The false promise of e-procurement portals? A comment on Yukins & Ramish (2018) from a European perspective

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In a very thought-provoking recent paper*, Chris Yukins and Dan Ramish discuss two proposed reforms of US defence procurement law that would reduce access to bid protest mechanisms as an (unintended) consequence of efforts to streamline procurement on the basis of new (?) technologies. They concentrate, in particular, on the proposal to 'launch a pilot program to allow federal officials to buy directly from electronic portals [which] could—depending on its implementation—allow procurements to bypass the normal public solicitation process, and foreclose pre-award protests [the 'section 846 proposal']. The second set of proposals [... the 'section 809 proposal' ...] might radically streamline off-the-shelf purchasing, which again could make pre-award protests practically impossible' (p 4).

In simple terms, Yukins and Ramish analyse the impact that direct access to e-procurement portals could have for the system of checks and balances resulting from bid protest possibilities. As they put it, '[a]s a practical matter, if either initiative ... ultimately means that federal officials will be allowed to purchase commercially available goods and services directly from commercial electronic marketplaces without the prior publication normally required ..., that streamlined procedure could exempt billions of procurement dollars from accountability in the bid protest process. That, in turn, could have serious consequences, only some of which are fully foreseeable' (p 5).

Their paper provides an excellent overview of the relevance of bid protest (or procurement challenge) mechanisms for the proper functioning of the procurement function. It also stresses the relevance that review procedures have in international law--and in particular for the United Nations Convention Against Corruption, and the World Trade Organisation Government Procurement Agreement (WTO GPA)--which is particularly relevant in the context of the on-going Brexit process (for discussion, see P Telles & A Sanchez-Graells, 'Examining Brexit Through the GPA's Lens: What Next for UK Public Procurement Reform?' (2017) 47(1) PCLJ 1-33).

Maybe of even more interest, Yukins and Ramish raise very important points about the potential unintended consequences of the implementation of a policy that relied on e-procurement portals or an e-marketplace for the public sector in terms of the incentives for the exercise of administrative discretion. In their view

Because of the important protections they provide against error and corruption, bid protests have been adopted across the U.S., and indeed around the world (p 1, emphasis added).

... bid protests ... give vendors competing in international procurement markets a means of challenging unfair barriers to competition (p 2, emphasis added).

If the [section 846 proposal] results in direct purchases from electronic portals (thus in practice exempting an entire phase of procurement from protest), these changes would make it easier for officials to indulge in pre-award discrimination and could pose serious questions ... (p 4, emphasis added).

These considerations are best understood under the framework of Yukins' previous work on agency theory and procurement [see 'A Versatile Prism: Assessing Procurement Law Through the Principal-Agent Model' (2010) 40 PCLJ 63-86]. From that perspective, it is clear that pre-award bid protests serve as both a mechanism to incentivise and to discipline the public buyer as an agent. It creates incentives to design the procurement properly and in a pro-competitive manner to avoid the delays implicit in bid protests, as well as to achieve best value for money (which is the prime concern the procuring agent should have, and which an adequate system of rewards and performance evaluation should support). It also deters improper conduct through the threat of litigation (and, potentially, personal liability, depending on the specific features of the bid protest system, and the criminalisation of corrupt practices).

In short, bid protest mechanisms serve to improve the quality of procurement--in particular, through incentives to carry out market research prior to the launch of a procurement procedure--and its probity and integrity--through mechanisms to challenge discrimination and corrupt practices. Ultimately, then, the existence of bid protest mechanisms is in the public interest--even if they are engaged by private actors (disappointed bidders), acting as private attorney general. This does not detract from the need to design the bid protest mechanism in a way that weeds out spurious litigation. However, as a matter of principle, agency theory supports that having a bid protest mechanism is better than not having it.

Against this backdrop, it seems obvious that a suppression of the possibility of pre-award bid protest will erode public interest by creating a risk of both lower quality procurement design and diminished procurement probity. Whether these increased risks are countered by the practical advantages derived from streamlined e-procurement practices may be controversial. However, in the absence of evidence about the redundancy of bid protest mechanisms, and in view of the functional role they serve, I happily sit with Yukins' and Ramish's call not to suppress them in the name of (theoretical) procedural expeditiousness.

The risk of allowing contracting authorities to simply go to the (e)market is that it (re)creates the same problems of misuse of public funds that procurement rules are there to minimise. In every conversation about public procurement, the question arises what are these rules for, and the answer ends up converging towards: 'competition, transparency, and integrity', as proxies to promote value for money and probity [see S Schooner 'Desiderata: Objectives for a System of Government Contract Law' (2002) 11 PPLR 103]. The difficulty with the use of an e-marketplace for public buyers is that, either it is created within the same system of checks and balances of the procurement rules, or the procurement function will be exposed to the shortcomings of inadequate or limited competition (in particular if the gatekeeper of the e-market has a way of extracting rents from willing suppliers) and discrimination or corruption (if there is the possibility for either the gatekeeper or the agent, ie the public buyer, to appropriate rents). More importantly, the monitoring of the 'quality of the marketplace' and its integrity will be eroded by the suppression of the specific mechanisms included in procurement regulation--possibly leaving it all to antitrust/competition law, with its notorious shortcomings in addressing similar issues in platform markets with strong potential for innovation. On the whole, then, the risks created by unbridled access to e-markets are not different from the risks of uncontrolled access to standard markets that justified the emergence of procurement law centuries ago.

In the context of European procurement law, I think that this is an important reflection to engage with. A move towards e-procurement portals and off-the-shelf purchasing would, as things stand and in principle, require the existence of procurement challenge mechanisms at the point of setting up those mechanisms--either as framework agreements or dynamic purchasing systems, or as a result of the intervention of a centralised purchasing body tasked with the creation (and operation) of the e-marketplace. However, there have been recent developments that jeopardise this position, such as the contraction of the concept of procurement in Falk Pharma and Tirkkonen, or the underlying problem that led to the regulation of the activities of 'separate operational units' within a contracting authority for the purposes of value aggregation. These issues raise important questions as to whether the evolution of EU procurement (case) law is also creating an (inadvertent) threat of erosion of the quality and probity of the system whereby public funds are channelled towards the meeting of needs in the public interest.

* C R Yukins & D Ramish, 'Section 809 and "E-Portal" Proposals, by Cutting Bid Protests in Federal Procurement, Could Breach International Agreements and Raise New Risks of Corruption' (2018) 60 GOV’T CONTRACTOR ¶ 138. Available at SSRN: https://ssrn.com/abstract=3176223.