Public procurement for a circular economy: some thoughts on policy coordination and fluffy guidance


The European Commission has published 'Public procurement for a circular economy. Good practice and guidance', where it offers its views on how to implement procurement policies that go beyond green public procurement to engage in circular procurement, understood as 'the process by which public authorities purchase works, goods or services that seek to contribute to closed energy and material loops within supply chains, whilst minimising, and in the best case avoiding, negative environmental impacts and waste creation across their whole life-cycle'. 

Therefore, circular procurement seems to be a sub-type of green procurement (in turn, a sub-type of smart procurement) mainly concerned with life-cycle and life-cycle costing. So the adoption of this guidance only a few days after the adoption of the Communication on 'Making public procurement work in and for Europe' (see here) raises some questions on coordination of policy efforts and messages from the Commission. If the Commission knew that this guidance was bound to be adopted, why did it not mention it in the Communication earlier this month? Is this a sign of discoordination between different Directorates General within the Commission (in particular, Environment and Growth)? Would linked-up policy efforts not yield better results?

Regardless of those political economy issues, and probably as a result of the new 'circular procurement guidance' being a product of DG Environment, most of the guidance is of a high level of generality and mainly concentrates on issues of political and organisational buy-in. From a practical and legal perspective, the document does not do much more than refer back to pre-existing guidance on the use of green procurement criteria (which have been expanded to new product groups) and reiterate some general remarks about the flexibility created in the 2014 Public Procurement Package for the inclusion of environmentally-orientated technical specifications and award criteria, and their evaluation. 

In short, other than some examples of innovative practices, I did not find the 'circular procurement guidance' all that useful, and I think that the Commission needs to make much more significant efforts to provide practical and useful guidance if it wants to support the uptake of green, and in particular circular, procurement at Member State level. Currently, the lack of guidance on life-cycle costing (Art 68 Dir 2014/24/EU) is probably the single most relevant obstacle in significant uptake of circular procurement. When will this gap be filled?


Study on administrative capacity to manage public procurement in the EU - some critical remarks on public procurement transparency

The European Commission has published the study 'Stock-taking of administrative capacity, systems and practices across the EU to ensure the compliance and quality of public procurement involving European Structural and Investment (ESI) Funds' (PwC, Jan 2016), which offers an interesting perspective on the existing administrative capacity to manage public procurement in the EU. In its own terms, '[the] study offers a unique and unprecedented overview of the current state of administrative capacity in the field of public procurement in the EU with a special focus on the implementation of the European Structural and Investment (ESI) Funds. It looks at the systems and structures in the individual Member States and provides valuable information as to how to improve the quality of public procurement and ensure more efficiency, transparency and regularity, in line with the Investment Plan for Europe and the EU budget focused on results initiative'.

The study has country-specific profiles with 'recommendations regarding specific needs identified in the 28 Member States and the areas where they could improve performance and effectiveness of public procurement benefiting from the cases of good practice contained in the study'. Such recommendations build up on a general section on 'good practices', where the study focuses on  seven categories of issues that PwC considers relevant for the proper administration of a well-functioning public procurement system, including:

  • Ad hoc support [to contracting authorities having issues with procurement rules or practice];
  • Guidance documents for contracting authorities;
  • Professionalisation of public procurement practitioners;
  • Initiatives which ensure the quality of public procurement;
  • Review processes;
  • Measures for simplification and efficiency;
  • Data monitoring and practices fostering transparency.

Some of these recommendations are already shaping EU policy in the public procurement field. In particular, the 'good practices' on ad hoc support are informing the Commission's project to set up and roll-out a 'voluntary ex ante assessment mechanism of the procurement aspects of certain large-scale infrastructure projects' (as included in the 2015 Strategy for the upgrade of the internal market), which may well result in the creation of a help-desk or hotline structured around the existing experiences in France, Slovenia, Finland of the Netherlands; see pp. 72-74 of the PwC report).

Similarly, the considerations around good practices concerning public procurement transparency (pp. 85-86) are also likely to inform the Commission's project to encourage Member States to create centralised public procurement registers as part of its commitment to pursue '[i]nitiatives for better governance of public procurement through the establishment of contract registers, improved data collection and a networking of review bodies' (as also included in the 2015 Strategy for the upgrade of the internal market; for discussion, see here and here). In that regard, it is worth looking closely at what the PwC report considers good practices in this area. According to the report,

The online publication of detailed and regularly updated public procurement data is a key component of an effective monitoring and transparency system. This can benefit to a wide range of stakeholders, from the public authorities who can use this data to monitor and evaluate their own purchasing activities to economic operators who can better assess the public sector markets. Besides, the publication of public procurement data also helps civil society groups to conduct their oversight activities on public spending.
Key success factors: Comprehensive and quality data covering various aspects of procurement (e.g. number, economic value, procedure); User-friendly and intuitive websites to easily access the data; Data made available online should be comparable, freely released, and downloaded in usable format; Regular update of the data published.

