san sebastian, aprile 11 th 2005

San Sebastian, Aprile 11th 2005

Luca Mastrogregori –E-procurement Strategy Resp. - Consip S.p.A.

““Public e-Procurement in Italy: Public e-Procurement in Italy: the Consip’s role”the Consip’s role”

2San Sebastian, April 11th, 2005

Italian Public Procurement Legal Framework - Purchasing above the European thresholds

Italy, as member of the European Community (EU), has adopted, within its regulations (DL 157/95 and DL 358/92), the following EU directives:

92/50/CEE concerning open tenders for public services supply 77/67/CEE, 80/767/CEE, 88/295/CEE concerning open tenders

for public goods supply

Within the above frame, three different types of tenders are regulated:

open procedures, i.e., national procedures whereby all interested providers may submit a tender

restricted procedures, i.e., national procedures whereby only providers invited by the authority may submit a tender

negotiated procedures, i.e., national procedures whereby authorities consult the chosen suppliers and negotiate with one or more of them the terms of the contract

In this context, tenders which appear to be abnormally low are regulated by the following articles: 25 DL 157/95 and 19 DL 358/92


When the value of the purchases is less than EU thresholds (154,014.00 € or 236,945.00 €, depending on the kind of contract and administration), the general principles of open tendering are regulated by national laws.

These national laws are specific to each Administration: RD 827/24 (for Central Administrations), DLGS 502/92 (for Health Agencies), DLGS 267/00 (for Municipalities and Provinces).

Central Administrations have also a special regulation - Law DPR 384/01 - for a particular kind of procurement, the so called “purchasing in economy” (that is for purchases up to € 130.000 and where the administration also directly provides with its own resources a part of the work/service/supply), that provides for:

“cottimo fiduciario”, when the procurement is obtained from external providers after having asked for at least 5 estimate tenders (RFQ-Request for Quotation). If the spending is below €20.000 procurement may be made from one specific provider.

“amministrazione diretta”, when the PA uses its own material/tools and its own personnel

Italian Public Procurement Legal Framework - Purchasing below the European thresholds


• In year 2002, the Italian Government has approved and signed an innovative Decree which regulates the use of digital procedures for public procurement. By means of this Decree, public administrations may use digital procedures as a whole or as a partial replacement of steps foreseen in traditional tenders.

• Two different digital procedures for goods & services purchasing are taken into consideration:

• on-line auctions, for purchase both above and below the European threshold limit whereby the whole tendering process is managed on-line

• marketplace, (type B2G) only for purchasing below the European threshold limit

• To access to these new instruments, enterprises only need a limited equipment (digital signature according to Italian legislation)

• Italy has been the first EU Country to have an e-procurement regulation allowing purchases above the EU threshold limit, anticipating some of the contents of the “Legislative Package”.

Italian Public Procurement Legal Framework - e-Procurement Regulation


The financial act 2000 (December 23, 1999 n.488) has laid down the foundations of the “Program for Public Spending Rationalization of Goods and Services”. Article 26 says:

“ The Ministry of Economy and Finance (MEF), according to the regulations currently available regarding suppliers selection, draws up national frame contracts with providers. Within the frame contract, the selected providers have to accept any order coming from public administrations.”

Public Spending Rationalization

By means of 2 Ministerial Decrees (February 2000, May 2001), the Ministry entrusted Consip S.p.A. with the development and management of the Program.

Note:National Frame Contract (adopted by Consip) do not fall within the category of Framework Agreement (as defined by the EU legislative Package).It falls within the general concept of contract since it is not possible to modify or negotiate the conditions of the contract


Public Spending Rationalization

The following Financial Acts (2001, 2002, 2003, 2004) streamlined the Program scope and the roles of involved actors.Today, according to the current legal framework:

Frame contracts regard goods and services of national interest;

All public administrations (e.g. Central Government, 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 benchmark;

Within the frame contracts, that specify a maximum amount of sales, selected suppliers commit themselves to accept orders coming from all Public Administrations.


