1. © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5) Practice 19. Public procurement and EC directives

2. © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5) Program Purchasing policy of governmental institutions EC directives on Public Procurement EC Purchasing procedures Government Procurement Agreement Consequences for procurement professionals

3. © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5) Purchasing policy of governmental institutions Characteristics of purchasing in governmental institutions: Far from transparent Many stakeholders involved Often conflicting interests among stakeholders Political objectives Governmental purchasing often serves social and political objectives Political objectives often in conflict with rational spending of budgets Budget policy Institutions are constrained by the central government’s budget policies Often difficult to build up financial reserves and shift these to next year Tendency to spend more than budget to get more budget for the next year

4. © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5) Public accountability Governmental institutions are publicly responsible for how they spend money This often leads to a lot of bureaucracy making purchasing ordering a tedious, laborious and slow process. Most purchasing organizations within the government are procedure rather than result oriented Contract management Most countries still seem to struggle on how to control and monitor governmental purchasing expenditure effectively Nationalist approach National and often regional interests are favored above EC interests Purchasing policy of governmental institutions

5. © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5) Directives on Public Procurement Have been issued by the European Community Are designed to structure tender procedures for governmental institutions. The Treaty of Rome embodies initial procurement rules which prohibit any discrimination on ground of nationality and restriction in the choice of supplies or services. However these arrangements were not sufficient to establish a single market in the area of public procurement From 1976 on, a number of directives were issued eventually resulting in the EC directives as we know them today. EC Directives on Public Procurement

6. © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5) Most directives cover the following rules: Rules describing which public institutions need to work according to the contracts and what type of contracts are considered. The types of award procedure or purchasing procedure, that need to be followed in a specific situation Rules on how to deal with technical specifications, whereby preference is given to community standards. Advertising rules, describing what public institutions must do to communicate their intended purchases. Some common rules on how suppliers need to be selected and the criteria that can be used to award the contract in a specific situation. EC Directives on Public Procurement

7. © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5) It should be clear for whom these directives are relevant It should be clear for what type of purchases the directives need to be pursued What type of contracts are covered ? The directives relate to all commercial, public supply contracts. In terminology of the EC: ‘all contracts for pecuniary interest concluded in writing involving the purchase, lease, rental or hire purchase, with or without option to buy, of product and services’ EC Directives on Public Procurement

8. © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5) EC Directives on Public Procurement  The value of the contract under consideration determines whether it should be tendered following the Directives or not.  Contract which exceed a threshold value of 200.00 Euro should follow the EC procedures. Public Supplies Public Works Public Service contracts Utilities Directive - Supply/services - Works Without indicative notice 200.000 Euro 5.000.000 Euro 200.000 Euro 400.00 Euro With indicative notice 750.000. Euro 5.000.000 Euro 750.000 Euro 5.000.000 Euro Standard threshold values under the EC Directives

9. © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5) EC purchasing procedures Depending on the situation, the following procedures are available for awarding public supply contracts: Open procedure: public entity submits a tender through a contract notice in the official journal of the EC and/or Tender electronic daily, on which all interested suppliers may submit their proposals The restricted procedure: This procedure consists of two steps. First, suppliers are pre-qualified by some kind of screening procedure. Next, only suppliers who pass the screening test are invited to the actual tender Negotiated procedure: In this procedure, the contracting authority consults the suppliers of its choice (usually a minimum of five potential bidders) and negotiates with them the terms and conditions of the contract

10. © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5) EC purchasing procedures Government Procurement Agreement Other guidelines than EC Directives are those of GATT (General Agreement on Trade and Tariffs) GATT is replaced in 1996 by GPA (Governmental Procurement Agreement) which was agreed among the EC member states, USA, Japan, Canada, Switzerland, Israel and South Korea. The GPA is built upon the general principles of national treatment, non-discrimination and transparency and follows the EC directives closely.

11. © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5) Consequences for procurement professionals Consequences of the EC directives: They support the idea of preventing customers being locked into supplier relationships by favoring objective and functional product specifications It favors stimulating competition among suppliers by adopting both a uniform supplier prequalification procedure and contract award procedure They favor that contracts with suppliers are conducted in writing, providing in this way an objective basis for the evaluation of the supplier’s performance They contribute to increased transparency of the supply market

12. © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5) Consequences for procurement professionals In general, the directives have met large resistance, both from governmental officials inside and outside purchasing. Most complaints relate to the lack of flexibility, the level of detail, the time frames which need to be adhered to and the fact that partnership relationships are not fostered and stimulated. Working with the Directives requires a thorough planning and preparation.

13. © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5) Consequences for procurement professionals The EC directives on public procurement resemble sound purchasing principles. However…  At the same time, the political climate and culture of most governmental institutions do not foster purchasing professionalism  The reward system within governmental institutions does not support a purchasing approach based upon ‘getting the best value for money’ or ‘lowest total cost of ownership’.  A coherent control system to ascertain the the directives are being followed by the member states is not present These factors may explain why implementation of the directives in most countries is so troublesome and adoption so slow