Reviving Economic Thinking on the Right

Sam Bowman and Stian Westlake have just published a pamphlet about what the right should be doing in terms of economic thinking. I have not read it fully, but spent some quality time with the procurement section, which focus on procurement of innovation.

Bowman and Westlake do not seem overly keen in the whole idea, a view Westlake confirmed on twitter. Their assession of tight budgets and lack of connections with entrepreneurs rings true as does the assertion that adding further procurement goals are orthogonal to the act of procurement itself. In this, their view of additional procurement goals is virtually identical to mine (paper).

They are also correct in mentioning risk-aversion as a disincentive for more innovative or risky public procurement.

It is a shame then that in terms of proposals their suggestion is simply of picking a few political wishes and pipelining it into an innovation friendly environment with real procurement at the end. It is not that different from existing challenges but goes a step further (and rightly so) by elevating the whole thing at a political level. Again, that is in line with my own views and in the past I have suggested a mixed incubator + innovation partnership model to incentivise innovative procurement. A key difference of my proposal was the inclusion of some equity for the state in the startups going through the programme.

I think it is a shame that Smith and Westlake decided to simply focus on innovation in terms of public procurement. They understand the importance of competition for economic growth and their assessment of the limitations of procurement in general are correct. In addition, the argument they are making about the orthogonality of objectives between economic efficiency/other policy objectives is a defining issue for public procurement.

Public procurement represents a significant percentage of GDP in the UK and elswhere, so I feel there is a lot more that a view from the right should be doing to improve it for the benefit of the economy. In addition to the usual suspects (resources, professionalisation and incentive alignment) I would add lowering barriers to entry and transaction costs as well.

As the left seems smitten with additional procurement goals and (the right as well) industrial policy making a comeback, it is important to keep the discussion alive about the importance of procurement being used for its primary goal.

Exploring state capture country profiles

In a great example of using available contract data and building upon other researchers’ work, Silvia Fierascu looked at the risk of state capture in public procurement over 10 years for all the 28 EU Member States:

In total, Silvia Fierascu used data from 2 million contracts from the database to calculate the risks of political and private/business capture in public procurement, using the red flag indicators developed by Fazekas and Kocsis.

UK Central Government decides to exclude tenderers who do not pay their supply chain on time

The UK Central Government has just published the Procurement Policy Note 04/19 on supplier's approach to payment in the procurement of major contracts. Effectively from September onwards, in procurement processes tendered by Central Government, all tenderers for large contracts subject to the Public Contracts Regulations 2015 and over £5M/annum will be subject to an additional exclusion ground based on their supply chain payment terms. This applies to procedures as well as appointments to framework agreements/DPS and call-offs inside these.

The compliance with this exclusion ground is to be assessed on a pass/fail basis regarding payments made to the supply chain of the tenderer in the two immediately preceding 6 month periods ('reporting periods'). If in at least one of them >95% of payments were done in 60 days or less, the tenderer passes. Between 75% and 95% it will be asked to explain its performance and demonstrates it has a plan of action to improve its performance. Below 75% it fails and is to be excluded from the procurement process.

Contracting authorities are under the obligation to check the compliance of tenderers before awarding the contract, similarly to the obligation imposed by Article 18(2) of Directive 2014/24/EU.

Legal issues

The Government is positing this as a 'selection criterion' instead of an exclusion condition for good measure. EU Member States have a degree of discretion in determining selection criteria but not in setting up additional exclusion grounds. And here in lies the main problem with this approach.

A criterion which is applicable to a multitude of contracts (all above £5M) irrespective of the subject nature of the same is in essence an exclusion ground and not a criterion for the selection of a bidder.

Although selection criteria can refer to general conditions of the organisation, they need to be connected with the contract being tendered, that is relevant for the performance of the forthcoming contract. They cannot be generic in nature, with the exception of legal obligations like, say health and safety or insurance. In this particular instance, ensuring payment of invoices in 60 days is not a general rule established by law so the Government is not asking for a measure of legal compliance but compliance with a policy objective instead.

