Public Public Procurement – Procurement –

Existing Existing Constraints and Constraints and

How to Overcome How to Overcome Them Them

Predrag Jovanovic, Ph.D.Predrag Jovanovic, Ph.D.

Key indicatorsKey indicators

In 2006, the total value of registered In 2006, the total value of registered public procurement contracts – 2 public procurement contracts – 2 billion Euro billion Euro

In the five year period (2002-6), the In the five year period (2002-6), the average contract value increased average contract value increased fivefold fivefold

Since 2003, the number of contracts Since 2003, the number of contracts reported to the PPO is steadily reported to the PPO is steadily decreasing decreasing

Table 1Table 1Comparative overview of registered PP contracts Comparative overview of registered PP contracts

YearYearContractsContracts

2002* 2002* 20032003 2004 2004 2005 2005 20062006

TotalTotalnumbernumber

71.29271.292 231.661231.661 215.815215.815 148.758148.758 152.485152.485

Total valueTotal value ((in thousandsin thousands

CSDCSD))13.928.27213.928.272 98.777.65298.777.652 109.282.212109.282.212 124.753.207124.753.207 168.914.947168.914.947

Average valueAverage value ((in thousandsin thousands

CSDCSD))195195 426426 506506 838838 11..108108

*Reports covered period July 13 – December 31, without local self-government, since local self-government

started to implement the PPL since January 1, 2003, according to the Article 148 of the PPL.

Key indicatorsKey indicators

In 2006, the total value of registered In 2006, the total value of registered public procurement contracts – 2 public procurement contracts – 2 billion Euro billion Euro

In the five year period (2002-6), the In the five year period (2002-6), the average contract value increased average contract value increased fivefold fivefold

Since 2003, the number of contracts Since 2003, the number of contracts reported to the PPO is steadily reported to the PPO is steadily decreasing decreasing

Table 2Table 2Structure of the number of contracts awarded by Structure of the number of contracts awarded by

procedureprocedure (in(in %) %)

YearYearType ofType ofprocedureprocedure

20022002 20032003 20042004 20052005 20062006

Competitive Competitive procedures procedures

3636 7979 7676 7373 7373

Negotiated Negotiated procedure procedure

6464 2121 2424 2727 2727

Table 3Table 3Change of share of PE Change of share of PE ** categories in the total value of public categories in the total value of public

purchasing (in %)purchasing (in %)

PE categoryPE category 2002 2002 20032003 20042004 20052005 20062006

State bodies State bodies 3333 2626 20,620,6 1717 1515

Public Public enterprisesenterprises

63,763,7 5959 56,456,4 5656 6565

Public Public institutionsinstitutions

3,33,3 1111 1414 2222 1313

Local self-Local self-governmentgovernment

/*/*** 44 99 55 88

* Purchasing entities

**According to the Article 148 of the PPL, local self-government started to implement the Law since January 1, 2003

Table 4Table 4

* Reports covered period July 13 – December 31, without local self-government, since local self-government

started to implement the PPL since January 1, 2003, according to the Article 148 of the PPL

Changes in key indicators (Changes in key indicators (2002-20062002-2006))

YearYearIndicatorIndicator 2002*2002* 20032003 20042004 20052005 20062006

Number of PE’s Number of PE’s reports submitted reports submitted to the PPOto the PPO

391391 21932193 23402340 21652165 21342134

Share of Share of competitive competitive proceduresprocedures ((inin %) %)

3636 7979 7676 7373 7373

Intensity of Intensity of competition competition ((average number average number of bidders per of bidders per tender)tender)

7.57.5 8.58.5 77 55 55

SavingsSavings((inin %) %) 99 1212 88 1515 1111

Two phasesTwo phases

First phase First phase (2002-4)(2002-4)

Share of competitive procedures – Share of competitive procedures – rating A rating A

Strong competition – an average Strong competition – an average number of bidders per tender 7 to 8number of bidders per tender 7 to 8

Two phasesTwo phases

Second phase Second phase (2005-6)(2005-6)

Share of competitive procedures – Share of competitive procedures – rating Brating B

Weakening competition – an average Weakening competition – an average number of bidders per tender 5number of bidders per tender 5

Key factorsKey factors

Inefficient controlInefficient control Absence of sanctions for breaking Absence of sanctions for breaking

the Law the Law

Main goalsMain goals

Establishing of a modern monitoring Establishing of a modern monitoring and control concept in public and control concept in public procurementprocurement

Redefinition of roles and tasks of Redefinition of roles and tasks of relevant institutionsrelevant institutions

Strengthening of human and Strengthening of human and financial capacities of the relevant financial capacities of the relevant institutions institutions

Major obstacles to an Major obstacles to an efficient control in public efficient control in public procurementprocurement Control function relies on “ex ante” Control function relies on “ex ante”

opinions of the PPO, as well as on opinions of the PPO, as well as on the checking of purchasing entities’ the checking of purchasing entities’ reports submitted by the PPO reports submitted by the PPO

