Denmark

#17 - Grith Skovgaard Olykke (Copenhagen Business School)

Abnormally low tenders in public procurement


Interview with Dr. Grith Skovgaard Olykke, Associate Professor at the Copenhagen Business School about abnormally low tenders in public procurement and mixed methods research (law and economics).

 

Transcript

It’s great to finally have you here, and I’m very grateful that you accepted the invitation to be on the programme, and also to be one of the referees in the Early Career Research conference that we’re setting in for early March, and I was very happy with the kind of work that you did on selecting the participants.

Oh you’re welcome, and thanks for inviting me to participate.

 

Yeah, I’m looking forward to the conference, but we’ll leave that for the end of the show. Speaking about abnormally low tenders, this is your, I would say, your main area of research so far in your career, can you start by explaining us a little bit what are abnormally low tenders?

Well that’s a very good question to start with because there’s no clear answer, and that’s why it’s such an interesting research topic, I think. Basically there’s some agreement that there’s no definition of abnormally low tenders, which means that there’s a lot of discretion with authorities and with the national review bodies. Basically I think the idea is that the tenders are perceived to be abnormal though they don’t appear serious. But, then again, that’s a lot of discretion into defining what serious means. A general idea is also that there might be a risk that the contract might not be performed on the terms, and that could also indicate an abnormally low tender. The Courts of Justice has not been asked specifically what an abnormally low tender is, and hence my interest in this topic.

 

Yeah, I agree with you. One of the things that has always surprised me about abnormally low tenders, in addition to the fact that it’s not very well-defined, and the fact that is a very important limitation, a very important consideration in the whole area, what I find interesting as well is that even if a tender is found abnormally low, there is no obligation from the contracting authority to actually exclude such tender from the contract, it can still keep it.

Yeah but that was sort of the 2004/18 approach. Now with the new directive there’s actually an obligation to verify and to reject abnormally low tenders under certain circumstances. So that’s going to be very interesting to see what’s going to happen with the case law on this topic in the future.

 

Well, I hope it changes the practice because, for me, it never made much sense in the old directive that we would have a situation whereby a tender may be abnormally low but there would be no consequence for such tenders, so let’s keep an eye open for the near future on that area. In terms of the research that you’ve already done on abnormally low tenders, what have you found out that is important about this area?

Yeah well, to begin with, with my thesis, when I started, I was fascinated by this lack of a definition, so I set out to actually find out, with an EU law perspective, what is an abnormally low tender, and what I started out with was to think about where else do we have rules on low pricing. Obviously this would be competition law. What I did was to try to argue that a well-developed legal tool from competition law could probably be transferred into public procurement law, so I’m not talking about using competition law, I’m talking about utilising a tool developed in competition law to assess pricing in a procurement context. I call this the coverage of cost approach, because obviously competition law talks about you have to cover certain costs. So I tried to sort of transfer this into a procurement context. I think the approach is appropriate, in particular regarding arguments of coherence in the EU legal system, because if there is a difference between an abnormally low tender and a situation where a low price breaches competition law, there will be a risk of exploitation, of the public procurement context to distort competition and exclude competitors. So I think there needs to be coherence here, and that was one of my basic arguments.

 

In addition to that, and moving on a little bit to the work that you’re doing today, what has changed in the way that you are treating abnormally low tenders or the way that we should be treating abnormally low tenders?

I think so far we’ve had a situation where you couldn’t really do anything in these cases, unless the tender had been rejected. What I’m looking at the moment is Danish case law and Swedish case law on abnormally low tenders, and I see, a lot of these cases were the acceptance of low tenders has been challenged, but with no success because there’s no obligation to reject such tenders. I think it’s interesting to see what’s going to happen now with the obligation in the new directive where actually sometimes, having to reject abnormally low tenders when they’re low on certain grounds. That’s the Article 18(2)[?? 06:06] grounds, the social, developmental and labour law obligations that need to be adhered to. When you’re pricing a tender, obviously your price needs to reflect these costs . I think what we will be seeing, is going to be a massive change because now you’ve got a right to challenge the award to a low price tender, and this could be very interesting to see what’s actually going to happen. I think we’ll see a lot of case law and also think that the approach that I proposed in my thesis is actually supported by the new obligation to reject tenders, because as I mentioned, the tender has to reflect social and economic obligations. So, I think it’s a very interesting time for this topic.

 

What jurisdictions are you covering in the current project?

The current project is an interdisciplinary project, so I’m working together with Swedish economists. The law part is looking at what is the concept of an abnormally low tender in Denmark and Sweden, and there are differences I can already feel are there. And the economist is going to look at what kind of strategies might be identifiable in these cases, so what kind of strategic pricing might we see, and together then we’re going to look at how should strategic pricing that we see in these cases be handled legally, and also we’re going to try to say something about what’s going to change with the new provision and the obligation to reject.

 

On that note, do you think that there’s a relationship there between abnormally low tenders and what economists call the winner’s curse in auctions?

That’s not what we see.

 

It’s not what you see?

No, it’s not what I’ve seen in the cases that I have looked at so far. What I see in the case law is more the economic concept of unbalanced pricing, maybe?

 

Sure.

So some prices high, some prices low, according to what you expect demand might be, and it’s all the prices are collected in the assessment of the price, then you could have a good score on the price, even though your tender is actually going to be more expensive for the contracting authority because you’ve higher priced some of the items, that’s going to be demanded a lot, or that’s going to be the main part of the contract, but since other price items weigh the same in the assessment, then you have a very good price and you score well on the price. So I think that’s what I’ve seen so far, but I’ve only just started to go through the Swedes’ case law now and there’s a lot of judgments . It’s also acknowledged by the Swedish court that we see strategic pricing and basically that it’s OK.

