Public Procurement Regulations 2015 - Regulation 50

Regulation 50 - Contract Award Notices

Regulation 50 establishes the obligation of contracting authorities to make public certain information related to the award of the contract. This rule is not new and has been around for ages but let's be honest: compliance across Europe has been lacklustre and the only country where I am aware that compliance has been reasonable (Portugal) only happened when the national law made payments before compliance illegal. And in a country with personal liability for civil servants the incentive is there to comply with the requirement.

In the Regulation we can find a main rule (obligation to publish award notice), a special case (for dynamic purchasing systems) and an exception (for framework agreements).

Main rule - publishing award notices

The main rule remains that all public contracts should have their award notices published. There are misgivings and reservations about this rule. It imposes an extra layer of work for contracting authorities and may have competition implications. Regarding the first, well the move to electronic procurement and the implementation of proper systems should make this painless and pretty much automatic. I suspect that this could easily become a feature to be included in electronic platform suites/services. The second has more merit to it as argued by Albert today. In markets where collusion or cartels are prevalent, more information will help them solidify those agreements. There is no dispute about that. Having said this, at least for some sectors all a cartel would not even need to have official information about the winner. Information tends to leak and in the physical world, say construction for example, all the cartel needed to do is to go to the work site and see what companies are operating there (this is not my original idea/or example...).

But there are upsides to publishing ever more award information in a transparent way. I will confess my bias here: by default all contract information should be public, open and easy accessible unless there are good reasons for it to be withheld. In general, more information makes the markets work better. Stay with me for the next few paragraphs and give it 5 minutes before making your mind up. I will be putting my head above the parapet and this may go horribly wrong.

Advertising contract award information increases accountability and the likelihood that foul play is found out later. This was proven in Portugal when white hackers cross-referenced the Companies Registrar database with the public contract awards one and found out that companies were being awarded contracts even before they had been incorporated! It can also allow for trends to be identified. For example, company X is very successful with authority Z (or in contracts tendered by procurement officer Y) but not with other entities? Why is this happening? Is there a competitive reason (they only operate in that geographical area and market) or maybe there is something fishy going in there.

Getting this information out also changes the competitive nature of the market. Have you ever played poker? There are many variants to it but lets say that not advertising contract award information is akin to the traditional Draw Poker where players only use the cards on their hand and advertising awards is Stud Poker where some of the cards of each player are visible. Both are highly competitive but lead to fundamentally different games and winning strategies. Nonetheless, both are still poker...

What do I mean by this analogy? That on a market where award information is public, that is a price to play (similar to the blinds used in poker) and players will adapt and adjust to the new model. Who will benefit from this? Whomever can make good use of the extra information and use services like SpendNetwork or others to parse the data looking for business opportunities and arbitrage (although this latter will have a tendency to reduce as time goes on and bidding becomes more competitive). Ultimately, I believe providing more information will drive more efficiency into the market, even accepting that in some sectors this strategy will indeed facilitate cartels. Furthermore, with SpendNetwork it is already possible to analyse market data to have a good indication about an opportunity, so even the limited information currently available can already be harnessed as business intelligence.

It provides as well an opportunity for contracting authorities to benchmark against other authorities and will make it more difficult for the current rent extractors to keep operating as before, charging above market prices to some authorities due to the fact that pricing information is not public. Would the oil market (or any other commodity) work well if sellers were unable to disclose the price they had done the transaction "due to the business interests" of the buyer?

But are the incentives there for contracting authorities to benchmark and become more ? Indirectly yes, as public shaming tends to shape people up even when official KPIs do not include said objectives. When all that information is public, no one wants to be seen as they guy getting the worst deal or to be unable to get a good deal for the public purse. Remember the fracas about the MPs expenses in 2010? Even if they were technically legal (well, some of them) it was a PR nightmare for the people involved. And believe me, public sector is incredibly sensitive to reputational damage. Furthermore, as this is a potential source of savings and savings tend to be a KPI, that provides an additional direct incentive to make good use of that information.

In academia, for all the REFs failings, it surely ups the pressure for people to deliver and become better even if only on a narrow set of metrics.

My (pragmatic) bottom line is this: we would probably be better off by releasing more information about contracts into the wild. And I say this not from a wide eye open contract movement perspective but because information tends to make markets more efficient. Although it also facilitates collusion, so in some markets we may end up worse off. Life is made of trade offs.

Special case - dynamic purchasing systems

According to paragraph 5, when dynamic purchasing systems are used, the contracting authority should either make public the information about each contract or, in alternative, do so as a block every quarter. This option seems sensible and again, in my view, this could be automated easily with electronic platforms.

Exception - framework agreements

Regulation 50 paragraph 4 excuses contracts awarded via framework agreements from being published. Remember what I said a few weeks ago that framework agreements were an information blackhole? This is another example of that preferential treatment for frameworks in comparison with dynamic purchasing systems.

In my view, there is no fundamental difference between a contract awarded via a dynamic purchasing system or a framework agreements and both should be treated identically. However, that is not the case. In fact, Albert nailed it on the head when he argued earlier today that this positive discrimination (pun intended) is an example of incorrect transposition of Article 50(2) which allowed framework agreements and dynamic purchasing systems to be treated equally in the sense that information about contracts awarded does not have to be reported straight away but can be done so quarterly.

The discrimination goes further (although the fault here lays squarely at the Directive's feet): even the the framework itself or the contracts awarded through it have their information withheld under certain circumstances. Why the different treatment just because of the procedure followed to award the contract? If the substantive reasons are valid enough, surely they should be valid as well for all other contracts where said reasons are also present, irrespective of the award format. My personal gut feeling here is that this is once more a protection that has been requested from the private sector, as winners tend to lose out since only their information would be disclosed, making that information accessible to competitors, inside and outside the framework.

My final question on this is: why was the lawmaker so careful in copying and pasting most of Directive 2014/24/EU to then introduce this very visible difference? Let's just think about for a second which is the country that used most framework agreements? And what is the contracting authority in said country which uses them more often than anyone else. I do not think is accidental nor do I believe that it within the margin of discretion of Member States to do otherwise.