What will public procurement look like in 2025?
Interview with Abby Semple, a Procurement Consultant and postgraduate student at the University of London Birkbeck College, who runs the blog Public Procurement Analysis. She’s also an expert in sustainability in procurement. Earlier this year Abby was one of the first authors out of the gate with A Practical Guide to Public Procurement, a book about the new public procurement directives. There were many topics we could have chosen for our talk today but we settled on one slightly different from usual. Today’s talk is focused on the future of public procurement, more specifically how procurement may look in 2025.
Hello Abby, thank you for coming to the show.
Thank you. Nice to be here.
We were discussing when we were setting up the interview what topics we could cover and what questions we should go for. One of the first ones you suggested I think is very, very good, if you look ahead for the next ten years or so what would we perceive is going to be the changes to the market in public procurement in Europe? Will there be more or fewer contracts advertised and more or less competition?
Well it’s maybe a bit of a risky topic for me to have proposed because I think most people throughout history who have tried to predict the future have been proven wrong! It’s often interesting to see in which ways they were proven wrong so it’s maybe a little bit dangerous to talk about this but never mind, you know, it’s a Monday morning so may as well get stuck in. In terms of that question of more or fewer contracts, for me the big question is at what level are contracts being advertised? Are we just talking about OJEU advertisements or are we talking about national databases, national websites? And my guess would be that you’re going to have about the same number of contracts advertised in the OJEU but a lot more contracts being advertised on national websites at national level and a lot more potential at least for cross-border competition via those national portals as they sort of gear up. And I don’t know whether they’ll all be following similar standards but at least they’ll become more intelligible, more accessible to bidders outside of the Member States where they’re being advertised.
So you reckon that it’s not going to be a big change above the thresholds and if there’s to be any change at all it’s going to be below thresholds?
Yes, that would be my best guess. Because if you look at what’s advertised in the OJEU at present you see some really interesting trends in terms of which countries are advertising the most contracts and it tends to be the newer accession states who are advertising a lot of contracts and many of those are below threshold contracts. So I think in some cases there’s a little bit of over-anxiety about advertising. In some cases those advertisements might be required because they’re receiving EU funding for a specific project or contract but if you look at some of the older Member States, like Germany for example, Germany advertises a very low number of contracts, and that’s partly because they have a very decentralised procurement system, but I do think you find that as time goes on countries get used to the idea of they don’t actually need to advertise every contract in the OJEU and as procurement potentially becomes a bit more competitive below threshold within a Member State, you see “okay, we’re actually getting adequate competition by advertising at national level”.
In terms of the national advertising of contracts, do you reckon that just by the fact that those contracts are going to be advertised, albeit in a national portal, those contracts will more likely be subject to cross-border interest and more likely may attract actual interest from cross-border economic operators?
Yes I think the potential is there. And again if we’re going to get our crystal balls out we need to think about what are governments going to be buying in 2025? And we’ve certainly seen a move over time, governments to some extent are still buying hard supplies but there’s been a general move towards buying services over the past fifteen, twenty years. And that partly reflects the fact that certain functions of government have been privatised or they’ve been partially privatised or that things are being outsourced through service contacts, whereas previously it might have been a supply contract with the service element being provided in-house by a public authority. So that’s been a trend in quite a few European countries and I think you need look at the nature of the services being advertised.
We sometimes talk about cross-border procurement as if it’s just a question of access, that companies can know about contracting opportunities and then they’ll bid for them but of course they also have to actually be able to deliver those contracts. So if it’s a type of contract like a social care contract where you very much need to have a strong presence on the ground, you need to be able to work with employees in the location where the contract is going to be delivered then I kind of doubt we’re going to see huge amounts of direct cross-border procurement for those type of contracts. On the other hand we see a move towards things like printing, digital services, data services, all of those obviously have huge potential to be outsourced on a cross-border basis so I think we will see more in that sector. So the question of the overall amount of cross-border procurement that we’re going to see depends first of all on what type of contracts are being advertised and then, secondarily I think, on how accessible are those contracts to bidders in other Member States.
I think you’ve touched on a point that is very important which is the one about the kinds of services that are being procured right now or are going to be procured in the future. I mean if you look at the development of digital services in general we see that their importance has been increasing in terms of GDP, in terms of percentage of GDP as time goes on and it’s not going to stop there, so it’s just a question of time to that kind of influence to start to be seen as well in public procurement. So one of the things I think will happen in the near future is that we’re going to have a lot more digital services being acquired and being procured, and by definition those digital services by and large come in at values well below the current threshold levels, so that’s one of the discussions that I’ve been pushing forward over the last couple of years now which is what should we do to the thresholds going forward?