 

Well, that reminds me, it connected with something that we’ve not talked about, which is additional works. I mean that reminds me, when I was a lawyer, and this was before the directive 2004/18 was [?? 09:05 resposed] into Portugal, I remember being a procurement lawyer and having discussions with clients, both private and public, about the sustainability of certain bits, and pretty much everyone in the specific sector, which I’m not going to disclose, obviously, they always under-priced their bids at least 25% because the Portuguese law at the time allowed them to, during the contract performance, to find ways to claw back those 25% legally. Things changed a little bit and the Portuguese law now imposes a 5% limit, so I don’t know if that’s changed the practice in Portugal or not. Now, what may happen nowadays, which, if I recall correctly in the directive, there’s not a hard limit or very strong limitation on additional works as it was in the past, what you may see is that there will be a tendency for suppliers to under-price their offers, their bids, precisely because they think that once they get the contract, they may try to make it up in additional works in, or additional services.

Yeah, yeah, I agree. You are referring to Article 72 on amendment of contracts,? I agree, and I think maybe the obligation to reject abnormally low tenders sort of goes in the other direction, because at least you have to share that some of the specific costs are covered in the tender, otherwise it would not make sense having an obligation to reject. So it could go both ways I think, but you’re right that the discretion to change the contract after it’s been entered into, puts at risk that you have to pay extra for the same.

 

Yeah, I agree with you in that as well. So looking a little bit further down the line, into the regulation, what do you think that we should do regarding abnormally low tenders? Do you think that the decision by the lawmakers, including mandatory exclusions of abnormally low tenders in the current directive, is a good thing or we should move back to the old system?

Oh, I think it’s a very difficult question, and I’m not sure that I’ve actually made up my mind.

 

That’s fine.

I think we have to see what happens, you know, what kind of cases we’re going to get. I know that in the Swedish practice I’ve been looking at, this is very preliminary research results, we already have quite a lot of cases on hourly wage, you know, you should have a specific hourly wage in your tender, and that’s sort of, something that I think we’ve got to discuss in the future, and I don’t know quite how this is going to end. So I think I’ll sit back a bit and watch and see what happens before I make up my mind.

 

Let’s explore that a little bit because that is a topic that is creeping up here in the UK as well, and at least some, I would say, some guidance, and if I’m not wrong as well, at least in the Scottish position of the directive, which is an effort to put the floor on the wages, which might be different than the minimum wage here in the UK.

Yeah.

 

Is that what’s happening in Sweden as well?

Sweden’s a bit complex because they’ve got a “problematic” collective agreement system. They’ve been challenged with the Laval case, and they’ve made some changes. It’s the same here in Denmark, we don’t really know what the minimum wageis. So we’ve got some issues. I think what they have been doing is trying to sort of fix a minimum hourly wage but not necessarily with reference to collective agreements, and some of the tenderers arguments in the case law that I’ve read is that we are actually adhering to the collective agreement but the minimum wage set by the contract unfortunately was higher than this. But it’s not really been explored by the courts, so I think maybe it’s the same trend we’re seeing in the UK, but there’s not been any arguments regarding the posting of workers directive, etc, because it’s been national cases.

 

Yeah, OK, makes sense. Moving onto the second topic that I would like for us to focus on today, which is your experience with interdisciplinary research. So as I said at the start, you have a mixed law and economics background, I think that it’s a very interesting mix of skills and approaches. What has been so far your experience in trying to bring those two different, let’s say, frameworks of thought into research?

Yeah, I guess I’m a bit biased because, as you said, I’ve got this business administration and commercial law education, and I’ve got difficulties letting economics, leaving economics completely out of my mind-set, not that that’s a necessarily good thing to do. So, I’m always thinking economics when I’m doing my research, and what I’ve tried to do recently is to team up with economists to do interdisciplinary research. I’ve focused mainly on law myself, but I’ve got some ideas of the economics that could be interesting to do as well, and then I’ve teamed up with an economist to do that part, and that’s been really fruitful and interesting for me.

 

So why do you prefer to bring on board an economist instead of doing it yourself, the economist’s bits, so that you can focus on law? Why do you do that? What is the benefit?

Well the benefit for me is that I’ve majored in the law since I finished education in 2006, so my economics is a bit rusty. I’ve got some of the general ideas and I just want to make sure that if I do research then the economics should be an appropriate level as well.

 

Yeah, that makes sense. I mean, that’s one of the things I’ve noticed which is there’s only so much you can do coming in from a different discipline.

Yes.

 

It’s good if you are able to bring, let’s say, some tools off a different discipline into our own. So for example, for my PhD I used social sciences research methods, and certainly I would like to use quantitative research methods in the future, with my research. But at the end of the day I’m also very aware of my own limitations.

Yeah, exactly.

 

And mine are even more pressing than yours because you have an education, an economics background, you have an education in economics, I don’t, so I left maths and all that section of knowledge in my education when I was 15 or 16.

Yeah.

 

So I think that is a very important shortcoming in my view about legal education in general, is that it does not foster in the students the development of those quantitative skills, and that’s something that, for example, I would like to work for in the future as well. But going back to the research, as time goes on, one of the things I’ve noticed is that, especially for us lawyers or legal minds, it’s very hard to have, I wouldn’t say complete but a realistic view about the problem if all the skillsets that are brought to bear in that research, are legal skills.

Yeah, I agree with you, I think it’s very important to have alternative disciplines or other disciplines having a look at the problem as well. Sometimes it’s completely new perspectives and I think it’s very important to actually get one step further, or, not just one more, but some steps further by bringing in another discipline. A very good example of this is a paper that has just been published in the European Journal of Law and Economics, which I co-authored with an economics professor on the concept of services of general economic interest, because it was something that I’ve been wondering about for a while, and I know that different people have tried to say something about, what are the services of general economic interests, from a legal perspective. So I talked to this professor, whom I taught a course with, that also concerned services of general economic interest, and we decided to try to work out what would be the economic point of view on this concept, and we ended up doing a very interesting article, I think, I had good fun doing the research, and we had great discussions on how we could bring economics into this concept which was mainly legal.

