This is a blog about the use of emerging technologies to boost the governance of public procurement. It used to be a blog on EU law, with a focus on free movement, public procurement and competition law issues (thus the long archive of entries about those topics). I use it to publish my thoughts and to test some ideas. All comments are personal and in no way bind any of the institutions to which I am affiliated and, particularly, the University of Bristol Law School. I hope to spur discussion and look forward to your feedback and participation.
The recording and slides for yesterday’s webinar on ‘Tech fixes for procurement problems?’ co-hosted by the University of Bristol Law School and the GW Law Government Procurement Programme are now available for catch up if you missed it.
I would like to thank once again Dean Jessica Tillipman (GW Law), Professor Sope Williams (Stellenbosch), and Eliza Niewiadomska (EBRD) for really interesting discussion, and to all participants for their questions. Comments most welcome, as always.
‘Negotiating the Future’ and ‘UK in a Changing Europe’ have published a second edition of their interesting report on ‘UK Regulation after Brexit - Revisited’. I had contributed a procurement chapter to the first edition (which has recently been cited in this interesting report for the European Committee of the Regions on the impact on regions and cities of the new trade and economic relations between EU-UK). So I was invited to update the analysis, paying special attention to the (slow) progress of reform of the UK procurement rulebook with the Procurement Bill.
The procurement analysis is below, but I would recommend reading the report in full, as it gives a rather comprehensive picture of how regulation is moving in the UK. For more targeted analysis on regulatory divergence with the EU, this other UK in a Changing Europe ‘Divergence Tracker’ (v5.0) will be of interest.
Public procurement regulation is the set of rules and policies that controls the award of public contracts for works, supplies, and services. Its main goal is to ensure probity and value for money in the spending of public funds – to prevent corruption, collusion, and wastage of taxpayers’ money. It does so by establishing procedural requirements leading to the award of a public contract, and by constraining discretion through requirements of equal treatment, competition, and proportionality. From a trade perspective, procurement law prevents favouritism and protectionism of domestic businesses by facilitating international competition.
In the UK, procurement rules have long been considered an excessive encumbrance on the discretion and flexibility of the public sector, as well as on its ability to deploy ambitious policies with social value to buy British products made by British workers. The EU origin of UK domestic rules, which ‘copied out’ EU Directives before Brexit, has long been blamed for perceived rigidity and constraint in the allocation of public contracts, even though a ‘WTO regime’ would look very similar.
Capitalising on that perception during the Brexit process, public procurement was ear-marked for reform. Boris Johnson promised a ‘bonfire of procurement red tape to give small firms a bigger slice of Government contracts’. The Johnson Government proposed to significantly rewrite and simplify the procurement rulebook, and to adopt an ambitious ‘Buy British’ policy, which would reserve some public contracts to British firms. However, although one of the flagship areas for regulatory reform, not much has changed in practical terms. Reforms are perhaps on the horizon in 2023 or 2024, but the extent to which they will result in material divergence from the pre-Brexit EU regulatory baseline remains to be seen.
To avoid a regulatory cliff edge and speed up its realignment under international trade law, the UK sought independent membership of the World Trade Organisation Government Procurement Agreement (GPA) from 1 January 2021 on terms that replicate and give continuity to its previously indirect membership as an EU Member State. The UK’s current individual obligations under the GPA are the same as before Brexit. Moreover, to maintain market access, the EU-UK Trade and Cooperation Agreement (TCA) replicates obligations under EU law that go beyond the GPA in substantive and procedural elements (‘GPA+’), with only the exception of some contracts for healthcare services. The Free Trade Agreements (FTAs) with Australia and New Zealand, and the envisioned accession of the UK to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) foresee further GPA+ market access obligations and increasingly complicated constraints related to trade.
These commitments prevent the adoption of an expansive ‘Buy British’ policy and could in fact restrict it in some industries, although healthcare is explicitly excluded from procurement-related trade negotiations. Despite misleading claims to the contrary in UK governments reports, such as the January 2022 Benefits of Brexit report, which gives the impression that Brexit ‘enabled goods and services contracts below £138,760 (central government), £213,477 (sub-central authorities) and £5.3 million (construction throughout the public sector) to be reserved for UK suppliers’ (art 8), official procurement guidance makes clear that the situation remains unchanged. Contracts above the values quoted above – those covered by the GPA, the TCA, and Free Trade Agreements – remain open to international competition. In other words, the government has not achieved its stated Brexit aspiration of reserving ‘a bigger slice’ of procurement to domestic businesses.
A similar picture emerges in relation to procedural requirements under procurement law. While the UK Government declared that its aim was to ‘rewrite the rulebook’ (as discussed below), the pre-Brexit ‘copy out’ of EU procurement rules remains in effect as retained EU law. Brexit required some marginal technical adjustments, such as a change in the digital platform where contract opportunities are advertised and where high value contract opportunities are published in the Find a Tender portal rather than the EU’s official journal, or the substitution of the European Single Procurement Document (ESPD) with a near-identical Single Procurement Document (SPD). The main practical change following Brexit is the UK being disconnected from the e-Certis database. The lack of direct access to documentary evidence makes it more difficult and costly for businesses and public sector entities to complete pre-award checks, especially in cases of cross-border EU-UK tendering. However, TCA provisions seek to minimise these documentary requirements (Art 280) and could mitigate the practical implications of the UK no longer being part of the e-Certis system.
With Brexit, the Minister for the Cabinet Office assumed the powers and functions relating to compliance with procurement rules. Even if the bar was already quite low before Brexit, since virtually no infringement procedures had been opened against the UK for procurement breaches, this change is likely to result in a weakening of enforcement due to the lack of separation between Cabinet Office and other central government departments. The shortcomings of current oversight mechanisms are reflected in the proposed reforms discussed below, which include a proposal to create a dedicated Procurement Review Unit.
The government has been promoting the reform of the UK’s procurement rulebook. Its key elements were included in the 2020 Green Paper Transforming Public Procurement. The aim was ‘to speed up and simplify [UK] procurement processes, place value for money at their heart, and unleash opportunities for small businesses, charities and social enterprises to innovate in public service delivery’, through greater procedural flexibility, commercial discretion, data transparency, centralisation of a debarment mechanism, and regulatory space for non-economic considerations. The Green Paper envisaged the creation of a new Procurement Review Unit with oversight powers, as well as measures to facilitate the judicial review of procurement decisions. Despite the rhetoric, the proposals did not mark a significant departure from the current rules. They were ‘EU law+’, at best. However, a deregulatory approach that introduces more discretion and less procedural limitations carries potential for significantly complicating procurement practice by reducing procedural standardisation and increasing tendering costs.
The 2021’s government response to the consultation mostly confirmed the approach in the Green Paper and, on 11 May 2022, the Procurement Bill was introduced in the House of Lords, the day after the Queen’s Speech. The Procurement Bill is hardly an exemplar of legislative drafting and it was soon clear that it would need very significant amending. As of 1 September 2022, the Bill had reached its committee stage in the Lords. Five hundred amendments have been put forward with over three hundred of those originating from the government itself. The amendments affect the ‘transformative’ elements of the Bill, and sometimes there are competing amendments over the same clause that would result in different outcomes. It is difficult to gauge whether the government’s proposals will result in a legislative text that materially deviates from the current rules. It is also unclear to what extent the new Procurement Review Unit will have effective oversight powers, or enforcement powers.
The Procurement Bill, moreover, contains only the bare bones of a future regime. Secondary legislation and volumes of statutory guidance will be adopted and developed once the final legislation is in place. Given the uncertainty, the government has committed to provide at least six months’ notice of the new system. It is therefore unlikely that the new rules will be in place before mid-2023. The roll-out of the new rules will require a major training exercise, but most of the government’s training programme is directed towards the public sector. Business can expect to shoulder significant costs associated with the introduction of the new rules.
These legislative changes will not apply UK-wide. Scotland has decided to keep its own separate (EU-derived) procurement rules in place. Divergence between the rules in Scotland and those that apply in the rest of the UK is governed by the 2022 revised Common Framework for Public Procurement. The Common Framework allows for policy divergence, and has already resulted in different national procurement strategies for England, Wales and Scotland, as well as keeping in place a pre-existing policy for Northern Ireland. It is too early to judge, but different policy approaches may in the medium term fragment the UK internal market for public contracts, especially non-central government procurement.
The process of UK procurement reform may be the ‘perfect Brexit story’. Perceived pre-Brexit problems and dissatisfaction were largely a result of long-lasting underinvestment in public sector capacity and training and constraints that mostly derive from international treaties rather than EU law. As an EU member state, the UK could have decided to transpose EU rules other than copying them, thereby building a more comprehensive set of procurement rules that could address some of the shortcomings in the EU framework. It could have funded a better public sector training programme, implemented open procurement data standards and developed analytical dashboards, or centralised debarment decisions. It decided not to opt for any of these measures but blamed the EU for the issues that arose from that decision.
When Brexit rhetoric had to be translated into legal change, reality proved rather stubborn. International trade commitments were simply rolled over, thereby reducing any prospect of a ‘Buy British’ policy. Moreover, the ongoing reform of procurement law is likely to end up introducing more complexity, while only deviating marginally from EU standards in practice. Despite all the effort expended and resource invested, a Brexit dividend in public procurement remains elusive.
© 10 Downing Street/PA.
In May 2021, the Johnson government was ‘riding high’ after ‘getting Brexit done’ a few months back. Very much in that mood, they announced a project for a new national flagship to promote British businesses around the world. The official press release stressed that the ship would ‘be the first of its kind constructed in the UK, creating jobs and reinvigorating the shipbuilding industry’.
The news got a mixed reception, not least because of the expected cost, potentially well above £200 mn (and later on estimated at £250 mn plus £30 mn contingency). However, the possibility for it to be commissioned in the UK and for the project to act as a boost for the industry was (reluctantly) embraced by the opposition too.
Quite how it would be (legally) ensured that the ship would be constructed in the UK and that the project generated jobs to reinvigorate the UK shipbuilding industry was unclear, as the UK had already bound itself to the WTO Government Procurement Agreement (GPA). The UK’s GPA schedules of coverage clearly include tenders for ships, boats and floating structures except warships (annex 4). The UK government however planned to sidestep its international commitments by invoking a national security exemption to restrict competition to UK design and build.
The UK government was indeed trying to pass the flagship off as a defence procurement, as the Defence Secretary confirmed that the ‘capital cost of building the National Flagship will fall to the defence budget as part of the Government's wider commitment to the UK shipbuilding industry‘, and the project was led by a ‘National Flagship Taskforce’ set up within the Ministry of Defence (see eg the March 2022 National Shipbuilding Strategy, at 23). At the time, the Minister for Defence Procurement sought to justify this: ‘Under WTO there is a security exemption. The security of the vessel is incredibly key to how we think about it. Given the nature of what it will be doing, it is important that there are security ramifications around that, which is something we take very seriously. There are legitimate reasons, under WTO, why we can direct this to be a UK build, which it will be’ (Q209).
Legally, this is rather risible.
The security exemption does not relate to procurement objects that will need securing once acquired, but rather to procurement objects to be used for security purposes, or procurement objects that are crucial to security interests (eg critical infrastructure). There was no (public) evidence that the ship would meet those requirements. On the contrary, the declared (primary) role for the ship was ‘to promote British businesses around the world’, in particular by hosting trade events. This is not a defence and security use, even if the boat would of course require protecting. The Commons Defence Committee also stressed that it received ‘no evidence of the advantage to the Royal Navy of acquiring the National Flagship‘ (“We’re going to need a bigger Navy”, at [20]).
A trade dispute might well have been in the making…
Anyway. The project has now been abandoned by the Sunak government, despite the £2.5m of taxpayers’ money already spent on the “vanity project”. The trade dispute, if there was to be one, has been averted. But the ‘Britannia II’ story should serve as a reminder of why Brexit continues to be problematic in the field of procurement regulation — with some of it still permeating the proposals in the Procurement Bill and the National Procurement Policy Statement.
Other than the waste of public funds in yet another unnecessary project rather reminiscent of the ‘lost’ British Empire, the story clearly revolves around an uncashable Brexit dividend: protectionism through procurement. This was a clear goal of the reformist agenda in Brexiteer governments, but one that became simply (legally) unattainable with the UK’s accession to the GPA. And the space for a ‘mini’ Buy British procurement policy keeps reducing under the growing thicket of international trade agreements the UK is seeking to put in place.
The story also reminds us of the disregard for international law and international trade commitments of recent UK Governments, which one can only hope will now be systematically revisited and complied with by the current administration.
‘Network of public contracts, contracting bodies, and awarded companies in Spain’ in 2020 and 2021; Pastor Sanz (2022: 7).
[Note: please don’t be put off by talk of complex algorithms. The main point is precisely that we need to look past them in this area of digital governance!].
I have read a new working paper on the use of ‘blackbox algorithms’ as anti-corruption screens for public procurement: I Pastor Sanz, ‘A New Approach to Detecting Irregular Behavior in the Network Structure of Public Contracts’. The paper aims to detect corrupt practices by exploiting network relationships among participants in public contracts. The paper implements complex algorithms to support graphical analysis to cluster public contracts with the aim of identifying those at risk of corruption. The approach in the paper would create ‘risk maps’ to eg prioritise the investigation of suspected corrupt awards. Such an approach could be seen to provide a magical* solution to the very complex issue of corruption monitoring in procurement (or more generally). In this post, I unpack what is behind that magic and critically assess whether it follows a sound logic on the workings of corruption (which it really doesn’t).
The paper is technically very complex and I have to admit to not entirely understanding the specific workings of the graphical analysis algorithms. I think most people with an interest in anti-corruption in procurement would also struggle to understand it and, even data scientists (and even the author of the paper) would be unable to fully understand the reasons why any given contract award is flagged as potentially corrupt by the model, or to provide an adequate explanation. In itself, this lack of explainability would be a major obstacle to the deployment of the solution ‘in the real world’ [for discussion, see A Sanchez-Graells, ‘Procurement Corruption and Artificial Intelligence: Between the Potential of Enabling Data Architectures and the Constraints of Due Process Requirements’]. However, perhaps more interestingly, the difficulty in understanding the model creates a significant additional governance risk in itself: intellectual debt.
Indeed, this type of very complex algorithmic approach creates a significant risk of intellectual debt. As clearly put by Zittrain,
‘Machine learning at its best gives us answers as succinct and impenetrable as those of a Magic 8-Ball – except they appear to be consistently right. When we accept those answers without independently trying to ascertain the theories that might animate them, we accrue intellectual debt’ (J Zittrain, ‘Intellectual Debt. With Great Power Comes Great Ignorance’, 178).
The point here is that, before relying on AI, we need to understand its workings and, more importantly, the underlying theories. In the case of AI for anti-corruption purposes, we should pay particular attention to the way corruption is conceptualised and embedded in the model.
In the paper, the model is developed and trained to translate ‘all the public contracts awarded in Spain in the years 2020 and 2021 into a bi-dimensional map with five different groups. These groups summarize the position of a contract in the network and their interactions with their awarded companies and public contracting bodies’ (at 14). Then, the crucial point from the perspective of a corruption logic comes in:
‘To determine the different profiles of the created groups in terms of corruption risk, news about bad practices or corruption scandals in public procurements in the same period (years 2020 and 2021) has been used as a reference. The news collection process has been manual and the 10 most important general information newspapers in Spain in terms of readership have been analyzed. Collected news about irregularities in public procurements identifies suspicions or ongoing investigations about one public contracting body and an awarded company. In these cases, all the contracts granted by the Public Administration to this company have been identified in the sample and flagged as “doubtful” contracts. The rest of the contracts, which means contracts without apparent irregularities or not uncovered yet, have been flagged as “normal” contracts. A total of 765 contracts are categorized as “doubtful”, representing 0.36% of total contracts … contracts belong to only 25 different companies, where only one company collects 508 granted contracts classified as “doubtful”’ (at 14-15, references omitted and emphasis added).
This reflects a rather cavalier attitude to the absence of reliable corruption data and to difficulties in labelling datasets for that purpose [for discussion, again, see A Sanchez-Graells, ‘Procurement Corruption and Artificial Intelligence: Between the Potential of Enabling Data Architectures and the Constraints of Due Process Requirements’].
Beyond the data issue, this approach also reflects a questionable understanding of the mechanics of corruption. Even without getting into much detail, or trying to be exhaustive, it seems that this is a rather peculiar approach, perhaps rooted in a rather simplistic intuition of how tenderer-led corruption (such as bribery) could work. It seems to me to have some rather obvious shortcomings.
First, it treats companies as either entirely corrupt or not at all corrupt, whereas it seems plausible that corrupt companies will not necessarily always engage in corruption for every contract. Second, it treats the public buyer as a passive agent that ‘suffers’ the corruption and never seeks, or facilitates it. There does not seem to be any consideration to the idea that a public buyer that has been embroiled in a scandal with a given tenderer may also be suspicious of corruption more generally, and worth looking into. Third, in both cases, it treats institutions as monolithic. This is particularly problematic when it comes to treating the ‘public administration’ as a single entity, specially in an institutional context of multi-level territorial governance such as the Spanish one—with eg potentially very different propensities to corruption in different regions and in relation to different (local/not) players. Fourth, the approach is also monolithic in failing to incorporate the fact that there can be corrupt individuals within organisations and that the participation of different decision-makers in different procedures can be relevant. This can be particularly important in big, diversified companies, where a corrupt branch may have no influence on the behaviour of other branches (or even keep its corruption secret from other branches for rather obvious reasons).
If AI had been used to establish this approach to the identification of potentially corrupt procurement awards, the discussion would need to go on to scrutinise how a model was constructed to generate this hypothesis or insight (or the related dataset). However, in the paper, this approach to ‘conceptualising’ or ‘labelling corruption’ is not supported by machine learning at all, but rather depends on the manual analysis and categorisation of news pieces that are unavoidably unreliable in terms of establishing the existence of corruption, as eg the generation of the ‘scandals’ and the related news reporting is itself affected by a myriad of issues. At best, the approach would be suitable to identify the types of contracts or procurement agents most likely to attract corruption allegations and to have those reported in the media. And perhaps not even that. Of course, the labelling of ‘normal’ for contracts not having attracted such media attention is also problematic.