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

Rationalization Program on Public Spending Objectives and strategies


Change Management in the Public Administration• changes in P.A. may face cultural resistance• time and cost savings in processes allow re-

qualification of Human Resources profiles and operations

Industry Dynamics• economical and political impact on the market

operators, in particular SMEs • possibility to develop an industrial policy

Quality• possibility to obtain better quality• difficulty to monitor ex-post the respect of agreed

standards (rating firms?)

Rationalization Program on Public Spending - Challenges


Rationalization Program on Public Spending Spending for Goods & Services

* Report on estimated needs for the year 2003 and Consip estimate

Total amount of public expenditure for goods and services sums up to about € 97 billion(*), about 15% of overall public spending and 8.8% of GDP

In 2003 the Program’s activity has been covering goods and services for which public expenditure amounts to approximately € 15 billion

Public spending for goods

and services, 2003 (%)

Source: Consip estimates

Central Government16%

Health bodies50%

Local Government

24%

University2%

Other P.A.8%

Total = € 96,6 billion


Consip Task and structure

Consip is a joint-stock company totally and directly owned by the Italian Ministry of Economy and Finance (MEF), and it operates exclusively to serve Public Administrations

Consip’s operations are carried out through two divisions:

the DSIT (Treasury Information System Division), with

about 300 employees, is in charge of managing the Information System of the Ministry of Economy and Finance

the DARPA (PA On-line Procurement Division), with about 180 employees, is in charge of implementing the Rationalization Program on Public Spending for goods and services


Consip Task and structure - DARPA

Legal Advice Staff (Program Mgmt, Monitoring, Innovative

Projects, Research Unit)

eProc Systems(IT Platform

management)

Universities

Sourcing(Purchasing strategies)

Healthcare Admin.

Local Authorities

Central Administrations

Industry 1

Industry 2

Industry n

Puchasers

“Marketing” Purchaser side

“Marketing” Supplier side

eProc Strategies(Marketplace management)

DARPA


ElectronicShops

Purchases within frame contract (through traditional tender or on-line auctions process)

Direct Purchase Many to one approachPurchase scope:

- Large volumes- Standardized- Low price volatility- Slow obsolescence- Demand aggregation

On lineAuctions

Automatic Technical and economic offer evaluation

Purchase scope:- Specialized- High price volatility- Rapid obsolescence

e-Marketplace

Purchases below the Eu threshold

Direct Purchase or RFQ Many to Many approach Supplier defined

eCatalog

Purchase Scope:- Low cost- Highly fragmented

E-Procurement tools

Above and Below EU Threshold Below EU Threshold

www.acquistinretepa.it

Development of Frame contract through electronic system

ASP towards other Administration


E-Procurement Portal

On-line services

Notices

On-line orders

Marketplace

Tender publication, supplier qualification for Public Marketplace, ....

Opportunity to buy on line using frame contracts conditions

On line access to public Marketplace

Registration Public buyer registration

Specific Market Area

Data and information on “Client market Area” (Central PA, Health bodies, Universities, Municipalities)

Data & News Who we are, what we do, what you can buy, how you can buy, Newsletters, Magazines…

On line auctions On line access to public auctions

Supplier Area Information on e-procurement models, correct way to participate to public tender, ...


Electronic shops Operational model

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


Electronic shops Operational model

E-shops represent an open window on the web in which goods and services selected through tenders and frame contracts are available to PA procurement offices registered to the Program

Product Product selection selection

and online and online orderingordering

Traditional Traditional and and

electronic electronic tenderstenders


Frame contracts Process simplification

From the traditional process for goods and services procurement ….