 

I agree with you because in my own research, what I’ve seen, and this is, as I said, an idea that has developed, that I’ve developed as time goes on, is that in the end, I mean, the legal perspective, it’s a means to an end, and that’s something that to me, as lawyers, sometimes miss out, we think that law is an end in itself. So when you’re drafting the laws, you’re thinking about the legal implications and not the wider implications of the law, and when we’re interpreting it, we’re just looking at the legal issues and the legal consequences instead of looking at actually what are the real consequences of whatever legal interpretation we are suggesting.

Yeah, we’re limited in that way, aren’t we?

 

We are, we are, but we’re so full of ourselves [?? 18:03] think, no no, what is relevant here is the legal solution, is the legal issue, and I said, no, I don’t say that’s the truth, the truth is, yes, there may be a legal issue and there may be a legal solution, but they are means to an end.

To solve this question.

 

Yeah, if we just bring the legal frameset into discussion, we are limiting ourselves in the way that we can actually make any changes and make an interpretation that is not only, let’s say, legally irrelevant but also relevant and consistent with what is out there in the world.

Yeah, yeah, exactly. And I think there’s a problem with the law in general because the law is sort of a democratic outcome, you might say. Sometimes you spot that there are inconsistencies and different incentives combined in the same legislation, which doesn’t make sense at all. And we can use economics as well to look at the inconsistency.

 

I find that interesting as well. So one of the things I say, or I did say when I was teaching procurement law to students was if you look into the old [?? 19:26] services, you can easily find out who are the strongest lobbies in Brussels.

Yes.

 

And I’ve always been amazed, for example, with the exclusion of legal services, I mean, there is no actual difference, in the end, that would justify the special treatment.

Yeah, yeah, true.

 

So I find that interesting, so that is more of a criticism to our shared background in law than anything else.

I think it’s more politics than law, isn’t it?

 

Yeah it is, it is more politics than law, but the thing is, again, it’s more politics than law but it ends up in law.

Yes, exactly.

 

So, to finish it off, what have you been able to get from having economists working with you in your research that you have not been able to get by yourself, even though you have an economics background?

I think it’s the insurance that economic methodology is correct, you know, there are experts on the topic, and you can choose an economist for what you need in your research, OK, because they’re so specialised on their specific theories and methodologies. So I think by bringing economists in you get an expert on a specific methodology or theory that you couldn’t bring in yourself, even though you have some ideas about economics and you’ve read all the general theories. And I think that’s very important. And they’ve also got, the people that I’ve been working with, some skills in, for example, handling of data that I’ve not been exposed to during my education. I think, they are specialists as well as we are, you know, so I think it’s appropriate to acknowledge this and bring economists in rather than just feeling that we can do it all ourselves by sort of general assumptions or reference to general theories of economics. I feel limited, you know, in economics because I focus so much on law. Even though, maybe I could study or maybe I could read up on things but I would be sure to miss something, so I’d rather bring in an expert from another discipline.

 

Yeah, I think that’s a very sensible approach. One of the things I’ve noticed as well is there’s a huge gulf between our language, the legal language, also the economist’s language, so sometimes it’s difficult to bridge that gap, and looking at your CV, the kind of work that you’ve done with economics, and obviously perhaps because you’ve had an economics background, it’s clear to me that you are able to communicate and bring together and draw out the knowledge from economics by using, [?? 22:04] from economics but also being able to develop your own ideas, you know, research by having good conversations with them.

Yeah, yeah, true. That’s one of the advantages of my background, I think, because I know what they’re talking about and I think it’s interesting to actually try to bridge those different terminologies between law and economics and just sort of an anecdote, the first job I had was actually as an economist in a consultancy house, and I was brought in in order to bridge the terminological or linguistic gap to the lawyers, you know. So that is a real issue where I think you have to be really open and ready to discuss these issues, but be open to the other approach from economics and other disciplines.

 

Yeah, I think that’s, again, a very sensible approach, and a great way to end the interview. So, thank you very much Grith.

You’re welcome.

#8 - Marta Andrecka (Aarhus University)

Framework agreements in public procurement

Interview with Dr. Marta Andrecka, Postdoctoral Fellow at the Department of Law at the University of Aarhus, where she is currently working on a project called "Dealing with legal loopholes and uncertainties within EU public procurement law regarding framework agreements" sponsored by the Carlsberg Foundation. Before taking up her present position she carried out her doctoral research in Denmark and Australia and worked at law offices in both Poland and the UK. The topic for today’s talk is framework agreements, a relatively popular way of undertaking public procurement.

iTunes

ranscript

Hello Marta, welcome to the programme.

 Hi Pedro, thanks for having me.

 My pleasure! I would like to start today’s talk by drilling a little bit into your background. So you’ve been a little bit all over the place, you’re now in Denmark, you’ve been in Australia, Poland and UK, how did that happen?

Yeah, that’s definitely true, I’ve got a fair bit of international background, if you could say that. Well it started like usually it does a little bit by different opportunities coming across my way and yeah, I did my Master programme in Poland when I was already dealing with some of the procurement issue in regards to the licenses in commercial air transport and the procurement area was the one that was I working with during the time of my work as a practitioner in Poland and then a great opportunity of doing a PhD in Denmark came along and I dived into that and that took me all the way to Australia when I was comparing particularly the procurement framework for public private partnerships, so the way that they’re doing that in Australia and the way that we’re doing it in Europe and some interesting outcomes came out of that. The current project that I’m doing is again a type of comparative studies, comparative research, which is regarding the framework agreements as you mentioned and I’m looking at the framework agreements, the way that they’re implemented and the problems in practice occur] both in Denmark and in the United Kingdom. Just the beginning of this year I spent several months in Bangor University in Wales where I was mainly focusing on that bit of comparative studies in the UK conducting the interviews with the contracting authorities and central purchasing bodies and finding out more about the issues at large in the UK.