All of this shows that we need to scrutinise ‘new approaches’ to the algorithmic detection of corruption (or any other function in procurement governance and more generally) rather carefully. This not only relates to the algorithms and the related assumptions of how socio-technical processes work, but also about the broader institutional and information setting in which they are developed (for related discussion, see here). Of course, this is in part a call for more collaboration between ‘technologists’ (such as data scientist or machine learning engineers) and domain experts. But it is also a call for all scholars and policy-makers to engage in critical assessment of logic or assumptions that can be buried in technical analysis or explanations and, as such, difficult to access. Only robust scrutiny of these issues can avoid incurring massive intellectual debt and, perhaps what could be worse, pinning our hopes of improved digital procurement governance on faulty tools.
_____________
* The reference to magic in the title and the introduction relates to Zittrain’s Magic-8 ball metaphor, but also his reference to the earlier observation by Arthur C. Clarke that any sufficiently advanced technology is indistinguishable from magic.
EU legislators have reached provisional agreement on a significant revamp of cybersecurity rules, likely to enter into force at some point in late 2024 or 2025. The future Directive (EU) 2022/... of the European Parliament and of the Council of .... on measures for a high common level of cybersecurity across the Union, repealing Directive (EU) 2016/1148 (NIS 2 Directive) will significantly expand the obligations imposed on Member States and on ‘essential’ and ‘important’ entities.
Given the importance of managing cybersecurity as public buyers complete their (late) transition to e-procurement, or further progress down the procurement digitalisation road, the question arises whether the NIS 2 Directive will apply to public buyers. I address that issue in this blog post.
Different from other recent legislative instruments that adopt the definitions under the EU procurement rules to establish the scope of the ‘public sector bodies’ to which they apply (such as the Open Data Directive, Art 2(1) and (2); or the Data Governance Act, Art 2(17) and (18)), the NIS 2 Directive establishes its own approach. Art 4(23)* defines ‘public administration entities’ as:
an entity recognised as such in a Member State in accordance with national law, that complies with the following criteria:
(a) it is established for the purpose of meeting needs in the general interest and does not have an industrial or commercial character;
(b) it has legal personality or it is entitled by law to act on behalf of another entity with legal personality;
(c) it is financed, for the most part, by the State, regional authority, or by other bodies governed by public law; or it is subject to management supervision by those authorities or bodies; or it has an administrative, managerial or supervisory board, more than half of whose members are appointed by the State, regional authorities, or by other bodies governed by public law;
(d) it has the power to address to natural or legal persons administrative or regulatory decisions affecting their rights in the cross-border movement of persons, goods, services or capital.
Procurement lawyers will immediately raise their eyebrows. Does the definition capture all contracting authorities covered by the EU procurement rules?
Let’s take Directive 2014/24/EU for comparison [see A Sanchez-Graells, ‘Art 2’ in R Caranta and idem (eds), European Public Procurement. Commentary on Directive 2014/24/EU (Edward Elgar 2021) 2.06-2.18].
Under Arts 1(1) and 2(1)(2), it is clear that Directive 2014/24/EU applies to ‘contracting authorities’, defined as ‘the State, regional or local authorities, bodies governed by public law or associations formed by one or more such authorities or one or more such bodies governed by public law’.
Regarding the ‘State, regional or local authorities’, it seems clear that the NIS 2 Directive in principle covers them (more below), to the extent that they are recognised as a ‘public administration entity’ under national law. This does not seem problematic, although it will of course depend on the peculiarities of each Member State (not least because Directive 2014/24/EU operates a list system and refers to Annex I to establish what are central government authorities).
‘Bodies governed by public law’ are also largely covered by the definition of the NIS 2 Directive, as the material requirements of the definition map on to those under Art 2(1)(4) of Directive 2014/24/EU. However, there are two key deviations.
The first one concerns the addition of the requirement (d) that the body must have ‘the power to address to natural or legal persons administrative or regulatory decisions affecting their rights in the cross-border movement of persons, goods, services or capital’. In my view, this is unproblematic, as all decisions concerning a procurement process covered by the EU rules have the potential to affect free movement rights and, to the extent that the body governed by public law can make those decisions, it meets the requirement.
The second deviation is that, under the ‘financing and control’ criterion (c), the NIS 2 Directive does not include finance or control by local authorities. This leaves out local-level bodies governed by public law, but only those that are not financed or influenced by other (local-level) bodies governed by public law (which is odd). However, this is aligned with the fact that the NIS 2 Directive does not cover local public administration entities (Art 2(2a)* NIS 2 Directive), although it foresees that Member States can extend its regime to local authorities. In such a case, the definitions would have to be carefully reworked in the process of domestic transposition.
A final issue is then whether the definition in the NIS 2 Directive covers ‘associations formed by one or more [central or sub-central] authorities or one or more such bodies governed by public law’. Here the position is much less clear, and it seems to depend on a case-by-case assessment of whether a given association meets all requirements under the definition, which can prove problematic and raise difficult interpretive questions—despite eg having extended the legal personality criterion (b) to the possibility of being ‘entitled by law to act on behalf of another entity with legal personality’. It is thus possible that some associations will not be covered by the NIS 2 Directive, eg if their status under domestic law is unclear.
Although the NIS 2 Directive definition in principle covers the State and regional authorities (as above), it should stressed that the scope of application of the Directive only extends to public administration entities of central governments, and those at regional level ‘which following a risk based assessment, provide services the disruption of which could have a significant impact on critical economic or societal activities’ (Art 2(2a)* NIS 2 Directive).
In relation to regional procurement authorities, then, the question arises whether Member States will consider that the disruption of their activities ‘could have a significant impact on [other] critical economic or societal activities’. I submit that this will necessarily be the case, as the procurement function enables the performance of the general activities of the public administration and the provision of public services. However, there seems to be some undesirable legal wriggle room that could create legal uncertainty.
Moreover, the NIS 2 Directive does not apply ‘to public administration entities that carry out their activities in the areas of defence, national security, public security, or law enforcement, including the investigation, detection and prosecution of criminal offences’ (Art 2(3a)* NIS 2 Directive). This is another marked deviation from the treatment of entities in the defence and security sectors under the procurement rules [see B Heuninckx, ‘Art 15’ in Caranta and Sanchez-Graells, Commentary, above].
At a minimum, the reference to entities carrying out ‘the investigation, detection and prosecution of criminal offences’ raises questions on the applicability of the NIS 2 Directive to public buyers formally inserted in eg the Ministry of Justice and/or the judiciary, at Member State level. Whether this is a relevant practical issue will depend on the relevant national context, but it would have been preferable to take an approach that directly mapped onto the scope of Directive 2009/81/EC in determining the relevant activities.
The potential inconsistencies between the scope of application of the NIS 2 Directive and the EU procurement rules are relevant in the context of the broader digitalisation of procurement, but also in the narrow context of the entry into force of the new rules on eForms (see here) and the related obligations under the Open Data Directive, which will require public buyers to make data collected by eForms available in electronic format.
Cutting a long story short, it has been stressed by eg the OECD that opening information systems to make data accessible may ‘expose parts of an organisation to digital security threats that can lead to incidents that disrupt the availability, integrity or confidentiality of data and information systems on which economic and social activities rely’. Moreover, given that the primary purpose of making procurement data open is to enable the development of AI solutions, such risks need to be considered in that context and cybersecurity of data sources has been raised as a key issue by eg the European Union Agency for Cybersecurity (ENISA).
Given that all procurement data systems will be interconnected (via APIs), and that they can provide the data architecture for other AI solutions, cybersecurity risks are a systemic issue that would benefit from a systemic approach. Having some (or most) but not all public buyers comply with high standards of cybersecurity may not eliminate significant vulnerabilities if the remaining points of access generate relevant cybersecurity risks.
In my view, Member States should extend the obligations under the NIS 2 Directive not only to their local ‘public administration entities’, as envisaged by the Directive, but to all entities covered by significant data governance rules, such as the Open Data Directive. This would ensure high levels of cybersecurity to protect the integrity of the new procurement open data systems. It would also have the added benefit of ensuring alignment with the EU procurement rules and, in that regard, it would contribute to a clear regulatory framework for the governance of digital procurement across the EU. _________________________
* Please note that Articles in the provisional text of the NIS 2 Directive will have to be renumbered.
In the current context of generalised quick adoption of digital technologies across the public sector and strategic steers to accelerate the digitalisation of public procurement, decision-makers can be captured by techno hype and the ‘policy irresistibility’ that can ensue from it (as discussed in detail here, as well as here).
To moderate those pressures and guide experimentation towards the successful deployment of digital solutions, decision-makers must reassess the realistic potential of those technologies in the specific context of procurement governance. They must also consider which enabling factors must be put in place to harness the potential of the digital technologies—which primarily relate to an enabling big data architecture (see here). Combined, the data requirements and the contextualised potential of the technologies will help decision-makers draw a feasibility boundary for digital procurement governance, which should inform their decisions.
In a new draft chapter (num 7) for my book project, I draw such a technology-informed feasibility boundary for digital procurement governance. This post provides a summary of my main findings, on which I will welcome any comments: a.sanchez-graells@bristol.ac.uk. The full draft chapter is free to download: A Sanchez-Graells, ‘Revisiting the promise: A feasibility boundary for digital procurement governance’ to be included in A Sanchez-Graells, Digital Technologies and Public Procurement. Gatekeeping and experimentation in digital public governance (OUP, forthcoming). Available at SSRN: https://ssrn.com/abstract=4232973.
It will hardly be surprising to stress again that high quality big data is a pre-requisite for the development and deployment of digital technologies. All digital technologies of potential adoption in procurement governance are data-dependent. Therefore, without adequate data, there is no prospect of successful adoption of the technologies. The difficulties in generating an enabling procurement data architecture are detailed here.
Moreover, new data rules only regulate the capture of data for the future. This means that it will take time for big data to accumulate. Accessing historical data would be a way of building up (big) data and speeding up the development of digital solutions. Moreover, in some contexts, such as in relation with very infrequent types of procurement, or in relation to decisions concerning previous investments and acquisitions, historical data will be particularly relevant (eg to deploy green policies seeking to extend the use life of current assets through programmes of enhanced maintenance or refurbishment; see here). However, there are significant challenges linked to the creation of backward-looking digital databases, not only relating to the cost of digitisation of the information, but also to technical difficulties in ensuring the representativity and adequate labelling of pre-existing information.
An additional issue to consider is that a number of governance-relevant insights can only be extracted from a combination of procurement and other types of data. This can include sources of data on potential conflict of interest (eg family relations, or financial circumstances of individuals involved in decision-making), information on corporate activities and offerings, including detailed information on products, services and means of production (eg in relation with licensing or testing schemes), or information on levels of utilisation of public contracts and satisfaction with the outcomes by those meant to benefit from their implementation (eg users of a public service, or ‘internal’ users within the public administration).
To the extent that the outside sources of information are not digitised, or not in a way that is (easily) compatible or linkable with procurement information, some data-based procurement governance solutions will remain undeliverable. Some developments in digital procurement governance will thus be determined by progress in other policy areas. While there are initiatives to promote the availability of data in those settings (eg the EU’s Data Governance Act, the Guidelines on private sector data sharing, or the Open Data Directive), the voluntariness of many of those mechanisms raises important questions on the likely availability of data required to develop digital solutions.
Overall, there is no guarantee that the data required for the development of some (advanced) digital solutions will be available. A careful analysis of data requirements must thus be a point of concentration for any decision-maker from the very early stages of considering digitalisation projects.
Once (or rather, if) that major data hurdle is cleared, the possibilities realistically brought by the functionality of digital technologies need to be embedded in the procurement governance context, which results in the following feasibility boundary for the adoption of those technologies.
RPA can reduce the administrative costs of managing pre-existing digitised and highly structured information in the context of entirely standardised and repetitive phases of the procurement process. RPA can reduce the time invested in gathering and cross-checking information and can thus serve as a basic element of decision-making support. However, RPA cannot increase the volume and type of information being considered (other than in cases where some available information was not being taken into consideration due to eg administrative capacity constraints), and it can hardly be successfully deployed in relation to open-ended or potentially contradictory information points. RPA will also not change or improve the processes themselves (unless they are redesigned with a view to deploying RPA).
This generates a clear feasibility boundary for RPA deployment, which will generally have as its purpose the optimisation of the time available to the procurement workforce to engage in information analysis rather than information sourcing and basic checks. While this can clearly bring operational advantages, it will hardly transform procurement governance.
Developing ML solutions will pose major challenges, not only in relation to the underlying data architecture (as above), but also in relation to specific regulatory and governance requirements specific to public procurement. Where the operational management of procurement does not diverge from the equivalent function in the (less regulated) private sector, it will be possible to see the adoption or adaptation of similar ML solutions (eg in relation to category spend management). However, where there are regulatory constraints on the conduct of procurement, the development of ML solutions will be challenging.
For example, the need to ensure the openness and technical neutrality of procurement procedures will limit the possibilities of developing recommender systems other than in pre-procured closed lists or environments based on framework agreements or dynamic purchasing systems underpinned by electronic catalogues. Similarly, the intended use of the recommender system may raise significant legal issues concerning eg the exercise of discretion, which can limit their deployment to areas of information exchange or to merely suggestion-based tasks that could hardly replace current processes and procedures. Given the limited utility (or acceptability) of collective filtering recommender solutions (which is the predominant type in consumer-facing private sector uses, such as Netflix or Amazon), there are also constraints on the generality of content-based recommender systems for procurement applications, both at tenderer and at product/service level. This raises a further feasibility issue, as the functional need to develop a multiplicity of different recommenders not only reopens the issue of data sufficiency and adequacy, but also raises questions of (economic and technical) viability. Recommender systems would mostly only be susceptible of feasible adoption in highly centralised procurement settings. This could create a push for further procurement centralisation that is not neutral from a governance perspective, and that can certainly generate significant competition issues of a similar nature, but perhaps a different order of magnitude, than procurement centralisation in a less digitally advanced setting. This should be carefully considered, as the knock-on effects of the implementation of some ML solutions may only emerge down the line.
Similarly, the development and deployment of chatbots is constrained by specific regulatory issues, such as the need to deploy closed domain chatbots (as opposed to open domain chatbots, ie chatbots connected to the Internet, such as virtual assistants built into smartphones), so that the information they draw from can be controlled and quality assured in line with duties of good administration and other legal requirements concerning the provision of information within tender procedures. Chatbots are suited to types of high-volume information-based queries only. They would have limited applicability in relation to the specific characteristics of any given procurement procedure, as preparing the specific information to be used by the chatbot would be a challenge—with the added functionality of the chatbot being marginal. Chatbots could facilitate access to pre-existing and curated simple information, but their functionality would quickly hit a ceiling as the complexity of the information progressed. Chatbots would only be able to perform at a higher level if they were plugged to a knowledge base created as an expert system. But then, again, in that case their added functionality would be marginal. Ultimately, the practical space for the development of chatbots is limited to low added value information access tasks. Again, while this can clearly bring operational advantages, it will hardly transform procurement governance.
ML could facilitate the development and deployment of ‘advanced’ automated screens, or red flags, which could identify patterns of suspicious behaviour to then be assessed against the applicable rules (eg administrative and criminal law in case of corruption, or competition law, potentially including criminal law, in case of bid rigging) or policies (eg in relation to policy requirements to comply with specific targets in relation to a broad variety of goals). The trade off in this type of implementation is between the potential (accuracy) of the algorithmic screening and legal requirements on the explainability of decision-making (as discussed in detail here). Where the screens were not used solely for policy analysis, but acting on the red flag carried legal consequences (eg fines, or even criminal sanctions), the suitability of specific types of ML solutions (eg unsupervised learning solutions tantamount to a ‘black box’) would be doubtful, challenging, or altogether excluded. In any case, the development of ML screens capable of significantly improving over RPA-based automation of current screens is particularly dependent on the existence of adequate data, which is still proving an insurmountable hurdle in many an intended implementation (as above).
Other procurement governance constraints limit the prospects of wholesale adoption of DLT (or blockchain) technologies, other than for relatively limited information management purposes. The public sector can hardly be expected to adopt DLT solutions that are not heavily permissioned, and that do not include significant safeguards to protect sensitive, commercially valuable, and other types of information that cannot be simply put in the public domain. This means that the public sector is only likely to implement highly centralised DLT solutions, with the public sector granting permissions to access and amend the relevant information. While this can still generate some (degrees of) tamper-evidence and permanence of the information management system, the net advantage is likely to be modest when compared to other types of secure information management systems. This can have an important bearing on decisions whether DLT solutions meet cost effectiveness or similar criteria of value for money controlling their piloting and deployment.
The value proposition of DLT solutions could increase if they enabled significant procurement automation through smart contracts. However, there are massive challenges in translating procurement procedures to a strict ‘if/when ... then’ programmable logic, smart contracts have limited capability that is not commensurate with the volumes and complexity of procurement information, and their development would only be justified in contexts where a given smart contract (ie specific programme) could be used in a high number of procurement procedures. This limits its scope of applicability to standardised and simple procurement exercises, which creates a functional overlap with some RPA solutions. Even in those settings, smart contracts would pose structural problems in terms of their irrevocability or automaticity. Moreover, they would be unable to generate off-chain effects, and this would not be easily sorted out even with the inclusion of internet of things (IoT) solutions or software oracles. This comes to largely restrict smart contracts to an information exchange mechanism, which does not significantly increase the value added by DLT plus smart contract solutions for procurement governance.
