San Sebastian, Aprile 11 th 2005 Luca Mastrogregori –E-procurement Strategy Resp. - Consip S.p.A. “Public e-Procurement in Italy: the Consip’s role”

2 San Sebastian, April 11 th, 2005 Italian Public Procurement Legal Framework - Purchasing above the European thresholds Italy, as member of the European Community (EU), has adopted, within its regulations (DL 157/95 and DL 358/92), the following EU directives:  92/50/CEE concerning open tenders for public services supply  77/67/CEE, 80/767/CEE, 88/295/CEE concerning open tenders for public goods supply Within the above frame, three different types of tenders are regulated:  open procedures, i.e., national procedures whereby all interested providers may submit a tender  restricted procedures, i.e., national procedures whereby only providers invited by the authority may submit a tender  negotiated procedures, i.e., national procedures whereby authorities consult the chosen suppliers and negotiate with one or more of them the terms of the contract In this context, tenders which appear to be abnormally low are regulated by the following articles: 25 DL 157/95 and 19 DL 358/92

3 San Sebastian, April 11 th, 2005 When the value of the purchases is less than EU thresholds (154, € or 236, €, depending on the kind of contract and administration), the general principles of open tendering are regulated by national laws. These national laws are specific to each Administration: RD 827/24 (for Central Administrations), DLGS 502/92 (for Health Agencies), DLGS 267/00 (for Municipalities and Provinces). Central Administrations have also a special regulation - Law DPR 384/01 - for a particular kind of procurement, the so called “purchasing in economy” (that is for purchases up to € and where the administration also directly provides with its own resources a part of the work/service/supply), that provides for:  “cottimo fiduciario”, when the procurement is obtained from external providers after having asked for at least 5 estimate tenders (RFQ-Request for Quotation). If the spending is below € procurement may be made from one specific provider.  “amministrazione diretta”, when the PA uses its own material/tools and its own personnel Italian Public Procurement Legal Framework - Purchasing below the European thresholds

4 San Sebastian, April 11 th, 2005 In year 2002, the Italian Government has approved and signed an innovative Decree which regulates the use of digital procedures for public procurement. By means of this Decree, public administrations may use digital procedures as a whole or as a partial replacement of steps foreseen in traditional tenders. Two different digital procedures for goods & services purchasing are taken into consideration: on-line auctions, for purchase both above and below the European threshold limit whereby the whole tendering process is managed on-line marketplace, (type B2G) only for purchasing below the European threshold limit To access to these new instruments, enterprises only need a limited equipment (digital signature according to Italian legislation) Italy has been the first EU Country to have an e-procurement regulation allowing purchases above the EU threshold limit, anticipating some of the contents of the “Legislative Package”. Italian Public Procurement Legal Framework - e-Procurement Regulation

5 San Sebastian, April 11 th, 2005 The financial act 2000 (December 23, 1999 n.488) has laid down the foundations of the “Program for Public Spending Rationalization of Goods and Services”. Article 26 says: “ The Ministry of Economy and Finance (MEF), according to the regulations currently available regarding suppliers selection, draws up national frame contracts with providers. Within the frame contract, the selected providers have to accept any order coming from public administrations.” Public Spending Rationalization By means of 2 Ministerial Decrees (February 2000, May 2001), the Ministry entrusted Consip S.p.A. with the development and management of the Program. Note: National Frame Contract (adopted by Consip) do not fall within the category of Framework Agreement (as defined by the EU legislative Package). It falls within the general concept of contract since it is not possible to modify or negotiate the conditions of the contract

6 San Sebastian, April 11 th, 2005 Public Spending Rationalization The following Financial Acts (2001, 2002, 2003, 2004) streamlined the Program scope and the roles of involved actors. Today, according to the current legal framework:  Frame contracts regard goods and services of national interest;  All public administrations (e.g. Central Government, 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 benchmark;  Within the frame contracts, that specify a maximum amount of sales, selected suppliers commit themselves to accept orders coming from all Public Administrations.