So what are such matters are you using?

Well the way that I wanted to approach this current project and frameworks was to talk really with practitioners and the reason to do that was because a) there is not really that much in the sources to find so we don’t really have at least at the European level, we don’t have much of the case law and actually this is duplicated the same way in the national legal systems in the UK and in Denmark, that there is not really a lot of case law on those issues but at the same time, like you already mentioned, framework agreements became over the last decade very popular and they’re representing more and more of the procurement in member states and there are several issues with them so I thought that I would just speak with the stakeholders in both of those countries, so the method is through conducting semi-structured interviews with the contracting authorities and central purchasing bodies and finding out what problems and what legal uncertainties they’re finding in their day-to-day practice and of course building upon that, I’m applying afterwards the traditional legal research methods.

In your view why are framework agreements important in 2015?

Well I think that one of the reasons is definitely a certain change over the last years in the way that we or the procurement in general is changing, so there is a certain professionalization of the procurement and there is a certain leap as a centralisation of the procurement and framework agreements are definitely the ones that are used to a large extent for aggregative procurement and through the fact how often they are actually using some of the member states, they represent a quite high value in public spendings. So you mentioned the numbers for the UK, if we look at Denmark one third of procurement currently is done through framework agreements.

In terms of spend?

In terms of spend I’m not able to actually give you currently the particular amounts but there’s comparably high number because it’s again aggregated procurement so they represent quite high value.

That’s a lot of money.

That’s a lot of money and what is interesting that on the one hand you’ve got those countries like UK, like Denmark, France and the Netherlands, that use the framework to a large extent and then on the other hand you’ve got countries like Poland that do not do almost any framework agreements due to the fact of worrying of how untransparent in this member state opinion frameworks are and being afraid of being controlled by other national organisations and being in the end of the day judged by doing things in untransparent, uncompetitive manner so there is a certain bias about them that I think is quite interesting.  

Have you seen for example the difference between the older member states in the EU, let’s say the ones that joined the EU before 2004 and the more recent ones in terms of how they use framework agreements because you’re mentioning Poland as an example where framework agreements are not used very often but at the same time all the examples you gave of member states using framework agreements, often those were what I would call old school or old style EU member states.

Well yes, definitely I think that there is something in it, there is a certain I find different level of trust towards public authorities in those member states so I think that the ones that represent Poland as being one of the representative of the old Eastern Bloc, there is a certain hesitation that we want to mainly focus to check if the money that we’re spending is spent in the correct manner and obviously the issue of corruption in public sector is being brought up much more often than, for example, in a country like Denmark but at the same time from the latest news you can find out that we have a problem of corruption in public procurement also in Denmark, so a bit of both I guess.

But have you found issues surrounding corruption in framework agreements in Denmark or is it disconnected with framework agreements?

I didn’t particularly look into the issue of corruption. I think that what can be understand in a certain way but I think that it’s more an issue of being untransparent rather than corruptive, is the fact that very often we don’t know what’s happening in framework agreements at the later stage, so quite often the way that the contracts are awarded is probably not in the most openly competitive manner or in the most transparent manner that it could be.

In addition to those problems what else have you found that you were not expecting in terms of practice and solutions that contracting authorities have designed surrounding the framework agreements?

Well it’s actually quite interesting to look at those two countries that I chose to compare, so Denmark and United Kingdom because a lot of elements that follows from practice is quite opposite between them two. So if you look at the UK, majority of stakeholders tend to agree that the multi-provider framework agreements, so the framework agreements with several suppliers are the ones that tend to be used much more often, when on the other hand in Denmark definitely the single provider framework agreements are the one that are preferred and there is also a quite different and at the same time very strong argumentation why each of them is chosen, so when we look at the UK there is definitely a very strong push toward the value for money and receiving the best possible economic outcome from the framework and from that reason there is always mentioned the aspect of mini competition on their framework agreements allows you to do that because you retain a competitive tension to the very last moment and so on and so forth, so this is what every single organisation that I had opportunity to talk to, they would always emphasis that very strongly.

On the other hand if you look at Denmark, the reason why the organisations up here tend to say that the single provider framework agreements are the one that are preferable is to the fact of again, in their opinion, being able to achieve the best offer, best offer understand is you providing a certain exclusivity to that supplier so he was willing to give you the best deal. But also due to the fact of administrative costs, so a cost of having such a framework is cheaper and also the contract management and the contract management element is being brought up very often as the element making it easier to handle actually the framework agreement, so very often we will be dealing with hospitals, we will be dealing with schools and that was very often repeated to me that, well teachers or doctors they’re not specialist in procurement and they don’t want to be dealing with setting up mini competitions or dealing with procurement process, they just want to choose particular, I will say particular goods that they need to. So there is a quite different approach to that, definitely in Denmark we want to get the biggest control over the framework that we have but also we want to simplify the process as much as possible and from that reason maybe again the more centralised frameworks become more and more popular because then you don’t need to deal with the issue of setting up the framework on your own as a contracting authority, you don’t need to use your own money to do so or at the same time your own staff members, you can use the resources I used through the centralising purchasing body, so there is a different argumentation for choosing both of them.

I’ve got a couple of questions, one for each country. Starting with the UK and based on my own experience during qualitative research and using the same methodology as you if I see my structural interviews, one of the things that is important to control when you’re doing this kind of research is that there’s usually a difference between what people tell us that they’re doing and what may be happening in practice. Allow me to explain. If you talk with the people at the top of the organisation, obviously they will always say to you that they’re doing the best job possible and in the case of frameworks they’re using the frameworks this way so that it ensures that, for example, value for money is achieved and they get the best possible deal out of the framework but my experience when I actually analysed framework agreements in themselves and when we start talking with people in other roles inside the organisation, that image of certainty and security about certain outcomes begins to crumble and in other areas, some of my former colleagues at Bangor University which you know very well, a few years ago when they were doing research not on framework agreements but on other topics connected with procurement, what certain people at the top of the organisation would tell them would never match what was happening in practice, so in other words sometimes the person we have access to inside an organisation will almost assume a role of a PR person and say, no-no-no, this is all fantastic but it’s really important for us to be able to see what’s happening in practice underneath what they say so have you done any sort of control to try and figure out if what they say actually matches what’s happening in practice?

