Pro-competitive tools

Pro-competitive tools is one of the indicators used to calculate the zIndex score for evaluating contracting authorities.

The pro-competitive tools indicator evaluates to what extent each contracting authority uses optional procompetitive tools, namely:

• Electronic auctions
• Splitting contracts into lots
• Extended deadlines for tender submissions
• Evaluating tenders not only by price but also by quality
• „Innovative procedures“

Use of the optional tools listed above fosters fair competition (OECD (2008)). This indicator rewards contracting authorities for implementing these additional activities (where appropriate), which go beyond their legal obligations and support a competitive environment in public procurement.

• Electronic auction enable bidders to continually modify their offers, which results in a direct price battle. The evaluation of tenders is performed once no bidder is willing to offer a lower price. Academic studies along with the executive (in Czech) agree that e-auctions strengthen the competitive environment in public procurement and reduce the bid price for which contracts are awarded. The so-called transparency amendment to the Public Procurement Act of April 2012 stated that each „contracting authority shall be obliged to use electronic auctions to award a supply contract for goods specified under separate legal regulation“ (sec. 5, § 96 of Public procurement act as amended to April 1st 2012 (in Czech)). The legal regulation mentioned was however never issued, and the statement was later removed. It is however good practice to use electronic auctions for procuring a number of commodities, and the Ministry for Regional Development has issued a list of commodities suitable for e-auctions (in Czech), in order to promote the use of this format, which remains optional.

• Splitting contracts into lots enables contracting authorities to ensure maximum competition for each element of the procurement. This instrument also facilitates small and medium enterprises' access to public contracts, as it reduces the qualification requirements, and separates simpler work that can be performed by a broader range of bidders from more specialist tasks (see Code of Best Practices Facilitating Access by SMEs to Public Procurement Contracts, EC 2008; also Winner concentration and blog (in Czech)). Suppliers that otherwise act as mere subcontractors gain independence and while doing so create a healthier competitive environment.

• Extended deadlines for tender submissions enable bidders to prepare their tender more thoroughly and increase the chances of more bidders competing for the contract. Most Czech contracting authorities set their tender deadlines on the earliest legal date. That is sufficient for simple contracts, but for procurement with more complex tender requirements it may have demotivating and competition-restricting effects. Accommodating the complexity of such cases by prolonging deadlines is a sign of good practice.

• Evaluating the quality of purchased good indicates that quality matters to the procurer. This upgrades the competition above a simple price war with the cheapest and least quality good (moreover in case of potential extra works and additions, the initial price bid becomes irrelevant). Serious suppliers are avoiding such type of competitions, knowing that their quality product cannot compete with the cheapest brands. Best practice guidelines recommend to use the price as the only criterion only in case of homogeneous, standardized and conclusively definable purchases. In case of more sophisticated goods it is absolutely essential to evaluate tenders using MEAT with quality based criteria.

• „Innovative procedures“ is a general term which covers alternative procedures such as innovative partnership, competitive dialogue and design contest. All those types of procedures provides the authority with unique tools which are needed when brand new solutions or high quality and level of expertise are asked for.

The indicator consists of five components:

1. E-auctions as a share of the total number of contracts in the reference period.
2. The share of contracts split into lots, out of the total number of contracts.
3. The share of contracts which are evaluated using quality based criteria (not necessarily exclusively), out of the total number of contracts.
4. The share of „innovative procedures“, out of the total number of contracts
5. Contracts with an above-standard tender submission period (at least 35 days for below-the-threshold and 40 days for above-the-threshold contracts), expressed as a share of contracts in the reference period. Only open procedures and simplified below-the-threshold procedures are evaluated for this component.

It would make no sense to require the use of these instruments in every contract as a proof of best practice. The maximum rating for this indicator is therefore assigned to any contracting authority that uses each of those instruments in at least 20 % of cases (with the exception of number of „innovative procedures“ where even just 10 % rate of use leads to full contribution). At the same time, the maximum contribution of each instrument is limited to 1/5. This means that a contracting authority splitting all of its contracts into lots but never using any other procompetitive tool is assigned the indicator value of 1/5.

All contracts whose expected value was below 1 million CZK are omitted from the evaluation of this indicator, because they may include voluntarily published small-scale contracts, for which there is very little advantage from using the before mentioned tools.

$$z_6 = \Bigg( \frac{number\:of\:e-auctions}{number\:of\:contracts} + \frac{number\:of\:contracts\:split\:into\:lots}{number\:of\:contracts} + \frac{number\:of\:contracts\:based\:on\:qualitative\:criteria}{number\:of\:contracts}+\\ \frac{\:2\times\:number\:"innovative\:procedures"}{number\:of\:contracts}+ \frac{number\:of\:extended\:bid\:deadlines}{number\:of\:contracts\:in\:open\:and\:below-the-threshold\:procedure}\Bigg)$$

The purpose of the square root in the formula is to diminish the differences between the authorities' scores and reduce variance, in order to facilitate comparability with other zIndex indicators.

• The contract splitting component may penalize those who split contracts into several smaller contracts, rather than splitting it into lots (using the same publication process and tendering procedure). Despite achieving practically the same result (increased competition for each portion) splitting into several separate contracts would not be reflected in the evaluation of this indicator. However, any contracting authority that prefers to proceed in this way (while avoiding the malpractice of deliberately splitting all procurement into small-scale contracts) will be positively evaluated by the Winner concentration indicator. Using lots should be still considered better practice, though, as it reduces procurement-related costs.
• The extended deadlines component does not take into account the possible use of legitimate methods for shortening the tender deadline. If a contracting authority has the opportunity to use these, but decides to keep the deadline at the original time, this is regarded as a positive approach, yet it is not reflected as such in the evaluation of this indicator.