PUBLIC PROCUREMENT LAWPUBLIC PROCUREMENT LAWDraftDraft

Public discussionPublic discussion

26 – 2826 – 28 September September 2007 2007

WHYWHY? (1)? (1)

• Because we have to be accountable in spending of public finances – there is considerable potential for budget savings/responsibility and vice versa across the board. A well-designed and managed PP system can result in significant saving of public finances and save taxpayers’ money.

• Boosting competition • Building private sector • Strengthening anti-corruption mechanisms• Because we want to meet another requirement in the EU

accession process - a transparent PP system

WHYWHY? (2)? (2)• Countries striving for EU membership must establish

transparent PP systems based on principles of open and equal competition, directed toward economically efficient procurement system, promotion of international trade and attracting investments.

• The EU has recommended that harmonization of legal frameworks in EU non-member states should take place at the stage when relevant laws are being adopted, and not after laws and bylaws have been enacted.

PUBLIC PUBLIC MODERN SYSTEM OFMODERN SYSTEM OFPROCUREMENTPROCUREMENT PUBLIC PROCUREMENT PUBLIC PROCUREMENT

• Procurement of goods, services and works by state bodies (municipalities, ministries), public enterprises and institutions (schools, hospitals etc.), accompanied with mandatory application of specific procedures stipulated by law

• Transparency of procedures, efficient system of protection of bidders’ rights and the principle that the best bid wins the competition for public contract for procurement of goods, services or works for needs of the government and other users of public funds

EFFECTS OF PUBLIC EFFECTS OF PUBLIC PROCUREMENT IN THE EUPROCUREMENT IN THE EU

• Public procurement in the EU has increased considerably over the past few decades

• Around 30% of government spending in budgets of the EU member countries is intended for public procurement of goods, services and public works, which amounts to 16% of GDP

• Application of EU directives on the national level in EU member countries has contributed to increased transparency and competition over the past 10 years, which resulted in significant savings in public consumption (cost of goods and services dropped by over 30%)

EFFECTS OF PUBLIC PROCUREMENT EFFECTS OF PUBLIC PROCUREMENT IN SERBIAIN SERBIA

• From 2002 to 2006, there were some positive developmentspositive developments in the area of public procurement and $300 million were saved$300 million were saved

• In 2002, share of public procurement share of public procurement in Serbia and Montenegro’s GDP was 9%, while today it is around 11% of Serbia’s GDP

• Changed ratio between competitiveChanged ratio between competitive (open and restrictive) and uncompetitiveuncompetitive (negotiating procedure) procedures,procedures, with uncompetitive procedures accounting for 2/3 of total number of public procurements in 2002, and only for ¼ in 2005.

• Problem of insufficient number of biddersProblem of insufficient number of bidders – 7.5 bidders per tender on average (2002) / 5 bidders per tender on average (2006)

CHARACTERISTICS OF PUBLIC CHARACTERISTICS OF PUBLIC PROCUREMENT SYSTEM IN SERBIAPROCUREMENT SYSTEM IN SERBIA

• Decentralized PP systemDecentralized PP system means that contracting authority is responsible for PU and use of public funds in line with the Law

• 12,000 12,000 buyersbuyers

• 80,000 candidates

• 250,000 250,000 public contracts annuallypublic contracts annually

• worth $1.7 billion$1.7 billion

INSTITUTIONS RESPONSIBLE FOR PP IN SERBIAINSTITUTIONS RESPONSIBLE FOR PP IN SERBIA

1. MINISTRY OF FINANCE – Public Procurement Group2. PUBLIC PROCUREMENT ADMINISTRATION3. COMMISSION FOR PROTECTION OF BIDDER’S RIGHTS

4. MINISTRY OF FINANCE – Budget inspection5. STATE AUDIT INSTITUTION

6. ANTI-CORRUPTION COUNCIL

7. MINISTRY OF INTERIOR – Administration for Fight Against Organized Crime / Department for Fight Against Business Crime

8. PROSECUTOR’S OFFICE9. JUDICIARY

LEGAL FRAMEWORK FORLEGAL FRAMEWORK FORPP SYSTEMPP SYSTEM

• OBJECTIVE OF REGULATION OBJECTIVE OF REGULATION – a legal environment that enables free movement of goods and services, competition and effective control (complaint procedure), and fight against corruption.