To conclude, there are significant and difficult to solve hurdles in generating an enabling data architecture, especially for digital technologies that require multiple sources of information or data points regarding several phases of the procurement process. Moreover, the realistic potential of most technologies primarily concerns the automation of tasks not involving data analysis of the exercise of procurement discretion, but rather relatively simple information cross-checks or exchanges. Linking back to the discussion in the earlier broader chapter (see here), the analysis above shows that a feasibility boundary emerges whereby the adoption of digital technologies for procurement governance can make contributions in relation to its information intensity, but not easily in relation to its information complexity, at least not in the short to medium term and not in the absence of a significant improvement of the required enabling data architecture. Perhaps in more direct terms, in the absence of a significant expansion in the collection and curation of data, digital technologies can allow procurement governance to do more of the same or to do it quicker, but it cannot enable better procurement driven by data insights, except in relatively narrow settings. Such settings are characterised by centralisation. Therefore, the deployment of digital technologies can be a further source of pressure towards procurement centralisation, which is not a neutral development in governance terms.
This feasibility boundary should be taken into account in considering potential use cases, as well as serve to moderate the expectations that come with the technologies and that can fuel ‘policy irresistibility’. Further, it should be stressed that those potential advantages do not come without their own additional complexities in terms of new governance risks (eg data and data systems integrity, cybersecurity, skills gaps) and requirements for their mitigation. These will be explored in the next stage of my research project.
Procurement is progressively put in the position of regulating what types of artificial intelligence (AI) are deployed by the public sector (ie taking a gatekeeping function; see here and here). This implies that the procurement function should be able to verify that the intended AI (and its use/foreseeable misuse) will not cause harms—or, where harms are unavoidable, come up with a system to weigh, and if appropriate/possible manage, that risk. I am currently trying to understand the governance implications of this emerging gatekeeping role to assess whether procurement is best placed to carry it out.
In the context of this reflection, I found a very useful recent paper: M E Kaminski, ‘Regulating the Risks of AI’ (2023) 103 Boston University Law Review forthcoming. In addition to providing a useful critique of the treatment of AI harms as risk and of the implications in terms of the regulatory baggage that (different types of) risk regulation implies, Kaminski provides an overview of a very interesting legislative proposal: Washington State’s Bill SB 5116.
Bill SB 5116 is a proposal for new legislation ‘establishing guidelines for government procurement and use of automated decision systems in order to protect consumers, improve transparency, and create more market predictability'. The governance approach underpinning the Bill is interesting in two respects.
First, the Bill includes a ban on certain uses of AI in the public sector. As Kaminski summarises: ‘Sec. 4 of SB 5116 bans public agencies from engaging in (1) the use of an automated decision system that discriminates, (2) the use of an “automated final decision system” to “make a decision impacting the constitutional or legal rights… of any Washington resident” (3) the use of an “automated final decision system…to deploy or trigger any weapon;” (4) the installation in certain public places of equipment that enables AI-enabled profiling, (5) the use of AI-enabled profiling “to make decisions that produce legal effects or similarly significant effects concerning individuals’ (at 66, fn 398).
Second, the Bill subjects the procurement of the AI to approval by the director of the office of the chief information officer. As Kaminski clarifies: ‘The bill’s assessment process is thus more like a licensing scheme than many proposed impact assessments in that it envisions a central regulator serving a gatekeeping function (albeit probably not an intensive one, and not over private companies, which aren’t covered by the bill at all). In fact, the bill is more protective than the GDPR in that the state CIO must make the algorithmic accountability report public and invite public comment before approving it’ (at 66, references omitted).
What the Bill does, then, is to displace the gatekeeping role from the procurement function itself to the data protection regulator. It also sets the specific substantive criteria the regulator has to apply in deciding whether to authorise the procurement of the AI.
Without getting into the detail of the Washington Bill, this governance approach seems to have two main strengths over the current emerging model of procurement self-regulation of the gatekeeping role (in the EU).
First, it facilitates a standardisation of the substantive criteria to be applied in assessing the potential harms resulting from AI adoption in the public sector, with a concentration on the specific characteristics of decision-making in this context. Importantly, it creates a clear area of illegality. Some of it is in line with eg the prohibition of certain AI uses in the Draft EU AI Act (profiling), or in the GDPR (prohibition of solely automated individual-decision making, including profiling — although it may go beyond it). Moreover, such an approach would allow for an expansion of prohibited uses in the specific context of the public sector, which the EU AI Act mostly fails to tackle (see here). It would also allow for the specification of constraints applicable to the use of AI by the public sector, such as a heightened obligation to provide reasons (see M Fink & M Finck, ‘Reasoned A(I)dministration: Explanation Requirements in EU Law and the Automation of Public Administration‘ (2022) 47(3) European Law Review 376-392).
Second, it introduces an element of external (independent) verification of the assessment of potential AI harms. I think this is a crucial governance point because most proposals relying on the internal (self) assessment by the procurement team fail to consider the extent to which such approach ensures (a) adequate resourcing (eg specialism and experience in the type of assessment) and (b) sufficient objectivity in the assessment. On the second point, with procurement teams often being told to ‘just go and procure what is needed’, moving to a position of gatekeeper or controller could be too big an ask (depending on institutional aspects that require closer consideration). Moreover, this would be different from other aspects of gatekeeping that procurement has progressively been asked to carry out (also excessively, in my view: see here).
When the procurement function is asked to screen for eg potential contractors’ social or environmental compliance track record, it is usually at arms’ length from those being reviewed (and the rules on conflict of interest are there to strengthen that position). Conversely, when the procurement function is asked to screen for the likely impact on citizens and/or users of public services of an initiative promoted by the operational part of the organisation to which it belongs, things are much more complicated.
That is why some systems (like the US FAR) create elements of separation between the procurement team and those in charge of reviewing eg competition issues (by means of the competition advocate). This is a model reflected in the Washington Bill’s approach to requiring external (even if within the public administration) verification and approval of the AI impact assessment. If procurement is to become a properly functioning gatekeeper of the adoption of AI by the public sector, this regulatory approach (ie having an ‘AI Harms Controller’) seems promising. Definitely a model worth thinking about for a little longer.
This is a post in two parts. The first part addresses my methodological concerns with research on digital technologies and public procurement (and public governance more generally), as exemplified by a recent paper. The second part collects the response by the authors of that paper.
This pair of points of view are offered together to try to create debate. While the authors found my comments harsh (I cannot judge that), they engaged with them and provided their own counter-arguments. In itself, I think that is laudable and already has value. Any further discussion with the broader community, via comments (or email), would be a bonus.
When I started researching the interaction between digital technologies and procurement governance, it was clear to me that a technology-centered legal method was required. A significant amount of the scholarship that is published fails to properly address the governance implications of digital technologies because it simply does not engage with their functionality—or, put otherwise, because the technology is not understood. This can lead to either excessive claims of what ‘technology fixes’ can achieve or, perhaps even more problematic, it can generate analysis that is based on a misleading, shallow and oftentimes purely literal reading of the labels with which the technology is described and referred to.
A recent paper on smart contracts and procurement clearly exemplifies this problem: N.A. Sava & D. Dragos, ‘The Legal Regime of Smart Contracts in Public Procurement’ (2022) Transylvanian Review of Administrative Sciences, No. 66 E/2022, pp. 99–112.
From the outset, the paper is at pains to distinguish blockchain and smart contracts, and proposes ’a needed conceptual distinction that would fit the public contracts theory: before a contract is signed, it is logical to refer to blockchain technology when discussing digital means of awarding the procurement contract. As a result of this award, the concluded contract could be a “smart contract”’ (at 101).
The trap into which the paper falls, of course, is that of believing that blockchain and smart contracts can be distinguished ‘conceptually’ (in a legal sense), rather than on the basis of their technological characteristics and functionality.
Blockchain is a type of distributed ledger technology (DLT). In some more detail: ‘A DLT system is a system of electronic records that enables a network of independent participants to establish a consensus around the authoritative ordering of cryptographically-validated (‘signed’) transactions. These records are made persistent by replicating the data across multiple nodes, and tamper-evident by linking them by cryptographic hashes. The shared result of the reconciliation/consensus process - the ‘ledger’ - serves as the authoritative version for these records’ (M Rauchs et al, Distributed Ledger Technology Systems. A Conceptual Framework (2018), at 24). Blockchain is thus a ‘passive’ digital technology in the sense that it cannot perform any sort of automation of (decision-making) processes because it simply serves to create a data infrastructure.
In turn, smart contracts are a type of ‘active’ (or automating) digital technology that can be deployed on top of a DLT. In more detail: ‘Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. They can also automate a workflow, triggering the next action when conditions are met’ (IBM, What are smart contracts on blockchain? (undated, accessed 1 July 2022)).
What this means is that, functionally, ‘smart contracts’ may or may not map onto the legal concept of contract, as a ‘smart contract’ can be a unilaterally programmed set of instructions aimed at the automation of a workflow underpinned by data held on a DLT.
Taking this to the public procurement context, it is then clear that both the management of the award process and the execution of an awarded public contract, to the extent that they could be automated, would both need to be instrumentalised via smart contracts plus an underlying blockchain (I would though be remiss not to stress that the practical possibilities of automating either of those procurement phases are extremely limited, if at all realistic; see here and here, which the paper refers to in passing). It does not make any (technological/functional) sense to try to dissociate both layers of digital technology to suggest that ‘blockchain technology [should be used] when discussing digital means of awarding the procurement contract. As a result of this award, the concluded contract could be a “smart contract”’ (Sava & Dragos, above, 101).
This is important, because that technology-incongruent conceptual distinction is then the foundation of legal analysis. The paper e.g. posits that ‘the award of public contracts is a unilateral procedure, organized by state authorities according to specific rules, and that automation of such procedure may be done using blockchain technology, but it is not a ‘“smart contract” (sic). Smart contracts, on the other hand, can be an already concluded procurement contract, which is executed, oversaw (sic) and even remedied transparently, using blockchain technology (sic)’ (ibid, 103, emphasis added).
There are three problems here. First, the automation of the procurement award procedure carried out on top of a DLT layer would require a smart contract (or a number of them). Second, the outcome of that automated award would only be a ‘smart contract’ in itself if it was fully coded and its execution fully automated. In reality, it seems likely that some parts of a public contract could be coded (e.g. payments upon invoice approval), whereas other parts could not (e.g. anything that has to happen offline). Third, the modification of the smart contract (ie coded) parts of a public contract could not be modified (solely) using blockchain technology, but would require another (or several) smart contract/s.
Similarly, the lack of technology-centricity of the analysis leads the paper to present as open policy choices some issues that are simply technologically-determined.
For example, the paper engages in this analysis:
… the question is where should the smart public contracts be awarded? In the electronic procurement systems already developed by the different jurisdictions? On separate platforms using blockchain technology? The best option for integrating smart contracts into the procurement procedures may be the already existing digital infrastructure, therefore on the electronic procurement platforms of the member states. We believe this would be an optimal solution, as smart contracts should enhance the current electronic procurement framework and add value to it, thus leveraging the existing system and not replacing it (at 103, emphasis added).
Unless the existing electronic procurement platforms ran on blockchain—which I do not think they do—then this is not a policy option at all, as it is not possible to deploy smart contracts on top of a different layer of information. It may be possible to automate some tasks using different types of digital technologies (e.g. robotic process automation), but not smart contracts (if the technological concept, as discussed above, is to be respected).
The problems continue with the shallow approach to the technology (and to the underlying legal and practical issues), as also evidenced in the discussion of the possibility of automating checks related to the European Single Procurement Document (ESPD), which is a self-declaration that the economic operator is not affected by exclusion grounds (see Art 59 Directive 2014/24/EU).
The paper states
In the context of automatized checks, the blockchain technology can provide an avenue for checking the validity of proofs presented. The system could automate the verifications of the exclusion grounds and the selection criteria by checking the original documents referenced in the ESPD in real time (that is, before determining the winning tender). The blockchain technology could verify the respect of the exclusions grounds and rule out any economic operator that does not comply with this condition (at 104, emphasis added).
This is a case of excessive claim based on a misunderstanding of the technology. A smart contract could only verify whatever information was stored in a DLT. There is no existing DLT capturing the information required to assess the multiplicity of exclusion grounds regulated under EU law. Moreover, the check would never be of the original documents, but rather of digital records that would either be self-declared by the economic operators or generated by a trusted authority. If the latter, what is the point of a blockchain (or other DLT), given that the authority and veracity of the information comes from the legal authority of the issuer, not the consensus mechanism?
There are also terminological/conceptual inconsistencies in the paper, which does not consistently stick to its conceptual distinction that blockchain should be used to refer to the automation of the award procedure, with smart contracts being reserved to the awarded contract. For example, it (correctly) asserts that ‘When it comes to selection criteria, the smart contract could also perform automatic checks on the elements listed in the contract notice’ (at 104). However, this can creates confusion for a reader not familiar with the technology.
Other issues point at the potentially problematic implications of analysis based on a lack of in-depth exploration of the technologies. For example, the paper discusses a project in Colombia, which ‘created a blockchain software that allowed for record keeping, real time auditability, automation through smart contracts and enhanced citizen engagement’ (at 105). After limited analysis, the paper goes on to stress that ‘Our opinion is that the system in Colombia resembles very much the regular e-procurement systems in Europe. For instance, Romania’s SEAP (Electronic Public Procurement System) insures exactly the same features — non-alteration of bids, traceability and automatic evaluation of tenders (price). So, the question is whether the smart contract system in Colombia is anything else than a functional e-procurement system’ (ibid). This reflects a conflation of functionality with technology, at best.
In the end, the lack of technology-centered (legal) analysis significantly weakens the paper and makes its insights and recommendations largely unusable.
To avoid this type of problems in much-needed legal scholarship on the impact of digital technologies on public governance, it is necessary to develop a technology-centric legal methodology. This is something I am working on, in the context of my project funded by the British Academy. I will seek to publish a draft methodology towards the end of the year. Comments and suggestions on what to take into account would be most welcome: a.sanchez-graells@bristol.ac.uk.
Dear Professor,
As a first-year PhD student, being read and offered feedback, especially in the incipient phase of the research, is an amazing learning opportunity. Not all PhD students have the chance to exchange on their topic, and even more with a revered name in the doctrine of public procurement like yourself, therefore am I am very grateful for this debate (Sava).
The co-author Dragos also shares the respect and gratitude for the scholarly critique, although considers the comments rather theoretical and lacking an alternative constructive conclusion.
Concerning the need to conduct a ʻtechnology-centered legal’ research, I fully agree, and I will try to integrate more technology-centered research into the thesis.
However, being lawyers, we believe that technology-centered research does not take into account the established concepts from law and especially public procurement law, therefore an interdisciplinary perspective is needed.
Now we will address the arguments you formulated.
Concerning the definitions of blockchain and smart contract that you offer, we are of course familiar with them and agree with them.
We agree that blockchain-based smart-contracts could automate certain aspects of the procurement procedures, both in the award and in the execution phase. In our paper, we acknowledge the fact that ʻsmart contracts could automate any process that can be presented as an IF+THEN formula’ (p. 100-101). In this sense, like you noticed, we give the example of automating the check of the selection criteria: ‘When it comes to selection criteria, the smart contract could also perform automatic checks on the elements listed in the contract notice’ (p. 104).
However, beyond these two concepts (blockchain and smart contracts), there is a third concept, that of a ʻsmart legal contract’.
DiMatteo, L., Cannarsa, M. and Poncibò, C., in The Cambridge Handbook of Smart Contracts, Blockchain Technology and Digital Platforms (Cambridge: Cambridge University Press, 2019, p. 63) draw attention to the inadequacy of the terminology: ʻFor blockchain-based smart contracts, a useful dichotomy can be drawn between the ‘smart contract code’ that is, the computer code that is ‘– stored, verified, and executed on a blockchain and the ‘smart legal contract’ - a complement (or maybe even a substitute) for a legal contract that applies that technology. In essence, a ‘smart legal contract’ is a combination of the ‘smart contract code’ and traditional legal language.
'The LawTech panel recently decided that (...) smart contracts could still be legally binding provided that they include the typical elements of a contract.’ (https://juro.com/learn/smart-contracts, consulted on the 2nd of July 2022). Like you mention, ‘functionally, ‘smart contracts’ may or may not map onto the legal concept of contract, as a ‘smart contract’ can be a unilaterally programmed set of instructions aimed at the automation of a workflow underpinned by data held on a DLT’.
Therefore, the correct conceptual distinction would be between ʻsmart contract code’ and ʻsmart legal contract’. In the paper, we tried to focus on the smart legal contract, and discuss its compatibility with public procurement contracts. Through the conceptual distinction, we actually wanted to point out the fact that it would be difficult to imagine a smart legal contract (legally binding) exclusively in the award phase. On the other hand, concerning the ʻsmart contract code’ we agree that it could be applicable to both the award and the execution phase, although the terminology remains debatable.
We state that ʻThe best option for integrating smart contracts into the procurement procedures may be the already existing digital infrastructure, therefore on the electronic procurement platforms of the member states. We believe this would be an optimal solution, as smart contracts should enhance the current electronic procurement framework and add value to it, thus leveraging the existing system and not replacing it’ (p. 103).
Of course, we do not believe that the current system works on blockchain (in the paper we explore why this would be a difficult task), but we did discuss the integration of emerging technologies in the existing context of e-procurement tools. However, this would be an integration among the e-procurement tools, not on top of the existing tools, as adequate infrastructure would be needed.
Actually we mean exactly what you pointed out in your conclusions, so we are in agreement here: some aspects of the procedure could be automated, yet the rest of the procedure could function based on the rules already in place. By the idea of not replacing the e-procurement system, we mean automatizing some punctual aspects, but not replacing the entire system.
The idea was that smart contracts could automatically check certain documents, such as the ones referenced in the ESPD.
In our text, we only discuss the idea of a verification, we do not describe in detail how this should be performed and we do not state that the DLT should capture on its own ʻthe information required to assess the multiplicity of exclusion grounds regulated under EU law’. Of course, these documents would need to be uploaded to the DLT and the uploaded documents would have a digital form. By ‘original document’ we refer to the document per se, the reference document and not the simple declaration from the ESPD.
