Continuing with our procurement tennis on the Commission's October 2017 procurement package, it is now turn for Pedro and me to concentrate on the Communication "Making Public Procurement work in and for Europe" COM(2017) 572 final, which is the main pillar of a renewed policy push that has a strong emphasis on the interaction between procurement and investment in the single market.
In this Communication, the Commission outlines 6 strategic priorities for public procurement policy in areas "where clear and concrete action can transform public procurement into a powerful instrument in each Member State’s economic policy toolbox, leading to substantial benefits in procurement outcomes". These include: (i) Ensuring wider uptake of strategic public procurement; (ii) Professionalising public buyers; (iii) Improving access to procurement markets; (iv) Increasing transparency, integrity and better data; (v) Boosting the digital transformation of procurement; and (vi) Cooperating to procure together.
In this post, I offer some critical comments on the 6 strategic priorities (three of which I consider highly questionable, and three which require further thought), as well as some overall considerations in the way the Commission seems to have started to shift away from its role of Guardian of the Treaties, and to morph into something else as it "commits to firmly support a change of the public procurement culture in Member States".
General comments
Overall, the Communication has undertones that bring it closer to an industrial policy for the single market, including the promotion of 'sustainability-orientated' secondary policies, than to a strategy to improve procurement as a working tool for the public sector. Indeed, procurement is presented as "a fundamental element of the investment ecosystem" because "a substantial part of public investment in our economy is spent through public procurement, representing 14 % of the EU GDP", which is language clearly linked to the instrumental use of procurement. And, to say it all, the Communication formulates that "sustainable industrial investment policy" through weird choices of words that echo the slogans of populist movements on both sides of the Atlantic--which may not send the right messages to trade partners monitoring issues such as the initiative on third country access to EU procurement markets. Therefore, it will probably not be surprising to read that I am not convinced that this is the best possible steer for public procurement policy in the EU context--much along the lines I already sketched here and here.
It will probably not be surprising either that the scant empirical evidence underlying the formulation of this policies is once again a source of criticism of the Commission's efforts. In the Communication (section 2), the Commission lists a series of examples of what it considers "encouraging steps ... to radically reform procurement practices or structures". Amongst them, the Commission resorts once more to the HAPPI Project, which it presents as having enabled"innovative solutions for healthy aging [to] have been procured jointly by contracting authorities in several Member States". However, the reality of things is that this project is far from a success story due to the extremely low take-up of the technologies procured and the limited use of the framework agreements put in place (as evidenced by reports financed by the Commission itself; see here). The Commission also presents as a success story the fact that "Slovakia has put in place a contract register that gives public access to all contracts concluded by the public authorities in the country, thus improving transparency and allowing for public scrutiny", without acknowledging that transparency in procurement remains a significant challenge and that the Commission's own initiative to promote the creation of such registries triggers some concerns (see here, here and here, as well as this paper by K-M Halonen). On the whole, the formulation of a policy priorities such as those contained in the October 2017 Communication should be supported by detailed empirical evidence and careful impact assessments. Their absence creates some questions as to the actual justification for the policies, which is regrettable.
It is also regrettable that, much as in the creation of the Internal Market Scoreboard (see here), the Commission continues to adopt random thresholds to assess the desirable intensity of specific procurement policies. For instance, the Commission indicates that there is significant scope for more strategic procurement because "55% of procurement procedures still use the lowest price as the only award criterion ... Yet, most economically advantageous tenders on the basis of a cost effectiveness approach which may include social, environmental, innovative, accessibility or other qualitative criteria are still underused". This conflates two or possibly three issues. Firstly, what is the threshold at which the use of price only would stop indicating unexploited opportunities for 'smart(er) procurement'? 10%? 20%? 30%? Why not 55%? Second, it is possible, in particular for standard products including eg environmental or accessibility requirements to be tendered on the basis of price only where sufficiently detailed technical specifications can be drafted. Thus, a simple analysis of the award criterion only tells part of the story concerning the intensity of the use of 'smart procurement' techniques. Third, the use of best price-quality ratios (BPQR, see Art 67(2) Dir 2014/24/EU) can hide or mask less than transparent procurement practices, so there is a clear (and unacknowledged) trade-off between non-price-only procurement and the integrity of the procurement procedure, as well as the costs of its administration.
