“Modern
Approaches and
Innovation in Public
Procurement”
Good Governance Summit
Manila, January 17, 2014
Prof. Gustavo Piga
Chair, EBRD-Tor Vergata International Master in Public Procurement Management
University of Rome Tor Vergata
www.gustavopiga.it
1
Public Procurement, so relevant!
• Government expenditure for purchases of goods, services
and works (public procurement) is a key component of
national income and well-being. World estimates (OECD)
see procurement as approximately 15% of GDP; while
across the European Union expenditure on goods,
services and works currently (2008) represents 17,2% of
GDP on average (OECD Economic Outlook 2010) and, at
the end of the century, the 106 developing countries’
procurement markets amounted to 13.9 percent of the
total worldwide procurement spending.
2
What is Public Procurement all about?
• “how to buy”: transparently, a concern for civil
society, efficiently, a concern for taxpayers pockets
and effectively, a concern for citizens’ preferences;
• “what to buy”: green and sustainable, a concern
for the environment;
• “who to buy from”: SMEs, a concern for justice.
3
Is there space for improvement?
• Study of Italian waste in Public Procurement
(Bandiera, Prat, Valletti, American Economic
Review).
• How much waste in purchases could be eliminated
by bringing “the worse at the level of the best”?
“If all public bodies were to pay the same prices as
the one at the 10th percentile, sample
expenditure would fall by 21% . . . Since public
purchases of goods and services are 8% of GDP, if
sample purchases were representative of all public
purchases of goods and services, savings would be
between 1.6% and 2.1% of GDP”!
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Where is the space for modernization?
“The challenge of modernity is to live without
illusions and without becoming disillusioned.”
Antonio Gramsci
Identify illusions (erroneous perceptions).
Find credible grounds to keep enthusiasm going.
In procurement.
5
Some modern illusion-prone procurement
fields
E-PROC
SMEs
CORRUPTION
6
Some modern illusion-prone procurement fields
E-PROC
SMEs
ANTI-CORRUPTION
7
Away from E, welcome C
E PROC
• The three Cs economists worry about when
thinking of e-proc.
8
COMPLACENCY
“A feeling of quiet pleasure
or security, often while
unaware of some potential
danger, defect, or the like;
self-satisfaction or smug
satisfaction with an existing
situation, condition, etc.”
9
COMPLACENCY
Guide to Enactment of the UNCITRAL Model Law on Public
Procurement
• “if paper communications are simply replaced with e-mails,
Internet-based communications, and advertising procurement
opportunities on a website, many of the above benefits will not
materialize. Further, weaknesses in a traditional procurement
system will be transported to its new, digital equivalent”.
• “However, the existence of such systems may raise the risks of
overuse and misuse, because their ease of operation may lead
procuring entities to use them whether or not they are really
suitable or appropriate for the procurement at hand”.
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COMPLACENCY
(Old) data about 82 Russian regions
EPROC
Browsing
Tenders
Browsing Tenders
with advanced
research tools
Database signed
contracts
Search signed
contracts
% REGIONS
100%
43,2%
43,2%
14,8%
EPROC
% REGIONS
Portals with
login
43,2%
E-tendering
RFQ
13,6%
E-tendering
Reverse auction
E-purchasing
Online payment
14,8%
0%
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COLLUSION
Does e-proc generate competition or collusion?
The case of reverse auctions (Russia 100%)
Supply
Wheelchairs for
Persons
Contracting
Authority
Umbria Region
Base price
199.000 €
200
Awarded price
116.000 € Euro
N° of suppliers
participating
8
ultimi 10 min.
Migliore offerta a 147.500 Euro
(-25,8%)
190
Inizio autoestensione
Migliore offerta a 137.000 Euro
(-31%)
180
€ x 1000
Price decrease
42%
170
160
150
Asta aggiudicata
a 116.000 Euro
(-42%)
140
130
120
8 fornitori
110
0
10
7 fornitori
20
30
40
6-5-4 fornitori
50
60
Minuti
70
2 fornitori
3 fornitori
80
90
100
110
120
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CENTRALIZATION
IT and e-proc make centralizing procurement
more natural and less costly
[Centralization is becoming more and more
widespread.]
Think hard before pushing for e-proc only to
centralize. It might hurt SMEs.
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Can e-proc solve SMEs issues?
“We … analyz(e) the transactions - below the European
threshold - that took place on the Italian e-marketplace
during the period 2005-10. Although micro suppliers are the
most represented group of firms in the emarketplace,
evidence suggests that the largest suppliers display the
highest success rates in getting public contracts. Degree of
loyalty with buyers and geographical location of both buyers
and suppliers also emerge as relevant factors of success in
the e-procurement market, proving, at least to some extent,
that some features of “physical” procurement markets are
mirrored in the “virtual” markets.”
