EU

#21 - Petra Ferk (Graduate School of Government and European Studies)

Status quo for electronic procurement under Directive 2014/24/EU

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Interview with Petra Ferk, Assistant Professor for public administration at Graduate School of Government and European Studies and a researcher at the Institute for Public-Private Partnership Slovenia. Petra Ferk is the co-author of legal monograph, several articles and national reports dealing with public procurement, services of general (economic) interest (SGEI), public-private partnerships, state aid, energy and environment.

Transcript

Hello Petra, welcome to the programme.

Thank you, it’s nice to be here.

Our topic for today is electronic procurement, in Directive 2014/24/EU in general, what would you like to talk about in this context?

Well, first I would like to mention that electronic procurement is not something what was completely new in 2014 procurement directive. The 2004 procurement directive had some provisions on electronic procurement, but they were on voluntary basis. In the preamble it was explained that contracting authorities may make use of electronic purchasing techniques providing that such use complies with rules drawn up under the directive and principles of equal treatment, non-discrimination and transparency. So already in 2004 it was recognised that these new techniques exist and it is possibility that contracting authorities use electronic procurement. Some contracting authorities actually did start to use electronic procurement prior to 2014 directive. What changed in 2014 directive it was that electronic procurement was introduced as mandatory. Particlarly important are Article 22 and Article 90 in terms of transposition deadline. And if we look at the text of the procurement directive, the 2014 directive as whole, we can see that approximately one fourth of the directive deals with electronic procurement issues. So this was major step forward. 

Also in infrastructure directive the electronic procurement provisions were introduced and those are substantially similar to those in classical sector. Also in concessions directive we can find electronic procurement provisions, however the concessions directives includes electronic procurement provisions on voluntary basis, so it’s not mandatory.

Now, the most important provision, it’s the first paragraph of Article 22. This is actually the paragraph which introduces mandatory electronic procurement and it reads as follows: ‘Member states shall ensure that all communication and information exchanged under this directive, in particular electronic submission are performed using electronic means of communication in accordance with requirements of this article. The tools and devices to be used for communicating via electronic means as well as their technical characteristics shall be non-discriminatory, generally available and interoperable with ICT products in general use and shall not restrict economic operators access to procurement procedure.’ The whole article of Article 22 of the 2014 directive is on two pages; so this issue is really important. But from the content of this article it’s not really clear what is actually that has become mandatory. So we have to go through preamble and Commission’s documents to see what we are talking about and to be able to extract what has become mandatory. And the following phrases are mandatory: e-notification, electronic access to procurement documents and electronic submission. Since electronic notification and electronic access to procurement documents were in one or another way already used prior to 2014 directive, so the really new is electronic submission; this is also why it is underlined in the first paragraph of Article 22 with ‘in particular’ electronic submission.
 
When the 2014 directive or package was being adopted the clear political signal was given for electronic procurement and Member States, said ‘yes we’ll do it, it’s a good idea’, when Commission proposed mandatory electronic procurement. But then they postponed deadlines, and also, when finally the directive was adopted, there are quite some lengthy transposition deadlines for electronic procurement in Article 90. The general transposition deadline, as we know, for procurement directives was 18th April this year, 2016 and then for electronic procurement longer transposition deadline was foreseen and this is October 18th, 2018, except for those instruments where used of electronic means is mandatory and this is for dynamic purchasing system, electronic auctions, electronic catalogues, for central purchasing bodies and then electronic availability of procurement documents and publication of notices. Although, notwithstanding these provisions, the Member States may also postpone the application of Article 22 for central purchasing bodies till April 2017. When the directive was adopted it was expected that these are long enough transposition deadlines that Member States will be able to transpose this provision in time; now we can see that quite a few Member States did not transpose the directives yet and that those who did transpose the directives didn’t make clear major steps towards introducing also electronic procurement. So in practice we can see although the provisions are very…

…ambitious, clear?

Ambitious [laughs], yes, ambitious, in practice there are problems with implementing those provisions.

Let’s talk about the transposition timescales, I find it very interesting that when it comes down to say private business, all of us have been able to use electronic means to make purchases for the last almost 20 years, not 20 years, but almost, and it has been very common for all of us to purchase goods and services online for let’s say 15 years so it’s very interesting, that when it comes down to public procurement, the current directive, although it makes the use of electronic means to deal with the, especially with the submissions which is the most important bit, mandatory, it only does so from 2018 onwards, so effectively it’s almost like public procurement is lagging the private sector for 15 or 20 years in terms of adopting a technology, adopting almost a business strategy in a sense which has been very, very common in the private sector.

Yes, well, I see the main reason for it really in lack of willingness to do it because in technical terms I don’t believe it’s really so difficult to develop these platforms, they might be expensive, but not so expensive that it wouldn’t be possible, you know, to develop them if you have the will. So I think that everybody might be, I don’t know how to say, afraid to open up the markets because on one side, you know, it was meant that electronic procurement and platforms would open market and to enable higher cross border statistics. Although now I see, on the other hand, possibility that this might not be actually the case, because procurement platforms could be or can be developed also in a manner that will make additional barriers for procurement, you know, for the foreign suppliers, if additional tools will not be implemented. 

