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Making (procurement) decisions in a highly regulated environment: a case of spending EU grant support . Csaba Csáki Budapest University of Technology and Economics & University College Cork. Basic problem . Private companies are eligible and apply for EU funding support

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making procurement decisions in a highly regulated environment a case of spending eu grant support

Making (procurement) decisions in a highly regulated environment: a case of spending EU grant support

Csaba Csáki

Budapest University of Technology and Economics & University College Cork

basic problem
Basic problem
  • Private companies are eligible and apply for EU funding support
    • it’s a meticulously detailed process requiring lot of administration
  • Hungary has joined the EU May 1, 2004 which brought major regulatory changes
    • ‘utility’, energy and postal services sectors are all affected
  • both group is subject to Public Procurement National Laws
    • based on EU Directives

=> private entities meet public regulations

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

research process
Research process
  • literature mining
  • start-up models (to test and use)
  • research themes and questions
  • case studies
  • events, facts, observations
  • findings
  • use the models or modify them (new ones?)

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

literature on regulatory environment and private enterprise
Literature on regulatory environment and private enterprise

after changes implemented

inadequacy is realised

planned changes

Situation

the resulting proces

the outcome

Covered in scientific literature

? ? ?

what did we create - how does it influence decisions?

did it reach intented result, how does it work?

Outcome / recommen-dation(s)

need for change (is it time? how?)

potential outcome (is this the right way?)

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

slide5

Influencing Factors of Public Procurement Decision Making

execute individual purchasing decisions

market pressure (technological and economic reality)

high-level and strategic policy goals

procuring entity / Decision Maker

decision making environment

interpretations ofthe law- incl. Court appeal (judicial) decisions

expectations from the recipients of services

regulatory (legal) framework

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

pp evaluation methodology
PP Evaluation Methodology
  • The Hungarian Act on Public Procurement
    • requires the publication of
      • suitability requirements
      • evaluation criteria, weights and utilities
    • limits the criteria and mode of checking suitability (filtering bidders)
    • defines the scoring mechanism
  • Decision Making through a pre-established set of criteria
    • multiple criteria decision making / MAUT

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

themes and questions
Themes and questions
  • public regulations affecting private enterprise
    • how (procurement) decision making is affected?
  • complex (and „alien”) institutional setting
    • is there a need to „innovate”?
  • decision making is methodologically restricted by the Law
    • would they ask for decision support (software or consultant)

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

pilot case borsodchem
Pilot Case: BorsodChem
  • „The company spans back with a half century of history and is a major determinate chemical producer as well as the largest producer of suspension PVC resin and isocyanates in Central and Eastern Europe.”
  • „privatized” in 1991, Stock Exchange in 1994-96
  • more than 4,000 employees on a plant site of 448 ha
  • 4 org. units and 2 product lines under the CEO
  • 14 subsidiaries (processing, service and trade)
  • turnover of appr. €600 Million

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

eu grant application
EU Grant Application
  • in 1991 it was discovered that „dichloroethane contaminated the ground water in a limited area on the factory site”
  • it was investigated and monitored, then eventually in 2000 regional environmental offices ordered the company to clean the spillage up (moratorium)
  • clean-up plan created in 2002-2003 but the cost was estimated at appr. €2 Million
  • applied for EU subsidy in 2004 to reduce contamination below acceptable limits
  • awarded support of full amount (100%) under the Structural Plan of the Environmental Protection program early 2005

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

research data collection methods
Research: data collection methods
  • participant observation
  • documents
  • software data
  • interviews with
    • members of the consulting team
    • BorsodChem project leader and team members
    • winning bidder (project manager and lead engineer)
    • quality assurance engineer
    • managing and financial authority representatives
    • (representative of the intermediary organization)

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

european union development grants fund subsidy
European Union development grants (fund/subsidy)
  • Recipients need to follow Public Procurement rules
  • Regulatory environment
    • Funding programs
      • EU goals and preferences
      • National development plans and related programs
    • Governmental regulations and ministerial orders
      • determine institutions to be involved
      • determine the process to be followed (contracting, financial execution and control of support programs)
    • Public Procurement Directives

