the enforcement strategies used to leak sooner or later. Making both public does not make the problem go away fully of course, but provides us with a couple of potential advantages. First, as we’re seeing in Chile it allows for some civil society NGOs to stay on top of the game and help on the discoverability of malpractice. Second, by recognising the inherent limitation of the approach it takes away the complacency blanket that regulators/overseeing bodies could hide under and forces them to up their game or face reputation damage. The downside is that it makes the work for malfeasants easier since they would have access to the data and the mechanisms used by enforcement, allowing for the easier development of countering strategies. That is true but leads us down the rabbit hole of “security through obscurity.” And it is well known how the culture of algorithmic secrecy adopted by Google regarding its search engine rankings has led to the creation of a burgeoning SEO industry

So my take is that, moving to more ex-post transparency will change the playing field and we will end up better off overall, even though in specific sectors/markets we will actually be worse off.

Some thoughts about blockchain and public procurement

This past semester I have been teaching a module on blockchain and the law as part of our LLM in LegalTech. It is not directly about public procurement, but preparing classes forced me to organise my thoughts about the possible uses of blockchain overall. What I think about blockchain as a technology in general maps out quite well to public procurement too.

As a broad stroke, blockchain (permissionless or permissioned) cannot really compete in terms of efficiency with centralised or decentralised databases. The shared ledger approach of blockchain is simply too slow and (thus far) unable to scale to process transactions as efficiently as a database. In my view this makes it highly improbable that we will see blockchain replace existing technologies already deployed.

Its killer feature however is to provide a good enough technological solution where none is currently available. In other words, to do electronically what we have been unable to do at all thus far. For that, slowness and cumbersome may be good enough.

Where does this takes us in procurement then? Out of the top of my head to two areas. One I mentioned 4 years ago in this same blog (reputation mechanism - which I have to elaborate upon). More recently I have thought about another area where the current approach is lacking: cross-border technology.

Currently, each Member State is stuck on its own silo and even inside each Member State you have multiple non-communicating silos. I see a potential use for a (permissioned) blockchain solution is for this problem we are yet to solve. ESPD is a mess and e-Certis simply a 2010 mindset at attempting to solve the problem of sharing what is *public* information. How do we then 'integrate' multiple databases across multiple countries, preferably with a single codebase?

A centralised database with APIs for connection to the various national databases is always an option but then I look at TED which remains as, cumbersome and user (un)friendly as ever. It painfully shows its late 90s/early 2000s roots and mental models.

So what would we do with a magic blockchain solution to do away with the syncronization of information contained in the myriad databases?

We could force compatibility via APIs with a single blockchain maintained at EU level. Only the entities holding the information would be able to inscribe new data in the blocks. Ie, Companies Registries would sync company data, Criminal Registries criminal data, etc. This should be done automatically as new data is inscribed in the original database itself. In effect, all that boiler plate data that suppliers are expected to produce today or indicate the contracting authority where it can find it. Restricting writing permissions to the official entities holding the canonical data solves the oracle problem regarding data soundness.

Who could read the data included there then? Only each contracting authority in the context of a procurement procedure and *after* obtaining consent from the economic operator. This authorization could be limited in time/milestones for example. Another alternative might be a querying system whereby the contracting authority would query the blockchain if candidate X met certain conditions and all the blockchain would answer would be yes or no.

What this allows for is for the automation of what is still in 2019 a manual, menial job that does not really add value to procurement process. Yes, perhaps a database is a more efficient way of doing it but so far we have been unable to really iron the kinks of cross-border information management.

There are two important points I have not touched in this blogpost. The first compliance with GDPR - that needs a lot more thinking on my part and I'm simply not ready at the moment for such task.

The second the competencies of the Union to force Member States to change their administrative systems since this might fall under administrative rules where the competence of the Union is more limited than the general internal market competence. But then, the same could be said about the ESPD in itself.

Some thoughts on the frustrations of carrying out Brexit-related research (in the UK)

Myself and Albert co-authored a blogpost at the University of Bristol’s Law School blog reflecting on the frustrating state of trying to undertake EU law research in these times of Brexit and fitting it into the good old REF framework. Here’s a snippet:

Brexit, its research and its teaching are increasingly becoming a field of study on their own—see eg the illuminating contributions to the special issue edited by C Wallace & T Hervey on ‘Brexit and the Law School’ (2019) 53(2) Law Teacher 133-229, some of which build on the earlier series of SLS ‘Brexit and the Law School’ Seminars, one of which Albert had the pleasure to host at the University of Bristol Law School in July 2017. This seems rather natural, as it is hard to overstate the impact that Brexit is having on the work of academics active in all areas, but particularly for public and EU law scholars. In this post, we offer some personal reflections on the frustrations of carrying out Brexit-related research, some of which are related to Brexit and its unforeseeability, while others are derived from more general constraints on the ways legal research is published and assessed.