7 San Sebastian, April 11 th, 2005 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 Rationalization Program on Public Spending Objectives and strategies

8 San Sebastian, April 11 th, 2005 Change Management in the Public Administration changes in P.A. may face cultural resistance time and cost savings in processes allow re- qualification of Human Resources profiles and operations Industry Dynamics economical and political impact on the market operators, in particular SMEs possibility to develop an industrial policy Quality possibility to obtain better quality difficulty to monitor ex-post the respect of agreed standards (rating firms?) Rationalization Program on Public Spending - Challenges

9 San Sebastian, April 11 th, 2005 Rationalization Program on Public Spending Spending for Goods & Services * Report on estimated needs for the year 2003 and Consip estimate Total amount of public expenditure for goods and services sums up to about € 97 billion (*), about 15% of overall public spending and 8.8% of GDP In 2003 the Program’s activity has been covering goods and services for which public expenditure amounts to approximately € 15 billion Public spending for goods and services, 2003 (%) Source: Consip estimates Central Government 16% Health bodies 50% Local Government 24% University 2% Other P.A. 8% Total = € 96,6 billion

10 San Sebastian, April 11 th, 2005 Consip Task and structure Consip is a joint-stock company totally and directly owned by the Italian Ministry of Economy and Finance (MEF), and it operates exclusively to serve Public Administrations Consip’s operations are carried out through two divisions:  the DSIT (Treasury Information System Division), with about 300 employees, is in charge of managing the Information System of the Ministry of Economy and Finance  the DARPA (PA On-line Procurement Division), with about 180 employees, is in charge of implementing the Rationalization Program on Public Spending for goods and services

11 San Sebastian, April 11 th, 2005 Consip Task and structure - DARPA Legal Advice Staff (Program Mgmt, Monitoring, Innovative Projects, Research Unit) eProc Systems (IT Platform management) Universities Sourcing (Purchasing strategies) Healthcare Admin. Local Authorities Central Administrations Industry 1 Industry 2 Industry n Puchasers “Marketing” Purchaser side “Marketing” Supplier side eProc Strategies (Marketplace management) DARPA

12 San Sebastian, April 11 th, 2005 Electronic Shops Purchases within frame contract (through traditional tender or on- line auctions process)  Direct Purchase  Many to one approach Purchase scope: - Large volumes - Standardized - Low price volatility - Slow obsolescence - Demand aggregation On line Auctions Automatic Technical and economic offer evaluation Purchase scope: -Specialized -High price volatility -Rapid obsolescence e-Marketplace Purchases below the Eu threshold  Direct Purchase or RFQ  Many to Many approach  Supplier defined eCatalog Purchase Scope: -Low cost -Highly fragmented E-Procurement tools Above and Below EU ThresholdBelow EU Threshold Development of Frame contract through electronic system ASP towards other Administra tion

13 San Sebastian, April 11 th, 2005 E-Procurement Portal On-line services Notices On-line orders Marketplace Tender publication, supplier qualification for Public Marketplace,.... Opportunity to buy on line using frame contracts conditions On line access to public Marketplace Registration Public buyer registration Specific Market Area Data and information on “Client market Area” (Central PA, Health bodies, Universities, Municipalities) Data & News Who we are, what we do, what you can buy, how you can buy, Newsletters, Magazines… On line auctions On line access to public auctions Supplier Area Information on e-procurement models, correct way to participate to public tender,...

14 San Sebastian, April 11 th, 2005 Electronic shops Operational model 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

15 San Sebastian, April 11 th, 2005 Electronic shops Operational model E-shops represent an open window on the web in which goods and services selected through tenders and frame contracts are available to PA procurement offices registered to the Program Product selection and online ordering Traditional and electronic tenders

16 San Sebastian, April 11 th, 2005 Frame contracts Process simplification From the traditional process for goods and services procurement …. Fax / on-line Order... achieving reductions of transaction cost 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 …to the new process

17 San Sebastian, April 11 th, 2005 Frame contracts and electronic catalogues Usage and break down by public sectors Source: Consip estimates