In my view this is simply an illegal exclusion ground 'disguised' as a selection criterion. But this is not the end of its legal problems.

Proportionality is a key principle of EU law and it also applies to national measures which clash with it (as is the case). Therefore, this measure needs to be assessed in the context of it being adequate, necessary and proportional in a narrow sense.

Assuming the Government wants to ensure prompt payment of suppliers, then yes this measure is adequate to achieve its end.

As for necessity, is this the minimum intervention possible to obtain the objective desired and the answer there is "probably not". The Government could have adopted a "name and shame" approach instead or created a dispute resolution mechanism specifically for those situations where late payments exist (say, for works for example).

But the proportionality in the narrow sense is the most problematic vector in this measure. There is no indication the Government took in consideration other competing principles or objectives such as the freedom to contract in this decision.

Therefore, I do not see this approach as passing muster in the context of EU law, but all this may be a moot point come November.

As for the overall logic of this approach, it is another example of the compliance creep that has been taking over public procurement rules over the last 15 years or so. That is not to say that SME/supply chain payment terms are not an issue tackling but that goes beyond just the context of public procurement.

Capita wins Defence Fire and Rescue contract

The Minister of State, Ministry of Defence confirmed yesterday to Parliament that the Government will be awarding to Capita the Defence Fire and Rescue contract, putting end to a protracted process which involved a challenge by Serco, one of the other bidders. This is going to be a £525 million, 12 year long contract.

Serco ends up receiving a £10 million out-of-court settlement from the Government, showing that perhaps challenging a decision is worth a gamble even if it does not make it to the court. And, of course, as “lessons will be learned” the MOD accounting officer has appointed and independent review of this procurement process.

Boris Johnson takes aim at procurement once more.

In a leadership hustings in Nottingham, Mr Johnson said he wanted to change public procurement rules which could see UK companies favoured when bidding for billions of pounds worth of Government work.

The obvious figure Johnson is missing here is that 97% or so of procurement is spent with British companies, so the upside of the measure is pretty much non-existent. However, any move to tilt the playing field in favour of British companies will trigger some significant downsides. First, obviously access to the EU public procurement market would be foreclosed and this would predominantly affect those companies with an international outlook. In other words, it would affect directly the “global Britain” type of companies.

Second, the UK has recently signed an agreement to join the Agreement on Government Procurement (GPA) as soon as it leaves the EU. This includes a set of commitments from the UK and naturally the assumption the current rules (which already are GPA compliant) are not rolled back. If they are, then the UK would surely have to renegotiate its participation in the agreement. In any event, I remain of the opinion that while the UK wants to stay within the GPA framework the flexibility to simply change procurement rules to its heart content is very limited.

Speaking of onboarding providers and reducing opportunity and transaction costs

Warren Smith, Global Digital Marketplace Programme Director replied to my tweet this morning about the Commission’s Single Market Scorecard:

For the Digital Outcomes and Specialists framework the Government Digital Service is getting 98% of the tenders with more than one bidder. I’m not a fan of frameworks but this shows how they can be used to increase competition.

The secret? Well, continuous improvement of course. Talking with suppliers, and reducing opportunity and transaction costs associated with procurement. That includes working on what happens before the procedure is launched, the procedure itself and, surprise, surprise, the contracts too.

Commission publishes 2018 Single Market Scoreboard

The Commission published yesterday the 2018 Single Market Scoreboard. The overall results can be found here and the procurement section is here. As usual, the caveat on poor data from TED and the ‘qualitative policy judgment’ applies, but let’s see how things are in procurement:


There is a lot of red in that table and if we look at the countries, it is obvious the ones faring the worst are Portugal, Spain, Italy, Slovenia, Greece, Bulgaria and Romania, or PIBGRSSs. This would warrant a post in of itself, but let’s focus on the first indicator instead in this post. The Commission is, correctly in my view, paying attention to the number of single bidder tenders in the EU and the signs are not particularly positive.

