Insights

On 20 January 2021, the Malta Chamber of Commerce launched its Report on Public Procurement Reform 2021. This Report is the product of months of work by a dedicated Working Group made up of individuals from different industry sectors and who have had their fair share of tendering for government contracts. The Report identifies core challenges faced by enterprises and attempts to put forward constructive and pragmatic recommendations for reform, rather than simply criticise. I was privileged enough to have assisted this Working Group in this exercise.

This article will not attempt to get into each and every recommendation; there’s the Report for that, which I strongly encourage you to read . Rather, this article attempts to make the case why the public procurement framework in Malta needs to be reformed. Change for the sake of change is certainly not what the Report is advocating and it is important that all stakeholders understand why we are saying that things need to change.

The current reality is that the legislative framework in place was enacted in 2016 and was based on EU Directives issued in 2014. While the Department of Contracts and contracting authorities are generally receptive to market expectations and committed to apply best practices, the time is ripe for a reform which is ambitious and wide in scope and which ensures that the framework is adaptable to meet tomorrow’s challenges.

The Report has to be read and understood within the context of the market in 2021 and the objectives of the public procurement regime.

The quintessential goal of public procurement is for Government to get its money’s worth when purchasing whatever it needs, be it works, services, supplies or even concessions and complex contracts. Public procurement procedures attempt to get “good value for money” by emulating real market conditions; each competitive tender process should, in theory, be able to secure the best that the market has to offer.

The European Union public procurement legislative regime, on which Maltese law is based, is predominantly focused on guaranteeing free movement within the internal market. The first EU Directives and case-law of the European Courts of Justice were concerned with the opening up competition in national public procurement processes by eliminating tender specifications and practices which discriminated against enterprises and solutions which originated from outside that country. Many years on, we are all too familiar with the principle that tender specifications have to be open and non-discriminatory.

The goal of “good value for money” converges with the objectives of free movement in the EU Treaties when there is the attempt to emulate real market conditions. The architecture and design of the EU public procurement legislative regime is today intended to emulate real market conditions not only to guarantee free movement through the abolition of discrimination, but also to avoid distortion of markets through unlawful State aid.

However, the emulation of real market conditions is not necessarily an easy feat to achieve and it definitely cannot be guaranteed only by drafting tender specifications which are open to competition and which are not discriminatory. In my view, the emulation of real market conditions can only be achieved if there is attention to every minute detail of the procurement procedure: from the initial conception of the purchasing need and model, the prior market research, the drafting of the tender, the advertising of the procurement opportunity, the evaluation of bids, the remedies process, to the performance of awarded contracts.

The Report puts forward recommendations on each of these different phases and aspects of the public procurement process. We were able to come up with these recommendations only because the Chamber’s members homed in on the challenges and obstacles they face. The challenges and obstacles expose the gaps between the bidders’ expectations as market economy operators and the way Government purchases. The Report attempts to bridge these gaps with its recommendations.

The issue here is simple: if the tender procedure does not match the economic operators’ reasonable expectations in line with market terms, enterprises either do not participate in tenders (leading to the softening of competition between bidders or no offers at all) or alternatively enterprises will cost these challenges and obstacles in their financial offer.

Quite apart from the opening of tenders to competition (which is generally the case for most tenders issued in Malta, except for a few rotten eggs), bidders are now expecting that Government’s tendering practices fosters markets and do not distort competition on the public or even in related private markets.

Government is already, and must remain, aware that its practices in the public market impact the private sector and that it cannot, as this country’s administrator, disregard malpractices and distortions on related private markets.

It is no longer acceptable that a select few enterprises are allowed to continue participating in tenders and are awarded government contracts if they are in breach of “settlement agreements” with the Inland Revenue Department or if they fail to submit the annual accounts with the Malta Business Registry. Compliance with the law comes at a cost for enterprises, and therefore, government contracts cannot, as a matter of principle, be accessible to those who ignore it with impunity. While public procurement should not and cannot be the primary tool used by Government to combat illegalities, there is an opportunity for Government to ensure a level playing field by deterring bad behaviour of those enterprises who routinely flout the law. On this matter, the Report urges a rethinking of the institute of “blacklisting”, or rather the exclusion of bidders from tenders, to pave the way for added flexibility for public and private sector to ensure enforcement of standards.

This leads me to another crucial point made in the Report. The near absence of enforcement in certain aspects of public procurement is not the consequence of just one factor, but multiple:   limitations in the legislative framework, unclear direction or precedents, lack of or delayed transparency, scarce resources, other administrative priorities and so on. The Report suggests that the public procurement framework should be reformed, first, to increase transparency in any variations to government contracts after the tender process and in any direct orders, and second, to strengthen judicial remedies available to the private sector to challenge any illegal contract variations and direct orders.

The proposition made by the Report is that these changes will allow the private sector to share the public sector’s burden of enforcing standards in public procurement in Malta. The public sector may have to allocate its time and resources to other administrative priorities or it may not have the right incentive to enforce standards in certain aspects, but the private sector might have incentive, time and resources. This is not a novel proposition. The same model was implemented with success in the appeals process before the Public Contracts Review Board; bidders regularly resort to their remedies at law to make sure that tenders are correctly drafted and evaluation of bids is made fairly.

Contract variations and direct orders have the potential of distorting markets, and therefore, recourse to them must remain on an exceptional basis only and must be adequately publicised when resorted to in a timely fashion with the right information. The publication of such variations and direct orders on the Government Gazette, generally months after, is not what the market expects. The added transparency must be tied in with accessible and flexible judicial remedies available to bidders, and even civil society, to challenge any perceived illegalities.

As the saying goes, it takes two to tango. The Report sends a strong message that enterprises who knowingly breach the law or even induce or solicit impropriety in public procurement will not be tolerated. Such conduct is fundamentally at odds with the Chamber’s vision of ethical business. All stakeholders must join forces to reform the current framework so that rogue enterprises are marginalised and legal, ethical and sustainable businesses are celebrated.

The public procurement framework has to be dynamic and amenable to adapt and adjust to the market and this requires a permanent process of consultation with the private sector and a willingness to change things for the better. If this exercise remains faithful to the principles briefly explored above, good outcomes will be generated for bidders, Government and the whole country.

This article was first published (in abridged form) in the Sunday Times of Malta, 14 march 2021.