This is a blog about the use of emerging technologies to boost the governance of public procurement. It used to be a blog on EU law, with a focus on free movement, public procurement and competition law issues (thus the long archive of entries about those topics). I use it to publish my thoughts and to test some ideas. All comments are personal and in no way bind any of the institutions to which I am affiliated and, particularly, the University of Bristol Law School. I hope to spur discussion and look forward to your feedback and participation.
The recording and slides for yesterday’s webinar on ‘Tech fixes for procurement problems?’ co-hosted by the University of Bristol Law School and the GW Law Government Procurement Programme are now available for catch up if you missed it.
I would like to thank once again Dean Jessica Tillipman (GW Law), Professor Sope Williams (Stellenbosch), and Eliza Niewiadomska (EBRD) for really interesting discussion, and to all participants for their questions. Comments most welcome, as always.
In the current context of generalised quick adoption of digital technologies across the public sector and strategic steers to accelerate the digitalisation of public procurement, decision-makers can be captured by techno hype and the ‘policy irresistibility’ that can ensue from it (as discussed in detail here, as well as here).
To moderate those pressures and guide experimentation towards the successful deployment of digital solutions, decision-makers must reassess the realistic potential of those technologies in the specific context of procurement governance. They must also consider which enabling factors must be put in place to harness the potential of the digital technologies—which primarily relate to an enabling big data architecture (see here). Combined, the data requirements and the contextualised potential of the technologies will help decision-makers draw a feasibility boundary for digital procurement governance, which should inform their decisions.
In a new draft chapter (num 7) for my book project, I draw such a technology-informed feasibility boundary for digital procurement governance. This post provides a summary of my main findings, on which I will welcome any comments: a.sanchez-graells@bristol.ac.uk. The full draft chapter is free to download: A Sanchez-Graells, ‘Revisiting the promise: A feasibility boundary for digital procurement governance’ to be included in A Sanchez-Graells, Digital Technologies and Public Procurement. Gatekeeping and experimentation in digital public governance (OUP, forthcoming). Available at SSRN: https://ssrn.com/abstract=4232973.
It will hardly be surprising to stress again that high quality big data is a pre-requisite for the development and deployment of digital technologies. All digital technologies of potential adoption in procurement governance are data-dependent. Therefore, without adequate data, there is no prospect of successful adoption of the technologies. The difficulties in generating an enabling procurement data architecture are detailed here.
Moreover, new data rules only regulate the capture of data for the future. This means that it will take time for big data to accumulate. Accessing historical data would be a way of building up (big) data and speeding up the development of digital solutions. Moreover, in some contexts, such as in relation with very infrequent types of procurement, or in relation to decisions concerning previous investments and acquisitions, historical data will be particularly relevant (eg to deploy green policies seeking to extend the use life of current assets through programmes of enhanced maintenance or refurbishment; see here). However, there are significant challenges linked to the creation of backward-looking digital databases, not only relating to the cost of digitisation of the information, but also to technical difficulties in ensuring the representativity and adequate labelling of pre-existing information.
An additional issue to consider is that a number of governance-relevant insights can only be extracted from a combination of procurement and other types of data. This can include sources of data on potential conflict of interest (eg family relations, or financial circumstances of individuals involved in decision-making), information on corporate activities and offerings, including detailed information on products, services and means of production (eg in relation with licensing or testing schemes), or information on levels of utilisation of public contracts and satisfaction with the outcomes by those meant to benefit from their implementation (eg users of a public service, or ‘internal’ users within the public administration).
To the extent that the outside sources of information are not digitised, or not in a way that is (easily) compatible or linkable with procurement information, some data-based procurement governance solutions will remain undeliverable. Some developments in digital procurement governance will thus be determined by progress in other policy areas. While there are initiatives to promote the availability of data in those settings (eg the EU’s Data Governance Act, the Guidelines on private sector data sharing, or the Open Data Directive), the voluntariness of many of those mechanisms raises important questions on the likely availability of data required to develop digital solutions.
Overall, there is no guarantee that the data required for the development of some (advanced) digital solutions will be available. A careful analysis of data requirements must thus be a point of concentration for any decision-maker from the very early stages of considering digitalisation projects.
Once (or rather, if) that major data hurdle is cleared, the possibilities realistically brought by the functionality of digital technologies need to be embedded in the procurement governance context, which results in the following feasibility boundary for the adoption of those technologies.
RPA can reduce the administrative costs of managing pre-existing digitised and highly structured information in the context of entirely standardised and repetitive phases of the procurement process. RPA can reduce the time invested in gathering and cross-checking information and can thus serve as a basic element of decision-making support. However, RPA cannot increase the volume and type of information being considered (other than in cases where some available information was not being taken into consideration due to eg administrative capacity constraints), and it can hardly be successfully deployed in relation to open-ended or potentially contradictory information points. RPA will also not change or improve the processes themselves (unless they are redesigned with a view to deploying RPA).
This generates a clear feasibility boundary for RPA deployment, which will generally have as its purpose the optimisation of the time available to the procurement workforce to engage in information analysis rather than information sourcing and basic checks. While this can clearly bring operational advantages, it will hardly transform procurement governance.
Developing ML solutions will pose major challenges, not only in relation to the underlying data architecture (as above), but also in relation to specific regulatory and governance requirements specific to public procurement. Where the operational management of procurement does not diverge from the equivalent function in the (less regulated) private sector, it will be possible to see the adoption or adaptation of similar ML solutions (eg in relation to category spend management). However, where there are regulatory constraints on the conduct of procurement, the development of ML solutions will be challenging.
For example, the need to ensure the openness and technical neutrality of procurement procedures will limit the possibilities of developing recommender systems other than in pre-procured closed lists or environments based on framework agreements or dynamic purchasing systems underpinned by electronic catalogues. Similarly, the intended use of the recommender system may raise significant legal issues concerning eg the exercise of discretion, which can limit their deployment to areas of information exchange or to merely suggestion-based tasks that could hardly replace current processes and procedures. Given the limited utility (or acceptability) of collective filtering recommender solutions (which is the predominant type in consumer-facing private sector uses, such as Netflix or Amazon), there are also constraints on the generality of content-based recommender systems for procurement applications, both at tenderer and at product/service level. This raises a further feasibility issue, as the functional need to develop a multiplicity of different recommenders not only reopens the issue of data sufficiency and adequacy, but also raises questions of (economic and technical) viability. Recommender systems would mostly only be susceptible of feasible adoption in highly centralised procurement settings. This could create a push for further procurement centralisation that is not neutral from a governance perspective, and that can certainly generate significant competition issues of a similar nature, but perhaps a different order of magnitude, than procurement centralisation in a less digitally advanced setting. This should be carefully considered, as the knock-on effects of the implementation of some ML solutions may only emerge down the line.
Similarly, the development and deployment of chatbots is constrained by specific regulatory issues, such as the need to deploy closed domain chatbots (as opposed to open domain chatbots, ie chatbots connected to the Internet, such as virtual assistants built into smartphones), so that the information they draw from can be controlled and quality assured in line with duties of good administration and other legal requirements concerning the provision of information within tender procedures. Chatbots are suited to types of high-volume information-based queries only. They would have limited applicability in relation to the specific characteristics of any given procurement procedure, as preparing the specific information to be used by the chatbot would be a challenge—with the added functionality of the chatbot being marginal. Chatbots could facilitate access to pre-existing and curated simple information, but their functionality would quickly hit a ceiling as the complexity of the information progressed. Chatbots would only be able to perform at a higher level if they were plugged to a knowledge base created as an expert system. But then, again, in that case their added functionality would be marginal. Ultimately, the practical space for the development of chatbots is limited to low added value information access tasks. Again, while this can clearly bring operational advantages, it will hardly transform procurement governance.
ML could facilitate the development and deployment of ‘advanced’ automated screens, or red flags, which could identify patterns of suspicious behaviour to then be assessed against the applicable rules (eg administrative and criminal law in case of corruption, or competition law, potentially including criminal law, in case of bid rigging) or policies (eg in relation to policy requirements to comply with specific targets in relation to a broad variety of goals). The trade off in this type of implementation is between the potential (accuracy) of the algorithmic screening and legal requirements on the explainability of decision-making (as discussed in detail here). Where the screens were not used solely for policy analysis, but acting on the red flag carried legal consequences (eg fines, or even criminal sanctions), the suitability of specific types of ML solutions (eg unsupervised learning solutions tantamount to a ‘black box’) would be doubtful, challenging, or altogether excluded. In any case, the development of ML screens capable of significantly improving over RPA-based automation of current screens is particularly dependent on the existence of adequate data, which is still proving an insurmountable hurdle in many an intended implementation (as above).
Other procurement governance constraints limit the prospects of wholesale adoption of DLT (or blockchain) technologies, other than for relatively limited information management purposes. The public sector can hardly be expected to adopt DLT solutions that are not heavily permissioned, and that do not include significant safeguards to protect sensitive, commercially valuable, and other types of information that cannot be simply put in the public domain. This means that the public sector is only likely to implement highly centralised DLT solutions, with the public sector granting permissions to access and amend the relevant information. While this can still generate some (degrees of) tamper-evidence and permanence of the information management system, the net advantage is likely to be modest when compared to other types of secure information management systems. This can have an important bearing on decisions whether DLT solutions meet cost effectiveness or similar criteria of value for money controlling their piloting and deployment.
The value proposition of DLT solutions could increase if they enabled significant procurement automation through smart contracts. However, there are massive challenges in translating procurement procedures to a strict ‘if/when ... then’ programmable logic, smart contracts have limited capability that is not commensurate with the volumes and complexity of procurement information, and their development would only be justified in contexts where a given smart contract (ie specific programme) could be used in a high number of procurement procedures. This limits its scope of applicability to standardised and simple procurement exercises, which creates a functional overlap with some RPA solutions. Even in those settings, smart contracts would pose structural problems in terms of their irrevocability or automaticity. Moreover, they would be unable to generate off-chain effects, and this would not be easily sorted out even with the inclusion of internet of things (IoT) solutions or software oracles. This comes to largely restrict smart contracts to an information exchange mechanism, which does not significantly increase the value added by DLT plus smart contract solutions for procurement governance.
To conclude, there are significant and difficult to solve hurdles in generating an enabling data architecture, especially for digital technologies that require multiple sources of information or data points regarding several phases of the procurement process. Moreover, the realistic potential of most technologies primarily concerns the automation of tasks not involving data analysis of the exercise of procurement discretion, but rather relatively simple information cross-checks or exchanges. Linking back to the discussion in the earlier broader chapter (see here), the analysis above shows that a feasibility boundary emerges whereby the adoption of digital technologies for procurement governance can make contributions in relation to its information intensity, but not easily in relation to its information complexity, at least not in the short to medium term and not in the absence of a significant improvement of the required enabling data architecture. Perhaps in more direct terms, in the absence of a significant expansion in the collection and curation of data, digital technologies can allow procurement governance to do more of the same or to do it quicker, but it cannot enable better procurement driven by data insights, except in relatively narrow settings. Such settings are characterised by centralisation. Therefore, the deployment of digital technologies can be a further source of pressure towards procurement centralisation, which is not a neutral development in governance terms.