Well what I’ve attempted to do with this was... Well first and foremost of course, providing a certain commitment to ensure the confidentiality of any conversations that you have...

Of course.

 ...and that hopefully to a certain degree helps the people to speak freely but at the same time I think what is important is again using the semi-structured interview because for every conversation that we have I tended to ask for particular examples and we went through different challenges and I think that I was definitely trying to get out of the conversations not only the pretty picture but actually the aspect that is the most interesting for us when we’re analysing those questions which is what went wrong or where there is certain level of uncertainty. What I also tend to do is, as much as possible through the sources that were available, I’ve always tried to look at the frameworks that were published, in particular organisations to actually look the way that the process is handled and what information is provided and some of the organisations were kind enough to provide me with particular documentations on which I could say straightforward what informations were provided or what guidelines was provided and that also provides me with certain information. But that definitely is an issue what you’re saying and definitely I will agree with that that when I had a chance to speak with the certain leaders so to speak of the procurement in some of the organisations they were much more positive about everything, when I think that you need to have an awareness of the fact that if we’re talking about framework agreements particularly done on big scale we’re talking about a very very big basket of products and we’re talking about description of those products, we’re talking about the particular value of each one of them and there is a certain element of lack of control actually to a certain degree, the control is definitely more difficult task when we’re talking about such a huge projects than when we’re talking about more simple straightforward procurement.

Moving on to Denmark. Have you been able to find out any recognition in Denmark about the downsides of going for single supplier frameworks?

Well definitely the security of supply is the element that is up here challenging and the price that you can reach but up here, I tend to hear that when you put together the cost, the administrative cost and cost of the resources that you would need to invest to actually have a multi-provider framework, even if you potentially could get a better deal to some degree and if you compare that with a single supplier, the single supplier will win so there is a general choice pro single suppliers in majority of cases but at the same time, particularly in sectors where the security of supply is important, so when we’re talking about hospitals, when we’re talking about medicines provided to those hospitals, up there where the security supply is definitely valued very highly, up there they tend to go towards the multi-provider frameworks.

But are they aware of the downsides because the biggest downside in my view is immediately...

Yeah.

It’s competition, completion goes out of the window.

Yes, they are but I think that the argument that is brought up is the simplification of the process and the more straightforwardness of the process and of course up here it’s debatable, very strongly debateable if that’s the choice but at the same time what has been brought up to my attention several times is that when we’re talking about frameworks we definitely need to have in mind that it’s a combination of law, administrative and commercial decisions so that administrative aspect of it actually was quite strongly emphasised to me that the way how we can handle the control over the framework and the management of the framework is extremely important.

So how often do they re-tender the frameworks?

The frameworks tend to be actually shorter and shorter, from what I...

Interesting.  

Or what I was managed to established over the least they’re becoming shorter and shorter and I think that that comes from the realisation of how quickly actually things change in these days, particularly this element is brought up to my attention every time that we’re talking about any type of frameworks that in any shape of a form include let’s say products that are connected with some sort of innovation, so let’s say mobile phones is a good example, so every time there is a very quick change that may occur, the stakeholders tend to pinpoint that they don’t want to lock themselves out of the availability of those new solutions for too long, so even if you can argue that obviously you can include certain clauses in the framework agreements that will allow you to upgrade whatever the products are, what happens often particularly in innovation is that you can have four members of your framework agreement that in the moment when you were concluding your framework where the leaders in a particular sector but due to the specifics of the sector let’s say of the innovation it can just happen that in two years’ time when you want a particular delivery to be done, you need to purchase particular products, actually the number six or seven on your list is right now the leader because things change so quickly and it’s not in your framework so that way you’re being left with all outdated products that you can buy or you being left with the framework agreement that you will not use because you will go outside of it or it can be even worse because we got right now a quite strong movement of developing framework agreements that are of a binding power so that you actually are in a situation that you need to use that framework agreement so it can become quite complicated.

That was my next question! As in does everyone in the organisation that sets up the framework agreement already in a certain area of the government, are they under the obligation of using a framework agreement or can they still contract directly if they so prefer?

Well this is something that changes, that is definitely changes, so you can see if we look at Denmark and UK again, in UK I think that it’s still not a standard but it’s again developing more and more and in Denmark they become more and more popular and then on the other hand when you’re looking at Sweden and from the conference that you’ve been also been part of, we managed to find out in Aarhus at the beginning of this year when we were speaking with some of our Swedish colleagues, that actually there is a certain level of interpretation of framework agreements provision, that they have actually a binding power so it’s depending from member states but when we look at Denmark there is particular framework agreements that are binding and the reasoning behind that is again striving for achieving the best value and giving someone this type of exclusivity right that hopefully brings the best prices and so on and so forth. But I wouldn’t say that it’s one or another, it something that keeps developing that we have more and more currently framework agreements that are of a binding power for the organisation to use them but I wouldn’t say that at least currently, to my knowledge, they’re becoming a majority of the policies of the framework agreement.

How long do framework agreements in the UK usually last? The impression I have from talking to people is that they like their framework agreements to last the full four years they are entitled to?

Yes, well that’s also what I’ve managed to see and then there is also a question that’s being brought up quite often about the duration of the contracts being awarded on the basis of framework agreements how much longer they can go for and that’s again a bit of uncertainty there. And I think that when in certain sectors there is a reason for that, for trying to have them for as long as possible and that can be in very simple office supplies purchasing where you find that you don’t really need much of a change so you would want to get away with the administrative burden of concluding subsequent tenders as much as possible. When in others, like I mentioned the innovation, for example, that’s where they were trying to have them shorter but it’s again, it’s coming back to the issue of administration, that if you talk to the people that are conducting the procurements, particularly in smaller contracting authorities, they will try to get rid of the procurement burden for as long as they can.  

