below-thresholds

#32 - Pedro Telles (Swansea University)

What do low value contracts, framework agreements and Brexit have in common?

Interview with Pedro Telles about low value contracts, framework agreements and what impact Brexit may have on public procurement in the near future. Pedro is a Senior Lecturer in Law at Swansea University and was previously a Lecturer in Law and Public Procurement Law Specialist at Bangor University's Institute for Competition and Procurement Studies. This is the final episode of the PPP (and a double length one) with the interview conducted by Albert Sanchez-Graells from the University of Bristol.

Transcript

Thank you very much Albert for accepting the request to be the host for the podcast because it’s the last one and I wanted to finish in a slightly different note than usual, so I thought it would be interesting to actually put myself at the end of the microphone and be on the hot seat talking about procurement instead of making the questions, and putting the head on the other people.

 

Yes, I’m sure that you feel very uncomfortable now in that chair?

Actually, I do [both laugh].

 

So Pedro, I think you have lots of things about low value contracts, this is something you’ve been writing about for the last what, four or five years, so what are your thoughts on that now, how do you see it coming in the future?

Yeah, that’s true, I’ve been thinking about low value contracts, i.e., contracts which are valid below the new financial thresholds for the last five years I think, and over the years I became very surprised with the way they were treated and actually their importance in the overall picture of public procurement regulation. I would say that firstly it’s important to talk about them today in 2017 because the thresholds that now determine the size of the internal market for purposes of public procurement are going to be revised by 2019, or at least it’s expected that the commission will look into them in 2019. And it can go either way, they can go up or they can come down. They have been very stable for the last 20 years, mostly changing just because of exchange rate fluctuations between the euro and the special drawing rights of the IMF, but come 2019 we may have a more significant change in terms of what are the contracts that are covered by EU rules via the thresholds. Now the current system is perfectly arbitrary, it’s set without any specific reasons, so that the threshold values that we know and have been using for the last 20 years or so, there’s no actual substantive reason for them to have the value that they have. And in consequence is that above the thresholds you apply the full might of EU rules and below the threshold you apply essentially national rules with exception of the contracts which are considered to have the certain cross bordered interest, which I’ll mention in a second. Now one of the interesting consequences of this arbitrary distinction is that in reality only around 17 or 18% of public procurement expenditure is actually covered by EU rules. So only the tip of the iceberg is actually subject to directive 2014 24, and the other directives as well. Which has led me to question a little bit the logic of the system, which is why would we focus the most important rules in just a small subset of contracts? As time has went on and I looked into a little bit more detail with what’s happening with the contracts below the thresholds, I was even more surprised with the way that they’re treated, and going back to the topic about the certain cross border interest test that was created by the Court of Justice first, with the Telaustria case may be 15 or 16 years ago, and has been upheld with variations ever since, effectively this means that for the contracts below the thresholds they will only be subject to the EU principles, if the contract itself has or is able to attract an interest from an economic operator based in another member state.

The Court has been fluctuating a lot between what is certain cross border interest, what is not certain cross border interest, and effectively this means to me that the Court has probably painted itself into a corner. In the sense that they are enabled to clearly provide a set of rules, or guiding principles that can be consistently applicable to any given situation. And the reason for that being that by subjecting the application of the rules to whomever comes to the contract or is actually interested in contract, we are subjecting the rules of the contract, or the procedure to a condition that is uncertain at the beginning. And that for me it’s a critical mistake and it’s a critical error from the legal system because you’re not providing any sort of legal certainty, for the public procurer they start the procedure, they don’t know at that moment in time if they’re going to be covered or subject to your rules in this case, the principles from the treaty, so equal treatment, non-discrimination, transparency, or depending on who actually comes up to the contract, if they’re going to be subject only to the national rules, whatever they may be.

 

But Pedro, if I can push you on that, because it’s very clear conceptually, but then at the same time every system has some sort of requirement for transparency and competition and proportionality, so what is in the principles that makes people so happy about them?

I suspect that it’s probably the fact that it means that in one way or another there’ll be subject to EU law and they would prefer to be subject only to the national law, whatever that may be, I know that in many member states there is a fully fledged legal regulation for those contracts, whereas for example here in the UK there isn’t, I mean if you look at the Public Contracts Regulations, as we did with our commentary, there is some regulation but it is very light touch and very modest in a sense. So I suspect that the problem people have is exactly being subject to those principles that are coming from EU law and not from national law. And obviously applying principles, it’s always prone to a significant degree of uncertainty in terms of what actually is included and contained within that principle. Whereas if you have national rules which may contain the same or similar principles, the national rules would be… one would hope, a little bit more detailed and prescriptive. So I think there’s a degree of legal uncertainty, but the biggest criticism that I have for the role of the Court of Justice in all this process is that it has effectively created the perfect "Schrodinger’s cat" of public procurement in a sense, that any given contract below thresholds may or may not at any given moment in time be subject to EU rules, i.e., the principles, or subject only to national rules, depending on the actual economic operators that turn up to the contract, or to the procedure.

 

Yeah, or even that could have turn up.

Or even that could, exactly, so it’s even more complex than that. So I’m really not happy with the solution that the Court of Justice has reached and I think that it is time that the Court actually looked at it with a fresh pair of eyes and reconsidered its approach. Now looking also at where the thresholds came from originally, I wrote a paper about that a couple of years ago and I was very surprised by again not finding any particular justification for the thresholds, and if I may use an analogy on this, let’s imagine that what we take now for granted, at least for now, free movement of people, or free movement of goods or services, they apply to all situations, without any question, without any reservation, and they’ve been in the treaty since 1957. What I think is the original scene in procurement is that we don’t have a similar approach or the treaty’s do not take a similar approach in 1950s and it was only in the ‘60s via the original directives that procurement was subject to positive rules and not only negative rules. Now when those positive rules came in they came in and allowed the member states to try and negotiate a degree of protectionism, for the national markets, and we can see that in the ‘70s in the way that the original thresholds were introduced, and you can clearly see that in the ‘80s when the threshold for works which was one million ECUs at the time I think, was increased to five million on the run-up to the negotiations for the Tokyo round, or the Tokyo agreement of the GPA, where works were the included as part of the GPA, and were included precisely at that level.