This feasibility boundary should be taken into account in considering potential use cases, as well as serve to moderate the expectations that come with the technologies and that can fuel ‘policy irresistibility’. Further, it should be stressed that those potential advantages do not come without their own additional complexities in terms of new governance risks (eg data and data systems integrity, cybersecurity, skills gaps) and requirements for their mitigation. These will be explored in the next stage of my research project.
I have just started a 12-month Mid-Career Fellowship funded by the British Academy with the purpose of writing up the monograph Digital Technologies and Public Procurement. Gatekeeping and experimentation in digital public governance (OUP, forthcoming).
In the process of writing up, I will be sharing some draft chapters and other thought pieces. I would warmly welcome feedback that can help me polish the final version. As always, please feel free to reach out: a.sanchez-graells@bristol.ac.uk.
In this first draft chapter (num 6), I explore the technological promise of digital governance and use public procurement as a case study of ‘policy irresistibility’. The main ideas in the chapter are as follows:
This Chapter takes a governance perspective to reflect on the process of horizon scanning and experimentation with digital technologies. The Chapter stresses how aspirations of digital transformation can drive policy agendas and make them vulnerable to technological hype, despite technological immaturity and in the face of evidence of the difficulty of rolling out such transformation programmes—eg regarding the still ongoing wave of transition to e-procurement. Delivering on procurement’s goals of integrity, efficiency and transparency requires facing challenges derived from the information intensity and complexity of procurement governance. Digital technologies promise to bring solutions to such informational burden and thus augment decisionmakers’ ability to deal with that complexity and with related uncertainty. The allure of the potential benefits of deploying digital technologies generates ‘policy irresistibility’ that can capture decision-making by policymakers overly exposed to the promise of technological fixes to recalcitrant governance challenges. This can in turn result in excessive experimentation with digital technologies for procurement governance in the name of transformation. The Chapter largely focuses on the EU policy framework, but the insights derived from this analysis are easily exportable.
Another draft chapter (num 7) will follow soon with more detailed analysis of the feasibility boundary for the adoption of digital technologies for procurement governance purposes. The full details of this draft chapter are as follows: A Sanchez-Graells, ‘The technological promise of digital governance: procurement as a case study of “policy irresistibility”’ to be included in A Sanchez-Graells, Digital Technologies and Public Procurement. Gatekeeping and experimentation in digital public governance (OUP, forthcoming). Available at SSRN: https://ssrn.com/abstract=4216825.
This is a post in two parts. The first part addresses my methodological concerns with research on digital technologies and public procurement (and public governance more generally), as exemplified by a recent paper. The second part collects the response by the authors of that paper.
This pair of points of view are offered together to try to create debate. While the authors found my comments harsh (I cannot judge that), they engaged with them and provided their own counter-arguments. In itself, I think that is laudable and already has value. Any further discussion with the broader community, via comments (or email), would be a bonus.
When I started researching the interaction between digital technologies and procurement governance, it was clear to me that a technology-centered legal method was required. A significant amount of the scholarship that is published fails to properly address the governance implications of digital technologies because it simply does not engage with their functionality—or, put otherwise, because the technology is not understood. This can lead to either excessive claims of what ‘technology fixes’ can achieve or, perhaps even more problematic, it can generate analysis that is based on a misleading, shallow and oftentimes purely literal reading of the labels with which the technology is described and referred to.
A recent paper on smart contracts and procurement clearly exemplifies this problem: N.A. Sava & D. Dragos, ‘The Legal Regime of Smart Contracts in Public Procurement’ (2022) Transylvanian Review of Administrative Sciences, No. 66 E/2022, pp. 99–112.
From the outset, the paper is at pains to distinguish blockchain and smart contracts, and proposes ’a needed conceptual distinction that would fit the public contracts theory: before a contract is signed, it is logical to refer to blockchain technology when discussing digital means of awarding the procurement contract. As a result of this award, the concluded contract could be a “smart contract”’ (at 101).
The trap into which the paper falls, of course, is that of believing that blockchain and smart contracts can be distinguished ‘conceptually’ (in a legal sense), rather than on the basis of their technological characteristics and functionality.
Blockchain is a type of distributed ledger technology (DLT). In some more detail: ‘A DLT system is a system of electronic records that enables a network of independent participants to establish a consensus around the authoritative ordering of cryptographically-validated (‘signed’) transactions. These records are made persistent by replicating the data across multiple nodes, and tamper-evident by linking them by cryptographic hashes. The shared result of the reconciliation/consensus process - the ‘ledger’ - serves as the authoritative version for these records’ (M Rauchs et al, Distributed Ledger Technology Systems. A Conceptual Framework (2018), at 24). Blockchain is thus a ‘passive’ digital technology in the sense that it cannot perform any sort of automation of (decision-making) processes because it simply serves to create a data infrastructure.
In turn, smart contracts are a type of ‘active’ (or automating) digital technology that can be deployed on top of a DLT. In more detail: ‘Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. They can also automate a workflow, triggering the next action when conditions are met’ (IBM, What are smart contracts on blockchain? (undated, accessed 1 July 2022)).
What this means is that, functionally, ‘smart contracts’ may or may not map onto the legal concept of contract, as a ‘smart contract’ can be a unilaterally programmed set of instructions aimed at the automation of a workflow underpinned by data held on a DLT.
Taking this to the public procurement context, it is then clear that both the management of the award process and the execution of an awarded public contract, to the extent that they could be automated, would both need to be instrumentalised via smart contracts plus an underlying blockchain (I would though be remiss not to stress that the practical possibilities of automating either of those procurement phases are extremely limited, if at all realistic; see here and here, which the paper refers to in passing). It does not make any (technological/functional) sense to try to dissociate both layers of digital technology to suggest that ‘blockchain technology [should be used] when discussing digital means of awarding the procurement contract. As a result of this award, the concluded contract could be a “smart contract”’ (Sava & Dragos, above, 101).
This is important, because that technology-incongruent conceptual distinction is then the foundation of legal analysis. The paper e.g. posits that ‘the award of public contracts is a unilateral procedure, organized by state authorities according to specific rules, and that automation of such procedure may be done using blockchain technology, but it is not a ‘“smart contract” (sic). Smart contracts, on the other hand, can be an already concluded procurement contract, which is executed, oversaw (sic) and even remedied transparently, using blockchain technology (sic)’ (ibid, 103, emphasis added).
There are three problems here. First, the automation of the procurement award procedure carried out on top of a DLT layer would require a smart contract (or a number of them). Second, the outcome of that automated award would only be a ‘smart contract’ in itself if it was fully coded and its execution fully automated. In reality, it seems likely that some parts of a public contract could be coded (e.g. payments upon invoice approval), whereas other parts could not (e.g. anything that has to happen offline). Third, the modification of the smart contract (ie coded) parts of a public contract could not be modified (solely) using blockchain technology, but would require another (or several) smart contract/s.
Similarly, the lack of technology-centricity of the analysis leads the paper to present as open policy choices some issues that are simply technologically-determined.
For example, the paper engages in this analysis:
… the question is where should the smart public contracts be awarded? In the electronic procurement systems already developed by the different jurisdictions? On separate platforms using blockchain technology? The best option for integrating smart contracts into the procurement procedures may be the already existing digital infrastructure, therefore on the electronic procurement platforms of the member states. We believe this would be an optimal solution, as smart contracts should enhance the current electronic procurement framework and add value to it, thus leveraging the existing system and not replacing it (at 103, emphasis added).
Unless the existing electronic procurement platforms ran on blockchain—which I do not think they do—then this is not a policy option at all, as it is not possible to deploy smart contracts on top of a different layer of information. It may be possible to automate some tasks using different types of digital technologies (e.g. robotic process automation), but not smart contracts (if the technological concept, as discussed above, is to be respected).
The problems continue with the shallow approach to the technology (and to the underlying legal and practical issues), as also evidenced in the discussion of the possibility of automating checks related to the European Single Procurement Document (ESPD), which is a self-declaration that the economic operator is not affected by exclusion grounds (see Art 59 Directive 2014/24/EU).
The paper states
In the context of automatized checks, the blockchain technology can provide an avenue for checking the validity of proofs presented. The system could automate the verifications of the exclusion grounds and the selection criteria by checking the original documents referenced in the ESPD in real time (that is, before determining the winning tender). The blockchain technology could verify the respect of the exclusions grounds and rule out any economic operator that does not comply with this condition (at 104, emphasis added).
This is a case of excessive claim based on a misunderstanding of the technology. A smart contract could only verify whatever information was stored in a DLT. There is no existing DLT capturing the information required to assess the multiplicity of exclusion grounds regulated under EU law. Moreover, the check would never be of the original documents, but rather of digital records that would either be self-declared by the economic operators or generated by a trusted authority. If the latter, what is the point of a blockchain (or other DLT), given that the authority and veracity of the information comes from the legal authority of the issuer, not the consensus mechanism?
There are also terminological/conceptual inconsistencies in the paper, which does not consistently stick to its conceptual distinction that blockchain should be used to refer to the automation of the award procedure, with smart contracts being reserved to the awarded contract. For example, it (correctly) asserts that ‘When it comes to selection criteria, the smart contract could also perform automatic checks on the elements listed in the contract notice’ (at 104). However, this can creates confusion for a reader not familiar with the technology.
Other issues point at the potentially problematic implications of analysis based on a lack of in-depth exploration of the technologies. For example, the paper discusses a project in Colombia, which ‘created a blockchain software that allowed for record keeping, real time auditability, automation through smart contracts and enhanced citizen engagement’ (at 105). After limited analysis, the paper goes on to stress that ‘Our opinion is that the system in Colombia resembles very much the regular e-procurement systems in Europe. For instance, Romania’s SEAP (Electronic Public Procurement System) insures exactly the same features — non-alteration of bids, traceability and automatic evaluation of tenders (price). So, the question is whether the smart contract system in Colombia is anything else than a functional e-procurement system’ (ibid). This reflects a conflation of functionality with technology, at best.
In the end, the lack of technology-centered (legal) analysis significantly weakens the paper and makes its insights and recommendations largely unusable.
To avoid this type of problems in much-needed legal scholarship on the impact of digital technologies on public governance, it is necessary to develop a technology-centric legal methodology. This is something I am working on, in the context of my project funded by the British Academy. I will seek to publish a draft methodology towards the end of the year. Comments and suggestions on what to take into account would be most welcome: a.sanchez-graells@bristol.ac.uk.
Dear Professor,
As a first-year PhD student, being read and offered feedback, especially in the incipient phase of the research, is an amazing learning opportunity. Not all PhD students have the chance to exchange on their topic, and even more with a revered name in the doctrine of public procurement like yourself, therefore am I am very grateful for this debate (Sava).
