Public Procurement: The Fundamental Crossroads

Author :

Stefano Fiorilli

Stefano M. Fiorilli is the former Head of Procurement at the European Space Agency, Paris, France. A lawyer by education, he has conducted private practice as Attorney-at-Law in the field of corporate law and merging and acquisitions in Brussels, Belgium, published several articles in academic publications and given conferences in the field of public procurement and contract negotiation. He was Chair of the International Space University (ISU) Academic Council (Strasbourg, France) and is Faculty Emeritus of that same institution.

At these times where the concept of innovation, entrepreneurship and risk taking are sublimated -when not simply vulgarised and down-scaled at the level of buzzword- the direct or indirect presence of public resources, the so called “tax-payer money”, in most ventures keeps the issue of their most economic use as central as it has always been. Whatever the context, being it geo-politic, business or product, the classical principles of transparency, integrity, economy, openness, fairness, competition and accountability keep thus acting as basic checkpoints for a sound public procurement process.

The basic technical skills to develop as underlying ones for the individuals entrusted with the actual conducting of the public procurement process remain equally stable and intangible. The programme manager must be able to specify correctly the product that it aims procuring, while the procurement officer must master both the procedural rigor in specifying the tender conditions (“rules of the game” for the prospective bidders) and the contract law and concepts that are proposed to form the future legal framework for the activities leading to the ultimate delivery of the subject of the procurement.

What is remarkable is how much these various components inter-relate with each other and must do so to achieve the objective of being an efficient process. In fact, this has led me to often define the ideal public procurement process as the crossroads between political mandates and industrial realities. Because our thematic is the one of public procurement process, one must ensure that the political mandate is clearly and correctly defined.

This implies of course the definition, by the public operator (not always public “authority”), being it national or international, according to the prevailing governance rules, of a programmatic framework and a financial envelope that will be the reference against which the control of public spending will be exercised. But this political mandate can also take the form of devising an industrial policy which the procurement process will have to consider and integrate. Such industrial policy will thus vary in function of the objectives that the public authority assigns to it. An example of such objective may be the pursuing of a guaranteed level-playing field for the different types of economic operators active in the considered geo-political perimeter, and this can then take the form of preference clauses in the contract award process in favour of some categories of economic operators, like, for instance, Small and Medium Enterprises (SME´s) or the limitation of the participation of others, like for instance the major industrial actors.

One sees however that both the public operator, in defining such mandate and the Executive staff entrusted to implement it, in conducting the procurement, must have and maintain a knowledge of the prevailing industrial realities. These realities touch the structure of the industrial tissue at stake, but they cover also market and economic parameters. It is for example the acknowledgement of the industrial reality that leads to propose contractual incentive schemes offering bonuses to the supplier in relation with delivery time and product performance rather than penalising him financially in the event of late (intermediate) deliveries. It is the acknowledgement of another industrial reality that leads to consider, in many aspects of the contract to be signed (price-type, profit policy, financial provisions, …) the level of risks actually incurred by the supplier in the procurement considered.

The crossroads is however anything but static.

Both the mandates and the industrial realities, and their inter-relation, are in constant evolution, and the 2 most recent examples of this have been the Covid pandemic and the inflation and scarcity of materials. With the outburst of the pandemic, public authorities did not only have to act on the health aspect, but they also had to position themselves on the consequences that the situation was having on the implementation of contracts in place. Force Majeure? Hardship?

My advice and posture at the time was to go further than the legal consideration -of course a situation like the outburst of the pandemic and the ensuing lock-down had to be considered as an excuse for suppliers not in a position to honour the schedule of their progress and delivery- and to put in place measures aiming at supporting the continuity of Industry´s financial irrigation. This could be done by the systematisation of partial and advance payments, by a drastic shortening of time-to-payment. All this under the overall infrastructure of a fully dematerialised (electronic) tendering system: offers could be submitted and evaluated and contracts awarded and negotiated while all stakeholders were locked down. These measures probably saved the mere existence of all the industrial chain considered.

Equally, the choice was made to keep the major infrastructure contracts (site services, maintenance, cleaning, etc) in place, including the payments, irrespective of the fact that the services concerned could be actually performed or not, in function of the closing of the sites.  In doing so, the public operator not only assumed a responsibility -at the most noble meaning of the world- with respect to the jobs at stake but it also maintained a elegant basis on which to build the re-start of operations when the situation normalised and lock-down could be lifted. The counter example of this posture can be seen in the case of the Amsterdam Schiphol airport, which suffered total paralysis and kilometres-long passengers queues months after the restart, because all workers in the luggage sorting, screening and dispatching had been laid-off during the pandemic.

Similarly, when the inflationist peak and the scarcity of some materials hit and affected the performance of signed contracts, the advice to public contracting operators was to prove flexible and to propose tailored contractual tools. This could take the form price-types with escalation formula allowing to adjust the price to reflect the evolution of the price of material. Another tool could be to foresee/include in contracts a dedicated financial risk-margin, at the joint management of both Parties -the buyer and the seller- and that could serve to finance/compensate the seller for the consequences of an inflation episode that would have for consequence to substantially affect the balance of the respective rights/obligations of the parties compared to the balance that prevailed at the time of contract conclusion.

From the above, one sees hopefully better why Public Procurement constitutes that fundamental crossroads: cutting-edge legal, contract and business skills, but, more than that, an industry-driven and oriented process. And more than a process, the combination of multi-disciplinary skills so as to constitute a flexible tool, integrating more realities than the “public” one only.