LEGAL FRAMEWORK FOR PPLEGAL FRAMEWORK FOR PPSYSTEM IN THE EU SYSTEM IN THE EU (1)(1)

• First EC directives in the early 70’s to liberalize and remove discrimination in PP sector

• The EU Treaty does not regulate PP directly, but principles of free movement of goods, services and capital and freedom of establishment apply for PP also

• Basic principle of a single market – any company from EU member countries can compete under equal conditions for public contracts; if these principles are violated there is an efficient system of appeals

• The purpose of directives – to harmonize national rules concerning award of public contracts in the EU (advertisement, transparency, technical specification, criteria for selection of candidates and award of contracts). Appeals procedure is also regulated.

• Simplification of legal frameworks and adjustment to electronic era.

LEGAL FRAMEWORK FOR PP SYSTEM LEGAL FRAMEWORK FOR PP SYSTEM IN THE EUIN THE EU (2) (2)

• Despite positive developments concerning PP, the EU is still dissatisfied with the degree of its success and results of internal harmonization of PP procedures. More than 25 years after adoption of the first directive concerning PP, it is believed that economic achievements and savings are still below expectations.

LEGAL FRAMEWORK FOR PP SYSTEM LEGAL FRAMEWORK FOR PP SYSTEM IN THE EU IN THE EU (3)(3)

• Directive coordinating procedures for the award of public supply contracts (93/36 EEC)• Council Directive concerning coordination of procedures for the award of public works

contracts (93/37/EEC)• Council Directive relating to the coordination of procedures for the award of public

service contracts (92/50/EEC, 97/52/EEC)• Directive coordinating the procurement procedures in utilities sector (93/38/EEC,

98/4/EC)• Directives concerning review procedures (89/665/EEC, 92/50/EEC and 92/13/EEC)

• New EU legislation – the first three Directives concerning procurement of goods, New EU legislation – the first three Directives concerning procurement of goods, services and works were consolidated in a new Directive 2004/18/EC on the services and works were consolidated in a new Directive 2004/18/EC on the coordination of procedures for award of public works contracts, public supply coordination of procedures for award of public works contracts, public supply contracts and public service contracts, contracts and public service contracts,

• Two directives concerning so-called special sectors were replaced by a new Two directives concerning so-called special sectors were replaced by a new Directive 2004/17/EC coordinating procurement procedures of entities operating Directive 2004/17/EC coordinating procurement procedures of entities operating in water, energy, transport and postal services sectorsin water, energy, transport and postal services sectors.

• In all EU member countries legal remedies must specifically include the option to undertake provisional measures (like suspending concrete public contract awarded), annulling illegal decision on award of a public contract and annulling discriminatory technical, economic and financial specifications, and also compensation of damages.

LEGAL FRAMEWORK IN SERBIALEGAL FRAMEWORK IN SERBIA

1.1. Till July 2002Till July 2002

2.2. July 2002 – July 2004July 2002 – July 2004

3.3. July 2004 July 2004 – – September 2007September 2007

• PP mostly took place via “negotiated procedure”, which became a significant source of corruption in practice

• Early application of Public Procurement Law pointed to many problems in the PP system. Already in the early stages of PP Law implementation, the Public Procurement Administration adopted 5 bylaws to enhance operation of the new PP system.

• In order to: (а) correct exposed deficiencies, and (b) further align the PP system with EU standards, the PP Law was amended and changed. Out of 150 provisions which the 2002 PP Law contained, around 60 were amended and changed. The activity concerning bylaws continued – 5 bylaws and 6 internal regulations were adopted.

WHAT WE WANT TO ACHIEVE WITH WHAT WE WANT TO ACHIEVE WITH THE PP SYSTEMTHE PP SYSTEM

• Modern and completely operational PP systemModern and completely operational PP system reduces corruption and eliminates discrimination / hidden trade barriers.

• Functional PP systemFunctional PP system – one of the elements of a successful market economy (savings for taxpayers, reduced corruption, no discrimination, creation of new jobs).

• Prerequisite Prerequisite – market competition and active functioning of the private sector in supplying offers for public contracts.

THE NEW PUBLIC PROCUREMENT LAWTHE NEW PUBLIC PROCUREMENT LAW

1.1. QUANTITATIVE QUANTITATIVE CHANGESCHANGES

2.2. QUALITATIVE QUALITATIVE CHANGES CHANGES

• More than 2/3 of articles in the existing Law were changed.

• 4 4 groups of changes groups of changes (А)(А) formal (6), ((BB)) reducing expenses and administration (2), ((CC)) promoting PP procedures and its efficiency (3), and ((DD)) control & monitoring & protection (4)

(А) FORMAL CHANGES1.1. PP LAW SYSTEMATIZATION PP LAW SYSTEMATIZATION – all exceptions form general rules are grouped in one place,

which facilitates implementation and reduces possibility of error. All basics concerning application of negotiated procedure are situated in one article of the Law (23) / now in different chapters.