So as we’d accepted from the beginning that all public contracts would be subject to free movement and subject to this possibility of any economic operator participating without any discrimination, without any question, I think that the procurement landscape would be very different and we would not have thresholds at all. Now the other level of my criticism regarding the thresholds is that at least what they are today, we effectively we’ve got an internal market that is determined by external commitments, i.e., by the commitments that the union has accepted within the GPA. So the thresholds that we have today, that they’re in the directive from 2014 and they were updated afterwards, they are the exact same thresholds that the union has accepted within the GPA. Now the GPA as an agreement, or has a group of bilateral agreements effectively, implies that we are determining the size of our internal market, not by internal pressure or by internal drivers of the union, but by our ability to negotiate with our external trading partners. And that for me doesn’t make a lot of sense, effectively what we’re saying is that the internal markets, it’s not just us inside the union that decide what is internal market, it’s our ability to compromise with our trading partners that is going to determine the internal market. Again I don’t think that makes a lot of sense, I think that the union should be more ambitious and should accept that lower value contracts today also are part of the internal market and one of the reasons I think about this is if you look at our improvements in productivity have crept up over the last two or three decades, they have made it possible to actually… economic operators in other member states to compete for more and more contracts with the lower value, and I suspect that one of the areas where this is going to be more visible quite quickly, it’s going to be with contracts that have a digital nature, they are digital by default and digital only. So services, contracts that can be delivered over the internet, whatever they may be, whatever the actual object, for me, from my perspective today they are cross border, or they are bound to generate certain cross border interests for sure, because the opportunity and transaction costs of actually bidding for those contracts and delivering those contracts is much lower than it was to sell physical goods 20 or 30 or 40 years ago. So I think that if I could accept in the ‘70s that the member states would use the argument of opportunity costs, or transaction costs to block the application of EU rules to traditional goods and services and also works, today I think it’s less likely that that argument holds, but certainly it does not hold for digital contracts.

 

I think it’s very interesting, I think in terms of the relationship between the GPA and the directives, and particularly here in the UK this is something that people are starting to look at in lots of detail, because of Brexit and we may talk about this later, but how do you see the convergence, because if we push EU rules to extend corporates down, would it be all the way down to any value, or would we end up with a triple layer regulation where we would be looking at the really high value contracts, we will be GPA plus full EU rules, and then a sort of weaker EU regime for lower contracts, and then still as more domestic threshold, how would you see the final map once rethinking takes place?

Well as you’ve mentioned a few minutes ago that already happens to a certain extent with many member states, so Portugal, Spain, Czech Republic, Slovakia, Finland, Poland, those are the ones I know, they already regulate contracts below thresholds, and there is I suspect in most cases a very light touch regulation for really small value contracts and that varies from country-to-country, but the vast majority let’s say from 10,000 euros or 15,000 euros up to the value of the thresholds, they’re subject to rules that are similar to the ones that are already contained in the directives, albeit slightly, one would hope at least slightly lighter. So that multiple layering of regimes already exists, what this would do if you lower the thresholds for let’s say 10% of what they are now, is that we would have a lot more harmonisation of procurement rules across Europe in terms of the coverage of contracts and coverage of procurement spends, that is out there. So whatever option we prefer, we always going to end up with multiple layers of regulation, so it’s just a question of defining where the boundary for each one of those is going to be?

 

Yeah, I think that’s right, I mean there is also an element of interaction that probably will bring us to the next topic, but also the more aggregation of demand there is, and the more that use is made of framework agreements and dynamic purchasing systems, then the more span of reallocated towards larger contractual mechanisms that then would be covered by the euros as well, so I think it’s right to say if you want to have a sort of homogenous spread of spend covered by EU rules, we need to move the threshold lower so that those member states that are behind in adopting these frameworks and [?? 14.19] still get more spend covered by EU rules. Otherwise finding of the ones that are more advanced in the procurement are the ones that are also more subjected to EU rules, than the other way around.

Yes, no I think you’re absolutely right, and it’s another point that is interesting to mention here in terms of currency fluctuations and in terms of value, which is the exchange rates that then determine which are the thresholds for each member state, that does not have the euro as an official currency, or is set every three years as it is for the euro denominated currencies, or the euro denominated countries, but it doesn’t take into account fluctuations doing those two years, so you may have for example a contract which in euros was covered, and I’m thinking about the UK of course, a contract that two years ago would be covered both in the Eurozone and also in the UK, that because of sharp fluctuations in the value of sterling it should no longer be covered because it’s much lower, or it’s much higher than it needs to be. So that is another problem of using money in value as a proxy, for a potential interest of a contract for an internal market, so I suspect that going forwards, I think you’re right, that if we don’t change the threshold values we’re going to end up with a system whereby you’ve got some contracting authorities, in some member states which would have most of their procurement expenditure covered with the directives, and most contract authorities in most member states, not… and that’s what’s already happening to a certain extent because as I’ve said only 17% or so of the procurement spend is actually covered by EU rules.

 

So yeah, I think you have plenty to write about this in the next couple of years as well.

I do, I do, I haven’t finished it off yet [laughs].

 

But then at the same time you’re starting a project, right, because I think you’re seeking funding for work on frameworks, so that’s the other area of interest that you have at the moment?

Yeah, yeah.

 

So what are your thoughts about frameworks, dynamic purchasing systems and all these crazy things?