“Il Public Procurement come stimolo alle PMI: il caso del Mercato Elettronico della
Pubblica Amministrazione” by Gian Luigi Albano, Federico Antellini Russo and Roberto
Zampino.
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Some modern illusion-prone procurement fields
E-PROC
SMEs
ANTI-CORRUPTION
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SMEs are special
Problems faced by EU bidders, (by bidders size relative to large firms)
The column of totals displays on average which portion of firms interviewed answered “always” or “often”
Potential problems
Micro
Small
Medium Large TOTAL %
Over-emphasis on price
1,1
1,0
0,9
1
1,0
Long payment terms
1,4
1,2
1,1
1
1,1
Late payments
1,3
1,0
1,1
1
1,1
No debriefing
1,2
1,0
0,9
1
1,0
Administrative burden
1,5
1,1
1,2
1
1,1
Lack of clarity
1,4
1,0
1,0
1
1,1
Limited options for interaction
1,4
1,0
0,9
1
1,0
Disproportionate financial criteria
2,0
1,2
1,1
1
1,2
Insufficient time to bid
1,4
1,2
0,7
1
1,0
Lack of information on opportunities
1,4
1,3
1,1
1
1,1
Tenders not evaluated fairly
5,3
4,7
8,7
1
6,3
Disproportionate technical criteria
1,4
1,4
1,1
1
1,2
Large contract value
22,0
22,0
5,0
1
7,0
Joint fulfillment of criteria not allowed
2,0
2,0
1,5
1
1,3
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Suffering discrimination
Why prefer (some) firms?
Negative discrimination due to barriers:
1) corruption :
1.1 via networks (easier among large firms/dominant race)
1.2 via collusion (easier among large firms)
1.3 via politicians (easier among larger firms?)
2) risk-aversion:
2.1 via ignorance (according to EU survey asking public procurers “what current barriers prevent
their organization from undertaking additional activities to favor SMEs”, most CAs mentioned risk –aversion)
2.2 via routines (minimum size of revenues etc.)
2.3 via banks
3) bias:
3.1 via racism
3.2 via politics (no connection with size of the firm?)
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Classic solutions to deal with them
- skills assessment and development programs
- business mentoring or coaching
- training in commercial tendering
- small business advice
- simplification of bidding documents and questionnaires
- translation of documents into local language
- lowering or rationalization of pre-qualification criteria
- reduction in costs of bidding, e.g. payment for bidding documents
- lowering of barriers to entry, e.g. compulsory industry
registrations
- access to additional or cheaper forms of business financing and
investment
- more transparent publication of business opportunities
- communication programs
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With little success?
• “In terms of estimated total contract value
secured, SMEs accounted for between 31%
and 38% of public procurement while their
overall share in the economy, as calculated
on the basis of their combined turnover is
52%”
EC Green Paper
19
Some modern illusion-prone procurement fields
E-PROC
SMEs
CORRUPTION
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High Expectations. Too High?
The paradox of the right solution.
It works best there where needed the least.
Anticorruption Authorities
Michela Wrong – It is Our Turn to Eat
Whistleblowers
Søreide (2008)
firms will not engage in whistleblowing against corruption- related challenges in the
local business climate unless local levels of corruption are considered to be low
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The Case for a Different Approach
• “Corruption cannot be considered in isolation […] it
follows that anti-corruption policies which focus
narrowly on the corruption issue will miss the
complexity of the relations and are therefore likely
to fail. More appropriate, then, are policies which
aim to suitably reform prevailing governance
systems.”
Lucio Picci, Reputation-Based Governance, Stanford University Press, 2011
22
What do we Know about Corruption?
How much of this waste is passive
(inefficiency) vs. active (corruption)? “On
average, at least 82% of estimated waste is
passive and that passive waste accounts for
the majority of waste in at least 83% of our
sample public bodies.”
How Much Public Money Is Wasted, and Why? Evidence from a Change in Procurement Law
- Oriana Bandiera, Andrea Prat, Tommaso Valletti, American Economic Review
23
Corruption’s Companions
1) Incompetence.
Corruption pushes for low investments in competence.
Incompetence drives “capture”, which often coincides with “soft
corruption”.
2) Collusion.
a) Collusion benefits from corruption:
- To make defection harder or impossible;
- To make cartels even more profitable.
b) Corruption can be facilitated by collusion
- Rents (extra profits) are resources for corruption;
- Lower probability to blow the whistle against corrupt officers.
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MODERN AND INNOVATIVE
APPROACHES
IN WHO TO BUY FROM
IN PUBLIC PROCUREMENT
25
Smes, again?
