Roundtable: Public Procurement 2012

The International Who’s Who of Public Procurement Lawyers has brought together four of the world’s leading practitioners to discuss key issues facing public procurement lawyers today.

Participants

Anna-Marie Curran
A&L Goodbody
Ireland, Dublin

Donald G Gavin
Akerman Senterfitt LLP
USA, VA
Neil O'Donnell
Rogers Joseph O'Donnell
USA, CA




MARKETPLACE OVERVIEW

Public expenditure is particularly prominent in the public consciousness at the moment, with excessive government spending contributing in large part to Greece’s national debt and, consequently, the current crisis in the Eurozone. A number of lawyers we spoke to noted that public authorities were increasingly seeking to curb their spending over the past year, with several tenders suspended or even cancelled. Is this the case where you are? What is the outlook for public procurement over the coming year?

Anna-Marie Curran: The overall procurement spend by the public sector in Ireland has declined as a result of the economic downturn, with €14 billion being spent on goods, works and services in 2011 compared to €16 billion in 2009. The decrease in spend is largely attributable to the reduction in the number of capital projects being procured by public bodies. The lack of public funding has also resulted in a number of tender competitions being suspended temporarily, suspended indefinitely or terminated without an award of contract. Unfortunately, there are no official statistics on the numbers that have been suspended or cancelled. The outlook for public procurement over the coming year is slightly more optimistic than in recent years. There is a focus on more centralised procurements, with the National Procurement Service having already put in place in excess of 50 framework agreements. The government has recently signalled that the use of these frameworks will soon be made mandatory for all public bodies as it seeks greater value through procurement. Indeed, the government has placed an even higher emphasis on procurement and securing value for money through procurement processes.

Donald Gavin: In the United States public spending on infrastructure still largely lags considerably behind projected needs because of limitations on revenue and concern with balancing budgets. The Congress of the United States did very recently pass a Highway Transportation Bill which continues existing and planned highway construction, but does not greatly increase funds available.

Neil O’Donnell: The reduction in spending has occurred throughout the public sector, including, but not limited to, infrastructure projects. Thus, for example, for the first time in many years, there is likely to be a reduction in most areas of defence expenditure.

DISPUTES

The relative scarcity of new contracts has also contributed to a rise in appeals and calls for dispute work according to sources. Is this the picture in your jurisdiction?

Neil O’Donnell: The number of bid protests in the United States has risen sharply over the past several years, beginning at a point when public spending was at very high levels. The increase leveled out in the last year but the total number of bid protests remains historically high. This rise seems more related to a greater acceptance on both the public and private side of such award disputes as a normal part of the procurement process than to any scarcity of work. Bidders are less likely to fear a long-term deterioration in their relationship with their public customers as a result of bringing protests so long as the complaint, even if not ultimately sustained, has some reasonable basis.

Anna-Marie Curran: The level of procurement dispute work has undoubtedly increased in Ireland over the last three years. The changes to the Remedies Directive, coupled with the decline in the number of contracts being tendered, has contributed to this increase. However, the number of procurement cases initiated in the Irish courts remains low compared to other member states. This low level is primarily attributable to the nature of High Court proceedings and the fact that contracting authorities tend to terminate without an award to pre-empt a court challenge.

Donald Gavin: In the United States the number of bid protests is up for the past year, but this is not necessarily due to the scarcity of work. Contract performance disputes tend to get settled by contractors where possible, as funds for litigation are limited.

ACTIVE SECTORS

The consensus among the lawyers we consulted seemed to indicate that infrastructure development (particularly in the energy sector) and health care were among the few industry sectors that were still seeing strong levels of public procurement. Does this hold true in your jurisdiction? Which other areas are witnessing strong activity?

Donald Gavin: In the United States investment in the energy sector continues to be strong, particularly in the new methods of extracting natural gas and oil, in pipelines, and in facilities for processing natural gas. It has been reported that over 1,400 oil and gas midstream and upstream projects in the US are supported by more than $163 billion in investments. Several new nuclear power plants are under construction, all of which have been in planning and approval for a number of years. Health-care construction continues to be strong, while new housing construction has just recently increased, very modestly.

Anna-Marie Curran: The energy sector continues to be a fertile ground for procurement activity in Ireland and will continue to be so over the coming years given the number of energy projects in the pipeline. The state-owned energy provider, Bord Gáis Éireann, has recently been tasked with the establishment of the new public water utility company, Irish Water. The water sector will therefore see a strong level of procurement activity over the next 12 to 24 months. While the health sector continues to represent one of the highest levels of spends in the public sector, the entity that manages the health sector in Ireland, the Health Service Executive, has a significant budget deficit and is under considerable pressure to curb spending and implement cost savings. Procurement has been identified as a way of achieving savings for the HSE and the HSE has recently confirmed that in areas where it is unable to obtain cost savings from existing suppliers and service providers, it will re-tender to obtain best value for money.

