Prepared for

1
E-procurement challenges or the Challenge
of e-procurement?
GUSTAVO PIGA Chair, Master in Procurement
Management University of Rome Tor Vergata,
Department of Economics and Territory gustavo.piga
_at_uniroma2.it, www.gustavopiga.it

• Prepared for
• Connected Governance Vision or Reality?
• Scuola Superiore della Pubblica Amministrazione
• October 21-22, 2009, Rome

2
Definitions?

• E-GP is the use of Information Communications
  Technology (especially the Internet) by
  governments in conducting their procurement
  relationships with suppliers for the acquisition
  of goods, works, and consultancy services
  required by the public sector.
• (World Bank)

3
E-proc mushrooms with Central Purchasing Bodies!

• SKI Denmark
• Serving 8500 public bodies
• 250 suppliers
• 45 framework agreements
• Volume of contracts around 551 million

• OGC - UK
• 380 people serving 450 Public Administrations
• Around 300 framework contracts Value of Contracts
  around 2.75 bn
• Savings obtained in the three year period
  2000-2003 1,6 bn.

• STATSKONTORET Sweden
• Orders near 1 bn.
• 16 commodities handled in 2003

HANSEL Finland Handled volumes, 4 mn.

• BESCHA Germany
• 26 public institutions
• 3000 contracts per year of goods and services

• MINEFI Ireland
• 500 people
• 22 frame contracts
• Volume of contracts 637 million

• BBG Austria
• 35 people
• Orders equal to 378 mln in 2003
• 10-120 frame contracts awarded per year

• ABA Belgium
• Value of purchases 2003 15 mln
• 80 frame contracts betwen 2000 and 2004

• Ministry of Development Greece
• 135 people
• Orders equal to 216 mln in 2003
• 438 frame contracts between 2000 and 2003

• UGAP France
• 500 suppliers involved in 2003, 80 SMEs
• Program being restructured

• CONSIP Italy
• 500 people
• In 2003, approximately 41.000 ordering units
• Orders equal to 1,9 bn.
• Approximately 60 contracts for goods and services

Source Official Websites, Data collected by
Consip and by Hansel in 2004 NB the list does
not intend to be complete
4
Centralization and E-proc Developments the U.S.
Experience in Procurement

• Survey over 47 US states (1998 vs. 2001), in
  Moon, Journal of Public Procurement

• Electronic Ordering from 44,7 to 68,1 of all
  States
• Purchasing Cards from 68,1 to 85,1
• Digital Signature Accepted for Tender Documents
  from 0,1 to 15
• Reverse Auction 10,6 in 2001
• E-proc Adoption Grows with
• Managerial Innovation
• Centralized procurement with a high level of
  authority
• Size of the State.

5
e-proc and centralization

• Why do e-proc and centralization arise together?
• Centralization makes e-proc less costly and more
  profitable
• IT and e-proc make centralization more natural
  and less costly
• So it is hard to judge if the final impact is due
  to one or the other!

6
E-proc is costly!

• How much? The more costly the
• smaller the Administration. However large
  organizations driven by e-proc generate less
  SMEs participation
• lower the professionalism of procurement
  personel
• lower the degree of IT development of the
  country/Administration (security is key)
• lower the organizational skills available within.

7
But is e-proc also beneficial?

• The new EU Directive on public procurement seems
  to say YES
• Certain new electronic purchasing techniques
  are continually being developed. Such techniques
  help to increase competition and streamline
  public purchasing, particularly in terms of the
  savings in time and money which their use will
  allow. Contracting authorities may make use of
  electronic purchasing techniques, providing such
  use complies with the rules drawn up under this
  Directive and the principles of equal treatment,
  nondiscrimination and transparency
• (whereas 12).

8
Does e-proc generate competition or collusion?
The case of reverse auctions
200
ultimi 10 min. Migliore offerta a 147.500
Euro (-25,8)
190
Inizio autoestensione Migliore offerta a 137.000
Euro (-31)
180
170
x 1000
160
150
Asta aggiudicata a 116.000 Euro (-42)
140
130
120
7 fornitori
3 fornitori
6-5-4 fornitori
8 fornitori
2 fornitori
110
20
0
10
30
40
50
60
70
80
90
100
110
120
Minuti
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Reverse auctions, opposite views

• THE PRACTITIONER Thanks to electronic tools
  enterprises make various offers and at the same
  time see the others bids. In this way already
  at the psychological level competition is
  increased. This in turn leads to better results
  and savings for the Public Administration.
  Bidders are masked with a code, which does not
  allow them to know the identity of others during
  the tender. In this way the Administration tries
  to avoid collusions (cited in Magrini, p. 36).
• THE THEORIST
• ascending auctions remove uncertainty about the
  value of the good and make firms bid more
  agressively. But online auctions can increase
  collusion competitors get to see, in real time,
  if a cartel agreement is being broken by a
  defector and have the possibility to retaliate
  with lower prices. Knowing this, there will be no
  defection and collusion will be self-sustained,
  causing harm to the Administration
• the openness of the format may scare away small
  firms that anticipate being easily topped by big
  firms during the auction.