I’ve read some of your work on that and I think it is quite a big point to raise: what is going to happen with digital services and should we be looking at lower thresholds, should we be getting rid of the idea of thresholds? I think again being realistic about what’s going to happen over the next ten years it’s probably unlikely that the thresholds are going to go way down, partly because they’re linked to international agreements that are in place, whether it’s the WTO Government Procurement Agreement or these bilateral trade agreements which are potentially going to come into effect over the next few years, and I think there would probably be a reluctance to lower the thresholds if that’s going to be then passed on to third countries as well. So whether we start to look at a sort of two-tier threshold system where one threshold applies in the European Union and another in respect of third countries, I don’t know whether that’s realistic. But I think beyond the issue of “okay, are these contracts subject to the EU rules? Are they advertised at EU level?” I think there is a more fundamental issue in terms of digital services and in general ICT contracts, are they appropriate for the way public procurement runs, this idea that you can sort of have a competition and define outputs and award a contract and then sort of stick to those outputs. And I think for some of the more straightforward contracts that’s fine but increasingly we find there’s a long list of failed digital services or failed ICT procurements, not only in the UK and Ireland but elsewhere, so I think that is a real challenge for the rules and how we apply the rules to those type of contracts.
I remember having a conversation a few months ago or last year with Frank Brunetta the Canadian Procurement Ombudsman and he was making a suggestion that actually makes a lot of sense, which is if you think about it the way that procurement is run today it’s based on premises and ideas which were designed to allow for the procurement of goods and works. And that is a very different kind of exercise that perhaps the procurement of services would require?
I think that’s absolutely right and you still see that. Maybe a little bit less so in the 2014 directives compared to their 2004 predecessors but it’s quite clear that they’re written from that point of view, of being able to define an output, of having a pretty good idea of what it is. That said, we have seen the introduction of the Competitive Dialogue and more recently the Competitive Procedure with Negotiation. Competitive Dialogue in particular, as you well know, is designed in particular to be appropriate for those type of contracts but unfortunately we’ve seen a bit of a backlash against it in the UK. There are a lot of countries where it’s never been used at all or used only very rarely which I think is a real shame because it does have the potential, for ICT contracts or complex services, to be the right procedure.
I agree with you. Moving onto the second topic, what kinds of award criteria and procedures do you think will be the most common?
One of the things that I have as a big question mark in my mind, because it’s an area where I’ve done a bit of work recently, is this idea of life-cycle costing. It has always been possible, if you’re using most economically advantageous tender as your award criteria, to apply a life-cycle costing approach. What we see in the most recent European directives is that there’s been an attempt to set more detailed rules around how you do life-cycle costing, what information you can ask for and there’s this concept of data that can be provided “with reasonable effort by a normally diligent operator”, which I think will be an interesting one if it gets litigated, which it probably will at some point in the next ten years. So that’s one question in my mind, are people actually going to use life-cycle costing or are they going to be scared of it by the fact that there are more detailed rules around it and that there is a potential for an operator to challenge the use of life-cycle costing if they don’t like the outcome. I think what we’re seeing across industries is that supply chains are getting more complex, that the level of data that people are looking for is really unprecedented, so it is a challenge and it’s a challenge which some companies are very well aware of and are working hard to address but obviously not all of them.
Do you think that lifecycle costing is going to be used a lot over the next decade?
I think there will be a desire to use it. I think it’s something that people are aware of. I think it makes economic sense as well as environmental sense. So as procurement becomes more professionalised, as it becomes a bit more sophisticated definitely the idea of awarding a contract based on purchase price alone is going to become a bit of anachronism except for maybe some very basic types of supplies or commodities. So I think in general we’ll see more of it but there’s this question of are people going to call it life-cycle costing? Are they just going to say “look, here’s our form of tender and we want you to cost the following eight things” and not refer to it under this idea of life-cycle costing?
In terms of procedures, which ones do you think are going to be the most common?
The open procedure I think will continue to be used. There are people who say the open procedure is too basic, it doesn’t make sense but I think, the open procedure is always going to work well for certain types of requirement. And we know that at the moment it accounts for about three quarters or at least two thirds of procedures advertised in the OJEU.
Except in the UK?
Except in the UK. So the UK and Ireland have always been a bit of an exception to that, there’s been a preference for the restricted procedure. It’s interesting because some of the figures I’ve seen suggest that one of the reasons for that is that, particularly in Ireland, is that procurement tends to be more competitive, if you’re running an open procedure even for a relatively low value contract you could be getting thirty or forty tenders and some of those will be cross-border tenders because of the fact that we’re running procedures in English and quite a few Europeans now have English as a very strong second language. So there is an experience of receiving more tenders. I think for that reason local authorities, local authority procurement tends to be a bit more competitive than central government procurement, they have said “right well we’re going to use the restricted procedure because we just don’t have the resources to deal with assessing thirty or forty tenders every time we procure a relatively small value requirement”.
