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.

Open contracting in Paraguay

The first of Paraguay’s sweeping reforms were introduced in 2003 to root out rampant corruption. Procurement, which had been unregulated until then, was seen as an easy route to enrichment for the ruling party, whose members were known to have ties to the country’s former dictator, Alfredo Stroessner. Patronage in civil service was endemic too — research suggests that meritocratic hiring was non-existent in Paraguay’s public institutions before 2003; under President Nicanor Duarte, meritocratic hiring was practised in around 2% of civil service appointments. That figure rose to 26% under his successor, Fernando Lugo. A new law, passed in 2003, modernized public procurement with the introduction of a transparent system for conducting tenders in public institutions and the creation of the Dirección Nacional de Contrataciones Públicas (DNCP) as an oversight body to monitor procurement processes and publish information about all contracts online.

I'm glad they talked with my good friend Juan Pane, the engine behind a good deal of the solutions deployed in Paraguay. I was very impressed by the quality of the work done in Paraguay at a workshop last year in Buenos Aires. Whereas some have talked the talk of open contracting, Paraguay has walked the proverbial walk. 

One reference to some interesting data points:

Over the past two years, several of the DNCP’s online tools were launched (like the open contracting portal) or redesigned (like the public procurement portal). In that time, there’s been a notable increase in savings on procurement costs (1.4% from 2015 to 2016, which, given the size of the procurement budget, is a significant sum). Adjustments and amendments to contracting processes have dropped, from 19% of all contracts in 2013 to just 3% in 2016. Visits to the public procurement portal website have risen by 32% from 2.5 million in 2015 to 3.4 million in 2016.

Correlation is not causation, but I find it amazing that contract amendments have dropped so much. Food for thought for European procurement agencies. 

Some thoughts on UK Government open contracting push

The British Government announced yesterday its plans to adopt a UK Open Government National Action Plan 2016-18 (NAP) which includes significant changes to procurement practice, aiming to make contracting "open by default."

I am fully supportive of some of the ideas being pushed by the Government, namely the use of the Open Contract Data Standard by the Crown Commercial Service or the interdisciplinary (and international) Anti-Corruption Innovation Hub. The fact that a national government is willing to push the boundaries in these matters and looking to make its work more accessible to citizens is an approach worth praising.

There is however a big fly in the ointment on yesterday's announcement: the idea of making procurement procedures transparent during the procedure itself. This approach is going to be tested with the High Speed 2 project (HS2).

Making procedures transparent (as they are happening) is bad for at least two reasons. First, it has implications for competition as fosters collusion between tenderers. Second, in politically charged projects like HS2, lobbying groups will have a field day with the information available.

As for my first reservation, it has been well established that providing more information about tendering helps collusive behaviour. In general, I am in favour of disclosing contract information after the procedure has ended since I believe the trade off between facilitating collusion on the one hand but improving market access, reducing rent seeking and increasing accountability on the other actually leaves us better off (most of the time). The problem with making information during the procedure public is that it does nothing for the competition upside and increases the risk of foul play during the procedure itself. In other words, at least with information being made public after the end of the procedure any negative effect on competition may only strike future procedures, it will not affect the one which has just concluded. Not so if we make information available during the procedure.

I first came across this issue of information being passed among economic operators during a procedure when doing my PhD on the use of competitive dialogue in Portugal and Spain. It was plainly obvious that confidentiality safeguards (which only hamstrung the contracting authority) were not foreclosing bidders from talking to one another. And once they start talking during a procedure, it is just a question of time until at least some actions are coordinated.

The second problem is probably less widespread and likely to arise always in a reduce set of circumstances. Having said that, the fact the pilot will be run on HS2 is actually good - if any project can go wrong due to pressure from lobbying, its HS2. Again, I am usually a cheerleader for more transparency and not less, but this is an area where the added transparency will simply embolden those who do not want certain projects to succeed.

Bottom line, I am all in for more transparency after public procurement procedures have finished, even if there is a price to be paid in markets where collusion is likely, but certainly not so while contracts are being tendered.*

*If the Government wants to improve "live procurement practice", perhaps it could look into the Swedish Competition Authority and its role intervening in changing procurement procedures while they are live if bidders lodge complaints.

Links I Liked [Public Procurement]

1. Spanish Council of State gives its blessing to the new Public Sector Contracts Law. The law is yet to be published and coming into force though.

