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“ Modern Approaches and Innovation in Public Procurement”. Good Governance Summit Manila, January 17, 2014. Prof . Gustavo Piga Chair, EBRD-Tor Vergata International Master in Public Procurement Management University of Rome Tor Vergata www.gustavopiga.it.

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Modern approaches and innovation in public procurement

“ModernApproaches and Innovation in Public Procurement”

GoodGovernance Summit

Manila, January 17, 2014

Prof. Gustavo Piga

Chair, EBRD-Tor Vergata International Master in Public Procurement Management

University of Rome Tor Vergata


Public procurement so relevant

Public Procurement, so relevant!

  • Government expenditure for purchases of goods, services and works (public procurement) is a key component of national income and well-being. World estimates (OECD) see procurement as approximately 15% of GDP; while across the European Union expenditure on goods, services and works currently (2008) represents 17,2% of GDP on average (OECD Economic Outlook 2010) and, at the end of the century, the 106 developing countries’ procurement markets amounted to 13.9 percent of the total worldwide procurement spending.

What is public procurement all about

WhatisPublic Procurement allabout?

  • “how to buy”: transparently, a concern for civil society, efficiently, a concern for taxpayers pockets and effectively, a concern for citizens’ preferences;

  • “what to buy”: green and sustainable, a concern for the environment;

  • “who to buy from”: SMEs, a concern for justice.

Is there space for improvement

Istherespace for improvement?

  • Study of Italian waste in Public Procurement (Bandiera, Prat, Valletti, American Economic Review).

  • How much waste in purchases could be eliminated by bringing “the worse at the level of the best”? “If all public bodies were to pay the same prices as the one at the 10th percentile, sample expenditure would fall by 21% . . . Since public purchases of goods and services are 8% of GDP, if sample purchases were representative of all public purchases of goods and services, savings would be between 1.6% and 2.1% of GDP”!

Modern approaches and innovation in public procurement

Whereis the spacefor modernization?

“The challenge of modernity is to live without illusions and without becoming disillusioned.”

Antonio Gramsci

Identify illusions (erroneous perceptions).

Find credible grounds to keep enthusiasm going.

In procurement.

Some modern illusion prone procurement fields

Some modernillusion-prone procurementfields




Modern approaches and innovation in public procurement

Some modernillusion-prone procurement fields




Modern approaches and innovation in public procurement

Awayfrom E, welcome C


  • The threeCseconomistsworryaboutwhenthinking of e-proc.

C omplacency


“A feeling of quiet pleasure or security, often while unaware of some potential danger, defect, or the like; self-satisfaction or smug satisfaction with an existing situation, condition, etc.”

C omplacency1


Guide to Enactment of the UNCITRAL Model Law on Public Procurement

  • “if paper communications are simply replaced with e-mails, Internet-based communications, and advertising procurement opportunities on a website, many of the above benefits will not materialize. Further, weaknesses in a traditional procurement system will be transported to its new, digital equivalent”.

  • “However, the existence of such systems may raise the risks of overuse and misuse, because their ease of operation may lead procuring entities to use them whether or not they are really suitable or appropriate for the procurement at hand”.

C omplacency2


(Old) data about 82 Russianregions

Modern approaches and innovation in public procurement


Doese-proc generate competition or collusion?

The case of reverse auctions (Russia 100%)


ultimi 10 min.

Migliore offerta a 147.500 Euro



Inizio autoestensione

Migliore offerta a 137.000 Euro




€ x 1000



Asta aggiudicata

a 116.000 Euro





8 fornitori

7 fornitori

6-5-4 fornitori

2 fornitori

3 fornitori
















Modern approaches and innovation in public procurement


IT and e-procmakecentralizing procurement more natural and lesscostly

[Centralizationisbecoming more and more widespread.]

Think hard beforepushing for e-proconly to centralize. ItmighthurtSMEs.

Can e proc solve smes issues

Can e-proc solve SMEsissues?

“We … analyz(e) the transactions - below the European threshold - that took place on the Italian e-marketplace during the period 2005-10. Although micro suppliers are the most represented group of firms in the emarketplace, evidence suggests that the largest suppliers display the highest success rates in getting public contracts. Degree of loyalty with buyers and geographical location of both buyers and suppliers also emerge as relevant factors of success in the e-procurement market, proving, at least to some extent, that some features of “physical” procurement markets are mirrored in the “virtual” markets.”

