Strategic Approach to Centralized Purchasing in Turkish Public Procurement System (TPPS) Dursun Ali DEMIRBOGA dursunalidemirboga@kik.gov.tr Head of International Relations Department

Agenda Introduction PPS in Turkey PPA Centralized Purchasing in TPPS Key Players of Centralized Purchasing System Integration of E-Procurement Tools with Centralized Purchasing System Benefits and Critical Views Strategic Perspective of Centralized Procurement Conclusion and Experiences

Introduction Value for money (VFM) is defined by business dictionary;‘A utility derived from every purchase or every sum of money spent.’ On the other hand, value for money is based not only on the minimum purchase price (economy) but also on the maximum efficiency and effectiveness of the purchase. So that VFM determines central purchasing efficiency level. Value for money (VFM) is defined by business dictionary;‘A utility derived from every purchase or every sum of money spent.’ On the other hand, value for money is based not only on the minimum purchase price (economy) but also on the maximum efficiency and effectiveness of the purchase. So that nalue for money determines central purchasing efficiency level.

Turkish Public Procurement System (TPPS) Turkish Public Procurement Sytem has four historical background dates: 1) Auction, Contest and Tender Law no 661 dated 22 April 1925 2) Auction and Tender Act no 2490 dated 10 December 1934 3) State Tender Law no 2886 dated 08 September 1983 4) Public Procurement Law (PPL) no 4734 dated 04 January 2002 PPL has created an advanced model of international procurement regulations. Turkish Public Procurement Sytem has four historical background dates. The first Public Procurement Law in the Republic of Turkey is Auction, Contest and Tender Law no 661 dated 22 April 1925. This Law was repealed by Auction and Tender Act no 2490 dated 10 December 1934. Public procurement has been continuously reformed to ensure effective and efficient use of public resources and to modernize the PP process. On 08 September 1983, new law on public procurement, namely State Tender Law no 2886 was adopted by the Parliament. Finally, on 04 January 2002, Public Procurement Law (PPL) no 4734 was enacted.

Turkish Public Procurement System (TPPS) Currently, Public procurement is regulated by Public Procurement Law No. 4734 which entered into force on January 1, 2003. One of the objectives of preparing a new law on public procurement was adaptation to international instruments on public procurement (EU Procurement Directives, UNCITRAL Model Law on Procurement, World Bank Procurement Guidelines, etc.). Public Procurement Law no. 4734 Currently, public procurement is regulated by Public Procurement Law No. 4734 which entered into force on January 1, 2003. One of the objectives of preparing a new law on public procurement was adaptation to international instruments on public procurement (EU Procurement Directives, UNCITRAL Model Law on Procurement, World Bank Procurement Guidelines, etc.). The enactment of a new public procurement law compatible with international instruments was an important public reform.

Turkish Public Procurement System (TPPS) Main Principles of PPL are; Transparency Reliability Fullfillment of Needs Efficient Use of Resources Competititon Confidentiality The purpose of PPL is to establish the principles and procedures to be applied in procurements held by public entities and institutions governed by public law or under public control or using public funds. Main principles of the PPL are transparency, competition, equal treatment, reliability, confidentiality, public supervision, fulfillment of needs appropriately, promptly, and efficient use of resources. Equal Traetment Public Supervision Taxpayers’ Expectations

Public Procurement Authority (PPA) Public Procurement Authority which is administratively and financially autonomous was established in 2002. The main duties of the PPA are; Regulation Dispute Resolution Public Procurement Authority which is administratively and financially autonomous was established in 2002. The main duties of the PPA are; to review procurement prosesses upon complaint and to provide remedies where necessary, to prepare and adopt secondary legislation and standard documents, to provide training on procurement legislation, to gather information and to compile and publish statistics relating to public procurement, to keep the records of those who are prohibited from participating in tenders. to conduct international relations in the field of public procurement. Training E-Procurement Gathering Information and Statististics International Relations

Centralised Purchasing Centralisation is one of the key procurement strategies. Full Centralization Procurement is carried out by central purchasing bodies Full Decentralization Each contracting entity carries out its own procurement Hybrid Models Some procurement activities are carried out by central purchasing bodies/a group of contracting entities. Centralisation is one of the key procurement strategies. Level of centralisation may be full centralisation, full decentralisation and mixture of them. 1.In full centralisation, procurement is carried out by central purchasing bodies. 2. In full decentralisation, each contracting entity carries out its own procurement 3. In hybrid models, some procurement activities are carried out by central purchasing bodies/a group of contracting authorities and some others are carried out by individual contracting authorities. The optimal level of centralisation is a challenging issue. The optimal level of centralization is a challenging issue

Key Players of Centralized Purchasing System in Turkey State Supply Office Public Hospitals Institution Economic Operators Contracting Authorities Ministries + Turkish Public Procurement System (TPPS) is a mixture of centralised and decentralised model. Majority of public procurement is conducted by the individual contracting authorities (currently more than 25.000). Public Procurement Authority Turkish public procurement system is a mixture of centralised and decentralised model. Majority of public procurement is conducted by the individual contracting authorities (currently more than 25.000). However, the State Supply Office, the Public Hospials Union and the Ministries conduct centralised procurement.

