Asymmetric retaliation in the UK GPA accession

Last week, Bloomberg ran an article claiming the USA and two other countries were blocking the UKs accession to the GPA agreement. Yesterday, it doubled down on the story stating New Zealand and Moldova as the two other members blocking the UK. and provided more information about why Moldova is making life difficult for the UK. The Moldovan reasons are simply delicious and a prime example of asymmetric retaliation. In hindsight, they capture beautifully the zeitgeist of Brexit. All in all, what myself and Albert predicted about a year ago in our paper is panning out: UK going for a straightforward accession as possible but with the flank exposed to demands from current members.

So far it seems that the current members are willing to run down the clock to November 27th when the WTO government procurement meeting occurs. To be fair, there is no reason or incentive to do otherwise for a number of reasons. First, because the UK is not leaving the European Union until March 29th, 2019, so there may be time for an agreement until then. If ratifications are required, then agreeing now or in March does not make a significant difference.

Second, the longer the uncertainty lasts the weaker the UK bargaining position and the more willing it will be to make concessions. And herein lies the rub: those demands for concessions can come from anywhere in the spectrum of interests of the other members, effectively meaning they may be completely unconnected with procurement. Procurement is simply being used as leverage to obtain concessions elsewhere (again, read between the lines of the Moldovan reasons…).

Finally, contrary to popular perception, the UK procurement market is not that open to foreign bidders. Only large contracts are subject to the GPA rules and those tend to be of interest to large companies. And which countries have large companies operating in foreign public procurement markets? Above all, two: USA and the UK. So, the USA is effectively reducing competition for procurement contracts inside its market and also - probably more crucially - taking key players out of competition abroad. So for the USA it makes sense to make life as difficult as possible to the UK unless really good sweeteners are thrown in (NHS privatisation anyone?). So for the price of losing access to the UK market the USA is blocking competition in all other markets (exception may be EU of course) as the UK also has no Free Trade Agreements in place. As for Moldova, it sits on the other side of the spectrum. It knows its companies stand no chance in hell of winning contracts in the UK so why open its home procurement market for free? Better to try and win a concession elsewhere like, say, visas.

Overall, I suspect the overarching interest of all parties will lead to a deal sooner or later, but so far we’re still in the multidimensional chess part of the game.


PS: The irony of New Zealand being the third blocker is not lost on me. Eat your hat, brexiteers.

IRS awards $7M fraud-prevention contract to Equifax

The no-bid contract, which pays $7.25 million, is listed as a “sole source” acquisition, meaning the IRS has determined Equifax is the only business capable of providing this service—despite its involvement in potentially one of the most damaging data breaches in recent memory.

By now my opinion about single source/direct award/request for quote(s) contracts should be well known to regular readers. This is yet another example of a decisions which may have been the correct one (or maybe not) but just by using a non-transparent procedure it can look terrible.

The contract itself is available here.

More from Politico:

The IRS defended its decision in a statement, saying that Equifax told the agency that none of its data was involved in the breach and that Equifax already provides similar services to the IRS under a previous contract.

”Following an internal review and an on-site visit with Equifax, the IRS believes the service Equifax provided does not pose a risk to IRS data or systems,” the statement reads. “At this time, we have seen no indications of tax fraud related to the Equifax breach, but we will continue to closely monitor the situation.”

Equifax did not respond to requests for comment.

 

 

 

 

 

Buying local does not work

For once, it is not me saying it but  Dixon, Rimmer and Waschik in their "Evaluating the effects of local content measures in a CGE model: Eliminating the US Buy America(n) programs" paper:

 "Like many countries, the U.S. implements local content policies. Through these policies, the U.S. government attempts to stimulate employment, especially in the manufacturing sector, by favoring U.S. contractors for public sector projects (Buy American regulations) and by insisting that these contractors themselves favor domestic suppliers of inputs such as steel (Buy America regulations). We refer to these policies collectively as Buy America(n). Enforcement of the policies is via complex legalistic processes and often contractors to the U.S. government adopt a cautious approach by favoring U.S. suppliers even when this may not be strictly legally required. In these circumstances, it is not possible to provide a definitive model-based quantification of the effects of Buy America(n). Nevertheless, as demonstrated in this paper, a detailed CGE analysis can give valuable guidance concerning the efficacy of these policies. In an illustrative simulation we find that scrapping Buy-America(n) would reduce U.S. employment in manufacturing but boost employment in the rest of the economy with a net gain of about 300 thousand jobs. Even in the manufacturing sector, there would be many winning industries including those producing machinery and other high-tech products. Employment would increase in 50 out of 51 states and 430 out of 436 congressional districts." 