The co-author Dragos also shares the respect and gratitude for the scholarly critique, although considers the comments rather theoretical and lacking an alternative constructive conclusion.
Concerning the need to conduct a ʻtechnology-centered legal’ research, I fully agree, and I will try to integrate more technology-centered research into the thesis.
However, being lawyers, we believe that technology-centered research does not take into account the established concepts from law and especially public procurement law, therefore an interdisciplinary perspective is needed.
Now we will address the arguments you formulated.
Concerning the definitions of blockchain and smart contract that you offer, we are of course familiar with them and agree with them.
We agree that blockchain-based smart-contracts could automate certain aspects of the procurement procedures, both in the award and in the execution phase. In our paper, we acknowledge the fact that ʻsmart contracts could automate any process that can be presented as an IF+THEN formula’ (p. 100-101). In this sense, like you noticed, we give the example of automating the check of the selection criteria: ‘When it comes to selection criteria, the smart contract could also perform automatic checks on the elements listed in the contract notice’ (p. 104).
However, beyond these two concepts (blockchain and smart contracts), there is a third concept, that of a ʻsmart legal contract’.
DiMatteo, L., Cannarsa, M. and Poncibò, C., in The Cambridge Handbook of Smart Contracts, Blockchain Technology and Digital Platforms (Cambridge: Cambridge University Press, 2019, p. 63) draw attention to the inadequacy of the terminology: ʻFor blockchain-based smart contracts, a useful dichotomy can be drawn between the ‘smart contract code’ that is, the computer code that is ‘– stored, verified, and executed on a blockchain and the ‘smart legal contract’ - a complement (or maybe even a substitute) for a legal contract that applies that technology. In essence, a ‘smart legal contract’ is a combination of the ‘smart contract code’ and traditional legal language.
'The LawTech panel recently decided that (...) smart contracts could still be legally binding provided that they include the typical elements of a contract.’ (https://juro.com/learn/smart-contracts, consulted on the 2nd of July 2022). Like you mention, ‘functionally, ‘smart contracts’ may or may not map onto the legal concept of contract, as a ‘smart contract’ can be a unilaterally programmed set of instructions aimed at the automation of a workflow underpinned by data held on a DLT’.
Therefore, the correct conceptual distinction would be between ʻsmart contract code’ and ʻsmart legal contract’. In the paper, we tried to focus on the smart legal contract, and discuss its compatibility with public procurement contracts. Through the conceptual distinction, we actually wanted to point out the fact that it would be difficult to imagine a smart legal contract (legally binding) exclusively in the award phase. On the other hand, concerning the ʻsmart contract code’ we agree that it could be applicable to both the award and the execution phase, although the terminology remains debatable.
We state that ʻThe best option for integrating smart contracts into the procurement procedures may be the already existing digital infrastructure, therefore on the electronic procurement platforms of the member states. We believe this would be an optimal solution, as smart contracts should enhance the current electronic procurement framework and add value to it, thus leveraging the existing system and not replacing it’ (p. 103).
Of course, we do not believe that the current system works on blockchain (in the paper we explore why this would be a difficult task), but we did discuss the integration of emerging technologies in the existing context of e-procurement tools. However, this would be an integration among the e-procurement tools, not on top of the existing tools, as adequate infrastructure would be needed.
Actually we mean exactly what you pointed out in your conclusions, so we are in agreement here: some aspects of the procedure could be automated, yet the rest of the procedure could function based on the rules already in place. By the idea of not replacing the e-procurement system, we mean automatizing some punctual aspects, but not replacing the entire system.
The idea was that smart contracts could automatically check certain documents, such as the ones referenced in the ESPD.
In our text, we only discuss the idea of a verification, we do not describe in detail how this should be performed and we do not state that the DLT should capture on its own ʻthe information required to assess the multiplicity of exclusion grounds regulated under EU law’. Of course, these documents would need to be uploaded to the DLT and the uploaded documents would have a digital form. By ‘original document’ we refer to the document per se, the reference document and not the simple declaration from the ESPD.
An analogy of this idea could be made with the Canadian ‘Supplier information registration system, which facilitates the registration of supplier information on blockchain to validate it against different records and to validate it in an automated way’ (NTT Data Presentation at EPLD Meeting, May 2022).
We could not understand your critique here. The referenced example described a system for selecting economic operators in public procurement (for more information: https://www.weforum.org/reports/exploring-blockchain-technology-for-government-transparency-to-reduce-corruption/), which we believe is comparable with a regular e-procurement portal.
Through our analysis, we intended to raise the following question: would automating some aspects of the public procurement procedure through “smart contracts” ensure the same characteristics and guarantees as the ones offered by an e-public procurement system of an EU member state? In that case, what is the added value of “smart contracts” in public procurement? It is a research question that we will try to focus on in the future, we merely pose it here.
This paper is an exploratory and incipient one. For the moment, our goal was to raise some questions and to explore some potential paths. Apart from theoretical “what ifs”, it is hard to find specificities of assertions that new digital technologies will definitely have numerous and game-changing applications in the procurement process, as long as the procurement process is still managed unilaterally by public bodies and entertains a public law regime.
The intention is to challenge a rather theoretical assumption on the role of digital technologies in public procurement and subsequently trying to find real, practical examples or applications, if any.
In no circumstance did we state that we are formulating policy recommendations, this was misunderstood. Only after extensive research conclusions may lead to policy recommendations but we are still far from that moment.
However, we believe that in order to actually draw some conclusions on the use of such technologies in public procurement, scholars should delve in more depth into the topic, by critically assessing the current literature in the field and trying to have an interdisciplinary (legal, technological and managerial) look at the topic. As of now, the literature is too theoretical.
In other words, in our opinion, the exclusive tech-centered approach that you suggest would be equally harmful as an exclusively legal one.
Thank you for this chance of a constructive dialogue, we are looking forward to future exchange on the topic.
Magic; Stage Illusions and Scientific Diversions, Including Trick Photography (1897), written by Albert Allis Hopkins and Henry Ridgely Evan.
As the dust settles in the process of reform of UK public procurement rules, and while we await for draft legislation to be published (some time this year?), there is now a chance to further reflect on the likely effects of the deregulatory, flexibility- and discretion-based approach to be embedded in the new UK procurement system.
An issue that may not have been sufficiently highlighted, but which should be of concern, is the way in which increased flexibility and discretion will unavoidably carry higher corruption risks and reduce the effectiveness of potential anti-corruption tools, in particular those based on the implementation of digital technologies for procurement oversight [see A Sanchez-Graells, ‘Procurement Corruption and Artificial Intelligence: Between the Potential of Enabling Data Architectures and the Constraints of Due Process Requirements’ in S Williams-Elegbe & J Tillipman (eds), Routledge Handbook of Public Procurement Corruption (Routledge, forthcoming)].
This is an inescapable issue, for there is an unavoidable trade-off between flexibility, discretion and corruption (in procurement, and more generally). And this does not bode well for the future of UK procurement integrity if the experience during the pandemic is a good predictor.
The trade-off between flexibility, discretion and corruption underpins many features of procurement regulation, such as the traditional distrust of procedures involving negotiations or direct awards, which may however stifle procurement innovation and limit value for money [see eg F Decarolis et al, ‘Rules, Discretion, and Corruption in Procurement: Evidence from Italian Government Contracting’ (2021) NBER Working Paper 28209].
The trade-off also underpins many of the anti-corruption tools (eg red flags) that use discretionary elements in procurement practice as a potential proxy for corruption risk [see eg M Fazekas, L Cingolani and B Tóth, ‘Innovations in Objectively Measuring Corruption in Public Procurement’ in H K Anheier, M Haber and M A Kayser (eds) Governance Indicators: Approaches, Progress, Promise (OUP 2018) 154-180; or M Fazekas, S Nishchal and T Søreide, ‘Public procurement under and after emergencies’ in O Bandiera, E Bosio and G Spagnolo (eds), Procurement in Focus – Rules, Discretion, and Emergencies (CEPR Press 2022) 33-42].
Moreover, economists and political scientists have clearly stressed that one way of trying to strike an adequate balance between the exercise of discretion and corruption risks, without disproportionately deterring the exercise of judgement or fostering laziness or incompetence in procurement administration, is to increase oversight and monitoring, especially through auditing mechanisms based on open data (see eg Procurement in a crisis: how to mitigate the risk of corruption, collusion, abuse and incompetence).
The difficulty here is that the trade-off is inescapable and the more dimensions on which there is flexibility and discretion in a procurement system, the more difficult it will be to establish a ‘normalcy benchmark’ or ‘integrity benchmark’ from which deviations can trigger close inspection. Taking into account that there is a clear trend towards seeking to automate integrity checks on the basis of big data and machine learning techniques, this is a particularly crucial issue. In my view, there are two main sources of difficulties and limitations.
First, that discretion is impossible to code for [see S Bratus and A Shubina, Computerization, Discretion, Freedom (2015)]. This both means that discretionary decisions cannot be automated, and that it is impossible to embed compliance mechanisms (eg through the definition of clear pathways based on business process modelling within an e-procurement system, or even in blockchain and smart contract approaches: Neural blockchain technology for a new anticorruption token: towards a novel governance model) where there is the possibility of a ‘discretion override’.
The more points along the procurement process where discretion can be exercised (eg choice of procedure, design of procedure, award criteria including weakening of link to subject matter of the contract and inclusion of non(easily)measurable criteria eg on social value, displacement of advantage analysis beyond sphere of influence of contracting authority, etc) the more this difficulty matters.
Second, the more deviations there are between the new rulebook and the older one, the lower the value of existing (big) data (if any is available or useable) and of any indicators of corruption risk, as the regulatory confines of the exercise of discretion will not only have shifted, but perhaps even lead to a displacement of corruption-related exercise of discretion. For example, focusing on the choice of procedure, data on the extent to which direct awards could be a proxy for corruption may be useless in a new context where that type of corruption can morph into ‘custom-made’ design of a competitive flexible procedure—which will be both much more difficult to spot, analyse and prove.
Moreover, given the inherent fluidity of that procedure (even if there is to be a template, which is however not meant to be uncritically implemented), it will take time to build up enough data to be able to single out specific characteristics of the procedure (eg carrying out negotiations with different bidders in different ways, such as sequentially or in parallel, with or without time limits, the inclusion of any specific award criterion, etc) that can be indicative of corruption risk reliably. And that intelligence may not be forthcoming if, as feared, the level of complexity that comes with the exercise of discretion deters most contracting authorities from exercising it, which would mean that only a small number of complex procedures would be carried out every year, potentially hindering the accumulation of data capable of supporting big data analysis (or even meaningful econometrical treatment).