I find it fascinating that when it comes to framework agreements the administrative burden and the transaction costs involved by the procurement processes are at the forefront of the decision to use the framework agreements but when you’re looking at alternative between using the open or the restrictive procedure, in the UK at least they will go for restrictive procedure which tends to be a lot more time consuming than the open procedure in similar situations.

 Well that is true and at the same time the question is, well if you conduct a framework... Because if you look at it from a different perspective, so if you conduct a process of establishing framework agreements that yes, it will be quite time consuming and you invest a fair bit in it but if it’s done correctly then a lot of subsequent cost that would occur later on if you would look on alternatives, so procuring particular purchases every single time goes away, so actually if done right I think that it can be a very efficient procurement tool.

One last question. What improvements should be made to framework agreements and particularly to their legal regulation, if any?

Well I’ve got big issues when it comes to framework agreements and the transparency or lack of transparency with framework agreements particularly at the subsequent purchasing stage, so particularly if we’re talking about framework agreements with several suppliers and we’re talking about a situation in which not all terms are straightforwardly at the beginning of the process established so then you as a contracting authority conclude a mini competition and currently we don’t have much obligations when it comes to how such a mini competition should be concluded and there is very strong, in my opinion, lack of transparency at that stage. What I mean by that is that if you’re a member of the framework agreement and a mini competition is held, well contracting authority does not have an obligation to inform all of the members of the framework agreement that such a mini competition is held but only those ones which are capable of delivering the product. So what it means is that if you’ve been wrongfully categorised as someone who is uncapable of delivering the particular purchases you won’t even have a chance to fight such a wrongful qualification because you just will not know that a mini competition is held. The same happens if you’re outside of the framework agreements, there is no possibility of really seeing into what happens in the framework agreement, so what mini competitions or what contracts are awarded because at the same time you don’t have any obligations to establish or publish the award notice under the framework agreements. So in my view, I think that the change should be done to that respect, that there should be a certain improvement in regards to the transparency, I would see it preferably in the obligation of publishing some sort of contract award notice. Right now we have the opportunity in the form of suggestion in the directive, in the new directive, the provision regarding the quarterly... Quarterly or from sort of cumulative...

Yes, quarterly.

...every couple of months. Yeah, quarterly publication of notices of award of a contract under framework agreement, like I’m saying this is not mandatory and I think that there definitely should be some sort of obligation that should be done.

Okay, I think we can finish the conversation with that information. Thank you very much Marta for your time.

Thanks for having me.

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’m grateful for the support of the British Academy Rising Star Engagement Award.

#5 - Andrea Sundstrand (Stockholm University)

How do we deal with cross-border interest in public procurement? (I)

andreasundstrand

Interview with Dr. Andrea Sundstrand from Stockholm University. In addition to her academic career, Andrea is an expert lawyer in public procurement and has published extensively over the years. One of her most recent projects is the Procurement Law Journal, the first academic journal on the area published in the Nordic countries. Some of the articles are published in English and are available in open access. Her experience with the journal was one of the topics of our discussion in addition to the issue of cross-border interest in public procurement.

iTunes

Transcript

The topic of today is very close to my heart. We will be talking about cross-border interests in public procurement. I think that you have a lot of important and interesting points to raise and I believe that our next half an hour is going to very useful for people trying to understand exactly where the boundaries lie in terms of public procurement today?

Yes, I think so too.

So let’s start with the cross-border interest tests, why do you think it’s important and why should we bring attention to this almost arcane area of EU public procurement law?

Well it’s interesting because the primary law which was actually there from the beginning only regulates dealings between member states, since the EU doesn’t really think that things that only concern one member state is any concern of the EU. So for having EU laws you have to have some kind of cross-border effect and that really doesn’t matter if it’s public procurement or competition law or other kind of regulations, it has to be some kind of interaction between member states for the EU to be interested in regulating those areas. So when they looked at public procurement they said “well maybe we need some more detailed regulations than the ones in the primary law so we’ll adopt directives of public procurement”. And then of course in the directives we have these thresholds and for the longest time everybody thought that “well as long as a procurement is above the thresholds it’s covered by EU law, but when it’s below the thresholds well it’s up to the member states to decide”. And I think what nobody realised until the European Court of Justice said so is that actually some of the procurements below the thresholds could be covered by primary law since they could have an interest, suppliers from other member states. So I think this was a surprise to a lot of, both contracting authorities and suppliers that even smaller contracts actually could be covered by EU law.

By "thresholds" you mean "financial thresholds", am I correct?

Yes. The financial thresholds set, are set out in the directives so it’s like 200,000 Euros for suppliers and services for example.

But that’s a very interesting trade-off, above a certain value those financial thresholds, contracts are deemed to have cross-border interests and as such are regulated by the directives, but if those contracts have a value that is lower than the threshold then you need to apply the cross-border interest test?

Yes. And I think as I said for the longest time people didn’t realise that, they thought so to speak that the thresholds was the cross-border test, that as long as it was below the thresholds they wouldn’t actually have to bother with EU law at all, you could just use national regulations. But now since we have a couple of cases, several now from the EU Court saying that isn’t really the case because even a smaller contract could be of interest to suppliers in other member states. For example if the contracting authority is situated very close to a border or if it’s a contract where it’s normally you would get offers from other countries even though it is a small value, maybe for specific goods that are easily shipped between the member states and so on. So we have a couple of cases saying what we should look at to consider if the contract has the cross-border interests or not.

And what’s your view on that?

