E-procurement challenges or the
Challenge of e-procurement?
GUSTAVO PIGA
Chair, Master in Procurement Management
University of Rome Tor Vergata, Department of Economics and Territory
[email protected], www.gustavopiga.it
Prepared for
“Connected Governance: Vision or Reality?”
Scuola Superiore della Pubblica Amministrazione
October 21-22, 2009, Rome
Definitions?
“E-GP is the use of Information &
Communications Technology (especially the
Internet) by governments in conducting their
procurement relationships with suppliers for
the acquisition of goods, works, and
consultancy services required by the public
sector.”
(World Bank)
2
E-proc mushrooms with Central Purchasing Bodies!
OGC - UK
• 380 people serving 450 Public
Administrations
• Around 300 framework
contracts Value of Contracts :
around € 2.75 bn
• Savings obtained in the three
year period 2000-2003: £ 1,6
bn.
SKI – Denmark
• Serving 8500 public bodies
• 250 suppliers
• 45 framework agreements
• Volume of contracts: around 551 million €
HANSEL – Finland
Handled volumes, € 4 mn.
BESCHA – Germany
• 26 public institutions
• 3000 contracts per year of goods and
services
MINEFI – Ireland
• 500 people
• 22 frame contracts
• Volume of contracts: € 637
million
BBG – Austria
• 35 people
• Orders equal to € 378 mln in 2003
• 10-120 frame contracts awarded per
year
ABA– Belgium
• Value of purchases 2003: €
15 mln
• 80 frame contracts betwen
2000 and 2004
Ministry of Development – Greece
• 135 people
• Orders equal to 216 mln in 2003
• 438 frame contracts between 2000 and
2003
UGAP – France
• 500 suppliers involved in
2003, 80% SMEs
• Program being restructured
Source: Official Websites, Data collected by
Consip and by Hansel in 2004
NB: the list does not intend to be complete
STATSKONTORET – Sweden
• Orders near € 1 bn.
• 16 commodities handled in 2003
CONSIP – Italy
• 500 people
• In 2003, approximately 41.000 ordering units
• Orders equal to € 1,9 bn.
• Approximately 60 contracts for goods and services
3
Centralization and E-proc Developments:
the U.S. Experience in Procurement
Survey over 47 US states (1998 vs. 2001), in Moon, Journal of Public Procurement
Electronic Ordering: from 44,7 to 68,1% of all States;
Purchasing Cards: from 68,1 to 85,1%;
Digital Signature Accepted for Tender Documents: from 0,1% to 15%;
Reverse Auction: 10,6% in 2001
E-proc Adoption Grows with:
Managerial Innovation;
Centralized procurement with a high level of authority;
Size of the State.
4
e-proc and centralization
Why do e-proc and centralization arise
together?



Centralization makes e-proc less costly and
more profitable;
IT and e-proc make centralization more
natural and less costly;
So it is hard to judge if the final impact is
due to one or the other!
5
E-proc is costly!





How much? The more costly the:
smaller the Administration. However large
organizations driven by e-proc generate less
SME’s participation;
lower the professionalism of procurement
personel;
lower the degree of IT development of the
country/Administration (security is key);
lower the organizational skills available within.
6
But is e-proc also beneficial?

The new EU Directive on public procurement seems to say
YES:
“Certain new electronic purchasing techniques are continually being
developed. Such techniques help to increase competition and
streamline public purchasing, particularly in terms of the savings in
time and money which their use will allow. Contracting authorities may
make use of electronic purchasing techniques, providing such use
complies with the rules drawn up under this Directive and the principles
of equal treatment, nondiscrimination and transparency”
(whereas 12).
7
Does e-proc generate competition or
collusion? The case of reverse auctions
Fornitura
Ausili per
disabili
Ente Appaltante
ASL Umbria
Prezzo di
aggiudicazione
116.000 € Euro
Prezzo base
199.000 €
200
N° di fornitori
partecipanti
8
ultimi 10 min.
Migliore offerta a 147.500 Euro
(-25,8%)
190
Inizio autoestensione
Migliore offerta a 137.000 Euro
(-31%)
180
€ x 1000
Riduzione spesa
42%
170
160
150
Asta aggiudicata
a 116.000 Euro
(-42%)
140
130
120
8 fornitori
110
0
10
7 fornitori
20
30
40
6-5-4 fornitori
50
60
Minuti
70
2 fornitori
3 fornitori
80
90
100
110
120
8
Reverse auctions, opposite views
THE PRACTITIONER: “Thanks to electronic tools enterprises make various
offers and at the same time see the others’ bids. In this way – already at the
psychological level – competition is increased. This in turn leads to better results and
savings for the Public Administration. Bidders are masked with a code, which does not
allow them to know the identity of others during the tender. In this way the
Administration tries to avoid collusions” (cited in Magrini, p. 36).
THE THEORIST:

ascending auctions remove uncertainty about the value of the good and make firms bid
more agressively. But online auctions can increase collusion: competitors get to see, in
real time, if a cartel agreement is being broken by a defector and have the possibility to
retaliate with lower prices. Knowing this, there will be no defection and collusion will be
self-sustained, causing harm to the Administration;

