e-procurement

#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.

#13 - Ama Eyo (Bangor University)

Electronic procurement and dynamic purchasing systems

Interview with Dr. Ama Eyo, Lecturer in Law at Bangor University and Director of the LL.M in Public Procurement Law and Strategy.  Ama has done extensive research on electronic auctions in public procurement and has now turned her attention to dynamic purchasing systems.

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Transcript

Let’s start with a small introduction to talk about e-procurement. How do you think e-procurement is going to change in the near future?

E-procurements over the last couple of years, we’ve seen significantly how the attention has turned towards modernising the way procurement processes and procedures are undertaken, as well as in terms of the whole lifecycle of the procurement process end to end, ensuring that e-technology, the advantages that come from it, are deployed within the public sector. Almost in the similar way as the advanced processes we have in the private sector. So looking forward to the next couple of years, what I envision that is likely to happen is more public sector world is going on board with this new appetite, I mean when we look at regimes, such as the former Eastern Europe, they are picking up pace and there are a lot of electronic procurement activities going on there. Then from April next year, with a mandatory e-procurement that’s going to come into force, hopefully, we would likely see more traditional procurement practices giving way to less paper-based transactions and more digitalisation, so that’s something we should be looking forward to.    

It’s not only in Eastern Europe, I mean, Portugal has been using e-procurement as the default way of organising procurement procedures since 2009 I think?

Yes, I mean, the advantage of regimes such as Portugal is that they’re given the kind of learning experiences that the younger generation of EU member countries can look forward to. Practical lessons is to some of the success stories as well as share in some of their faulty experiences in order that those experiences are not repeated in the new regimes, because one of the things that we need to be very conscious about is that the deployment of e-procurement does not, on its own, solve the bad procurement practices, it is an enabler, so we still need to make sure that there’s appropriate training and there’s appropriate specialisations in relevant areas.

How do you think that dynamic purchasing systems are going to fit in in a world where procurement needs to be done online by e-procurement tools?

Dynamic purchasing systems, as we all know, is a procedure which is available for contracts, for works, services and goods, and mainly commonly used with requirements available on the market. Its main distinguishing factor is the fact that as a procurement tool, it is to be used on a completely electronic platform. So for organisations who would be using this tool, it’s possibly the first step towards an end-to-end electronic process engagement that they would be involved in. It could be used potentially as a means of them gaining practice and experience with electronic procurement technologies.

But why would people start with the dynamic purchasing systems if they need to do electronic procurement, why not just adapt existing procedures and do them online?

I think one of the advantages of the dynamic purchasing system is the fact that throughout its lifetime, it’s going to be open and is going to provide access to a pool of contractors. So potentially, what this means is that if you are engaging in a procurement where you want to keep afresh, or you want to keep your options open regarding potential suppliers that may likely become appropriate for that market, this is a tool that could potentially enable you take advantage of that option, because unlike some other practices, I mean, it’s not going to be the solution for all contracts, we all know that, it’s not even being used or touted as such, but it is for commonly required purchases where potentially the contracting authority wants to dispense with a need of going through the whole full tendering processes at each specific time, but then have a platform of potential suppliers, so it gives it that flexibility to bring in new supply base, while at the same time encouraging other good procurement practices if deployed effectively.

True. If my memory serves me well, DPS, dynamic purchasing systems, were introduced in 2004, in the directive 2004-18, am I correct or wrong?

Yes, they were.

So, with over a decade of potential experience in the use of this procedure, why are dynamic purchasing systems not being used more often?

Potentially I think one of the main drawbacks of the old regime on the 2004 directive was some of the requirements in the way dynamic purchasing systems were organised. For example, one of the requirements was that indicated tenders had to be submitted on every opportunity, and also the fact that a lot of systems were not set up at that moment, infrastructure was not ready. At the moment, we do have on the shelf tools that contractor authorities can buy into, that its experience has been gained over the years generally with e-procurements and then the new framework has also, in some ways, enabled the system in a better manner, in such a way that what needs to be done at the outset, it’s to clarify the qualification information of the suppliers and that are admitted onto the framework, with less requirements upfront at that stage.