For countries like Slovenia if the Contracting Authorities will not start to be preparing tender documentation in other languages…  As one of the biggest barriers I see language really. I think that the other reason why we are in public sector really behind the private one, is maybe also lack of expertise with procurement officials, even to prepare specifications for procuring the company who would develop the platform, because they don’t have this capacity themselves. And on the other side they don’t encourage the markets, that the market would make design, that it would develop the platforms itself, as we can see in some countries. Portugal is always given as a good example, you know. The clear signal was given that electronic procurement will start to be used, so the market developed the platforms. Nobody really knows how many electronic procurement platforms now exist in Europe, it is estimated somewhere about 250, 300 platforms. And I agree with Abby Semple - she says that this is a really good signal, that we have healthy electronic procurement platform market. But, it is happening only in those Member States which were able to give clear signal to the private sector, to the companies, that they will start to use electronic procurement and this is something that what they will encourage. Also, that they will give into this area additional effort - send procurement officials to some additional education and also some other complimentary measures. Because, even if the market develops the platforms and contracting authorities don’t start to use it, they don’t see, why would they do it, you know what I mean…

I think your reference to Portugal is quite interesting and correct, I remember that back in 2008 ’09, or just 2009 when it became mandatory for e-procurement to be used in Portugal, that there was a huge backlash in the country, people saying, no, the market is not ready, suppliers are not ready, the public sector is not ready, no-one is ready, and the thing is seven years onwards everyone was more or less ready, contrary to what you would be expecting from hearing and talking with the industry or listening to the news, but for me what is the biggest message of the experience in Portugal is that actually it made life easier for SMEs and essentially national SMEs probably because something you mentioned and I agree with which is the issue of language. So if all the tenders are done in a local language, and in the Portuguese case well they’re done in Portuguese, if you do things online you’re going to be lowering the transaction costs for everyone in the market, yes but the biggest beneficiaries are going to be the national SMEs because they already have the advantage of speaking the language. So will it lead to more cross-border procurement, I’m not entirely sure. I think that it’s only one of the pieces of the puzzle that needs to change, electronic procurement, so that you can actually increase the share of cross-border procurement in Europe, there’s a lot more that needs to be done in addition to electronic procurement, that’s my take on it. About the current legal framework, what are the main positives that you see on it?

Well I see as the main positive the introduction of mandatory provisions as such, and then I think from there, everything is up to the Member States. It’s really like the initial push which the Commission encouraged with proposal, and then the Member States will have to do it from there. Because electronic procurement, also as you said, you know, by self it will not change much. Other measures will have to be done to achieve what was actually the first objective [laughs], why procurement was introduced at the first place. It was to encourage international trade or to open up the market, to encourage international business. 

First mover Member States did well. A lot is really in knowledge of public officials, so this is something what we must not forget. A lack of knowledge and the language barrier, this is something what we have to consider if we talk about further development of the procurement as such. So electronic procurement is only one option. But why did I say that Member States will have to do it themselves? It’s really because we don’t have ,or at the moment I don’t see, any feasible measure what the Commission could do to enforce electronic procurement. Namely as long as we don’t have standards, it will really be difficult to assess if the Procurement Directive provisions on electronic procurement were implemented adequately, and to talk about inadequate transpositions, which might result in infringement procedures. This is really the only tool which Commission has to force Member States to change the current status quo because we see that not a lot of Member States made the step forward. So I believe that the next step which should be done, it’s really to develop the standards. How we will get to that point, to the standards it’s still not clear. My first guess was - because shortly after the adoption of a procurement directive, the directive on e-invoicing was adopted, and it is much more advanced than Procurement Directive on provisions on electronic invoicing and this is mainly due to the reason that electronic invoicing is being used to huge extent in Europe, due to other instruments, it was well developed also already for SEPA, so…

And also it’s being used by the private sector.

Yes, yes, developed by banks, it was really only the solutions that will now be used and made mandatory by public sector in public procurement. So in this directive on e-invoicing the implementation was made in three steps, first adoption of delegated acts, and then second to mandate the relevant European standardisation organisation to draft the standard, and then as the third step the obligation of Member States to ensure that contracting authorities and contracting entities really comply with that standard. I was expecting that this is the same, what will happen in public procurement. But then I talked to some politicians and also researchers which know the situation also well, what is happening, and then they estimated that Commission wouldn’t dare to adopt delegated acts on this issue, so it’s more we expect guidelines would be given at least in the first stage.

Very well, moving on from talking about electronic procurement in general, also e-invoicing in general, could you give us some flavour of what’s happening in Slovenia specifically?

Slovenia implemented the Classical Procurement Directive and also the Utilities Directive. In general we could say that what was a big change, why we have problems now, is that both of these directives were transposed with one act, one law, and that’s huge difference now, and we are dealing with, whole country is dealing now more with this issue, and electronic procurement is not being discussed really. The Ministry said that Central Purchasing Bodies will start to use electronic procurement in 2017, but they didn’t make any major step to start to develop the platform. And the private sector is not being encouraged to start to develop the platform(s), because there is really no signal, that it’s going to be used and it’s going to be encouraged. So nobody really sees the business opportunity.

It will have to be used from April 2018 whatever happens, I mean…

Yes.

…in a worst case scenario comes April 2018. I think it’s probably arguable that those provisions have direct effect, so it makes life very difficult for Member States if they don’t have electronic procurement platforms in place. So my question is do you think that Slovenia will go down the route of developing a public platform or adopting a platform that’s going to be the public one, or they’re going to be like Portugal has done and open the markets for new providers to come in?

They are aiming to develop public platform, and this is also, why private sector is reluctant to invest into developing the platforms, so…

Yeah, it makes perfect sense.

Yeah, but discussions which they had now on how the new platform would be designed- it doesn’t seem that it would be user-friendly really. Also, what the new, what they did now with official gazette, where the tenders and notices are published, it’s much less user-friendly as it used to be. So this is why everybody really, you know, are just waiting what will happen … But it is not really optimistic to expect, that the new platform would be user-friendly.

