Public Procurement – Existing Constraints and How to Overcome Them Predrag Jovanovic, Ph.D.

Key indicators In 2006, the total value of registered public procurement contracts – 2 billion Euro In 2006, the total value of registered public procurement contracts – 2 billion Euro In the five year period (2002-6), the average contract value increased fivefold In the five year period (2002-6), the average contract value increased fivefold Since 2003, the number of contracts reported to the PPO is steadily decreasing Since 2003, the number of contracts reported to the PPO is steadily decreasing

Table 1 Comparative overview of registered PP contracts Year YearContracts2002* Totalnumber Total value (in thousands CSD) Average value (in thousands CSD) (in thousands CSD) * 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 indicators In 2006, the total value of registered public procurement contracts – 2 billion Euro In 2006, the total value of registered public procurement contracts – 2 billion Euro In the five year period (2002-6), the average contract value increased fivefold In the five year period (2002-6), the average contract value increased fivefold Since 2003, the number of contracts reported to the PPO is steadily decreasing Since 2003, the number of contracts reported to the PPO is steadily decreasing

Table 2 Structure of the number of contracts awarded by procedure (in %) Year Year Type of procedure Competitive procedures Negotiated procedure

Table 3 Change of share of PE * categories in the total value of public purchasing (in %) PE category State bodies ,61715 Public enterprises 63,75956,45665 Public institutions 3, Local self- government /** 4958 * Purchasing entities **According to the Article 148 of the PPL, local self-government started to implement the Law since January 1, 2003

Table 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 ( ) Year YearIndicator2002* Number of PE’s reports submitted to the PPO Share of competitive procedures (in %) Intensity of competition (average number of bidders per tender) Savings (in %)

Two phases First phase (2002-4) Share of competitive procedures – rating A Share of competitive procedures – rating A Strong competition – an average number of bidders per tender 7 to 8 Strong competition – an average number of bidders per tender 7 to 8

Two phases Second phase (2005-6) Share of competitive procedures – rating B Share of competitive procedures – rating B Weakening competition – an average number of bidders per tender 5 Weakening competition – an average number of bidders per tender 5

Key factors Inefficient control Inefficient control Absence of sanctions for breaking the Law Absence of sanctions for breaking the Law

Main goals Establishing of a modern monitoring and control concept in public procurement Establishing of a modern monitoring and control concept in public procurement Redefinition of roles and tasks of relevant institutions Redefinition of roles and tasks of relevant institutions Strengthening of human and financial capacities of the relevant institutions Strengthening of human and financial capacities of the relevant institutions

Major obstacles to an efficient control in public procurement Control function relies on “ex ante” opinions of the PPO, as well as on the checking of purchasing entities’ reports submitted by the PPO Control function relies on “ex ante” opinions of the PPO, as well as on the checking of purchasing entities’ reports submitted by the PPO Key weakness – PPO is unable to check reliability of data and claims in the reports and requests Key weakness – PPO is unable to check reliability of data and claims in the reports and requests

Solutions Monitoring and control functions should be undertaken by institutions that are authorized to check reliability of information provided by purchasing entities, i.e. that are authorized to do “on site” control Monitoring and control functions should be undertaken by institutions that are authorized to check reliability of information provided by purchasing entities, i.e. that are authorized to do “on site” control The system of monitoring and control should rely on the following institutions: The system of monitoring and control should rely on the following institutions: 1) Internal review units 2) Supreme Audit Institution 3) Budget inspection

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

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

Solutions Redefining a role of the PPO by transforming its control function through: Redefining a role of the PPO by transforming its control function through: A) elimination of PPO approvals based on requests and reports of PE and B) much higher PPO involvement in system developing functions

Solutions Redefinition of the PPO role would: Redefinition of the PPO role would: A) Put its operations in line with its capacities thus reducing a huge existing gap and B) Improve the key component of internal capacities enabling qualitative upgrading of HR capacities of the PPO

Basic elements of PPO redefined role To put the procurement function on the political map, so that it is recognized as a key strategic factor in the provision of efficient services to the public at lowest possible cost; To put the procurement function on the political map, so that it is recognized as a key strategic factor in the provision of efficient services to the public at lowest possible cost; To ensure that procurement is mainstreamed into the centre of the budget and public expenditure process; To ensure that procurement is mainstreamed into the centre of the budget and public expenditure process; To attract adequate professional procurement expertise and increase the status of the procurement profession To attract adequate professional procurement expertise and increase the status of the procurement profession

