Engaging with the NHS on data driven health tech. Change is coming to the NHS (and right about time after WannaCry last year…)
Continuing the short game of procurement tennis with Albert Sanchez-Graells on the Commission's Communication Making Public Procurement work in and for Europe COM(2017) 572 today I will be talking about the Commission's 6 strategic priorities for public procurement policy. These are:
- Ensuring wider uptake of strategic public procurement
- Professionalising public buyers
- Improving access to procurement markets
- Increasing transparency, integrity and better data
- Boosting the digital transformation of procurement; and
- Cooperating to procure together.
Albert's comments on these priorities can be found here. He went for the catchy trumpesque title, whereas I went for the more listicle like one. Our views, are fairly similar in most of the priorities and I am happy he picked up on my earlier bugbear of the choice of language and lack of precision in the terminology used. He made some very critical remarks on the Commission's introduction and picked up an underlying trend (visible in other areas) of using procurement to achieve industrial policy goals. That objective is orthogonal to the idea of a single market in procurement: we achieve either one or the other, but not both at the same time. Plus, I would refer readers once more to the mounting body of evidence that buying national simply does not work.
Albert's assessment of the Commission's example of "best practice" in innovative cross-border procurement (section 2) is brutal, but fair. Too much "practice" is passing off as "best practice" simply because someone somewhere says so and in absence of any evidence to back up the claim. It reminds me of a comment I felt compelled to make once to someone who is now a DG Director and was unfortunate enough to mention about a decade ago the Vasco Da Gama bridge in Lisbon as a leading example of PPP/PFI, soon after the Portuguese Audit Court published a review criticising the 15 contract amendments and extensions which always left the economic operator better off.
Ensuring wider uptake of strategic public procurement
The Commission starts by clamouring for more strategic public procurement. Albert claims, correctly (once more) that there is zero empirical evidence to justify this objective. As far as I can tell this "ambition" remains firmly grounded in the world of "policy goals" that do not have a solid reason for it. Why is it desirable? Will it leaves all better off?
My view (as well as Albert's) is that some strategic public procurement can be compatible with the single market, thus leaving us better off. This is mostly the green procurement part, since I have long accepted that internalising the true cost of pollution leads to a more complete single market than one that ignores such cost. Innovative procurement can also be compatible with the internal market but on a different basis. It is possible for procurement to function as a lead buyer for innovative products and services, but having said that those will always be the exception and never the rule for day to day expenditure (just the OJEU for innovation partnerships...). All in all, they may lead to more complex (expensive) procurement processes and also more expensive goods and services, but as long as they do internalise externalities or lead to products/services that otherwise would not exist I see them as fundamentally compatible with the single market (in this I depart slightly from Albert's reservations about higher cost while agreeing on the possible downsides for SMEs). Oh, and the amendment to the Clean Vehicles Directive 2009/33/EC could not come quick enough, but its remit is much wider than public procurement.
The problem lies with social considerations as strategic objectives. These range from the wooly to those that appear to be common sense (ie, demanding wages above the minimum wage or imposing one's minimum wage on other countries workers) or even those that are down right protectionist (demanding local labour/apprenticeships). These tend to be an anathema towards the objectives of the single market which remains (at this moment in time) at the core of the Union. I won't even talk (for now) about the exporting of European labour standards to third countries and what that does to both EU consumers and those producers, but Dani Rodrik does on his new book (p.229 I'm told!). But my worries about the growing compliance culture in procurement can be found here.
Professionalising public buyers
Most of our views about this priority can be found in the first entry to this procurement tennis match (here and here). There is however an important angle we omitted the first time around. By asking for the professionalisation of public buyers the Commission indirectly recognises that procurement is today difficult and complex - thus requiring the said professionalisation and specialisation in some instances as well.
Should we not be aiming for the opposite then? Making procurement so simple that it actually does not require that much specialist knowledge?* After all our phones today are mightly complex but said complexity is abstracted away for the benefit of the user. This goes hand in hand with my usual analogy that procurement rules are just like operating systems. And the one we use has really old roots.
*no, I'm not thinking about principles and negative obligations like in the 60s to be the solution.
Improving access to procurement markets
I share Albert's disappointment with this part of the communication. It reads (again) as a general enunciation of ideas that lack coherence or fit.