Overall, then, the issue I would highlight again is that there is an unavoidable trade-off between increasing flexibility and discretion, and corruption risk. And this trade-off will jeopardise automation and data-based approaches to procurement monitoring and oversight. This will be particularly relevant in the context of the design and implementation of the tools at the disposal of the proposed Procurement Review Unit (PRU). The Response to the public consultation on the Transforming Public Procurement green paper emphasised that
‘… the PRU’s main focus will be on addressing systemic or institutional breaches of the procurement regulations (i.e. breaches common across contracting authorities or regularly being made by a particular contracting authority). To deliver this service, it will primarily act on the basis of referrals from other government departments or data available from the new digital platform and will have the power to make formal recommendations aimed at addressing these unlawful breaches’ (para [48]).
Given the issues raised above, and in particular the difficulty or impossibility of automating the analysis of such data, as well as the limited indicative value and/or difficulty of creating reliable red flags in a context of heightened flexibility and discretion, quite how effective this will be is difficult to tell.
Moreover, given the floating uncertainty on what will be identified as suspicious of corruption (or legal infringement), it is also possible that the PRU (initially) operates on the basis of indicators or thresholds arbitrarily determined (much like the European Commission has traditionally arbitrarily set thresholds to consider procurement practices problematic under the Single Market Scorecard; see eg here). This could have a signalling effect that could influence decision-making at contracting authority level (eg to avoid triggering those red flags) in a way that pre-empts, limits or distorts the exercise of discretion—or that further displaces corruption-related exercise of discretion to areas not caught by the arbitrary indicators or thresholds, thus making it more difficult to detect.
Therefore, these issues can be particularly relevant in establishing both whether the balance between discretion and corruption risk is right under the new rulebook’s regulatory architecture and approach, as well as whether there are non-statutory determinants of the (lack of) exercise of discretion, other than the complexity and potential litigation and challenge risk already stressed in earlier analysis and reflections on the green paper.
Another ‘interesting’ area of development of UK procurement law and practice post-Brexit when/if it materialises.
There is an interesting recent release in the area of Govtech: O Pollicino & G De Gregorio (eds), Blockchain and Public Law. Global Challenges in the Era of Decentralisation (Edward Elgar 2021).
It is an edited collection prefaced by a sharp critical account of the blockchain utopia (Kohl), and comprising a broad spectrum of analyses of the potential implications of blockchain on a range of public law areas, including: sovereignty (De Caria), citizenship (Gstrein & Kochenov), democracy (Goossens), authoritarianism (Bell), public administration (Hermstrüwer), freedom of expression (De Gregorio), or privacy (De Hert & Kumar). It also includes sectorial analyses in healthcare (Motsi-Omoijiade & Kharlamov), FinTech (Annunziata), antitrust (Maggiolino & Zoboli) and the broader issue of smart contracts (Sirena & Patti).
The chapters engage with analysis at different levels, from high level doctrinal considerations premised on the feasibility of completely decentralised blockchain implementations, to bottom-up reflections based on the emerging evidence of more limited blockchain implementations and their difficult coordination with existing legal frameworks. The diversity of approaches to the analysis of the public law implications of blockchain technology is in itself very thought-provoking, as it forces the reader to (eventually) take a stance on the likelihood of some of the scenarios considered in the book. There are two chapters that stood out to me.
The first one is Kohl’s ‘Blockchain utopia and its governance shortfalls’ (13-40). In this convincingly argued chapter, Kohl ‘sows seeds of scepticism about blockchain governance and liberation narratives’. Indeed, Kohl dissects the blockchain utopia and raises a number of heavy criticisms of essentialist approaches to the impact of this technology, mainly relying on a legal realist critical approach to the potential functionalities and the contextual constraints on the adoption of new technologies. Some of Kohl’s insights are worth highlighting, reproducing in full, and keeping in mind when thinking about these issues and, more generally, about the potential impact of digital technologies on public governance and law.
… the uptake of blockchain is premised on an assumption of the continued validity and relevance of established legal orders (even if their precise application may often still be uncertain), which is consistent with its transition into legitimacy and its endorsement by those for whom the legal system provides important protection of their proprietary interests. To be sure, new blockchain entrants may challenge existing intermediaries and bottlenecks and, in the course of doing so, disrupt the redistribution of assets and thereby unsettle existing ‘value asymmetries’, but overall the incorporation of blockchain technologies into mainstream society is likely to see it tamed, rather than unleashed. The broader point is that technologies, whether the internet or blockchain, are tightly and on multiple levels interconnected with exiting social orders and those interconnections decide upon the configurational latencies of the technological innovation within concrete settings: who uses the technological innovation in what configuration, for what purposes and against whom. This is not to deny the possibility of socio-technological disruptions to existing orders, but rather to emphasise how dominant political and economic actors will look to new technology for opportunities for maintaining, reinforcing and enhancing the status quo, and some of these ways may produce the very opposite outcomes to those articulated in utopian narratives (24-25, reference omitted and emphasis added).
Although blockchain may guarantee the authenticity and integrity of information as per creation, it cannot comment on the substantive value or quality of that information in its interface with reality. This quality exists on a different ontological level, not susceptible to verification by any distributed ledger. In a subscription contract for an online news service, blockchain applications may facilitate secure payments and even certify the provenance of the news item. Yet, it cannot certify the factual truth of the story or the competent interpretation of facts. However, it is in respect of these quality aspects of information production that important forms of trust are invoked; in the case of news, the trust in another’s construction of reality. This extra layer of trust, on the one hand, calls into question the validity of the distinction between the ‘internet of value’ and the ‘internet of information’ as generated by the blockchain phenomenon. Although blockchain applications can facilitate certain transactional aspects with security, and thereby enable new forms of value exchanges, the ‘internet of value’ is constituted of informational exchanges and there are important quality aspects of information to which blockchain does not speak. These can only be addressed by traditional gatekeepers acting as trusted third parties … (30-31, references omitted).
When decentralisation or disintermediation blockchain narratives argue for the substitution or marginalisation of existing corporations (such as banks or online platforms …) through distributed networks or decentralised organisations, they achieve much less than meets the eye. First, in essence they seek to replace one collective action mechanism for another - on the basis of the preferability of a flatter or distributed decision-making structure within the network or organisation … Essentially, public blockchain networks and organisations are ‘entities’ without a central management. This, however, only addresses the internal side of the organisation (by empowering its members …); the corporation’s cooperative arrangement, however, was also designed to present a unified front to the outside and thereby cushion its members from volatile markets. Assuming that even in a blockchain landscape, there would still be markets for blockchain networks competing with each other …, the decentralised networks or organisations would just become another intermediary, or centre of economic power, and thus recreate some of the very dependencies vis-à-vis users, that utopian accounts seek to redress. In other words, the replacement of a centralised management within an organisation does not touch upon its centralised position within a market: disintermediation within does not affect intermediation outside (35-36, references omitted).
Coupled with transaction costs analysis (which Khol also addresses eg at 40, and on which see here), these three insights put together seem to me to point towards the conclusion that blockchain is structurally incapable of creating an alternative institutional framework that is completely decentralised and, more specifically, that blockchain will not deliver a meaningful disruption of current institutions, even if it is suited to alter some of their processes.
From that perspective, the second chapter I find a must-read is Hermstrüwer’s ‘Blockchain and public administration‘ (105-122), which is a perfect concretization and further elaboration of the above insights. In this chapter, Hermstrüwer convincingly argues that ‘blockchain technology provides a much weaker basis for truly decentralized and legitimacy-preserving public administration than blockchain evangelists tend to claim. The main reason … [being] that [blockchain] is too static and rigid to be aligned with principles of administrative law without further ado’ (106).
Hermstrüwer demostrates this by explicit reference to problems or inconsistencies between blockchain and the foundational characteristics of public administration, such as: centralization; the incompleteness of administrative rules and decisions requiring interpretation; the tensions inherent in the unavoidability of the exercise of discretion in some contexts and the discretion aversion of public servants in other contexts; variability and intertemporal effects concerning the validity of administrative decisions, or the efficiency of public administrative action. The chapter further considers important issues of legitimacy of administrative action, including the security of and accountability for administrative decision-making. The conclusion that ‘Neither blockchain technology nor smart public contracts will be able to supplant centralized administrative agencies and courts … Blockchain technology might facilitate more cost-effective, secure and accurate procedures in the areas of public registration, verification, permissions and cross-agency cooperation … blockchain may remain what it currently is: a useful distributed ledger’ (122) can but be entirely shared.
To my mind, these two chapters and the broader variety of perspectives in the book, make an important contribution to current scholarly debates. Hopefully this research will also be noticed by policymakers presented with opportunities (or pressures) to adopt blockchain technologies.
On 30 April, I delivered a webinar on “Challenges and Opportunities for UK Procurement During and After the Pandemic” for the LUPC/SUPC Annual Conference. The slides are available via SlideShare and the recording is available via YouTube (below). Feedback most welcome: a.sanchez-graells@bristol.ac.uk.
LUPC/SUPC Conference 2020 30th April - Webinar 1 Challenges and Opportunities for UK Procurement During and After the COVID-19 Crisis Led by: Professor Alber...
** This post is based on the seminar given at the Law Department of Pompeu Fabra University in Barcelona, on 7 November 2019. The slides for the seminar are available here. Please note that some of the issues have been rearranged. I am thankful to participants for the interesting discussion, and to Dr Lela Mélon and Prof Carlos Gómez Ligüerre for the kind invitation to participate in this activitity of their research group on patrimonial law. I am also grateful to Karolis Granickas for comments on an earlier draft. The standard disclaimer applies.**
The use of public procurement as a tool to further sustainability goals is not a new topic, but rather the object of a long-running discussion embedded in the broader setting of the use of procurement for the pursuit of horizontal or secondary goals—currently labelled smart or strategic procurement. The instrumentalisation of procurement for (quasi)regulatory purposes gives rise to a number of issues, such as: regulatory transfer; the distortion of the very market mechanisms on which procurement rules rely as a result of added regulatory layers and constraints; legitimacy and accountability issues; complex regulatory impact assessments; professionalisation issues; etc.
Discussions in this field are heavily influenced by normative and policy positions, which are not always clearly spelled out but still drive most of the existing disagreement. My own view is that the use of procurement for horizontal policies is not per se desirable. The simple fact that public expenditure can act as a lever/incentive to affect private (market) behaviour does not mean that it should be used for that purpose at every opportunity and/or in an unconstrained manner. Procurement should not be used in lieu of legislation or administrative regulation where it is a second-best regulatory tool. Embedding regulatory elements that can also achieve horizontal goals in the procurement process should only take place where it has clear synergies with the main goal of procurement: the efficient satisfaction of public sector needs and/or needs in the public interest. This generates a spectrum of potential uses of procurement of a different degree of desirability.