Well it doesn’t make it easier of course for contracting authorities to decide what rules to apply. If I take the example from Sweden we have an easier situation than you have in England because in Sweden we have regulated also contracts below the threshold rather rigorously and for example the general principles of EU primary law also apply down to the very first Swedish Crown where you buy something. So for us it’s not that big a difference really but in other countries like in Denmark where they don’t actually have any regulations on public procurement below the thresholds this would be kind of a problem because then you wouldn’t really know what rules apply to these cross-border interest procurements that are below the thresholds.

Speaking of member states as far as I know, well England, Wales and Northern Ireland they’re starting to regulate contracts below the thresholds without explicit referral to the EU primary law. I have also heard recently that Greece in one of its many reforms that it has done recently has also effectively decided to apply the regime of the directives almost from the start in terms of value instead of above the financial thresholds. What do you think is the best option for the member state?

I don’t know. I know that in Sweden we have decided to regulate more or less down to 50,000 Euros and the reason is that we think that it’s important also for below threshold procurement which is in Sweden about 80% of all procurement to be put out to competition because if contracting authorities in the north of Sweden only buy from suppliers in the north of Sweden and vice versa in the south of Sweden, our best and most cost efficient companies wouldn’t be able to grow and win contracts if we limited the market. So even below thresholds as I said it’s about 80% of all procurement, in Sweden we consider that, that’s such a big market and so much money that it’s important to put it out to competition but as long as there’s no cross-border interest this would of course be up to the individual member state to decide. I was actually working with the OECD a couple of years ago and we made a survey to look at all member states and how they have regulated their procurement below the threshold for B services and most of them have actually had put in place some kind of regulations and rules for procurement also below the thresholds and that survey is actually published on their website.

But those countries that actually regulate contracts below the thresholds do not necessarily apply EU primary law, that is to say for example they may advertise a contract in the national website but they are under no obligation of treating potential suppliers equally irrespective of where they’re based as they are above the thresholds, unless of course they actually turn out to the contract?

Well that’s the problem because if there is a contract below the threshold with no cross-border interest the member states are free to choose. They don’t really have to regulate it at all. They can buy from their friends or from their relatives or whatever the member states decide. But if you have a contract below the thresholds with the cross-border interest, primary law actually regulates those contracts and as the European Court of Justice has said for example that means that a contract has to be put out to competition, you have to have a certain contracting document, you have to treat everybody equal and so on because the general principles are applicable to those contracts.

Is it not true that one of the biggest difficulties of using the cross-border interest below the threshold is actually to define in advance and with to degree of certainty and security that a contract will generate cross-border interest?

Absolutely. And that is the whole problem and that was something that the member states thought they had solved I think by putting these thresholds into place, that okay below member states decide, above follow EU law. But now we suddenly have another threshold that we don’t really know when it is, so each contracting authority has to make a decision in advance would this contract be of interest to suppliers from other member states and that is of course a very difficult decision to make. But I guess you have to look at how did the contract attract foreign suppliers the last time we put it out to competition and such things to decide on an individual basis, but of course this is difficult.

Yeah but by default the contracting authorities will do what costs them less or fewer transaction costs so they’re going to say “well if I can get away without advertising this and without trying to ensure that we’re going to have international competition, I’m just going to think that we’re not going to have international competition and for example go directly for a direct award of a contract”. If that happened it’s pretty much impossible in most circumstances for anyone to know that a) a contract was available, was potentially available, and b) that perhaps it could have had cross-border interest?

Yes. And the interesting thing is that if you have a contact with, below the thresholds but with a cross-border interest the member states have to put efficient remedies into place for aggrieved suppliers since this is considered, to be able to participate in such contracts or such competitions are considered to be a right according to the EU law for each member or each individual in the EU. So I can take an example from Sweden, we have not put into place any remedies for service concessions and this is the same thing as contracts below the thresholds because they are both regulated only by primary law so far, and where actually had letters now from the commission saying “why didn’t you do this because this is a right for each individual to participate and be treated fairly in a service concession with a cross-border interest?” And Sweden has answered something like “well we know we haven’t done that, we should have done it but by April of 2016 we’re going to have this new law so with concessions in place”. But the commissions answer to that has been for like six months ago that “well that isn’t enough because you haven’t done it now” and I don’t think Sweden has answered that yet but there’s obviously big risk that we will actually end up in the European Court of Justice for the first time actually, we have managed to stay away from there so far. And that is the same thing with procurements below the thresholds with a cross-border interest, that actually the member states have to, they have to put into place efficient remedies for aggrieved suppliers. So even if it would be difficult to prove in a Court, you still have to have the possibility to go to Court even for those contracts and I think most member states do not have any remedies in place for those contracts.

That’s very interesting because in fact I remember seeing an opinion somewhere that the remedy system for example in England, Wales and Northern Ireland effectively only was applicable for contracts above the thresholds?

Yes. So that would actually be against EU law since you have to have for all…

I agree with you. So it appears that we have a very strange system in place, above certain financial thresholds contracts are subject to the full might of EU regulation, below financial thresholds they may or may not be subject to EU law but only to primary law, a little bit like Schrödinger's cat it appears that the contracts may be or not subject to such regulation. What could be done to improve the situation and make it easier both for contracting authorities and suppliers to understand the system?

Well that’s a good question. I wish I could answer. I really don’t know. I think your answer would be to lower the thresholds and maybe that is mine also because if there is contracts with cross-border interest then of course they should be covered by the directives because that’s the whole idea with the directives to cover those contracts that are of cross-border interest between the member states, to cover those. And if there are contracts falling outside well that is not good because that would be very confusing for contracting authorities to know what rules to apply. But I really don’t know otherwise because I think there will always be contracts not covered, very low value and so on, or at the north of Sweden where the cost to deliver something from abroad would be too high and so on. So you have to have some separation between these two contracts where the member states must be able to choose themselves if they want to regulate or not but exactly how to do that, that’s difficult and I really don’t have any good ideas for now.

Okay. Moving on. You’ve done a lot of research in cross-border interest over the last few years, where are your interests now lying in these days?