At this level of generality, the report is not massively useful because it leaves important issues of detail about the information to be published, whether access needs to be unrestricted and universal (I submit it should not) or different stakeholder should have access to different levels of information and at different times, etc. Moreover, the report makes some general statements that can be strongly contested. For instance, the report emphasises that

There is ... a benefit in collecting and publicising information not directly related to a specific procedure. For example, some [Member States], such as Latvia, Spain and Slovakia, require contracting authorities to publish pipelines of up-coming contracts, which can be invaluable tools for bidders to manage their businesses plans and prepare their most competitive officers. 

This is very problematic because this is the sort of excessive transparency that can easily result in cartelisation of (future) tender procedures and, in my view, there is no need whatsoever for this type of advance publication of contract opportunities if contracting authorities are willing to provide reasonable tender preparation times [for broader discussion, see A Sanchez-Graells, Public Procurement and the EU Competition Rules, 2nd edn (Oxford, Hart, 2015) 73-75, and ibid., 'The Difficult Balance between Transparency and Competition in Public Procurement: Some Recent Trends in the Case Law of the European Courts and a Look at the New Directives' (2013)]. Thus, a more nuanced and careful consideration of these issues would be needed before simply presenting more transparency as always and intrinsically positive, and as a 'good practice' that should be disseminated throughout the 28 EU Member States--which it simply is not.

When it comes to the assessment of specific cases, the PwC report includes five short case studies in this area: Spain (Public Contracts Registry), Lithuania (Monitoring and publication of data on framework agreements), Slovenia ("Supervizor" transparency tool), Portugal (BASE Public Contracts Portal) and Slovakia (Single-stop online portal for public procurement analysis). All these case studies stress that publication of procurement information is positive, and indicate that there are issues of quality of the data published and of accessibility and machine-readability that need to be addressed. On the basis of that, the report goes on to recommend that Member States:

  • Integrate interoperability with the online publication system into the national eprocurement system so that the relevant data is automatically uploaded to the public website, minimising delays in publication;
  • Incorporate a comprehensive and user friendly search engine in any online database so that users can identify the information that is relevant to them;
  • Allow users to download search results in at least one commonly used and machine readable format such as CSV or Excel;
  • Contracting authorities should be required to submit preliminary data on upcoming projects, either via an annual procurement plan, or an advanced notification requirement for major and recurring contracts. 

I would personally take issue with the final recommendation and challenge it as an instance of detrimental public procurement practice. Elaborating a procurement is probably a good governance tool. Publishing it is a very ill-informed decision. Not in vain, one of the recommendations included in the OECD's Guidelines for Fighting Bid Rigging in Public Procurement (2009) is for contracting authorities to avoid predictability and, in particular, to '[a]void predictability in your contract requirements: consider aggregating or disaggregating contracts so as to vary the size and timing of tenders'.

Thus, engaging in the type of advanced disclosure advocated by the PwC report is simply contrary to this recommendation and creates excessive predictability and certainty of demand for both major and recurring contracts. Simply put, this is an ill-informed recommendation and one that the Commission and the Member States should ignore. It will be particularly important for this not to feed into the Commission's initiatives under the 2015 Strategy for the upgrade of the internal market. Any development of rules on public procurement registers needs to be much more nuanced and informed by economic theory.

In my view, the main normative recommendations (ie 'good practices') on which public procurement registers should be based are as follows:

  • Public contract registers should not be fully available to the public. Access to the full registry should be restricted to public sector officials under a strong duty of confidentiality protected by appropriate sanctions in cases of illegitimate disclosure.
  • Even within the public sector, access to the full register should be made available on a need to know basis. Oversight entities, such as the audit court or the competition authority, should have full access. However, other entities or specific civil servants should only access the information they require to carry out their functions.
  • Limited versions of the public contract registry that are made accessible to the public should aggregate information by contracting authority and avoid disclosing any particulars that could be traced back to specific tenders or specific undertakings.
  • Representative institutions, such as third sector organisations, or academics should have the opportunity of seeking access to the full registry on a case by case basis where they can justify a legitimate or research-related interest. In case of access, ethical approval shall be obtained, anonymization of data attempted, and specific confidentiality requirements duly imposed.
  • Delayed access to the full public registry could also be allowed for, provided there are sufficient safeguards to ensure that historic information does not remain relevant for the purposes of protecting market competition, business secrets and commercial interests.
  • Tenderers should have access to their own records, even if they are not publicly-available, so as to enable them to check their accuracy. This is particularly relevant if public contract registries are used for the purposes of assessing past performance under the new rules.
  • Big data should be published on an anonymised basis, so that general trends can be analysed without enabling ‘reverse engineering’ of information that can be traced to specific bidders.
  • The entity in charge of the public contracts registry should regularly publish aggregated statistics by type of procurement procedure, object of contract, or any other items deemed relevant for the purposes of public accountability of public buyers (such as percentages of expenditure in green procurement, etc).
  • The entity in charge of the public contracts registry should develop a system of red flag indicators and monitor them with a view to reporting instances of potential collusion to the relevant competition authority.