The single bidder indicator is considered green if less than 10% of the opportunities get one bidder and red if the number is above 20%. Looking at the colours in that graph it is clear that the situation is dire. That is not a surprise for me and fits well with the paper I am currently drafting at the moment. It is a proverbial canary in the coal mine indicating the low health of our procurement systems. If this carries on we will have ever less competitive procurement markets.

In my view the time is coming for us to have a conversation about the health of procurement and what can be done to change the situation. My general opinion is that the current approach has failed and we need to facilitate the process from onboarding to contract to payment. The traditional fixation on the procedure itself is not really working.

Construction firms call for framework cull

Construction firms are apparently unhappy with the multitude of framework agreements proliferating in the country. In their view it adds costs to the contractors businesses and suggest a ‘clearing house’ to avoid ‘unfair and overlapping’ frameworks.

It is interesting to consider the implications of this suggestion. It is true that more frameworks increase the costs an the difficulty for firms to be present in all of them, that is pretty much obvious, but let’s look at the flip side. If the number of frameworks was drastically reduced and if the remaining lasted for the usual 3/4 years without any sort of overlaps what would that do to the market?

Well, whomever got into any given framework would have 3/4 years to milk the clients and the market would be foreclosed for that period. Plus, it would make life incredibly easy for any companies wanting to set up (or maintain) a cartel. And in four years there would be no competitors left to challenge for the next framework anyway.

Perfect for the purposes stated in the final paragraph: “Now is the time to revisit this work to secure better outcomes for customers and a more sustainable industry.”

At least they’re honest.

Commission opens ESPD satisfaction survey

The Commission has opened a survey on the satisfaction of users with the ESPD. The findings are to be included as part of a report that will be submitted to the European Commission Regulatory Fitness and Performance (REFIT) programme.

The survey link is here and I wonder if the results will be published in full. As for my views about the ESPD, they are collated here.

On the purposes of public procurement rules in the EU

I found this paragraph on a recent decision by the CJEU (Case C-264/18):

24      According to the Court’s settled case-law, the purpose of coordinating, at European Union level, the procedures for the award of public contracts is to eliminate barriers to the freedom to provide services and goods and therefore protect the interests of traders established in a Member State who wish to offer goods or services to contracting authorities established in another Member State (see, to that effect, the judgment of 13 November 2007, Commission v Ireland, C‑507/03, EU:C:2007:676, paragraph 27 and the case-law cited).

I would dispute the merits of the procedural focus, but other than that this statement is spot on. Procedures are coordinated to reduce trade barriers, effectively meaning the use of Art. 114 as grounds for the Directive is perfectly correct.

On procurement conferences and unconferences

Yesterday I had the pleasure of taking part on my second ever procurement unconference. For those not aware of how unconferences work, these are events where the agenda is not defined in advance but only on the day by the participants who pitch sessions they would like to chair and work on. It is chaotic, but fun and thought provoking.

The opportunity cost of taking part in the Procurement Unconference meant of course I could not be elsewhere at the same time. In this case at another procurement conference happening about an hour and half away from London. The fact two very different events on procurement ocurred in the same day got me reflecting about my choice of one over the other. And frankly, there was never any dispute about which I would pick.

In the last few years I dialled back my participation in conferences - not for altruistic reasons like Albert - but mostly for personal, selfish reasons such as health (alluded multiple times here) or a preference to dedicate my time to other matters (like taking a certain three year old to the playground).

I'm now down to mostly two conferences a year. This year it was Opatija in Croatia in May and (hopefully) Rome next month where, for the first time I can remember I will be attending a conference without any engagement whatsoever in the programme. For once, I expect to enjoy a conference as a simple participant.

Circling back to the binary choice between those two events, as mentioned earlier, there was no real choice. I never applied to the conference nor had any interest on taking part on it, to the point I sent a message to a friend simply stating: "FOMO of Conference X? 0" . Why?