Fax / on-lineOrder

... achieving reductions of transaction cost 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

…to the new process


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

Source: Consip estimates


Customer satisfaction

Macro indicators

Analytic indicators

Average

Consip’s imagineInnovation 7.44Transparency 7.36Confidence 7.05

7.24

Expectations from Consip

Simplification of production processes 7.43Inexpensiveness 7.23Intermediation capability 7.22Product/Service quality 6.9

7.18

Quality

Web site 7.8Call Centre 7.7Ordering comfort 7,5Correspondence of products with expectations 7.....Product completeness 5.8Number of products 5.5

6.51

Value

Comparison with other products/services 6.7Time saving 6.26Quality/Price Ratio 6.0

6.26

Customer retention

Purchasing of other products 6.42Advice of colleagues 5.9Re-purchasing of the same product 5.7

6.02

Claims 8.02

Customer Satisfaction

6.35

0

10

20

30

40

50

60

70

Customer satifaction Index (1-100) by sector

Evaluation: 1= Very low 10= Very high


Innovative e-procurement toolsOn line auctions

Advantages (vs traditional auctions) Transparency :

Each step is recorded; Clearness of procedures; It is not possible to modify data recorded; The procedure can be seen by hundreds of persons

Time reduction Automation of awarding criteria evaluation, that can lead to choose to

have no Awarding Commission Closing steps (e.g.: notification to participants; signing of contract) can be

performed on-line

Cost reduction Facilitate participation travel costs

Disadvantages (vs traditional auctions) Tenders can be contended on a minor number of parameters

IT equipment required



Possible Procurement auction formats:

Standard Sealed Bid or one Single Auctions: bidders submit a single secret bid; the person submitting the best bid wins the auction and pays what she bids (pay-as-you-bid) OR the person submitting the best bid wins the auction but pays only the second best bid (pay-as-the-second-best).

Descending Auction (English Auction): the price starts high and competing bidders cut the price until no-one is willing to bid any lower.

Multiple-Round Descending Auction: multiple round auctions are similar to descending ones; in multiple round the price does not decrease continuously but round by round with a predefined percentage. A multiple round auction is the discrete version of the descending auction.

Descending-Clock Auction (Japanese): the price decreases continuously in a predetermined period of time (e.g. 1 hour) in which players do not have to submit bids and they are considered to stay in the auction until they decide to exit. The prize is awarded to the last bidder remained in the auction.

Anglo-Dutch Auction: consists in adding a final sealed-bid round (e.g. only for the two best bids) to a descending auction.



Auction Auction rulesrules

Auction Auction rulesrules

BidsBidsBidsBidsTimeTimeTimeTime



Base Price:€ 199,000

Saving:€ 83,000

N° of competing vendors: 8

Awarding Price:€ 116,000

% cost reduction:42%

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


Innovative e-procurement tools Public Administrations’ Marketplace

The Marketplace is a virtual market in which any 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 non restrictive selection criteria

The entire process is digital, using digital signature in order to ensure legal compliance and overall trasparency of process

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)


Direct purchase

Request for Quotation

Public user Supplier

Marketplace: buying optionsMarketplace: buying options

Public users may buy in 2 different ways:

• making a direct purchase selecting goods and services from the catalogue

• negotiating the product quality and service levels with qualified suppliers (Request for Quotation), handling on-line the entire purchasing process and digitally signing the order


Item Item namenameItem Item namename

technical specifications technical specifications (standardized catalogue)(standardized catalogue)technical specifications technical specifications

(standardized catalogue)(standardized catalogue)Supplier’s Supplier’s namename

Supplier’s Supplier’s namename

PricePricePricePrice

Innovative e-procurement tools Public Administrations’ Marketplace


Public Administrations’ Marketplace:A snapshot (March ‘05)

Product categoriesNumber of Items:

> 125.000

Registered Users: >2.200

Active Users:700

Performed Transactions (Jan 2004 – March 2005):

5000 (12 Mio Euro)

Registered Suppliers:

450

Available

• Electric material

• Office equipment

• IT (SW/HW)

• IT aid for disabled (HW/SW)

• Individual protection devices

• Small laboratory equipment

• Products and accessories for venous and arterial catheter

• Stationery and printing supplies

• Office furnishings

• Air Conditioning supplies

• Surgical instruments

• Phone products and accessories

• Facility Mgmt Services


Public Administrations’ Marketplace - Major advantages

To Public Administrations:

costs and length of process reduction

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:

higher visibility and broadening of potential customers base

selling cost reduction (due to lower intermediation cost)

possibility to exploit competitive advantages in local markets (for small and medium sized enterprises)

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

san sebastian, aprile 11 th 2005

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