This is one of the most disappointing aspects of the October 2017 Communication. The Commission indicates that improving access to procurement is mainly geared "to increase the SME share of public procurement in line with their overall weight in the economy", in particular "in view of promoting more cross-border procurement". However, the only specific actions mentioned by the Commission concern (i) the Remedies Directive (and, specifically, its criticisable decision not to review it, see here and here), (ii) the initiative on third country access to EU procurement markets (see here), and (iii) a sectorial initiative to increase SME participation in defence and security contracts. This is puzzling.
While those initiatives can have some effect on increasing SME access to procurement markets, they are unlikely to facilitate a step change. Much more is needed in terms of guidance and best practice on facilitating SME access to procurement domestically and in an EU cross-border context (which the Commission should undertake), and there are obvious limitations derived from the cost of having the administrative (and language!) capacity needed to export. In that regard, the proposals in the Communication do not even brush the surface of what could be done at EU-level--starting with practical guidelines on how to maximise the advantages derived from the fact that, in the Commission's own terms, "[t]he 2014 directives include measures that should facilitate the access of companies including SMEs to public procurement, also cross-border". It would certainly be helpful for the Commission to flesh that view out in more detail.
But there is more to criticise on that quote. The Commission claims we need to increase the share of SME spend in line with their overall weight in the economy, but earlier in the document it was claimed SMEs win 45% of the aggregate value of contracts above the EU thresholds. According to the OECD the added value of SMEs in advanced economies lies between 50 and 60%, so we are not exactly a magnitude away *and that is only for contracts above the EU thresholds* which are not really small or SME friendly anyway. As the Commission is worried about SME cross-border success rates (rightly so) is it proposing to lower the thresholds or remove the non-tariff trade barriers on lower contracts? No such thing is to be found in the document though.
The Commission could (but has not) made the point to justify the increase by including only those situations where SMEs have won by themselves or in a consortium a given bidder. It has, however, decided to include in the 45% figure also sub-contracting. Sub-contracting does not really have much to do with procurement rules or (practice) since main contractors are free to decide who they want to contract with and crucially how they want to spend their contract money. So in reality the figure of SME participation rate in public procurement may effectively be much lower - but we are left in the dark by the use of a questionable statistical method by the Commission.
There are some other questionable points about SMEs and public procurement. There is no explanation why it is desirable or better to have more SMEs tendering (and therefore, increasing their transaction and opportunity costs). It appears an article of faith that more SMEs tendering is simply better but without taking into account the tradeoffs it entails.
The Commission also claims that remedies are important for SMEs, but that could be argued about any sort of economic operator taking part in public procurement. Furthermore, if they are so important maybe the Commission should have taken the opportunity to review the Remedies Directive as well.
The Commission revisits as well in this section its ongoing battle with international cross-border procurement and third country access. I do not see how the words included here ("restoring a level-playing field is more than ever necessary") make any significant difference. More so, bearing in mind the poor level of direct cross-border procurement within the single market, maybe discussions about third country access will make the Commission lose the forest for the trees.
But all that is low level hanging fruit. There is no spark, or transformational initiative that could really make a significant difference in cross-border procurement. Here's a few:
- What about creating a set of procurement INCOTERMS that would make it easier for economic operators to understand the obligations arising from the contract? If we have CPV codes why can't we have INCOTERMS for procurement obligations as well?
- What about solving the issue of different contract performance regimes? Only larger economic operators can actually invest in having subsidiaries (or access to legal teams in another country) to justify the legal risks arising from contract performance. Why are we not seeing a clear pathway to harmonising public contracts rules?
- What about language issues? Is it a coincidence that most cross-border public procurement is literally cross-border or between Member States sharing a language? Ironically the Commission flags up language as potential issue on cross-border cooperation in procurement, but not in regular procurement activity...
Increasing transparency, integrity and better data
The Commission is right that making more procurement data available is a step in the right direction and will propose the adoption of new e-forms, ie standard public procurement forms. Nothing is earth shattering new about this and it can be useful as long as the data is kept on a machine readable format and available with permissive licenses. Like, for instance the Open Contracting Data Standard which is absent from any reference...