“Il Public Procurement come stimolo alle PMI: il caso del Mercato Elettronico della Pubblica Amministrazione” by Gian Luigi Albano, Federico Antellini Russo and Roberto Zampino.

Some modern illusion prone procurement fields1

Some modernillusion-prone procurementfields




Smes are special

SMEs are special

Problems faced by EU bidders, (by bidders size relative to large firms)The column of totals displays on average which portion of firms interviewed answered “always” or “often”

Suffering d iscrimination


Whyprefer (some) firms?

Negative discrimination due tobarriers:

1) corruption :

1.1 via networks (easieramong large firms/dominantrace)

1.2 via collusion (easieramong large firms)

1.3 via politicians (easieramonglargerfirms?)

2) risk-aversion:

2.1 via ignorance(according to EUsurvey asking public procurers “what current barriers prevent their organization from undertaking additional activities to favor SMEs”, most CAs mentioned risk –aversion)

2.2 via routines (minimum size of revenues etc.)

2.3 via banks

3) bias:

3.1 via racism

3.2 via politics (no connection with size of the firm?)

Classic solutions to deal with them

Classicsolutionsto deal withthem

- skills assessment and development programs

- business mentoring or coaching

- training in commercial tendering

- small business advice

- simplification of bidding documents and questionnaires

- translation of documents into local language

- lowering or rationalization of pre-qualification criteria

- reduction in costs of bidding, e.g. payment for bidding documents

- lowering of barriers to entry, e.g. compulsory industry registrations

- access to additional or cheaper forms of business financing and investment

- more transparent publication of business opportunities

- communication programs

With little success

With little success?

  • “In terms of estimated total contract value secured, SMEs accounted for between 31% and 38% of public procurement while their overall share in the economy, as calculated on the basis of their combined turnover is 52%”

    EC Green Paper

Some modern illusion prone procurement fields2

Some modernillusion-prone procurementfields




High expectations too high

High Expectations. Too High?

The paradox of the right solution.

Itworks best therewhereneeded the least.


Michela Wrong – ItisOur Turn toEat


Søreide (2008)

firms will not engage in whistleblowing against corruption- related challenges in the

local business climate unless local levels of corruption are considered to be low

The case for a different approach

The Case for a DifferentApproach

  • “Corruption cannot be considered in isolation […] it follows that anti-corruption policies which focus narrowly on the corruption issue will miss the complexity of the relations and are therefore likely to fail. More appropriate, then, are policies which aim to suitably reform prevailing governance systems.”

    Lucio Picci, Reputation-Based Governance, Stanford University Press, 2011

Modern approaches and innovation in public procurement

What do weKnowaboutCorruption?

How Much Public Money Is Wasted, and Why? Evidence from a Change in Procurement Law - OrianaBandiera, Andrea Prat, Tommaso Valletti, American Economic Review

How much of this waste is passive (inefficiency) vs. active (corruption)? “On average, at least 82% of estimated waste is passive and that passive waste accounts for the majority of waste in at least 83% of our sample public bodies.”

Corruption s companions


1) Incompetence.

Corruption pushes for low investments in competence. Incompetence drives “capture”, which often coincides with “soft corruption”.

2) Collusion.

a) Collusion benefits from corruption:

- To makedefectionharder or impossible;

  • To make cartels even more profitable.

    b) Corruption can be facilitated by collusion

  • Rents (extra profits) are resources for corruption;

  • Lower probability to blow the whistleagainstcorruptofficers.

Modern approaches and innovation in public procurement




Smes again

Smes, again?

“One idea, for instance, might be to set targets for SME shares in overall procurement”. EC Green Paper

The eu paradigm

The EU paradigm

  • “The EU is not in favour of reserving markets to specific undertakings. Such actions would also be in contradiction with the principle of equal treatment of tenderers, a fundamental pillar of the EU public procurement regime anchored by the Court of Justice in the Treaty freedoms.” Green Paper.

Are they all against equal treatment

Are theyallagainstequal treatment?

A fewtinynationshavebeenusingthisapproach:

  • USA (since 1953), SB Act and SB Authority

  • Brazil

  • South Africa

  • China (last year)

  • India is back.