Okay, unfortunately I don’t think that is the best way to go forward for a small country but let’s hope that…

It’s not, it’s not, and we are like… Because [laughs] I am one of the founders of Public Private Partnership Institute, we are seriously starting to consider starting to work on a platform ourselves, although this is huge investment for a small group as ours. But we have - because we are advising contracting authorities - we have huge problems with getting the bids. And it’s really difficult to negotiate with only one tenderer, especially now for bigger projects. Due to the crisis the construction sector went down and it’s really difficult to get the bids and we don’t have big value of contracts. So we see electronic platforms as one of the possibilities to bring SMEs from neighbouring countries to Slovenia, because we are too small to attract big companies, which would have the capacity now to tender in other country. So in these terms electronic platforms I think could help. They wouldn’t change statistics, because this would be small amount of contracts but I think in these terms they could help.

Very well and on that positive note I think it’s a good way to finish the programme, so Petra thank you very much for making the time to be interviewed.

Thank you for inviting me, it’s been a pleasure.

You can find me at my blog, Telles.u 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 of Rising Star Engagement Awards which made possible this project, or in this case the second season of the public procurement podcast.

#12 - Nat Green (Shaw LLM Fellow at George Washington University)

Ecolabels and environmental considerations in public procurement

Transcript

The interviewee today is Nat Green, a Shaw LLM Fellow at George Washington University in Washington DC. His publications to date focus on the legal and policy implications of large-scale hydropower development, and other renewables in Africa and Asia, in addition to a more recent foray into questions of sustainability in international procurement.

So, this is the first time that we’re interviewing here someone that is coming from outside the EU, and has a completely different perspective on a public procurement legal framework, so it’s great to have you on board. If I can start to get the ball rolling, what do you think are the main differences between the US and the EU at this level of sustainable public procurement? 

In terms of main differences, it’s sort of an interesting question for me, because I’ve really, as you noted, I’ve come from more of an environment and energy law background that’s sort of, it’s really the potential in procurement mechanisms and you know, government contracting mechanisms in general, to help develop certain environmental, or even social safeguards that’s sort of, drawn me to this subject. So it’s actually the similarities that I’ve concentrated on more than anything. In terms of the differences, I do think a lot of it’s political. I think there’s more of a political will in the EU to open up the process to what we call our economic externalities, where we might also call, in much of the literature, market failures. In the US that is, we share many of the same principles, and providing for open competition and, sort of, fair value at pricing, and in-state procurement, but as I said, the political will to provide for a more open interpretation, and incorporation of externalities into the system is, it’s a little bit more difficult to attain I think, which is one of the reasons why I’ve come to focus on the potential in eco-labelling systems. You know, going forward, especially in this, and providing kind of, a shared sustainability network for the two models.

So, what are the similarities then between the US and the EU, in what concerns the use of eco-labels? 

Well, interestingly, there’s certain, what I have come to think of as flexibility mechanisms or models that are built into those systems. The thing with eco-labels, you know, this is essentially something that allows us to harness market forces. One thing that the US and the EU share of course, is a push towards ever greater market liberalisation, and the idea is of course that if you have a third party, usually non-profit, that has a mandate to certify certain practices or services or products, as, you know, having sort of, a lower impact on the environment, it allows consumers to use their purchasing power essentially to help to achieve the goals that lie behind the certification. Right, so the similarities are pretty much found in what I’ve, and many others have called the Or Equal Standard. Well actually, that’s how you use it.

The similarity in the legal approach to eco-labels is actually, we have very similar statutory language. For the US FAR, the Federal Acquisition Regulations in, let’s see, that would be FAR 23.103, we actually, it encapsulates a series of recent executive orders that call for the greater use of eco-labels in government contracting. Actually it calls for very wide spread use, and you know, as I was trying to say earlier, the eco-labels, it’s an attractive way to do it, because like I said, politically it’s very difficult to even establish what sustainability is, and in fact the word sustainability, people shy away from it a little bit now in the environmental law world in the US. You know, here in Washington DC, the Environmental Law Institute, if you go and talk to the scholars there, they’ll tell you how about ten years ago it became a really big idea, and people just got tired of arguing over what the word sustainability even meant. These eco-labels kind of fixed that for you, they make the decision for you.

So, that sort of, jumps us past the political and policy wrangling over many steps and deciding what we mean by sustainability standards. So, the US FAR now provides that government contractors need to use products that are certified under certain labelling schemes, and similarly recent EU directives have called for a great incorporation of eco-labels, and some of these issues have also been incorporated in the GPA, so what really brings them together is the way that they allow the incorporation of eco-labels in such a way that anti-competition regulations are not upset.

There are a few points there for us to unpack a little bit more. I’m fully behind the idea that the word sustainability became pretty much meaningless, because it’s more of an umbrella term, or another term where you can project whatever you want into it, depending on your background, depending on your policy objectives, so on and so forth, and that’s not something that I originally envisioned, you know, or anticipated for that particular word, so I completely agree with your view that it’s preferable to use more precise terminology like eco-labels. Having said that, one of the fears that I have, in what concerns the use of environmental considerations in public procurement, and also social considerations in public procurement, at least here in Europe, is that they can be used in a way that it’s not market friendly. They can be used to actually restrict competition and restrict the market to certain suppliers. 