TRANSPARENCY AND REGULATION

During the recent G20 meeting in Los Cabos, the B20 forum advised governments to “streamline their public procurement processes, to address the demand side of bribery, and to encourage and offer incentives for business action against corruption”. Has the government in your jurisdiction made any recent steps to increase transparency? Have there been any other changes in government conduct, or new regulations particular to public procurement that have emerged in the past year?

Neil O’Donnell: After a long period in which the stress was on streamlining and reducing regulation of public procurement, the pendulum seems to be moving back to a more regulated structure for US public procurement. This change appears to be driven by the scarcity of funding and the belief that increased oversight will ensure the effective use of the more limited public money that is available. It is likely that experienced enhanced contractors will be best positioned to deal with the increased regulatory structure, thus increasing barriers to entry at the very point where financial pressures may drive a larger number of firms to consider entering the public market.

Donald Gavin: In the United States vigorous prosecution of fraud in government procurement continues, while efforts to streamline government procurement and to increase transparency are debated in Congress; they are sometimes conflicting goals.

Anna-Marie Curran: The centralisation of procurement activity in the National Procurement Service and their implementation of more than 50 framework agreements is a significant move towards increasing transparency in procurement processes in Ireland. Over the past year, the NPS has adopted a suite of standardised procurement and contract documentation that is now used for all central government procurements. There has also been continued progress over the last year in the move to facilitate participation by SMEs in public procurement in Ireland. The use of the open procedures for low-value procurements, self-declarations on capacity levels and divisions of larger contracts into lots (initiatives introduced in Ireland in 2010) continued to facilitate SME participation over the last year. In terms of Regulation, the only notable adoption was the European Union (Award of Contracts relating to Defence and Security) Regulations 2012 (SI 62 of 2012) which transposed the Defence Procurement Directive (Directive 2009/81/EC) into national law. The Regulations came into force on 30 March 2012.

THE PUBLIC PROCUREMENT BAR

This edition of The International Who’s Who of Public Procurement Lawyers is, by some margin, our largest to date, and some sources suggested that a greater number of lawyers and firms were focusing on building their public procurement practices. How has the procurement bar developed in your jurisdiction over the past 12 months?

Anna-Marie Curran: Like other member states, Ireland has seen an expansion of its procurement bar for a variety of reasons. First, the reduction in the amount of construction and property work has seen a number of lawyers transferring from that work to procurement. Second, the increase in contentious procurement disputes has seen an increase in the number of barristers that can claim to have an expertise in contentious procurement disputes although the number is still relatively small. Third, the ratio of public sector work to private sector work has increased for many firms, given the high level of private client insolvencies and liquidations, and the increase in state work necessitated by the banking crisis and the acquisition of property development loans by the state.

Donald Gavin: In the United States, because of expected contractions in procurement expenditures at the federal level, the procurement bar is likely to consolidate. At the state and local level expenditures have already decreased, putting pressure on state and local practitioners to find alternative practice areas.

CONTRACTOR DIFFICULTIES

Many companies have begun to focus on pursuing public procurement contracts owing to a shortfall in the availability of private investment over the past year. To what extent have contractors and subcontractors encountered difficulties in your jurisdiction owing to the complex nature of procurement processes? What problems arise for the administrators of procurements and the contractors when there is insufficient funding available after the awards have been made?

Donald Gavin: Many contractors, particularly at the subcontractor level, have sought to obtain public procurement work. The inherent risk shifting by general contractors in their contractual arrangements with subcontractors coupled with public owners often unyielding insistence on full specification compliance has frequently not been adequately accounted for by such uninitiated subcontractors. Finally, reduced public appropriations has created great difficulty for public administrators in finding funding to meet the public’s obligations which has negatively impacted contractors. Contract administrators may dispute legitimate obligations because funding is not available.

Anna-Marie Curran: There have been several government initiatives aimed at simplifying procurement processes in Ireland. The vast majority of publicly tendered contracts are now advertised and procured via the national public procurement website (www.etenders.gov.ie). Contracting authorities are generally not permitted to use restricted procedures for supplies and services valued at less than €125,000 or for works and related services valued at less than €250,000. Nevertheless, there is still a perception that procurement procedures are overly complex and burdensome and unless there is a sea change in the underlying rules, this perception is unlikely to change. A lack of funding can create significant delays in executing contracts or may result in the cancellation of the entire tender process with no possibility for tenderers to recover their bid costs. For these reasons, the Public Procurement Checklist issued by the Department of Finance lists securing approvals and funding as one of the matters that should be confirmed prior to the initiation of any tender process.

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