What can citizens do when public contracts data gets released into the wild?

Well, in Slovakia we have seen (via Transparency International) that around 10% of the population goes into the procurement portal to check what is being purchased by whom and from what suppliers.

In Portugal numbers are probably not as high, although every now and again the local press decides to publish something. Well, some people are taking matters into their own hands and blogging about potentially shady contracts at Ma Despesa Publica. It roughly translates into "Bad Procurement".

I like the style and most of the content is good (if not from a gossipy type of way). It is great to see pressure being gently applied upon public servants to explain why and how they spend taxpayers money. For example, monthly security services contracts being awarded without competition smells of fractioning/unbundling, something completely illegal under EU law. Well spotted ladies and gents.

However, as one professor of economics once told me, the downside of putting this information out there is that a lot of people which do not understand how public procurement works will be blowing whistles where there are none to blow.

Case in point, a stated owned company (although in the process of being wound up) hired some lawyers via the negotiated procedure (direct award in Portuguese). My views about legal services not being subject to the rules of Directive 2014/24/EU and Directive 2004/18/EC are probably well known by now, and no one more than me would like to see them changed. However, "we are where we are" and unfortunately legal services can legally be awarded directly. Furthermore, this particular contract was well below EU thresholds and the national law also allows for this type of action. Instead of railing against a decision that is (unfortunately) entirely legal, this energy would be better spent lobbying to change the legislation.

I hope the next Government shows some spine and starts chipping away at the discretion of contracting authorities to use these type of procedures be it for legal services or any others. It would be great if started in the legal services though.

Slovakia, public procurement and transparency

Transparency International put out a detailed report about the experience in Slovakia of mandatory advertising of contract award information. I am a huge fan of contract award transparency and am always on the lookout for things like this report which is full of interesting findings.

Apparently Slovakian contracting authorities have to publish the contract award information since 2011 and covers contracts both above and below the EU thresholds. The result is that a plethora of contract information is now available online and Slovaks are making good use of it: apparently the database website gets 54,000 visits...every month. That is a lot of people for such a small country. I wonder how many are from citizens and how many from suppliers trying to figure out how the market is working and what prices are being paid (I do not see this as negative, but Albert probably objects).

What about the effects of this radical transparency? On the one hand...

On the plus side the report claims the accountability brought by the interest citizens show on the information, plus the media is reporting more and more cases. This can be a double edged sword as Gustavo Piga told me: more information in the hands of good journalists is great, in the hands of bad journalists it's a nightmare. I can totally relate to that. As a lawyer one of the cases I was involved in was plastered all over the press. Obviously, the "journalist(s)" only presented one side of the story and had no interest in the actual truth. The authors also mention this as an issue.

Another positive finding claimed by the authors is that the radical transparency led to higher participation in tenders. There may be some correlation between transparency and more participation and perhaps suppliers are more confident that the increased transparency leads to reduced foulplay, but I saw no evidence of causation. In my view, the increased participation rate is probably due to a combination of factors wider than just transparency. Moving procurement online (cradle to grave e-procurement) seems to me as a bigger reason and one that can be married to the more difficult economic times which lead to suppliers having to compete more fiercely for business.

Increased transparency reduces the incentive to use non-transparent procedures as the benefit of the non-transparent procedure disappears if at the end you need to make the end result public. The authors mention the reduction in non-transparent procedures but make no claim about the connection to the transparency reform.

Another positive finding is a lower perception of corruption. I agree that putting all the information online can contribute to dispel foulplay myths surrounding many contracts, thus contributing to a reduction on corruption perception levels. Furthermore it apparently also led to a reduction in queries from the public (makes sense as well), thus reducing the burden on contracting authorities to provide that information time and time again with each request.

On the other hand...

The authors looked into costs and concluded that apart from startup costs (ie, systems and moving everything online) the marginal cost of uploading the information of each contract to the database is quite limited. Although it seems the data came from empirical research with only 4 authorities and it would have been preferable to test it wider, this seems a reasonable finding. I would add that we can reduce the marginal cost to zero with proper e-procurement software (ie, getting software to do it automatically). That is a hint for platform providers as other countries (such as parts of the UK) want to move in a similar direction.

I am less convinced however by the dismissal of collusion and cartels. The authors state that "As for fear of collusion in tenders or loss of interest of companies in dealings with the state, we find little evidence of their existence." Little evidence is one thing, lack of evidence another. I suspect they meant the latter. It is a well known fact that identifying cartels is difficult without whistle-blowing so the absence of evidence is not the evidence of absence. I am not sure the authors dug deep enough to reach the latter (Am I channeling Albert here?) and have made similar comments about Portugal in the psat. The contrarian argument made by the authors is that even with the added transparency, average tender participation numbers have crept up. In my view, it indicates that i) suppliers are discounting the fact the contract will be published; ii) in general, competition appears to have improved even with the added transparency. Additionally, as I mentioned here before more information tends to make markets better (by reducing arbitrage) not worse, except for the cases where there are underlying conditions for cartel formation. More information makes life difficult for the insiders who benefited from access to the decision-makers.

Issues

The authors highlight the lack of compliance monitoring as one of the current issues in the system. Compliance is still not 100%, contracts miss vital information and there are reports of contracts "disappearing" from the register. This will always be a problem with centralised systems, or any system that uses human intervention for that matter. I will take the bait and plug again my idea of a blockchain type of interface to deal with contract information and feedback.

 

Links I Liked [Public Procurement]

1. Are urban developments subject to procurement rules (or at least principles)?

Good case report by Paul Henty. I remember vividly a discussion back in 2007/8 with my then Ph.D supervisor about how come development contracts are not considered relevant for the internal market and as such subject to EU rules? My overarching point is that procurement rules should cover not only the buying strictu sensu but also contracts where money flows the other way around. I posed the same question in 2005 or 2006 to the team then drafting the Portuguese Public Contracts Code (which regulates procurement above and beyond EU requirements) about similar land deals after witnessing first hand some trainwreck examples of horrible practice.

2. PPP trouble dans la France

Again, I remember another discussion (this time in 2009) sponsored by the Commission where PPPs were being bandied around as the best thing since sliced bread. Being a killjoy I argued that they have significant issues such as information asymmetry, regulator capture and the like, problems we saw in Portugal. One of the respondents happened to be the head of the PPP observatory in France who remarked drily that "the Portuguese have no idea how to run PPPs." Oh, well...

3. Should we have Procurement Ombudsmen in Europe like Canada does?

I think so, and have defended it since 2012. In some countries (UK, Ireland) there are not enough legal challenges in procurement, whereas in others (Portugal, Spain), whole court systems have ground to an halt due to an avalanche of procurement related cases.

4. How good (and EU compliant) is the Slovakian procurement law?

Not much it appears, but I will reserve passing judgement until I talk with some local colleagues.