Right, that’s a concern that I’m aware of, and I actually, I find it really interesting, because from my perspective, the use of eco-labels, it’s an interesting tension, because you know, on the one hand we’re trying to, if we want to start using eco-labels as a way to further policy ideas, and specifically sustainable policy ideas, it has to work as a market instrument. As you say, you know, many have raised the possibility that it could actually become, you know, certain member states in the EU for example, could start favouring certain eco-labels, and that could actually become a barrier to cross border traffic. I know that some… the idea’s been floated so that in future directions, or in future revisions of the GPA, they include competition guidelines that specifically address the use of eco-labels to counter against this. I can’t be sure how successful that would be. Again, from my perspective, as being a US environmental lawyers, and especially, you know, I have a strong interest in climate change issues, I don’t see the eco-label as a permanent fix.

I think that many scholars on the European side have looked at the potential for, sort of, long term systemic change, essentially to procurement culture, in providing more, kind of, sustainability safeguards, but I think they’re very correct in addressing the fact that this would require tiny, incremental steps at every stage of implementation, because you’re changing the driving forces in many ways. You know, you’re having to redefine just basic issues of value. The use of eco-labels, it’s sort of, a low hanging fruit. You could even see it as triage. It’s a way to help to start shifting certain, really commercial standards while other policy are implemented at sort of, a higher level. I guess I see that, sort of, two-stage process as having some potential to alleviate any anti-competitive side effects, if that makes any sense. It’s just a, it’s an idea I’ve come up with.

Well it does to a certain extent. I mean, on the other side of the argument you have the idea that eco-labels themselves may be considered anti-competitive, because effectively you’re giving a monopoly to an external organisation, even a standards setting body, whatever, to define what are the requirements that everyone operating in a certain market will have to comply with, because you’re requiring that eco-label, whatever it is. And if you think about the Max Havelaar case, let’s call it the Dutch coffee case, so it’s easier for the people that are going to listen to this, so if you think about the Dutch coffee case, the crux of the matter was precisely that it was a private standard that was being imposed on the market. And that was deemed to be anti-competitive, and that was seen to be as not compliant with EU law. 

Right, right, and one thing that the court did with that decision, is they made a very small observation, which is that if, you know, if the contractor had simply included ‘or equal’ language in the contract… they included it in an annex to the contract, but that wasn’t clear enough, and I would agree with that, meaning that this private label became by its inclusion in the contracts, became not so much the label itself, but represented a certain standard. Now in terms of, you know, going forward, coming up with a standardised way for contractors to take a given eco-label, and decide exactly what standard it represents, that’s another issue, and I haven’t hit that yet. But that’s the decision the court came to, subsequent your EU directive essentially took that and tried to… said that if a private label is incorporated as a contracting requirement, then it’s to be taken automatically as representing a standard, rather than that label in particular. You know, that’s the stopgap measure in terms of preserving competition. And the US has this too.

Okay.

You know, what I agree with is that it provides an opportunity for harmonisation between EU and US procurement systems specifically dealing with environmental issues. You know, I think that that’s a potentially powerful tool in providing, kind of, a shift in industry standards in quite a few different industries. I’d be interested to see how that worked out.

Okay, so if you dig a little bit deeper into that, how should the US and the EU change their use of eco-labels in public procurement?

Well, as I said, I think the next step is to see how this Or Equal Standard actually works out. You know, as you say, whether or not bodies in the EU and the US can, in a reasonable and cost effective and efficient fashion, take the principles inherent in private eco-labels and apply them as more general standards, that might require a certain growth in institutional capacity. It also will require close attention to its competitive effect vis-à-vis small and medium enterprises. I know less about this in the EU, but in the US of course we… that’s one area where a certain degree of, forgive me, anti-competitive… you know, preference is allowed, and because it’s seen as an important policy issue.

Can you tell us more about that?

Well, off the top of my head, the actual FAR part, small and medium business considerations, or small and medium enterprise considerations are, essentially it’s almost like we have an affirmative action to allow small and medium enterprises to compete on a more equal footing with your larger government contractors. And of course that shifts with the nature of what you’re… of the product. You know, we’re not going to work very hard to make it so that a mom-and-pop business can try to supply military hardware, although there are very small businesses that require less intensive, you know, military hardware that it’s less difficult to create, or make or research. I know that there are very small body armour companies for example, that are contracted to the US government. But you know, beyond that, when it comes to your basic supplies, say your coffee, or you know, services, people shoot for an equal playing field. So, obviously that policy consideration is still linked towards the whole idea of greater competition, so it’s hard to make a direct comparison, I suppose.

 

Moving forward to another topic, revisiting something that we’ve already mentioned, but not in detail, which is externalities. What is your view about the inclusion of externalities in public procurement? Pollution is an obvious example, but what else can you think of? Should we go down that route or not? 

I’m not sure. Like I said, this is actually, fortunately your podcast is about, you know, emerging academics. This for me is a very emerging field. It’s actually a little bit difficult for me to generalise. I love the idea of using procurement and using these kinds of tightly controlled markets to further certain sustainability goals, and I see it as being, kind of, the opposite end of the spectrum from say, the Paris COP21 talks that are happening at this moment. I realise this is sort of, tangential, but just to take a quick observation, is that for the COP21 these talks are… it’s an old, established model for reaching international agreements. When it comes to environmental issues, the great success historically of course is the Montreal Protocol that eliminated… that gradually scaled down and eliminated the use of CFCs in aerosol cans, and had a very positive impact on preserving the Earth’s Ozone Layer.

With greenhouse gases it’s really, really a very different story because you’re dealing with a much greater range of practices and technologies, and they’re much more vital to the way we live our lives. The interesting thing to me about trying to [?? 14.51 attack] any externality, or you know, like I say you could call them market failures, through procurement is that it’s immediate. It can have an immediate and very wide ranging effect, on a wide range of industries. I was fascinated when I found out that Walmart here in the US is one of the largest government procuring providers, or suppliers.

Really?

