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.

Portuguese Competition Authority fines cartel operating in public procurement

The Portuguese Competition Authority has just nailed a cartel operating in public procurement.

The 5 Portuguese companies convicted were fined a total just over €800,000. They were found guilty of price-fixing tenders in a number of procurement procedures launched by the Parque Escolar Secondary School Modernisation Programme in 2009-2010 for the supply and assembly of pre-fab modular constructions used as temporary classrooms. The companies have waved their appeal rights in exchange for a 10% reduction on the fine.

As usual the cartel was discovered by a complaint/insider blowing the whistle to the authorities. Personally I find it surprising that the companies collaborated with the investigation, so perhaps they considered that after the proverbial horses had bolted there was not much else to do rather than damage control.

Although I cannot claim to be an expert in the pre-fab modular construction business, could it be that this cartel was operating in tenders launched by other contracting authorities? The decision appears to be restricted to the procedures launched by Parque Escolar and I have no idea what is their representativeness in terms of market share for pre-fab modular construction.

There are other things I would love to know but cannot find in the press release and the decision's text is yet to be published:

- Was the cartel's operation facilitated by the obligation for contract information to be published on the national database base.gov.pt?

- If the cartel was operating in 2009 and 2010, why did the investigation process only start in January 2014?

- Who came forward? One of the cartel members or an aggrieved (ex-)employee?

I am not aware of the PCA finding anti-competitive practices in procurement before, (correction: there is at least another decision from 2011 related with procurement) but it is good to know they are paying attention to our patch.

Oh, and the PCA is putting up an international conference in October.

 

The slippery slope of collusion in public procurement

It came to my attention by @JackOfKent on twitter yesterday that the London Criminal Courts Solicitor's Association (LCCSA) is collating information from various firms which may have put in tenders for the Legal Aid Crime Tender 2015 (put out by the Legal Aid Agency) and may be willing to withdraw them.

I do not have any comments for or against the Legal Aid reforms the LCCSA is fighting, other than by default all public contracts should be procured transparently and with respect for equal treatment (a boy can dream...), even Part B services as in this case. I have said time and time again that there is no fundamental reason why the procurement of legal services should be treated differently from any other.

The problem with the LCCSA approach to putting pressure on the MOJ as a means to force the Legal Aid reform to be dialled back, is that for now it comes dangerously close to collusion:

"Many of us felt compelled to submit a bid for a contract but did so with little, if any, enthusiasm. In the past 6 weeks members have told us that given the right circumstances they would withdraw their bids. We understand from informal soundings in meetings with London members that there is a belief that the great majority of solicitor firms who have submitted bids would withdraw them if they could be confident that other firms would act in a similar manner. This survey formalises those discussions and will inform our ongoing engagement with the MoJ.   
We intend to collate information from firms confirming whether they have bid, and if so, whether they will now refuse a tender offer or will withdraw bids if they felt confident that a sufficient number of other firms in their area/s would also refuse or withdraw. When the number of potential indications of bid withdrawals/refusals reaches a sufficient number we would then be in a position to share this information with the firms concerned and publicise the findings."

(emphasis mine)

There are a few ironies here. The first is that we are talking about solicitors making this proposal. The second, that I was patronised on twitter for not "reading deep enough" and not understanding the "smart contracting" technique being deployed by the LCCSA. Now, I am not a competition law expert but I have seen enough colluding practices in procurement to spot obvious ones, but maybe my instinct had failed me this time. So I asked Albert on his views which were beautifully put on this blogpost. Furthermore, it appears that Dr. Angus MacCulloch from Lancaster spotted similar worrying signs on a previous Legal Aid tender.

At this moment it looks as if there is no cartel yet, only the apparent intention by the LCCSA of forming one. Going from A to B depends on what actually happens with the information collated in the proposed surveying process and how solicitors act afterwards. To the LCCSA credit, it has introduced some firewalls to avoid information being disclosed, namely that a single solicitor from a firm which did not tender for the contract will collate the data. But the problem is not the data collection in itself, but what is going to be done with it afterwards. For the survey to have any benefit in the negotiations, the information contained herein must be released in some way or form.

The last sentence cited above suggests that the information will be disclosed with the firms involved (red flag) and also publicised (another red flag). Albert is particularly concerned with the first one and rightly so as the survey participants signalled an interest in a common approach by taking part in the survey. In addition, I am also worried by the impact that even disclosing anonymised/aggregated information may have in non-participants or even non-LCCSA members. How will the wider market react if a survey of say 100 firms indicates a willingness of 90% to withdraw their bids? It signals to the market that perhaps everyone else should do the same. Once more, I am not a competition law expert but perhaps this amounts to tacit collusion? There is a very good article by Prof. Carmen Estevan de Quesada on this from 2014 (Carmen Estevan de Quesada, "Competition and transparency in public procurement markets" P.P.L.R. 2014, 5, 229-244).

As for the public procurement angle, let's just say that perhaps the solicitors should look into the potential debarment consequences of these activities before getting involved, particularly paragraph 8(d) and (f) of Regulation 57 of the Public Contracts Regulations 2015.

A final comparative note on the LCCSA proposal:there would be no legal way to withdraw bids from a public procurement procedure in other jurisdictions such as Portugal and Spain...