At one end, and at its least desirable, procurement can and is used as a trade barrier for economic protectionism. In my view, this should not happen. At the other end of the spectrum, at its most desirable, procurement can and is (sometimes) used in a manner that supports environmental sustainability and technical innovation. In my view, this should happen, and more than it currently does. In between these two ends, there are uses of procurement for the promotion of labour and social standards, as well as for the promotion of human rights. Controversial as this position is, in my view, the use of procurement for the pursuit of those goals should be subjected to strict proportionality analysis in order to make sure that the secondary goal does not prevent the main purpose of the efficient satisfaction of public sector needs and/or needs in the public interest.
From a normative perspective, thus, I think that there is a wide space of synergy between procurement and environmental sustainability—which goes beyond green procurement and extends to the use of procurement to support a more circular economy—and that this can be used more effectively than is currently the case, due to emerging innovative uses of digital technologies for procurement governance.
This is the topic in which I would like to concentrate, to formulate some exploratory thoughts. The following reflections are focused on the EU context, but hopefully they are of a broader relevance. I first zoom in on the strategic priorities of fostering sustainability through procurement (2) and the digitalisation of procurement (3), as well as critically assess the current state of development of digital technologies for procurement governance (4). I then look at the interaction between both strategic goals, in terms of the potential for sustainable digital procurement (5), which leads to specific discussion of the need for an enabling data architecture (6), the potential for AI and sustainable procurement (7), the potential for the implementation of blockchains for sustainable procurement (8) and the need to refocus the emerging guidelines on the procurement of digital technologies to stress their sustainability dimension (9). Some final thoughts conclude (10).
As mentioned above, the use of public procurement to promote sustainability is not a new topic. However, it has been receiving increasing attention in recent policy-making and legislative efforts (see eg this recent update)—though they are yet to translate in the level of practical change required to make a relevant contribution to pressing challenges, such as the climate emergency (for a good critique, see this recent post by Lela Mélon).
Facilitating the inclusion of sustainability-related criteria in procurement was one of the drivers for the new rules in the 2014 EU Public Procurement Package, which create a fairly flexible regulatory framework. Most remaining problems are linked to the implementation of such a framework, not its regulatory design. Cost, complexity and institutional inertia are the main obstacles to a broader uptake of sustainable procurement.
The European Commission is alive to these challenges. In its procurement strategy ‘Making Procurement work in and for Europe’ [COM(2017) 572 final; for a critical assessment, see here], the Commission stressed the need to facilitate and to promote the further uptake of strategic procurement, including sustainable procurement.
However, most of its proposals are geared towards the publication of guidance (such as the Buying Green! Handbook), standardised solutions (such as the library of EU green public procurement criteria) and the sharing of good practices (such as in this library of use cases) and training materials (eg this training toolkit). While these are potentially useful interventions, the main difficulty remains in their adoption and implementation at Member State level.
While it is difficult to have a good view of the current situation (see eg the older studies available here, and the terrible methodology used for this 2015 PWC study for the Commission), it seems indisputable that there are massive differences across EU Member States in terms of sustainability-oriented innovation in procurement.
Taking as a proxy the differences that emerge from the Eco-Innovation Scoreboard, it seems clear that this very different level of adoption of sustainability-related eco-innovation is likely reflective of the different approaches followed by the contracting authorities of the different Member States.
Such disparities create difficulties for policy design and coordination, as is acknowledged by the Commission and the limitations of its procurement strategy. The main interventions are thus dependent on Member States (and their sub-units).
Similarly to the discussion above, the bidirectional relationship between the use of procurement as a tool to foster innovation, and the adaptation of procurement processes in light of technological innovations is not a new issue. In fact, the transition to electronic procurement (eProcurement) was also one of the main drivers for the revision of the EU rules that resulted in the 2014 Public Procurement Package, as well as the flanking regulation of eInvoicing and the new rules on eForms. eProcurement (broadly understood) is thus an area where further changes will come to fruition within the next 5 years (see timeline below).
However, even a maximum implementation of the EU-level eProcurement rules would still fall short of creating a fully digitalised procurement system. There are, indeed, several aspects where current technological solutions can enable a more advanced and comprehensive eProcurement system. For example, it is possible to automate larger parts of the procurement process and to embed compliance checks (eg in solutions such as the Prozorro system developed in Ukraine). It is also possible to use the data automatically generated by the eProcurement system (or otherwise consolidated in a procurement register) to develop advanced data analytics to support procurement decision-making, monitoring, audit and the deployment of additional screens, such as on conflicts of interest or competition checks.
Progressing the national eProcurement systems to those higher levels of functionality would already represent progress beyond the mandatory eProcurement baseline in the 2014 EU Public Procurement Package and the flanking initiatives listed above; and, crucially, enabling more advanced data analytics is one of the effects sought with the new rules on eForms, which aim to significantly increase the availability of (better) procurement data for transparency purposes.
Although it is an avenue mainly explored in other jurisdictions, and currently in the US context, it is also possible to create public marketplaces akin to Amazon/eBay/etc to generate a more user-friendly interface for different types of catalogue-based eProcurement systems (see eg this recent piece by Chris Yukins).
Beyond that, the (further) digitalisation of procurement is another strategic priority for the European Commission; not only for procurement’s sake, but also in the context of the wider strategy to create an AI-friendly regulatory environment and to use procurement as a catalyst for innovations of broader application – along lines of the entrepreneurial State (Mazzucato, 2013; see here for an adapted shorter version).
Indeed, the Commission has formulated a bold(er) vision for future procurement systems based on emerging digital technologies, in which it sees a transformative potential: “New technologies provide the possibility to rethink fundamentally the way public procurement, and relevant parts of public administrations, are organised. There is a unique chance to reshape the relevant systems and achieve a digital transformation” (COM(2017) 572 fin at 11).
Even though the Commission has not been explicit, it may be worth trying to map which of the currently emerging digital technologies could be of (more direct) application to procurement governance and practice. Based on the taxonomy included in a recent OECD report (2019a, Annex C), it is possible to identify the following types and specific technologies with potential procurement application:
AI solutions
Virtual Assistants (Chat bots or Voice bots): conversational, computer-generated characters that simulate a conversation to deliver voice- or text-based information to a user via a Web, kiosk or mobile interface. A VA incorporates natural-language processing, dialogue control, domain knowledge and a visual appearance (such as photos or animation) that changes according to the content and context of the dialogue. The primary interaction methods are text-to-text, text-to-speech, speech-to-text and speech-to-speech;
Natural language processing: technology involves the ability to turn text or audio speech into encoded, structured information, based on an appropriate ontology. The structured data may be used simply to classify a document, as in “this report describes a laparoscopic cholecystectomy,” or it may be used to identify findings, procedures, medications, allergies and participants;
Machine Learning: the goal is to devise learning algorithms that do the learning automatically without human intervention or assistance;
Deep Learning: allows computational models that are composed of multiple processing layers to learn representations of data with multiple levels of abstraction;
Robotics: deals with the design, construction, operation, and use of robots, as well as computer systems for their control, sensory feedback, and information processing;
Recommender systems: subclass of information filtering system that seeks to predict the "rating" or "preference" that a user would give to an item;
Expert systems: is a computer system that emulates the decision-making ability of a human expert;
Digital platforms
Distributed ledger technology (DLT): is a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, or institutions. There is no central administrator or centralised data storage. A peer-to-peer network is required as well as consensus algorithms to ensure replication across nodes is undertaken; Blockchain is one of the most common implementation of DLT;
Smart contracts: is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract;
IoT Platform: platform on which to create and manage applications, to run analytics, and to store and secure your data in order to get value from the Internet of Things (IoT);
Not all technologies are equally relevant to procurement—and some of them are interrelated in a manner that requires concurrent development—but these seem to me to be those with a higher potential to support the procurement function in the future. Their development needs not take place solely, or primarily, in the context of procurement. Therefore, their assessment should be carried out in the broader setting of the adoption of digital technologies in the public sector.
The emergence of the above mentioned digital technologies is now seen as a potential solution to complex public policy problems, such as the promotion of more sustainable public procurement. Keeping track of all the potential use cases in the public sector is difficult and the hype around buzzwords such as AI, blockchain or the internet of things (IoT) generates inflated claims of potential solutions to even some of the most wicked public policy problems (eg corruption).
This is reflective of the same hype in private markets, and in particular in financial and consumer markets, where AI is supposed to revolutionise the way we live, almost beyond recognition. There also seems to be an emerging race to the top (or rather, a copy-cat effect) in policy-making circles, as more and more countries adopt AI strategies in the hope of harnessing the potential of these technologies to boost economic growth.
In my view, digital technologies are receiving excessive attention. These are immature technologies and their likely development and usefulness is difficult to grasp beyond a relatively abstract level of potentiality. As such, I think these technologies may be receiving excessive attention from policy-makers and possibly also disproportionate levels of investment (diversion).
The implementation of digital technologies in the public sector faces a number of specific difficulties—not least, around data availability and data skills, as stressed in a recent OECD report (2019b). While it is probably beyond doubt that they will have an impact on public governance and the delivery of public services, it is more likely to be incremental rather than disruptive or revolutionary. Along these lines, another recent OECD report (2019c) stresses the need to take a critical look at the potential of artificial intelligence, in particular in relation to public sector use cases.
The OECD report (2019a) mentioned above shows how, despite these general strategies and the high levels of support at the top levels of policy-making, there is limited evidence of significant developments on the ground. This is the case, in particular, regarding the implementation of digital technologies in public procurement, where the OECD documents very limited developments (see table below).
Of course, this does not mean that we will not see more and more widespread developments in the coming years, but a note of caution is necessary if we are to embrace realistic expectations about the potential for significant changes resulting from procurement digitalisation. The following sections concentrate on the speculative analysis of such potential use of digital technologies to support sustainable procurement.
Bringing together the scope for more sustainable public procurement (2), the progressive digitalisation of procurement (3), and the emergence of digital technologies susceptible of implementation in the public sector (4); the combined strategic goal (or ideal) would be to harness the potential of digital technologies to promote (more) sustainable procurement. This is a difficult exercise, surrounded by uncertainty, so the rest of this post is all speculation.
In my view, there are different ways in which digital technologies can be used for sustainability purposes. The contribution that each digital technology (DT) can make depends on its core functionality. In simple functional terms, my understanding is that:
AI is particularly apt for the massive processing of (big) data, as well as for the implementation of data-based machine learning (ML) solutions and the automation of some tasks (through so-called robotic process automation, RPA);
Blockchain is apt for the implementation of tamper-resistant/evident decentralised data management;
The internet of things (IoT) is apt to automate the generation of some data and (could be?) apt to breach the virtual/real frontier through oracle-enabled robotics
The timeline that we could expect for the development of these solutions is also highly uncertain, although there are expectations for some technologies to mature within the next four years, whereas others may still take closer to ten years.
© Gartner, Aug 2018.
Each of the core functionalities or basic strengths of these digital technologies, as well as their rate of development, will determine a higher or lower likelihood of successful implementation in the area of procurement, which is a highly information/data-sensitive area of public policy and administration. Therefore, it seems unavoidable to first look at the need to create an enabling data architecture as a priority (and pre-condition) to the deployment of any digital technologies.