The first thing that comes to mind when I look at framework agreements is that they are a product of their time, a little bit like the thresholds, they are a product of the ‘90s and catalogue purchasing as it was designed in the ‘80s and the ‘90s. So it’s now 2017, and when we moved from a buying process that is very time consuming because we’re buying each unit or each time you’re launching a complete new procedure, to moving to an aggregate, a system of aggregated demand like the one for framework agreements, we’re moving into effectively the paradigm of the ‘80s and the ‘90s which was what framework agreements are, whereby you have a catalogue and certain participants are selected to be part of that catalogue and supply goods and services to the contracting authorities. Now the more I look into this, the more I’m worried about the implications, so on the one hand there’s no denial that it allows for savings to be found and it allows for the reduction of the transaction costs over certain given period of time, I agree with that, I don’t have a problem with that. My questions about framework agreements is, okay, has anyone actually looked at the possibility that they foreclose the markets, because especially in those framework agreements that are mandatory for certain contracting authorities to use, then only the suppliers that actually make it in are the ones that are going to be able to supply a certain demand for any given period of time, and in fact in most cases contracting authorities prefer to have lone framework agreements.

Then if you actually look at the way the framework agreements operate, I don’t think that we can actually say that the contracts themselves are subject to EU law, we can say that the selection for the framework, yes, but from then onwards it’s pretty much anything goes, because framework agreements tend to be a black box, no-one pretty much knows what’s happening inside them, how the money’s being spent, how the contracts are being selected, it’s just as if it’s not relevant anymore. So we move from a system where every single contract is important enough as long as it has certain value, to be covered by EU rules and national rules, to a system that we’re going to select a few participants, and then contracting authority does pretty much whatever it wants.

 

But I think that sceptics would say, well but then once they are inside the game, then the participants are going to monitor each other and the contracting authority, so provided you have some sort of private remedy that they can exercise, to challenge the mini competitions of the calls within the framework, then we’re fine, why would that not be sufficient, what would be your reaction to that line of argument?

My reaction would be I think two-fold. The first one is, well if you don’t know what’s happening inside you don’t know how the money’s being spent. So even if you’re inside the framework, if all the money is being steered towards one of your competitors for whatever reason, you don’t know if that is happening, you don’t know necessarily if that is happening. So there’s not necessarily any accountability inside a framework agreement. So that is the first problem, then because effectively contracting authorities at this moment in time have free reign to design the framework agreements, how they operate on a day-to-day basis as they see fit, it’s very hard for an economic operator that is inside to actually complain. On certain jurisdictions, for example the UK, complaints by suppliers are perceived to be a black mark against the contracting authority and suppliers are very careful in the way that they express their complaints, so if you’re already inside a framework agreement, what incentives would you actually have to blow the whistle and where would you actually blow the whistle, I mean if you consider that framework agreements are purely private contracts, are not subject to public procurement rules at least, it becomes very uncertain how would you go about and try to challenge any decision, because technically the period where the framework agreement was subject to EU law or to procurement rules has already passed. And that’s another thing it doesn’t make much sense to me, because with the traditional procurement procedure, you look at the ones that are covered by EU rules, EU rules apply from the beginning to the end of the procedure until the contract is awarded. With framework agreements it would seem that the application of the rules pretty much ends once the framework is established, and it’s not clearly extended all the way down to the contracts being awarded. So there’s a lot of uncertainty in terms of, again uncertainty in terms of what is the legal framework that to be applicable to those contracts.

Then as you said, it is possible for the competitors that are inside the framework sometimes to know what’s happening, and that leads to another problem which is an issue of competition law, because it facilitates or it creates the condition to facilitate collusion between the participants inside a framework agreement. So at the same time whereas as I’m in favour of transparency, usually inside framework agreements I am very very aware of the risks of too much information being disclosed within the actual framework agreement, which would help bidders to coordinate their practices. And then on the long run, there is something that has not been explored well in terms of framework agreements, which is they may lead to reduced supplier diversity in the long run. Why do I say this? Because if only a limited number of suppliers makes it to the framework agreement, by definition they’re going to be the best ones in the sense of their financial, of their experience, their financial figures, so turnover, the experience, all those selection requirements, and obviously the price of not being in the framework is so high that they probably are going to try to go as low as possible, even at the dumping level, to make sure that they get themselves into the framework agreement. So by definition this makes the life very difficult for small suppliers and younger suppliers in a market to make it to a framework agreement. While it is possible to design framework agreements that are more open than this, for the most part the ones I’ve seen are very much designed to reduce competition, probably too much, and that may lead in my view as more money gets spent for them, that may lead to reduced supplier diversity on the long run. So those would be probably the biggest issues I have with framework agreements. Now most of them actually do not apply to dynamic purchasing systems, with the dynamic purchasing system you can join and leave the system at any given time, as a supplier, it’s probably a lot more transparent because it’s always open so you always know more or less what’s happening, in terms of design it can be probably made as resource intensive or not as the framework agreement.

However, if you look at the number of framework agreements, versus the number of dynamic purchasing systems, there’s no doubt whatsoever that framework agreements are much more popular today than dynamic purchasing systems, but why is that, why is the market sticking with framework agreements, it’s because they are older, they’ve been used more often, people are more comfortable with them in terms of contracting authorities, what advantages do they see, to prefer to use framework agreements over dynamic purchasing systems.

 

There is a movement I think in the UK, to try to transition from the framework agreements to the dynamic purchasing systems. And it was never clear to me why dynamic purchasing systems didn’t work that first time around, and I think it, the main argument is oh we had to run an open procedures, so we didn’t want to do that, whereas now that we have a negotiated procedure, restricted procedure, sorry, we can organise dynamic purchasing systems more easily, but I don’t understand that because it’s open-ended by nature, so it will always be open forever. So how do you see that?

Well maybe an issue of misconception, I mean especially here in UK we have to understand that there’s been over many years a distrust on the open procedure, and for a long time actually the restricted procedure was more popular than the open procedure and the UK was the only member state where this was happening. And for me the explanation is that the restricted procedure allows the contracting authority to reduce the number of bids that they’re going to be looking at, and allows it to introduce only the best bidders actually make it to the bidding stage, so it gives them control, for whatever reason. I mean in other countries that doesn’t happen, but here it’s clearly an issue in my view of control and control over the market. Now probably people did not understand that or they did understand that the framework agreement allows them to reach the same conclusion because only a set number of participants is going to usually make it to the framework agreement so effectively you can use the framework agreement as you would use the restricted procedure, so it’s an evolution and that sense of the procedure. Whereas the dynamic purchasing system, because it requires the open procedure, even though even with restricted procedure it’s open as you said, for everything, it’s open-ended, so participants would have to be checked as time goes on.