My reservation towards larger events (procurement or otherwise) has grown stronger over the years. I still feel there is a need for *some* events but certainly not the number and the scope we have consistenly seen over the last decade or so. I am fairly at ease speaking about this precisely because of my involvement in setting up and running Procurement Week between 2012 and 2015. They are an analog dissemination method in an increasingly digital world.

Larger conferences still have their place though. They are usually the only time in the year when we can see in person friends and colleagues. They may be the only opportunity to chase down that author/speaker you want to talk to for whatever reason. Plus, networking. In essence, that's it in my view. Social, not content as the main reason for a large conference.

As for the content, I find it a sub-optimal avenue to expose good content. If it is already published, people moan it is not original. If it is original, then a conference is not the place to share it (certainly if you are in the UK and want to survive the REF...). Honestly, aren't we beyond working in private in our ivory tower to then go to the unwashed masses and present our work for their adulation? I know that some strive in this environment, but usually not in my age group and certainly not in the younger crowd.

If I want to get my message out there, I will hit a lot more people with a blogpost or a podcast than I can ever achieve with a 15 minute talk at a 200 pax conference with 2 or 3 parallel tracks. It really is sub-optimal communication vehicle.

But I have a have long moved from reservations to a more stringent personal position regarding a specific type of conference which seems out of place in this day and age and that is "pay to play" conferences, those where speakers are expected to not only pay their way but also pay for the privilege of speaking. We're no longer in the 1990s where access to speaking outlets were few and far between. I reserve a special circle in my conference hell for those conferences "where all speakers pay"* but then you find out some are never asked to pay.

On this I have simply become unable to compromise and wish to make this commitment publicly.

I do have a preference for non-commercial events, but recognise that there is still scope for commercial conferences to be run and that we would be worse off if all of them disappeared. But if they are running on commercial terms, then they need to run on *full* commercial terms. And that means *paying* speakers instead of seeing them as another source of revenue. No speakers, no conference.

Back to the unconference then. What do I think it is special about these type of events? For one they are smaller and self-selecting. Only the people that want to participate are there and reallistically there is not room for passengers just to simply sit and take in information without contributing. Now, if the event only attracts participants not interested in participating, the end result is predictable though.

Then, the agenda reflects the interests of the people taking part on the event and enough scope for you to literally vote with your feet and join another session. It makes for a more engaging day where your brain is teased and prodded and you have to think about issues or problems you would not have had otherwise.

And that, for me, is much more enjoyable and rewarding to be talking and learning than taking part in a succession of 15 minute monologues.

Plus, at least yesterday, the lunch was so much better than at any pay to play conference I ever attended. It just goes to show that with the righ attitude it is possible to run a great event where people are well treated and all that without shaking their pockets.

*Yes, more than one procurement conference is run on this basis.

Some thoughts about blockchain and public procurement

This past semester I have been teaching a module on blockchain and the law as part of our LLM in LegalTech. It is not directly about public procurement, but preparing classes forced me to organise my thoughts about the possible uses of blockchain overall. What I think about blockchain as a technology in general maps out quite well to public procurement too.

As a broad stroke, blockchain (permissionless or permissioned) cannot really compete in terms of efficiency with centralised or decentralised databases. The shared ledger approach of blockchain is simply too slow and (thus far) unable to scale to process transactions as efficiently as a database. In my view this makes it highly improbable that we will see blockchain replace existing technologies already deployed.

Its killer feature however is to provide a good enough technological solution where none is currently available. In other words, to do electronically what we have been unable to do at all thus far. For that, slowness and cumbersome may be good enough.

Where does this takes us in procurement then? Out of the top of my head to two areas. One I mentioned 4 years ago in this same blog (reputation mechanism - which I have to elaborate upon). More recently I have thought about another area where the current approach is lacking: cross-border technology.