The role of the PPO in the monitoring and control process should be: 1. Preparation of an annual report to the government on the functioning of the national public procurement system and 2. Quarterly collection of data on awarded contracts, analyses of the data and sending to the SAI and to the Budget inspection information relevant for the control of the PE they undertake, such were: highest value contracts, list of PE that awarded contracts above certain value, inconsistencies in PE reports etc.

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

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

Basic elements of PPO redefined role To act as a national contact point for the European Commission for questions and enforcement proceedings on the basis of article 226 of the EC Treaty; To act as a national contact point for the European Commission for questions and enforcement proceedings on the basis of article 226 of the EC Treaty; To participate, either as a representative of an institution or as an individual expert, in international networks, such as the European Public Procurement Network (PPN); To participate, either as a representative of an institution or as an individual expert, in international networks, such as the European Public Procurement Network (PPN); Co ‑ operation with corresponding institutions in other countries. Co ‑ operation with corresponding institutions in other countries.

Basic elements of PPO redefined role Facilitation and co ‑ ordination of framework agreements in government sectors and municipalities; Facilitation and co ‑ ordination of framework agreements in government sectors and municipalities; Development of systems and methodologies for e ‑ procurement; Development of systems and methodologies for e ‑ procurement; Introduction of systems for performance measurement of public procurement. Introduction of systems for performance measurement of public procurement.

Relevant documents 1. “Baseline for Strategy of Upgrading Public Procurement System in Serbia”, OSCE and Public Procurement Office, June “Central Public Procurement Structures and Capacity in Member States of the European Union”, SIGMA paper no. 40, March Redefining a Role and Tasks of the Public Procurement Office in line with EU Standards and Good Practice, OSCE, May 2007

Time dimension In 2004, the key weaknesses in control mechanisms of the PP system were identified by the PPO and reported to the Government, such were: In 2004, the key weaknesses in control mechanisms of the PP system were identified by the PPO and reported to the Government, such were: 1) the absence of “on site” control if data provided by PE are reliable or not and 2) absence of any sanctions for breaching the rules.

Time dimension In 2005 and 2006 effects of inappropriate and inefficient control system became visible in real life sphere In 2005 and 2006 effects of inappropriate and inefficient control system became visible in real life sphere It is realistic to expect that immediate proper measures result in changes of PP market real life indicators after two years (i.e. in 2009 – 2010) It is realistic to expect that immediate proper measures result in changes of PP market real life indicators after two years (i.e. in 2009 – 2010)

Concrete measures Urgent amendments of the PPL aimed to upgrade mechanism of monitoring and control in PP and related changes of the PPO’s role in that process, as well as change in the status of the Commission for Protection of Rights; Urgent amendments of the PPL aimed to upgrade mechanism of monitoring and control in PP and related changes of the PPO’s role in that process, as well as change in the status of the Commission for Protection of Rights; Determined political support to establishing of a system of internal-external audit and control Determined political support to establishing of a system of internal-external audit and control

Concrete measures Establishing Supreme Audit Institution and Internal Review Units Establishing Supreme Audit Institution and Internal Review Units Providing support to the PPO and CPR in developing of their capacities, primarily HR and financial Providing support to the PPO and CPR in developing of their capacities, primarily HR and financial

Table 5 HR capacities of the PPO (2003-7) Change of number of employees in the PPO over the past four years Year Number of employ ees

Table 6 Financial capacities of the PPO and CPR (2003-7) Joint budget of the PPO and CPR in the period Year Amount in CSD Amount in Euro , , , , , , , , , ,00

Table 7 Comparative data on Public Procurement Office’s annual budgets in Euro Table 7 Comparative data on Public Procurement Office’s annual budgets in Euro SerbiaSlovakia Hungary SerbiaSlovakia Hungary 2002 / 1,339,586 1,800, ,440 1,302,358 2,900, ,801 1,489,993 3,800, ,164 1,590,847 4,100, ,837 1,958,172 4,300,000