10
Does e-proc Curb Corruption?Procurement and
corruption by Lengwiler e Wolfstetter, in
Handbook of Procurementedited by Dimitri, Piga
and Spagnolo, Cambridge University Press, 2006

• Yes! Possible formats of corruption removed by
  e-proc tenders (including reverse auctions)
• Modify bid of favored bidder to let him/her
  win reverse auction keeps all players active
  until price hits each players cost
• Pre-Auction to determine favored bidder with
  sealed bid tender the purchasing price for the
  taxpayer is higher as winning firm has to pay the
  bribe. With reverse on-line auction firm wins,
  not paying bribe, by having taxpayer pay lower
  price
• After seeing bids, the most advantageous briber
  is approached on-line auction eliminates this by
  making bids public.
• BUT CORRUPTION THROUGH LOWER QUALITY IS NOT
  AFFECTED BY E-PROC

11
Does e-proc help transparency? 82 Russian regions
12
Does e-proc help SMEs?

• No! SMEs need affirmative action and not
  affirmative rights to treat unequals as equals
  is to perpetuate inequality. The US reserves a
  23 share of Public Procurement only to SMEs.
• Yes! Some tools like the procurement-card or the
  market-place target small purchases, using
  technology to lower costs for procurers without
  crowding-out SMEs, unlike centralization.

13
Where is the benefit in procurement? (1)

• How much waste in purchases could be eliminated
  by bringing the worse at the level of the best?
  If all public bodies were to pay the same prices
  as the one at the 10th percentile, sample
  expenditure would fall by 21 . . . Since public
  purchases of goods and services are 8 of GDP, if
  sample purchases were representative of all
  public purchases of goods and services, savings
  would be between 1.6 and 2.1 of GDP!

14
Where is the benefit in procurement? (2)

• How much of this waste is passive (inefficiency
  and capture from ignorance?) vs. active
  (corruption)? On average, at least 82 of
  estimated waste is passive and that passive waste
  accounts for the majority of waste in at least
  83 of our sample public bodies.
• While competence drives e-proc, it is doubtfuI
  that e-proc drives competence.
• So why and when use it?

15
E-proc Why and When?

• In reverse auctions with asymmetric information
  across bidders, in proc card, in
  market-place. Sustaining inter-operability across
  e-platforms.
• But what if
• One is to use e-proc to expand e-Bay-like
  features of the public process of acquisition
  where it generates greater transparency and
  benchmarking across administrations? Wouldnt
  corruption and incompetence be exposed better?

16
Give power and voice to the Public Administration
stakeholders. The role of DATA and benchmarking.
17
ICT for procurement

• Collect data, normalize them and publish them on
  Internet
• Interested citizens will be able to voice their
  opinion, contributing to reinforce the reputation
  of virtuous firms and public administrators.
• Two results would be achieved
• - first, maximum visibility (also thanks to the
  press) would be given to critical situations, so
  addressing inspections of the Administration, and
  ultimately the auditing process.
• - second, administrators and firms would be
  forced to build a positive reputation to avoid
  social stigma, punishment of voters or of
  superiors. Worse procurers would try to imitate
  the best ones.

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The Mexican case CompraNet www.compranet.gob.mx

• Compranet is the first Internet-based government
  procurement system implemented in Latin America.
• Introduced in 1996 by the actual Ministry of
  Public Administration
• This system contains the legal framework, bidding
  opportunities, statistics, notifications and all
  other relevant information for government
  procurement activities.
• Certification by World Bank and IDB

IDB CERTIFICATION
WORLD BANK CERTIFICATION BIRF
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Scope of the Compranet Plus platform

• Public Works
• Public Works follow up
• Photographic report
• Material report and/or non-returned equipment
• Public Work pay-off

• Dashboards
• Purchasing information analysis
• Statistic reports and graphics
• Standard purchasing dashboards for every involved
  unit
• Regulatory dashboards by contract, showing KPIs
  status

20
Conclusions

• Good procurement is what we need. Following the
  rules is a necessary but not sufficient condition
  to achieve it.
• ICT is the tool that can help ex-ante monitoring
  in procurement finally take-off in Europe
• For that, central organizations and Authorities
  are in a perfect position to lead the reform
  process thanks to their IT capabilities
• Within the framework of EU rules, new life must
  be given to trust within benchmarking.

21
Definitions?

• E-GP is the use of Information Communications
  Technology (especially the Internet) by
  governments in conducting their procurement
  relationships with suppliers for the acquisition
  of goods, works, and consultancy services
  required by the public sector that allows
  citizens to better participate and monitor the
  process of acquisition of goods, works and
  consultancy services by the public sector .
• (A new one!)