EU Public Procurement Learning Lab “Public e-procurement in Italy: Consip’s experience” Rome, November 28 th 2003 Gustavo Piga – Chairman of Consip S.p.A.

2 Rome, November 28 th 2003 Legal Framework The Financial Act of year 2000 (Law n.488, December 23 rd, 1999) has laid down the foundations of the “Rationalization Program on Public Spending for Goods and Services” According to article 26:  The Ministry of Economy and Finance (MEF), according to the in force regulations regarding suppliers selection, stipulates national frame contracts with suppliers. Within the frame contract, selected providers assume the commitment to accept orders coming from Public Administrations  Central Government (e.g. ministries) is obliged to purchase within these frame contracts  All other Public Administrations (e.g. municipalities, health agencies, etc.) may purchase within the frame contracts. Alternatively, whenever they run their own tenders, they have to take price and quality of the frame contracts as a reference 1.Legal framework 2.Public spending in Objectives and strategies 4.Electronic shops 5.Marketplace 6.Open issues

3 Rome, November 28 th 2003 Legal Framework E-procurement regulation  In year 2002 the Italian Government has issued an innovative Presidential Decree (n.101, April 4 th 2002), that regulates the use of digital procedures in public procurement. Public Administrations can now use digital procedures as a whole, or as a partial replacement of traditional tender phases  Two different digital procurement procedures for goods and services are taken into consideration: -on-line auctions, for purchases above and below EU threshold, whereby the whole tendering process is managed on-line -marketplace, (type B2G) only for purchases below the EU threshold  Italy has been the first EU Country to have an e-procurement regulation allowing purchases above EU threshold. This anticipates the approval, in a near future, of a similar EU Parliament directive 1.Legal framework 2.Public spending in Objectives and strategies 4.Electronic shops 5.Marketplace 6.Open issues

4 Rome, November 28 th 2003 Rationalization Program on Public Spending Objectives and strategies ObjectivesStrategies  Focus on “state of the art” in supply market  Wide range of goods and services  Constant assessment of service levels  Direct costs, through: - demand aggregation (economies of scale) - competition among suppliers - product standardization  Indirect costs, through: - on-line bidding and ordering - process simplification - centralization of litigation To guarantee quality standards in P.A. purchases … … while reducing Change Management in the Public Administration Industry dynamics Side effects 1.Legal framework 2.Public spending in Objectives and strategies 4.Electronic shops 5.Marketplace 6.Open issues

5 Rome, November 28 th 2003 Electronic shops Operational model 1.Legal framework 2.Public spending in Objectives and strategies 4.Electronic shops 5.Marketplace 6.Open issues Contracts reporting Monitoring tools Needs Feedback Delivery On-line/fax order Public Administrations Consip Suppliers Frame Contracts (public tender) and e-shops activation Payments Portal

6 Rome, November 28 th 2003 Frame contracts Process simplification 1.Legal framework 2.Public spending in Objectives and strategies 4.Electronic shops 5.Marketplace 6.Open issues From the traditional…. …to the new process of goods and services procurement Fax / on-line Order... achieving, in addition, administrative procedures reductions for both P.A. and suppliers… Needs analysis Goods/ Services delivery Payment Supplier selection Possible litigation with suppliers Contract and tender document ation Contract signing Consip activities

7 Rome, November 28 th 2003 Frame Contracts Some examples of unit cost reduction 31% average saving Goods Utilities TLC % unit cost reductions Productivity SW Laptop PCs Photocopiers Printers Desktop PCs Fax Machines Cars Stationery Meal tickets Facility Management Fuels Electric power Mobile line telephony Fixed line telephony and IP connectivity 60 signed frame contracts and 31 product categories by 31/12/03 1.Legal framework 2.Public spending in Objectives and strategies 4.Electronic shops 5.Marketplace 6.Open issues Source: Consip estimates

8 Rome, November 28 th 2003 Frame contracts and electronic catalogues Usage and break out by public sectors (*) Total amount of potential Administrations is about Despite their non-compulsory participation to the Rationalization Program on Public Spending, 21% of orders comes from Local Government 1.Legal framework 2.Public spending in Objectives and strategies 4.Electronic shops 5.Marketplace 6.Open issues orders Jan-03Feb-03Mar-03Apr-03May-03Jun-03Jul-03Aug-03Sep-03 Cumulated registrationsCumulated orders N Registrations: (*) Central Government – 52% Health – 3% Local Government – 34% University – 10% Others P.A. – 1% Source: Consip estimates Registrations break out by public sectors (%)

9 Rome, November 28 th 2003 Innovative e-procurement tools On line auctions Base Price: € 199,000 Saving: € 83,000 N° of competing vendors: 8 Awarding Price: € 116,000 % cost reduction: 42% 1.Legal framework 2.Public spending in Objectives and strategies 4.Electronic shops 5.Marketplace 6.Open issues Tender awarded Winning bid at 116,000 Euro (-42%) Minutes 7 vendors3 vendors6-5-4 vendors8 vendors2 vendors Extension time starts Best bid at 137,000 Euro (-31%) Last 10 min. Best bid at 147,500 Euro (-25.8%) € M

10 Rome, November 28 th 2003 Innovative e-procurement tools Public Administrations’ Marketplace  The Marketplace is a virtual market in which P.A. can select goods and services offered by several suppliers, for purchases below EU threshold  The Marketplace is open to qualified suppliers (and goods) according to not particularly restrictive selection criteria  The entire process is digital, using digital signature in order to guarantee transactions legally Public Administratio n Marketplace Qualified suppliers selected through a qualification process, starting from the date of publication of the “qualification notice” Suppliers  Central Government  Universities  Local Government  Health bodies Buying administrations Market Qualification notice (public announcement) 1.Legal framework 2.Public spending in Objectives and strategies 4.Electronic shops 5.Marketplace 6.Open issues

11 Rome, November 28 th 2003 Marketplace Major advantages To Public Administrations:  costs and process cutting  potential broadening of suppliers base  easy access to selected goods (pre-defined quality standards)  information transparency and ease of comparison among goods  purchases logging and subsequent expenditure monitoring To Suppliers:  selling cost reduction (due to broadening of potential customers base and lower intermediation cost)  major visibility  more competitiveness especially in local markets (for small and medium sized enterprises)  B2G introduction, especially for large sized enterprises, in addition to existing B2B and B2C 1.Legal framework 2.Public spending in Objectives and strategies 4.Electronic shops 5.Marketplace 6.Open issues

12 Rome, November 28 th 2003  Through nation-wide frame contracts, large competitors lever on economies of scale, while it is difficult for small and medium enterprises to exploit their specific comparative advantages  Price vs. Quality: a high level of competition in auctions drives prices down so much that suppliers are “forced” to cut all those aspects of supplies that are non-contractible; the less quality can be defined with objective criteria, the more critical this aspect becomes  Transparency vs. Collusion: when auctions are repeated, providing more information increases transparency and reduces the “winner’s curse”, but can help collusion between bidders  Different auction formats (single round vs. multi-round) are suitable to different contexts (known vs. unknown value), requiring different trade offs with collusion risk  The use of two different e-procurement tools (e-shops and marketplace) implies the identification of a proper policy to avoid risk of “cannibalization” of products to be offered Open issues 1.Legal framework 2.Public spending in Objectives and strategies 4.Electronic shops 5.Marketplace 6.Open issues