My full discussion and reasons for these recommendations are available here.

Planning for US DOD pharmaceutical benefits procurement: A need to think outside the box and a lesson for the EU

The US Department of Defense (DOD) offers health care coverage through its TRICARE program. DOD contracts with managed care support contractors to provide medical services, and separately with a pharmacy benefit manager to provide pharmacy services that include the TRICARE mail-order pharmacy and access to a retail pharmacy network. Its current contract for the management of pharmaceutical benefits expires in the fall of 2014 and DOD has already started planning the next stage of procurement.
According to the US Government Accountability Office (GAO) report of 30 September 2013,
During acquisition planning for the upcoming TRICARE pharmacy services contract, DOD solicited feedback from industry through its market research process to align the contract requirements with industry best practices and promote competition. For example, DOD issued requests for information (RFI) in which DOD asked questions about specific market trends, such as ensuring that certain categories of drugs are distributed through the most cost-effective mechanism. DOD also issued an RFI to obtain information on promoting competition, asking industry for opinions on the length of the contract period. DOD officials told [GAO] that responses indicated that potential offerors would prefer a longer contract period because it would allow a new contractor more time to recover any capital investment made in implementing the contract. The request for proposals for the upcoming contract, issued in June 2013, included a contract period of 1 base year and 7 option years. DOD also identified changes to contract requirements in response to legislative changes to the TRICARE pharmacy benefit. For example, the National Defense Authorization Act (NDAA) for fiscal year 2013 required DOD to implement a mail-order pilot for maintenance drugs for beneficiaries who are also enrolled in Medicare Part B. DOD officials incorporated this change in the requirements for the upcoming pharmacy services contract.
At first sight, this looks like a proper exercise of procurement planning and one that is specifically concerned with promoting effective competition in the next stage of pharmaceutical benefits management procurement. However, GAO has very high standards and considers that the exercise carried out by DOD is insufficient and that the Department needs to think outside of the box (of the current structure of benefit management contracts) to see if an even better scenario is achievable. In that regard, GAO considers that
DOD has not conducted an assessment of the appropriateness of its current pharmacy services contract structure that includes an evaluation of the costs and benefits of alternative structures. Alternative structures can include incorporating all pharmacy services into the managed care support contracts—a carve-in structure—or a structure that incorporates certain components of DOD’s pharmacy services, such as the mail-order pharmacy, into the managed care support contracts while maintaining a separate contract for other components. DOD officials told GAO they believe that DOD’s current carve-out contract structure continues to be appropriate, as it affords more control over pharmacy data that allows for detailed data analyses and cost transparency, meets program goals, and has high beneficiary satisfaction. However, there have been significant changes in the pharmacy benefit management market in the past decade, including mergers and companies offering new services that may change the services and options available to DOD. GAO has previously reported that sound acquisition planning includes an assessment of lessons learned to identify improvements. Additionally, GAO has reported that a comparative evaluation of the costs and benefits of alternatives can provide an evidence-based rationale for why an agency has chosen a particular alternative. Without this type of evaluation, DOD cannot effectively demonstrate that it has chosen the most appropriate contract structure in terms of costs to the government and services for beneficiaries.
DOD is now required to conduct an evaluation of the potential costs and benefits of alternative structures for the TRICARE pharmacy services contract, and incorporate such an evaluation into acquisition planning. GAO will report again once this additional exercise is completed.
In my view, this case shows how important it is to develop effective and demanding standards of market investigation and procurement planning in order for contracting authorities to reap all the benefits of effective market competition. It may well be that the result of the enquiry shows that current structures are the most efficient. But, even in that case, the additional market research would not have been an sterile exercise. By avoiding path dependency and seeking for alternative modes of provision (ie by actually knowing the markets where they contract from), contracting authorities can obtain true value for money.
Hence, this type of mandatory market intelligence should be seen as best practice and, in my opinion, imported into the procurement systems of many European countries (and, definitely, Spain). Only in that way will public procurement really contribute to smart growth and be truly aligned with the Europe 2020 strategy. Hopefully the revision of the domestic procurement systems as a part of the process for the transposition of the soon to be adopted new EU rules on procurement will offer Member States an opportunity to also reflect on these issues and to strengthen their market intelligence requirements and infrastructures.