I suspect people just thought that well it means that we’ll have to deal with the number of bids, a number of tenders and we don’t want that, so we want to manage our workload and we want to make sure that only the best end up. As time goes on I hope this changes and I hope that practitioners and public procurement officials, not only in the UK but also elsewhere, understand that perhaps that they will be better served with something that is open ended, like the dynamic purchasing system, instead of the more closed nature of the framework agreement. I simply don’t know if there is enough take-up, bearing in mind that dynamic purchasing systems is what 15 years old already, I don’t know if there’s already enough take-up to actually reach a critical mass, that would allow public procurement officials to feel comfortable with it and start using it more often, what’s your view?

 

I think it’s an interesting point, I think that the issue will come up every time a framework expires and the contracting authority needs to decide whether to tender a new framework, or migrate to a dynamic purchasing system and I think you’re right, it’s a cultural issue and I think that the, probably the policy design should be maybe nudging authorities to go for a dynamic purchasing systems as a default, unless they can find some very good reason to stick to a framework agreement, and my personal view is that competition authorities should be doing a lot more in this area, to a public sector, so not only in terms of cartels which you have stressed very rightly, but also trying to educate the public sector in becoming more open in the way they dynamically purchase from the market. But I guess this is going to be a discussion again for a long time, but I think any empirical work in this area is going to be much much deserved, so I hope you do move forward with some of your current proposals.

Well that’s certainly what I’m trying to do, I’m trying to actually look into framework agreements and dynamic purchasing systems in multiple member states, and think about why are they not being used more, the dynamic purchasing systems on the one hand, and why do some member states actually use framework agreements so much, I mean UK is one example, Denmark is another example, and then you have other countries that don’t use them almost at all, and why is that, why is there this huge discrepancy in terms of practice, and I think that the cultural issue is going to be one that is going to be that the forefront, but also even thinking about framework agreements, I think that it will be possible to design framework agreements that are less damaging to competing interests, or competing principles in public procurement, so for example if we reduce the length of the framework, if we increase the number of participants, those are two things that can be easily done, if the contracting authority is willing to try them, and they will at least minimise parts of the downsides of the framework agreements in terms of the impact that they may have on the market, and especially with the SMEs. So if you know that these framework agreement will last only for one year, well if you did not make it you may have an opportunity to make it in the following year. The problem with I see, as I see framework agreements in the UK, now is that they tend to last for four years and the underlying contracts may last for longer. So there’s another problem that we haven’t discussed with framework agreements, is that while the framework agreement itself may last for four years, the underlying contracts may keep on going.

 

Yeah, that’s the beauty of the lack of definition of active…

Correct.

 

You can keep on creating holes everywhere.

So I think this… framework agreements, and this whole area of centralisation of procurement as more and more money is spent via this demand aggregation tools, I suspect that we need to pay a lot of attention to them and we need to be very much on the ball in terms of looking out, they’re being used in practice and what are the trade-offs, because all these procedures and tools imply trade-offs, and I don’t think that the market and certainly the European Commission as key policymakers in this, I don’t think they’re really aware of the trade-offs that are being implied by the framework agreements over dynamic purchasing systems.

 

Yeah, I would agree, and I think you have plenty of work to do, but I think we have been speaking for this while about your old interests, about value of contracts and thresholds, then your new developing interests about framework agreements and dynamic purchasing systems, and then I guess we need to talk about things that don’t necessarily, are of your interest, but are on your table, everybody that does procurement in the UK, Brexit is not something we want to deal with, but hey we have to.

Yeah, we have to.

 

I don’t know, I mean we have spoken some times about Brexit but I don’t think we have thought together about how things are going to change or not change and why should they change, so I’m very curious to hear about what you have to say about Brexit and procurement generally, about how you think the UK is moving forward?

Right, Brexit and procurement, so I think we wrote about this, what, six months ago on our blogs, there’s a couple of entries about this.

 

Yeah, it feels like hundreds of years ago because this is…

Yeah, we haven’t revisited that recently. So Brexit and public procurement, the first point is why should anything change in terms of rules, there’s so much knowledge based on the current rules, there’s so many systems that have been built around the current rules, why should we change them, that’s the first question. Related with the first question is, if you look at where the government, all the governments in the past could have regulated procurement, usually the governments have been very loathed to actually use those powers of regulation, so for the first time in 2015 we’ve got some regulation for contracts building thresholds, but that is very light touch, it’s very detached in a sense, so if that is any indication it would mean that the government is probably enabled in my view to come up with a set of rules that is much better than the current ones. If you think about it, people don’t know this but we know the story or the issue behind this, many of the changes introduced in the current directive were actually pushed very hard by the British government, this may come as a surprise but there is a lot in the directive that came first and foremost from UK, obviously with the support from other member states, but the UK was leading the charge to introduce those changes. So it’s not as if all that is on the directives and in consequence, in the public contracts regulations, both the ones that you commented on and the utilities, it’s not as if there’s much there that is purely continental in a sense, it’s actually there’s a lot that comes from the UK. So those are the first two questions I would ask. So why should the branding change when so many of the rules are actually designed or influenced by the UK, and in the areas that the government could have regulated and can regulate it has not actually exercises that right. So those are the first two questions. So then we move onto the real complicated matters, which is whatever the government wants to do, it will depend first and foremost on what trade agreement it ends up having with the European Union. So if the trade agreement involves procurement, then I suspect there’s not much scope for the rules to change because if you look at Norway and if you look at Switzerland, that is the situation with them as well, so I suspect not much will change in that area. What may change is for example, and it depends where the country heads in terms of actual political direction, but we may have, as we have in Scotland and Wales today, a more clear steer for, or a more clear steer based on a certain industrial policy. We’ve been that to a certain extent with the attempts of the government to force procurers to buy British steel, I mean even in the Cameron government and now with Theresa May so we may see more of that happening, even though, and respectively of the agreement that the country ends up having with EU. And then finally the final layer of uncertainty, or legal uncertainty that may shape, or it’s going to shape how procurement is regulated after departure from the union, is the GPA commitments, is the UK part of the GPA, well at this moment in time it’s not, will it be able to inherit the schedules of the EU, maybe, will it have to negotiate with some session, probably. And if it does does it have an interest in actually committing to anything that is different from what it has now, even though the current system was negotiated by the EU on its behalf. So that will shape as well how the UK procurement framework is going to look in the future.

