The Hallmarks of Public, Utilities and Concessions Procurement

The 2014 EU legislative framework on public procurement and concessions has been enacted with high expectation, explains Christopher Bovis.

Public procurement is an essential part of the Single Market Act and its regulation will play a pivotal role in the success of the Europe 2020 Growth Strategy. The public procurement reforms have been identified as essential components of the European strategic plan which will enhance competitiveness and growth and at the same time as indispensable instruments of delivering public services. The EU procurement regime needs to benefit from simplification, modernisation and procedural efficiencies and from streamlining the application of the substantive rules. The challenge of the reforms will test the relation of market integration for the public and utilities and concession sectors in the EU with the need for market access from third countries and the need for sheltered markets for small and medium enterprises. The high expectation of the public procurement reforms will be met by enhancing the governance of public procurement and raise the professionalization and standards in both public and private sectors.

The key highlights focus on developments which are considered essential levers for the EU 2020 Growth Strategy:

• The regulation for concessions recognises their special nature and characteristics which are different than those of public contracts, and applies a light regulation which balances the freedom of Member States to organise delivery of their public services through exclusive rights granted to public undertakings with the imperative of the principle of transparency in the award of public contracts which ensures market access and competition in the delivery of public services.
• Public service integration in procurement also balances procurement regulation with the parallel application of excluded relations such as in-house relations, relations of utilities with affiliated undertaking and horizontal co-operation between public authorities.
• Strategic procurement in the EU embraces the pivotal importance of the SMEs in achieving economic growth. The new regime deals effectively with sub-contracting issues, prompt payments and the promotion of SMEs in the selection and qualification procurement phase and the award of public contracts.
• Innovation in the delivery of public services is a priority for procurement regulation and will be achieved through the new procedure of innovation partnerships and the new award criterion of life cycle costing.
• Responsible procurement takes into account socio-economic nature of public service delivery through services of general economic interest and incorporates environmental protection as a component of public procurement regulation.
• Efficient procurement promotes systems such as electronic procurement and electronic invoicing which attempt to reduce bureaucracy and costs and allow for a more streamlined process in the delivery of public services.

The reforms of public procurement have focused on standardisation of regulation for the award of public contracts, concessions and Public-private Partnerships. Regulatory standardisation faces a significant challenge. The desirability of regulating PPPs, concessions and public contracts alike is counterbalanced with the difficulty of the regulation of concessions and PPPs which emanates from the inability of such relations to fit into a procedural uniformity similar to that for the award of public contracts.

Public procurement regulation is a decision making process which is based on objective, transparent and uniform procedures for selecting contractual partners in order to deliver public services. In concessions and PPPs, the award process is heavily influenced by innovation, which as a concept emerges in risk-based contractual relations and it is not likely to appear in traditional public contracts. The PPP relation is conducive to development processes and systems which create new ground and advanced delivery and finance methods. Partner motivation in PPPs creates an environment which is conducive for innovation. Environmental conduciveness in PPPs for innovation exhibits a balancing exercise of factors such as price, cost, risk, quality, performance and continuous improvement which underpins the value for money (VFM) principle in public service delivery. The VFM is supported through incentivisation in PPPs, by mechanisms which create profit or revenue driven notions such as gain and profit sharing and through value engineering, for the determination of specifications and standards and the development of solutions utilising R&D functions of the private partner.

The concepts of concessions and Public-Private Partnerships represent a genuine attempt to revolutionise the delivery of public services by introducing the private sector as strategic investor and financier of public services. First, the private sector assumes a direct responsibility in serving the public interest, as part of its contractual obligations vis-à-vis the public sector. The motive and the intention behind such approach focus on the benefits which would follow as a result of the private sector’s involvement in the delivery of public services. Efficiency gains, qualitative improvement, innovation, value-for-money and flexibility appear as the most important ones, whereas an overall better allocation of public capital resources sums up the advantages of engaging with the private sector in delivery of public services. Public-Private partnerships as a concept of public sector management have changed the methodology of assessing delivery of public services both in qualitative and quantitative terms.

The challenge of the European public procurement system is twofold: first, to introduce innovation in traditional public contracts and mimic the collective motivation relations between public and private sectors which are found in PPPs; secondly, to capture innovation during the procurement process and allow it to influence the selection process and be decisive factor in the award of public contracts. Public procurement regulation is channelled through three phases: selection, tendering and award. Innovation could possibly emerge in the award phase, as the selection phase is confined to objectively determined and standardised processes. Innovation could also emerge in the tendering phase when utilising negotiations between public and private sectors in competitive dialogue and innovation partnerships award procedures. The regulatory success of PPPs rests on the relative efficiency and innovation capacity of the private sector. This efficiency must demonstrate itself in a dynamic mode, reflecting the need for competition in the provision of the relevant services. Innovation can provide for such efficiency. In traditional public contracts, the inherently oligopolistic yet contestable market is ripe for innovation as a feature which will facilitate new entries or offerings.

To safeguard the principles of transparency and accountability in public sector management, an incentive-based regulation is the benchmark. The challenge for the EU policy and law maker is to design a system which increases output towards the social optimum, stabilises prices in a sustainable manner, limits monopoly profit while preserving the incentive for private sector to be more efficient and reduce costs.

Prof Christopher Bovis is Professor of Business Law at the Business School of the University of Hull

The Research Handbook on EU Public Procurement Law is out now.