State Supply Office The State Supply Office (DMO), which was established in 1926, is the national central purchasing body in Turkey. The State Supply Office is located in Ankara, and it has offices in different regions. purchases some goods and services listed in its articles of association for other public institutions. The State Supply Office (DMO), which was established in 1926, is the national central purchasing body in Turkey. The State Supply Office is located in Ankara, and it has offices in 7 regions. The State Supply Office purchases some goods and services listed in its articles of association for other public institutions. www.dmo.gov.tr

State Supply Office Provided goods and services by State Supply Office includes: Stationery, furniture, office equipment and machinery, IT products, cleaning products, medicine and medical equipment, automotive products, transportation service. Total Amount Of Purchasing by State Supply Office 2010 2011 991.314.643TL (550.730.357 $) 1.516.650.102 TL (842.583.390 $) Procurement procedures followed by DMO are as follows; For above threshold contracts For below threshold contracts Open procedure, restricted procedure, negotiated procedure, framework agreements Sealed bid method, open procedure, restricted procedure, negotiated procedure, direct procurement, procurement via bailee The goods and services are provided by DMO includes: stationery, furniture, office equipment and machinery, IT products, cleaning products, medicine and medical equipment, automotive products, transportation service. The total amount of purchasing carried out by DMO was 991.314.643 TL (550.730.357 $) in 2010 and 1.516.650.102 TL (842.583.390 $) in 2011. Procurement procedures followed by DMO are as follows: For above threshold contracts; open procedure, restricted procedure, negotiated procedure, framework agreements, For below threshold contracts; Ssealed bid method, open procedure, restricted procedure, negotiated procedure, direct procurement, procurement via bailee.

Public Hospitals Institution Public Hospitals Institution was established by Legislative Decree no 663 dated 11 November 2011. Public Hospitals Unions established in 52 cities under the Public Hospitals Institution conduct public procurement in health sector for all the public hospitals in the relevant city. Public Hospitals Unions have to obey PPL for their centralized procurement. In addition framework agreements provide an instrument to Public Hospitals Institution for their centralized purchasing. Centralisation in procurement is not limited to national central purchasing body. Public Hospitals Institution was established by Legislative Decree no 663 dated 11 November 2011. Public Hospitals Unions established in 52 cities under the Public Hospitals Institution conduct public procurement in health sector for all the public hospitals in the relevant city. Public Hospitals Unions have to obey PPL for their centralized procurement. In addition framework agreements provide an instrument to Public Hospitals Institution for their centralized purchasing www.tkhk.gov.tr

Public Hospitals Institution The main duty of Public Hospitals Institution is opening, running, monitoring, assessing and supervising public hospitals and health institutions and to ensure that the public hospitals provide health services properly. Public funds allocated to Public Hospitals Institution from general budget for health services is over 8 billion TL (4,5 billion $) in 2013. The main duty of Public Hospitals Institution is opening, running, monitoring, assessing and supervising public hospitals and health institutions and to ensure that the public hospitals provide health services properly. Public funds allocated to Public Hospitals Institution from general budget for health services is over 8 billion TL (4,5 billion $) in 2013. Total Health Expenditure Medicine Treatment

Ministries and Contracting Authorities Needs of various contracting authorities subordinate to a Ministry may be procured by the central organisation of that Ministry. In addition, contracting authorities in a city may come together to procure their common needs through framework agreements. Besides the State Supply Office and Public Hospitals Institution, the Ministries play an important role in centralised public procurement. Needs of various contracting authorities subordinate to a Ministry may be procured by the central organisation of that Ministry. In addition, contracting authorities in a city may come together to procure their common needs through framework agreements

Integration of E-Procurement Tools with Centralized Purchasing System Electronic Public Procurement Platform (EPPP) became operational on 1 September 2010. Operations that can be performed in EPPP, include publication of contract notices, preparation of contract document by the contracting authorities, downloading of the contract document by economic operators, verification of tax liability, balance sheet and income statement information, social security premium debt information of the economic operators. E-procurement helps to improve standardization, transparency, speed, accord and public oversight in procurement procedures as well as efficiency and effectiveness in tender’s bid preparation and tender evaluation. Therefore, it is crucial for centralized procurement. In Turkey, Electronic Public Procurement Platform (EPPP) became operational on 1 September 2010. Operations that can be performed in EPPP include publication of contract notices, preparation of contract document by the contracting authorities, downloading of the contract document by economic operators, verification of tax liability, balance sheet and income statement information, social security premium debt information of the economic operators.

