Annalisa De Paoli Public Procurement Division Consip Spa Santiago, 16th September 2011 Framework Agreements in Italy

11 Shipping or delivery terms and conditions The duration of the single contract between P.A. and supplier Maximum allowed quantities and good/service characteristics The main good or service awarded Framework contract duration Supplier-side reference point For the implementation of the Program for the Rationalization of Public Expenditure in Goods and Services, Consip is also a “Contracting Authority” that defines, implements and awards tenders on behalf of the Ministry of Economy and Finance (MEF) and of other administrations. Since the Program for the Rationalization was created, the main instruments of the Program have been the National Framework Contracts awarded – through Consip – by the MEF. Each Framework Contract has certain parameters that are intrinsic to its structure and are precisely defined: Framework contracts National Framework Contracts Order data for central Datawarehouse

2 Consip’s Framework Contracts results The Consip’s Framework Contracts’ turn over in 2010 corresponds to 2 billion euro Consip managed 48 National Framework Contracts at all; 17 of them have been activeted in 2010 The most important Framework Contracts, in terms of total expenditure in €, are meal vouchers, energy related services (heat, electricity), facility management, fuel coupons

3 The main advantages for the Public Administration entities that order: The simplification of the purchasing process, with a reduction of both costs and procurement time (issuing of purchasing orders in few minutes) Fair competition between suppliers (potentially strong effects on competing firms’ market share / buyers’ higher bargaining power / standardization and economies of scale) Reduction of legal costs tied to procedure litigation (litigation costs are played for by Consip) Minimal quality supply raced, whether product or service (benefit from efficient use of expertise and information plus opportunity to foster innovation in the market and in the public sector) Greater expense control through purchasing reports HR requalification (the possibility to free up resources dedicated to the procurement process and direct them to other high-value activities) The opportunity to contribute to a “green public procurement” project Framework Contracts - advantages

4 The main drawbacks of Framework contracts: The lack of flexibility in the purchasing process (standardization may imply “loose tailoring” or no tailoring at all… which may reduce “attractiveness” of the Framework Contract) Risk of lock-in by public agencies (if overstretched contract length) Limit participation by SMEs Create/strengthen dominant positions (risk of favoring quasi-monopolistic positions, if the contract covers a sizeable fraction of public demand) Risk of adverse selection (many heterogeneous Contracting Authorities are involved) Framework Contracts - drawbacks

5 Introduction of “incomplete multi award” Framework Agreements Where a FA is concluded with several economic operators and not all the terms of the contracts are laid down in the FA (“incomplete” FA), specific contracts can be awarded by the CAs by reopening competition “on the basis of the same and, if necessary, more precisely formulated terms, and, where appropriate, other terms referred to in the specifications of the framework agreement”. Nevertheless, “When awarding contracts based on a framework agreement, the parties may under no circumstances make substantial amendments to the terms laid down in that framework agreement”. Supply contracts (specific contracts, SC) based on FAs are concluded between a single CA and a single supplier. Where a FA is concluded with several economic operators and not all the terms of the contracts are laid down in the FA (“incomplete” FA), specific contracts can be awarded by the CAs by reopening competition “on the basis of the same and, if necessary, more precisely formulated terms, and, where appropriate, other terms referred to in the specifications of the framework agreement”. Nevertheless, “When awarding contracts based on a framework agreement, the parties may under no circumstances make substantial amendments to the terms laid down in that framework agreement”. Supply contracts (specific contracts, SC) based on FAs are concluded between a single CA and a single supplier. Kinds of FA Framework contracts 1 supplier Complete (all terms fixed) Several suppliers Complete (all terms fixed) 1 supplier Incomplete (not all terms laid down) Several suppliers Incomplete (not all terms laid down) 2-stage: competition shall be reopened

6 Framework Agreements - the phases Contract and competitive tendering design Tendering process I PHASE - FA Competition re-opened Supplier selection II PHASE - SC Promotion Legal Sourcing R&D P&M GPP Legal Sourcing R&D GPP Legal Sourcing Promotion Legal Sourcing R&D GPP Demand analysis Supply mkt analysis Tender evaluation and framework contract award

7 Main idea: aggregate demand and streamline process while leaving the CAs with some leeway for flexibility Main goals: Introduce new (harder-to-standardize) products/services in the Consip “offering” (portfolio) Increase attractiveness for the customers (increased satisfaction and volumes) Main pros: Accommodate for demand heterogeneity (it allows CAs to specify and personalize awarding criteria, choose among different solutions and personalize additional services): ‐different needs and preferences (customization, delivery conditions, different bundles of the same commodities); ‐intrinsic characteristics of the CAs (time of payments, logistics, managerial skills) Can address adverse selection problem Can address obsolescence/technological progress Multi award Framework Agreement - Why may it be a more suitable tool

8 Main cons: Require reopening of competition  higher process cost Overall, reduced competition  potentially higher purchase prices (since more differentiated products are going to be purchased) Reduced number of competitors interacting repeatedly  risk of collusion Some suppliers’ strategic behavior can distort the expected competition Need accurate selection of the types of product/service to be put in a FA, based on an accurate demand/supply side analysis Need careful and accurate design of the FA Framework Agreement – Main cons

9 Framework Agreements – a careful and accurate design The main elements to be taken in account for a careful and accurate design: –Duration and total amount of the Framework Agreement –Terms of the contract defined in the 1st stage/2nd stage –Number of lots –Minimum technical/economical requirements –Number of the winners of the first stage –Autonomy of the CAs about awarding criteria Effects of different design aspects: flexibilityprocess savings (for the CAs) 1st stage competition 2nd stage competition Complete contract  Higher (exogenous) n 

10 Framework contracts deriving from Framework Agreements One “specific italian” type of Framework Agreement is the incomplete Framework Agreement (4th type) awarded by Consip with the aim to award, at the end of the II phase again by Consip, a National Framework Contract The process is the same, but the result is a Consip’s Framework Contract: Tender documentation development and publication Supplier selection and framework agreement award Feasibility study and definition of procurement strategy I PHASE - FA Competition re-opened Supplier selection II PHASE - FC Consip’s FC The main advantage is a more efficient and quick awarding of the Framework Contracts, especially in the following situations: Most standard products/services Most frequent Framework Contracts Framework Contracts with lots that end in different times

11 Consip’s Framework Agreements – a path… on-going… Area“Incomplete” Framework AgreementsStatus Goods and ServicesUNIFORMS – FINANCIAL GUARDAWARDED Goods and ServicesUNIFORMS – OTHER PUBLIC ADMINISTRATIONSAWARDED Hardware, Software and ICT ServicesSTORAGEAWARDED Goods and ServicesTRAVEL AND ACCOMODATIONAWARDED Hardware, Software and ICT Services DESKTOP OUTSOURCINGIN EVALUATION Hardware, Software and ICT ServicesSERVER BLADE 2 TENDER PUBLICATED AreaFramework Agreements- to obtain Framework ContractsStatus HealthSERVICE DIALYSISAWARDED Hardware, Software and ICT ServicesMULTIFUNCTIONAL COPYING MACHINEIN EVALUATION

12 Choosing the appropriate class of Framework Agreements No safe and sound recipe: identify the best strategy case by case through market analysis! Multiple suppliers Incomplete Supply side Demand side Heterogeneous demand Concentrated Standardized Fragmented Specialized Homogeneous demand Multiple suppliers Complete 1 supplier Incomplete Framework Agreements Simple contracts FrameworkContracts 1 supplier Complete High effort for POs Low effort for POs Flexibility Centralization