2.2. DEFINITIONS OF BASIC TERMS IMPROVED DEFINITIONS OF BASIC TERMS IMPROVED – for services listed in Annex 1B (e.g. legal services), regardless of their value, small-value procurement procedure applies. Unlike the current situation, where each contracting authority issues its own Rules of Procedure, which has lead to lack of standardization in procurements below RSD 2.5m, small-value procurements would in the future be regulated by single Rules of Procedure issued by the MoF

3.3. EXEMPTIONS FROM PP LAW APPLICATION REDUCEDEXEMPTIONS FROM PP LAW APPLICATION REDUCED – confidential procurement, instead of being defined by internal documents of the contracting authority, are defined to be accompanied by special security measures

4.4. PROVISIONS ON TECHNICAL SPECIFICATIONS AND STANDARDS ALIGNED WITH PROVISIONS ON TECHNICAL SPECIFICATIONS AND STANDARDS ALIGNED WITH EFFECTIVE LEGISLATION EFFECTIVE LEGISLATION – to facilitate Law implementation

5.5. INSTITUTION OF “PUBLIC PROCUREMENT OFFICER” INTRODUCED INSTITUTION OF “PUBLIC PROCUREMENT OFFICER” INTRODUCED – recommendation / precondition for professionalization

6.6. INSTITUTION OF ALLOWED AMMENDMENT OF THE BID INTRODUCEDINSTITUTION OF ALLOWED AMMENDMENT OF THE BID INTRODUCED – whose objective is to correct formal deficiencies of the offer – which should contribute to cost-effectiveness of PP, because bids will not be rejected for merely formal reasons (as was the case to date) and competition will consequently become stronger

((BB) ) REDUCED SPENDING AND AMINISTRATIONREDUCED SPENDING AND AMINISTRATION 1.1. ADVERTISING EXPENSES CONSIDERABLY REDUCEDADVERTISING EXPENSES CONSIDERABLY REDUCED – for

procurements that exceed money limits, the requirement to advertise a public call in a daily paper was revoked. The requirement to advertise in the Official Gazette for procurement above certain value and on Public Procurement Administration website remains. Electronic advertising, instead of daily paper advertising. Proofs that requirements have been fulfilled are submitted as non-certified photocopies of certificates – considerable reduction of bidder’s expenses.

2.2. ANNULLED DECISION BY WHICH PP ADMINISTRATION NEEDED ANNULLED DECISION BY WHICH PP ADMINISTRATION NEEDED TO APPROVE CONTRACTING AUTHORITY’S DECISION TO FORM TO APPROVE CONTRACTING AUTHORITY’S DECISION TO FORM A MULTY-SEGMENTED PROCUREMENTA MULTY-SEGMENTED PROCUREMENT – five-year practice to date showed that objective of the protection was not clear, while comparative law indicated there was no such control. Revocation of this provision reduces expenses and eliminates unnecessary administration.

((CC) ) IMPROVING PP PROCEDURE AND ITS IMPROVING PP PROCEDURE AND ITS

EFFICIENCYEFFICIENCY 1.1. REQUIREMENTS FOR APPLICATION OF RESTRICTIVE PROCEDURE REQUIREMENTS FOR APPLICATION OF RESTRICTIVE PROCEDURE

REDEFINED CONSIDERABLY REDEFINED CONSIDERABLY – it will be easier than now (because of previously imprecise definition in the Law) to recognize cases to which restrictive procedure applies

2.2. NEW PROVISIONS INCLUDED, TO CONTRIBUTE TO PP SYSTEM NEW PROVISIONS INCLUDED, TO CONTRIBUTE TO PP SYSTEM EFFICIENCY EFFICIENCY – proposed solution that one valid bid is sufficient for awarding contract in open and restrictive procedure (instead of the previous solution – two valid and independent bids) will considerably reduce the number of repeated procedures (when bidders are not interested to file an offer in response to advertised call) which will result in better efficiency and save time and money

3.3. SIGNIFICANTLY REDUCED POTENTIAL TO LIMIT COMPETITIONSIGNIFICANTLY REDUCED POTENTIAL TO LIMIT COMPETITION – by reducing validity of list of candidates in restrictive procedure from 4 to 1 year, with minimum competition requirement (3 candidates on the list). The current solution does not specify the number of candidates, which in combination with validity of the list and impossibility to update it – limits competition.