Key weakness – PPO is unable to Key weakness – PPO is unable to check reliability of data and claims check reliability of data and claims in the reports and requests in the reports and requests

SolutionsSolutions

Monitoring and control functions should be Monitoring and control functions should be undertaken by institutions that are undertaken by institutions that are authorized to check reliability of information authorized to check reliability of information provided by purchasing entities, i.e. that are provided by purchasing entities, i.e. that are authorized to do “on site” controlauthorized to do “on site” control

The system of monitoring and control should The system of monitoring and control should rely on the following institutions:rely on the following institutions:

1) Internal review units 1) Internal review units

2) Supreme Audit Institution2) Supreme Audit Institution

3) Budget inspection3) Budget inspection

SolutionsSolutions

Bidders should have significant role Bidders should have significant role in external control of purchasing in external control of purchasing entities by using mechanism of entities by using mechanism of protection of bidders’ rights and protection of bidders’ rights and Commission for Protection of Rights Commission for Protection of Rights

SolutionsSolutions

Establishing of an efficient system of Establishing of an efficient system of sanctioning officials responsible for sanctioning officials responsible for irregularities and of those refusing irregularities and of those refusing to provide information to provide information

Strong preventive effect Strong preventive effect

SolutionsSolutions

Redefining a role of the PPO by Redefining a role of the PPO by transforming its control function transforming its control function through:through:

A) elimination of PPO approvals based A) elimination of PPO approvals based on requests and reports of PE and on requests and reports of PE and

B) much higher PPO involvement in B) much higher PPO involvement in system developing functions system developing functions

SolutionsSolutions

Redefinition of the PPO role would:Redefinition of the PPO role would:

A) Put its operations in line with its A) Put its operations in line with its capacities capacities thus reducing a huge existing thus reducing a huge existing gap and gap and

B) Improve the key component of internal B) Improve the key component of internal capacities enabling capacities enabling qualitative qualitative

upgrading upgrading of HR capacities of the of HR capacities of the PPOPPO

Basic elements of PPO Basic elements of PPO redefined role redefined role To put the procurement function on the To put the procurement function on the

political map, so that it is recognized as a political map, so that it is recognized as a key strategic factor in the provision of key strategic factor in the provision of efficient services to the public at lowest efficient services to the public at lowest possible cost;possible cost;

To ensure that procurement is To ensure that procurement is mainstreamed into the centre of the mainstreamed into the centre of the budget and public expenditure process;budget and public expenditure process;

To attract adequate professional To attract adequate professional procurement expertise and increase the procurement expertise and increase the status of the procurement professionstatus of the procurement profession

The role of the PPO in the The role of the PPO in the monitoring and control process monitoring and control process should be:should be: 1.1. Preparation of an annual report to the Preparation of an annual report to the

government on the functioning of the government on the functioning of the national public procurement system andnational public procurement system and

2.2. Quarterly collection of data on awarded Quarterly collection of data on awarded contracts, analyses of the data and contracts, analyses of the data and sending to the SAI and to the Budget sending to the SAI and to the Budget inspection information relevant for the inspection information relevant for the control of the PE they undertake, such control of the PE they undertake, such were: highest value contracts, list of PE were: highest value contracts, list of PE that awarded contracts above certain that awarded contracts above certain value, inconsistencies in PE reports etc.value, inconsistencies in PE reports etc.

Basic elements of PPO Basic elements of PPO redefined roleredefined role

Systematic support to the purchasing Systematic support to the purchasing entities in developing their public entities in developing their public procurement capacities through procurement capacities through development of guidance systems and development of guidance systems and operational tools – Internet and operational tools – Internet and paper‑based – for managing all phases of paper‑based – for managing all phases of the procurement process, e.g. standard the procurement process, e.g. standard forms of public notices, models of tender forms of public notices, models of tender documentation, models of general documentation, models of general contracts. contracts.

Basic elements of PPO Basic elements of PPO redefined roleredefined role

Establishing a specialized Internet-Establishing a specialized Internet-based portal with tender and award based portal with tender and award notices, including the processing of notices, including the processing of notices, information and guidance notices, information and guidance system to support the procurement system to support the procurement community, including guidance community, including guidance documentation, model tender and documentation, model tender and contract documentation, interpretative contract documentation, interpretative and commentary communications.and commentary communications.

Basic elements of PPO Basic elements of PPO redefined roleredefined role

To act as a national contact point for the To act as a national contact point for the European Commission for questions and European Commission for questions and enforcement proceedings on the basis of enforcement proceedings on the basis of article 226 of the EC Treaty; article 226 of the EC Treaty;

To participate, either as a representative To participate, either as a representative of an institution or as an individual expert, of an institution or as an individual expert, in international networks, such as the in international networks, such as the European Public Procurement Network European Public Procurement Network (PPN);(PPN);

Co‑operation with corresponding Co‑operation with corresponding institutions in other countries. institutions in other countries.