The importance of the availability of good quality data in the context of digital technologies cannot be over-emphasised (see eg OECD, 2019b). This is also clear to the European Commission, as it has also included the need to improve the availability of good quality data as a strategic priority. Indeed, the Commission stressed that “Better and more accessible data on procurement should be made available as it opens a wide range of opportunities to assess better the performance of procurement policies, optimise the interaction between public procurement systems and shape future strategic decisions” (COM(2017) 572 fin at 10-11).
However, despite the launch of a set of initiatives that seek to improve the existing procurement data architecture, there are still significant difficulties in the generation of data [for discussion and further references, see A Sanchez-Graells, “Data-driven procurement governance: two well-known elephant tales” (2019) 24(4) Communications Law 157-170; idem, “Some public procurement challenges in supporting and delivering smart urban mobility: procurement data, discretion and expertise”, in M Finck, M Lamping, V Moscon & H Richter (eds), Smart Urban Mobility – Law, Regulation, and Policy, MPI Studies on Intellectual Property and Competition Law (Springer 2020) forthcoming; and idem, “EU Public Procurement Policy and the Fourth Industrial Revolution: Pushing and Pulling as One?”, Working Paper for the YEL Annual Conference 2019 ‘EU Law in the era of the Fourth Industrial Revolution’].
To be sure, there are impending advances in the availability of quality procurement data as a result of the increased uptake of the Open Contracting Data Standards (OCDS) developed by the Open Contracting Partnership (OCP); the new rules on eForms; the development of eGovernment Application Programming Interfaces (APIs); the 2019 Open Data Directive; the principles of business to government data sharing (B2G data sharing); etc. However, it seems to me that the European Commission needs to exercise clearer leadership in the development of an EU-wide procurement data architecture. There is, in particular, one measure that could be easily adopted and would make a big difference.
The 2019 Open Data Directive (Directive 2019/1024/EU, ODD) establishes a special regime for high-value datasets, which need to be available free of charge (subject to some exceptions); machine readable; provided via APIs; and provided as a bulk download, where relevant (Art 14(1) ODD). Those high-value datasets are yet to be identified by the European Commission through implementing acts aimed at specifying datasets within a list of thematic categories included in Annex I, which includes the following datasets: geospatial; Earth observation and environment; meteorological; statistics; companies and company ownership; and mobility. In my view, most relevant procurement data can clearly fit within the category of statistical information.
More importantly, the directive specifies that the ‘identification of specific high-value datasets … shall be based on the assessment of their potential to: (a) generate significant socioeconomic or environmental benefits and innovative services; (b) benefit a high number of users, in particular SMEs; (c) assist in generating revenues; and (d) be combined with other datasets’ (Art 14(2) ODD). Given the high-potential of procurement data to unlock (a), (b) and (d), as well as, potentially, generate savings analogous to (c), the inclusion of datasets of procurement information in the future list of high-value datasets for the purposes of the Open Data Directive seems like an obvious choice.
Of course, there will be issues to iron out, as not all procurement information is equally susceptible of generating those advantages and there is the unavoidable need to ensure an appropriate balance between the publication of the data and the protection of legitimate (commercial) interests, as recognised by the Directive itself (Art 2(d)(iii) ODD) [for extended discussion, see here]. However, this would be a good step in the direction of ensuring the creation of a forward-looking data architecture.
At any rate, this is not really a radical idea. At least half of the EU is already publishing some public procurement open data, and many Eastern Partnership countries publish procurement data in OCDS (eg Moldova, Ukraine, Georgia). The suggestion here would bring more order into this bottom-up development and would help Member States understand what is expected, where to get help from, etc, as well as ensure the desirable level of uniformity, interoperability and coordination in the publication of the relevant procurement data.
Beyond that, in my view, more needs to be done to also generate backward-looking databases that enable the public sector to design and implement adequate sustainability policies, eg in relation to the repair and re-use of existing assets.
Only when the adequate data architecture is in place, will it be possible to deploy advanced digital technologies. Therefore, this should be given the highest priority by policy-makers.
If/when sufficient data is available, there will be scope for the deployment of several specific implementations of artificial intelligence. It is possible to imagine the following potential uses:
Sustainability-oriented (big) data analytics: this should be relatively easy to achieve and it would simply be the deployment of big data analytics to monitor the extent to which procurement expenditure is pursuing or achieving specified sustainability goals. This could support the design and implementation of sustainability-oriented procurement policies and, where appropriate, it could generate public disclosure of that information in order to foster civic engagement and to feedback into political processes.
Development of sustainability screens/indexes: this would be a slight variation of the former and could facilitate the generation of synthetic data visualisations that reduced the burden of understanding the data analytics.
Machine Learning-supported data analysis with sustainability goals: this could aim to train algorithms to establish eg the effectiveness of sustainability-oriented procurement policies and interventions, with the aim of streamlining existing policies and to update them at a pace and level of precision that would be difficult to achieve by other means.
Sustainability-oriented procurement planning: this would entail the deployment of algorithms aimed at predictive analytics that could improve procurement planning, in particular to maximise the sustainability impact of future procurements.
Moreover, where clear rules/policies are specified, there will be scope for:
Compliance automation: it is possible to structure procurement processes and authorisations in such a way that compliance with pre-specified requirements is ensured (within the eProcurement system). This facilitates ex ante interventions that could minimise the risk of and the need for ex post contractual modifications or tender cancellations.
Recommender/expert systems: it would be possible to use machine learning to assist in the design and implementation of procurement processes in a way that supported the public buyer, in an instance of cognitive computing that could accelerate the gains that would otherwise require more significant investments in professionalisation and specialisation of the workforce.
Chatbot-enabled guidance: similarly to the two applications above, the use of procurement intelligence could underpin chatbot-enabled systems that supported the public buyers.
A further open question is whether AI could ever autonomously generate new sustainability policies. I dare not engage in such exercise in futurology…
By contrast with the potential for big data and the AI it can enable, the potential for blockchain applications in the context of procurement seems to me much more limited (for further details, see here, here and here). To put it simply, the core advantages of distributed ledger technologies/blockchain derive from their decentralised structure.
Whereas there are several different potential configurations of DLTs (see eg Rauchs et al, 2019 and Alessie et al, 2019, from where the graph is taken), the configuration of the blockchain affects its functionalities—with the highest levels of functionality being created by open and permissionless blockchains.
However, such a structure is fundamentally uninteresting to the public sector, which is unlikely to give up control over the system. This has been repeatedly stressed and confirmed in an overview of recent implementations (OECD, 2019a:16; see also OECD, 2018).
Moreover, even beyond the issue of public sector control, it should be stressed that existing open and permissionless blockchains operate on the basis of a proof-of-work (PoW) consensus mechanism, which has a very high carbon footprint (in particular in the case of Bitcoin). This also makes such systems inapt for sustainable digital procurement implementations.
Therefore, sustainable blockchain solutions (ie private & permissioned, based on proof-of-stake (PoS) or a similar consensus mechanisms), are likely to present very limited advantages for procurement implementation over advanced systems of database management—and, possibly, even more generally (see eg this interesting critical paper by Low & Mik, 2019).
Moreover, even if there was a way to work around those constraints and design a viable technical solution, that by itself would still not fix underlying procurement policy complexity, which will necessarily impose constraints on technologies that require deterministic coding, eg
Tenders on a blockchain - the proposals to use blockchain for the implementation of the tender procedure itself are very limited, in my opinion, by the difficulty in structuring all requirements on the basis of IF/THEN statements (see here).
Smart (public) contracts - the same constraints apply to smart contracts (see here and here).
Blockchain as an information exchange platform (Mélon, 2019, on file) - the proposals to use blockchain mechanisms to exchange information on best practices and tender documentation of successful projects could serve to address some of the confidentiality issues that could arise with ‘standard’ databases. However, regardless of the technical support to the exchange of information, the complexity in identifying best practices and in ensuring their replicability remains. This is evidenced by the European Commission’s Initiative for the exchange of information on the procurement of Large Infrastructure Projects (discussed here when it was announced), which has not been used at all in its first two years (as of 6 November 2019, there were no publicly-available files in the database).
A final issue to take into consideration is that the procurement of digital technologies needs to itself incorporate sustainability considerations. However, this does not seem to be the case in the context of the hype and over-excitement with the experimentation/deployment of those technologies.
Indeed, there are emerging guidelines on procurement of some digital technologies, such as AI (UK, 2019) (WEF, 2019) (see here for discussion). However, as could be expected, these guidelines are extremely technology-centric and their interaction with broader procurement policies is not necessarily straightforward.
I would argue that, in order for these technologies to enable a more sustainable procurement, sustainability considerations need to be embedded not only in their application, but may well require eg an earlier analysis of whether the life-cycle of existing solutions warrants replacement, or the long-term impacts of the implementation of digital technologies (eg in terms of life-cycle carbon footprint).
Pursuing technological development for its own sake can have significant environmental impacts that must be assessed.
This (very long…) blog post has structured some of my thoughts on the interaction of sustainability and digitalisation in the context of public procurement. By way of conclusion, I would just try to translate this into priorities for policy-making (and research). Overall, I believe that the main area of effort for policy-makers should now be in creating an enabling data architecture. Its regulation can thus focus research in the short term. In the medium-term, and as use cases become clearer in the policy-making sphere, research should be moving towards the design of digital technology-enabled solutions (for sustainable public procurement, but not only) and their regulation, governance and social impacts. The long-term is too difficult for me to foresee, as there is too much uncertainty. I can only guess that we will cross that bridge when/if we get there…
In this guest post, Dr Kirsi-Maria Halonen offers some exploratory thoughts on the digitalisation of public procurement, its difficulties and some governance and competition implications. This post is based on the presentation she gave at a Finnish legal research seminar “Oikeustieteen päivät”, Aalto University, on 28-29 September 2019.
Digitalisation and e-procurement are considered to enhance the efficiency of the procurement process in the EU’s internal market. In line with the European Commission’s 2017 Procurement Strategy, procurement digitalisation can unlock better and faster transparency across the internal market, thus ensuring the possibility for economic operators to become aware of business opportunities, the facilitation of access to public tenders and the dissemination of information on the conditions of the award of public contracts.
Beyond mere transparency gains, procurement digitalisation is also expected to Increase the integrity of the awarding process and the public officials involved, thus fostering corruption prevention and good administrative practices. Finally, digitalisation is also expected to open new, more efficient monitoring possibilities both before and after contract execution, as well as the deployment of advanced big data analytics.
Digitalisation and e-procurement are some of the main goals of Directive 2014/24/EU. Since October 2018, these rules impose the mandatory use of electronic communications throughout the whole public contract award procedure (eCommunication), the submission of tenders in electronic form (eSubmission) and created detailed rules for procedures meant solely for eProcurement, as well as simplified information exchange mechanisms (such as the ESPD) to facilitate electronic processing of procurement information.