2. SpendNetwork wants to open up tender notice data and making it available under the Open Contracting Data Standard.

3. Albert comments on AG Sharpston opinion about financial guarantees in cases C-439/14 and C-488/14. I broadly agree with both AG Sharpston's and Albert's view on the matter but the impact on countries such as Portugal, Spain (and Italy?) where financial guarantees are a staple of local practice will be immense. Word on the street is that cash strapped authorities use those financial guarantees to ease up cashflow issues...

4. World Bank publishes new report on Functions, Data and Lessons Learned on Suspension and Debarment.

5. Liberia is outsourcing its schools to a startup. For all the debate about public and private education in Portugal (and the UK), this is an interesting development.

Links I Liked [Public Procurement]

1. Legal Aid contract(s) go pear shaped with dozens (hundreds?) of challenges. Whistleblower claims process was a shambles. Apparently, the tender document imposed 17 questions (sub)-divided into 3/4 parts each. Do you really need 50 different questions to identify the best bid (not bidder!) for the contract(s)? On the other hand, legal services are reaping what they sowed: if instead of lobbying for special treatment for ages (Part B Services anyone?), they had accepted to be a service like any other, both the MoJ and the bidders themselves would be used by now to the practice (and pitfalls) of procurement.

2. CJEU rattles the social considerations cage in RegioPost case. Albert cannot resist commenting on it at length and is preparing an event on the topic.

3. Programmer who bid $1 on 18F's open source contract experiment, speaks up. Again, I do not see anything wrong with his attitude and he garnered incredible levels of (free) publicity for his skills. Would this free publicity constitute a case of indirect State Aid in the EU? Nah...

4. Washington DC ponders more transparency to tackle corruption in public procurement. Open Contracting Partnership weighs in. On this side of the pond, claims that contract transparency is now stalled.

5. Cabinet Office considering Crown Marketplace, built around the Digital Marketplace platform. Would local government take it up?

Links I Liked [Public Procurement]

1. Commission is organising a bio-based economy workshop. It's on procurement and I got a shout out from Bertrand Wert on twitter about it.

2. Ph.D opportunity in procurement and gender equality at Queen Mary University.

3. The benefits of open contracting. Interesting read, especially for Albert :). In my view it downplays some competition risks during the procedure (I'm with Albert on this bit) and does not touch the potential for arbitrage reduction arising from price(s) being published.

4. A/B testing for Government services. I would love to take this methodology (or even a RCT - a boy can dream) and apply it to procurement. What really works and what metrics can we improve?

5. Abnormally low offers (in French). Somme comments from France.

Links I Liked [Public Procurement]

1. Open Contracting Data Standard project. Just come across this the other day and I think it is a great idea, although on the long run my vote is for a blockchain type of solution.

2. Draft new public procurement law in Spain is under fire (Spanish only). The draft transposition proposed by the Spanish Government has been criticised by the Social and Economic Council which is technically part of the Government and has the power to provide opinions on draft laws. Full report (Spanish only) is available here. The SEC criticises the Government for not coming out strongly against abnormally low tenders and wants to include some sort of social clauses that would make bids from suppliers in countries with lower social standards, calling it "social dumping." 

3. Skills training programmes do not work in international development. This is not procurement focused, but the criticism is valid in our field. Even taking into consideration that my belief that better prepared procurement officials are needed.

4. Transparency International keeps driving the anti-secret companies crusade forward. I suspect that when "true owners" are mentioned effectively they mean "true beneficiaries". 

5. Milton Keynes Council loses case, will have to pay damages. Judge Coulson decided not to re-award the contract to plaintiff and considers damages to be an appropriate remedy. Full case text here.

Links I Liked [Public Procurement]

1. Blockchain can be used for supply chain tracking. It seems my idea last week of using some sort of blockchain technology to solve the reputation issue in public procurement and a decentralised contract repository/database is not as crazy as I originally thought.

2. Canada wakes up to open contracting. 

3. We need more challenges in public procurement (or at least avenues to solve disputes). I do not disagree with overall view. I am huge fan of the Canadian Procurement Ombudsman system.

4. Public procurement award data can be used to catch corrupt officials. Incredible story from Costa Rica, beautifully reported. A textbook example of the benefits of making contract data available in some way or form. My view is that the easier it is, the better. Bonus points for sending 2 (two!) former Presidents to jail for the snaffu.

5. The poor state of defence procurement in the UK. Self-explanatory. Sometimes I think the security exception for defence procurement is none other than a red herring to allow scope for poor procurement practices. But I'm a cynic.