Joint cross-border procurement in the EU/EEA (plus UK) 2019-2021 -- update on Locatelli's (2019) TED analysis

A couple of years ago, Ivo Locatelli — a Senior Procurement Expert at the European Commission — published a first analysis of the emerging trends in cross-border procurement in the EU/EEA based on TED data and, in particular, based on the publication of contract award notices (CANs). His paper is available as: I Locatelli, ‘Do European public buyers purchase together? An assessment of joint cross-border procurement contracts published in TED in 2017 and beyond’ (2019) 1 Ius Publicum art 1.

Locatelli reported that, in 2017 only, 34 CANs were published concerning joint cross-border procedures involving buyers in different Member States. The paper provides detailed analysis and classification of those 34 instances of cross-border joint procurement. The paper acknowledged that, in the grand scheme of things, this was meagre (but important) cross-border experimentation, and Locatelli was hopeful for more intense cross-border joint procurement in the future, once the best practices of a ‘group of brave buyers’ were disseminated and some policy interventions by the European Commission took root.

I am now working on a paper on cross-border procurement with Kirsi-Maria Halonen, so I thought it would be a good idea to try to update Locatelli’s analysis, following as close a methodology as I could. This should allow for a longer view analysis of emerging trends over an almost five year period (2017, as per Locatelli's analysis, plus 2018-2021 to date). This blogpost reports the results and reflects on some issues preventing a proper understanding of the emergence of cross-border joint procurement ‘on the ground’ [for theoretical analysis, see A Sanchez-Graells, ‘The Emergence of Trans-EU Collaborative Procurement: A “Living Lab” for European Public Law’ (2020) 29(1) Public Procurement Law Review 16-41].

‘Mining’ TED for 2018-21

Given how counterintuitive I find the advanced searches in TED, I thought I would cast my net wide (if anyone has suggestions for a more effective approach, I would be most grateful to receive them). So, I searched TED for CANs with the free text “joint procurement” and then manually checked whether there was a cross-border element. I thought the search would, if anything, be overinclusive, as the mandatory CAN standard form requires in part I.2) to indicate whether there is any element of joint procurement and ‘In the case of joint procurement involving different countries, state applicable national procurement law’.

184 results were returned. This is the breakdown of what came up, organized by country of the buyer:

The results were a little surprising, if nothing else for being such few, as well as for the very clear bulges of ‘activity’ in the UK and Norway and, to a lesser extent, Denmark. In order make the analysis of the CANS for the 2018-2021 period comparable to Locatelli’s for 2017, I screened them manually and applied the same exclusion criteria detailed in the paper.

To carry out his analysis of emerging trends in ‘true’ cross-border procurement, Locatelli conducted an ‘assessment of joint cross-border procurement … limited to cases of a contract being awarded, or a framework agreement being concluded, either jointly or via a joint entity, by several contracting authorities located in various Member States or via two foreign CPBs. Therefore, coordinated procurement implying several parallel procedures managed by buyers in different Member States is not covered here.’ The paper also clarified that ‘CANs relating to European Union (EU) institutions’ procurement procedures that are open to agencies and institutions located in different Member States are not covered by this assessment’, and that ‘CANs concerning pre-commercial procurement are not included since public procurement Directives apply to public service contracts for research and development services only where specific conditions are met’.

Doing that resulted in only 11 eligible cross-border joint procurement projects for the period 2018-2021 — with only very few pre-commercial procurements and procurements of the EU Institutions excluded. Interestingly, the bulk of the CANs referred to single-country joint procurement and mostly to municipal or regional collaboration in Norway and the UK, to utilities collaboration in Denmark, as well as collaboration within the English national healthcare system.

What was in TED for 2018-21?

The CANs identified above show a limited picture of cross-border collaboration mainly in the Nordic countries (and remarkably in defence and security procurement), and mostly where there is either a physical or regulatory network requiring (or justifying) cross-border management, or where there is EU funding for a specific activity. The sample is way too small to try to extrapolate any clear trends, so it is worth listing the 11 projects here (from newer to older), in case anyone wants to dive deeper:

General procurement (with EU funding)

• Spanish-led collaboration with UK for the procurement of innovative healthcare services, funded by the EU (project RITMOCORE) [2021/S 040-100288 (and also 2020/S 255-642149)]

• Swedish-led collaboration with Finland for a digital service gathering travel information for visitors in the Stockholm and Turku archipelago, with EU funding (EU Central Baltic funding: CB767) [2020/S 107-259917]