  • Mexico.

    Shouldn’twe at leastdiscussit?

    Whatisits impact on Competitiveness and Innovation?

The us one the small business act

The US one: the Small Business Act

“The essence of the American economic system of private enterprise is free competition … The preservation and expansion of such competition is basic not only to the economic well-being but to the security of this Nation. Such security and well-being cannot be realized unless the actual and potential capacity of small business is encouraged and developed. It is the declared policy of the Congress that the Government should aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns in order to preserve free competitive enterprise,to insure that a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government (including but not limited to contracts or subcontracts for maintenance, repair, and construction) be placed with small business enterprises ….”

At least import this

At least import this!

The Sba Procurement Center Representative (Pcr).

Theseare representatives of the U.S. Small Business Administration in the variouslarge Procurement Agencies.

Functions and Powers:

  • 1. Analyze the procurement strategies and verifyifcontract-bundlingisnecessary and justified

  • 2. Propose alternative solutionsto the contractingofficertofosterSMEspartecipation

  • 3. In case of a failed agreement, escalate the issue in the handsof the Agency Manager.

E proc and smes

E proc and SMEs

E procisnot a sufficientconditionforsolvingSMEsproblems.

Isit a necessaryone?

I wouldarguenot.

I wouldarguethatSMEssensitivitymakese-proc a bettertool. Developthatsensitivity!

Modern approaches and innovation in public procurement


  • A few or even a uniqueplatform for allthe nation’s public procurers.

  • Thoseprocurersremainindependentin theirpocurementstrategy so as to avoidpoliticalissues, large tendersagainstSMEs, repeatedpurchases of e-procsystems, lack of interoperabilitythatdepressesbenchmarking, best practices and competition and raisecosts.

  • Spendingreview and society’s monitoring and participationis made easier.

  • The KoreanKonepsmodel (supportingSMEs).

Modern approaches and innovation in public procurement




A good procurer avoids waste

A “goodprocurer” avoidswaste

Waste arises from:

Incompetence and Corruption.

Keeping in mind that:

Incompetence and Corruption sustain each other;

Cartels and Corruption sustain each other;

Cartels are pervasive in … procurement.

S potting a cartel in pp

Spotting a cartel in PP

Too hard to do:

  • Cartels can be done over time (today I go, tomorrowyou go) or over space (I go to Rome yougo to Milan): how can onenotice?

  • Stoppinga cartel mightmeanstoppingsourcing of urgentservices or delivery of goods: organizationalproblem and internalresistance.


    Antitrust authorities and availability of CENTRALIZED public procurement data, together with (credible) whistleblowinglegislation are the best instruments to fightit.

    Removingbreathingspace for corruption.

    Internally, competences and the right procurement strategymightplay the samerole:

    makingcartels’ and thuscorruption’slife miserable…

Investing in competences uk 2009

Investing in Competences (UK 2009)

“Since we can’t borrow anymore, we see procurement as the best source of revenue stream… Investing in the function tasked with delivering these (efficiency) targets is a clear spend to save business case”.

UK Government

(that makes corruption riskier and less palatable)


How to MaximizeCompetenceReturns?

In one slide

In One Slide …

Foster Organizational Change in Procurement Toward Performance

  • Use Data! For InternalImprovement.

  • Use Data! For Setting Targets, Motivations, Rewards.

  • Use Data! Thatare orientedtoward output-basedmeasurement of performance.

  • OrganizeInstitutionAroundSelf-Improvement.

  • The Philippinesexamplestands out as a potential benchmark:

A comprehensive approach

A comprehensiveapproach

  • The results should not be used to compare the agency’s score against that of other agencies but to provide a benchmark against which it will measure its own subsequent performance. The assessors shall then identify areas of strength (sub-indicators receiving a satisfactory or Very Satisfactory score) where it can continue to improve and weaknesses (sub-indicators rated poor or acceptable) where it needs to develop a specific plan of action.

  • A Plan of Action to Improve Procurement Capacity will then be developed …

Summing up


Good Governance in Public Procurement

Relies Fundamentally on the Motto:

“Attract, Reward, Retain and Develop”


Performance-Based Procurement

The challenge of modernity?

Live without illusions and

organize life around your aspirations.

It can be done, it is not an illusion.

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