An analogy of this idea could be made with the Canadian ‘Supplier information registration system, which facilitates the registration of supplier information on blockchain to validate it against different records and to validate it in an automated way’ (NTT Data Presentation at EPLD Meeting, May 2022).
We could not understand your critique here. The referenced example described a system for selecting economic operators in public procurement (for more information: https://www.weforum.org/reports/exploring-blockchain-technology-for-government-transparency-to-reduce-corruption/), which we believe is comparable with a regular e-procurement portal.
Through our analysis, we intended to raise the following question: would automating some aspects of the public procurement procedure through “smart contracts” ensure the same characteristics and guarantees as the ones offered by an e-public procurement system of an EU member state? In that case, what is the added value of “smart contracts” in public procurement? It is a research question that we will try to focus on in the future, we merely pose it here.
This paper is an exploratory and incipient one. For the moment, our goal was to raise some questions and to explore some potential paths. Apart from theoretical “what ifs”, it is hard to find specificities of assertions that new digital technologies will definitely have numerous and game-changing applications in the procurement process, as long as the procurement process is still managed unilaterally by public bodies and entertains a public law regime.
The intention is to challenge a rather theoretical assumption on the role of digital technologies in public procurement and subsequently trying to find real, practical examples or applications, if any.
In no circumstance did we state that we are formulating policy recommendations, this was misunderstood. Only after extensive research conclusions may lead to policy recommendations but we are still far from that moment.
However, we believe that in order to actually draw some conclusions on the use of such technologies in public procurement, scholars should delve in more depth into the topic, by critically assessing the current literature in the field and trying to have an interdisciplinary (legal, technological and managerial) look at the topic. As of now, the literature is too theoretical.
In other words, in our opinion, the exclusive tech-centered approach that you suggest would be equally harmful as an exclusively legal one.
Thank you for this chance of a constructive dialogue, we are looking forward to future exchange on the topic.
© GraceOda / Flickr.
On 30 June 2022, the UK Government’s Cabinet Office published the policy paper ‘Transforming Public Procurement - our transparency ambition’ (the ‘ambitions paper’, or the ‘paper’). The paper builds on the Green Paper and the Government’s response to its public consultation, and outlines ‘proposals to dramatically improve transparency of UK public contracts and spending’. The ambitions paper provides a vision well beyond the scant (almost null) detail in the Procurement Bill (clause 88), which is attracting a number of proposed amendments to try to enshrine in law the basic elements now spelled out in the paper.
In this post, I reflect on the need to amend the Procurement Bill to bind (successive) UK Governments to the current transparency aspirations. I also comment on other aspects of the paper, including persistent issues with the lack of granularity in planned access to procurement data, which I already raised in relation to the Green Paper (see here, Q27 and Q29, and here).
The additional level of detail in the paper is welcome and helpful in understanding how the UK plans to operationalise its procurement transparency ambitions. However, a first point to make is that the publication of the ambitions paper should in no way deactivate concerns on the insufficiency of the Procurement Bill to ensure that a significant change in the way procurement information is captured and disseminated in the UK is achieved. In particular, the wording of clause 88(1) has to change.
It is nowhere close to good enough to simply have a weak enabling clause in legislation, stating that ‘An appropriate authority may by regulations make provision requiring certain information to be shared in a particular way, including through a specified online system’. The obvious first shortcoming is that the authority may do so, which also means it may not do so. The second is that the indication of a specified online system as a possible particular way of sharing information seems to take us back quite a few years. If not online (and if not as open data), how would a transparency aspiration be commensurate to the UK’s commitment to e.g. the open contracting data standard?.
Given the high level of aspiration in the paper, a more solid legal grounding is required. My proposal, which builds on discussions with the open contracting community, as well as the amendment already tabled by Baroness Hayman of Ullock, would be to amend clause 88(1) of the Procurement Bill, so it reads:
'An appropriate authority shall by regulations make provision requiring certain information to be shared through a specified online system. Such online system shall, at a minimum, establish and operate a freely accessible, machine-readable and licence-free digital register for all public procurement notices under this Act, wherein all information will be regularly updated in accordance with the time limits for the publication notices set out in the Act.'
Once the general commitment to having single digital register is strengthened, we can move on to consider the detail of what (and how) should be published in the register, what should be kept for restricted use, and what further transparency-related interventions can build upon it—e.g. the creation of a dashboard with useful data analytics, or the interconnection of the register with other sources of e.g. relevant anti-corruption information (for discussion, see here). There are some indications of what the UK aspires to do, but also some lack of clarity in the paper, and some clear risks of undesirable knock-on effects from the maximalist approach to procurement transparency it embraces.
The aspirations paper indeed starts from a maximalist position, indicating that the vision is ‘to create a fully transparent public procurement system’. However, there are two clear limitations to that approach.
First, the proposal itself includes a proportionate approach to transparency requirements: ‘we want to ensure that we are only asking for the most detailed information - contract documents, performance markings etc - from the largest contracts, in order to maintain transparency without bogging procurement teams down in unnecessary bureaucracy for low-value contracts’. This immediately means that a potentially large volume of (local) procurement will not be subjected to (some aspects) of the new transparency regime. Moreover, as the Procurement Bill stands, there would also be significant exclusions from important transparency obligations e.g. in relation to light touch contracts (see here, section 7, issues #21 on performance-related KPIS and non-performance notices, and #23 on modification notices). That already falls short of generating a ‘fully transparent’ procurement system, precisely in relation to the award of contracts where the risk of capture can be high.
Second, the publication of procurement information remains subjected to the general exclusions and carve-outs resulting from i.a. the Freedom of Information Act 2000 (FOIA). Interestingly, the ambitions paper does not refer to it at all, despite the Green Paper having made clear that, in the absence of FOIA reform (which is not sought), ‘only data which would be required to be made available under FOIA … would be publishable’ (at 167). Regardless of the paper’s silence on the issue, FOIA will continue to play a significant role in establishing which level of detail is disclosed, in particular in relation to disclosure of information not captured as a matter of mandatory disclosure in the relevant (award) notices, and perhaps even in relation to that.
The importance of preserving commercial confidentiality in the procurement setting is clear, and was also a clear focus of concern in the Green Paper consultation, leading e.g. to the Cabinet Office dropping its initial ambition of publishing tenders received in procurement procedures. As the Government’s response stressed: ‘We have considered the potential impact of public disclosure of information, such as (but not limited to) tenders. The feedback we received from stakeholders was that publishing tenders at this stage could prejudice future competitions that may run if the initial one is aborted and re-run for any reason, as bids will have been disclosed to the competition. As a result, we will not require disclosure of tenders submitted in a procurement’ (at 221).
Therefore, the system will not (and should not be) fully transparent. What is more useful is to see what the vision wants to enable in relation to procurement data and related analytics and insights. The vision indicates that the UK Government would like for everyone ‘to be able to view, search and understand what the UK public sector wants to buy, how much it is spending, and with whom’. This is a more realistic aspiration that does not necessarily entail total transparency and, given some safeguards and a more granular approach to the disclosure of differing levels of detail in the information (see here and discussion below), it should be welcome. Ultimately, the Government wants the future platform to help people understand:
current and future procurement opportunities created in the UK public sector; including pipelines of future work. [This should open up opportunities within the public sector to small businesses, driving down prices, increasing innovation and improving the business landscape across the country];
how much money the public sector spends on purchasing essential goods and services. [This should] allow taxpayers to see how much is being spent through procurement on and in their local area, who it is spent with and how it is delivering on local priorities. [Moreover, this should show] which routes to market are available to contracting authorities, and how much has been spent through each of those. [This should] give contracting authorities the data they need to collaborate better, drive value for money and identify cost savings in their procurements, so they can monitor for signs of waste and inefficiency;
which contracts finished on time and on budget–and which did not. [This means providing more detail across] the true lifecycle of government contracts, including how much the final amount spent on a contract differs from its original intended value, or how often contracts have been extended;
which companies have been excluded from winning future work due to fraud, corruption or persistent poor performance; [and]
who is really benefiting from public money - not just the companies winning contracts but the ownership of those companies
This list (which regroups the longer and slightly repetitive list in the paper, as well as aggregate the purpose for the disclosure of specific information) points to three categories. First, a category where the information is purely notice-based (categories 1, 4). Second, a category where the related insights should be easily derived from the information included mandatory notices (categories 2 and 3). Third, a category (mainly 5) that concerns non-procurement information and will require either (a) embedding disclosure obligations in the procurement life-cycle (thus raising the red tape and participation costs), or (b) interconnection with non-procurement databases.
The first category is relatively unproblematic, although there is an inherent tension between the disclosure of planned procurement opportunities and the facilitation of collusive practices (more details below).
The second category probably points at the need of considering the extent to which data dashboards should differentiate between different users, including the level of detail (and timeliness) of the information published in each of them (also discussed below).
The third category points at the need to consider issues of design and interoperability of the platform, as it would be preferable for it to be susceptible of plugging into other databases. Moreover, there are other (anti-corruption) functionalities that could be enabled, such as cross-checks against databases of political donations to identify potentially problematic relationships between procurement awardees and political donors. In relation to this category, and to anti-corruption efforts more generally, the ambitions paper is not particularly ambitious. However, the creation of a solid procurement data architecture on the basis of OCDS could facilitate those extensions in the future.
The ambitions paper indicates that the Government seeks to operationalise the new transparency regime through two main elements (as the ‘tell us once’ supplier register is a parallel and distinct intervention):
The introduction of a number of new procurement ‘notices’, covering the entire procurement lifecycle from planning through to contract expiry
A digital platform which will display all of this information publicly, with API access to data published to the Open Contracting Data Standard (OCDS). Once we have completed the core notice development, over time we also plan to build a number of useful registers, and explore integrating commercial data analysis tools
What this means is that the future platform will initially simply bring into one place what is currently published across a scattered landscape of transparency tools (see section 3.1 in the paper). That is an improvement, but the more significant change will only come when register and dashboard insights get developed. Importantly, however, the design of these registers and dashboards need to be very carefully considered and linked back to the intended (and likely) use by different audiences. However, the ambitions paper does not seem to consider this need and rather seeks to establish a system accessible to any type of data user on an undifferentiated form (see section 4.4).
Research has shown that most of the gains from procurement transparency concern ex ante disclosure of information [M Bauhr et al, ‘Lights on the shadows of public procurement: Transparency as an antidote to corruption’ (2020) 33(3) Governance 495-523]. Conversely, the publication of ex post information is particularly risky in relation to e.g. anticompetitive practices, as well as corruption, and can generate limited benefits as it is unlikely that there will be a sustained level of engagement with that information by most stakeholders with a theoretical motivation to engage in procurement oversight [N Köbis, C Starke and I Rahwan, ‘The promise and perils of using artificial intelligence to fight corruption’ (2022) 4 Nature Machine Intelligence 418-424].
In that regard, it is particularly problematic that the aspirations paper seems to indicate that the UK Government would be publishing (in real time, for everyone to see) information such as: ‘Analysis of bid and win rates, analysis of supplier & bidder beneficial ownership patterns, general market trends analysis’. This should concern regulators such as the Competition and Markets Authority, as well as the Serious Fraud Office. While the latter should absolutely have access to that information and market intelligence, its public disclosure (in detail, with no time lag) could be counterproductive and help, rather than hinder, corrupt and collusive practices. In that regard, it is of paramount importance that those authorities (and others, such as the National Audit Office) are involved in the design of the system—which is not entirely clear from the ‘user-centric’ approach embraced in the aspirations paper (see section 4.1).
In relation to these risks and issues, it is necessary to reiterate a call for a more nuanced and discriminating approach than the one that transpires from the aspirations paper. As stressed in the response to the Green Paper consultation (here Q29), while it can but be endorsed that the platform needs to be created, and the data automatically fed into it in accordance with OCDS and other technical interoperability requirements, a key feature of the new system should be its multi-layered level of access/transparency.
Analysis carried elsewhere (see here) supports a nuanced approach to the level of transparency created by public contract registries similar to the envisaged central digital platform, which needs to fall short of the full transparency paradigm in which it seems to have been conceived. As a functional criterion, only the information that is necessary to ensure proper oversight and the effectiveness of anti-corruption measures should be disclosed, whereas the information that can be most damaging for competition should be withheld.
Generally, what is needed is granularity in the levels of information that are made accessible to different stakeholders. A full transparency approach whereby all information was made available to everyone would fall very short from the desired balance between the transparency and competition goals of public procurement. A system based on enabling or targeted transparency, whereby each stakeholder gets access to the information it needs for a specific purpose, is clearly preferable.
In more specific terms, it is submitted that:
The content of the central digital platform should not be fully available to the public. Access to the full registry should be restricted to public sector officials under a strong duty of confidentiality protected by appropriate sanctions in cases of illegitimate disclosure.
Even within the public sector, full access to the central digital platform should be made available on a need-to-know basis. Oversight entities, such as the National Audit Office, the Serious Fraud Office, or the Competition and Markets Authority, as well as the new public procurement review unit (PPRU) should have full access. However, other entities or specific civil servants should only access the information they require to carry out their functions.
Limited versions of the central digital platform that are made accessible to the public should aggregate information by contracting authority and avoid disclosing any particulars that could be traced back to specific tenders, specific contracts, or specific undertakings.
Representative institutions, such as third sector organisations, journalists or academics should have the opportunity of seeking full access to the central digital platform on a case-by-case basis where they can justify a legitimate or research-related interest. In case of access, ethical approval shall be obtained, anonymization of data attempted, and specific confidentiality requirements duly imposed.
Delayed full access to the central digital platform could also be allowed for, provided there are sufficient safeguards to ensure that historic information does not remain relevant for the purposes of protecting market competition, business secrets and commercial interests.
Tenderers should have access to their own records, even if they are not publicly-available, so as to enable them to check their accuracy. This is particularly relevant if public contract registries are used for the purposes of assessing past performance under the new rules.
Big data should be published on an anonymised basis, so that general trends can be analysed without enabling ‘reverse engineering’ of information that can be traced to specific bidders.
The entity in charge of the central digital platform should regularly publish aggregated statistics by type of procurement procedure, object of contract, or any other items deemed relevant for the purposes of the public accountability of public buyers (such as percentages of expenditure in green procurement, etc).
The entity in charge of the central digital platform should develop a system of red flag indicators and monitor them with a view to reporting instances of legal non-compliance to the relevant oversight entity, or potential collusion to the competition authority. In that regard, the earlier attempts (eg through the abandoned ‘Screening for Cartels’ tool) should be carefully analysed to avoid replicating past errors.
© r2hox / Flickr.
The increasing recognition of the role of procurement as AI gatekeeper, or even as AI (pseudo)regulator, is quickly galvanising and leading to proposals to enshrine it in domestic legislation. For example, in the Parliamentary process of the UK’s 2022 Procurement Bill, an interesting amendment has surfaced. The proposal by Lord Clement-Jones would see the introduction of the following clause:
“Procurement principles: automated decision-making and data ethics
In carrying out a procurement, a contracting authority must ensure the safe, sustainable and ethical use of automated or algorithmic decision-making systems and the responsible and ethical use of data.”
The purpose of the clause would be to ensure ‘that the ethical use of automated decision-making and data is taken into account when carrying out a procurement.’ This is an interesting proposal that would put the procuring entity, even if not the future user of the AI (?), in the legally-mandated position of custodian or gatekeeper for trustworthy AI—which, of course, depending on future interpretation could be construed narrowly or expansively (e.g. on whether to limit it to automated decision-making, or extend it to decision-making support algorithmic systems?).
This would go beyond current regulatory approaches in the UK, where this gatekeeping position arises from soft law, such as the 2020 Guidelines for AI procurement. It would probably require significant additional guidance on how this role is to be operationalised, presumably through algorithmic impact assessments and/or other forms of ex ante intervention, such as the imposition of (standard) requirements in the contracts for AI procurement, or even ex ante algorithmic audits.
These requirements would be in line with influential academic proposals [e.g. M Martini, ‘Regulating Algorithms. How to Demystify the Alchemy of Code?’ in M Ebers & S Navas, Algorithms and Law (CUP 2020) 100, 115, and 120-22], as well as largely map onto voluntary compliance with EU AI Act’s requirements for high-risk AI uses (which is the approach also currently followed in the proposal for standard contractual clauses for the procurement of AI by public organisations being developed under the auspices of the European Commission).
One of the key practical considerations for a contracting authority to be able to discharge this gatekeeping role (amongst many others on expertise, time, regulatory capture, etc) is access to source code (also discussed here). Without accessing the source code, the contracting authority can barely understand the workings of the (to be procured) algorithms. Therefore, it is necessary to preserve the possibility of demanding access to source code for all purposes related to the procurement (and future re-procurement) of AI (and other software).
From this perspective, it is interesting to take a look at current developments in the protection of source code at the level of international trade regulation. An interesting paper coming out of the on-going FAccT conference addresses precisely this issue: K Irion, ‘Algorithms Off-limits? If digital trade law restricts access to source code of software then accountability will suffer’ (2022) FAccT proceedings 1561-70.
Irion’s paper provides a good overview of the global efforts to protect source code in the context of trade regulation, maps how free trade agreements are increasingly used to construct an additional layer of protection for software source code (primarily from forced technology transfer), and rightly points at risks of regulatory lock-out or pre-emption depending on the extent to which source code confidentiality is pierced for a range of public interest cases.
What is most interesting for the purposes of our discussion is that source code protection is not absolute, but explicitly deactivated in the context of public procurement in all emerging treaties (ibid, 1564-65). Generally, the treaties either do not prohibit, or have an explicit exception for, source code transfers in the context of commercially negotiated contracts—which can in principle include contracts with the public sector (although the requirement for negotiation could be a hurdle in some scenarios). More clearly, under what can be labelled as the ‘EU approach’, there is an explicit carve-out for ‘the voluntary transfer of or granting of access to source code for instance in the context of government procurement’ (see Article 8.73 EU-Japan EPA; similarly, Article 207 EU–UK TCA; and Article 9 EU-Mexico Agreement in principle). This means that the EU (and other major jurisdictions) are very clear in their (intentional?) approach to preserve the gatekeeping role of procurement by enabling contracting authorities to require access to software source code.