Basic elements of PPO Basic elements of PPO redefined roleredefined role Facilitation and co‑ordination of Facilitation and co‑ordination of

framework agreements in framework agreements in government sectors and government sectors and municipalities;municipalities;

Development of systems and Development of systems and methodologies for e‑procurement;methodologies for e‑procurement;

Introduction of systems for Introduction of systems for performance measurement of public performance measurement of public procurement.procurement.

Relevant documentsRelevant documents

1.1. ““Baseline for Strategy of Upgrading Public Baseline for Strategy of Upgrading Public Procurement System in Serbia”, OSCE and Procurement System in Serbia”, OSCE and Public Procurement Office, June 2006Public Procurement Office, June 2006

2.2. ““Central Public Procurement Structures Central Public Procurement Structures and Capacity in Member States of the and Capacity in Member States of the European Union”, SIGMA paper no. 40, European Union”, SIGMA paper no. 40, March 2007March 2007

3.3. Redefining a Role and Tasks of the Public Redefining a Role and Tasks of the Public Procurement Office in line with EU Procurement Office in line with EU Standards and Good Practice, OSCE, May Standards and Good Practice, OSCE, May 20072007

Time dimensionTime dimension

In 2004, the key weaknesses in control In 2004, the key weaknesses in control mechanisms of the PP system were mechanisms of the PP system were identified by the PPO and reported to the identified by the PPO and reported to the Government, such were: Government, such were:

1) the absence of “on site” control if data 1) the absence of “on site” control if data provided by PE are reliable or not and provided by PE are reliable or not and

2) absence of any sanctions for 2) absence of any sanctions for breaching the rules. breaching the rules.

Time dimensionTime dimension

In 2005 and 2006 effects of In 2005 and 2006 effects of inappropriate and inefficient control inappropriate and inefficient control system became visible in real life system became visible in real life sphere sphere

It is realistic to expect that It is realistic to expect that immediate proper measures result in immediate proper measures result in changes of PP market real life changes of PP market real life indicators after two years (i.e. in indicators after two years (i.e. in 2009 – 2010)2009 – 2010)

Concrete measuresConcrete measures

Urgent amendments of the PPL aimed Urgent amendments of the PPL aimed to upgrade mechanism of monitoring to upgrade mechanism of monitoring and control in PP and related changes and control in PP and related changes of the PPO’s role in that process, as of the PPO’s role in that process, as well as change in the status of the well as change in the status of the Commission for Protection of Rights; Commission for Protection of Rights;

Determined political support to Determined political support to establishing of a system of internal-establishing of a system of internal-external audit and controlexternal audit and control

Concrete measuresConcrete measures

Establishing Supreme Audit Establishing Supreme Audit Institution and Internal Review UnitsInstitution and Internal Review Units

Providing support to the PPO and Providing support to the PPO and CPR in developing of their CPR in developing of their capacities, primarily HR and capacities, primarily HR and financial financial

Table 5Table 5 HR capacities of the PPO HR capacities of the PPO (2003-7)(2003-7)

Change of number of employees in the PPO over the Change of number of employees in the PPO over the past four years past four years

Year Year 20042004 20052005 20062006 20072007

Number Number of of employemployeesees

2121 2424 2222 2121

Table 6Table 6 Financial capacities of the PPO Financial capacities of the PPO and CPR (2003-7)and CPR (2003-7)

Joint budget of the PPO and CPRJoint budget of the PPO and CPR in the period in the period 2003-2007 2003-2007

YearYear Amount in CSDAmount in CSD Amount in EuroAmount in Euro

20032003 16.411.000,0016.411.000,00 258.440,94258.440,94

20042004 16.337.500,0016.337.500,00 223.801,37223.801,37

20052005 24.195.000,0024.195.000,00 294.164,13294.164,13

20062006 27.347.000,0027.347.000,00 341.837,50341.837,50

20072007 24.140.000,0024.140.000,00 301.750,00301.750,00

Table 7Table 7 Comparative data on Public Comparative data on Public Procurement Office’s annual Procurement Office’s annual budgets in Eurobudgets in Euro   SerbiaSerbia SlovakiaSlovakia Hungary Hungary

20022002 / / 1,339,586 1,339,586 1,800,0001,800,000

2003 258,440 1,302,358 2003 258,440 1,302,358 2,900,0002,900,000

2004 223,801 1,489,993 2004 223,801 1,489,993 3,800,0003,800,000

2005 294,164 1,590,847 2005 294,164 1,590,847 4,100,0004,100,000

2006 341,837 1,958,172 2006 341,837 1,958,172 4,300,0004,300,000