• French-led collaboration (with Spain, Germany and Italy) for the acquisition of super-computers, funded by the EU (under PPI4HPC) [2020/S 092-219297]

  Network procurement (not necessarily utilities)

• Swedish-led Nordic (plus Dutch) collaboration for the maintenance and further development of software for financial reporting via the Northern Transaction Reporting System (NTRS), which was already jointly procured in 2016 [2021/S 094-247849]

• Austrian-led collaboration (with Slovakia, Croatia, Bulgaria and Romania) for the setting up of a transnational Waterway Monitoring System (“WAMOS”) within the Framework of the programme “FAIRway Danube”, co-financed by the Connecting Europe Facility (CEF) programme [2018/S 097-221820]

• German-led collaboration (for the entire Eurosystem, under the auspices of EPCO) to acquire rating agency services [2018/S 069-153490]

• Finnish-led collaboration (with Estonia, Latvia and Lithuania) regarding the identification of the most suitable option for a Baltic-Finnish energy market [2018/S 014-029097]

  Defence and security procurement

• Norwegian-led collaboration with Denmark for a joint procurement for inspections and maintenance of the respective countries’ C130J Hercules planes [2021/S 076-195801]

• Swedish-led collaboration with Norway to acquire UAS-Systems (Unmanned Air System) for their police forces [2019/S 182-442948]

• Danish-led collaboration with Norway for the purchase of type rated courses to maintain the C-130J Block 6.1 Hercules air crafts [2018/S 179-407131]

• Swedish-led collaboration with Finland to procure strategic sealift operations [2018/S 031-068254]

Is this really all the cross-border joint procurement there is?

I think there are problems with this information. Anecdotally, I am aware of a cross-border joint procurement between France and Italy in 2019 that did not show in the search results. There are also some examples in this recent iProcureNet report that also do not show in the search results. More broadly, I think that the poor form-filling that tends to affect TED notices may mask some of the joint cross-border procurement taking place, in particular because mistakes in a small sample can have more relevant effects than in a large sample (contra, Locatelli 2019: 7-8).

Be it as it may, even if the search was defective and the results were massively under-reported by (say) 10 to 1, the picture that emerges is one of extremely limited action in joint cross-border procurement. If the EU-funded projects are excluded and Nordic defence collaboration is set aside, all that is left is joint procurement linked to physical or regulatory network activities with an obvious EU dimension. Therefore, there seems to be very little ‘grassroots’ collaboration on the public buyer side of the EU’s public procurement internal market, except at its margins.

What then?

To my mind, this poses a few relevant questions. First, whether the existence of language and legal barriers that are generally brushed under the carpet in EU policy-making need a serious reconsideration (and I am not the only one to think this; see eg MA Simovart, ‘Choice of law applicable to joint cross-border public procurement by central purchasing bodies or under occasional collaboration agreements’ (2021) 1 Procurement Law Journal 1-18). Second, whether joint cross-border procurement can really be the channel for trans-EU collaboration that the European Commission hopes — eg in relation to the adoption of AI, where the Commission considers that ‘collaborative cross-border procurement has the potential to exploit synergies and achieve higher critical mass in bringing AI solutions to the public sector market across Europe‘ [as announced in the 2018 Coordinated Plan on AI, and detailed in a recent Innovation Procurement Newsletter]. Third, whether the low uptake of collaboration between public buyers and the structurally low level of (direct) cross-border tendering by foreign potential suppliers (as recently reconfirmed, in this new Study on the measurement of cross-border penetration in the EU public procurement market) warrant the current regulatory approach, not only by the Commission, but also by the European Court of Justice.

As you see, there is plenty to think about and discuss. Kirsi and I hope to publish a draft of our paper in a few months. So stay tuned if this is of interest. And, as always, all comments and suggestions most welcome: a.sanchez-graells@bristol.ac.uk.

Combating collusion in procurement: webinar recording and slides

It was a pleasure to host today the book launch of Katarzyna Kuźma and Dr Wojciech Hartung's Combating Collusion in Public Procurement. Legal Limitations on Joint Bidding (Edward Elgar, 2020). The authors were joined by Dr hab. Piotr Bogdanowicz and Jesper Fabricius, as well as yours truly, to discuss recent developments in the treatment of joint bidding under Article 57 of Directive 2014/24/EU, as well as the outstanding legal uncertainty on the interpretation and application of this provision, which Katarzyna and Wojciech have analysed in detail in their book. The slides used for the presentation are available (via dropbox) and a recording of the session (minus Q&A) is also available via the image below (or this link).

