Presentation Transcript

1. “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 www.gustavopiga.it
2. 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.
3. 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.
4. 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”!
5. 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.
6. Some modernillusion-prone procurementfields E-PROC SMEs CORRUPTION
7. Some modernillusion-prone procurement fields E-PROC SMEs ANTI-CORRUPTION
8. Awayfrom E, welcome C E PROC The threeCseconomistsworryaboutwhenthinking of e-proc.
9. COMPLACENCY “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.”
10. COMPLACENCY 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”.
11. COMPLACENCY (Old) data about 82 Russianregions
12. COLLUSION Doese-proc generate competition or collusion? The case of reverse auctions (Russia 100%) 200 ultimi 10 min. Migliore offerta a 147.500 Euro (-25,8%) 190 Inizio autoestensione Migliore offerta a 137.000 Euro (-31%) 180 170 € x 1000 160 150 Asta aggiudicata a 116.000 Euro (-42%) 140 130 120 8 fornitori 7 fornitori 6-5-4 fornitori 2 fornitori 3 fornitori 110 0 10 20 30 40 50 60 70 80 90 100 110 120 Minuti
13. CENTRALIZATION IT and e-procmakecentralizing procurement more natural and lesscostly [Centralizationisbecoming more and more widespread.] Think hard beforepushing for e-proconly to centralize. ItmighthurtSMEs.
14. 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.
15. Some modernillusion-prone procurementfields E-PROC SMEs ANTI-CORRUPTION
16. 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”
17. Sufferingdiscrimination 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?)
18. 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
19. 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
20. Some modernillusion-prone procurementfields E-PROC SMEs CORRUPTION
21. High Expectations. Too High? The paradox of the right solution. Itworks best therewhereneeded the least. AnticorruptionAuthorities Michela Wrong – ItisOur Turn toEat Whistleblowers 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
22. 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
23. 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.”
24. Corruption’sCompanions 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.
25. MODERN AND INNOVATIVE APPROACHES IN WHO TO BUY FROM IN PUBLIC PROCUREMENT
26. Smes, again? “One idea, for instance, might be to set targets for SME shares in overall procurement”. EC Green Paper
27. 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.
28. 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?
29. 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 ….”
30. 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.
31. E proc and SMEs E procisnot a sufficientconditionforsolvingSMEsproblems. Isit a necessaryone? I wouldarguenot. I wouldarguethatSMEssensitivitymakese-proc a bettertool. Developthatsensitivity!
32. ICENTRALIZATIONT 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).
33. MODERN AND INNOVATIVE APPROACHES IN HOW TO BUY IN PUBLIC PROCUREMENT
34. 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.
35. 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. So…. 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…
36. 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) IsitEnough? How to MaximizeCompetenceReturns?
37. 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:
38. 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 …
39. Summing-Up Good Governance in Public Procurement Relies Fundamentally on the Motto: “Attract, Reward, Retain and Develop” within 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.