Conversely, the set of exceptions generally emerging in source code protection via trade regulation can be seen as insufficient to ensure high levels of algorithmic governance resulting from general rules imposing ex ante interventions. Indeed, Irion argues that ‘Legislation that mandates conformity assessments, certification schemes or standardized APIs would be inconsistent with the protection of software source code inside trade law’ (ibid, 1564). This is debatable, as a less limiting interpretation of the relevant exceptions seems possible, in particular as they concern disclosure for regulatory examination (with the devil, of course, being in the detail of what is considered a regulatory body and how ex ante interventions are regulated in a particular jurisdiction).
If this stringent understanding of the possibility to mandate regulatory compliance with this being seen as a violation of the general prohibition on source code disclosure for the purposes of its ‘tradability’ in a specific jurisdiction becomes the prevailing interpretation of the relevant FTAs, and regulatory interventions are thus constrained to ex post case-by-case investigations, it is easy to see how the procurement-related exceptions will become an (even more important) conduit for ex ante access to software source code for regulatory purposes, in particular where the AI is to be deployed in the context of public sector activity.
This is thus an interesting area of digital trade regulation to keep an eye on. And, more generally, it will be important to make sure that the AI gatekeeping role assigned to the procurement function is aligned with international obligations resulting from trade liberalisation treaties—which would require a general propagation of the ‘EU approach’ to explicitly carving out procurement-related disclosures.
© Diverse Stock Photos/Flickr.
Two years ago, in its Judgment of 28 May 2020 in case C-796/18, Informatikgesellschaft für Software-Entwicklung, EU:C:2020:395 (the ‘ISE case’), the Court of Justice of the European Union (CJEU) answered a preliminary ruling that can have very significant impacts in the artificial intelligence (AI) space, despite it being concerned with ‘old school’ software. More generally, the ISE case set the requirements to ensure that a contracting authority does not artificially distort competition for public contracts concerning (downstream) software services generally, and I argue AI services in particular.
The case risks going unnoticed because it concerned a relatively under-discussed form of self-organisation by the public administration that is exempted from the procurement rules (i.e. public-public cooperation; on that dimension of the case, see W Janssen, ‘Article 12’ in R Caranta and A Sanchez-Graells, European Public Procurement. Commentary on Directive 2014/24/EU (EE 2021) 12.57 and ff). It is thus worth revisiting the case and considering how it squares with regulatory developments concerning the procurement of AI, such as the development of standard clauses under the auspices of the European Commission.
In the ISE case, one of the issues at stake concerned whether a contracting authority would be putting an economic operator (i.e. the software developer) in a position of advantage vis-à-vis its competitors by accepting the transfer of software free of charge from another contracting authority, conditional on undertaking to further develop that software and to share (also free of charge) those developments of the software with the entity from which it had received it.
The argument would be that by simply accepting the software, the receiving contracting authority would be advantaging the software publisher because ‘in practice, the contracts for the adaptation, maintenance and development of the base software are reserved exclusively for the software publisher since its development requires not only the source code for the software but also other knowledge relating to the development of the source code’ (C-796/18, para 73).
This is an important issue because it primarily concerns how to deal with incumbency (and IP) advantages in software-related procurement. The CJEU, in the context of the exemption for public-public cooperation regulated in Article 12 of Directive 2014/24/EU, established that
in order to ensure compliance with the principles of public procurement set out in Article 18 of Directive 2014/24 … first [the collaborating contracting authorities must] have the source code for the … software, second, that, in the event that they organise a public procurement procedure for the maintenance, adaptation or development of that software, those contracting authorities communicate that source code to potential candidates and tenderers and, third, that access to that source code is in itself a sufficient guarantee that economic operators interested in the award of the contract in question are treated in a transparent manner, equally and without discrimination (para 75).
Functionally, in my opinion, there is no reason to limit that three-pronged test to the specific context of public-public cooperation and, in my view, the CJEU position is generalisable as the relevant test to ensure that there is no artificial narrowing of competition in the tendering of software contracts due to incumbency advantage.
What this means is that, functionally, contracting authorities are under an obligation to ensure that they have access and dissemination rights over the source code, at the very least for the purposes of re-tendering the contract, or tendering ancillary contracts. More generally, they also need to have a sufficient understanding of the software — or technical documentation enabling that knowledge — so that they can share it with potential tenderers and in that manner ensure that competition is not artificially distorted.
All of this is of high relevance and importance in the context of emerging practices of AI procurement. The debates around AI transparency are in large part driven by issues of commercial opacity/protection of business secrets, in particular of the source code, which both makes it difficult to justify the deployment of the AI in the public sector (for, let’s call them, due process and governance reasons demanding explainability) and also to manage its procurement and its propagation within the public sector (e.g. as a result of initiatives such as ‘buy once, use many times’ or collaborative and joint approaches to the procurement of AI, which are seen as strategically significant).
While there is a movement towards requiring source code transparency (e.g. but not necessarily by using open source solutions), this is not at all mainstreamed in policy-making. For example, the pilot UK algorithmic transparency standard does not mention source code. Short of future rules demanding source code transparency, which seem unlikely (see e.g. the approach in the proposed EU AI Act, Art 70), this issue will remain one for contractual regulation and negotiations. And contracts are likely to follow the approach of the general rules.
For example, in the proposal for standard contractual clauses for the procurement of AI by public organisations being developed under the auspices of the European Commission and on the basis of the experience of the City of Amsterdam, access to source code is presented as an optional contractual requirement on transparency (Art 6):
<optional> Without prejudice to Article 4, the obligations referred to in article 6.2 and article 6.3 [on assistance to explain an AI-generated decision] include the source code of the AI System, the technical specifications used in developing the AI System, the Data Sets, technical information on how the Data Sets used in developing the AI System were obtained and edited, information on the method of development used and the development process undertaken, substantiation of the choice for a particular model and its parameters, and information on the performance of the AI System.
For the reasons above, I would argue that a clause such as that one is not at all voluntary, but a basic requirement in the procurement of AI if the contracting authority is to be able to legally discharge its obligations under EU public procurement law going forward. And given the uncertainty on the future development, integration or replacement of AI solutions at the time of procuring them, this seems an unavoidable issue in all cases of AI procurement.
Let’s see if the CJEU is confronted with a similar issue, or the need to ascertain the value of access to data as ‘pecuniary interest’ (which I think, on the basis of a different part of the ISE case, is clearly to be answered in the positive) any time soon.
It has been refreshing to receive a detailed response by the lead author of one of the papers I recently discussed in the blog (see here). Big thanks to Manuel García Rodríguez for following up and for frank and constructive engagement. His full comments are below. I think they will help round up the discussion on the potential, constraints and data-dependency of procurement recommender systems.
Thank you Prof. Sánchez Graells for your comments, it has been a rewarding reading. Below I present my point of view to continue taking an in-depth look about the topic.
Regarding the percentage of success of the recommender, a major initial consideration is that the recommender is generic. It means, it is not restricted to a type of contract, CPV codes, geographical area, etc. It is a recommender that uses all types of Spanish tenders, from any CPV and over 6 years (see table 3). This greatly influences the percentage of success because it is the most difficult scenario. An easier scenario would have restricted the browser to certain geographic areas or CPVs, for example. In addition, 102,000 tenders have been used to this study and, presumably, they are not enough for a search engine which learn business behaviour patterns from historical tenders (more tenders could not be used due to poor data quality).
Regarding the comment that ‘the recommender is an effective tool for society because it enables and increases the bidders participation in tenders with less effort and resources‘. With this phrase we mean that the Administration can have an assistant to encourage participation (in the tenders which are negotiations with or without prior notice) or, even, in which the civil servants actively search for companies and inform those companies directly. I do not know if the public contracting laws of the European countries allow to search for actively and inform directly but it would be the most efficient and reasonable. On the other hand, a good recommender (one that has a high percentage of accuracy) can be an analytical tool to evaluate the level of competition by the contracting authorities. That is, if the tenders of a contracting authority attract very little competition but the recommender finds many potential participating companies, it means that the contracting authority can make its tenders more attractive for the market.
Regarding the comment that “It is also notable that the information of the Companies Register is itself not (and probably cannot be, period) checked or validated, despite the fact that most of it is simply based on self-declarations.” The information in the Spanish Business Register are the annual accounts of the companies, audited by an external entity. I do not know the auditing laws of the different countries. Therefore, I think that the reliability of the data is quite high in our article.
Regarding the first problematic aspect that you indicate: “The first one is that the recommender seems by design incapable of comparing the functional capabilities of companies with very different structural characteristics, unless the parameters for the filtering are given such range that the basket of recommendations approaches four digits”. There will always be the difficulty of comparing companies and defining when they are similar. That analysis should be done by economists, engineers can contribute little. There is also the limitation of business data, the information of the Business Register is usually paywalled and limited to certain fields, as is the case with the Spanish Business Registry. For these reasons, we recognise in the article that it is a basic approach, and it should be modified the filters/rules in the future: “Creating this profile to search similar companies is a very complex issue, which has been simplified. For this reason, the searching phase (3) has basic filters or rules. Moreover, it is possible to modify or add other filters according to the available company dataset used in the aggregation phase”.
Regarding the second problematic aspect that you indicate: “The second issue is that a recommender such as this one seems quite vulnerable to the risk of perpetuating and exacerbating incumbency advantages, and/or of consolidating geographical market fragmentation (given the importance of eg distance, which cannot generate the expected impact on eg costs in all industries, and can increasingly be entirely irrelevant in the context of digital/remote delivery).” This will not happen in the medium and long term because the recommender will adapt to market conditions. If there are companies that win bids far away, the algorithm will include that new distance range in its search. It will always be based on the historical winner companies (and the rest of the bidders if we have that information). You cannot ask a machine learning algorithm (the one used in this article) to make predictions not based on the previous winners and historical market patterns.
I totally agree with your final comment: “It would in my view be preferable to start by designing the recommender system in a way that makes theoretical sense and then make sure that the required data architecture exists or is created.” Unfortunately, I did not find any articles that discuss this topic. Lawyers, economists and engineers must work together to propose solid architectures. In this article we want to convince stakeholders that it is possible to create software tools such as a bidder recommender and the importance of public procurement data and the company’s data in the Business Registers for its development.
Thank you for your critical review. Different approaches are needed to improve on the important topic of public procurement.
In case there was any question on the importance and central role of public procurement for the uptake of artificial intelligence (AI) by the public sector (there wasn’t, though), two recent policy reports confirm that this is the case, at the very least in the European context.
AI Watch’s must-read ‘European landscape on the use of Artificial Intelligence by the Public Sector’ (1 June 2022) makes the point very clearly by reference to the analysis of AI strategies adopted by 24 EU Member States: ‘the procurement of AI technologies or the increased collaboration with innovative private partners is seen as an important way to facilitate the introduction of AI within the public sector. Guidance on how to stimulate and organise AI procurement by civil servants should potentially be strengthened and shared among Member States’ (at 26). Concerning guidance, the report refers to the European Commission’s supported process of developing standard contractual clauses for the procurement of AI (see here), and there is also a twin AI Watch Handbook for the adoption of AI by the public sector (25 May 2022) that includes a recommendation on procurement guidance (‘Promote the development of multilingual guidelines, criteria and tools for public procurement of AI solutions in the public sector throughout Europe‘, recommendation 2.5, and details at 34-35).
The European landscape report provides some more interesting detail on national strategies considering AI procurement adaptations.
The need to work together with the private sector in this area is repeatedly stressed. However, strategies mention that historically it has been difficult for innovative companies to work together with government authorities due to cumbersome procurement regulations. In this area, several strategies (12, 50%) [though note the table below indicates 13, rather than 12 strategies] come up with new policy initiatives to improve the procurement processes. The Spanish strategy, for example, mentions that new innovative public procurement mechanisms will be introduced to help the procurement of new solutions from the market, while the Maltese government describes how existing public procurement processes will be changed to facilitate the procurement of emerging technologies such as AI. The Dutch and Czech strategies mention that hackathons for public sector AI will be introduced to assist in the procurement of AI. Civil servants will be given training and awareness in procurement to assist them in this process, something that is highlighted in the Estonian strategy. The French strategy stresses that current procurement regulation already provides a lot of freedom for innovative procurement but that because of risk aversion present within public administrations all possibilities are not taken into consideration (at 25-26, emphasis in the original).
Own elaboration, based on Table 7 in the AI Watch report.
There is also an interesting point on the need to create internal public sector AI capabilities: “Some strategies say that the public organisations should work more together with private organisations (where the missing skillsets are present), either through partnerships or by procurement. On the one hand, this is an extremely important and promising shift in the public sector that more and more must move towards a networking perspective. In fact, the complexity and variety of skills required by AI cannot be always completely internalised. On the other hand, such partnerships and procurement still require a baseline in expertise in AI within the public sector staff to avoid common mistakes or dependency on external parties” (at 23, emphasis added).
Given the strategic importance of procurement, as well as the need to upskill the procurement workforce and to build additional AI capacity in the public sector to manage procurement process, this is an area of research and policy that will only increase in relevance in the near and longer term.
This same direction of travel is reflected in the also recent UK's Central Digital and Data Office ‘Transforming for a digital future: 2022 to 2025 roadmap for digital and data’ (9 June 2022). One of its main aspirations is to generate ‘Significant savings by leveraging government’s combined purchasing power and reducing duplicative procurement, to shift to a “buy once, use many times” approach to technology’. This should be achieved by the horizontal promotion of ‘a “buy once, use many times” approach to technology, including by making use of a common code, pattern and architecture repository for government’. Implicitly, this will also require a review of procurement policies and practices.
Importantly—and potentially problematically—it will also raise the stakes of AI procurement, in particular if the roll-out of the ‘bought once’ technology is rushed and its negative impacts or implications can only be identified once it has already been propagated, or in relation to some implementations only. Avoiding this will require very careful IA impact assessments, as well as piloting and scalability approaches that have strong risk-management systems embedded by design.
As always, this will be an area fun to keep an eye on.
© jm3 on Flickr.
How great would it be for a public buyer if an algorithm could identify the likely best bidder/s for a contract it sought to award? Pretty great, agreed.
For example, it would allow targeted advertising or engagement of public procurement opportunities to make sure those ‘best suited’ bidders came forward, or to start negotiations where this is allowed. It could also enable oversight bodies, such as competition authorities, to screen for odd (anti)competitive situations where well-placed providers did not bid for the contract, or only did in worse than expected conditions. If the algorithm was flipped, it would also allow potential bidders to assess for which tenders they are particularly well suited (or not).
It is thus not surprising that there are commercial attempts being developed (eg here) and interesting research going on trying to develop such recommender systems—which, at root, work similarly to recommender systems used in e-commerce (Amazon) or digital content platforms (Netflix, Spotify), in the sense that they try to establish which of the potential providers are most likely to satisfy user needs.
On this issue, on which there has been some research for at least a decade (see here), I found this paper interesting: García Rodríguez et al, ‘Bidders Recommender for Public Procurement Auctions Using Machine Learning: Data Analysis, Algorithm, and Case Study with Tenders from Spain’ (2020) Complexity Art 8858258.
The paper is interesting in the way it builds the recommender system. It follows three steps. First, an algorithm trained on past tenders is used to predict the winning bidder for a new tender, given some specific attributes of the contract to be awarded. Second, the predicted winning bidder is matched with its data in the Companies Register, so that a number of financial, workforce, technical and location attributes are linked to the prediction. Third and final, the recommender system is used to identify companies similar to the predicted winner. Such identification is based on similarities with the added attributes of the predicted winner, which are subject to some basic filters or rules. In other words, the comparison is carried out at supplier level, not directly in relation to the object of the contract.
Importantly, such filters to sieve through the comparison need to be given numerical values and that is done manually (i.e. set at rather random thresholds, which in relation to some categories, such as technical specialism, make little intuitive sense). This would in principle allow the user of the recommender system to tailor the parameters of the search for recommended bidders.
In the specific case study developed in the paper, the filters are:
Economic resources to finance the project (i.e. operating income, EBIT and EBITDA);
Human resources to do the work (i.e. number of employees):
Specialised work which the company can do (based on code classification: NACE2, IAE, SIC, and NAICS); and
Geographical distance between the company’s location and the tender’s location.
Notably, in the case study, distance ‘is a fundamental parameter. Intuitively, the proximity has business benefits such as lower costs’ (at 8).
The key accuracy metric for the recommender system is whether it is capable of identifying the actual winner of a contract as the likely winning bidder or, failing that, whether it is capable of including the actual winner within a basket of recommended bidders. Based on the available Spanish data, the performance of the recommender system is rather meagre.
The poor results can be seen in the two scenarios developed in the paper. In scenario 1, the training and test data are split 80:20 and the 20% is selected randomly. In scenario 2, the data is also split 80:20, but the 20% test data is the most recent one. As the paper stresses, ‘the second scenario is more appropriate to test a real engine search’ (at 13), in particular because the use of the recommender will always be ‘for the next tender’ after the last one included in the relevant dataset.
For that more realistic scenario 2, the recommender has an accuracy of 10.25% in correctly identifying the actual winner, and this only raises to 23.12% if the recommendation includes a basket of five companies. Even for the more detached from reality scenario 1, the accuracy of a single prediction is only 17.07%, and this goes up to 31.58% for 5-company recommendations. The most accurate performance with larger baskets of recommended companies only reaches 38.52% in scenario 1, and 30.52% in scenario 2, although the much larger number of recommended companies (approximating 1,000) also massively dilutes the value of the information.