 

I particularly like the final sentence. 

How expensive has defence procurement become in the US?

'A lot' appears to be the answer:

According to the Government Accountability Office, cost overruns have ballooned to more than $450 billion over the past two decades. The Navy needs to take authority back from the bureaucracy, end the culture of constant design changes and gold-plating, and bring back fixed-price competition.

Recall the development of the Polaris nuclear-missile system in the late 1950s. The whole package—a nuclear submarine, a solid-fuel missile, an underwater launch system, a nuclear warhead and a guidance system—went from the drawing board to deployment in four years (and using slide rules).

Today, according to the Defense Business Board, the average development timeline for much less complex weapons is 22.5 years. A case in point is the Ford-class aircraft carrier. The program is two years delayed and $2.4 billion over budget.

and more:

Yet the defense firms involved still profit under cost-plus contracts. The three stealthy Zumwalt-class destroyers—they are really heavy cruisers—are another example.

The defense bureaucracy produced a seagoing camel costing three times its original estimate and delivered with questionable seaworthiness and without functional radar or a reliable propulsion system.

Both quotes come from John Lehman, US secretary of the Navy under President Reagan.

Note the push-back against cost-plus contracts and how they provide economic operators with the incentive to keep the costs ticking even if they are not necessarily making a profit (helps soak up capacity, cashflow management etc).

Links I Liked [Public Procurement]

1.  Government of Western Australia shows Minimum Viable Product version of its new online procurement portal. Great to see a Government taking up on cheaper, more agile ways of developing services instead of building the whole widget without external feedback. Well done.

2. Is raising the micro-purchase threshold from $3,500 to $10,000 in the USA a good idea? In general, I am against raising thresholds for the reasons highlighted in the article, but allowing 18F to expand its micro-transaction platform would not be a bad outcome.

3.  Albert publishes an article about blacklisting.

4. Chicago has an hands on approach to innovation accelerators. Now, if only anyone in Europe would use the innovation partnership for the same purpose... 

5. Speaking of innovation accelerators, the Omidyar Network invested in CityMart. 

There's a new excellent procurement blog around

 

Prof. Chris Yukins from George Washington University Law School has launched a new blog dedicated to international public procurement. Chris is a great writer and in my view his emphasis on international procurement is great. We need more people engaging with the public and writing with different points of view on procurement topics.

His first blogpost is on a topic too close to home: Brexit and its potential impact on the TTIP trade agreement between the EU and the USA. These are high quality entries and I look forward to see how these discussions will evolve in the future.

Now if only he could convince his good friend and colleague Steven Schooner to start writing blogposts as well...

Thoughts on the White House Source Code Policy

According to this GitHub post by Mark Hopson from 18F, the US Government is considering introducing a policy whereby custom made code should include (some) distribution rights and not only the right of use. In other words, the US Government is mulling requiring developers to grant a more expansive license to the Government, so that the code can be be re-used by Federal agencies other than the acquirer. These are interesting developments, well worth some comments.

I find it fascinating that the policy is open to discussion and comments, even on GitHub as done by Mark. Here are my views on the proposed Policy as well as Mark's suggestions.

1. What is at stake

When someone buys say a license for Windows, that license includes only the use of the programme and not the rights to modify or redistribute the source code. Buying a "off the shelf" license to use Windows is manifestly different from asking a developer to come up with a custom solution for a specific problem. The proposed Source Code Policy targets the latter and not the former, ie new code that is developed specifically for the a need the Federal Government has. In general, I am in favour of making as much source code publicly available as possible under the guise of a public good.

From a procurement perspective, I find the Source Code Policy very interesting as it mitigates two major problems in procurement of innovation, albeit at a cost: (1) IP ownership and (2) State Aid.