The authors would be happy to receive feedback or more general questions about the book and its subject-matter. They can be contacted at katarzyna.kuzma@dzp.pl and wojciech.hartung@dzp.pl.

The Emergence of Trans-EU Collaborative Procurement: A 'Living Lab' for European Public Law

I have uploaded a new working paper on SSRN: ‘The Emergence of Trans-EU Collaborative Procurement: A “Living Lab” for European Public Law’ (March 14, 2019) https://ssrn.com/abstract=3392228. Its abstract is as follows:

Trans-EU collaborative procurement is a fertile ‘living lab’ for the observation, theorisation and critical assessment of developments in European public law. This paper maps the emergence of this novel type of cross-border administrative collaboration and scrutinises the new rules of Directive 2014/24/EU, which evidence the tension between promoting economic co-operation across borders within the internal market and the concern to respect the Member States’ administrative autonomy. The paper critically assesses the EU legislative competence in this area, extracts consequences for balancing trans-EU collaboration with ‘mandatory public law requirements’ at Member State level and proposes minimum functional guarantees to be expected in the implementation of trans-EU collaborative procurement.

Interesting paper on resistance to collaborative/centralised public procurement (Mason & Meehan: 2016)

I have just read the paper C Mason & J Meehan, ‘Collaborative public procurement: institutional explanations of legitimised resistance’ (2016) 22 Journal of Purchasing & Supply Management, forthcoming [a draft preliminary version of the paper is available on SSRN: http://ssrn.com/abstract=2152740]. 

The paper focuses on the very operational and subjective reasons that can lead practitioners involved in collaborative or centralised procurement to resist the roll-out of these innovative procurement strategies. I found their findings regarding financial reporting implications and job security particularly relevant because they bring home a reality bite that we need to incorporate into legal research if we are worried about the effectiveness of the rules we create.

In the rather more technical terms of the abstract:

The paper explores the barriers to regional collaborative public procurement. It reports the results of an empirical study of five public sector authorities in the emergency services sector in the UK. Exploring the barriers to collaborative procurement through the lens of institutional theory we frame the inter- and intra-organizational strategic resistant responses to isomorphic pressures. The study took a multi-stakeholder approach involving 70 individuals spanning budget holders, operational managers, procurement, and finance across 30 spend workstreams. The results show that operational barriers to collaborative procurement persist at national, regional, organizational and individual levels. While these barriers are used overtly as the rational defence, covert strategic responses of institutional logics, protectionism and symbolic tick-boxing legitimize stakeholder resistance to numerous isomorphic forces and further entrench the operational barriers. The findings contribute to an understanding of choice mechanisms in public procurement research by exploring where, and why, tensions and conflicts occur in collaborative public procurement strategies, both within, and between, organizations. The study contributes to, and addresses a central issue in institutional theory: identifying the social processes embedded in rational decision-making processes. By focusing on different internal stakeholder perceptions and their motivations, we add to current thinking on how organizations create internal power and agency structures through institutional logics to legitimize their actions. The results highlight the criticality of understanding underpinning motivation in behaviour in institutional theory and the links between operational and strategic processes. From an applied perspective, the research highlights that failure to provide sufficient evidence while applying pressure at a political level leads to tick-box approaches to collaborative procurement risking long-term damage and sub-optimized performance.

It is definitely well worth a read. 

Some bold thoughts about the (distant?) future of public procurement in the EU

I was invited by the European Commission (DG Internal Market, Industry, Entrepreneurship and SMEs, Unit E4 - Economic Analysis and E-Procurement, @EU_Growth), to participate in a very stimulating brainstorming session on cooperative public procurement, public procurement aggregation and, in particular, Central Purchasing Bodies (CPBs). For yesterday's session, DG Growth assembled an interesting panel of practitioners, institutional representatives and academics, and made sure that very different opinions were represented and properly voiced. DG Growth must be praised for that.

