Standardization, regulations and forward planning

Challenges

• Best Price is not always the best value for the money as compared to Most Economically Advantageous Tender (MEAT).
• Predominantly price driven procurement in CEEC, probably due to
  • Outdated national procurement guidelines.
  • Lack of experience in applying complex evaluation criteria (such as TOTEX or environmental indicators for example).
  • Reluctance to take responsibility for evaluation on more complex criterias.
  • Avoiding possible corruption practices that might come with implementation of more complex evaluation criteria.
  • Absence of a National Index Price Lists to prevent abnormally low offers.
• Weak state support for improving transparency in the procurement process.
  • Direct agreement with foreign financing institutions which can result in the appointment of a predefined foreign government contractor.
  • Avoiding a transparent procurement procedure can result in higher prices and less commitment from the contractor.
• Lack of timely and effective communication.
  • Information on a specific project in some cases is published on a short notice sometimes only two weeks before the pre-qualification round.
  • Low quality of tender documentation (e.g. documents are often copy pasted, the budget is underestimated and unrealistic).
• Lack of clear national and European universal standards/standardization:
  • Different specifications of highways/ tunnels / national roads in some countries (e.g. Romania).
  • No general standard for what is a feasibility study and how tenders should look in terms of sustainability.
  • For small countries it is difficult (financially and institutional-wise) to develop and implement state of the art standards.
• Not differentiating between prequalification, evaluation and award criterias.
• The tender procedure requires too many certifications and approvals for a bid due to over-bureaucratization (e.g. Montenegro).
• Legal appeals cause long project delays. In some countries the contestation can be formulated even by external companies or private individuals (e.g. Romania).
• Dead-line for the execution is an important tendering criteria which bidders can use to win the tenders and then delay the execution.
• European Banks (EIB, EBRD) and private banks often do not get involved in the procurement process and focus mostly on financial sustainability of the proposal.
• Bank guarantees can become a burden for small companies that want to participate in multiple tenders.
• Lack of harmonization of contract conditions throughout Europe.
• Criteria for contract awarding is set so as to favor certain companies over the others for political reasons (e.g. Serbia)
  • Conditions are being agreed according to which the winner of the tender is known in advance.
  • Setting of criterias which local companies cannot fulfill from the beginning.
• Subcontracting domestic companies by a foreing general contractor to perform works often leads to inadequate payment for works (e.g. Serbia, Poland)
  • Allowing local companies to work only as subcontractors for 25-30% of work, hinders the prospects of acquiring experience and knowledge in managing large projects for these companies.
  • Local companies are allowed only certain types of works, such as earthworks, diminishing their returns and possible technological advancement.
• Foreign companies frequently offer dumping bids for contracts, having knowledge of the incompleteness of the offer in advance, leads to higher prices and delayed project execution.
• The program of preliminary works (geotechnical survey or geotechnical investigation works)often is not precisely defined which leads to significant differences in prices given by the bidders. (e.g. Serbia)
• Request for design documentation is not detailed enough. That leads to significant changes in design documentation during construction works and therefore increase of project costs.
• Technological capacity, ownership of equipment and trained workers are not considered when evaluating offers.
• Absence of references of large projects is oftentimes a disqualification criteria. This leads to elimination of small and medium size companies and discourages fair competition.
• Difficult to check the references for non-European companies.
• Standardization and technological integration issues can occur in case third country companies build and supply tech-support a separate part of a larger project (e.g. Serbia).
• There is a problem of bundling the construction works and technical equipment prices (e.g. building a hydro-power plant and supplying equipment and technology) as the best construction company might not have the best technology solution.
• There is no legal model for a public construction contract (e.g. Poland).
• Untransparent tendering (e.g. asking for a bid to test the price level and to find technology know-how from potential subcontractors by third-country companies).
• Standardization can cause high costs for SMEs because the EU harmonized norms need to be bought.
• COVID-19 crisis is used for special procurement legislation (to quicken the acquisition of critical goods) however this can lead to decreasing transparency if the rules are maintained for longer periods.

Solutions

• Implement Most Economically Advantageous Tender (which includes social and environmental criteria) instead of Best Price principle.
• Conduct benchmark studies to find out best practice models worldwide
  • Organize knowledge exchange round tables and online platforms on the regional level between procurement authorities.
  • Consultancies could assist in implementing best practices, “state of the art” solutions and training of the procurement officials.
• Add timeliness, supply-chain risks, supply chain diversification, transport costs (financial and environmental) as tender evaluation criteria to encourage more local sourcing.
• Transpose standards developed by other institutions/countries in the region
  • Implement a National Price Index List.
• Develop an effective and transparent planning model.
  • Ensure early additional stakeholder (e.g. engineering companies, unions) involvement to help with knowledge transfer and technical assistance.
  • Implement more “Competitive Dialogue” procedures in case of complex, technical tenders.
• Improve and standardize communication in the procurement process
  • Create an EU wide digital platform for early warning and tender information.
  • For EU financed project countries must give early tender warning in a transparent and inclusive way.
• Design and implement a robust, socio-economic and environmentally sensible procurement guidebook, to include
  • Industry standards for works and services.
  • Types of tenders and clear qualification, evaluation and award criteria.
  • Engage engineering, business and union actors in the design of guidebook procedures.
• Build a large coalition of engineering, consultancy, financing, unions and construction companies to advocate for the introduction of more technical and quality criteria in the public procurement process.
• Payments for the awarded contracts in EU financed projects should be split and conditioned on the fulfillment of major milestones. EU and private financing institutions should demand a third party audit of milestones.
• Tendering authorities need to request quality design documentation which can bring substantial savings to the investors.
• The usage of the EU procurement directive to encourage the application of qualitative criteria in the tendering process.
• Technological capacity, ownership of equipment and trained workers should be considered as criteria for tender participation.
• The lack of reference of large projects cannot be the sole reason for disqualification.
• Establish an EU level arbitration court to solve the major contestation regarding construction projects to quicken the contestation process.
• Consider split lots for bidding, containing detailed information on different cost categories thus opening the participation of technology providers directly (e.g. in hydropower plants construction).
• Technology providers must show that they have the production capacity to deliver the contracted materials.
• Introduce bank guarantee for the contestation process and if the court rules that the contestation is lacking substantial arguments, the company loses the bank guarantee.
• Put pressure on Chinese and non-EU financing institutions to adopt European standards for sustainability (environmental, economic and social) in procurement.
• Develop joint (European and non-European financing institutions) minimum standards for the procurement system and implement those when financing projects in Africa and non-EU European countries.
• European financing institution to promote new procurement criterias through project conditionalities combined with policy dialogue at the national level.
• Support cross-country and cross-industry, larger technological integration (e.g. railway communication).
• For every third party/non-EU technological input a neutral consultancy to check compliance with the EU standards (e.g Budapest Belgrade Railway).
• Legally define how construction contracts should look like (provide a general model for contracting).
• NGOs should need at least 50 signatures to contest a construction project (e.g Slovenia).
• Full disclosure regarding financing (e.g. check for the involvement of third country SOEs) and work agreements with all sub-contractors for public procurement contracts if third-country companies are involved.
• Implement the same norms for the rolling stock in the railway sector across the EU.