the openness of the format may scare away small firms that anticipate being easily
topped by big firms during the auction.
9
Does e-proc Curb Corruption?
“Procurement and corruption” by Lengwiler e Wolfstetter, in Handbook of Procurement
edited by Dimitri, Piga and Spagnolo, Cambridge University Press, 2006
Yes! Possible formats of corruption removed by e-proc tenders
(including reverse auctions):
Modify bid of “favored” bidder to let him/her win: reverse auction keeps all
players active until price hits each player’s cost;
Pre-Auction to determine “favored” bidder: with sealed bid tender the
purchasing price for the taxpayer is higher as winning firm has to pay the
bribe. With reverse on-line auction firm wins, not paying bribe, by having
taxpayer pay lower price;
After seeing bids, the most advantageous “briber” is approached: on-line
auction eliminates this by making bids public.
BUT CORRUPTION THROUGH LOWER QUALITY IS NOT AFFECTED BY
E-PROC
10
Does e-proc help transparency?
82 Russian regions
EPROC
% REGIONI
Browsing
Tenders
100%
Browsing Tenders 43,2%
con advanced
research tools
Database signed
contracts
Search signed
contracts
43,2%
14,8%
EPROC
Portals with
login
% REGIONI
43,2%
E-tendering
RFQ
13,6%
E-tendering
Reverse auction
E-purchasing
Online payment
14,8%
0%
11
Does e-proc help SMEs?
No! SMEs need “affirmative action” and not
“affirmative rights”: to treat unequals as equals is
to perpetuate inequality. The US reserves a 23%
share of Public Procurement only to SMEs.
Yes! Some tools like the procurement-card or the
market-place target small purchases, using
technology to lower costs for procurers without
crowding-out SMEs, unlike centralization.
12
Where is the benefit in procurement? (1)

How much waste in purchases could be
eliminated by bringing “the worse at the level of
the best”? “If all public bodies were to pay the
same prices as the one at the 10th percentile,
sample expenditure would fall by 21% . . . Since
public purchases of goods and services are 8%
of GDP, if sample purchases were representative
of all public purchases of goods and services,
savings would be between 1.6% and 2.1% of
GDP!”
13
Where is the benefit in procurement? (2)

How much of this waste is passive (inefficiency [and
capture from ignorance?]) vs. active (corruption)? “On
average, at least 82% of estimated waste is passive and
that passive waste accounts for the majority of waste in
at least 83% of our sample public bodies.”
While competence drives e-proc, it is doubtfuI that e-proc
drives competence.
So … why and when use it?
14
E-proc: Why and When?

In reverse auctions with asymmetric information across
bidders, in proc card, in market-place. Sustaining interoperability across e-platforms.

But what if …
One is to use e-proc to expand e-Bay-like features of
the public process of acquisition where it generates
greater transparency and benchmarking across
administrations?
Wouldn’t
corruption
and
incompetence be exposed better?
15
Give power and voice to the Public Administration
stakeholders. The role of DATA and benchmarking.
16
ICT for procurement
Collect data, normalize them and publish them on Internet:
Interested citizens will be able to voice their opinion, contributing to
reinforce the reputation of virtuous firms and public administrators.
Two results would be achieved:
- first, maximum visibility (also thanks to the press) would be given
to critical situations, so addressing inspections of the Administration,
and ultimately the auditing process.
- second, administrators and firms would be forced to build a
positive reputation to avoid social stigma, punishment of voters or of
superiors. Worse procurers would try to imitate the best ones.
17
The Mexican case: CompraNet
www.compranet.gob.mx

45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
2001
WORLD BANK
CERTIFICATION
BIRF
2004
br
e
br
e
ie
m
D
ic
N
ov
ie
m
br
e
br
e
PROMEDIO 2001-2003
O
ctu
go
sto
S
ep
tie
m
Ju
lio
2003
A
2002
Ju
nio
br
il
ay
o
A
ar
zo
M
ne
ro
0.00%
M

50.00%
E

Compranet is the first Internetbased government procurement
system implemented in Latin
America.
Introduced in 1996 by the actual
Ministry of Public Administration
This system contains the legal
framework, bidding opportunities,
statistics, notifications and all
other relevant information for
government procurement
activities.
Certification by World Bank and
IDB
Fe
br
er
o

ESTIMACION 2004
IDB
CERTIFICATION
18
Scope of the Compranet Plus platform
 Public
Works:
 Public
Works follow up
 Photographic report
 Material report and/or non-returned
equipment
 Public Work pay-off
 Dashboards:
 Purchasing
information analysis
 Statistic reports and graphics
 Standard purchasing dashboards for every involved unit
 Regulatory dashboards by contract, showing KPIs status
19
Conclusions




Good procurement is what we need. Following the
rules is a necessary but not sufficient condition to
achieve it.
ICT is the tool that can help ex-ante monitoring in
procurement finally take-off in Europe;
For that, central organizations and Authorities are in
a perfect position to lead the reform process thanks
to their IT capabilities;
Within the framework of EU rules, new life must be
given to “trust within benchmarking”.
20
Definitions?
“E-GP is the use of Information & Communications
Technology (especially the Internet) by governments
in conducting their procurement relationships with
suppliers [for the acquisition of goods, works, and consultancy services
required by the public sector] that allows citizens to better
participate and monitor the process of acquisition of
goods, works and consultancy services by the public
sector” .
(A new one!)
21