On the substance, the general arguments for and against cooperative procurement strategies (centralisation, aggregation, occasional joint procurement) were discussed in some detail [for background, see A Sanchez Graells and I Herrera Anchustegui, "Impact of Public Procurement Aggregation on Competition: Risks, Rationale and Justification for the Rules in Directive 2014/24" (2014) University of Leicester School of Law Research Paper No. 14-35] and the representative of the OECD advanced some interesting statistics on OECD Member States' adoption of centralised and cooperative procurement that undeniably present it as a very strong trend in public procurement reform. Not a surprising insight, but the trends that emerge from their questionnaire (hopefully, soon to be published) raise a significant number of questions on how to support and/or regulate this phenomenon.

In my view, this is the point were the discussion got all the most interesting after Joaquim Nunes de Almeida, Director for Public Procurement at DG Growth, asked the experts two seemingly simple questions: 1) Should the existing and growing trend of cooperative/aggregate/centralised procurement be considered as something positive and favoured/supported or not? 2) If so, how can the European Commission do it? 

The majority of experts presented their personal views and were generally very supportive of the general trend of cooperative/aggregated/centralised procurement as a lever to achieve smart/lean procurement and an enhanced strategic use of procurement, and suggested some soft law and cooperative interventions for the Commission to undertake in close cooperation with Member States and the emerging (informal) CPB network. I was more skeptical. Let me give present some of my bold thoughts for the (maybe not so) distant future of public procurement in the EU. They may seem shocking, but I hope there is some value in them.

1. Centralisation is not necessarily here to stay

Centralisation will not be the dominant trend for a very long time and technology will generate a very significant increase of unregulated public procurement by facilitating direct award of very small procurement contracts through (alternative) electronic platforms. Centralisation or cooperative procurement is a result of the increased pressure to achieve savings (as a result of the crisis, and more generally) and is facilitated by the technological opportunities that e-procurement creates. These two levers are bound to be short (or mid) lived and to phase out in the future. 

On the one hand, because the savings that centralised procurement creates cannot grow indefinitely. There are limits to the economies of scale potentially achievable and, in a scenario of very quick expansion of centralised procurement volumes, there will soon be dis-economies of scope and, generally, x-inefficiency within CPBs as organisations that will loose their flexible and dynamic configuration as they grow and become more and more assimilated to 'classic' public sector institutions. 

Moreover, 'individual' contracting authorities will always retain procurement duties and, consequently, it is unavoidable that the organisation of a system with partial centralisation creates duplication of administrative resources, particularly if recourse to CPBs is voluntary for the 'individual' contracting authority. Additionally, the financial models of CPBs will create issues and, unless they operate on a cost and no margin basis, contracting authorities may decide to not resort to CPBs at all in order to save that part of the administrative cost of procurement, particularly if they do not perceive the CPBs as a generator of significant savings (or other advantages) as compared to the conduct of their own e-procurement processes (once they have the technology in place). There will always be delicate issues of political instrumentalisation of CPBs that may make cooperation difficult in day to day issues. And in case CPBs push for the strategic use of procurement (green, social, innovative) in ways that increase costs or risks, 'individual' contracting authorities' interests may not be alligned or best served by CPBs (as agency theory very clearly explains, see CR Yukins, Christopher R., "A Versatile Prism: Assessing Procurement Law Through the Principal-Agent Model" (2010) 40(10) Public Contract Law Journal 63].

In that regard, the mandatory uptake of e-procurement by April 2018 as a result of the implementation of the 2014 Directives will erode, if not suppress, the technological advantage that CPBs now enjoy as first movers. Once all contracting authorities have migrated to e-procurement (and they must do so, unless they completely transfer their procurement activities to CPBs, which does not seem like a plausible scenario because CPBs will never get to manage absolutely all the categories of products and services that contracting authorities need), the advantage of resorting to CPBs will be diminished. Once e-procurement is truly rolled-out, contracting authorities will have all technological tools in place to buy from alternative vendors, such as amazon or ebay, and they may as well do it. 

Once (if) aggregation is not the major consideration, 'individual' contracting authorities will have all incentives to carry out below the thresholds (unregulated) e-procurement and buy electronically all supplies (particularly) and services (possibly) they need. Of course, this will issue potential problems of circumvention of the Directives and the domestic rules that implement them. However, in a scenario of truly rolled-out e-procurement where each 'individual' contracting authority can buy for itself, it is unlikely that schools, hospitals, universities or small and medium sized public organisations will ever reach the value thresholds actually in place by purchasing commoditised goods (and services), which are the ones that CPBs trade in. Hence, the complex system of rules in the 2014 Directives may be come substantially unfit for purpose (or, as a colleague summed it up yesterday, 'obsolete').