 

I think it’s interesting because there’s all these different dimensions in which things may change, so the industrial policy I think is the one that probably is going to put more pressure on the system, and then the negotiations of the GPA level, but I think that the biggest issue, and it keeps playing with my head, is why should anything change really, I mean I know what to be… what I think, and there’s something we actually have discussed, but the transposition was so minimal, that we actually lost all of the opportunities to reform the system…

Yeah.

 

…just two years ago. And I am still not clear as to whether it was in anticipation of a major reform down the line, or just because there are no clear ideas of what to do with the system that if you look at it, actually right now it’s pretty flexible, I mean the negotiation is pretty straightforward, you can introduce lots of sustainability and other requirements through your technical requirements and other things, do you think this has been sort of, everything has been held and waiting for big change to happen after Brexit, or are we just thinking about a change that may actually not get there?

I don’t think the government was holding up any changes from the 2015 regulations, I mean they spent a lot of political capital in getting the directive to be what it is, so obviously I mean bearing in mind as well, in the way that the government sets out transposition should occur, it was always going to be a very minimal transposition, but it didn’t have to be this minimal. The government opted to be very Spartan in the way that it transposed the directive into the national law, and I suspect that in addition to the stated policy, I suspect that one of the main reasons was that it was the only way they could get it out of the door before the elections in 2015. If you think about it is, it is pretty much the only reason one can conceive for the transposition of the main directive to be rushed and to be available and made available in February 2015, whereas for example the utilities one came much later, and the transposition had so many typos and errors that we already had amendments in 2016 to correct all those typos. So I don’t think that there is any actual desire to introduce a debrief form of the procurement rules. Over the years, and certainly I mean I have been in UK for ten years now, dealing with procurement, and something that has always surprised me is when anything goes wrong with any given procurement, people blame the rules and people blame the rules and in consequence they are blaming the European Union and saying, oh no, we cannot do this because of the god damn directives, or we have to do it this way because of the directives, and I was lawyer, I was a practitioner, it’s not that simple. There was already a lot of flexibility in Directives 2004 18, and there is certainly a lot of flexibility on this one, so if you’re not exercising that flexibility it’s not because you can’t, it’s because you’re not able to, for whatever reason. And you’re right when you say that for example it’s so much easier today to use negotiated forms of procedures than it was just two years ago, so what else do you want to do, I mean the only thing that I can come up with is not that was said in contracts at all, that will be probably the preferred option of…

 

Yeah, but that’s wrong in the UK [laughs].

Yeah, I know, I know, but that’s why we have got the rules, right, to avoid that. But I suspect that would be the preferred option for public procurement officials, which is I want to hire who I want to hire, whatever the way I want to hire.

 

On that note [laughs], how do you think it’s going to unfold now with this Brexit commitment requirements we discussed in our blogs yesterday, or two days ago, do you think that in this time in-between now and Brexit, they will keep on testing the waters, to see what they can do, or do you think that some point things need to stabilise or…?

For future reference, I mean these are two blog posts that we’ve written about, a cultural fit clause in a contract to be tendered by the Department of International Trade, which read something along the lines that we will want the contractor to choose to be committed to make a success out of Brexit. Now there’s two levels of that discussion Albert, I think the first level is in terms of the actual application of the existing rules in a day-to-day basis, on the one hand I hope it doesn’t change much, because if it changes it means that people are being very strategic in the way they approach procurement, that is effectively a possibility, that may happen. And the more strategic people are the more likely it is that they will just ignore the rules or at least the bits that clearly come from EU law, and the reason I say this is because over the last few months I became more and more convinced that as the UK works towards Brexit, the effect of the Court of Justice, of any action before the Court of Justice, or most remedies available, it’s going to become lower and lower, so it’s going to become weaker and weaker and people are going to start to become more embolden in the terms of, okay, if my colleagues over there have been able to tender this contract with these kind of clauses which are for whatever reason they’re illegal, why can’t I do the same, why can’t I push the boundary a little bit further. So I suspect that we’re going to see that happening unfortunately going forward. And to such an extent, if you think about before the transposition of Directive 2014 24, how Scotland and Wales were looking at community benefits, I would argue that many of those ideas would not fit within the rules as they were conceived in the 2004 directive. Do they fit today in the 2014 one, maybe, I mean we can discuss those, but I suspect that the most entrepreneur minds in a sense will continue to push the boundaries and try to see what they can get away with, because the risk of being caught is getting lower by the day, and even if they’re caught they can always play for time, and say okay, so if you want to challenge this, this decision for being illegal, go for it and take it all the way to the Court of Justice and by the time it reaches the Court of Justice we’re going to be out of the EU, so it’s not going to have a jurisdiction over the topic. That’s definitely a risk, I hope I’m wrong, but I think I’m going to see that more and more happening, not only in procurement unfortunately, but also in other areas as well. And as someone who is benefiting from free movement, of people at this moment in time, that makes me a little bit uneasy.

 

Yeah, I think you’re right, and I completely share your uneasiness. I think the last issue that maybe is interesting picking your brains on before we conclude is, you have been interviewing loads of early career researchers, people doing interesting research in this area for the last couple of years, and one thing you keep moaning about is methodology and how [both laugh] legal methods are not as straight as they could be and what do you want to say about this, get it off your chest.