So, with the available information, the best performance of the recommender system creates about 1 in 10 chances of correctly identifying the most suitable provider, or 1 in 5 chances of having it included in a basket of 5 recommendations. Put the other way, the best performance of the realistic recommender is that it fails to identify the actual winner for a tender 9 out of 10 times, and it still fails 4 out of 5 times when it is given five chances.
I cannot say how this compares with non-automated searches based on looking at relevant company directories, other sources of industry intelligence or even the anecdotal experience of the public buyer, but these levels of accuracy could hardly justify the adoption of the recommender.
In that regard, the optimistic conclusion of the paper (‘the recommender is an effective tool for society because it enables and increases the bidders participation in tenders with less effort and resources‘ at 17) is a little surprising.
The discussion of the limitations of the recommender system sheds some more light:
The main limitation of this research is inherent to the design of the recommender’s algorithm because it necessarily assumes that winning companies will behave as they behaved in the past. Companies and the market are living entities which are continuously changing. On the other hand, only the identity of the winning company is known in the Spanish tender dataset, not the rest of the bidders. Moreover, the fields of the company’s dataset are very limited. Therefore, there is little knowledge about the profile of other companies which applied for the tender. Maybe in other countries the rest of the bidders are known. It would be easy to adapt the bidder recommender to this more favourable situation (at 17).
The issue of the difficulty of capturing dynamic behaviour is well put. However, there are more problems (below) and the issue of disclosure of other participants in the tender is not straightforwardly to the benefit of a more accurate recommender system, unless there was not only disclosure of other bidders but also of the full evaluations of their tenders, which is an unlikely scenario in practice.
There is also the unaddressed issue of whether it makes sense to compare the specific attributes selected in the study, which it mostly does not, but is driven by the available data.
What is ultimately clear from the paper is that the data required for the development of a useful recommender is simply not there, either at all or with sufficient quality.
For example, it is notable that due to data quality issues, the database of past tenders shrinks from 612,090 recorded to 110,987 useable tenders, which further shrink to 102,087 due to further quality issues in matching the tender information with the Companies Register.
It is also notable that the information of the Companies Register is itself not (and probably cannot be, period) checked or validated, despite the fact that most of it is simply based on self-declarations. There is also an issue with the lag with which information is included and updated in the Companies Register—e.g. under Spanish law, company accounts for 2021 will only have to be registered over the summer of 2022, which means that a use of the recommender in late 2022 would be relying on information that is already a year old (as the paper itself hints, at 14).
And I also have the inkling that recommender systems such as this one would be problematic in at least two aspects, even if all the necessary data was available.
The first one is that the recommender seems by design incapable of comparing the functional capabilities of companies with very different structural characteristics, unless the parameters for the filtering are given such range that the basket of recommendations approaches four digits. For example, even if two companies were the closest ones in terms of their specialist technical competence (even if captured only by the very coarse and in themselves problematic codes used in the model)—which seems to be the best proxy for identifying suitability to satisfy the functional needs of the public buyer—they could significantly differ in everything else, especially if one of them is a start-up. Whether the recommender would put both in the same basket (of a useful size) is an empirical question, but it seems extremely unlikely.
The second issue is that a recommender such as this one seems quite vulnerable to the risk of perpetuating and exacerbating incumbency advantages, and/or of consolidating geographical market fragmentation (given the importance of eg distance, which cannot generate the expected impact on eg costs in all industries, and can increasingly be entirely irrelevant in the context of digital/remote delivery).
So, all in all, it seems like the development of recommender systems needs to be flipped on its head if data availability is driving design. It would in my view be preferable to start by designing the recommender system in a way that makes theoretical sense and then make sure that the required data architecture exists or is created. Otherwise, the adoption of suboptimal recommender systems would not only likely generate significant issues of technical debt (for a thorough warning, see Sculley et al, ‘Hidden Technical Debt in Machine Learning Systems‘ (2015)), but also risk significantly worsening the quality (and effectiveness) of procurement decision-making. And any poor implementation in ‘real life’ would deal a sever blow to the prospects of sustainable adoption of digital technologies to support procurement decision-making.
I have started reading K McGillivray, Government Cloud Procurement. Contracts, Data Protection, and the Quest for Compliance (Cambridge University Press 2022), which promises to be a big addition to the literature on the procurement of digital technologies. One of the key issues the book explores at length is the central role that public contracts play in filling (some of the) regulatory gaps left by the absence of legislation addressing the challenges of cloud computing.
This got me thinking that this gap-filling function of public contracts in the cloud sphere is reflective of the broader role that procurement procedures and the ensuing public contracts are starting to develop in relation to other types of digital technology—notably, artificial intelligence (AI).
Procurement regulation will increasingly (be expected to) play a crucial gatekeeping role in the adoption of digital technologies for public governance and public service delivery. As rightly stressed: ‘The rules governing the acquisition of algorithmic systems by governments and public agencies are an important point of intervention in ensuring their accountable use’ [Ada Lovelace Institute, AI Now Institute and Open Government Partnership, Algorithmic Accountability for the Public Sector (August 2021) 33]. Ultimately, contracts and other arrangements for the development and acquisition of digital solutions are the entry point into the public sector for these innovations, and the procurement rules can be either a catalyst or a hindrance to co-production and experimentation with digital governance solutions.
The gatekeeping role of procurement underpinned eg one of the recommendations of the UK’s Committee on Standards in Public Life, in its report on Artificial Intelligence and Public Standards: ‘Government should use its purchasing power in the market to set procurement requirements that ensure that private companies developing AI solutions for the public sector appropriately address public standards. This should be achieved by ensuring provisions for ethical standards are considered early in the procurement process and explicitly written into tenders and contractual arrangements’ (2020: 51). A variation of the gatekeeping approach can concentrate on procurement practice and the embedding of specific controls as a matter of public buyer deontology [see P Oluka Nagitta et al., ‘Human-centered artificial intelligence for the public sector: The gate keeping role of the public procurement professional’ (2022) 200 Procedia Computer Science 1084-1092].
There is thus a growing recognition of the pragmatic utility of leveraging procurement mechanisms to ensure transparency and accountability in algorithmic systems, particularly considering that these systems play a crucial role in policymaking and decision-making by public agencies [DK Mulligan and KA Bamberger, ‘Procurement as policy: Administrative process for machine learning’ (2019) 34(3) Berkeley Technology L. J. 773-851]. Consequently, there is increasing interest in a reassessment of the existing procurement rules as they apply to contracts for digital technologies; as well as in the redesign of procurement to foster reliability, sustainability, and public trust in AI [see e.g. UK Government, BEIS, DCMS and Office for AI, Guidelines for AI procurement (8 June 2020); also W Naudé and N Dimitri, ‘Public Procurement and Innovation for Human-Centered Artificial Intelligence’ (2021)].
However, the challenges in effectively mobilising procurement for this gatekeeping function are yet to be properly conceptualised and understood [See e.g. P Nowicki, ‘Deus Ex Machina?: Some Remarks on Public Procurement in the Second Machine Age’ (2020) 1 EPPPL 53-60; see also K Mcbride et al, ‘Towards a Systematic Understanding on the Challenges of Procuring Artificial Intelligence in the Public Sector’ (2021)].
As I keep thinking about this (see here for earlier thoughts), I am realising that the emerging discussion or conceptualisation of public procurement (or procurement professionals) as gatekeepers of the adoption of AI by the public sector (and more broadly) can fall into the same trap of partiality as the equivalent discussion of financial gatekeepers in the corporate governance sphere years ago.
As Prof Coffee brightly pointed out [Gatekeepers: The Professions and Corporate Governance (OUP, 2006) 2-3] in the context of financial markets, there are two important dimensions of gatekeeping at play: one concerns ‘strict’ gatekeeping in terms of veto capacity (eg an audit firm can decline providing an opinion on corporate accounts, or a lawyer can decline to provide an opinion required for the closing of a specific corporate transaction). The other dimension, however, concerns a reputational aspect of gatekeeping that can generate reliance by third parties (eg an investment bank acquiring shares of a target company can lead others to also invest in that company).
In the procurement context, it seems to me that there is also a strict gatekeeping function (procurement requirements determine which technology/provider cannot get a public contract, eg to protect a specific public interest or avoid a specific public harm; or which one can provided it abides by specific contractualised requirements), as well as a reputational gatekeeping function (eg procurement of specific technologies/from specific providers can have a signalling effect that triggers further procurement by other public buyers and/or adoption by the private sector).
While in financial markets the reputational aspect is dependent on market-based issues (such as repeat transactions), in procurement settings reputation is almost a given due to a presumption of strict scrutiny of public providers (and thus the importance of ‘past performance’, or other signals such as being able to disclose that a technology or provider is used by Department X, or in some other settings ‘by appointment to HM the Queen’). This compounds the importance of procurement gatekeeping, as it not only concerns the specific decision adopted by a given public buyer, but also the broader access of technologies and providers into the public sector (and beyond).
However, a significant difference between gatekeeping in financial markets and in procurement however stems from the likely main source of potential failure of the gatekeeper. While in financial markets gatekeepers can be expected to be high-skilled but subject to structural conflicts of interest, in particular due to the way they are remunerated (which impinges on their independence), in procurement markets there is a real risk that public buyers are not only subject to potential conflicts of interest (an enduring issue in procurement regulation, and the source of incomplete attempts at the regulation of conflicts of interest and integrity in procurement), but also underprepared for the gatekeeping task.
In other words, the asymmetry of information seems to operate in reverse in both settings. While in financial markets the superior information and related skills belong to the gatekeeper (as compared to the retail, or even (passive) institutional investors), in procurement markets the information and skills disadvantage plays against the gatekeeper (public buyer) and in favour of those seeking to sell their technology.
And this is where the analysis by McGillivray is again interesting, as it highlights compliance challenges and gaps resulting from the parallel procurement-based gatekeeping of data protection law in the government cloud procurement sphere. Plenty food for thought (at least for me).
Magic; Stage Illusions and Scientific Diversions, Including Trick Photography (1897), written by Albert Allis Hopkins and Henry Ridgely Evan.
As the dust settles in the process of reform of UK public procurement rules, and while we await for draft legislation to be published (some time this year?), there is now a chance to further reflect on the likely effects of the deregulatory, flexibility- and discretion-based approach to be embedded in the new UK procurement system.
An issue that may not have been sufficiently highlighted, but which should be of concern, is the way in which increased flexibility and discretion will unavoidably carry higher corruption risks and reduce the effectiveness of potential anti-corruption tools, in particular those based on the implementation of digital technologies for procurement oversight [see A Sanchez-Graells, ‘Procurement Corruption and Artificial Intelligence: Between the Potential of Enabling Data Architectures and the Constraints of Due Process Requirements’ in S Williams-Elegbe & J Tillipman (eds), Routledge Handbook of Public Procurement Corruption (Routledge, forthcoming)].
This is an inescapable issue, for there is an unavoidable trade-off between flexibility, discretion and corruption (in procurement, and more generally). And this does not bode well for the future of UK procurement integrity if the experience during the pandemic is a good predictor.
The trade-off between flexibility, discretion and corruption underpins many features of procurement regulation, such as the traditional distrust of procedures involving negotiations or direct awards, which may however stifle procurement innovation and limit value for money [see eg F Decarolis et al, ‘Rules, Discretion, and Corruption in Procurement: Evidence from Italian Government Contracting’ (2021) NBER Working Paper 28209].
The trade-off also underpins many of the anti-corruption tools (eg red flags) that use discretionary elements in procurement practice as a potential proxy for corruption risk [see eg M Fazekas, L Cingolani and B Tóth, ‘Innovations in Objectively Measuring Corruption in Public Procurement’ in H K Anheier, M Haber and M A Kayser (eds) Governance Indicators: Approaches, Progress, Promise (OUP 2018) 154-180; or M Fazekas, S Nishchal and T Søreide, ‘Public procurement under and after emergencies’ in O Bandiera, E Bosio and G Spagnolo (eds), Procurement in Focus – Rules, Discretion, and Emergencies (CEPR Press 2022) 33-42].
Moreover, economists and political scientists have clearly stressed that one way of trying to strike an adequate balance between the exercise of discretion and corruption risks, without disproportionately deterring the exercise of judgement or fostering laziness or incompetence in procurement administration, is to increase oversight and monitoring, especially through auditing mechanisms based on open data (see eg Procurement in a crisis: how to mitigate the risk of corruption, collusion, abuse and incompetence).
The difficulty here is that the trade-off is inescapable and the more dimensions on which there is flexibility and discretion in a procurement system, the more difficult it will be to establish a ‘normalcy benchmark’ or ‘integrity benchmark’ from which deviations can trigger close inspection. Taking into account that there is a clear trend towards seeking to automate integrity checks on the basis of big data and machine learning techniques, this is a particularly crucial issue. In my view, there are two main sources of difficulties and limitations.
First, that discretion is impossible to code for [see S Bratus and A Shubina, Computerization, Discretion, Freedom (2015)]. This both means that discretionary decisions cannot be automated, and that it is impossible to embed compliance mechanisms (eg through the definition of clear pathways based on business process modelling within an e-procurement system, or even in blockchain and smart contract approaches: Neural blockchain technology for a new anticorruption token: towards a novel governance model) where there is the possibility of a ‘discretion override’.
The more points along the procurement process where discretion can be exercised (eg choice of procedure, design of procedure, award criteria including weakening of link to subject matter of the contract and inclusion of non(easily)measurable criteria eg on social value, displacement of advantage analysis beyond sphere of influence of contracting authority, etc) the more this difficulty matters.
Second, the more deviations there are between the new rulebook and the older one, the lower the value of existing (big) data (if any is available or useable) and of any indicators of corruption risk, as the regulatory confines of the exercise of discretion will not only have shifted, but perhaps even lead to a displacement of corruption-related exercise of discretion. For example, focusing on the choice of procedure, data on the extent to which direct awards could be a proxy for corruption may be useless in a new context where that type of corruption can morph into ‘custom-made’ design of a competitive flexible procedure—which will be both much more difficult to spot, analyse and prove.
Moreover, given the inherent fluidity of that procedure (even if there is to be a template, which is however not meant to be uncritically implemented), it will take time to build up enough data to be able to single out specific characteristics of the procedure (eg carrying out negotiations with different bidders in different ways, such as sequentially or in parallel, with or without time limits, the inclusion of any specific award criterion, etc) that can be indicative of corruption risk reliably. And that intelligence may not be forthcoming if, as feared, the level of complexity that comes with the exercise of discretion deters most contracting authorities from exercising it, which would mean that only a small number of complex procedures would be carried out every year, potentially hindering the accumulation of data capable of supporting big data analysis (or even meaningful econometrical treatment).
Overall, then, the issue I would highlight again is that there is an unavoidable trade-off between increasing flexibility and discretion, and corruption risk. And this trade-off will jeopardise automation and data-based approaches to procurement monitoring and oversight. This will be particularly relevant in the context of the design and implementation of the tools at the disposal of the proposed Procurement Review Unit (PRU). The Response to the public consultation on the Transforming Public Procurement green paper emphasised that
‘… the PRU’s main focus will be on addressing systemic or institutional breaches of the procurement regulations (i.e. breaches common across contracting authorities or regularly being made by a particular contracting authority). To deliver this service, it will primarily act on the basis of referrals from other government departments or data available from the new digital platform and will have the power to make formal recommendations aimed at addressing these unlawful breaches’ (para [48]).
Given the issues raised above, and in particular the difficulty or impossibility of automating the analysis of such data, as well as the limited indicative value and/or difficulty of creating reliable red flags in a context of heightened flexibility and discretion, quite how effective this will be is difficult to tell.
Moreover, given the floating uncertainty on what will be identified as suspicious of corruption (or legal infringement), it is also possible that the PRU (initially) operates on the basis of indicators or thresholds arbitrarily determined (much like the European Commission has traditionally arbitrarily set thresholds to consider procurement practices problematic under the Single Market Scorecard; see eg here). This could have a signalling effect that could influence decision-making at contracting authority level (eg to avoid triggering those red flags) in a way that pre-empts, limits or distorts the exercise of discretion—or that further displaces corruption-related exercise of discretion to areas not caught by the arbitrary indicators or thresholds, thus making it more difficult to detect.
Therefore, these issues can be particularly relevant in establishing both whether the balance between discretion and corruption risk is right under the new rulebook’s regulatory architecture and approach, as well as whether there are non-statutory determinants of the (lack of) exercise of discretion, other than the complexity and potential litigation and challenge risk already stressed in earlier analysis and reflections on the green paper.
Another ‘interesting’ area of development of UK procurement law and practice post-Brexit when/if it materialises.
Image credits: Steve Johnson.
Last year brought the saddest news with the passing of Professor Steen Treumer after a long illness. Steen was a procurement colossus and a fantastic academic. I was extremely lucky to count him amongst my mentors and champions, especially at the very early stages of my research and academic career, before he had to take a step back to focus on his health. I am particularly grateful to him for having opened the door of the European Procurement Law Group to me. And for his generosity in providing feedback, job and promotion references, and thoughtful and clever advice without ever asking for or expecting anything in return.
It is nigh impossible to do justice to the intellectual contribution Steen made to the procurement field and the influence his approach had on the research of others such as myself. It is now a humbling honour to have been invited to contribute to an edited collection in his memory (a Mindeskrift). If he could read my contribution, I am not sure Steen would agree with what I say in the paper, but we would certainly have an interesting and stimulating discussion on the basis of the sharp comments (even some devil’s advocate ones) he would surely come up with. I hope you will find the contribution worth discussing too.
Probably unsurprisingly, the paper is entitled ‘Competition and procurement regulation: a goal, a principle, a requirement, or all of the above?’ and its abstract is below. In the paper, I use the background of recent developments in UK and EU case law, as well as the UK’s procurement rulebook reform process, to reframe the issue of the role of competition in procurement regulation. While I do not provide any insights I had not already developed in earlier writing, I bring some scattered parts of my scholarship together and hopefully clarify a few things along the way. The paper may be particularly interesting to those looking for an entry point to the discussion on the role of competition in public procurement, but hopefully there is also something for those already well versed on the topic. As always, comments most welcome: a.sanchez-graells@bristol.ac.uk.