Currently, each Member State is stuck on its own silo and even inside each Member State you have multiple non-communicating silos. I see a potential use for a (permissioned) blockchain solution is for this problem we are yet to solve. ESPD is a mess and e-Certis simply a 2010 mindset at attempting to solve the problem of sharing what is *public* information. How do we then 'integrate' multiple databases across multiple countries, preferably with a single codebase?

A centralised database with APIs for connection to the various national databases is always an option but then I look at TED which remains as, cumbersome and user (un)friendly as ever. It painfully shows its late 90s/early 2000s roots and mental models.

So what would we do with a magic blockchain solution to do away with the syncronization of information contained in the myriad databases?

We could force compatibility via APIs with a single blockchain maintained at EU level. Only the entities holding the information would be able to inscribe new data in the blocks. Ie, Companies Registries would sync company data, Criminal Registries criminal data, etc. This should be done automatically as new data is inscribed in the original database itself. In effect, all that boiler plate data that suppliers are expected to produce today or indicate the contracting authority where it can find it. Restricting writing permissions to the official entities holding the canonical data solves the oracle problem regarding data soundness.

Who could read the data included there then? Only each contracting authority in the context of a procurement procedure and *after* obtaining consent from the economic operator. This authorization could be limited in time/milestones for example. Another alternative might be a querying system whereby the contracting authority would query the blockchain if candidate X met certain conditions and all the blockchain would answer would be yes or no.

What this allows for is for the automation of what is still in 2019 a manual, menial job that does not really add value to procurement process. Yes, perhaps a database is a more efficient way of doing it but so far we have been unable to really iron the kinks of cross-border information management.

There are two important points I have not touched in this blogpost. The first compliance with GDPR - that needs a lot more thinking on my part and I'm simply not ready at the moment for such task.

The second the competencies of the Union to force Member States to change their administrative systems since this might fall under administrative rules where the competence of the Union is more limited than the general internal market competence. But then, the same could be said about the ESPD in itself.

First best practices are the worst practices

I do not remember well when I first came across with the 'best practices' concept. Maybe during my Ph.D or soon after starting working at Bangor. But back then I was already puzzled by it. What are 'best practices'? How and why are they considered to be 'best practices'? What are the the 'bad practices'?

Time went on but the fuzzyness remained: best practices this, best practices that, until I started to ignore the 'best' and simply reading them as 'practices'. The 'best' bit simply becoming another oddity of the English language. A non-threatening euphemism if you may.

I can no longer maintain such a relaxed view about the 'best practices' concept though. The reason for that being that it tends to ingrain early 'practices' as being the best way to get something done, as it happened in the UK with the cack handed approach to finish the dialogue stage on the competitive dialogue as quickly as possible and have in depth negotiations with the preferred bidder. Madness.

The issue of 'best practices' is particularly acute in public procurement. First, they're everywhere and any organisation loves to beat the drum that whatever it does is 'best practices', especially if no one else has claimed 'best practices' on that area before. It is like the wild west where you have to be the first to stake your claim which then stays unchallenged, leading to paralysis in the evolution of practices in a given area. Madness, once again.

Second, we do not really have appropriate measurement mechanisms in place. How do we now if a 'best practice' is a good practice at all? Empirical research in procurement remains limited and experimentalist research a pipe dream. Can we imagine if medical research (itself fraught with problems) simply adopted a 'best practices' claims approach instead of the scientific method? We are in the medieval bloodletting stage of applied/practical procurement research.

By definition decisions that may constitute 'best practices' involve choices and hierarchies of value. For something to be done in a way, other options have been discarded, leading to trade offs. However, when we read about 'best practices' we don't get to see or know what was not done and what trade offs the decisions entail. If you are not willing to talk about the downsides or trade offs you are not providing all the information necessary. In a field like public procurement which moves significant amounts of money this can be sub-optimal to say the least. First best practices are the worst practices.

How do we go about and change the state of affairs? I'm an experimentalist at heart and although I have resisted being drawn into it, the vortex pull is becoming ever stronger. As such, I'm *finally* starting to work in this area and putting some plans in place to work on this in the near future.