2. Private competition will emerge and must be favoured through strict enforcement of competition law over CPBs

It follows from the above that one of the implicit and very significant future difficulties created by the emergence and growth of CPBs and other mechanisms of cooperative/centralised/aggregated procurement is that they are vulnerable to private competition. The system is currently being developed on the basis of an (implicit) legal monopoly granted to CPBs as the only organisations providing aggregation/rationalisation/e-procurement services to the public sector--or, in terms of Directive 2014/24 ancillary purchasing services. This is now legally protected as potentially unassailable under the rules of Art 37 Dir 2014/24, particularly with the protection for direct award of those services contracts to CPBs [art 37(4)], to the exclusion of competition from private suppliers of those services. However, this is not a desirable or even sustainable situation in the future.

Firstly, because the system is hoping for inter-CPB competition, particularly of a cross-border nature, so that CPBs compete to attract 'business' from 'individual' contracting authorities in other Member States (or regions within the same Member State). Secondly because CPBs are also authorised to offer services and goods in the private market (or at least not prohibited from doing so). This will have major implications for competition law enforcement on CPBs [see Sanchez Graells & Herrera Anchustegui, above, and A Sanchez Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 58-60, 255-57 and 347-52] and it is not only desirable, but very likely that DG Competition will have to, at some point, issue guidance on the application of Articles 101 and 102 TFEU to CPBs, without the protection of Article 106(2) TFEU for services of general economic interest (SGEIs) being necessarily available. State aid issues related to the application of Art 107(1) TFEU will also arise.

Second, because private competition is bound to appear (or, more likely, be strengthened), particularly as a result of technological development. Not only because existing online vendors will continue being the natural competition of any e-procurement system (be it run by a CPB, or otherwise). But also at platform level. Any company that can successfully develop a two-sided platform that offers procurement aggregation/rationalisation at a lower cost than CPBs, or that works in a more effective manner, will necessarily find a space in the market and challenge the incumbent position of CPBs (however big they can be at the time). It will be politically indefensible to insist on the use (voluntary or mandatory) of a CPB that is less efficient than alternative market players, particularly if the CPB also competes with them for private business--at which point, the issue would be also legally untenable and would trigger issues of competitive neutrality of the highest order [for background and general discussion, see TK Cheng, I Lianos and DD Sokol (eds), Competition and the State, Global Competition Law and Economics (Stanford, CA, SUP, 2014) and D Sappington and GJ Sidak, "Competition Law for State-Owned Enterprises" (2003) 71(2) Antitrust Law Journal 479-523].

3. The Commission can play an important role by creating training materials

The Commission can have a very important role at this stage, clarifying the limits of the regulatory framework derived from the 2014 Directives and creating useful training tool-kits that can be made available on-line for all contracting authorities in the Member States to acquire the necessary knowledge. They could also create new prizes, or refresh/boost the existing ones, to recognise and disseminate good practices.

Of course, training contrating officers is very difficult due to their sheer numbers, as well as the complexity of the 2014 procurement system. However, it should not (must not) be impossible. If it was impossible, then the deeper problem would be that EU public procurement law would be manifestly unfit for its purpose and a very significant transformation and simplification would be urgently needed (it is and will be more and more necessary, of course, but not desperately urgent; in any case, for criticism of the 2014 rules due to their complexity, see R Caranta, "The changes to the public contract directives and the story they tell about how EU law works", (2015) 52(2) Common Market Law Review 391-459; and S Arrowsmith, "Modernising the European Union’s Public Procurement Regime: a Blueprint for Real Simplicity and Flexibility" (2012) 21 Public Procurement Law Review 71-82).

 * * *

In short, then, my view is that in the long-run, public procurement centralisation/aggregation/cooperative procurement will become a part of the system, but by far not the entirety of the system, and that its relative importance will be diminished in the future by technological and market developments. In my view, the role for the Commission is twofold. DG Growth should focus on training and professionalization of all contracting authorities (and they have some initiatives under consideration) and DG Comp should focus on developing early guidance and a close monitoring system of the activities of CPBs and, more generally, powerful public buyers. Reversely, if centralisation and the market and legal protection of CPBs is embraced and protected, then this will be an instance of (inadvertent?) creation of a legal monopoly (and monoposony, in many markets) that can only result in social loss. I hope that my views, even if possibly extreme or shocking, at least contribute to a debate on centralisation that takes the long view.