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

issues at the start
Issues at the start
  • already at the outset the company’s eligibility for EU support was questioned
    • resulted in uncertainty and time delay
  • last date of start to meet project deadlines committed to in grant proposal was fast approaching yet support contract was not signed
  • already spent money on
    • exploration and plans (needed anyway)
    • grant application (consultant)
  • never had anything to do with Public Procurement
    • needed to contract the work out
    • needed to contract a quality engineer as well

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

motivation
Motivation
  • lack of legal knowledge
    • unchartered territory
    • official intermediary organization did not give direct support
  • uncertainty of unknown supplier(s)
    • company had its own usual contractors for similar jobs
    • chemical industry is a high-risk business, where reliability comes first and any delay in delivery is costly, therefore, trust is an essential ingredient of any contractual/supplier relationship
  • serious time pressure
    • no room for (EU grant) mistake or (PP) legal challenge

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

start of procurement project
Start of Procurement Project
  • decision support and Public Procurement consultant were asked for to help out with the procurement process under the Hungarian PP Act
    • extra cost for company
  • clear goals in mind
    • select reliable supplier
    • could not go below a certain technical quality
    • financial resources were limited by grant amount (did not wish to spend more – no budget)
    • emphasis on warranty (10 years)

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

number of pp processes
Number of PP processes
  • mandatory quality assurance engineer
  • main project was split into two
    • wells and control software
    • chemical stripper
    • in order to be able to start faster without putting too much risk on supplier

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

issues during the pp process es
Issues during the PP processes
  • the intermediary organization (Ministry of Waters and Environmental Protection) gave misleading information about how to proceed (FIDIC)
    • unnecessary extra work
  • grant contract was still not signed
    • PP process timeline is limited by the law
    • minimum and maximum number of days set
    • supply contract needed to be signed by a certain date
    • if contract is not signed, PP process is called off (void)

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

issues during the project
Issues during the project
  • payment schedule was delayed, extended by intermediary organization
    • nit-picking administration
  • financial reserve vs. reserved amount
    • extra expense was not allocated for in the grant application, therefore, could not be claimed even though it was part of the PP call for proposal
  • technical glitches vs. grant application plan
    • wells did not supply enough water
    • water pipes got clucked – iron and lime
    • there is no room for changes in the case of a grant contract

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

timing and deadlines regulations
Timing and deadlines regulations
  • joint ministerial order (of Structural Funds)
    • quarterly report
    • payment deadline is 60 days
  • Min. of Finance order
    • invoice may only be submitted with a report
    • there are 4 layers of accounts
      • EU, national, program, components
  • EU directives
    • formal, content and financial checkups of reports

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

typical timeline w deadline issues
Typical timeline w/ deadline issues

individual projects (there are budget deadlines for the national programs as well)

grant application deadline

grant contract signing deadline

supplier contract signing deadline

award decision

quarterly reports

project evaluation

delivery deadline

(set time or continuous)

  • importance:
  • reimbursement may only be claimed at report time
  • if OK, payment is within 60 days
  • any change requires contract modif.

PP time:

min to run /

max to sign

  • applicant decisions:
  • apply or not
  • what to commit to
  • what budget to plan
  • what deadlines to promise

Contract modific-ation halts payment

  • consequences:
  • if not met, money could be lost
  • change requires contract modification

consequences:

- if contract is not signed by a certain date delivery deadline may not be met

for an additional 5 years:

- EU may check and in case of irregularities money need to be repaid

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

decisions and cover stories
Decisions – and cover stories
  • change water filter (technology)
    • financial resistance from Authorities
    • either don’t claim or „play tricks”
  • change stripping process
    • don’t report
    • indicate that an ‘efficiency issue’ was solved
  • loan to the supplier
    • repay?

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

view of the ds s
View of the DS/S
  • errors were remembered
  • did not appreciate
  • although
    • goals were reached and
    • actual supplier turned out to be reliable
  • as well as
    • supplier admitted that evaluation criteria system was unusual, tough and directed them to a certain direction

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

plan purchase execute
plan – purchase - execute

Grant application related decisions

PP DM process

project realized

Ideal world

special PP

classic PP

less limited classic PP

grant application

limited classic PP

grant application with PP in mind

proper, educated, integrated decision making influences outcome

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki

regulatory structure
Regulatory structure

Nat. payment policies

Grant application

PP Act

PP contract

EU monitoring

corporate policies

accepted delivery

project

industry regulations

PP (DM) process

Grant Contract

Nat. grant program

EU Grant directives

IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki