Competitive contracting

Competitive contracting is one of the indicators used to calculte the zIndex score for evaluating contracting authorities.

This indicator measures the value of contracts tendered through negotiated procedures without publication (NPwP), which is the least transparent procedure and the most restrictive in terms of competition.

NPwP refers to a procurement procedure in which the contracting authority decides to negotiate directly with only one or more bidders of its own choosing, and issues no public call for tender.

This is the only legal procurement procedure that significantly suppresses both transparency and free competition, which are crucial cornerstones in the fight against corruption and of best practice and procurement integrity in general (see e.g. OECD (2005), EC (2013), TI (2005)). OECD (2005) p. 44 directly states that „at the European level a procedure, competitive dialogue, can also be used for complex contracts where the open or restricted procedure is not appropriate, but there are no grounds for using the negotiated procedure“. The authors further state on p. 46 that should the need to use the negotiated procedure arise, „alternative measures have been used in countries for reinforcing the fairness and integrity of the procurement process, in particular: (…) publication of an advance contract award notice in order to provide an opportunity for potential bidders to participate in the procedure in cases where there is not absolute certainty that only one firm has the ability to perform the contract.“

The methodology for the implementation of the Czech Public Procurement Act states that NPwP should be used only if objective circumstances do not allow otherwise (Ministry of Regional Development (2013)). Despite this, in 2013 more than 20% of all above- and below-the-threshold contracts in the Czech Republic were awarded in this way, amounting to a total of 40 billion CZK (Ministry of Regional Development (2014)).

Internationally, the Czech republic ranks first in Europe for use of NPwP to award above-the-threshold contracts, at five times the European average. As many as one in six Czech calls for tender published in the European TED Journal are processed in this way. For comparison, the equivalent figures are one in 30 for Slovakia, one in 100 in the Netherlands, and one in 1300 in Sweden.

Not only is NPwP non-transparent, it also restricts competition: although the contracting entity is legally entitled to invite more than one bidder to participate, there is no obligation for them to do so, and in reality, eight cases out of ten have only one bidder, according to the data from the Information System on Public Contracts. The rest of the NPwP cases usually involve two or three bidders (for more on the drawbacks of involving a low number of bidders, see Bidder participation indicator).

The competitive contracting indicator measures contracts awarded through NPwP or extra work provisions as a proportion of the total volume of contracts awarded by the contracting authority in question. A rating of zero (the lowest rating) would be assigned to an authority that awarded all its contracts through NPwP or as an extra work.

$$z_2 = \Bigg(1 - \frac{value\:of\:contracts\:awarded\:through\:NPwP\:+\:value\:of\:extra\:work}{total\:value\:of\:contracts}\Bigg)^4$$

Negotiated procedures that followed a design contest, i.e. a transparent and open competition, are not considered to be NPwP for the purposes of this calculation, as there is no need to penalize this type of procedure. The design contest method is endorsed by the Czech Chamber of Architects and is used for approximately 10-20 public procurement contracts per year. For the purposes of this indicator, we also do not penalize purchases on a commodity exchange. Market pressures on the commodity exchange ensure appropriate levels competition and minimization of corruption and hence this means of procurement is viewed as transparent despite being administratively classed as NPwP.

The competitive contracting indicator is raised to the fourth power in order to emphasize the score differences between contracting authorities for this indicator, making it more easy to identify those with fairer practices from those with less transparent practices.

Czech contracting authorities tend to use NPwP more often than is usual in Europe. There are, however, numerous situations in which this procedure is justifiable:

• when no suitable tenders were submitted in a previous (open) procedure for the same good or service;
• when the good or service may only be provided by a specific provider, for technical or artistic reasons;
• when it is necessary to award the public contract as quickly as possible, for reasons of extreme urgency.

In other words, NPwP is a solution reserved only for non-standard, exceptional circumstances. As such it should not be used to award more than 5% of contracts in the long-term, and it should be used in isolated cases rather than repeatedly or systematically. When NPwP is overused, this is commonly the result of some kind of misconduct on the part of the contracting authority - poorly described subject matter, insufficient analysis or vendor lock-in. We then discriminate the authority (or more precisely its present management) if this kind of misconduct was already happening during the previous management. Inevitably, it is to be expected that occasionally unforeseeable circumstances will force a contracting authority to use NPwP (e.g. in case of need to repair flood damage to three bridges at once, as quickly as possible) causing its competitive contracting indicator to suggest malpractice where there in fact was none.

NPwP can usually be avoided, provided the contracting authority properly prepares the investment project and the contract associated with it.

1. Plan carefully. During the preparatory phase, anticipate whether it will be of interest to bidders and define the qualification criteria strictly according to the subject matter. Try to publicise the tender opportunity as widely as possible, by publishing investment strategies, issuing advance notice of the call, holding open days, etc.
2. Specify the subject matter properly. If you, as the contracting authority, are unsure precisely what the subject of the purchase should be (as may happen for example in the case of ICT contracts or complex construction projects), it is generally advised (see OECD (2005)) that you use a contest dialogue or negotiated procedure with publication; unlike NPwP, these are at least reasonably open to competition. An alternative approach is to define only the main functional features of the desired solution and let bidders offer their suggested variants. NPwP is also often used for awarding extra work, which suppliers use strategically as a source of an additional income in excess of the original contract. A high quality specification from the outset is essential for avoiding this by eliminating the need for any extra work.