Well I am working at the Stockholm University a lot trying to teach public procurement students and actually getting the topic of public procurement up on the agenda for several universities in Sweden. We have been so far behind both Denmark and England who have several universities that specialise in these questions, in Sweden we’re just at the beginning so that’s what I’m doing. And also looking at different things constantly on public procurement and doing articles, writing out articles and different books on public procurement in general. So this is a full-time task since there is so much happening in this area right now.

Okay. So let me rephrase the question, where do you think our focus should be in terms of public procurement in the near future?

Do you mean ours as researchers?

Yes, or where should the rules change or where should be improved in general?

That’s a big question! I think there are a lot of rules that could be improved and I think it’s always difficult when you have twenty-eight member states deciding new rules. So I think in the coming two or three years our focus both as practitioners and as researchers will be just to try to understand the new rules coming and to try to figure out what they actually mean in practice. Because there’s one thing to be in Brussels with twenty-eight member states to decide rules, totally different thing is for the contracting authorities in the north of Sweden actually trying to apply these rules. So I think that will be the focus for the coming years.

So you think that the focus is going to be into training and in improving the skills of public procurers and also people that work with the rules in practice?

Very much practice because now the big legislation package are soon coming into place, the lawyer’s task now will be to try to explain these rules to the practitioners I think.

Okay, very well. I’ve got one final topic that I would like us to cover which is your new Procurement Law Journal?

Yes.

You started it in 2014, it’s in the second year, how is it going?

It’s going very well and I’m so pleased because nobody believed in it, not even the publishers believed in it. But two weeks ago they actually took me out to buy me champagne lunch just to celebrate because now it’s actually we have so many subscribers I don’t have to pay for it myself anymore which is nice. And we have both the Swedish government, Swedish parliament and the Swedish High Administrative Court are subscribers and it has had already by the third issue ever a great impact on public procurement legislation in Sweden and I’m very happy about this. And we have a lot of researchers who wants to write articles so it’s very interesting to see or I’m very happy to see that my feeling that this would be, this would cover something that was missing earlier, I’m very happy to see that that was actually true.

Could you tell us a little bit more about the experience of setting up a journal and running it?

Well actually it’s much more easy than you think. The difficult thing is to get people to write articles and we’ve succeeded pretty well so far. It’s not very difficult, it’s just that it takes a lot of time of course. Each issue we have four articles and I’m also very proud that one of the articles always is written by a student, so a student who has written a very good Master thesis rewrites the thesis into an article and I think that’s good because then you make sure that also young lawyers are interested in public procurement law. Some articles are written in English, I hope to get one from you soon.

I know, I know!

And those articles we publish open access on our webpage which is with the address urt.cc, so you can actually already today go in and read the articles in English. The Swedish articles you would have to subscribe to be able to find on the internet.

Is there any plans to making those Swedish articles available further down the line maybe in English in open access as well or do you think they’re always going to remain behind your subscription service?

I think that’s a matter of cost actually. I wouldn’t mind translating them into English because they are on general EU law also so that will be interesting also for lawyers in other countries but it’s so far a question of funding. So we will have to make sure first that the printing cost because all the people working with this journal we all do it pro-bono so we don’t get paid so our costs are the printing costs and the cost of sending the journal to the subscribers and of course the cost for paying for the website, and those costs we have now covered. If we are going to get more money or have some kind of profit I would firstly thinking about giving maybe scholarships to talented students but maybe now you say it that could be a good idea also if we do have some profit in the future that we could actually translate some of the Swedish articles into English.

That is certainly an area where I could see some value because there’s a lot that each jurisdiction produces in its native language, I mean I’ve seen it all over the place in Portugal, Spain, France, Italy, and certainly Sweden is not going to be different. But there’s not a lot that is being published and disseminated about a specific jurisdiction in English?

Yeah, I know and I agree with you, it’s a shame. I really would like to read articles from Spain, how did they do it there, different issues they are fighting with, maybe we have the same problems in Sweden and we can help each other solve these problems and of course for me it’s a problem then if the articles are in Spanish or Italian which I don’t know. Maybe we could set up a translation service together?

There are a few online already that are quite cheap.

Okay. You have to tip me off?

I will after the show. Very well, last question. What sets your journal apart from the existing ones? I mean there’s already quite a few journals in public procurement?

The first idea was that this journal would focus on the situation for the Nordic and Baltic countries and we’re also in the Board, in the Legal Board we have researchers both from Estonia and Finland and Denmark and hopefully eventually from Norway and Iceland also. So our goal was to focus on the specific problems of the northern countries. Of course it turns out now I read a couple of these articles that these are often problems we have with the legislation in all member states, so that was our main thing. So what makes this journal so special? I think that we are very focused on practical issues so we like to look at how the law actually works in practice, maybe that is something that I hope that we can help so that the researchers can help practitioners how to interpret the rules and thereby how to use the legislation for doing great public procurements.

Could you give us an example of the cross-pollination in the different Nordic states is happening via the journal? I think it’s a great idea that you’re bringing together researchers and practitioners from other jurisdictions and countries but how is that working?

Well it’s working fine. The first thing of course is that we have articles not just from Swedish researchers but also from researchers from Denmark and Estonia, we’re going to have an article from someone from Finland in the next issue and so on, so I’m really happy about that. But also we are, in 2014 we had a first conference with the journal where we invited researchers from all of these countries and hopefully we can have this conference, like a Nordic public procurement conference once every year or once every two years so we can come together and help each other with public procurement issues. So if we have someone doing research in Estonia maybe we can use that research also in Sweden and contribute to Swedish legislation also.

Thank you very much Andrea. It was a pleasure to have you.

Thank you. Pleasure to talk to you.

You can find me at my blog telles.eu or on Twitter where I use two handles, @Detig for general discussion and also @publicprocure for procurement related topics. As ever I’m very grateful to the British Academy and to the British Academy Rising Star Engagement Awards to make possible these podcasts.