The suggestion of mandatory public registers is in my view the correct one, but the Commission stops short of solving the biggest issue behind this idea. After all, sending contract data to the OJEU is already mandatory, it is at the compliance level that reality its the proverbial skids. There is a simple way (for contracting authorities that is) to ensure compliance: ensuring that whatever system is used to make the purchased is connected to a central system capturing the information automatically. As each country is essentially developing its own standards and approaches to electronic procurement this is sadly a pipe dream for now and - yet again - a missed opportunity to make real progress.
I do not agree that Directive 2014/24/EU has strengthened the provisions on conflicts of interest, but precisely the opposite of making it clearly legal economic operators can take part in the process even if they help out drafting the technical specifications. It remains to be seen if I am wrong about this...
The Commission is also correct in its conclusion that more data allows for collusion to be more easily spotted. That is true, since it is akin to keeping urine samples from the Olympics to re-test in the future as more advanced tests are developed. The opposite is true as well for markets where collusion is advanced. By making the data public cartel members will be tempted to develop collusive techniques that either do not show up in the data or that show in ways the enforcers have not spotted yet. Solve for the (new) equilibrium as they say...
In addition, for all the references to use more and better data, the Communication is fairly light in providing empirical data to sustain any of its proposed solutions...
Boosting the digital transformation of procurement
This is a particularly disappointing section. The Commission is correct when it states that the benefits of electronic procurement will only be reaped when the whole process undergoes a digital transformation...which means? Not much if one trusts this section. The actual solutions provided by the Commission are simply re-hashes of previous initiatives such as the Single Digital Gateway or the European services e-card. And not a word about the roll-out of the ESPD and its teething problems...
Which is a shame since integrating different systems and processes digitally can really make a difference. I think the Commission should be looking at integrated cross-border payment systems for inspiration on how the process could be re-organised in a way that functions across multiple jurisdictions. Once more, I think we should be looking at how the private sectors solves its own cross-border transaction issues.
There is also no indication the Commission understands how digital services are different from regular services and how those by definition should always be part of the single market, irrespective of their value.
Cooperating to procure together
The final section cover cross-border cooperation in procurement and exemplifies yet again the Commission interest in looking to the accessory at the expense of the principal. Cross-border cooperation in procurement will remain a niche area and one that needs significant prior work before it can justify this kind of attention. I will defer to Albert's comments about the lack of legal certainty arising from this idea.
The wooly language used doesn't help the Commission's case: 'Their [CPBs] role in the standardisation of public procurement processes and market insight also represents a key element for the professionalisation of public administrations and it enables SME-friendly procedures.' Right.
In other words, we should be solving other more pressing problems (cross-border procurement in general) before spending time with vanity projects. In a way, this is no different from all the bruah about procurement of innovation (hey, innovation partnerships, competitive procedure and competitive dialogue I'm looking at you) at the expense of the day-to-day operations in procurement. There is a lot more that needs to be done for 99% of the procurement projects *before* we should spend time on the 1%.
Going through the Appendix I was surprised to see some suggestions that were not mentioned at all in the main body of the Communication, leaving us in the dark of what they may actually refer to.
For example, on section 3 (improving access to procurement markets) the Commission will apparently "launch pilots to boost SME participation via business intermediaries and innovation brokers" whatever that means.
On section 6 (cooperating to procure together) another pilot on SME-firendly policies in Central Purchasing Bodies, whatever that may be.
All in all, a missed opportunity.
3. Spain will end non-transparent award procedures (Spanish only). Apparently, their new procurement law is almost ready.
1. Albert comments on the recent European Court of Auditors Special Report on procurement. Report itself is here.
4. A friendly reminder that (some) contracting authorities in the UK are expected to publish their contract information on Contracts Finder. I would suggest a not-so friendly reminder of consequences arising from legal obligations as that tends to sharpen compliance minds.
5. Public procurement pilot shows promise for small producers. Interesting use of Dynamic Purchasing System (DPS), of which more should be set up instead of closed framework agreements. It's fascinating DPS has not been used more in the wild. I guess old habits die hard.
2. UK Government consults on changes to how councils publish procurement data. Consultation is available here.
3. Doubts over Thames garden bridge as Sadiq Khan probes £175m project. Great writeup. This is a textbook example of legalising the folly of pre-procurement contacts between economic operators and contracting authorities. Only the best connected will benefit from this approach which is in effect not distinguishable from lobbying.