I think that that tendency will continue to exist but the thing that’s changed under the new directives is that for the restricted procedure, you have these more extensive publication requirements at the beginning of a restricted procedure. So if you look at Article 53 of the Public Sector Directive it says that you have to have the procurement documents “fully and freely available online from the date of a contract notice”, and it’s a little bit ambiguous as to whether that includes your invitation to tender which formerly would have been a second stage publication, but now it looks like you have to publish it at the outset unless you have a reason for not doing that. So I think perversely that might actually encourage people to go for the open procedure because they’re going to say “well we’re going to have to publish everything at the outset anyway so we may as well just go open procedure”.
I’ve got a comment about Ireland, I understand what you say in terms of the language and it makes a little bit of sense, however I mean tenders here in UK are also in English and the UK is probably one of the member states with the lowest levels of cross-border procurement, are foreign economic operators actually winning tenders in UK?
I think we do have to take the figures on that with a grain of salt.
I cite them and you and everyone else cites them but I think in general we’re talking about that one study that was published in 2011 on cross-border procurement and while I think it’s very valuable to have that study, even within that we saw there are issues with methodology in terms of sampling, there are issues in terms of the quality of information we’re able to get from OJEU award notices. So I think it’s probably accurate to say there are not huge amounts of direct cross-border procurement happening. When you get into the more complex questions like “What about indirect cross-border procurement? What about use of subcontracting?” I think we definitely do have to take those findings with a grain of salt. That said, it probably is true that in the larger Member States like the United Kingdom you’re always going to have lower levels of cross-border procurement because you simply have a bigger domestic economy and you have a greater chance that economic operators will see it as being worth their while, if they’re serious about tendering for government business, to set up an office in that Member State.
And also it’s more likely that you’re going to have a supplier inside a country that’s going to be competitive enough to win the contract?
Exactly. So it is interesting again, while accepting that we can’t take them as gospel, to look at the findings from that study that you do see patterns. Ireland has pretty high rates of cross-border procurement, partly because there are two countries on the one island, so obviously there are Northern Irish companies bidding for contracts in the Republic and vice versa, that automatically puts the numbers up. But then you see countries that share a language, in Germany and Austria you see slightly higher levels of cross-border procurement between them. So there are all kinds of interesting patterns that give you an insight into where this is happening and perhaps why it’s happening.
Okay. Let’s go on to the third topic, will procurement challenges be more or less frequent?
I think this is one that obviously is of interest to the lawyers but also of interest to contracting authorities because there is at the moment a big discrepancy in the frequency of challenges between Member States. It’s an issue I looked at a little bit in my book, I focused particularly on the UK and Ireland and I think the major thing we have to take into account is the cost of bringing those challenges. And for as long as you have a system which requires bidders to bring a challenge in one of the higher courts that’s going to be extremely expensive, and even though the threat of procurement challenges might always be there, the actual number of challenges which make it through to Court is going to be reasonably low in those jurisdictions. In a way that’s kind of beside the point because the thing about procurement challenges is that a lot of it is hidden, we don’t see the letters that contracting authorities receive, we don’t see how they react to those letters for anything that falls short of court proceedings usually in the United Kingdom and Ireland. Then in other Member States such as for example Sweden where they have a relatively accessible means of challenging contracts, you obviously see much higher numbers, but at the same time I don’t know whether the threat of challenge is really taken as seriously by contacting authorities. That’s maybe something you could talk to Andrea Sundstrand or someone else about, although I think you’ve already interviewed her haven’t you?
Because my feeling is when I’m working with a client in the UK or Ireland and they are potentially on the receiving end of a procurement challenge, that’s something they take extremely seriously and often they’ll decide to cancel a procedure and start again simply to avoid having to go through that lengthy process of challenge. And I don’t know whether that really applies to contracting authorities in countries where the remedy system is not as expensive, perhaps not as big of a deal essentially to undergo a procurement challenge.
And to my mind that’s actually a bit of a healthier system to have, to have a system whereby it’s relatively easy for economic operators to bring a challenge but it doesn’t have the huge cost and time implications that a procurement challenge does in the UK or Ireland because, let’s face it people do get things wrong, the remedy system is there to ensure that there is an avenue of redress when things do go wrong so you just want to make sure it’s not abused and that it’s not used as this sort of nuclear threat which I think it is in the UK and Ireland.
Yeah, I think that’s a very good point because I’ve got experience in other jurisdictions namely in Portugal and Spain and the normal thing is for every single tender procedure to actually be challenged.