One of the things I’ve heard on the grapevine about dynamic purchasing systems and why they’re not used as often as they could be, particularly as an alternative to framework agreements is that they imply an increase in transaction costs over the lifetime of the system

Yes. In reality, you will have that drawback still coming in, but again, the decision as to what procedure a contracting authority would elect, it’s based on a number of reasons. Some may be in-house, strategic reasons, and those kind of decisions may be what influence the uptake or maybe they decline. If we look back to things like electronic auctions, for example, we know that when they first started out, because of the government funding, there was support, that was given to support the uptake, a lot of contracting authorities used them, but it’s almost like it’s now on a decline, but again this is something that each contracting authority has to make on the case-by-case basis as to whether this is suitable for them. There are resource implications that have to be looked into. Would a contracting authority prefer to have a standard contract established for a period of years, and dispense with the need to go out to the market every so often, or is it the market’s such there might be benefits in opening up the supply base and inviting new suppliers who could help refresh what is available and out there. So it’s a consideration that needs to be made on a case-by-case basis. Obviously a lot of contracting authorities are treading with care to make sure that they only use it and not create additional burdens on themselves.

True. But one of the things I’ve heard, or one of the things I personally consider to be underlying the reason why framework agreements are more popular than dynamic purchasing systems is that on a framework agreement, you have a higher degree of control, it’s almost the system of set it and forget, you do a selection stage or framework award stage at the beginning, and then the framework is set and is not going to change for its duration, whereas with the dynamic purchasing system, it implies a need and an interest of the contracting authority to be up-to-date with what’s out there in the market and to accept new suppliers into the system.

And that totally aligns with what I’ve just been saying, that it’s a strategic decision that would need to be made by the contracting authority as to what is the imperative for going for dynamic purchasing system. We recognise the fact that it’s one of the advantages of the current regime, is the fact there’s a number of flexible procedures out there for each contracting authorities to choose from, the directive does not mandate as to what must be used on each occasion but each contracting authority takes into consideration what it wants to procure and it’s enabling environment in terms of any national framework that may regulate or implement the directive in future, and that would be the rational for whether it would opt for this or not. Obviously, what we are likely to see in the future is that, for contracting authorities who have not had the experience of monitoring this or using it, the other additional burdens of, and the loss of control which you have mentioned could potentially deter them, but again, what we are seeing in some sectors, especially from local councils here in the United Kingdom, for passenger transport services, is that they seem to find this suitable for that kind of requirement, whether it is the financial agenda or imperative, or whether it is the fact that they want to get, to refresh their market that’s making them go for this, I do not have the evidence to say, but we can see that it’s picking up pace, I mean I’ve been monitoring the use recently, and it’s picking up pace at a much faster rate than before, but only time will tell whether it’s something that is sustainable or whether it’s something that’s likely to die out once the initial inertia is off.

Do you have any numbers?

I couldn’t quantify them but I mean, if you look at current notices, there are about 24 out there.

Which is still a very small number nonetheless.

Yes it is a small number and they seem to be limited to certain sectors. Again, it might be just that somebody’s waiting for someone to use it and then learn from that experience, who knows?

What sectors are those?

The councils are using it, like I mentioned, for, recently home to school or college transportation. With those few examples of set-up or selection by the HMRC, there’s also business and management consultancy related services being set up using this approach, the dynamic purchasing services. Again, you can see that the imperative for this is almost that they don’t want to lock out potential suppliers in the market by using a framework, but then they’re also keeping in case that requirement is not actually used by the end of the day, so it lends itself to that flexibility, and that could be one of the reasons why certain contracting authorities would go for it and others may not go for it, but only time will tell whether the use would gain more acceptance.

Are we seeing a focus on certain contracting authorities or certain sectors?

My research has shown that a number of councils tend to use it, but more towards the Social Services kind of requirements, yes. There’s a couple of community-based interventions that are being procured by this procedure, well, by these routes to market, let me put it that way. Again, you would say that it would potentially be maybe sectors that were under the excluded services regime that are thinking that, ‘OK, we could use this as a way to see what is out there, we know and how to operate things more easily.’

In terms of the advantages that dynamic purchasing systems bring over other procurement procedures and techniques, which ones would you highlight?

I think for me, the most important one would be the wider choice of potential suppliers that are out there, giving the duration of the system, because unlike possibly the framework that you were set up for four years and the suppliers are locked out, this gives you that ability to refresh the pull of suppliers who can participate in that opportunity. Then also, potentially, if in future you have new requirements that can be put in within the current advertisement without breaking the rules on modification or new contracts, that could also be catered for in a more flexible way, so those are some of the key benefits of the DPS.