In this contribution, I reflect on the role of competition in public procurement regulation and, more specifically, on whether competition should be treated as a regulatory goal, as a general principle of public procurement law, as a specific (implicit or explicit) requirement in discrete legal provisions, or all of the above. This is an issue I had the pleasure and honour of discussing with Professor Steen Treumer back in 2009, when I was a PhD student visiting the Copenhagen Business School. While Steen never revealed to me what he really thought, his probing questions continue to help me think of this issue, which remains at the core of my research efforts. This contribution shows that the role of competition keeps cropping up in procurement regulation and litigation, as evidenced in recent UK developments. This is thus an evergreen research topic, which were Steen’s favourites.
The full citation is: Sanchez-Graells, Albert, ‘Competition and procurement regulation: a goal, a principle, a requirement, or all of the above?’, to be published in Steen Treumer’s Mindeskrift edited by Carina Risvig Hamer, Erik Bertelsen, Marta Andhov, and Roberto Caranta (Ex Tuto Publishing, forthcoming 2022). Available at SSRN: https://ssrn.com/abstract=4012022.
© Tom Burke/Flickr.
I have expanded on the thoughts around the multi-layered regulation of procurement-related trade liberalisation in this new working paper: The growing thicket of multi-layered procurement liberalisation between WTO GPA parties, as evidenced in post-Brexit UK. The abstract is as follows:
The World Trade Organisation Government Procurement Agreement (GPA) has created the most comprehensive plurilateral system for procurement-related trade liberalisation. However, there has been a proliferation of free trade agreements (FTAs) regulating public procurement liberalisation, including between GPA parties, which seek to bypass or go beyond the GPA on a bilateral basis, or with a more limited plurilateral remit. Such FTAs tend to follow a ‘GPA+’ approach to provide incremental trade liberalisation based on the substantive provisions of the GPA. However, there is a trend of substantive deviation between the GPA regulatory baseline and the FTA regulation of crucial issues, such as the national treatment obligation or access to remedies, including in FTAs involving the European Union or, recently, its former Member State, the UK. This creates a situation of potential conflict of treaty norms that has so far received limited attention. This article focuses on the resolution of conflicts between GPA and FTA substantive provisions under the 1969 Vienna Convention on the Law of Treaties, using the UK’s post-Brexit FTAs as a case study. It argues for a rationalisation of the system by extending the use of incorporation by reference of the GPA in FTAs involving GPA parties.
As always, feedback and any suggestions for improvement before final publication would be most welcome. The paper can be freely downloaded via SSRN: https://ssrn.com/abstract=4054711.
The UK in a Changing Europe (UKICE) has published a new report: ‘Doing things differently? Policy after Brexit‘. The report provides an update on last year’s ‘UK regulation after Brexit', as well as additional analysis.
‘Doing things differently? Policy after Brexit’ brings together a number experts in their respective fields to investigate how policy and policymaking have changed in a range of sectors. UKICE asked them to consider how changes so far compare to what was promised before Brexit, and to analyse what changes lie ahead and what their impact might be.
I contributed a section on public procurement. For more details and broader developments in UK procurement regulation, you can also see my recent country report for EPPPL.
Public procurement regulation is a set of rules and policies controlling the award of public contracts for works, supplies, and services. Its main goal is to ensure probity and value for money in the spending of public funds, to prevent corruption, collusion, and wastage of taxpayers’ money. As pandemic-related procurement has shown, the absence of procurement rules (or their disapplication due to an emergency), all too often leads to the improper award of public contracts. Nonetheless, the benefits of constraining discretion in the award of public contracts are easily forgotten in ‘normal times’, and procurement regulation is permanently challenged for creating an administrative burden on both the public sector and on companies tendering for public contracts, and for stifling innovation.
Procurement has long been heavily influenced by international and regional agreements, which constrain domestic choices to facilitate cross-border tendering for public contracts. Before Brexit, the UK was directly bound by the procurement rules of the European Union (EU), and indirectly by those of the World Trade Organisation’s Government Procurement Agreement (GPA), to which EU rules are aligned. As a result, UK regulatory autonomy was limited to the spaces left by general EU rules requiring domestic transposition. The UK decided not to exercise that limited discretion and consistently took a copy-out approach to the transposition of EU rules, so pre-Brexit UK procurement regulation was virtually identical to the EU’s.
During the Brexit process, public procurement was ear-marked for reform. Boris Johnson promised a ‘bonfire of procurement red tape to give small firms a bigger slice of Government contracts’ and his Government proposed to significantly rewrite the procurement rulebook, and to adopt an ambitious ‘Buy British’ policy to reserve some public contracts to British firms.
Despite those promises, the UK Government has made big efforts to replicate international and regional procurement agreements post-Brexit, which means it will continue to be hard to introduce an effective ‘Buy British’ policy. The UK gained GPA membership in its own right on 1 January 2021. This now directly constrains domestic choices on procurement regulation. The EU-UK Trade and Cooperation Agreement (TCA) also includes a chapter on public procurement that leaves mutual market access commitments virtually unchanged.
The UK Government was slow to understand (or at least clearly communicate) the implications of this continuity in the trade-related aspects of procurement regulation. On 15 December 2020, the Cabinet Office issued a Procurement Policy Note (PPN) on ‘Reserving below threshold procurements’ that formulated the new ‘Buy British’ policy in terms of reserving contracts by supplier location (either UK-wide, or by county) and/or reserving them for small and medium sized enterprises (SMEs) or voluntary, community and social enterprises (VCSEs). Aggressive implementation could have contravened international agreements to which the UK had signed up. This led to the publication on 19 February 2021 of a new PPN on ‘The WTO GPA and the UK-EU TCA,’ stressing that the pre-Brexit limits on a ‘Buy British’ policy remain in place and virtually unchanged post-Brexit.
On 15 December 2020, the UK Government published the green paper ‘Transforming Public Procurement’ to consult on planned legislative changes to the procurement rulebook. The original timeline envisaged the introduction of a Procurement Bill in Parliament after summer 2021. However, the volume of responses to the public consultation (over 600) and the complex issues they raised, as well as the intrinsic difficulty in seeking to significantly change procurement law in a manner that is compliant with international obligations led the Cabinet Office to adjust the timeline. The 6 December 2021 Government response to the public consultation clarified that the new regime will not come into force until 2023 at the earliest.
So far, then, the Brexit-related changes have been modest. There have been some policy developments, such as the adoption of a National Procurement Policy Statement seeking to embed government goals such as growth and jobs and climate change in procurement decision-making; a push for a fresh approach to assessing social value in the award of government contracts; new requirements for firms applying for major contracts to have Carbon Reduction plans; and to also require those firms to have systems in place that ensure prompt, fair and effective payments to their supply chains. None of these will reduce procurement red tape and most, if not all, would have been possible pre-Brexit.
Given the commitments in the GPA and TCA, there is virtually no scope for a Buy British policy. The UK could be more aggressive in the exclusion of tenderers from non-GPA jurisdictions such as China, India or Brazil (something the EU is increasingly doing) as a practical way of seeking to boost contract awards to UK companies.
By contrast, the process of reform of the UK’s procurement rulebook is likely to result in a new set of streamlined regulations, as well as a voluminous body of guidance. Despite the Government’s prioritisation of simplification as a primary goal of legislative reform, the extent to which procurement can be significantly deregulated is unclear, as a result both of international commitments and, more importantly, the need to create a legislative framework fit for purpose that does not overwhelm the public sector in its complexity.
There is an opportunity for the Procurement Bill to make some progress on the modernisation and digitalisation of procurement systems, which has been slow in the UK despite it being a shared strategic goal with the EU. It is likely that the new rules will bring a clearer focus on open procurement data, which could enable a change of approach to the practice and management of procurement and offer some benefits from a red tape perspective. However, the green paper was criticised, among other things, for a lack of ambition in the automation of public procurement, so the extent to which tech will be a pillar of procurement ‘transformation’ in the UK remains unclear.
Overall, not much has changed and, rhetoric apart, there is limited scope for further change.
Both the UK and Australia are members of the World Trade Organisation Government Procurement Agreement (GPA). The GPA is a multilateral agreement and its members generally make commitments applicable to all other members, but the GPA’s operation is also largely bilateral in the sense that countries can tailor their coverage schedules to include specific rules or derogations of commitments vis-a-vis specific GPA members (either on the basis of expected reciprocity, or otherwise).
Given this possibility of differentiated bilateral treatment within the multilateral framework of the GPA, it could seem surprising that the recent bilateral UK-Australia Free Trade Agreement (UK-AUS FTA) includes a chapter on public procurement (chapter 16). However, this approach to the inclusion of procurement chapters that go beyond existing GPA commitments (GPA+) in bilateral FTAs rather than through the GPA is not new. Australia has long engaged with this approach [see eg D Collins, ‘Government Procurement with Strings Attached: The Uneven Control of Offsets by the World Trade Organization and Regional Trade Agreements’ (2018) 8(2) Asian Journal of International Law 301–321]. As has the UK, in a manner that carries on from the EU’s approach that bound the UK until it gained independent GPA membership on 1 January 2021 [see eg M Garcia, ‘Procurement Liberalization Diffusion in EU Agreements: Signalling Stewardship?’ (2014) 48(3) Journal of World Trade 481-500].
There are two primary approaches to the creation of bilateral GPA+ procurement regimes in FTAs. One is to simply incorporate the GPA and the relevant schedules of coverage into the bilateral FTA by reference, and then add whichever ‘plus’ elements are agreed in specific FTA provisions and/or expanded schedules of coverage. This is the approach followed in the EU-UK Trade and Cooperation Agreement (EU-UK TCA), which Art 277 incorporates certain provisions of the GPA and covered procurement, and Arts 278-286 establish additional rules for covered procurement—with additional requirements for not covered procurement also contained in the TCA (Art 287-288), as well as a specific set of rules on modification of coverage, dispute resolution and cooperation (Arts 289-294).
The alternative approach is to replicate the text of the GPA itself in the bilateral FTA and to include additional commitments either as part of those provisions (eg by reducing optionality and making specific requirements mandatory), or by adding additional provisions, as well as including expanded schedules of coverage. This is for example the approach followed in the EU-Singapore FTA (Chapter 9), or the EU-Canada FTA (CETA, Chapter 19). And this is also the approach followed by the UK-AUS FTA, which includes a significant number of variations on the GPA text worth assessing (below).
From a legal interpretation perspective, the first approach (incorporation by reference) is likely to minimise risks of inconsistency between the GPA and the FTA because, unless the additional obligations overlap (and contradict) the basic obligations in the GPA, it is more likely that the FTA really only deals with the ‘plus’ agreed between its parties. In contrast, the second approach (replication) creates significant scope for legal uncertainty where the text of the GPA is altered in the process of its inclusion into the FTA, as it will not always be clear whether the parties sought to deviate from GPA obligations and, in my view, establishing the purpose of a specific deviation is more difficult to do in the context of a provision that is mostly like the GPA’s, rather than in a self-standing provision.
Either way, under both approaches, where the bilateral FTA deviates from the GPA in a way that is not clearly adding obligations or expanding scope of coverage, but rather varying or reducing the parties’ obligations towards each other, the extent to which the inclusion of an incompatible clause in the FTA will generate a change in the legal position of the parties under the GPA or more generally is unclear as, more importantly, is unclear whether it will generate a practical effect.
This can be a rather tricky issue of treaty interpretation governed by the 1969 Vienna Convention on the Law of the Treaties (Art 30), on which I will have to defer to specialists. However, from a practical perspective, it seems to me that the GPA+ approach is incapable of generating practical effects concerning a reduction or variation of the requirements applicable to the tendering of public contracts where the specific procurement is subject to dual coverage. Given that GPA+ extensions of coverage are usually only incremental above the general coverage included in the GPA schedules for each of the parties, most of the procurement opportunities covered by the FTA will be subject to such dual regulation.
Imagine a bilateral FTA that excludes a specific obligation (eg concerning the need to mention in the notice of intended procurement that the procurement is covered by the FTA) while that obligation is, however, included in the GPA. If a procurement is covered both by the GPA and the FTA, the procuring Member State will have to comply with the most demanding legal regime between the GPA and the FTA (at least vis-a-vis the other GPA members; in the example, it will have to indicate that the procurement is covered by the GPA) and, in that scenario, the practical effects of the deviation in the FTA from the GPA regulatory benchmark will be nullified (eg because it will be possible for tenderers from the FTA jurisdiction to identify the opportunity as also open to them).
While there can be some marginal circumstances in which there can be a practical effect (eg reducing or excluding access to remedies vis-a-vis tenderers from the FTA jurisdiction), those are unlikely to go unchallenged (eg on the basis that more unfavourable treatment under the bilateral FTA is incompatible with the GPA commitments, subject to issue of treaty interpretation, as above).
All in all, it seems difficult to understand why countries would want to vary or reduce their obligations under the GPA in bilateral FTAs—given that, at the end of the day, those are regulatory constraints they had accepted in the context of the GPA that bound them (also bilaterally) prior to entering into the FTA. It could be that reduced procedural or substantive guarantees are a trade-off they are willing to make in exchange for increased economic coverage of their bilateral procurement trade. But this seems to unnecessarily overcomplicate the legal environment, potentially with unpredictable consequences. However, this is clearly the approach followed in the procurement chapter of the UK-AUS FTA, which is worth looking at closely. Some of the analysis of the UK-AUS FTA will be applicable to other GPA+ FTAs, to the extent that they include the same, or similar deviations from the GPA.
The procurement chapter of the UK-AUS FTA includes relevant deviations from the GPA (a full list is available below, Appendix). Some of these variations raise interpretive and practical issues, such as the effect of a change in the national treatment clause (arguably the pillar of the GPA regime), or a change in the wording of the main clause on remedies (another of the crucial provisions in the GPA). I will now address these two issues in detail, as they seem to me to be indicative of a GPA- rather than a GPA+ approach in the UK-AUS FTA—and thus liable to the sort of complication laid out above.
The GPA imposes national treatment and non-discrimination obligations as the foundation of its regulatory architecture. The GPA national treatment clause reads ‘With respect to any measure regarding covered procurement, each Party, including its procuring entities, shall accord immediately and unconditionally to the goods and services of any other Party and to the suppliers of any other Party offering the goods or services of any Party, treatment no less favourable than the treatment the Party, including its procuring entities, accords to: a) domestic goods, services and suppliers; and b) goods, services and suppliers of any other Party’ (Art IV(1) emphasis added). This creates a two-tier requirement of ‘most favoured treatment’, both between the goods, services and suppliers of two given GPA members (procuring and supplying) and across the goods, services and suppliers of all GPA parties other than the procuring party.
The underlined clause leaves the possibility open for differential treatment of suppliers of a GPA party offering goods or services of a non-GPA party. This is in line with the GPA non-discrimination clause, which reads: ‘With respect to any measure regarding covered procurement, a Party, including its procuring entities, shall not: a) treat a locally established supplier less favourably than another locally established supplier on the basis of the degree of foreign affiliation or ownership; or b) discriminate against a locally established supplier on the basis that the goods or services offered by that supplier for a particular procurement are goods or services of any other Party’ (Art IV(2) emphasis added). Again, the possibility is open for differential treatment of suppliers of a GPA party offering goods or services of a non-GPA party—on the implicit assumption that domestic suppliers offering goods or services of a non-GPA party are subjected to the same differential treatment.
The UK-AUS FTA replicates these two clauses in Art 16.4(1) and (2). However, Art 16.4(1) simply states that ‘With respect to any measure regarding covered procurement, each Party, including its procuring entities, shall accord immediately and unconditionally to the goods and services of the other Party and to the suppliers of the other Party, treatment no less favourable …’. Similarly, Art 16.4(2) establishes that ‘With respect to any measure regarding covered procurement, neither Party, including its procuring entities, shall: … (b) discriminate against a locally established supplier on the basis that the good or service offered by that supplier for a particular procurement is a good or service of the other Party.’
The deviation in the UK-AUS FTA from the GPA clause can raise interpretive issues concerning the possibility of differential treatment of UK or AUS suppliers offering the goods or services of a third party, which can lead to two views. One view, based on a literal interpretation of the clause, is that suppliers of either of the parties are protected under the national treatment regime, even if they offer goods or services from third parties (unless domestic suppliers offering goods or services from third parties are also subjected to specific differential treatment—eg exclusion). The other view, based on a functional/systematic interpretation that took account of the fact that Art 16.4(2)(b) only refers to locally established suppliers offering goods or services of the other party, would be that it is implicit in Art 16.4(1) that suppliers are only protected as long as they offer goods or services of one of the parties (ie UK or AUS goods or services).
The interpretation is not limited to the FTA itself, but needs to take into account the interplay with the GPA, given that the UK and AUS are bound by it in relation to the other GPA parties. In that regard, if a procurement is dually covered by the FTA and the GPA, the second interpretation in my view just does not hold water because eg a UK tenderer for an AUS contract covered by both the FTA and the GPA offering the goods of another GPA member (eg the EU) would necessarily be protected by the GPA national treatment clause in order for the EU goods not to be ultimately discriminated against in breach of the AUS-EU obligations under the GPA. And a similar effect would result from the triangular interaction between the UK-AUS FTA and other FTAs binding either of the parties.
If this is correct, it also seems difficult to argue that the interpretation of Art 16.4(1) in the FTA varies, depending on whether the third country goods or services for the purposes of the FTA being offered by a UK or AUS supplier, are (or not) also third country goods for the purposes of the GPA and/or other applicable FTAs. It should also be stressed that (pragmatically) not all third countries will be seen as deserving the same treatment (eg exclusion), so that there can be undesirable implications in eg applying differential treatment to both domestic and foreign (UK and AUS) suppliers offering third country goods or services, where the origin of those services is not the same.
