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31 May 2011, Posted by Eric Karstens in European Policy, 0 Comments

The art of EU procurement


Public procurement, as all those know who ever came in touch with it, is a complex and delicate subject. It is a procedure by which governments and all kinds of public authorities buy goods and services – basically anything from motorway construction to spacecraft to the printing of brochures or the cleaning of public toilets. The European Institutions are among the most important actors in the area.

Not only has the EU, true to its commitments to the single market and to harmonising regulations across Member States, masterminded the very rules of public procurement, but it is also one of the largest tendering authorities itself. In order to carry out its duties, the Union is forced (or lucky enough, depending on your perspective) to rely to a large extent on all sorts of third-party service providers – on a significantly higher level, actually, than Member State governments, which tend to have a much more extensive machinery of public servants and infrastructure at their disposal.

The primary purposes of public procurement are three-fold: First, it is supposed to make sure that taxpayer’s money gets spent as efficiently as possible; second, it aspires to be a safeguard against corruption and favouritism on the part of public servants; and third, it intends to present all potential bidders with a fair and level playing field. All three are much easier said than done, and there are many pitfalls along the way.

At the same time, and particularly when – like the EU – public authorities turn to external providers not merely for construction, maintenance or purchasing equipment, but for actual policy implementation, public procurement has a political angle that goes beyond the specific objectives of any individual tender. It is not only a way to get mundane things done. It is also an element of proactive policy-making.

Scope for design

While legal and procedural aspects overwhelmingly shape procurement, there still remains a significant scope for design of calls for tender and proposals – the how of the procedure. For instance, it is very important how much money is foreseen to be spent under the prospective contract, and, if it is indeed big money, whether the services are sub-divided into lots or not.

Lots are portions of a task. Say, you want to have a house constructed. So you can either select a general contractor who is supposed to hand over the turn-key building at some point, hopefully without you having to do anything in the meantime (in reality that never works out, particularly not where construction is concerned, but anyway). Or you can hire separate firms for each craft, such as bricklaying, electrical installations, plumbing, and so on. This will, of course, render your coordination efforts much greater, unless you hire yet another provider precisely for that purpose. On the upside, though, you can probably select from a much greater number of specialists and buy particular expert skills a general contractor might just not care about as much as you do.

The “lots or not” decision always depends on a careful assessment of interests and objectives. In many cases, bigger is better, for example because you can leverage economies of scale or because the general contractor happens to be an expert for the integration of a variety of suppliers. Just think of cars – you want to buy a specific make and model, or at least a particular type of car, yet not be bothered with where you get the engine and who does the paint job. And, naturally, buying 1,000 cars at once will get you a much better price than buying only one.

It is, however, not always so straightforward. Let me illustrate this with another (equally made up) example: Say, you want 200km of highway constructed and greenery planted on the roadside once it is finished. Road-building typically requires big, resourceful companies on national or international level, but a regional nursery might have the best knowledge about what kinds of shrubs actually to plant and how to maintain them efficiently. Obviously, the nursery has no chance to apply for the whole contract, while the construction company might think “How hard can it be?” and throw in a few bushes which in the end do not look particularly good and turn into an upkeep nightmare.

A division into lots would here not only increase the prospects of getting the best people to do each individual job, but also make prosper the very small- and medium-sized enterprises (SMEs) which are one of the EU’s most coveted target groups in business. Of course, the local gardener could form a consortium with the roadworks conglomerate, but that is always a difficult process and may, in some cases, even be detrimental to the gardening firm which would not want a possible future competitor to learn too much about their internal production methods and costs.

So, as a rule, administrative convenience should not trump the potential impact on economic infrastructure or the quality considerations of public procurement. Upon drafting tender specifications and calls for proposals, it is important that the ordering authority try and put itself into the position of smaller organisations, start-ups, or players attempting to break into new business. Even while observing all the requisite safeguards, precautions, and value-for-money criteria, many a call still has the potential to be cracked open to others than only the biggest, most diversified contenders.

Stating the requirements

To come up with tender specifications is, however, almost an art form. First, you need an extremely good knowledge and concept of what exactly you are demanding and how potential contractors are most likely going to produce it. Then (and this is where art comes in) you need to make a lot of decisions about where you better draw a line specifying the individual items without jeopardising quality and practicality of the contract-to-come.

When buying cars, for instance, it would usually be unnecessary to specify the diameter of the wheels or the materials of which they are supposed to consist. Yet when you order trains, it might be entirely indispensable to dictate precisely that in minute detail. Other contexts – just think of, for instance, EU Neighbourhood or Enlargement Policy – might lend themselves to stating precise objectives while remaining as open and vague about implementation as possible in order to make room for innovative and unconventional solutions, such as in asking for an appropriate mobility offer rather than cars or trains or any other specific means of transport.

This task is not trivial at all. The most expertly drafted tenders keep bidders on their toes and get the best and most transparent deal for the taxpayer. The ones that represent business as usual mostly do no harm, but may accidentally miss out on better opportunities.

But there are also cases where substantial flaws of the tender specifications come to light that cannot easily be amended, resulting in the cancellation of the procurement procedure. As a measure of last resort, it is the privilege of public authorities to just drop the entire process at any time before a contract is signed. From what I can tell, the EU is actually much better in this area than many Member States, where tenders get routinely cancelled. Still, it happens at EU level, too, and in many cases it turns out afterwards that the trouble could have been foreseen and avoided in the first place.

Hence I would call upon the authorities to always rigorously test the very logic of the tender specifications before publication. When in doubt, they could have another department or a knowledgeable outsider analyse the requirements and simulate any requested case studies, itemised price lists, or other potentially contestable aspects. A flawless procedure not only eventually reduces work and worries for the tendering authority, it also best epitomises the spirit that should guide public procurement – transparency and, ultimately, public benefit at many levels.

Postscript on 27 December 2011: The European Commission has proposed a revision of the existing directive on public procurement on 21 December 2011, which is set to tackle some of the aspects mentioned in the above article.

Thanks Flickr user ell brown for the photography.

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