Launch of Buying Into the Future report

I’m delighted to be speaking on Friday at the launch of the Buying into the Future report by PUBLIC. I will be part of a panel on ‘How can Government do more to buy from startups and innovators?’ with Tanya Filer, Digital State Lead - Bennet Institute for Public Policy and Robyn Scott CEO of Apolitical.

The event will be held on Bird & Bird London Office from 09:00 to 12:30 and registration is free.

Department For Transport sued for *that* ferry contract

Eurotunnel is suing the Department for Transport due to the ferry contract(s) awarded back in December without proper tendering procedures. This turn of affairs is not really surprising and a logical consequence of the poor handling of those contracts.

The merits of the actual complaint, they appear obvious. In my opinion, the use of the negotiated procedure without prior publication based on the grounds for extreme urgency was not legal since said urgency arose from a lack of timely action by the Government. In other words, incompetence by the contracting authority is never a ground to use a non-transparent procedure. It has been public since March 2017 that the departure date from the Union is scheduled for 29 March 2019, therefore the lack of preparation for the consequences of the default scenario for such departure (no-deal Brexit) runs from that moment as well and is not unforeseen (or unforeseeable). This is pretty much well established at EU level and probably one of the reasons why the rules about contract notice transparency are as draconian as they are.

As Albert and myself said back in 2016 about Regulation 32(2), the negotiated procedure without prior notice is exceptional in nature and as such its grounds need to be interpreted strictly as not to create competitive distortions. And the latter seems to be exactly what happened in this instance.

PS: As for piling on Chris Grayling for spending £800k on consultants to prepare the contracts that is probably uncalled for based on the total amount being procured and that time was of the essence (which is different than saying the grounds for the negotiated procedure were met). And let’s not forget one of them actually flagged up Seaborne Freight lack of trading history as a risk factor. That no one heeded such advice, on the other hand, is more than fair game.

UK Competition and Markets Authority finds cartel in construction

This may not come as a surprise to anyone working in this area of practice, but the CMA has provisionally found guilty two companies operating in the construction sector, specifically in the pre-cast concrete drainage sector. These two companies have admitted being part of a cartel whereas a third one is also under investigation but has not admitted any wrongdoing.

Stanton Bonna and CPM together had 90% plus of the market from 2010 and have agreed to pay fines as part of their settlement for their price coordination practice.

It remains to be seen if the companies will be debarred from future public contracts based on Reg. 59 PCR 2015/Art. 59(4) of Directive 2014/24/EU but I suspect the grounds are too narrow to allow for such interpretation.

UK publishes anti-corruption strategy update

The UK adopted in late 2017 a anti-corruption strategy for the 2017-2022 period. One year on from the publication of the original strategy, an update has just been released.

Reducing corruption in public procurement and grants was and remains a key objective of the strategy, but whereas the original strategy included some loftier ambitions, the update provides some information on how the strategy is being pursued.

Some of the information is interesting to say the least, such as attributing an increase in 31% of the number of notices being published on ContractsFinder to a specific single Procurement Policy Note and that the open contracting standard work appears to be ongoing but without any firm commitments on the deployment of the open contracting data standard for example.

The CMA cartel screening tool also gets mentioned (and I think correctly - brownie points for it to be available on GitHub) as does the National Fraud Initiative and its work with local authorities to identify risk factors.

Going forward, the bit I am personally more interested in is buried under goal 3 - greater confidence in efficient and legitimate contract management an area that is sorely lacking attention. Not necessarily only regulatory attention, but also that of the practical type. The update mentions a Contract Debarment trial that was successfully completed in June 2018 and that a preferred approach will be forthcoming in 2019. Contract debarment is an area fraught with practical difficulties and one I think needs to be tackled centrally and not at authority level.

Finally, the update also promises specific guidance on how to apply exclusions in public procurement in December 2018, so that means within the next couple of weeks. This is once more welcomed but in all honestly should have been produced in 2015 or 2016 soon after the Public Contracts Regulations 2015 came into force