“One idea, for instance, might be to set
targets for SME shares in overall
procurement”. EC Green Paper
26
The EU paradigm
• “The EU is not in favour of reserving
markets to specific undertakings. Such
actions would also be in contradiction
with the principle of equal treatment of
tenderers, a fundamental pillar of the EU
public procurement regime anchored by
the Court of Justice in the Treaty
freedoms.” Green Paper.
27
Are they all against equal treatment?
A few tiny nations have been using this approach:
•
•
•
•
•
•
USA (since 1953), SB Act and SB Authority
Brazil
South Africa
China (last year)
India is back.
Mexico.
Shouldn’t we at least discuss it?
What is its impact on Competitiveness and Innovation?
28
The US one: the Small Business Act
“The essence of the American economic system of private
enterprise is free competition … The preservation and expansion
of such competition is basic not only to the economic well-being
but to the security of this Nation. Such security and well-being
cannot be realized unless the actual and potential capacity of small
business is encouraged and developed. It is the declared policy of
the Congress that the Government should aid, counsel, assist, and
protect, insofar as is possible, the interests of small-business
concerns in order to preserve free competitive enterprise, to
insure that a fair proportion of the total purchases and contracts
or subcontracts for property and services for the Government
(including but not limited to contracts or subcontracts for
maintenance, repair, and construction) be placed with small
business enterprises ….”
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At least import this!
The Sba Procurement Center Representative (Pcr).
These are representatives of the U.S. Small Business
Administration in the various large Procurement Agencies.
Functions and Powers:
• 1. Analyze the procurement strategies and verify if contractbundling is necessary and justified
• 2. Propose alternative solutions to the contracting officer to
foster SMEs partecipation
• 3. In case of a failed agreement, escalate the issue in the hands
of the Agency Manager.
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E proc and SMEs
E proc is not a sufficient condition for solving SMEs
problems.
Is it a necessary one?
I would argue not.
I would argue that SMEs sensitivity makes e-proc a
better tool. Develop that sensitivity!
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ICENTRALIZATIONT
• A few or even a unique platform for all the nation’s
public procurers.
• Those procurers remain independent in their
pocurement strategy so as to avoid political issues,
large tenders against SMEs, repeated purchases of eproc systems, lack of interoperability that depresses
benchmarking, best practices and competition and
raise costs.
• Spending review and society’s monitoring and
participation is made easier.
• The Korean Koneps model (supporting SMEs).
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MODERN AND INNOVATIVE
APPROACHES
IN HOW TO BUY
IN PUBLIC PROCUREMENT
33
A “good procurer” avoids waste
Waste arises from:
Incompetence and Corruption.
Keeping in mind that:
a) Incompetence and Corruption sustain each other;
b) Cartels and Corruption sustain each other;
c) Cartels are pervasive in … procurement.
34
Spotting a cartel in PP
Too hard to do:
a)
b)
Cartels can be done over time (today I go, tomorrow you go) or over space (I go to
Rome you go to Milan): how can one notice?
Stopping a cartel might mean stopping sourcing of urgent services or delivery of
goods: organizational problem and internal resistance.
So….
Antitrust authorities and availability of CENTRALIZED public procurement data, together
with (credible) whistleblowing legislation are the best instruments to fight it.
Removing breathing space for corruption.
Internally, competences and the right procurement strategy might play the same role:
making cartels’ and thus corruption’s life miserable…
35
Investing in Competences (UK 2009)
“Since we can’t borrow anymore, we see
procurement as the best source of revenue
stream… Investing in the function tasked with
delivering these (efficiency) targets is a clear
spend to save business case”.
UK Government
(that makes corruption riskier and less palatable)
Is it Enough?
How to Maximize Competence Returns?
36
In One Slide …
Foster Organizational Change in
Procurement Toward Performance
• Use Data! For Internal Improvement.
• Use Data! For Setting Targets, Motivations,
Rewards.
• Use Data! That are oriented toward output-based
measurement of performance.
• Organize Institution Around Self-Improvement.
• The Philippines example stands out as a potential
benchmark:
37
A comprehensive approach
• The results should not be used to compare the
agency’s score against that of other agencies but to
provide a benchmark against which it will measure
its own subsequent performance. The assessors shall
then identify areas of strength (sub-indicators
receiving a satisfactory or Very Satisfactory score)
where it can continue to improve and weaknesses
(sub-indicators rated poor or acceptable) where it
needs to develop a specific plan of action.
• A Plan of Action to Improve Procurement Capacity
will then be developed …
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Summing-Up
Good Governance in Public Procurement
Relies Fundamentally on the Motto:
“Attract, Reward, Retain and Develop”
within
Performance-Based Procurement
The challenge of modernity?
Live without illusions and
organize life around your aspirations.
It can be done, it is not an illusion.
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