Yeah, okay, so I’m going to make two comments on that, so the first one is it was great that I was able to interview so many people from so many different walks of life that are super smart, and are doing amazing research, related to procurement. I mean when I started this I could not anticipate the breadth of research that was being done by early career researchers on procurement, so it was great to see all that being done. So I’m incredibly grateful to the British Academy for actually giving me that opportunity, and obviously creating the obligation of me on delivering on that commitment. And the consequence of talking with so many people that are doing interesting stuff in procurement, from different sciences, different areas, different backgrounds, is I came to the conclusion of something that have been on the back of my mind for a long time, which is for the most part in law in terms of research methods we’re stuck in the dark ages, my wife she is, she’s a social scientist and she works in a medical school so she deals a lot with qualitative research methods, and we have intense arguments and discussions about research and research methods and I’m always in the losing side of it, I mean because I can’t really defend what effectively in a sense in law are essentially logical detections to such an extent, but a lot of inferred opinions and legal opinions from people that are looking at law and giving their opinion.

when I look at legal interpretations we usually evaluate the, for being right or wrong, depending on how the Courts end up applying them, which means that if you’re more persuasive than your opponent and people have a different view, you are more likely to actually be right. But that doesn’t mean that we are actually correct, and there’s an absurd I would say lack of good quality empirical research in law. Now over the years, there’s been an increase, and it’s important to mention that, an increase in the use of social sciences research methods to look into legal questions, and I use those for example in my PhD so I was looking at the law in action, how it was being actually applied in real life and what were the problems that people were having in real life. So it was a step forward in comparison with just, you know, traditional argumentation or traditional black letter analysis. But what I think is missing in law, and certainly in Europe, it’s happening a little bit in US, but it’s happening in Europe, is an ability and an interest and a commitment to do quantitative research studies in law, this is different from let’s say law and economics, because mixing law and economics means that you may think both research methods and research questions, so you’re looking at the research question, trying to see it yes with the quantitative research method, but trying to see it, the legal implications and the economic implications. If you look at the economics, they’ve made that jump maybe 50 years ago, if you look at political science they made that jump to quantitative research methods, what 30 years ago, 40 years ago, a long time ago. If you look at law we’re still in the bloodletting [laughs] age or type of research.

We certainly lack the ability to, most of us to do consistent high quality quantitative research using good empirical research methods. I suspect that the reason for this, and the real explanation for this is most of us, me included, do not have a quantitative background, i.e., we dropped maths in high school when we were 15 or 16, and that effectively makes us blind to that whole area of research and to those oldest methods that could help us actually look into legal questions from a legal perspective, not a legal economics perspective, but even from a legal perspective and reach conclusions using those methods. So I think I will finally have to take the plunge on that one and instead of just whining and complaining and moaning about it, actually try to do something about it, so that is certainly something that I will be jumping off a cliff pretty soon, I hope and suspect, what’s your view?

 

I think you’re right, and I think particularly in the way things are going with more interdisciplinary research and funding, really nudging people to try to go beyond their own discipline, we need to start doing more quantitative analysis and it’s going to be challenging to determine what can be done, what cannot be done, there’s also going to be lots of issues now around sort of automisation or artificial intelligence and how that can be applied to law, but I think that’s another area where definitely there’s lots of stuff to do in the future and, you know, as you say we need to just get out of the conference zone and go back to high school, if it’s about math or starting getting trained on coding, which are very different challenges and skills we need to develop, but that’s the future.

But I mean those problems were already faced by the other disciplines, they’ve gone through that, they’ve gone through their walk, to try to figure out and get out of the dark ages of research methods, so they’ve done that, so we can do that in law as well. Now there is one thing I would like to comment about, you’re right about the increasing pressure for interdisciplinary research and that is important because it gives us and everyone else a different perspective and a different view and frameset to interpret questions. But I still think, and will argue, that there is space as there is in economics and political science, to use research methods from those sciences, or imported from those sciences, to answer legal questions, which is slightly different from interdisciplinary research, and with this I don’t want to minimise the importance of interdisciplinary research and I think it’s very important and it’s key that more and more people are willing to work at the boundaries of their own disciplines, but for what concerns law, I think there’s space as well for legal research to be done by quantitative and empirical research methods.

 

You might be right, yes, but again another thing that is going to keep you busy for the future now [both laugh].

So is a life of an academic.

 

So it is. I mean you promised your audience a longer than regular podcast, I think they are now on the two and a half helpings of it, is there something else you would like to discuss or would you just want to draw this to a close?

I think we can draw this to a close, I was just wanted to thank some people before we finish, so first of all I would like to thank you for being the first guest of the podcast, and the last host of the current series, I don’t know if there’s going to be a third series or not, if there is going to a third series it’s going to be a probably a different format in terms of interviewing people from other areas and not just early career researchers, but at this moment in time I don’t think it’s going to happen any time soon, it may happen maybe next year, so big thank you for you Albert for both challenges at the beginning and at the end. Then a big thank you to all my other guests and interviewees that gave their time, gave their knowledge as well and were willing to be part of this project. And finally a big heartfelt thank you to the British Academy which has been absolutely incredible in the level of support that they’ve given me over the last two years. They’ve been very good in terms of the financial support, but also the ability to understand certain changes in circumstances, as life sometimes changes, and that’s why that has happened to me in the last year or so. So I’m very grateful for them, for the support, all the support that I’ve been given from the British Academy and the British Academy research officers  involved and particularly with the podcasts, so that’s pretty much it, it’s just a big heartfelt thank you.

 

And the same goes to you and I think that all of the public procurement community really appreciates the fantastic content that you have created over these three years, I think I speak with them just to encourage you to find a way of doing a third series some time, about something similar because this has been great fun and very enlightening to hear and to read and I think that there’s a lot of exchange of ideas and new networks coming off of this, so that’s very good work.