Yeah, so I mean, think about it that way. Anything that… government procurement takes up enough of their businesses that it wouldn’t be cost effective to just shift part of their business towards requirements to bring them into compliance with government contracts. They’d probably have to do it across the whole range of their business.

That reminds me of something that happened maybe ten years ago, with the Reduction of Hazardous Substances, whatever Directive, which when it came into force and effectively led to a change in how suppliers based anywhere in the world could sell their products here in Europe, their electronics products, what I heard was that effectively there was an externality coming out of that process which led to the whole world benefiting from the changes imposed by the EU, because it became economical for a supplier to run two, effectively two different, let’s say production lines, one for Europe one for the US, or one for Europe and one for the rest of the world.

No, that’s exactly it, and actually on another angle, one of the reasons that I believe, I just, I’m… I’m pretty sure about this. One of the reasons is that the US has very low standards for cosmetics, especially perfumes.

Really?

Yeah, and perfumes can potentially have quite scary chemicals in them. They’re all constructed at this point from petrochemicals, and there are a lot of things that can go inside that are, you know, I mean, from my point of view a little bit unchecked, essentially. And, you know, we really don’t have much of what we call a cautionary principle. We don’t err on the side of caution, we err on the side of, you know, people exploring their options, which you know, has its plusses and its minuses. And the thing with perfumes is that most of them come from Europe.

[Laughs] 

We are piggybacking on your standards.

Okay. 

There are some… anyway, that’s completely tangential, but I find that very interesting, and yeah, at the same time I think, you know, we do allow for a certain amount of anti-competitive legislation where the public interest is really a concern, and hazardous materials is a perfect example. You know, in this case it’s slightly different, because we’re trying to wire externalities into a legal mechanism.

Yeah, yeah, of course.

The whole purpose of which is to uphold a certain level of competition. So I realise this is tricky, I really do, I just wanted to show how it can be done potentially, without breaking too many laws.

Okay.

 Yeah, or any!

 Or any, or any. You know, just change the law, and that’s also, we’d [?? 17.59] to do.

 Well, I don’t think we really do it at this point. I think you’ve got to actually employ eco-label systems for products and sell them pretty much effectively the same way between the US and the EU. I think it would lead to some cases certainly.

Yeah, I think so. Speaking of both jurisdictions, or both legal systems, we have something in the horizon coming fast towards us, or not, the TTIP, the Transatlantic… what does the acronym mean? I never know.

Don’t ask me!

Well, let’s just call it the TTIP, everyone knows the acronym, and no one knows what it means, or at least I don’t, I remember out of the top of my head. Anyway…

Yeah, Transatlantic Trade and Investment Partnership.

That’s it. 

Yep.

So should we consider, or should the negotiators in both sides of the table consider using the TTIP for example, to harmonise eco-labels across both the US and EU?

I think the potential is certainly there that we could. I understand that the TTIP negotiations between the US and the EU are based on the revised GPA. The revised GPA does include provisions for the inclusion of eco-labels, and includes this, you know, again the Or Equal Standard. The Or Equal Standard is simply just that when you write the contract, when you draft the thing, when you say, like, I want, you know, I want my coffee to be Fairtrade certified, you have to say Fairtrade certified, or equal.

Yeah.

Right? So, just to make that explicit. It’s there in the negotiations right now. It’s on the table, so that’s something that I feel could de facto harmonise the use of eco-labels in procurement, because I think that the legal structure internally in both the US and the EU is there to support that.

Okay, so if you think about an example, let’s say that we have an eco-label in Europe, and another one in the US, they’re not exactly identical, although they cover the same area. I mean, the problem with the ‘or equal’ approach, which I mean, it’s very common in Europe in many areas related with procurement, it’s not just with the eco-labels. The problem with that is, where do you draw the line on the equivalent?

I agree, I think that that’s the biggest stumbling block, and I think that honestly I’m not sure yet. I’d love to hear any ideas that anyone out there might have. You know, off the top of my head, that’s something I’ve been keeping as kind of, an open question. I think that in my dream of an ideal future, if eco-labels do become a means of commerce driven dialogue between the US and the EU, I consider it possible that the question, the tension that will inevitably be there regarding exactly as you say, how do we express individual eco-labels, and they are very individual, as given standards, will lead to greater legislative and policy dialogues. You know, I see it as a potential legislation and policy driver. That’s not to say that I think we should… I’m thinking of this as a monkey wrench that we throw into the machinery, you know, not at all. But it’s something that I think has been developing for some time. The EU itself has been putting significant resources into developing a very reliable EU-wide eco-label. I think that policy members, especially in the EU have had this transition, or this possibility of sort of, the basis for a dialogue, in mind for some time, and in the US we’re just beginning.

Eco-labels for us have usually involved on the legal level, have usually involved issues of international trade under the WTO. You know, we have the great tuna-dolphin, and shrimp-turtle cases. Tuna-dolphin at least is still on going, amazingly. And so in terms of using it specifically as a part of government administration, that’s a new idea. It really depends on probably who our next president is, how far we go with it. If it’s a Republican, not so much, if it’s a Democrat, maybe.

Okay, I think that’s a very good way to end the interview. Thank you very much for your time Nat, it was great having you.

I had a very good time, thanks for having me.