2. IP ownership

In the last 4-5 years I have written a few times about the issue of intellectual property as the key problem in public procurement of innovation. When a new idea/implementation/solution is created as a consequence of a public procurement procedure, who should own the resulting intellectual property? Art 31 of the Directive 2014/24/EU - referring to the innovation partnership - only states that intellectual property rights need to be addressed during the procedure. We can get very specific and detailed depending on the type of intellectual property generated,* but on a general note the IP will belong either to the contracting authority or the economic operator(s) who created in the first place.

Mark suggests in its post a change in the draft policy so that it entails an acquisition of all rights to the custom code. In my view, a full blown IP acquisition by the public sector is not a great solution - managing IP is not the core business of virtually all contracting authorities and all the IP generated was a means to an end. In addition, if the contracting authority acquires the IP, it becomes responsible for both for the good and the bad which it may lead to. Case in point, if said IP infringes someone else's existing IP, guess who will be left holding the proverbial can? Sure, we can include back to back liability clauses in the original contract but that regulates the relationship between the contracting authority and the economic operator, without binding the owner of the infringed IP. Plus, if the economic operator goes bust all those nice and shiny indemnity clauses are not worth the paper they are written on.

Another downside of a complete IP assignment to the contracting authority is the loss of said IP from the wider society. Let's be honest as any IP acquired by the public sector would end up as the Lost Ark from Indiana Jones: locked in a "warehouse" of sorts, far from prying eyes and without generating any benefit for the society at large other than the contract where it was deployed. Mark's proposal of making all the code freely available would solve this problem.

The solution proposed by the US Federal Government is particularly interesting as it mitigates both downsides of a full blown acquisition. For the second it even strikes a good balance as it ensures other Federal Agencies can use it for free. As for the first, the economic operator is still on the hook for any infringement since it keeps ownership of the custom code. It may however increase the risk of litigation as more users will be deploying the code potentially raising the visibility of any IP infringements committed in the development of the custom code.

3. State Aid

Coming from an EU angle, The second problem with procurement of innovation in the EU is the potential for it to breach State Aid rules, namely Article 107 of the Treaty on the Functioning of the European Union. State Aid occurs when a an advantage to an undertaking is given by a public authority. Paying for a contract to develop an innovation while allowing the economic operator to commercially exploit the innovation would constitute, prima facie, a violation of EU's State Aid rules.

The problem, however, is somewhat mitigated by the Commission's own assumption (cf para 32) that it will not sue anyone involved in pre-commercial procurement where "an open tender procedure" has been followed, the underlying issue is still present as the primary law has not been changed and only the Commission pledge not to enforce it. In other words, the distortion to the internal market is still present - albeit legalised by the Commission pledge not sue the beneficiaries. Communications of the Commission, however do not constitute a source of EU law and ultimately the power to legislate in this matter remains with the Council (Art 109 TFEU). Do I see the Council meddling in this? Not really, hence my comment in the two preceding paragraphs.

Notwithstanding the above, it is clear that a license for a Government to re-use custom code acquired by any agency reduces the market value of said code. After all, a number of potential customers has just evaporated leaving the economic operator only with the possibility to re-use it with private clients or other public bodies not covered by the license. This reduces the level of state aid involved but does not fully solve this problem. The reduction in the potential number of customers brings me to the downsides though.

4. Other downsides

I suspect one of the unintended consequences of this policy will be an increase in prices. If economic operators know in advance they will not be able to re-sell the code to other Federal Government clients, the logical consequence is for them to jack up their prices. How much, I have no idea. Mark's solution would exacerbate this problem as the only opportunity a developer had to make money directly with the code is in that single transaction.

Ultimately, it may also lead to potential economic operators not turning up in the first place, reducing competition. Unless the code is completely separate from existing code-bases, no economic operator will accept creating a variant/fork of its "crown jewel" to be used for free by all other Government agencies. Unless, that is only the completely new code is covered by the sharing obligation. This, however, would be useless as the rest of the code would not be made available.

Another downside I see with this policy is the risk for the Government - by obtaining a license to share to other Federal Agencies but not the wider world - the Government becomes the custodian of that code. So what happens if after a security breach the code is leaked to the internet, coming from one of those private repositories? Who will be held responsible for the license violation? Mark's approach would solve this issue.

These downsides are valid both in the US (as afar as I can tell) as they would be here in the EU.