That’s very true, thank you very much, and just one final note to cap it up, I was incredibly surprised by the take-up of the podcast, there was a lot more people interested on these topics than I anticipated at the beginning, a lot more, so thank you for the audience, thank you to the audience as well for turning up every month or so to listen to the podcast. So that was the last Public Procurement Podcast episode for season two, you can find me at my blog, telles.eu or on twitter where I use two handles, @Detig for general discussion, and @publicprocurement for public procurement related topics, as ever I’m incredibly grateful for the support of the British Academy Rising Star Engagement Award, which made possible this project. If you like the show it will be really helpful if you can rate it on iTunes helping others finding it where it’s going to be staying for the foreseeable future. Until next time, maybe next year.

#6 - Piotr Bogdanowicz (University of Warsaw)

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

Interview with Piotr Bogdanowicz, assistant professor in European law at the University of Warsaw. Piotr is also a legal adviser and has authored more than 40 articles on European Union law and public law. As with the previous podcast, the main topic for my conversation with Piotr is once more cross-border interest in public procurement, particularly the complex cross-border interest test created by the Court of Justice in the early 2000s.

Transcript

Piotr, welcome to the PPP.

Good morning, Pedro.

It’s great to have you here, I’m really, really thankful that you were able to make yourself available for the podcast, especially at such an early hour in the day.

My pleasure.

I would like to start this podcast as I did the last one, to talk about cross-border interests in public procurement. So in your view, why do you think that cross-border interests is important in EU public procurement law?

Starting from the beginning in fact, cross-border interest is important in EU law because if we don’t deal with the cross-border interest then we have a so called purely internal situation. So we cannot use, for instance, freedoms of internal market, and as far as EU public procurement law is concerned, the situation is the same - it limits the scope of EU public procurement law and in principle if we deal with a cross-border interest then EU public procurement directives have to be followed. Moreover, all the general principles of EU public procurement law have to be followed as well. And that’s the main problem, because if we apply EU public procurement directive then the situation in principle, in theory is very simple. We follow public procurement directives if some certain thresholds are exceeded. But if we don’t exceed these thresholds then the situation is more interesting because according to the European Court of Justice we should follow EU public procurement rules like non-discrimination, equality or transparency even if in such cases. And that’s the problem of the definition of cross-border interests.

In the last podcast I was talking with Andrea Sundstrand about the same topic, and one of the things that we discussed was that for contracts about the financial threshold of the directives that justified application of the directive, there’s no assessment whatsoever of the cross-border interests of those contracts. You just apply EU law because they have a value over that threshold. The cross-border interest only applies for contracts below the threshold or that have been excluded from the scope of application of the directives. So in theory what you’re saying makes sense and it’s logic, in practice there’s been some concessions to that principle.

Yeah, but the fact that we use, that we follow EU public procurement directives because thresholds are met is based on assumptions that such contracts, might interest the contractors from other Member States. And as you said, is only principles because I can clearly imagine a situation when we deal with the contract, which is above the threshold but still it doesn’t mean that it has to have a certain cross-border interest. And quite the contrary, I clearly can imagine the situation when we deal with the contract, which is below the financial threshold and it has a certain cross-border interest.

This is the question whether thresholds are good factors to decide whether we deal or not with cross-border interests. Of course the Court of Justice in its case law said something about cross-border interest, I mean whether there are some factors to rise the cross-border interests. And they related not only to significant value of the contract but also to the, for instance, place where the work or services are to be carried out or technical characteristics of the market. But still this depends on the case law of the Court of Justice. In  one case the Court can say that, “Due to the fact that the place are to be done somewhere, there is a cross-border interest,” and in the second case the Court can say that, “There is no cross-border interest,” and that’s the problem

I find that fascinating, that defining the application of the legal regime would, for many contracts, the contracts would depend on these almost hypothetical analogies or theoretical scenario that a contractor or authority needs to go through before they launch a procedure. So before they decide if they’re going to actually comply with EU principles, because a contractor has the cross-border interests, they need to reach the conclusion that the contract has cross-border interests, which is almost a catch-22 situation because it’s impossible for you to do without doing it. So how can you be certain that there is cross-border interest if you haven’t advertised the contract and if you have not allowed companies outside your own member state to participate in the procedure?

I do agree with you, that’s the main problem, that in theory everything looks good, so we need to follow some equal treatment, some competition, the more open contracts are the better. In theory the notion of cross-border interests and the case of cross-border interests is ok. But when we deal with it, when we look at practical things that’s the problem, the problems might arise. And for me even more fascinating is that we base our analysis on the case law of the Court of Justice because what you said, it’s absolutely true but from my point of view the problem is not only the fact that the notion of cross-border interests is hypothetical but also that these rules are being created by the Court of Justice. So the main problem is that these rules, why we should deal with cross-border interests, etc., in principle are not written in the secondary law, in directives, but are created by the Court of Justice acting as a political actor. And we deal sometimes with the situation where the judgments that are being delivered on the same day are different, like in the case of Comune di Ancona and Belgacom as far as cross-border interest is concerned. And from my perspective this is even the bigger problem apart from the fact that this is hypothetical notion, hypothetical situation.

Yeah, I agree with you because effectively it’s almost like every time that the Court of Justice produces a decision about cross-border interest it comes up with a slightly different answer to the problem. And I remember when I was doing some investigation on this topic a couple of years ago that instead of seeing any consistency in the approach, what I saw was a very characteristic way to try to solve things. So the Court of Justice will say, “Oh, on this case we think that cross-border interest means this, in another case cross-border interest means something else,” and so on and so forth. So it makes life really difficult for petitioners that want to apply public procurement rules or at least the principles to be sure that they are doing the right thing. Now, moving on to the second question, that is the situation that we have now. If you could improve the tests, what do you think that should be done?