Integration of E-Procurement Tools with Centralized Purchasing System State Supply Office and other contracting authorities are registered in EPPP to use the tools of EPPP. Framework agreements can be concluded by using EPPP. In 2011, 465 framework agreements were concluded by using EPPP, and 1.887 contracts based on these framework agreement were awarded. In 2012, 198 framework agreements were concluded by using EPPP, and 1.597 contracts based on these framework agreement were awarded. One of the most important benefit of e-procurement is reducing the costs. State Supply Office and other contracting authorities are registered in EPPP to use the tools of EPPP. Framework agreements can be concluded by using EPPP. In 2011, 465 framework agreements were concluded by using EPPP, and 1.887 contracts based on these framework agreement were awarded. In 2012, 198 framework agreements were concluded by using EPPP, and 1.597 contracts based on these framework agreement were awarded. One of the most important benefit of e-procurement is reducing the costs.

Integration of E-Procurement Tools with Centralized Purchasing System E-Procurement tools’ functions as follows; Transparency Speed Cost Saving Standardization Public Supervising Effective Centralized Procurement System Sustainability E-procurement helps to improve standardization, transparency, speed, accord and public oversight in procurement procedures as well as efficiency and effectiveness in tender’s bid preparation and tender evaluation. Therefore, it is crucial for centralized procurement. Therefore, E-Procurement tools has a crucial role in centralized procurement

Benefits and Critical Views There are some benefits and also centralized purchasing system has critical views; Benefits Economies of Scale Standardization Increased Specialisation Support for Policy Objectives Critical Views Less Competition Concerns of SMEs Lack of Customization The main benetifts of centralised purchasing system are: Economies of scale (lower unit cost), Standardisation, Increased specialisation (more professional staff), Absence of local favouritism, Quality and speed of procurement process, Support for Policy Objective (ie. green and social procurement) The main disadvantages of centralised purchasing system are: Increased bureaucracy, Less participaiton of SMEs, Less responsive to the individual needs of public institutions, Less competition, Concerns of social and environmental issues.

Strategic Perspective of Centralized Procurement Procurement is increasingly being recognised as a strategic function rather than an operative function. A long-term strategic approach should be adopted to achieve efficiency. The level of centralisation and the scope of goods and services to be procured centrally are important components of procurement strategy. Optimum approach should be decided by support from analytics. Procurement is increasingly being recognised as a strategic function rather than an operative function. A long-term strategic approach should be adopted to achieve efficiency. The level of centralisation and the scope of goods and services to be procured centrally are important components of procurement strategy. Optimum approach should be decided by support from analytics.

Strategic Perspective of Centralized Procurement Strategic perspective has three pillars in TPPS; Market Expectations Competition SMEs’ Concerns Effective Procurement Sytem Participation Sustainability Effective Regulation Review System Environmental and Social Issues Strategic Procurement Contracting Authorities’ Expectations Economies of Scale Professionalism Procurement Policy Bargain Power Strategic perspective has three pillars in Turkish Public Procurment System. First pillar is market expectations which cover competition, SME’s concerns, effective procurement system and participation. Second pillar is sustainability. It includes effective regulation, review system, competition, environmental and social issues and strategic procurement. Third pillar is expectations of contracting authorities. This covers economies of scale, professionalism, procurement policy and bargain power.

Strategic Perspective of Centralized Procurement Strategic goals of centralised purchasing: Competition More local centralized Purchasing Effective Dispute Resolution SMEs’ Concerns Economies of Scale Value for Money Fulfillment of needs appropriately, promptly Managing Supply Chain Effectively Reducing Cost More Participation Integration with Global World Environmental and Social Policy Effective Procurement System Sustainable Centralized Procurement System Strategic goals of centralised purchasing are competition, economies of scale and more participation of economic operators to public procurement. In order to promote competition, SME’s concerns should be taken into account, an effective dispute resolution system must be established and more local centralised purchasing should be encouraged. Economies of scale reduces costs and provides value for money. When benefiting from economies of scale, the supply chain should be managed effectively and needs must be fulfilled appropriately and promptly. In order to ensure more participation of economic operators to public procurement, an effective public procurement system must be established, the system must be integrated with global world and a sound environmental and social policy should be followed.

Conclusion and Recommendations (Experiences) How can the strategic goals be achieved: Balanced interest between market and contracting entities, Effective regulatory authority, Effective dispute resolution system, More local centralised purchasing, Sensitivity level of sustainability. This strategic goals can ve achieved by; - Balancing interest between market and contracting entities, - Having an effective regulatory authority, - Having an effective dispute resolution system, - More local centralised purchasing and - Sensitivity level of sustainability.

THANK YOU…