5. Bottom line

I do not want to rain on the Federal Government parade nor to chill any similar developments in the EU. If anything, I view this as the right way to go and one which balances well competing interests. Having said that, there are downsides and shortcomings to take into account.

 

*Whereas the main IP issue surrounding source code are by definition copyright, they do not end there. Out of the top of my head, there can be design rights (patents in US parlance) involved and in specific circumstances patents may be involved (yes, more common in the US than the EU).

 

Links I Liked [Public Procurement]

1. 18F (USA) tries micro-purchases again. This time with their own tool, instead of using GitHub.

2. Visualising €1.3 trillion worth of EU public procurement contracts. Wow. Great to see connections where they are not obvious.

3. The Death Star bankrupted the far, far away galaxy. Not really public procurement, but the implications of the failure of a massive project on a supply chain. 

4. Scotland has a new public procurement law. I am yet to spend some quality time looking into it the Public Contracts (Scotland) Regulations 2015, but want to do so in the near future to compare it with the Public Contracts Regulations 2015. Policy note here. No, I will not be commenting on them one by one...

5. Too much outsourcing in the UK? Speculative.

Venture capital is looking into public procurement and that is good

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.

Links I Liked [Public Procurement]

1. Portuguese Audit Court unimpressed with PFI/PPP hospital (Portuguese only). The Audit Court analysed the first couple of years of the Loures privately managed hospital in Portugal and did not find significant management improvements in comparison with the best publicly managed hospitals. Its management is better than average for the country, but that is pretty much it. (NB: I was involved in a minor capacity as a lawyer on the original tender procedure back in 2004/2005, which was never concluded. I was not involved in the final one.)

2. Conflict of interest in health procurement in Yorkshire. Very interesting. As Albert mentioned on Twitter, if only the Public Contracts Regulations 2015 were applicable to this case... (his comment; my comment). PS: This situation would be dead easy to solve in Portugal...

3. How technology and a small team is changing procurement in the US. Well, not only procurement but Government in general.

4. Sidney adopts e-ink for some traffic signs. Now that is innovation. Well done. Oh, and Sheffield is creating a SmartLab to find new solutions for problems the city have. Now if only they matched the design/development stage with actual procurement...

5. No water cannons for Boris Johnson. At least he did some savvy procurement by getting the water cannons second hand from Germany. They may be useful as mobile fountains during this scorcher Summer we are having...

6. Speaking of Boris...More on the Roastmaster, sorry Routemaster. Great write up by the Guardian on the Routemaster bus. Some great insight about the difficulties of doing procurement of innovation well and how costs can quickly spiral out of control. I am still puzzled by the assumption that the bus could be sold in other markets and if that happened (it did not) it would have an effect on the price TFL would pay for the bus. Wondering what kind of intellectual property agreement exists between TFL and Wrightbus. In any event, there is no innovation without risk. There is no innovation without failure.

Links I Liked [Public Procurement]

1. The Crown Commercial Service wants help re-designing its digital services. My suggestion is to put all the damn procurement data available on a easily searchable database format. No, excel spreadsheets are not what I am thinking about. But that is for the ex-post, while the Digital Services Team is looking for help on what the actual service should look like and how it should operate. I think it is a great idea to have this "client centered" approach and other administrations (even in the UK) should take notice...

Having said that I have a queasy feeling about a new Request for Proposals idea. Much better to evolve what I developed a couple of years ago with the simplified open procedure than to enhance the attractiveness of non-competitive award procedures.

2. Speaking of data dumps, the "old" Contracts Finder is now available as an archive. Kudos for that.

3. Danger zones in the new Public Contracts Regulations 2015? Not necessarily the ones I would have chosen. For example I would consider the new "light touch" regime as highly dangerous area but hey, it brings "flexibility". I remain bullish that practice under the light touch regime will become worse, not better.

4. Interoperability will be key to make e-procurement work (in Spanish). Very, very true, particularly when we are talking about cross-border issues. Electronic solutions can as easily facilitate cross-border procurement if standards are use, though the opposite is true as well. Just imagine the web without HTML or email without an underlying standard. Minitel anyone?

5. Bad procurement behind the US Office of Personnel Management data breach? A 36 hour (!) turnaround for a $20 million credit report services contracts raises more than just eyebrows. Although the title is slightly misleading as the record turnaround time does not appear to have been for the underlying IT contract.