Although the digital requirements in the Directive do not yet cover pre-award market consultations or post-award contracts and contract amendments, there are some trends to indicate that these may be the next areas of digitalisation of procurement.
Many Member States have taken digitalisation and transparency in public procurement even further than the requirements of Directive 2014/24/EU. Many contracting authorities use eProcurement systems for the management of the entire life-cycle of the tendering process. In Finland, there is now consolidated experience with not only an eProcurement system, but also with an open access Government spend database. Similarly, Portugal, Spain, Italy, Slovakia and Poland have also created open access contract registers for all public contracts and contract amendments.
Additionally, many Member States are committed to wider transparency outside the procurement procedures. For example, there is an emerging practice of publication of pre-tendering market consultation documents or audio/video meeting records. It is also increasingly common to provide open access to contract performance documents, such as bills, payments and performance acceptance (eg the UK national action plan on open contracting).
Given the current trends of development of digital procurement, it is necessary to reflect not only on the opportunities that the roll-out of these technologies creates, but also some concerns that arise from increased transparency and the implications of this different mode of procurement governance. Below are some thoughts on four interrelated dimensions: corruption, SME participation, adoption of blockchain-base and algorithmic tools, and competition for public contracts.
Public Procurement and other commercial relationships (eg real estate development) between public and private sector are most vulnerable to corruption (as repeatedly stressed by the OECD, Transparency International, Finnish National Bureau of Investigation, etc). In that regard, it seems clear that the digitalisation of procurement and the increased transparency it brings with it can prevent corruption and boost integrity. Companies across the EU become aware of the contract award, so there is less room for national arrangements and protectionism. Digitalisation can make tendering less bureaucratic, thus lessening the need and room for bribes. eProcurement can also prevent (improper) direct communication between the contracting authority and potential tenderers. Finally, the mere existence of electronic documentation makes it easier to track and request documents at a later stage: illegal purchases are not that easy to “hide”.
Yet, even after the roll-out of electronic documentation and contract registers, there will remain issues such as dealing with receipts or fabricating needs for additional purchases, which are recurring problems in many countries. Therefore, while digitalisation can reduce the scope and risk of corruption, it is no substitute for other checks and balances on the proper operation of the procurement function and the underlying expenditure of public funds.
One of the goals of Directive 2014/24/EU was to foster procurement digitalisation to facilitate SME participation by making tendering less bureaucratic . However, tendering is still very bureaucratic. Sometimes it is difficult for economic operators to find the “right” contracts, as it requires experience not only in identifying, but also in interpreting contract notices. Moreover, the effects of digitalisation are still local due to language barriers – eg in Finland, tendering documents are mostly in Finnish.
Moreover, the uncertainty of winning and the need to put resources into tendering are the main reasons for not-bidding by SMEs (Jääskeläinen & Tukiainen, 2018); and this is not resolved by digital tools. On the contrary, and in a compounding manner, SMEs can be disadvantaged in eProcurement settings. SMEs rarely can compete in price, but the use of e-procurement systems "favours" the use of a price only criterion (in comparison to price-quality-ratio) as quality assessment requires manual assessment of tenders. The net effect of digitalisation on SME participation is thus less than clear cut.
The digitalisation of procurement creates new possibilities for the use of algorithms: it opens endless possibilities to implement algorithmic test for choosing “the best tender” and to automate the procurement of basic products and services; it allows for enhanced control of price adjustments in e-catalogues (which currently requires manual labor); and it can facilitate monitoring: eg finding signs for bid rigging, cartels or corruption. In the future, transparent algorithms could also attack corruption by minimizing or removing human participation from the course of the procurement procedure.
Digitalisation also creates possibilities for using blockchain: for example, to manage company records, official statements and documents, which can be made available to all contracting authorities across EU. However, this also creates risks linked to eg EU wide blacklists: a minor infringement in one Member State could lead to the economic operator’s incapability of participating in public tenders throughout the EU.
The implications of the adoption of both algorithmic and blockchain-based tools still requires further thought and analysis, and this is likely to remain a fertile area for practical experimentation and academic debate in the years to come.
Open public contract registers have become a part of public procurement regime in EU Member States where corruption is high or with a tradition of high levels of public sector transparency. The European Commission is pushing for their creation in all EU jurisdictions as part of its 2017 Procurement Strategy. These contract registers aim to enhance integrity of the procurement system and public official and to allow public scrutiny of public spending by citizens and media.
However, these registers can facilitate collusive agreements. Indeed, easier access to detailed tendering information facilitates monitoring existing cartels by its members: it provides means to make sure ”cartel discipline” is being followed. Moreover, it may facilitate the establishment of new cartels or lead to higher / not market-based pricing without specific collusive agreements.
Instead of creating large PDF-format databases of scanned public contracts, the European Commission indeed encourages Member States to create contract registers with workable datasets (user friendly, open, downloadable and machine-readable information on contracts and especially prices and parties of the contract). This creates huge risks of market failure and tendering with pricing that is not based on the market prices. It thus requires further thought.
Digitalisation has and is transforming public procurement regime and procedures. It is usually considered as a positive change: less bureaucracy, enhanced efficiency, better and faster communication and strengthening integrity of public sector. However, digitalisation keeps challenging the public procurement regime through eg automated processes and production of detailed data - leaving less room for qualitative assessments. One can wonder whether this contributes to the higher-level objectives of increasing SME participation and generating better value for money.
Digitalisation brings new tools for monitoring contracting authorities and to detect competition distortions and integrity failures. However, there is a clear risk in providing “too much” and “too detailed” pricing and contract information to the market operators – hence lowering the threshold of different collusive practices. It is thus necessary to reconsider current regulatory trends and to perhaps develop a more nuanced regulatory framework for the transparency of procurement information in a framework of digitalised governance.
Guest blogger
Dr Kirsi-Maria Halonen is a Doctor of Laws and Adjunct Professor, Senior Lecturer in Commercial Law at University of Lapland. She is also a current Member of the European Commission’s Stakeholders Expert Group on Public Procurement (SEGPP, E02807), the Research Council at Swedish Competition Authority, the Finnish Ministry of Finance national PP strategy working group (previously also national general contract terms for PP (JYSE) working group), the Finnish Public Procurement Association, of which she is a board member and previous chair, and the European Procurement Law Group (EPLG).
In addition to public procurement law, Kirsi-Maria is interested in contract law, tort law, corruption and transparency matters as well as state aid rules. She is the author of several articles (both in English and in Finnish) and a few books (in Finnish). Most recently, she has co-edited Transparency in EU Procurements. Disclosure within Public Procurement and during Contract Execution, vol 9 European Procurement Law Series (Edward Elgar, 2019), together with Prof R Caranta and Prof A Sanchez-Graells.
Interest in the use of blockchain in the context of public procurement keeps rising by the day. It is hard to find a country where this is not a topic of discussion, although there seems to be a wide spectrum from enthusiastic and proactive approaches (eg in the UK, with the promotion of procurement-centred blockchain use cases by the All-Party Parliamentary Group on Blockchain) to more skeptical and wait-and-see approaches (in Scandinavian countries, eg Denmark or Sweden).
At the same time as some theoretical work starts to emerge—see eg Sope Williams-Elegbe’s exploratory inaugural lecture and Raquel Carvalho’s (not always very clear or accurate) recent paper—the need to get some practical insights in order to support theoretical speculation becomes all-important. However, accessing this information can be a little tricky, in particular if local or regional projects are only publicised in languages other than English.
So we organised a couple of webinars on the topic and asked participants to pool together any use cases they know of (and thanks to all of them for their contributions). In rough terms (and with apologies for any over-simplification), it looks like there are three main areas of experimentation:
Development of proof-of-concept / pilot projects seeking to tackle some parts of the procurement process, such as (a) initiatives on exclusion/selection of tenderers in Costa Rica and the Basque Country (Spain) and (b) initiatives on tender submission and evaluation by smart contracts in Aragon (Spain)
Development of proof-of-concept / pilot projects seeking to carry out the entire procurement process on the blockchain, such as in Mexico (federal level) and Cape Town (South Africa)
Development of ‘blockchain-like’ database approaches that seek to replicate some of the main features of a blockchain (in terms of data de-centralisation and tamper-evidence features), such as some projects run by the EBRD
We also learnt about other Govtech / Regtech applications of blockchain, such as the Finnish initiatives to provide bank cards to refugees and to centralise the exchange of information on mandatory motor vehicle insurance. There are also other well-known projects around property registers (eg for land and IP).
On the whole, though, it seems like the most promising potential applications of blockchain are those linked to information management/storage and the transfer of digital assets, and that there is more potential in those cases where there is no existing (working) database for their management. The difficulties of implementing blockchain-based solutions for not-super-simple procurement and off-chain aspects of procurement seem too high to overcome any time soon.
It also seems like that there is a certain tension between the promise of transparency associated with blockchain infrastructure and the other attributes of the technology (mainly, tamper-evidence qualities), at least where the design of the blockchain is heavily permissioned and centralised. Perhaps as a very European issue (but also more broadly), compliance with data protection rules also comes up as a legal hurdle in every other project.
If you know of any other blockchain use cases in procurement, or if you have any other views on the potential of this technology for procurement governance, please comment on this post or get in touch: a.sanchez-graells@bristol.ac.uk
Photo: Rob Alcaraz/The Wall Street Journal.
The more I think about the use of blockchain solutions in the context of public procurement governance—and, more generally, of public services delivery—the more I find that the inability for blockchain technology to reliably connect to the ‘real world’ is bound to restrict any potentially useful applications to back-office functions and the procurement of strictly digital assets.
This is simply because blockchain can only generate its desirable effects of tamper-evident record-keeping and automated execution of smart contracts built on top of it to the extent that it does not require off-chain inputs. Blockchain is also structurally incapable of generating off-chain outputs by itself.
This is increasingly widely-known and is generating a sub-hype around oracles—which are devices aimed at plugging blockchains to the ‘real world’, either by feeding the blockchain with data, or by outputting data from the blockchain (as discussed eg here). In this blog post, I reflect on the minimal changes that I think the development of oracles is likely to have in the context of public procurement governance.
Generally, the potential for the use of blockchain and blockchain-enabled smart contracts to improve procurement governance is linked to the promise that it can help prevent corruption and mistakes through the automation of decision-making through the procurement process and the execution of public contracts and the immutability (rectius, tamper-evidence) of procurement records. There are two main barriers to the achievement of such improvements over current processes and governance mechanisms. One concerns transactions costs and information asymmetries (as briefly discussed here). The other concerns the massive gap between the virtual on-chain reality and the off-chain real world—which oracles are trying to bridge.