Before I close the podcast, I’ve got an announcement to make. You can find information about the Early Career Research Day Conference at the publicprocurementpodcast.eu website. Long story short, if you’re interested in presenting a short paper, please submit an abstract and CV by January 11th. We’re aiming to run the conference, I think on March 4th, which is a Friday, and it’s going to be done in London. We will be selecting ten early career researchers to take part in the conference, and the travel costs will be covered up to a maximum of £300. We will also offer one night accommodation at a known sumptuous hotel in London, so if you’re interested, just drop me a line, or submit an abstract and a CV. You should do so using the contact form available on the publicprocurementpodcast.eu website. Finally, as usual 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. Finally, I’m very grateful for the support of the British Academy Rising Star Engagement Awards, which make not only these podcasts possible, but also the conference.

#11 - Abby Semple (procurement consultant, postgraduate student)

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.

iTunes

Transcript

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 know.

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?

Yes.

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.

Right, okay.

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…

Exactly.

…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. 

#10 Ramona Apostol (Corvers Procurement Services)

How can we improve procurement of innovation?

Interview with Dr. Ramona Apostol, a Senior Procurement Researcher with Covers Procurement Services. She’s also regular guest lecturer at various academic procurement programmes all over the world. Ramona concluded her PhD at Leiden University in 2014 and is an expert in Procurement of Innovation. Finally Ramona is involved in the European Assistance for Innovation Procurement project aiming to support public procurers in implementing more and better innovation procurements of ICT-based solutions across the EU.

iTunes

Transcript

Hello Ramona, thank you for coming to the programme.

Hello Pedro. Thank you for inviting me.

My pleasure. The first question I have for you today is precisely Procurement of Innovation, why do you think it is important or is innovation just a buzzword?

I think Procurement of Innovation is important for two main reasons. Firstly the government is a provider of services to its citizens. To provide the services the government is using technologies and services purchased from private market players. By purchasing these innovations to deliver public services the government can provide better services. Take the example of the so-called thirsty asphalt on the highways in the Netherlands, a country where I can tell you it rains a lot. By replacing ordinary asphalt with innovative asphalt that absorbs several thousands of litre of water per minute, the Dutch Ministry of Infrastructure and Environment improved visibility on highways which led eventually to better traffic flows and less accidents during heavy rains. And this illustrates how Procurement of Innovation delivers immediately and direct benefits.

But Procurement of Innovation is also important in a more indirect way and this is because the government ultimately holds the responsibility for the economic and social welfare of its citizens. To this end the government needs to create the proper framework conditions for a well-functioning economy. It needs for example to improve access to affordable resources to local company in a global context where natural resources are diminishing, where there is an increasing population and rising competition between governments to get access to these resources. So this explains the government’s interest to stimulate the development of innovative alternative sources of, for example, raw materials or energy.

In the same line of thought I think by purchasing innovation the government can provide innovative companies with earlier revenues which allow them to refine their innovative products up to the point when they can compete with incumbent products on the market. In this way through Procurement of Innovation the government can sustain the growth of these companies and it’s common sense that successful local companies mean employment, mean increased tax income for the government, and mean cheaper and more qualitative products.

So this is in simple and general lines the main reasons why Procurement of Innovation is important. And maybe it’s also important to make clear from the beginning that there are two main approaches to Procurement of Innovation and these are called Pre-Commercial Procurement and Procurement of Innovative Solutions. It’s PCP and PPI. Of course your audience will be familiar with these two forms of procurement but it might be useful to still explain what exactly they are and I would start with Pre-Commercial Procurement which is the procurement of R&D services. This is based on an exemption included in the procurement directives for R&D services involving risk share between procurers that get involved in this procurement, it involves competitive development in phases and involves a clear separation between this procurement of R&D services and the procurement of the final product, so the deployment of the commercial volumes of the end product. The European Commission has defined in 2007 guidelines on how to use this exemption and how to implement legally compliant procedure based on this exemption.

On the other side you have Public Procurement of Innovative Solutions, the PPI, which can be complimentary to PCP but can also be conducted individually, not in the continuation of PCP, and it means the purchase of an innovative good or service that has already been developed so the development stage is finalised but these innovative goods or services are not yet available on a large scale commercial basis and they still need some conformance testing before being deployed within the organisation of a public procurer.

That is the theory behind why Procurement of Innovation is important but if you look at the practice and if you look at how contracting authorities are conducting procurement in general, we don’t see many contracting authorities paying a lot of attention to Procurement of Innovation. In your views what are the reasons behind this?

Yes you are right, although I believe that things are starting to change. Indeed about a decade ago policymakers at both national and EU level they realised that procurement budgets were not sufficiently spent on innovation and there is a huge amount of money involved in procurement, we are talking about two trillion euro in the EU per year and this is, means 19% of the GDP. So the European Commission and several European member states have done efforts to change this situation.

They also were aware that it is not easy to bring this kind of change and I would name a couple of reasons why public procurers do not widely conduct innovation procurement. First of all innovation involves risks and procurers, there are in procurement surely penalties related to failure of procurements but often there are no rewards related to a success so there is no direct incentive for a procurer to engage in innovation procurement to take these risks. So this has also to do with a lack of institutional incentives with disconnection between procurement which is first of all an administrative task, it is about buying something that the procuring organisation needs for its functioning and it is disconnected from the more policy goals that the same organisation or the ministry under which this organisation might fall has and what I was talking about earlier, you know, improving the public service and supporting, incentivising companies to become innovative and grow more and generate more economic outputs.

Another important reason that was often indicated by procurers as being a barrier to involvement in innovation procurement is lack of clarity of legal rules and particularly fear of breaching EU state aid rules. And also at least in the form that is envisaged by the European Commission for PCP and PPI, namely the cross-border collaboration between procurers, these kind of PCPs and PPIs are complex in organising, the coordination between procurers from different member states requires increased efforts and they are often time consuming.

