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Making (procurement) decisions in a highly regulated environment: a case of spending EU grant support Csaba Csáki Budapest University of Technology and.

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Presentation on theme: "Making (procurement) decisions in a highly regulated environment: a case of spending EU grant support Csaba Csáki Budapest University of Technology and."— Presentation transcript:

1 Making (procurement) decisions in a highly regulated environment: a case of spending EU grant support Csaba Csáki Budapest University of Technology and Economics & University College Cork

2 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/072 Basic problem both group is subject to Public Procurement National Laws –based on EU Directives => private entities meet public regulations Private companies are eligible and apply for EU funding support –it’s a meticulously detailed process requiring lot of administration Hungary has joined the EU May 1, 2004 which brought major regulatory changes –‘utility’, energy and postal services sectors are all affected

3 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/073 Research process literature mining start-up models (to test and use) research themes and questions case studies events, facts, observations findings use the models or modify them (new ones?)

4 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/074 Literature on regulatory environment and private enterprise inadequacy is realised need for change (is it time? how?) Situation Covered in scientific literature Outcome / recommen- dation(s) planned changes potential outcome (is this the right way?) after changes implemented what did we create - how does it influence decisions? the outcome ? ? ? did it reach intented result, how does it work? the resulting proces

5 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/075 procuring entity / Decision Maker regulatory (legal) framework execute individual purchasing decisions market pressure (technological and economic reality) decision making environment expectations from the recipients of services high-level and strategic policy goals interpretations of the law - incl. Court appeal (judicial) decisions Influencing Factors of Public Procurement Decision Making

6 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/076 PP Evaluation Methodology The Hungarian Act on Public Procurement –requires the publication of suitability requirements evaluation criteria, weights and utilities –limits the criteria and mode of checking suitability (filtering bidders) –defines the scoring mechanism Decision Making through a pre-established set of criteria –multiple criteria decision making / MAUT

7 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/077 Themes and questions public regulations affecting private enterprise –how (procurement) decision making is affected? complex (and „alien”) institutional setting –is there a need to „innovate”? decision making is methodologically restricted by the Law –would they ask for decision support (software or consultant)

8 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/078 Pilot Case: BorsodChem „The company spans back with a half century of history and is a major determinate chemical producer as well as the largest producer of suspension PVC resin and isocyanates in Central and Eastern Europe.” „privatized” in 1991, Stock Exchange in 1994-96 more than 4,000 employees on a plant site of 448 ha 4 org. units and 2 product lines under the CEO 14 subsidiaries (processing, service and trade) turnover of appr. €600 Million

9 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/079 EU Grant Application in 1991 it was discovered that „dichloroethane contaminated the ground water in a limited area on the factory site” it was investigated and monitored, then eventually in 2000 regional environmental offices ordered the company to clean the spillage up (moratorium) clean-up plan created in 2002-2003 but the cost was estimated at appr. €2 Million applied for EU subsidy in 2004 to reduce contamination below acceptable limits awarded support of full amount (100%) under the Structural Plan of the Environmental Protection program early 2005

10 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0710 Research: data collection methods participant observation documents software data interviews with –members of the consulting team –BorsodChem project leader and team members –winning bidder (project manager and lead engineer) –quality assurance engineer –managing and financial authority representatives –(representative of the intermediary organization)

11 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0711 European Union development grants (fund/subsidy) Recipients need to follow Public Procurement rules Regulatory environment –Funding programs EU goals and preferences National development plans and related programs –Governmental regulations and ministerial orders determine institutions to be involved determine the process to be followed (contracting, financial execution and control of support programs) –Public Procurement Directives

12 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0712 Issues at the start already at the outset the company’s eligibility for EU support was questioned –resulted in uncertainty and time delay last date of start to meet project deadlines committed to in grant proposal was fast approaching yet support contract was not signed already spent money on –exploration and plans (needed anyway) –grant application (consultant) never had anything to do with Public Procurement –needed to contract the work out –needed to contract a quality engineer as well

13 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0713 Motivation lack of legal knowledge –unchartered territory –official intermediary organization did not give direct support uncertainty of unknown supplier(s) –company had its own usual contractors for similar jobs –chemical industry is a high-risk business, where reliability comes first and any delay in delivery is costly, therefore, trust is an essential ingredient of any contractual/supplier relationship serious time pressure –no room for (EU grant) mistake or (PP) legal challenge

14 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0714 Start of Procurement Project decision support and Public Procurement consultant were asked for to help out with the procurement process under the Hungarian PP Act –extra cost for company clear goals in mind –select reliable supplier –could not go below a certain technical quality –financial resources were limited by grant amount (did not wish to spend more – no budget) –emphasis on warranty (10 years)

15 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0715 Number of PP processes mandatory quality assurance engineer main project was split into two –wells and control software –chemical stripper –in order to be able to start faster without putting too much risk on supplier

16 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0716 Issues during the PP processes the intermediary organization (Ministry of Waters and Environmental Protection) gave misleading information about how to proceed (FIDIC) –unnecessary extra work grant contract was still not signed –PP process timeline is limited by the law –minimum and maximum number of days set –supply contract needed to be signed by a certain date –if contract is not signed, PP process is called off (void)

17 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0717 Issues during the project payment schedule was delayed, extended by intermediary organization –nit-picking administration financial reserve vs. reserved amount –extra expense was not allocated for in the grant application, therefore, could not be claimed even though it was part of the PP call for proposal technical glitches vs. grant application plan –wells did not supply enough water –water pipes got clucked – iron and lime –there is no room for changes in the case of a grant contract

18 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0718 Timing and deadlines regulations joint ministerial order (of Structural Funds) –quarterly report –payment deadline is 60 days Min. of Finance order –invoice may only be submitted with a report –there are 4 layers of accounts EU, national, program, components EU directives –formal, content and financial checkups of reports

19 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0719 Typical timeline w/ deadline issues individual projects (there are budget deadlines for the national programs as well) grant application deadline applicant decisions: - apply or not - what to commit to - what budget to plan - what deadlines to promise delivery deadline consequences: - if not met, money could be lost - change requires contract modification project evaluation for an additional 5 years: - EU may check and in case of irregularities money need to be repaid consequences: - if contract is not signed by a certain date delivery deadline may not be met grant contract signing deadline supplier contract signing deadline quarterly reports importance: - reimbursement may only be claimed at report time - if OK, payment is within 60 days - any change requires contract modif. award decision (set time or continuous) PP time: min to run / max to sign Contract modific- ation halts payment

20 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0720 Decisions – and cover stories change water filter (technology) –financial resistance from Authorities –either don’t claim or „play tricks” change stripping process –don’t report –indicate that an ‘efficiency issue’ was solved loan to the supplier –repay?

21 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0721 View of the DS/S errors were remembered did not appreciate although –goals were reached and –actual supplier turned out to be reliable as well as –supplier admitted that evaluation criteria system was unusual, tough and directed them to a certain direction

22 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0722 plan – purchase - execute Ideal world special PP classic PP grant application project realized proper, educated, integrated decision making influences outcome PP DM process Grant application related decisions limited classic PP grant application with PP in mind less limited classic PP

23 IFIP WG 8.3 - Case Studies Task Force - Cork - Csáki04-05/04/0723 Regulatory structure accepted delivery corporate policies project EU monitoring industry regulations PP contract PP (DM) process PP Act Grant Contract Grant application Nat. grant program Nat. payment policies EU Grant directives


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