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Gian Luigi Albano

ALBANO GIAN LUIGI

I am familiar with the most prominent procurement systems (including EU Directives, UNCITRAL Model Law, World Bank Guidelines and US FAR) and I can speak fluently four languages.

Emails: gla@gianluigialbano.com   |  galbano@luiss.it  |  gianluigi.albano@consip.it

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Much noise and a few signals: Will Alice ever learn anything about centralized procurement?

2020-05-30 22:10

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Much noise and a few signals: Will Alice ever learn anything about centralized procurement?

Occasionally, the discussion about the pros and the cons of policy makers’ inclination to create new or to further expand the role of already-establis

Occasionally, the discussion about the pros and the cons of policy makers’ inclination to create new or to further expand the role of already-established Central Purchasing Bodies (CPBs) emerges from the muddy waters of the “lake of practice” to enter the lofty dimension of academic discussions. The latest opportunity for greasy-hands workers like myself - who direct most of the daily efforts to run complex procurement organizations, mainly aiming at nurturing a new generation of specialized procurement practitioners - is provided by one of the contributions to the book “Central Purchasing Bodies” edited by M. Comba and C. Risvig Hamer (Edward Elgar, forthcoming), namely the chapter “Public Procurement by Central Purchasing Bodies, Competition and SMEs: towards a more dynamic model?” by Albert Sanchez-Graells.

While the paper does not contain anything new with respect to what the author has written in the past, the very fact that all of Albert’s preferred arguments are bundled together makes us wonder whether Alice, our hypothetical candidate to undertake a procurement career in the new-born national CPB in Noiseland, will be ever in a good position to know anything relevant about what a CPB does.

 

Alice, please, come with me and I will show you some figures (oh, no! Who on earth needs figures about this?) borrowed from one of the largest operating CPB’s in the world, Consip, the Italian central government’s CPB. Here largest is used with respect to the overall value of public contracts awarded every year through Consip’s e-procurement tools. In 2019, this figure was approximately ‎€14.1 billion. This is likely to be already a small step forward as, for instance, very few public procurement “experts” seem to bother computing a very simple, but meaningful, ratio, namely the overall value of contracts managed by a large CPB and the public sector’s intermediate consumption (more or less, the closest proxy to the value of purchases for goods and services). In Italy, the latter would be approximately ‎€90 billion, so a good primary-school pupil would compute Consip’s “market share” by …

 

Alice is, however, an above-average pupil and, before falling into the trap of making the computation, would be asking me “Are all of the ‎€14.1 billion-worth contracts part of a gigantic aggregation procedure?” Thus Alice appears to be really the very first researcher pointing her finger in the right direction. Well, that figure is almost equally cut in three slices: the first slice is the one of Framework Agreements (FAs); the second is the set of contracts awarded within the perimeter of Dynamic Purchasing Systems (DPSs); the third one is the world of the e-marketplace (the Italian acronym being MePA) where low-value (but really low!) contracts are awarded.

Low-value contracts?? Yes, Alice. Almost ‎€5 billion-worth contracts were awarded to micro (!) and SMEs in 2019 through a(n) (almost) user-friendly e-catalogue. All of those contracts to SMEs? Well, not all of them. Just the 98% of them!

What about the contracts awarded through the DPSs? Here, the lion’s share (more than 90%) is accounted for by contracts for medicines. Basically, Consip has set and maintains the electronic system where hospitals and/or regions award sizeable contracts for medicines. And Alice, to your dismay, in the world of medicines there are no SMEs!!

 

“What about the last third?”, Alice rebounds promptly. 

OK, you’ve got a point.

In the remaining ‎€4.8 billion-worth contracts lay the “sin of all the sins”. Is it really so? Alice is really eager to open up the black box of Consip’s monstrous FAs. She immediately spots “electricity”, “telephone services”, “restaurant vouchers”, “medical equipment,” and wonders…“…but, these are exactly those markets that, at least in Italy, have undertaken a path of progressive consolidation. Isn’t it exactly the case where you would never let tens, if not hundreds, of isolated procuring entities face multi-billion global firms?” Not at all, Alice. For God’s sake, I would never do it!

 

A ballpark computation reveals to Alice that the overall value of contracts awarded through framework agreements in markets where SMEs simply do not exist is a foot close to ‎€3 billion. 

Then Alice, what did you get out of this picture?

Alice looks puzzled now, but her eyes wish to draw a conclusion from this short journey. Is there really a “War of the Roses” going on between Consip and SMEs? The latter get around ‎€4.5 billion-worth low-value contracts, while in markets accounting for ‎€7.5/8 billion-worth contracts SMEs are just absent! This leaves us with ‎€1.5/2 billion-worth contracts in which the legendary “distortion” of competition induced by the Italian government’s CPB might become a hypothetical issue.

“Distortion? Why distortion?”

OK, Alice. We shall go and explore the slippery slope of “abusing economic jargon” in public procurement shortly, I promise…

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