The separation between on-chain and off-chain reality is paramount to the analysis of governance issues and the impact blockchain can have. If blockchain can only displace the focus of potential corrupt or mistaken intervention—by the public buyer, or by public contractors—but not eliminate such risks, its potential contribution to a revolution of procurement governance certainly reduces in various orders of magnitude. So it is important to assess the extent to which blockchain can be complemented with other solutions (oracles) to achieve the elimination of points of entry for corrupt or mistaken activity, rather than their displacement or substitution.
In simple terms, oracles are data interfaces that connect a blockchain to a database or a source of data (for a taxonomy and some discussion, see here). This makes them potentially unreliable as (i) the oracle can only be as good as the data it relies on and (ii) the oracle can itself be manipulated. There are thus, two main sources of oracle vulnerability, which automatically translate into blockchain vulnerability.
First, the data can be manipulated—like when I prefer to sit and watch some TV rather than go for a run and tie my fitbit to my puppy’s collar so that, by midnight, I have still achieved my 10,000 daily steps.* Second, the oracle itself can be manipulated because it is a piece of software or hardware that can be tampered with, and perhaps in a way that is not readily evident and which uncovering requires some serious IT forensics—like getting a friend to crack fitbit’s code and add 10,000 daily steps to my database without me even needing to charge my watch.**
Unlilke when these issues concern the extent to which I lie to myself about my healthy lifestyle, these two vulnerabilities are highly problematic from a public governance perspective because, unless the data used in the interaction with the blockchain is itself automatically generated in a way that cannot be manipulated (and this starts to point at a mirror within a mirror situation, see below), the effect of implementing a blockchain plus oracle simply seems to be to displace the governance focus where controls need to be placed towards the source of the data and the devices used to collect it.
The sub-hype around oracles in blockchain discussions basically follows the same trend as the main hype around blockchain. The same way it is assumed that blockchain is bound to revolutionise everything because it will get so much better than it currently is, there are emerging arguments about the almost boundless potential for oracles to connect the real world to the blockchain in so much better ways. I do not have the engineering or futurology credentials necessary to pass judgement on this, but it seems to me plain to see that—unless we want to add an additional layer about robotics (and pretty evolved robotics at that), so that we consider blockchain+oracle+robot solutions—any and all advances will remain limited to improving the way data is generated/captured and exploited within and outside the blockchain.
So, for everything that is not data-based or data-transformable (such as the often used example of event tickets, which in the end get plugged back to a database that determines their effects in the real world)—or, in other words, where moving digital tokes around does not generate the necessary effects in the real world—even much advanced blockchain+oracle solutions are likely to remain of limited use in the context of procurement and the delivery of public services. Not because the applications are not (technically) possible, but because they generate governance problems that merely replace the current ones. And the advantage is not necessarily obvious.
What do I mean that the advantage is not necessarily obvious? Well, imagine the possibility of having a blockchain+oracle control the inventory of a given consumable, so that the oracle feeds information into the blockchain about the existing level of stock and about new deliveries made by the supplier, so that automated payments are made eg on a per available unit basis. This could be seen as a possible application to avoid the need for different ways of controlling the execution of the contract—or even for the need to procure the consumable in the first place, if a smart contract in the blockchain (the same, or a separate one) is automatically buying them on the basis of a closed system (eg a framework agreement or dynamic purchasing system based on electronic catalogues) or even in the ‘open market’ of the internet. Would this not be advantageous from a governance perspective?
Well, I think it would be a matter of degree because there would still need to be a way of ensuring that the oracle is not tampered with and that what the oracle is capturing reflects reality. There are myriad ways in which you could manipulate most systems—and, given the right economic incentives, there will always be attempts to manipulate even the most sophisticated systems we may want to put in place—so checks will always be needed. At this stage, the issue becomes one of comparing the running costs of the system. Unless the cost of the blockchain+oracle+new checks (plus the cybersecurity needed to keep them up and properly running) is lower than the cost of existing systems (including inefficiencies derived from corruption and mistakes), there is no obvious advantage and likely no public interest in the implementation of solutions based on these disruptive technologies.
Which leads me to the new governance issue that has started to worry me: the control of ‘business cases’ for the implementation of blockchain-based solutions in the context of public procurement (and public governance more generally). Given the lack of data and the difficulty in estimating some of the risks and costs of both the existing systems and any proposed new blockchain solutions, who is doing the math and on the basis of what? I guess convincingly answering this will require some more research, but I certainly have a hunch that not much robust analysis is going on…
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* I do not have a puppy, though, so I really end up doing my own running…
** I am not sure this is technically doable, but hopefully it works for the sake of the example…
I have just read the interesting paper by Z Engin & P Treleaven, 'Algorithmic Government: Automating Public Services and Supporting Civil Servants in using Data Science Technologies' (2019) 62(3) The Computer Journal 448–460, https://doi.org/10.1093/comjnl/bxy082 (available on open access). The paper offers a very useful, but somehow inaccurate and slightly incomplete, overview of data science automation being deployed by governments world-wide (ie GovTech), including the technologies of artificial intelligence (AI), Internet of Things (IoT), big data, behavioral/predictive analytics, and blockchain. I found their taxonomy of GovTech services particularly thought-provoking.
Source: Engin & Treleaven (2019: 449).
In the eyes of a lawyer, the use of the word ‘Government’ to describe all these activities is odd, in particular concerning the category ‘Statutes and Compliance’ (at least on the Statutes part). Moving past that conceptual issue—which reminds us once more of the need for more collaboration between computer scientist and social scientists, including lawyers—the taxonomy still seems difficult to square with an analysis of the use of GovTech for public procurement governance and practice. While some of its aspects could be subsumed as tools to ‘Support Civil Servants’ or under ‘National Public Records’, the transactional aspects of public procurement and the interaction with public contractors seem more difficult to place in this taxonomy (even if the category of ‘National Physical Infrastructure’ is considered). Therefore, either additional categories or more granularity is needed in order to have a more complete view of the type of interactions between technology and public sector activity (broadly defined).
The paper is also very limited regarding LawTech, as it primarily concentrates on online dispute resolution (ODR) mechanisms, which is only a relatively small aspect of the potential impact of data science automation on the practice of law. In that regard, I would recommend reading the (more complex, but very useful) book by K D Ashley, Artificial Intelligence and Legal Analytics. New Tools for Law Practice in the Digital Age (Cambridge, CUP, 2017).
I would thus recommend reading Engin & Treleaven (2019) with an open mind, and using it more as a collection of examples than a closed taxonomy.
Bitcoin Traces / Martin Nadal (ES)
Blockchain is attracting increasing attention as a new technology capable of ‘revolutionising’ governance, both in the private or public sector. In simple terms, blockchain is seen as an alternative to the way information is (securely) stored and rules are enforced, regardless of whether those rules are agreed in a contract, or result from legislation or administrative decision-making.
Some examples include the governance of illegal agreements to distort competition (cartels) (see eg this paper by Thibault Shrepel), or the management of public procurement (eg in this paper by Hardwick, Akram and Markantonakis, or these thoughts by Bertrand Maltaverne). These examples explore how the technology allows for the creation of ‘self-executing’ sets of rules that would be capable of overcoming so far intractable governance problems (mostly, about trust: eg among the cartellists, or in public officials).
This could create opposite effects in the governance of public procurement. For instance, this could make the detection and correction of bid rigging very difficult (if not impossible) or, conversely, allow for a corruption-free procurement architecture. Therefore, the impact of the technology (in principle neutral) on existing governance systems can ultimately be seen as an ‘arms race’ between the private and public sector as, ultimately, the one that gets ahead will be able to exploit the technology to its advantage.
This justifies some calls for both investment in new technologies by the public sector (as the private sector has its own incentives for investment), and regulation of private (and public) use of the technology. I have no objection to either of these recommendations. However, I think there is an important piece of the puzzle that tends to go missing in this type of analysis.
Indeed, most of this discussion brushes over the important limitations of smart contracts. These limitations are both linked to the fact that the computational logic underpinning smart contracts can only operate on the basis of complete information/rules, and that the computing power necessary to implement smart contracts can currently only process extremely simple contracts.
The latter issue may be dismissed as a mere ‘a matter of time’, but given that it has been estimated that it is currently only possible to create a blockchain-based procurement process capable of holding 700-word-long tender documentation (Hardwick, Akram and Markantonakis, 2018: 6), there seems to be a very long road ahead, even accepting Moore’s Law on the growth of computational power.
This first issue, though, is more difficult to set aside. As rightly stressed by Davidson, De Filippi and Potts in their ‘must read’ paper, ‘the obvious problem is that blockchains only work on complete contracts, whereas most in-the-world firms ... are largely (entirely?) made of incomplete contracts'; ‘a blockchain is an economic world of complete contracts’ (2016: 9).
In my view, this should raise significant doubts as to the likely extent of the ‘revolution’ that blockchain can create in complex settings where the parties structurally face incomplete information. Procurement is clearly one such setting. There are a few reasons for this, my top three being that:
First, the structural incompleteness of information in a setting where the public buyer seeks to use the public tender as a mechanism of information revelation cannot be overstated. If it is difficult for contracting authorities to design ‘sufficiently objective’ technical specifications and award criteria/evaluation methods, the difficulties of having to do so under the strictures of computational logic are difficult to imagine.
Second, the volume of entirely digital procurement (that is, the procurement of entirely digital or virtual goods and services) is bound to remain marginal, which creates the additional problem of connecting the blockchain to the real world, with all the fallibility and vulnerability that so-called oracles bring with them.
Third, blockchain technology in itself creates an additional layer of transaction costs—at least at the stage of setting up the system and ‘migrating’ to a blockchain-based procurement mechanism. Bearing in mind the noticeable and pervasive difficulties in the much simpler transition to e-procurement, this also seems difficult to overstate.
Therefore, while there will clearly be improvements in specific (sub)processes that can be underpinned by blockchain instead of other cryptographic/cybersecurity solutions, I remain quite skeptical of a blockchain-based revolution of procurement governance. It may be that I still have not advanced enough in my research to identify the 'magic technological solution’ that can do away with transaction costs, so any pointers would be most appreciated.
Thanks to the UK’s Procurement Lawyers’ Association (PLA) and in particular Totis Kotsonis, on Wednesday 6 March 2019, I will have the opportunity to present some of my initial thoughts on the potential impact of complex technologies on procurement governance.
In the presentation, I will aim to critically assess the impacts that complex technologies such as blockchain (or smart contracts), artificial intelligence (including big data) and the internet of things could have for public procurement governance and oversight. Taking the main risks of maladministration of the procurement function (corruption, discrimination and inefficiency) on which procurement law is based as the analytical point of departure, the talk will explore the potential improvements of governance that different complex technologies could bring, as well as any new governance risks that they could also generate.
The slides I will use are at the end of this post. Unfortunately, the hyperlinks do not work, so please email me if you are interested in a fully-accessible presentation format (a.sanchez-graells@bristol.ac.uk).
The event is open to non-PLA members. So if you are in London and fancy joining the conversation, please register following the instructions in the PLA’s event page.