And on the other side, what drawbacks will you have?

I think, like I mentioned, like you mentioned, the loss of control is there, and obviously if it’s not money taught properly, it could end up in disastrous consequences. I would chip in here with a practical scenario of what happened in one of the cases where this system was used to set up passenger home to school transport system by council. Unfortunately, the nature of the system was such that it meant that vulnerable members of the society were kind of affected by the constant change in the service provider. Essentially, what happened was that the council forgot to exclude the transportation of students with autistic needs from their requirements, and some of the parents complained that it was very difficult for their kids when a different taxi company or transport service turned up to pick up their kids to school. So these is some of the things that need to be looked at, what are the requirement, what are the needs of the stakeholders for the requirements, and how can that be carved out in such a way that while trying to get the imperative of value for money, which seems to be what is driving it amongst some councils, we don’t lose the stakeholders’ needs and concerns in the process.

But that is true for any procurement procedure, I mean, what you’ve just described could have happened as well with the framework agreement.

Yes it could, but you have a longer system of control, but the way this was was that this particular council had a situation where for, it was unable, it actually intended establishing a contract with some transport service providers, but it was unable to do that. The loss of continuity had more effect than if there was a longer term contract in place.

How do you think we could increase the use of dynamic purchasing systems in the near future?

I think one of the good things that we could do, or one of, it’s probably sharing of experiences. In my conversations with some of the councils, one of the drawbacks is that traditionally, people kept doing things the way they’ve always done them, without thinking about how innovative, I mean, nowadays we talk about innovative procurement. Yes, innovative procurement can be, you know, going the long-haul, but maybe, if a rethinking the way we were accessing the market, maybe rethinking is there a possibility for DPS, would it be suitable, that can be one of the ways to improve its, increase its use. Also sharing the lessons, the poor lessons that have been realised from practice so that other councils don’t make those similar mistakes. Personally, my first encounter with DPS was a while back, it was in 2010, and this was before it became really popular, I mean it’s not that popular in the UK but as popular as it is now, I was actually shocked initially when the option was presented on the table as one of the possible routes to market, but reflecting on it and reflecting on the lessons that we learn from that exercise, I can see some of its benefits, this was, we used it to get training associates for teacher qualification training, and it was used to actually revitalise some of the pool of trainers that we had on the contracts with the organisation that I walked with at the time, so I can see some of the benefits, but again, we need to think about how do we deploy it in a way that brings effective realisation for consumers of these services, as well as the contracting authorities.

Just to finish it off, in dynamic purchasing systems, are you including it in the materials of the LLM procurement law and strategy?

Yes, it is part of the module that our students are to, our students take, and one of the things that we’ve done is actually for them to learn how one of the local councils here in Wales, Cardiff Council, has used it practically for Social Care Services as well as the home to school transport, as well as the practical lessons and drawbacks that they can pick from these experiences.

To conclude the interview, I would like to move the discussion into the LLM. So you started, or we started the LLM back in 2011, it’s now 2015 or 2016, in the last five years, what has changed in the field of predicament and in the way that we teach procurement subjects to students?

OK, great, thanks for that question. Uniquely, one of our imperatives in introducing the LLM was to provide a pool of training to experienced and inexperienced procurement staff. Over the years, we noticed that public procurement was taught at the Masters level, the postgraduate level, so one of the things that you’ll be pleased to note is that in order to enable some of the younger participants in our community to graduate from university with some knowledge of procurement, so we’ve got a module, we’ve actually got two modules at the undergraduate module. This is a significant change in that they are being equipped with legal education, albeit from the procurement and the strategic aspects of engaging in public sector contracts, and some of them have gone out to tender which has served them well either in private or the public sector. In terms of the distribution of offerings that we have on the module, the unique aspect of our programme is that we see that, well you cannot do procurement without the knowledge of legal principles. However, legal principles can only take you so far, you also need to have an awareness of some of the strategic imperatives that drive the organisation when engaging in procurement activities, and this is why we feel that there is a need to align both aspects. So in our offerings we combine those kind of issues, so the students look at not only the law but also the corporate strategies, as well as national and international imperatives.

Thank you very much Ama, I think that’s a great way to finish the podcast.

Thank you for having me and do have a good day.

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 for the support of the British Academy Rising Star Engagement Awards which made possible this project, which includes both the podcast and also the conference.