In the same fashion, the Communication also indicates that "Contracting authorities are rarely buying together, as only 11 % of procedures are carried out by cooperative procurement", and that "[a]lthough not all types of purchases are suitable for aggregation, overall low aggregation rates suggest lost opportunities". Using a percentage threshold to assess whether centralised and collaborative procurement is sufficiently developed is equally unsettling, particularly because there is no good reason to consider that any given volume of procurement should be centralised. Moreover, given that the Commission has set at 10% the value of the indicator on 'cooperative procurement' for the purposes of the Internal Market Scorecard (see indicator [4]), it seems obvious that the Commission itself has no clue whether 10% of collaborative procurement suffices or not. Thus, setting policy priorities on the basis of unjustified % thresholds continues to be a dangerous path to follow.
I will not spend much time on the other fluff that surrounds the policy recommendations in the Communication. Suffice it to say that I am not convinced that "public procurement matters more than ever" (arguably, it has always mattered and will continue to matter for as long as the public sector engages with markets in the context of the development of its public interest activities, even if some of the notable challenges on the table are addressed in the future), or that the expression "a broad partnership for common success" has any relevant meaning. I would rather have the Commission avoid this type of language in communications aimed at formulating policies in relatively technical areas of EU economic law or, in the Commission's words, in a document aimed at promoting the "smart application of the new rules in practice", but that does not seem to be the thrust of the times--so let's move on and concentrate on the policy priorities.
(i) Ensuring wider uptake of strategic public procurement
The Commission takes the view that "[s]trategic public procurement should play a bigger role for central and local governments to respond to societal, environmental and economic objectives, such as the circular economy". Thus, it wants to promote the mainstreaming of "innovative, green, and social criteria, a more extensive use of pre-market consultation or qualitative assessments (MEAT) as well as procurement of innovative solutions at the pre-commercial stage". It acknowledges that this may not be feasible in all countries, where "there are still shortcomings in the proper functioning of the public procurement system", but it assumes that this not only a feasible, but also a desirable policy development elsewhere.
In my view, there are two main issues with the assumption that strategic procurement should play a bigger role. The first one is that while some aspects of 'smart procurement' are compatible with the internal market (eg green or innovative procurement), others are structurally disaligned with internal market rules (most notably, the use of labour and social requirements, which are almost impossible to separate from their protectionist effects). Thus, talking about 'strategic' or 'smart' procurement as a solid reality is problematic. The second issue is that the inclusion of green, innovation (and social) considerations is bound to increase the cost of procurement--which is a major concern in economies still recovering from austerity periods--and will also reduce the possibilities for SME access to procurement, in particular if the public sector moves significantly away from market standards in a push for the strategic use of procurement as a market-making or making-shaping tool. All of these issues should create concern, and are in part in contradiction with other goals of the Communication (in particular, with the issue of SME access, see below iii), so a more nuanced approach may be necessary.
In addition, there is no consideration of the limits that need to be placed on strategic procurement from the perspective of public accountability (is it really in the public interest for every buyer to have its own secondary policy agenda?) and from the perspective of preventing distortions of competition created by the public buyer. Presenting strategic procurement as the 'must adopt' strategy without stressing the need for robust checks and balances even in countries with no perceived shortcomings in the functioning of their public procurement system presents a rather distorted view.
(ii) Professionalising public buyers
This is an issue developed in much more detail in the flaking initiative on professionalisation presented by the Commission on 3 October 2017, and which Pedro and I already discussed (here and here).
(iii) Improving access to procurement markets
Surprisingly, this is one of the most disappointing aspects of the October 2017 Communication. The Commission indicates that improving access to procurement is mainly geared "to increase the SME share of public procurement in line with their overall weight in the economy", in particular "in view of promoting more cross-border procurement". However, the only specific actions mentioned by the Commission concern (i) the Remedies Directive (and, specifically, its criticisable decision not to review it, see here and here), (ii) the initiative on third country access to EU procurement markets (see here), and (iii) a sectorial initiative to increase SME participation in defence and security contracts. This is puzzling.
