Download Chapter 6 - Arjan van Weele

Chapter 6
Public Procurement
Program






The nature of public procurement
Public procurement law
European Public Procurement Directives
Notices and public procurement procedures
Procurement process
Implications for public procurement
Nature of public procurement



Governmental institutions play crucial role in internal
markets
In 2002 public procurement accounted for 16,3% of the
GDP in the EU
EU strives towards a free market without any
impediments
Nature of public procurement

Public accountability:





Legitimacy of procurement process is important
Public institutions are subject to European Procurement Laws
Process is procedure driven instead of result or performance driven
This often has a negative effect on the efficiency
Not subject to free markets:



Public institutions are funded by money from taxes
Not always a drive to create best value for tax payers
Sometimes focus on other than commercial goals:


Support local economy
Sustainable investments
Nature of public procurement

Sometimes budgets are granted per year:




If the budget is not completely used in one year, this often
means that the budget will be lowered for the next year
Results in an increased spend at the end of the year
Often only purchase price of products and
services are considered (rather than total costs
of ownership)
Professionalization of public procurement is a
rather slow process
Public procurement law
Public procurement law prescribes in a formal
way how to go about government contracts.

Major constituents of public procurement law are
European Public Procurement Directives


2004/17 for public utilities sector
2004/18 for classical government
Scope of the European Directives

Scope:


Public procurement directives:


All governmental institutions (State, regional or local authorities
and bodies governed by public law)
Supplies, works and service contracts
Framework agreements:


Agreement between one or more contracting entities and one or
more suppliers
To establish the terms governing contracts to be awarded during
a given period
Scope of the European Directives

In a limited number of cases governmental
institutions do not have to European Public
Procurement… special arrangements exist
for:




Contracts for Ministry of Defense
Secret assignments or assignments aimed at protecting state
security
Contracts placed based upon international treaties
Intra-public assignments
European threshold values
Classical government
Threshold value
€ 5.150.000
Works
Goods:
Central government
€ 133.000
Goods:
Local authorities
€ 206.000
Services: Central government
€ 133.000
Services: Local authorities
€ 206.000
Public utilities
Works
€ 5.150.00
Goods
€ 412.000
Services
€ 412.000
Public procurement procedures

Formal notice, an advertisement through which the
contracting authority invites interested parties to submit a
proposal


Formal notice sent to Tender Electronic Daily (TED)
Three different notices:



Prior information notice
Contract notice
Contract award notice
European procurement procedures
Open procedure: Every market party can apply
Restricted procedure: Focused on pre-selection
Competitive dialogue: Used in complex projects,
investigates which solution best fits the functional
specification
Negotiated procedure with/without contract notice:
Announcement on forehand: negotiations about execution
and costs possible, with or without a pre-selection
Design contest: A jury grants the project to one party, the
procedure has to be clear and genuine
Procurement process (1)
Defining specifications
1.



2.
Proportionality: inline with the nature of the assignment
Nondiscriminatory: specifications can not form a trade limitation
Equality: fair competition allowing a ‘one level playing field’ among
suppliers
Supplier selection
Separation between selection and award criteria
 First evaluate suppliers on exclusion criteria
 Then on suitability criteria
 Inform suppliers when they are not selected for short list

Procurement process (2)
3.
Solliciting bids and awarding contracts

Initial award of the bid




Based upon lowest price
Based upon economic offer
Informing non-selected parties about refusal
Awarding the contract to the selected supplier
Implications for public procurement





Resistance against procedures from governmental purchasers
Successful implementation of European legislation calls for
clearly structured purchasing processes and a professional
organization
Management culture in governmental institutions are causing
problems
Examination on correct application of these procedures is
needed
European Procurement Procedures have been developed
without looking at current position and competences of
purchasing function…
The purchasing function in public procurement should be improved drastically
Compliance rates
For all governmental sectors in the Netherlands
Purchasing
volume
Sector
Number of
projects
2002
2004
Increase
2004
Increase
Ministries
80-90%
80-90%
0-10%
50-60%
70-80%
10-20%
Cities and
municipalities
30-40%
40-50%
10-20%
0-10%
20-30%
10-20%
Provinces
40-50%
70-80%
30-40%
20-30%
40-50%
10-20%
Water control
authorities
40-50%
50-60%
10-20%
10-20%
20-30%
10-20%
Academic
hospitals
20-30%
50-60%
30-40%
20-30%
50-60%
30-40%
Polytechnic
institutes
10-20%
30-40%
10-20%
0-10%
10-20%
10-20%
Universities
40-50%
50-60%
10-20%
20-30%
40-50%
20-30%
Museums
0-10%
0-10%
0-10%
10-20%
10-20%
0-10%
Police districts
30-40%
40-50%
10-20%
20-30%
40-50%
20-30%
Ibid Significant, 2004
Conclusions




Procurement within the government concerns a lot of
money.
The EU Treaty has significant implications for public
procurement.
Public procurement primarily serves political objectives
and plans.
Contracting authorities need to respect European
financial thresholds.