4. Judge forces Spain to change its tender specifications for the new high speed rail rolling stock (Spanish only). And rightly so as the original version of the awarding criteria reserved marks for local train building. For the UK Government to take into consideration next time a tender for rolling stock is put out and that other countries are not playing by EU rules.
5. Uncovering Corruption Is a Risky Endeavor in Spain. Very hard to read and in line with my experience in the country (but that may be availability bias on my part).
It was only a question of time, but I am glad that in the USA venture capital is finally paying attention to the opportunity of serving the Government market. There is a recent fund investing specifically in startups interested in serving the Government called GovTechFund. I for one, welcome this approach.
Ron Bouganim (Founder and Managing Partner) frames the main issue beautifully on a recent blogpost: the size of the US Government Market is $400 billion dollars and rife with opportunities for technology-enabled companies/products/services to start competing for business. Putting my head above the parapet I would argue that, generally, competition is probably lower in most Government contracts where technology can be applied, than in similar private sector markets. In other words, yes it is probably possible to squeeze rents out of procurement markets.
The GovTechFund post makes a specific point about the potential 10-100x cost differential of technological solutions which is worth highlighting. In some circumstances, new technologies and business models are indeed orders of magnitude cheaper than traditional solutions. Computing power and software are two examples that come to mind.
It is much easier and cheaper nowadays to just buy/rent computing power on demand from a cloud provider like Amazon AWS or Microsoft Azure than going through the capital expenditure of buying and managing your own infrastructure. This logic applies to the public sector too. Plus, by buying or renting power on demand, the client can ramp up and down capacity as needed. In a traditional self-managed infrastructure the client needs to be very comfortable with whatever demand/capacity forecast it can come up with.
The same logic applies to software, where software as a service (SaaS) provides a potentially cheaper alternative to the traditional owning models of yesteryear. The downside, is that whereas in the past a software license would be eternal, SaaS implies a recurrent cost, moving software expenditure from the capital expenditures heading to the operational one. The jury is probably still out for the alleged cost savings argument of SaaS, especially over a longer period of time but it provides for alternative business models. Plus, it also changes the incentives of the software provider to keep investing on its solutions as those customers are providing recurrent revenue.
In either case, at least on a short time frame (say 1 year), those two models may be cheaper than the previous alternatives, potentially by an order of magnitude or two. In the EU, however, this is a critical element as probably those contracts would fall below the (recently revised) EU thresholds and as such subject mostly to national procurement rules only.
It is a shame that so far, the European Commission has not connected the dots between the potential lower costs of digital products/services and the current public procurement thresholds which are completely disconnected from this reality. As I put it on a conference last year, the EU thresholds were set in a time and world before the internet and associated services were even conceivable. No wonder they reflect values and opinions based on the information available in the 70s and the 80s.
PS: Speaking of the EU, life is particularly difficult for startups to sell to procurement markets on this side of the pond. Only culture change (and incentives) can move that particular needle.
1. What public procurement documents need to be published upfront? Myself and Albert have dabbed on this in the past, but the problem should have been solved directly in the Public Contracts Regulations 2015. But hey, as usual "it's the Directive's fault for not being clear so let's publish some guidance."
2. Oppex.com raises boatload of cash ($2.3M) for its tender search engine. I welcome any and every startup working in public procurement but on this case I struggle to see what is the winning proposition of Oppex so far. Yes, they aggregate data that is already publicly available, but that is pretty much it as far as I can tell. There is some value on it for potential customers, but not much. Oppex can provide a lot more value to however if it moves from simply aggregating contract notice data and building instead some sort of intelligence/analytics about existing contracts into their platform like SpendNetwork does.
3. Negotiation skills matter in public procurement. They do, but unfortunately the system is not geared up (yet) to foster those skills in procurement officers. Brownie points for the picture with my former boss.
4. CJEU confirms its jurisdiction to review procurement decisions linked to EU's external action (C‑439/13 P). Albert never allows a public procurement judgment to go uncommented.
5. EU Commission puts out some public procurement guidance to help practitioners involved in projects funded by European Structural and Investment Funds. Helpful, but now imagine how life would be if only all EU funding programmes used the same rules and approach to public procurement and audit reporting...