So you just take it for granted and if you don’t get a challenge, well that was a good day for you. Whereas here in UK the perception, it’s more a cultural issue as well, which is if you get a challenge that is perceived as being a black mark, you made a mistake as a procurement officer that’s why you got the challenge, whereas in other countries it’s just the normal way of doing things. As for Sweden and Denmark to a certain extent they have remedy systems which allow other avenues for bidders to actually try to interfere with the process in a sense that if they think that something is going wrong or went wrong, so I think it is actually the Swedish Competition Authority who has the power to actually intervene during the procurement procedure. So that changes the dynamic a lot and the fact that you can have different kinds of systems remedy procedures which are different from just going to the course actually probably allows those systems and those procurement frameworks to work better. Another good example is Spain, Spain a few years ago they introduced a new review system or review mechanism whereby you could have access to administrative tribunals, literally independent tribunals are not dependent as they were in the past many, many years ago, the fact that you can have a quick decision taken in a few months with a price that is reasonable actually has improved the way that the procurement market works overall.
That’s interesting. A quick decision and also potentially one by someone who understands procurement…
…because they’re dealing with it every day and, with all due respect to judges in the UK and Ireland most of them are not dealing with procurement challenges with any type of regularity. I mean we see now with the Technology and Construction Court in the UK that there are a couple of judges who have developed that expertise but it is a difficult area I think. And judges are quite upfront about that sometimes, they say “I’ve had to go away and read hundreds of pages about public procurement and I’m still not sure I’m applying the right approach here” and that I think is not an outcome that’s in anyone’s interest. It’s a huge use of resources in order to resolve what sometimes look like pretty stupid claims to be honest, or very minor points about “did this person score this correctly?”. And there’s no implication sometimes that anyone has acted corruptly or that they’ve even really committed a serious breach of the rules, just that there was some kind of basic error that happened but it takes so long and it takes so many resources to resolve that error, and then what is the outcome of that challenge? It doesn’t necessarily mean that the challenger gets the contract, they might get damages if they’re lucky and the authority might have to re-run the procedure. So I think the ratio of costs and resources going into procurement challenges versus what they’re doing to improve outcomes or to remedy problems that have occurred in procedures is the balance, we’ve got it wrong at the moment in the UK and Ireland and I think we would be well advised to look at systems that are in place in other countries. Even potentially the Procurement Ombudsman system that they have in Canada and other countries.
I’m a huge fan of the Procurement Ombudsman system and I think that is one of the best. Unfortunately I don’t see the UK adopting it anytime soon but that’s my take. One final question, Procurement of Innovation, is it the idea of the future and will it always be an idea of the future?
It’s got a bit of both attached to it. I think for good reasons because particularly coming out of the financial crisis in the European Union, there was a need to do more with less, government went through a bit of an existential crisis in a lot of countries, what is our role? Innovation that really works is something that everybody wants and everyone can agree on. What it actually means in practice I think is a bit more difficult and I have been through a couple of innovation procurements recently where it’s extremely different, it’s 180 degrees away from normal procurement where you know what the outcome is. People talk about using functional or performance-based specifications, I mean that’s fine but you still need to be able to evaluate what bidders are proposing to you, you need to be able to structure your contract in a way that creates the right incentives on both sides. So yes, I think there is a capacity being built up to do it but I don’t think you could say anyone is really in the business in Europe of innovation procurement on a regular basis or at least I’m not aware of it. And people often cite examples from the US about the work that NASA or the Department of Defence has done that led to the development of the internet or that the health research networks have done, and it’s interesting on an anecdotal basis but I’m not sure it really translates as a model that can be adopted on a mass scale. So it will be interesting to see what comes out of all the sort of Horizon 2020 funding because there’s a lot of that going round at the moment but I guess I’m a little bit of a sceptic about the ability of the EU funding programmes to create a culture, cultural change. I think they can certainly be influential at the level where people are able to do things they wouldn’t otherwise have been able to do. But if you’re trying to push people into what is quite a profound cultural change, which I think innovation procurement is compared to normal everyday procurement, that takes a lot of time and ongoing incentives rather than just having a one-time access to a European funding stream. There needs to be support at local level, at national level, and there needs to be an understanding of, “What is this? Is it valuable? Is it something that’s going to get us towards our long-term objectives?”
I think we still have time for one quick final question. What would you like to see changing between today and 2025?
Well a lot! But since we only have…
Just one idea?
One idea? I’d like people to be less afraid of the procurement rules. I think there has been an over-legalisation of procurement rules. I think it’s become way too complex. I’d like people to be comfortable that they can procure something, they can get the right results without breaking any laws and if that puts a few of us who are procurement lawyers out of work then so be it. I think it’s more important that when public money is being spent people have the confidence that they can do the right thing and that they’re not going to wind up in court or hurt.
Brilliant. I think that’s a great way to finish the programme, thank you.
Thank you Pedro.
You can find me at my blog Telles.eu or on Twitter where I use two handles, @Detig for general discussion and @publicprocure for public procurement related topics. As ever I am grateful for the support of the British Academy Rising Star Engagement Awards.