Links I Liked [Public Procurement]

1. For profit prisons are big...and a big problem in the US. The issue of privatisation of prisons was the main topic of the PPP podcast #4 with Amy Ludlow which will go up later this week.

2. American defense procurement is in a mess. Allegedly.

3. There is room for improvement on the Care Quality Commission procurement practices. An audit on two contracts from 2013 showed a number of problems. More like these (audits), please. Plus, thankfully care service contracts below €750,000 have been taken out of the main procurement rules. I am sure the problems detected are due to the (old) rules only and that now, free from the shackles of those EU rules, procurement of care services will be excellent.

4. Repeat with me: paper trail, paper trail, paper trail...is fundamental in public procurement. In Geodesign Barriers Limited v The Environment Agency [2015] EWHC 1121, the court found that the Environment Agency was unable to keep proper record keeping of decision making meetings. This is another personal bugbear of me as no contracting authority would even conceive not having a proper audit trail for any sort of administrative procedure, let alone a procurement one.

Paragraph 25 of Judge Coulson's decision says it all: "As I observed in my brief oral judgment at the end of the hearing, the absence of a contemporaneous Tender Evaluation Report of any kind in this case raises a significant question mark as to the transparency and clarity of the procurement exercise. It gives rise to a whole host of questions. For example; how can any of the tenderers be certain that there has been a fair and transparent process if the documentation relating to that process is a miscellaneous collection of manuscript notes, some written on the back of an old notebook, and some subsequent documents produced for the debriefing/feedback exercise? Furthermore, how could that latter category of documents have even been prepared, if there were no contemporaneous documents recording the results of the evaluation? Take for example the comparison document which shows that the scores awarded to the claimant and Inero, in respect of the second stage technical questions, were the same. How could the writer of that document (whoever they were) have been sure that the scores were indeed the same, if there were no contemporaneous record of the scores actually awarded? How was the detail in that debriefing/feedback document prepared if there was nothing on which it could have been based?"

Oh dear. And I thought that in the top 1% of authorities procurement practice tended to be good.

5. Can devolved procurement work for the NHS? I remain fairly skeptical of devolving procurement powers/responsibilitities for ever smaller entities. Procurement is getting progressively more complex and difficult, in consequence keeping skills up to date is becoming increasingly more difficult as well.

Links I Liked [Public Procurement]

1. The only real PPP in Portugal is dead (Portuguese only). By real I mean a deal where the risk stayed with the private contractor instead of the public sector. Teixeira Duarte (private contractor) allegedly lost €42M in the deal, a significant sum in a small country like Portugal.

2. Last week's 3rd e-procurement conference was great. Had a great time and would like to thank the organisers for inviting me back again. Met a bunch of interesting people I was yet to bump into in procurement related conferences. And Peter Smith once more! You can find my presentation on the presentations folder.

3. Procurement is waking up to technology (at least in the US). As I said before, procurement is ripe for digital destruction and it cannot happen soon enough.

4. There is an award for procurement thesis going on. And not a bad one!

5. Some people miss pre-qualification questionnaires. I disagree with Ian Thompson's findings but good read nonetheless. 

PS: Apologies for the slowness of the updates but most of last week was spent travelling. Friday took us 6 hours to get from Bristol Airport to Swansea (do not ask...). Plus, I am currently enjoying a throwback to my allergy infused younger years. Not funny. Oh, and there is *that* new project coming up right around the corner.

Links I liked [Legal/Legal Education]

- I for one, welcome our Watson overlords

Although calling it Ross, immediately brings to mind that clueless Ross from Friends

- eBay style marketplace for Online Dispute Resolution

Very handy for one of my Ph.D students who is looking precisely into this. Proposal by Susskind.

- Law students should know more than just law, maybe some maths

Fully support ideas like this, although it is easier to pull of in the US. The lack of numerical skills is a big, big limitation in legal practice. Just makes no sense to me. On this note...

- Why do lawyers need maths?

Same vein as above. Excellent looking new site by Dr. Steven Vaughan (@lawvaughan), instant addition to my Feedly.

- DLA Piper "rolls its own" e-learning platform and will provide training services

What does this tells us about legal education in general and CPD in particular? You are out of touch and stuck on an obsolete paradigm when one of your potential biggest clients becomes a competitor.