While those initiatives can have some effect on increasing SME access to procurement markets, they are unlikely to facilitate a step change. Much more is needed in terms of guidance and best practice on facilitating SME access to procurement domestically and in an EU cross-border context (which the Commission should undertake), and there are obvious limitations derived from the cost of having the administrative (and language!) capacity needed to export. In that regard, the proposals in the Communication do not even brush the surface of what could be done at EU-level--starting with practical guidelines on how to maximise the advantages derived from the fact that, in the Commission's own terms, "[t]he 2014 directives include measures that should facilitate the access of companies including SMEs to public procurement, also cross-border". It would certainly be helpful for the Commission to flesh that view out in more detail.
(iv) Increasing transparency, integrity and better data
Broadly, the Commission stresses four different initiatives in this area: (1) a boost of data collection / big data, (2) a potential initiative on whistleblowing, (3) an initiative to produce tools addressing bid rigging and raising awareness to minimise the risks of collusive behaviours on procurement markets, and (4) guidelines on the application of the new EU procurement directives on exclusion grounds on collusion.
I think that initiatives 1, 3 and 4 should be welcome. I am particularly interested in the Commission's pledge to take "actions to improve the market knowledge of contracting authorities, support to contracting authorities careful planning and design of procurement processes and better cooperation and exchange of information between public procurement and competition authorities". However, in this area, it will be interesting to see the extent to which the Commission builds upon existing efforts (such as the OECD's recommendation and guidelines on bid rigging, or the draft Danish guidelines on the application of Art 101 TFEU in procurement settings, see here) and the extent to which it carries out meaningful consultations.
I am less convinced about initiative 2 on whistleblowing, as I am not sure why this would be necessary in contexts where public procurement is regularly subjected to judicial and administrative review. I do not grasp who would be in need for protection and for what purpose. In that regard, the Commission's statement that it "is currently assessing the need, legal feasibility and scope for horizontal or further sectorial action at EU level for strengthening the protection of whistleblowers" is way too cryptic.
(v) Boosting the digital transformation of procurement
This is another area where the Commission could have been clearer on what it is trying to achieve, and where its thoughts are scattered throughout the Communication. While the aim of harnessing the opportunities that "[n]ew digital technologies offer ... to streamline and simplify the procurement process through the roll-out of electronic public procurement", as well as the ambition for "the whole public procurement process [to undergo] digital transformation", are welcome--it is not clear to me where the e-procurement / digitalisation of procurement boundary lies. I am also not sure whether the Commission has already given up on the possibility of making efforts to ensure that the deadline for full roll-out of e-procurement takes place within the deadline of October 2018 (which will no doubt be missed by a majority of Member States), and whether a focus on digitalisation is an attempt to create a smoke curtain to cover the simple fact that e-procurement will soon be around 15 years late.
I am personally interested in exploring the regulatory challenges that digitalisation and automation can require and facilitate, but reading this part of the Communication left me with the impression that the Commission will work on a piecemeal fashion, rather than trying to come up with a more ambitious plan (to pilot) fully digital procurement. In my view, this is an area where the Commission could be more ambitious, and where it could explore wacky and disruptive initiatives, such as an ideas competition. Any takers?
(vi) Cooperating to procure together
Finally, the Communication also puts significant emphasis on pushing for more collaborative and centralised procurement. However, the Commission simply assumes that "[j]oint cross-border procurement, where contracting authorities from different countries jointly organise their procurement procedures, is greatly facilitated by the new EU rules". However, this overlooks the simple fact that there is a great deal of legal uncertainty surrounding articles 37 to 39 of Directive 2014/24/EU (and the equivalents in Dir 2014/25/EU, see here, here and the recent working paper by I Herrera Anchustegui, here), and that the Commission should take a much more robust approach than simply aiming to "raise awareness and promote good practice for joint cross-border procurement".
Guidance on the interpretation of the relevant provisions of the 2014 Public Procurement Package is long overdue and, in my view, the Commission continues to conflate issues of collaboration stricto sensu with issues of professionalisation and innovative procurement processes, which it considers central purchasing bodies (CPBs) to be in a good position to promote. The Commission also overlooks the impacts of centralisation on competition in procurement markets, as well as the need to ensure that standards of competitive neutrality are ensured where CPBs engage in economic activity (eg in the context of professionalisation or consultancy). In my view, the Commission's proposals here are both weak and naive, and more focused legal guidance should be the priority.
* The title for this post is far from original. See eg http://spendmatters.com/2016/02/08/make-procurement-great-again/.