Therefore, it would have been much preferable to include a specific clause in Art 16.4(1) establishing that national treatment needs to be granted to suppliers of either party offering goods or services covered by this or any other international agreements requiring equal treatment of goods or services of a specific origin — or something to that effect. An alternative would have been to change the drafting and adopt a broader clause, eg based on Art 25 of Directive 2014/24/EU [for analysis, see A La Chimia, ‘Art 25’ in R Caranta and A Sanchez-Graells, European Public Procurement. Commentary on Directive 2014/24/EU (Edward Elgar, 2021) 274-286].
Overall, this will primarily be relevant in procurement covered by the UK-AUS FTA and not the GPA (either because of differential value thresholds, or differences in scope of coverage: notably, in the concessions sector). But some of these contracts can have very high values. Against that background, it seems that the uncertainty on the proper meaning of the (reduced) national treatment clause in the FTA generates an unnecessary complication.
The GPA develops a rather robust set of requirements for the design of domestic review procedures (Art XVIII GPA). The UK-AUS FTA deviates from the GPA benchmark in two important aspects.
First, the FTA limits the right to be heard in the context of a procurement challenge. While the GPA states that ‘the participants to the proceedings … shall have the right to be heard prior to a decision of the review body being made on the challenge’ (Art XVIII(6)(b)), the FTA provides instead that ‘a supplier that initiates a complaint shall be provided an opportunity to reply to the procuring entity’s response before the review authority takes a decision on the complaint’ (Art 16.19(6)(b)). Although the relevance of these differences in wording will depend on how the review bodies and courts interpret them, there seem to be two clear intended changes:
First, a reduction of the potential scope of beneficiaries of the right to be heard, which is constrained to the supplier that initiates a complaint. Whether other ‘challengers’ are allowed in a procurement review procedures will depend on the rules on active standing, but this is clearly more prescriptive than the broader term ‘participants’ used by the GPA. It is also interesting to note that the FTA uses the term ‘participants’ in the rest of Art 16.19(6), eg concerning the right to be represented and accompanied (c), or the right to access to all proceedings (d), or the right to request that the proceedings take place in public and that witnesses may be presented (e).
Second, there is a parallel reduction of the extent of the right to be heard, which is limited to replying to the procurement entity’s response to the initial complaint. The practical implications of these changes are difficult to understand in abstract terms—although they do seem to put significant pressure on the comprehensiveness of the initial complaint and perhaps seek to bar the addition of further grounds for challenge as discovery takes place—but there must be some reason behind this (eg seeking to reduce the cost of defending procurement challenges, perhaps especially in UK Courts?).
In a similarly restrictive fashion, the FTA also includes changes in the regulation of remedies. There are two issues.
The first one is an omission of the possibility to obtain a suspension of proceedings as an interim measure. While the GPA clearly indicates that the obligation to provide for rapid interim measures includes the possibility that ‘Such interim measures may result in suspension of the procurement process’ (Art XVIII(7)(a) GPA), the FTA omits that explicit reference (Art 16.19(7)(a) FTA). In general, the FTA would to me seem insufficient to exclude suspension as a potential interim measure if it is generally available under the applicable procedural rules, but this should perhaps be analysed with the second change in the regulation of remedies.
The second change is a relocation of the public interest clause allowing for the overriding adverse consequences of a procurement challenge to be taken into account, so that it not only applies to the possibility of seeking interim relief, but also to corrective action. In the GPA, the obligation to provide for rapid interim measures is caveated as follows: ‘The procedures may provide that overriding adverse consequences for the interests concerned, including the public interest, may be taken into account when deciding whether such measures should be applied. Just cause for not acting shall be provided in writing’ (Art XVIII(7)(a) GPA). This clearly is meant to allow a review body not to adopt interim measures, but without prejudice of an eventual decision on corrective action or financial compensation, which are separately regulated (Art XVIII(7)(b) GPA).
Conversely, in the FTA, the public interest clause is placed at the end of the relevant provision (Art 16.19(7)) and covers both the obligation to adopt or maintain procedures that provide for (a) prompt interim measures to preserve the supplier's opportunity to participate in the procurement; and (b) corrective action that may include compensation. This can hardly be seen as a clerical error, but the likely intended effect of excluding financial compensation on grounds of an overriding public interest is, in my view, unlikely to be upheld in case of challenge, especially bearing in mind that the FTA has already significantly limited the scope for financial compensation in establishing that ‘If the review authority has determined that there has been a breach or a failure [of the claimant’s rights under the FTA or the domestic rules implementing it] a Party may limit compensation for the loss or damages suffered to either the costs reasonably incurred in the preparation of the tender or in bringing the complaint, or both’ (Art 16.19(5)).
The possibility to completely exclude financial compensation for breach of the FTA obligations would render the system toothless. Moreover, this is clearly a deviation that would be disputed in terms of legal interpretation (eg in relation to dual coverage procurements under the GPA and the FTA). Once again, it seems that the uncertainty on the proper meaning of the watered down procedural guarantees and access to remedies in the FTA generate an unnecessary complication.
A final issue worth considering is the technical complexity (and tediousness) of identifying the economic coverage gains expected of a GPA+ procurement chapter in an FTA. While this is probably abundantly clear to negotiating teams, it is quite difficult to assess on the basis of the written agreement, even carefully combing through the schedules of coverage of the GPA and the FTA. In that regard, it would be helpful if those assessments were published, or for the relevant publications to include more detail.
The Impact Assessment of the UK-AUS FTA published by the Department for International Trade (DIT) solely contains a brief paragraph (and a complicated footnote) to support rather large headline claims:
‘Australia has offered the UK more legally guaranteed procurement market access than it has offered in any other FTA, amounting to approximately £10 billion of new legally guaranteed market access for UK businesses per year.[34] In return, the UK has offered to build on the legally guaranteed market access offered to Australia in the GPA by offering additional sub-central entities and coverage of additional services’ (Impact assessment, at 21).
[34] This estimate has been derived using a combination of publicly available contract award notices (AusTender, 2018-2019). Where data is missing or unavailable, individual expenditure reports for relevant entities have been sourced. Certain assumptions have then been applied using published OECD statistics (OECD Government at a Glance, 2019). Australia provided estimates for the value of their services offer. Detailed UNSPSC-CPC matching was undertaken, with the help of Australia, to determine which exact services would come into scope of their offer. This estimate was then verifed by DIT analysts.
As things stand, the only other way of getting a sense of how much more procurement volume is susceptible of trade liberalisation and in which sectors is by looking into the documents published to ‘sell’ the conclusion of the FTA. In the specific case of the UK-AUS FTA, this other DIT document on ‘UK-Australia Free Trade Agreement: Benefits for the UK’ is illustrative. However, there are a couple of points to note about the way the ‘trade gains’ are presented.
One point is that these documents would be more useful (and credible) if they made it very clear that most of the additional opening in procurement is either reciprocal (in strict terms) or based on mutual concessions. For the agreement to be balanced, both parties need to see a similar volume of benefits and, while it is possible to compensate for net gains in one chapter (eg procurement) against another (eg financial or digital services), it would seem odd if one of the parties was clearly massively better off than the other in any given chapter, or at least in the procurement chapter, given that FTA concessions build on already existing GPA concessions and a very unbalanced FTA chapter on procurement could put pressure on the relevant party to review its GPA schedules more generally).
This is important eg in the context of the inclusion of public works concession contracts under the UK-AUS FTA because the DIT document makes significant emphasis on the opportunities for UK companies to bid for opportunities in Australia, especially in the rail sector, but this perhaps is slightly dampened by the fact that this opening up is reciprocal, as well as by the fact that some of the largest operators of rail franchises in the UK already are not ‘British’ (see eg here), which raises some questions on the extent to which there are direct advantages to UK companies commensurate to the economic claims in the impact assessment or the more accessible document on benefits for the UK.
The other point is that these documents need to be precise as to the incremental opening of procurement specifically brought by the FTA. In the second DIT document, there is eg a rather broad claim that 'UK companies will have a legally guaranteed right to bid for all contracts for financial and business services procured by Australian government bodies covered by this deal. For example, UK businesses will now have a right to bid for financial and business service contracts procured by the Australian Financial Security Authority and other federal and state-level finance departments. This will help UK businesses compete on an equal footing with Australian companies’ (emphasis added).
This is, well ... at least imprecise. The Australian Financial Security Authority (AFSA) is already covered in the GPA (AUS Annex 3), so its procurement of services is already covered (AUS Annex 5, and thanks to reciprocity of coverage of financial and related services in the UK's own Annex 5), as long as the value threshold of SDR 400,000 is crossed. What the UK-AUS FTA does is changing AFSA's classification as a Section A entity (equivalent to AUS Annex 1 in the GPA) and this reduces the value threshold for services to SDR 130,000. So, while there is clearly an incremental change, it is also clear that UK businesses already had a right to bid for AFSA contracts for financial services (just not the right to bid for those between SDR 400k and 130k). In my view, avoiding potentially misleading simplifications of the complex and incremental ways in which a GPA+ FTA extends procurement liberalisation would be desirable.
Until now, I had never really looked in detail at GPA+ procurement chapters in FTAs, but it does seem like there is plenty to reflect upon and perhaps even a research project hidden somewhere. If anyone has any useful suggestions, or if anyone can point me to existing research on this topic that I may have overlooked, I would be most grateful: a.sanchez-graells@bristol.ac.uk.
Comparing the text of the procurement chapter in the UK-AUS FTA with the GPA, I have identified the differences below (I may have overlooked some, but hopefully not):
Art 16.1 Definitions - two seemingly technical differences:
it includes a definition of ‘build-operate-transfer contract’ / ‘public works concession contract’ to reflect the expanded coverage (below, 16.2).
it also includes a modification in the definition of ‘technical specifications’ as applicable to ‘services’, which adds ‘applicable administrative provisions’ as part of the definition.
Art 16.2 Scope
Scope of application reflects an extension of scope (GPA+), including:
there is no exclusion of procurement ‘with a view to commercial sale or resale, or for use in the production or supply of goods or services for commercial sale or resale’ (cfr Art II(2)(a)(ii) GPA).
coverage is extended to include procurement by means of ‘build-operate-transfer contracts and public works concessions contracts’, which brings concessions (especially in transport) under the scope of the FTA.
Given the bilateral nature of the FTA, the Schedules are required to regulate issues included in the core text of the GPA (a threshold adjustment formula and information on the procurement system).
Excludes the rule on delegated procurement in Art II(5) GPA.
A new section on Compliance includes:
a general ‘good faith’ obligation (16.2(5))
a varied non-circumvention clause (16.2(6)) that excludes the intentional element of the GPA equivalent (Art II(6)(a))
a clause explicitly allowing both parties and their contracting authorities to develop ‘developing new procurement policies, procedures or contractual means, provided that they are not inconsistent with this Chapter’ (16.2(7)) — which I read as an (unnecessary) hint to the ongoing process of reform of the UK’s procurement rulebook following the Transforming Public Procurement green paper consultation.
The section on Valuation includes
a specific addition in the rules on the calculation of contract value to capture any ‘other revenue stream that may be provided for under the contract’, which will be particularly relevant for concessions;
a looser regulation of the rule on recurring contracts than in the GPA (cfr Art II(7)); and
a streamlined and seemingly stricter approach to the coverage of contracts with unknown total value (cfr Art II(8) GPA), which will also be particularly relevant for concessions.
Art 16.3 General exceptions
does not include the defence exception in Art III(1) GPA.
creates a new clarification seemingly tailored to the climate crisis, whereby it is stressed that the possibility of adopting or maintaining measures ‘necessary to protect human, animal or plant life or health’ ‘includes environmental measures’.
Art 16.4 General principles
In regulating the general principle of National Treatment and Non-Discrimination, the FTA introduces two variations on the GPA:
the wording of the national treatment requirement excludes an important element of the GPA’s clause concerning ‘suppliers of any other Party offering the goods or services of any Party’ (Art IV(1) emphasis added). See analysis above.
there is a specific clause clarifying that ‘All orders under contracts awarded for covered procurement shall be subject’ to the national treatment and non-discrimination obligations (Art 16.4(3)), which will be particularly relevant in the context of framework agreements and similar procurement vehicles.
The FTA makes the Use of Electronic Means mandatory beyond GPA requirements.
The FTA also seems to strengthen the prohibition of Offsets by stressing that they cannot take place ‘at any stage of a procurement’ (Art 16.4(8)). However, given eg the general notes of the Australian schedule (Section G 1(c) and 1(d)), the practical effectiveness of this remains to be seen.
Art 16.6 Notices
The FTA imposes the Electronic Publication of Notices, also at sub-central level (Art 16.6(1)).
There are some changes concerning the content of the Notice of Intended Procurement:
there is no reference to the ‘cost and terms of payment, if any’ related to access to procurement documents, which could suggest that charges are forbidden;
there is no reference to an obligation to include ‘a description of any options’ (which would seem like an unwanted omission);
there is no obligation to include ‘an indication that the procurement is covered by this Agreement’ (but see above re interplay with that requirement in Art VII(2)(l) GPA);
there are no references to the publication of summary notices - which are a language-based specific requirement of the GPA that is probably irrelevant in the context of an FTA between two English-speaking countries;
there is no option for the use of a Notice of Planned Procurement as a Notice of Intended Procurement for sub-central and other procuring entities ex Art VII(5) GPA.
Art 16.7 Conditions for participation
Art 16.7(2)(a) extends the prohibition on requirements for local experience, forbidding not only requirements that ‘the supplier has previously been awarded one or more contracts by a procuring entity of a Party’ (as in the GPA), but also requirements that ‘the supplier has prior work experience in the territory of that Party’.
Art 16.8 Qualification of suppliers
There are some precisions concerning Registration Systems and Qualification Procedures, including:
an explicit (if unnecessary?) prohibition on using registration systems or qualification procedures to delay or bar consideration of specific suppliers (Art 16.8(3)(b) FTA, cfr Art IX(3) GPA);
a new set of rules concerning supplier registration systems (Art 16.8(4));
mandatory electronic publication of multi-use lists requiring continuous availability (which makes part of GPA requirements for paper-based or time-limited lists redundant; cfr Art IX(8) and (9));
suppression of the requirement for notices of multi-use lists to include ‘an indication that the list may be used for procurement covered by this Agreement’ (cfr Art IX(8)(e); see also above Art 16.6).
There are some implicit changes regarding Information on Procuring Entity Decisions indicating the possibility to delegate the management of procurement procedures (see Art 16.8(14) and (15), referring to ‘a procuring entity or other entity of a Party’).
Art 16.9 Technical Specifications and Tender Documentation
There is a clause that goes beyond the text of the GPA on Technical Specifications, for data governance concerning ‘sensitive government information’ (Art 16.9(7), which can in part mitigate for the omission of the exception in Art III(1) GPA, as above Art 16.3 FTA);
There are some differences on Tender Documentation requirements:
small technical change concerning the description of the conditions for participation (Art 16.9(8)(b));
omission of the possibility of running procurements where price is the sole award criterion (Art 16.9(8)(c), although this is foreseen in Art 16.14(5)(b), so it looks like an unwanted omission).
There is a new clause on Preliminary Market Research and Engagement (Art 16.9(13).
Article 16.10 Time-Periods
The requirement for time periods and any extensions thereof to apply equally to all interested or participating suppliers is relocated (see Art 16.10(7) cfr Art XI(1) in fine GPA).
Given the obligation to publish notices of intended procurement by electronic means (Art 16.4(4)(a) and 16.6(1)), the possibility to shorten time periods for the submission of tenders on that basis makes little sense (Art 16.10(5)(a)), other than as a hangover rule meant to maintain alignment with the GPA (Art XI(5)(a)).
Art 16.12 Limited Tendering
The FTA modifies the grounds allowing for limited tendering to acquire ‘a prototype or a first good or service that is developed at its request’ (Art XIII(1)(f) GPA) to cover ‘a prototype or a first good or service that is intended for limited trial or that is developed at its request’ (Art 16.12(1)(e) emphasis added), with the remit of such limited trial remaining undefined. The same provision adds clarification that subsequent procurement of such goods or services are fully covered.
16.15 Transparency of Procurement Information
The FTA makes the Publication of Award Information mandatorily electronic (Art 16.15(2)).
The FTA omits the GPA rules on the Collection and Reporting of Statistics (Art XVI(4) and (5) GPA).
Article 16.17 Environmental, Social and Labour Considerations - entirely new.
Article 16.18 Ensuring Integrity in the Procurement Process - entirely new.
Article 16.19 Domestic Review Procedures
The FTA reorders part of the content of Art XVIII GPA, and introduces two relevant changes (analysed above):
limitation of the right to be heard: instead of following the GPA clause stating that ‘the participants to the proceedings … shall have the right to be heard prior to a decision of the review body being made on the challenge’ (Art XVIII(6)(b)), the FTA provides instead that ‘a supplier that initiates a complaint shall be provided an opportunity to reply to the procuring entity’s response before the review authority takes a decision on the complaint’ (Art 16.19(6)(b)); and
change in the regulation of remedies, including: (1) an omission of the possibility to obtain a suspension of proceedings as an interim measure (Art 16.19(7)(a) FTA cfr Art XVIII(7)(a) GPA); and (2) a relocation of the public interest clause allowing for the overriding adverse consequences of a procurement challenge to be taken into account, so that it not only applies to the possibility of seeking interim relief, but also to corrective action (Art 16.19(7) cfr Art XVIII(7)(a) GPA).
Article 16.20 Modifications and Rectifications to Annex - introduces changes to reflect bilateral nature of FTA.
Article 16.21 Facilitation of Participation by SMEs - entirely new (although practical effect may be doubtful, given that SME preferences are allowed).
Article 16.22 Cooperation - entirely new. interestingly, it includes cooperation on ‘exchanging government procurement statistics and data’ despite the suppression of the requirements concerning collection and reporting of statistics as per the GPA (Art XVI(4) and (5), above).