It’s a very good question because, frankly speaking, I think that I don’t know the exact answer, but there are some potential solutions. The one that could be was proposed some time ago by AG Sharpston in her opinion, leaving the decision, how to deal with cross-border interest, to national authorities. So, national authorities should decide whether they for instance cut thresholds to the very minimum, or whether they apply some quantitative test. This of course would be in line with the principle of subsidiarity, but the problem is that it wouldn’t resolve the question of certainty. I can clearly imagine the situation where we deal with a different law in each Member State. So there is other solution, which is, in my opinion, a very radical one, but it’s very interesting and it was proposed as far as I’m concerned by you, to cut thresholds and to cut them to the very minimum. Then, we will open a public procurement market for almost all the procurement cases. In general I do agree with such approach but I have one doubt. This is a solution, which is good for experienced procurement markets and if I look at Polish market I would be very afraid whether some Polish contracting authorities would deal in a good manner with all the public procurement cases. For instance, if we have some thresholds then we can deal below the thresholds with, let’s say, some easier procedures, that is for contractors a good way. And then if we cut thresholds and we have to apply the whole procedure, even if new directives are more flexible (so also domestic law should be more flexible), then I am afraid that a lot of contracts will be finished or that a lot of contractors decide not to start in such procedures cause they don’t want to follow all these rules, which are set in the Directives. This is my only fear as regards this second solution.

It can be said that those contracts now, they need to be tendered anyway, so the contracting authorities also have the capacity issue of having to do it in the best way possible, even if the contracts are not subject to EU law.

Yes, but the rules are in such cases easier, yes. Of course you have to advertise or publicise the contract, you have to deal with some competitive rules and there should be judicial protection. Nonetheless, the rules are not so very specific, and it depends on the contracting authorities, how they deal with the tender, and if they decide to give some flexible solutions they can do it. If we are under directives and under law implementing directives we have to deal precisely in line with them.

It’s very interesting what you say because my experience in other member states is actually that below the thresholds, to a certain extent, what tends to happen is that the practice that the contracting authorities develop above the thresholds just comes down without adaptions, have you seen that happening in Poland?

The below threshold Polish market is rather flexible, so the problem is rather whether we should deal with some more general principles or not because I would say that I can even divide three categories of procurements in Poland. One of them, which is in line with public procurement law and in line with directives. The second, which is in line with principles because it has a cross-border interest and it is clear that it has cross-border interests. And the third one, which is the most interesting, when we are not sure whether we deal with cross-border interests or not. We are sure that we are out of the scope of public procurement directives but we are not sure whether we are out of the scope of general principles. And in such case in general in Poland the approach is rather more flexible than conservative.

Moving on the next topic, you work both in academia and outside academia as a legal adviser, or as a lawyer. What is your experience doing that kind of work, because it’s not very common in the UK, and what are the advantages and the disadvantages that you see on that?

That’s always a challenge, because you have to deal both with expectations of academia and expectation of the clients. As regards advantages, I am dealing with public procurement cases as a lawyer, and I can use it in my academia. For instance, when I am teaching classes I can give the students practical cases, practical information, I can say them that, “In theory the provision says that, but in practice it looks like that.” On the other hand my clients sometimes say that for them also there is a good point that I’m an academic and I know the case law of Court of Justice. For instance, once more, looking at the provisions they can say that, “We have nothing to do with EU law if we are below threshold,” and then I can say them, “No, no, no, no, no, we have to follow some rules because Court of Justice says that such contracts also can have a cross-border interest.” Disadvantage is, as I already mentioned, that in principle I’m a part time academic and a part time lawyer, and always in such cases something can lose in a specific time. And this also, the question I have to answer shortly, which way I should go.

So you think that in the near future you’re going to go one way or the other?

Yes.

Yeah, I can relate to your problems. When I was a lawyer I was trying to do my Masters at the same time, it just didn’t work out, so I couldn’t make it work. I had to make a decision and in the end I made a decision to move to academia. But even to this day I still maintain the very analytical and very practical mind-set that comes with the fact that I was a lawyer for four or five years, which pretty much sets me apart from most of my colleagues. And in your case it’s going to be even more than that because you’ve been a lawyer for longer. So what do you think that you can bring, if you move to academia full time in the future, let’s say that’s the scenario on the table, what are you going to bring from your experience as a lawyer into your academic work?

I think that the most important thing would be focussing on some practical issues. Of course all the theoretical debates are interesting but in my opinion public procurement law is a very interesting academic discipline, and what we are seeing now as regards the case law of the Court of Justice is pretty interesting as we also deal with the issue of, for instance, codification of case law. So these are real important legal theoretical issues. But for me, public procurement law first and foremost is a practical discipline and when we are dealing with some solutions we should focus on practical implications of our research, not only the general discussion on theoretical grounds.

We still have a few minutes and I have a final question for you. What do you think is the next frontier for public procurement? For example, what are we not talking about that we should?

For me something, which can or should be discussed in the future is the Transatlantic Trade and Investment Partnership, TTIP, ie the agreement to be concluded between the United States and the European Union. And it is for us, I mean public procurement lawyers interesting because it relates to public procurement. Public procurement is the area, which is discussed now between the United States and the European Union. And the aims of these agreements are interesting for us because in general the European Union wants to enable EU firms to bid for a larger market, larger share of the products and services, which US public authorities buy. In my opinion behind that is that the European Union would expect that public tendering mearkets in the United States will be as open as the European Union is seeing an EU market, or that the US market will be based on the same transparency, or maybe not the same but similar transparency and non-discrimination rules. And to be perfectly frank I am not so sure whether the US public authorities are prepared for that because of course they, I’m pretty sure that they follow non-discrimination transparency rules and so on. But as we were discussing, transparency and non-discrimination rules are interpreted by the EU institutions and the Court of Justice and the commission in particular in a very expansive way. And in my opinion it’s going to be an interesting catch between the United States and the European Union in this area.

I think that’s a very good way to finish the podcast, thank you very much for your time, Piotr.

 Thank you very much, 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 very grateful to the British Academy for sponsoring this programme, and I’ll see you next time.