EU Public Procurement Learning Lab

““Public e-procurement in Italy: Public e-procurement in Italy:

Consip’s experience”Consip’s experience”

Rome, November 28th 2003

Gustavo Piga – Chairman of Consip S.p.A.

2Rome , November 28th 2003

Legal Framework

The Financial Act of year 2000 (Law n.488, December 23rd, 1999) has laid down the foundations of the “Rationalization Program on Public Spending for Goods and Services”

According to article 26:

The Ministry of Economy and Finance (MEF), according to the in force regulations regarding suppliers selection, stipulates national frame contracts with suppliers. Within the frame contract, selected providers assume the commitment to accept orders coming from Public Administrations

Central Government (e.g. ministries) is obliged to purchase within these frame contracts

All other Public Administrations (e.g. 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 reference

1. Legal framework

2. Public spending in 2002

3. Objectives and strategies

4. Electronic shops

5. Marketplace

6. Open issues

3Rome , November 28th 2003

Legal FrameworkE-procurement regulation

In year 2002 the Italian Government has issued an innovative Presidential Decree (n.101, April 4th 2002), that regulates the use of digital procedures in public procurement. Public Administrations can now use digital procedures as a whole, or as a partial replacement of traditional tender phases

Two different digital procurement procedures for goods and services are taken into consideration:

- on-line auctions, for purchases above and below EU threshold, whereby the whole tendering process is managed on-line

- marketplace, (type B2G) only for purchases below the EU threshold

Italy has been the first EU Country to have an e-procurement regulation allowing purchases above EU threshold. This anticipates the approval, in a near future, of a similar EU Parliament directive

1. Legal framework

2. Public spending in 2002

3. Objectives and strategies

4. Electronic shops

5. Marketplace

6. Open issues

4Rome , November 28th 2003

Rationalization Program on Public Spending Objectives and strategies

Objectives Strategies

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

Change Management in the Public Administration Industry dynamics

Sideeffects

1. Legal framework

2. Public spending in 2002

3. Objectives and strategies

4. Electronic shops

5. Marketplace

6. Open issues

5Rome , November 28th 2003

Electronic shops Operational model

1. Legal framework

2. Public spending in 2002

3. Objectives and strategies

4. Electronic shops

5. Marketplace

6. Open issues

Contracts reporting

Monitoring tools

NeedsFeedback

Delivery

On-line/fax order

Public Administrations

Consip Suppliers

Frame Contracts (public tender)and e-shops activation

Payments

Portal www.acquistinretepa.it

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Frame contracts Process simplification

1. Legal framework

2. Public spending in 2002

3. Objectives and strategies

4. Electronic shops

5. Marketplace

6. Open issues

From the traditional….…to the new process of goods and services procurement

Fax / on-lineOrder

... achieving, in addition, administrative procedures reductions for both P.A. and suppliers…

Needs analysis

Goods/ Services delivery

PaymentSupplier selection

Possible litigation

with suppliers

Contract and

tender document

ation

Contract signing

Consip activities

7Rome , November 28th 2003

Frame ContractsSome examples of unit cost reduction

31% 31% average average savingsaving

Goods

Utilities

TLC

% unit cost reductions

Productivity SWLaptop PCsPhotocopiersPrintersDesktop PCsFax MachinesCarsStationeryMeal tickets

Facility ManagementFuelsElectric power

Mobile line telephony Fixed line telephony and IP connectivity

60 signed frame contracts and 31 product categories by 31/12/031. Legal

framework

2. Public spending in 2002

3. Objectives and strategies

4. Electronic shops

5. Marketplace

6. Open issues

Source: Consip estimates

404739302544151510

1610 - 30

5

81

62

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Frame contracts and electronic catalogues Usage and break out by public sectors

(*) Total amount of potential Administrations is about 45.000

Despite their non-compulsory participation to the Rationalization Program on Public Spending, 21% of orders comes from Local Government

1. Legal framework

2. Public spending in 2002

3. Objectives and strategies

4. Electronic shops

5. Marketplace

6. Open issues602

11.719

19.91221.955

25.546

29.27832.266

34.11135.796

36.78737.148

38.440

233.075orders

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

2000 2001 2002 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03

Cumulated registrations Cumulated orders

N

Registrations: 38.440 (*)

Central Government – 52%

Health – 3%

Local Government – 34%

University – 10%

Others P.A. – 1%

Source: Consip estimates

Registrations break out by public sectors (%)

9Rome , November 28th 2003

Innovative e-procurement toolsOn line auctions

Base Price:€ 199,000

Saving:€ 83,000

N° of competing vendors: 8

Awarding Price:€ 116,000

% cost reduction:42%

1. Legal framework

2. Public spending in 2002

3. Objectives and strategies

4. Electronic shops

5. Marketplace

6. Open issues

110

120

130

140

150

160

170

180

190

200

Tender awardedWinning bid at 116,000 Euro

(-42%)

200 10 30 40 50 60 70 80 90 100 110 120

Minutes

7 vendors 3 vendors6-5-4 vendors8 vendors 2 vendors

Extension time startsBest bid at 137,000 Euro

(-31%)

Last 10 min.Best bid at 147,500 Euro

(-25.8%)

€ M

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Innovative e-procurement tools Public Administrations’ Marketplace

The Marketplace is a virtual market in which 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 not particularly restrictive selection criteria

The entire process is digital, using digital signature in order to guarantee transactions legally

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

Mark

et

Qualification notice(public announcement)

1. Legal framework

2. Public spending in 2002

3. Objectives and strategies

4. Electronic shops

5. Marketplace

6. Open issues

11Rome , November 28th 2003

MarketplaceMajor advantages

To Public Administrations:

costs and process cutting

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:

selling cost reduction (due to broadening of potential customers base and lower intermediation cost)

major visibility

more competitiveness especially in local markets (for small and medium sized enterprises)

B2G introduction, especially for large sized enterprises, in addition to existing B2B and B2C

1. Legal framework

2. Public spending in 2002

3. Objectives and strategies

4. Electronic shops

5. Marketplace

6. Open issues

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Through nation-wide frame contracts, large competitors lever on economies of scale, while it is difficult for small and medium enterprises to exploit their specific comparative advantages

Price vs. Quality: a high level of competition in auctions drives prices down so much that suppliers are “forced” to cut all those aspects of supplies that are non-contractible; the less quality can be defined with objective criteria, the more critical this aspect becomes

Transparency vs. Collusion: when auctions are repeated, providing more information increases transparency and reduces the “winner’s curse”, but can help collusion between bidders

Different auction formats (single round vs. multi-round) are suitable to different contexts (known vs. unknown value), requiring different trade offs with collusion risk

The use of two different e-procurement tools (e-shops and marketplace) implies the identification of a proper policy to avoid risk of “cannibalization” of products to be offered

Open issues

1. Legal framework

2. Public spending in 2002

3. Objectives and strategies

4. Electronic shops

5. Marketplace

6. Open issues