((DD) ) CONTROL, MONITORING AND PROTECTIONCONTROL, MONITORING AND PROTECTION 1.1. SYSTEM OF CONTROL OF NEGOTIATED PROCEDURE IMPROVED AND ALIGNED WITH SYSTEM OF CONTROL OF NEGOTIATED PROCEDURE IMPROVED AND ALIGNED WITH

INTERNATIONAL STANDARDSINTERNATIONAL STANDARDS – existing administrative procedure (PP Administration decides whether contracting authority meets requirements for negotiating on the basis of previous “information”), changed in order to strengthen control by market participants via mechanism of protection of bidders’ rights (contracting authority’s obligation to publish announcement on selection of the best bid in the Official Gazette prior to contract signing, creates room for interested bidders to protect bidders’ rights)

2.2. REPORTS ON CONTRACTS AWARDEDREPORTS ON CONTRACTS AWARDED – instead of once a year, they are submitted to PP Administration quarterly, which will considerably improve timeliness of information and help State Audit Institution control bidders

3.3. PREFERENTIAL TREATMENTPREFERENTIAL TREATMENT – of 20% was not changed because draft SAA envisages that the existing level of preference should remain in force in the first two years of Agreement implementation.

4.4. A SERIES OF IMPROVEMENTS IN PROTECTION OF BIDDERS’ RIGHTS INTRODUCEDA SERIES OF IMPROVEMENTS IN PROTECTION OF BIDDERS’ RIGHTS INTRODUCED such as: Commission, as authority independent from the executive (recommendations); tougher conditions for selection of Commission president and member in order to promote the institution's professional level and integrity; introduced possibility to launch administrative dispute challenging the Commission’s decisions, which will help establish control of regularity of the Commission’s decisions – improves quality of protection of bidders’ rights and removes existing deficiency caused by impossibility to lodge a complaint or initiate administrative procedure.

RELATED LEGISLATIVE ACTSRELATED LEGISLATIVE ACTS

1. Decision on forming public procurement commission (amendment of the existing one)

2. Rules of Procedure on public procurement data registration form (amendment of the existing one)

3. Rules of Procedure for opening the bids and form for keeping a record of opening the bids (amendment of the existing one)

4. Rules of Procedure on required elements of documents in public procurement procedure (amendment of the existing one)

5. Rules of Procedure on defining evidence that goods are produced in the country, i.e. that they are of domestic origin (amendment of the existing one)

6. Rules of Procedure on electronic procurement (new)7. Rules of Procedure on small-value procurement (new)8. Act on public procurement consultant’s activities and certification

procedure (new)

PLAN OF LEGISLATIVE ACTIVITIESPLAN OF LEGISLATIVE ACTIVITIES 1.1. Public Procurement LawPublic Procurement Law

– Design and send proposed draft Law to relevant stakeholders for public discussion – mid-September

– Public discussion concerning Draft Law – last ten days of September – After public discussion, definite version of Draft Law designed and the Draft Law

forwarded to the Government – the first half of October – Government adopts Proposed Law – the second half of October– Proposed Law submitted into parliamentary procedure – the second half of

October– The Law adopted in the Parliament – by end November

2.2. Set of Rules of Procedures that enable application of the PP LawSet of Rules of Procedures that enable application of the PP Law– Designing draft amendments / new Rules of Procedure – the first half of October – Consultation of relevant subjects concerning amendments / new Rules of Procedure

– middle of November – Corrections and design of final Proposed amendments / new Rules of Procedure on

the basis of consultations and alignments that took place – last ten days of November

– Submission of Proposed amendments / new Rules of Procedure to competent authority for adoption – end November

– The competent authority adopts Proposed amendments / new Rules of Procedure – December

AUDIT OF PUBLIC PROCUREMENTSAUDIT OF PUBLIC PROCUREMENTS

1.1. SUPREME AUDIT SUPREME AUDIT INSTITUTION INSTITUTION

2.2. INTERNAL AUDIT BY INTERNAL AUDIT BY THE CONTRACTING THE CONTRACTING AUTHORITY AUTHORITY

• To have State Audit Institution functioning as soon as possible, in line with the SAI Law. SAI is responsible for audit of all PP phases (planning, realization of public contracts and assessment of results and savings achieved in use of public funds)

THANK YOU FOR YOUR THANK YOU FOR YOUR ATTENTION!ATTENTION!

IT’S YOUR TURNIT’S YOUR TURN

YOUR SUGGESTIONS ARE YOUR SUGGESTIONS ARE

WELCOME!WELCOME!