18 San Sebastian, April 11 th, 2005 Customer satisfaction Macro indicators Analytic indicatorsAverage Consip’s imagine Innovation 7.44 Transparency 7.36 Confidence Expectations from Consip Simplification of production processes 7.43 Inexpensiveness 7.23 Intermediation capability 7.22 Product/Service quality Quality Web site 7.8 Call Centre 7.7 Ordering comfort 7,5 Correspondence of products with expectations Product completeness 5.8 Number of products Value Comparison with other products/services 6.7 Time saving 6.26 Quality/Price Ratio Customer retention Purchasing of other products 6.42 Advice of colleagues 5.9 Re-purchasing of the same product Claims8.02 Customer Satisfaction 6.35 Customer satifaction Index (1-100) by sector Evaluation: 1= Very low 10= Very high

19 San Sebastian, April 11 th, 2005 Innovative e-procurement tools On line auctions Advantages (vs traditional auctions)  Transparency :  Each step is recorded;  Clearness of procedures;  It is not possible to modify data recorded;  The procedure can be seen by hundreds of persons  Time reduction  Automation of awarding criteria evaluation, that can lead to choose to have no Awarding Commission  Closing steps (e.g.: notification to participants; signing of contract) can be performed on-line  Cost reduction  Facilitate participation  travel costs Disadvantages (vs traditional auctions)  Tenders can be contended on a minor number of parameters  IT equipment required

20 San Sebastian, April 11 th, 2005 Innovative e-procurement tools On line auctions Possible Procurement auction formats:  Standard Sealed Bid or one Single Auctions: bidders submit a single secret bid; the person submitting the best bid wins the auction and pays what she bids (pay-as-you-bid) OR the person submitting the best bid wins the auction but pays only the second best bid (pay-as-the-second-best).  Descending Auction (English Auction): the price starts high and competing bidders cut the price until no-one is willing to bid any lower.  Multiple-Round Descending Auction: multiple round auctions are similar to descending ones; in multiple round the price does not decrease continuously but round by round with a predefined percentage. A multiple round auction is the discrete version of the descending auction.  Descending-Clock Auction (Japanese): the price decreases continuously in a predetermined period of time (e.g. 1 hour) in which players do not have to submit bids and they are considered to stay in the auction until they decide to exit. The prize is awarded to the last bidder remained in the auction.  Anglo-Dutch Auction: consists in adding a final sealed-bid round (e.g. only for the two best bids) to a descending auction.

21 San Sebastian, April 11 th, 2005 Innovative e-procurement tools On line auctions Auction rules BidsBids TimeTime

22 San Sebastian, April 11 th, 2005 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% 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

23 San Sebastian, April 11 th, 2005 Innovative e-procurement tools Public Administrations’ Marketplace  The Marketplace is a virtual market in which any 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 non restrictive selection criteria  The entire process is digital, using digital signature in order to ensure legal compliance and overall trasparency of process 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)

24 San Sebastian, April 11 th, 2005 Direct purchase Request for Quotation Public userSupplier Marketplace: buying options Public users may buy in 2 different ways: making a direct purchase selecting goods and services from the catalogue negotiating the product quality and service levels with qualified suppliers (Request for Quotation), handling on-line the entire purchasing process and digitally signing the order

25 San Sebastian, April 11 th, 2005 Item name technical specifications (standardized catalogue) Supplier’s name PricePrice Innovative e-procurement tools Public Administrations’ Marketplace

26 San Sebastian, April 11 th, 2005 Public Administrations’ Marketplace: A snapshot (March ‘05) Product categories Number of Items: > Registered Users: >2.200 Active Users: 700 Performed Transactions (Jan 2004 – March 2005): 5000 (12 Mio Euro) Registered Suppliers: 450 Available Electric material Office equipment IT (SW/HW) IT aid for disabled (HW/SW) Individual protection devices Small laboratory equipment Products and accessories for venous and arterial catheter Stationery and printing supplies Office furnishings Air Conditioning supplies Surgical instruments Phone products and accessories Facility Mgmt Services

27 San Sebastian, April 11 th, 2005 Public Administrations’ Marketplace - Major advantages To Public Administrations:  costs and length of process reduction  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:  higher visibility and broadening of potential customers base  selling cost reduction (due to lower intermediation cost)  possibility to exploit competitive advantages in local markets (for small and medium sized enterprises)  B2G introduction, especially for large sized enterprises, in addition to existing B2B and B2C