Also innovation procurement in order to minimise the risks that are related to it requires a careful preparation which also takes time and requires expertise and capabilities that procurers often do not have in-house and are not willing to take the effort to gain those, and it requires careful definition of their needs, careful definition of the specifications, advanced specifications that would reward innovation proposals, requires market scouting, consultation, and lastly but not least is budget restrictions. Often buying a first batch of innovation will be more costly and particularly in the ICT sector switching from one incumbent technology to a new one will involve high learning and switching costs or procurers as users.

So these are the main reasons that have often been invoked by contracting authorities for not doing innovation procurement more widely and these barriers are in the mind of policymakers today at European and national level.

I think those reasons are very interesting and by and large I agree with them. In my dealings with contracting authorities in multiple member states there’s certainly a cultural fear of making mistakes so it’s much easier for you to avoid risk or try to reduce risk because at the end of the day you are promoted on the basis of not effectively screwing up. So if you’re taking on risk, yes things can go well but they can also go wrong, and if they go wrong someone is going to be out there to blame you for the failure?

Yes. The penalties are more visible than the rewards of…

Of course. That is one of the problems with KPIs or the lack of KPIs for example that can measure those potential benefits. But this brings to mind the old saying that no-one was ever fired for buying stuff from IBM and it’s still true in public procurement to a certain extent which is if you have an established technology, if you have an established incumbent which is solving your problem, okay what is your incentive to effectively going looking for a better solution because that may not exist, certainly it’s going to incur a cost because you need to prepare yourself, you need to use different procedures that take longer and are more expensive to run, so on and so forth. So I understand that sometimes can be really difficult for procurers to actually find a motive to going for innovation?

Yes. Sometimes they have real clear motives to do it, for example the old solution is, becomes costly because of, take the example of water boards in the Netherlands. They had increasing number of sewage water purifying stations and they needed to gather all this data from all these stations and it was done in a very inefficient way with data storage at each location and it was increasingly costly so they needed to go for an innovative solution, for a new solution, but why go for the real innovation element, that’s the tricky part. It really needs support from top management and it needs to a certain extent a culture of innovation within the organisation.

I think that’s a very important point because one of the things that I’ve seen as well is, and this has been discussed also in the literature, which is procurers at the coalface, the people actually doing the procurement, you have way too many people doing those roles and they’re not given the skills or the training necessary to understand how these new ways of procurement work, so by definition they’re going to default for whatever the organisation has been using for the last ten or fifteen years. I think that is very prevalent?

Yes, I agree. It happens currently also bottom-up, you know, there are procurers that see the opportunities that innovation is offering, they have a project in mind, they go and they support the case for that procurement with the top management, they obtain the approval to go on with those projects, but the real change needs to come top down, I agree. And there are only in several member states national initiatives for bringing this change and also at European level there are measures that are being taken to change that.

One of the things I find relevant as well to discuss about Procurement of Innovation is how Procurement of Innovation in a sense marks a completely new direction for rules in public procurement. The way I usually describe this is if we look at procurement rules over the last forty or fifty years they exist to avoid really bad procurement so they are there almost as a safety net. So that’s why in the open procedureyou don’t have a lot of discretion, you’re effectively creating something that is easy to use, more than easy to follow, easy to use for procurers so that they can apply time and time again without having to take too many decisions, too many risks, and without having a lot of discretion?

Yes, you’re right. You’re right. I agree. Innovation procurement requires discretion. That is why actually Pre-Commercial Procurement or procurement of R&D services is exempted from the procurement directives. And this is exactly the reason why because the procurer needs discretion in formulating, in getting in contact with the market, formulating its need, its specification, and potentially changing those specification depending on the course that the development takes, development of the solution. Because of course you cannot predict once you start with a Pre-Commercial Procurement which way or whether the solution might come up during the development, it might become apparent that another course for the innovation solution would be better and more beneficial.

So they need this discretion and this is exactly why PCP is exempted, there are still rules applicable, you still have the treaty fundamental principles that remain applicable, particularly in the case of PCP as envisaged by the European Commission because it’s a cross-border PCP, there is a European dimension to it, there is a cross-border interest related to it, so it still falls within the treaty for the functioning European Union.

Moving on, what can you tell us that you’ve learned over the last ten years with Pre-Commercial Procurement projects and research?

Well of course we learned that this behavioural change is difficult in the absence of political mandate and in the absence of suitable capability creation schemes. The EU from the beginning they have looked at the benefits that the US programme particularly in the field of R&D procurement has brought to the US and they have tried to duplicate those results in the EU but they have realised that they need to take the effort, undertake real efforts to bring this change in European Union.

But we also saw that in ten years since they’ve started these initiatives there has not been the expected progress and in my opinion this is due to couple of reasons. First of all insufficient analysis of the prerequisites for successful implementation and second unclear or difficult legal framework and I’m particularly referring to the EU state aid rules. Thirdly I think they didn’t realise how important it is to target the right actors that are capable of implementing these kind of procurement and not the innovation agencies at national levels that have actually implemented the most advanced schemes in innovation procurement but that are actually used to grant subsidies and not conduct procurement, they are not the end users of the innovation that would be developed through an R&D procurement. So I think these are a couple of the main reasons why the expected results have not been achieved so far.

There is also the side of lack of competence at EU level to legislate on innovation in the innovation area so it’s up to national states to set mandatory targets to legislate on Procurement of Innovation, and the EU has only the competence to coordinate and to support and try to convince member states to go ahead with these kind of policies and with their implementation.

