Public procurement goes online

Date: 11/12/1997

By Peter Chapman

NOTHING captures the imagination of the Eurosceptics more than images of mountains of paper being shuffled between the offices of EU bureaucrats.

Even the Union's most ardent supporters acknowledge that 15 member states doing business via documents which have to be written, translated and printed in 11 languages is not a recipe for administrative speed.

Internal Market Commissioner Mario Monti has decided that enough is enough. This week, he will quietly and without hype signal the death of one of the most striking examples of EU paper-pushing.

The lack of publicity surrounding the move stems partly from the fact that Monti's announcement will usher changes to the Union's public procurement system - not a topic which stimulates many cocktail party conversations.

Public procurement is the term used to describe the purchases made by public authorities and other big organisations of everything from paper and pencils to stadiums.

This massive market, worth an estimated 720 billion ecu a year, is subject to strict rules aimed at ensuring the system is fair. Contracts above certain thresholds - 200,000 ecu for goods and services and 5 million ecu for big public works contracts - must be notified to the European Commission for inclusion in the EU's Official Journal.

Notices sent to the 80 or so Luxembourg paper-shufflers who manage the tenders have to be written in a uniform style and, once bids are received, rules dictate that they - in theory at least - must be handled in a fair and transparent way.

Under the Monti plan, the Commission will reduce this paper-chase in two ways.

The first phase will see information about tenders published in an annexe to the Official Journal available free of charge via the Internet from January, a move which will witness the disappearance of the paper version by July next year.

“There are 300 pages of notices in the Official Journal every day. It is impossible to use that as a real tool. If you are in Greece, it may take a week before it reaches you by post and then you have to plough through all of it to find the one contract you might be interested in,” explained one internal market official.

Since 1995, computer software has been developed to allow a small number of big organisations to feed their tender notices through the Internet. One thousand trialists have been helping to fine-tune this system, and the Commission now plans to make the software available to the quarter of a million entities across the EU which are able to tender above the legal thresholds.

Once this system is in place, one of the most time-consuming elements of Commission bureaucracy will be cut down to size.

A more ambitious longer-term plan will see companies putting their bids for projects online. But even before this happens, plans are afoot to make available the necessary technology for firms to search databases of tenders electronically for project details. There are also plans to expand pilot databases of smaller projects below the legal thresholds across the EU.

Monti admits that efforts to put procurement online have not, until now, been very successful.

A group set up by Industry Commissioner Martin Bangemann in 1994 had suggested that 10&percent; of all procurement should take place electronically by 1996. “This was a very ambitious target and we have to conclude that we did not reach it. We were simply not ready for it,” said Monti.

But the Commissioner predicts that the bold step of putting tenders online is the beginning of a mini-revolution which will see 25&percent; of all procurement taking place electronically five years from now.

In addition to this online push, Monti has been looking at ways of improving the workings of a system which he has described as the Achilles' heel of the EU's single market. Last year's Green Paper on procurement is expected to be followed up early next year with another policy paper containing suggestions aimed at tackling this vulnerable area.

“There is evidence to suggest that our public procurement regime is not yet delivering tangible benefits. In 1996, the review of the impact and effectiveness of the single market pointed out that results are disappointing in this area,” said Monti.

Information gathered over the last decade points to little evidence of price convergence for 'strategic procurement products', he argues, and the share of purchases from other member states has only increased slowly.

A key problem remains the perception that the costs of compliance with procurement rules often outweigh the benefits.

“Market contestability and supplier participation remain low. It is clear that we need to improve this and we will,” said Monti, who clearly sees information technology as a key driving force behind increased participation in the tendering regime.

British MEP Michael Tappin, rapporteur for the European Parliament on the Green Paper, has warned against any move to tinker with the existing procurement framework.

Instead, he says, the EU should focus on implementing and enforcing the rules. This 'stability' should be accompanied by efforts to clarify the regulations and also to ensure all parties have access to the information they need, using IT, in order to submit legal, timely and competitive bids for contracts.

But although Tappin is enthusiastic about the potential benefits of IT, he has serious reservations. “Ideal as it sounds, I have some doubts as to the efficacy of simply putting everything on the Net and watching the revolution in the procurement market,” he said.

Tappin points out that access to computers is uneven across the EU: overall, only one in 20 families in the Union has access to a computer and there is a huge disparity between member states. The danger is that shifting procurement online will further widen the gap in IT-use between the rich North and the poor South.

“If we shift procurement information online, do we create an unequal society? Do we give those in the lead a further advantage over those who, through no fault of their own, trail behind? Remember, the aim is to open up the market to all of the EU regions to help them compete against the big boys and not the reverse,” warned Tappin.

To counter these fears, he says, the march towards online procurement should be matched by efforts to boost access to IT in small firms which could gain from procurement markets but who lack the expertise needed to take part.

“Are they, or the member of staff who is assigned to the job, going to be able to cope with this new technology? It really is that basic. If the answer is 'no', then the exercise is a failure,” said Tappin.

However, other industry sources say such fears are unfounded. “All companies would need is a cheap PC and Internet connection. If they don't know how to use a computer, they could ask their ten-year-old children to work it,” said one.

Tappin also argues that the old paper-based systems should be phased out only gradually to give everyone time to prepare for the transition.

“Otherwise, we risk creating or perpetuating élitism,” he said. “Before, the difference was between those who could afford to hire or buy procurement expertise. The risk is that we create a situation in the future where people will have to hire or buy both procurement and computer expertise.”

Industry sources welcome the effort to put tenders online. Martin Farncombe of accountants Ernst & Young, which has studied the impact of the move for the Commission, says the shift online will give small companies a chance to compete with the 'big boys'.

Ernst & Young sees teams of procurement 'intermediaries' setting themselves up to trawl the Internet for contracts for small companies without the time and resources to do it themselves.

“For example, a small tyre manufacturer could pay a company 100 ecu or so to track contracts on the Internet that may be of interest. This would decrease marketing costs and make public procurement more transparent,” said Farncombe.