We have also seen in the ten years we’ve kept in mind and actually recently the commission has funded a project to quantify the benefits of Pre-Commercial Procurement, not of innovation procurement in general but specifically of Pre-Commercial Procurement because procurement of R&D is more difficult, it’s more risky but it also promises the most benefit. The project, the smart project has conducted questionnaires, interviews as analysed Pre-Commercial Procurement that they identified in the EU and they found evidence of positive impact. What they didn’t find evidence then they tried to look at the US and show that there is potential for enormous benefits from these kind of procurements. What they showed is that they confirmed that Pre-Commercial Procurement leads to improvement of the quality and efficiency of public services and that conducting a PCP previously to a PPI would reduce risks of failure in the PPI and also in terms of costs often this would be justified, so the cost of conducting a PCP would still be outweighed by the benefits of avoiding failure in a subsequent PPI.

They also realised that Pre-Commercial Procurement facilitates the access of more businesses and they saw that PCPs conducted in collaboration by procurers from different European member states attract, in 75.5% of the cases are won by SMEs and in 81% of these cases the SMEs are small, are under fifty people. But they also realised that Pre-Commercial Procurement it reduces risk of single supplier lock-in so at the end of the PCP you will be sure that you have competition, that you would have a technology that is developed according to the needs of the procurers, that at least two competitors are capable of developing competitive solutions, that you have the choice and you have the competitive pressure on the prices of the solution that the procurer would eventually need to procure. Of course not one of these two solutions that come out of the PCP but projects that have developed in the same time outside the PCP would also be invited to compete.

And yeah, it is also very beneficial that doing a PCP because it increases the possibility to achieve interoperable solutions between procurers from different member states. It saves the costs of adjusting these technologies or adjusting commercial available technologies later to be interoperable or to fit perfectly the needs of the procurers.

Moving on to one of our final questions. You’re also involved in a project called European Assistance for Innovation Procurement, what are you trying to achieve with that project?

As I told you the European policy, EU policymakers have taken steps in incentivising innovation procurement since a while now, so a couple of initiatives have preceded EAFIP and I will shortly give you an overview of those.

In the European Commission in the field of PCP particularly in 2007 they drafted this communication recommending a certain approach to the procurement of R&D services in, fully in line with the legal framework in order at least to take away the legal risks that were seen by procurers. Subsequently in 2009 after listening to procurers and to the barriers involved by them they took additional steps in addressing these barriers and they funded the formation of procurer groups and they funded networking activities. So they thought, at that stage they thought the missing link is procurers funding each other in conducting PCPs but soon that became apparent that was not sufficient so didn’t lead to the emergence of the good practices they expected. As a consequence they went a step further and they thought okay, organisation of cross-border PCPs is complex, is costly, time consuming, we will fund 100% of the organisational costs of these PCPs and as long as they involve at least three procuring authorities from different member states and we will also fund part once the procurement procedure is completed and you go on with the contract, you close the contract with the companies, they would fund also part of those contractual costs.

There are currently fourteen ongoing PCP projects funded by the European Commission. The first one was started in January 2012 and it’s set to be completed in forty-five months so we are still a while from seeing the first result. There are also funding activities for PPIs. These have focused particularly on creation of networks of procurers. There are seven projects funding networking activities for the preparation of the Procurement of Innovation for identifying common needs, for identifying partners to conduct PPIs together, for engaging in dialogues with the market. More recently though they have stepped up these measures also in the field of PPI and they have funded consortium of local and regional procurers, it’s called the Stop and Go Project, that procurers that actually plan to launch together four tenders for Procurement of Innovation solutions.

So EAFIP comes, is in line with these initiatives. What it aims to do is actually to bundle the existing knowledge on how to conduct innovation procurement. We have, Corvers Procurement has been, actually we are conducting this in collaboration with our partner in Brussels, STELLA, and we have been selected because we have knowledge on innovation procurement, we have been experts, independent experts for European Commission, we have been following the European funded, EU funded Pre-Commercial Procurements and Procurements of Innovation for years now and we have a lot of knowledge in-house and we should also bundle the knowledge that comes from all these EU funded procurements and from national level implemented procurements into a toolkit. And that would be conveyed to procurers through twelve events and through a couple of webinars throughout the project’s three years lifetime.

The project started at the beginning of this year and it’s due to, for completion the end of 2017. But creating a toolkit, disseminating, it’s not something really new. What is new that the toolkit is really following each step and it tries to be really practical and doing the state of the art knowledge at each step. It goes into needs identification, then goes into prior [?? 26:08 art] analysis, IPR search, drafting a business case, then you go to market consultation, then you draft your intellectual property rights and confidentiality strategies, you set the link to standardisation and only after that, these are all really early preparatory stages, you go into the drafting of the tender documentation. And this completes the preparatory stage and after that you conduct the procedure is select, actually select the winning companies and during the execution of the contract you also perform monitoring and evaluation of the performance.

When will the toolkit be available?

The toolkit is pending approval for publication from the European Commission. We expect that the latest beginning of next year will be available on the website of the EAFIP and the website is just eafip.eu.

Okay.

And the new feature of this project is the free assistance to contracting authorities who take the initiative to implement innovation procurement without EU funding. So the project aims to identify twelve projects that will be selected for free assistance from the project experts and the project partners. So they will be selected, they can apply until 10th of November but probably the deadline will be extended and there will be flexibility whenever really suitable project will come to the attention of the partner, the consortium. And it will be selected on basis of several criteria such as importance of the targeted solution for solving public problems or the intention to bundle forces with procurement from other member states.

Brilliant. We have to leave it there because we’ve gone over our half an hour, so thank you very much for coming to the show Ramona.

Thank you for inviting me. It was a pleasure.

As usual 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. I’m very grateful as usual as well for the support of the British Academy Rising Star Engagement Awards.