NON-COMPLIANCE IN PUBLIC PROCUREMENT --COMPARATIVE STUDY UNDER EU LAW.

• Author: Tatrai, Tunde

1. Introduction

   In the context of public policy, public procurement related research focuses mainly on affected groups such as SMEs or on sustainability issues (Preuss, 2011; Flynn and Davis, 2016; Testa et al., 2016; Flynn, 2018). Numerous public policy papers also highlight the relationship between public procurement and innovation (Rolfstam, 2009; Vecchiato and Roveda, 2014). In addition to these important topics, efficiency of public procurement in the public policy context is less frequently addressed. This study aims to contribute to the public policy discussion by highlighting this aspect of the public procurement policy making. It will investigate non-compliance in public procurement with the aim of revealing types of non-compliance and to structure the knowledge on the effects of the remedy system to non-compliance.

   Public procurement officials, while accomplishing their jobs to procure goods and services that satisfy the needs of their organisations, are bound by laws, procedures and regulations. There is an expectation towards them to ensure efficiency (manage public spending properly), ensure accountability and support the social, environmental and other economic and political goals. These expectations, in general, are common to all procurement systems. However, the effect of the constantly growing regulations has led to a debate among scholars and practitioners who were concerned with the impact on public procurement performance as they seek to comply with rules (Kassel, 2008).

   The goal of the paper is to investigate the reasons for and types of non-compliance in public procurement while connecting the realms of public procurement and public policy which are rarely addressed together in literature. The structure of the paper will be the following: after the literature review we develop four dimensions to investigate the reasons for non-compliance in public procurement. Comparing the interviews' results of nine EU countries, our conclusions revealed that a procurement-friendly set of institutions shall be well prepared, have experience, and be reliable, efficient, cheap and flexible.

2. Literature review

   Research on public procurement was devoted to examining the potential causes of non-compliance to ensure that risks were avoided. It was frequently hypothesised that the complicated regulations pose high risks of inefficient ways of spending funds (these rules increase transaction costs for buyers and suppliers) and they raise risks in terms of achieving public goals (Hawkins and Muir, 2014). Gelderman, Ghijsen and Brugman (2006) identified four groups of potential reasons for non-compliance. Their empirical findings related to an EU (Danish) sample indicated that familiarity in purchasing with the rules and organizational incentives has a positive impact on compliance, while alleged inefficiency of the EU Public Procurement Directives (hereafter EU PP Directives, namely Directive 2014/23/EU, Directive 2014/24/EU and Directive 2014/25/EU), and the expected supplier resistance seem not to influence compliance with the directives. The work of Brammer and Walker (2011) extended this investigation to sustainable procurement. Their results about the main facilitators of and barriers to engagement with sustainable procurement in the public sector show that if government policy and legislation is supportive of sustainable purchasing, public sector organisations are more likely to implement sustainable purchasing. Investigating US practice, Hawkins and Muir (2014) highlighted that effectiveness of public procurement depends on mastery of vast knowledge (especially the accumulated knowledge of the individual agent), and it also promotes compliance with the laws.

   In addition to cost-effectiveness and legal compliance, the need for innovation also appears (Heijboer and Telgen, 2002; Brammer and Walker, 2011). Innovation (just as in the private business sphere) should be a very important issue in the public sector as well, since this would provide opportunities for achieving the most complex business results and achieving the most innovative goals and promote the innovativeness of suppliers.

   As this brief summary suggests, literature addresses the issue of compliance in terms of barriers and facilitators. It has also been addressed which EU PP Directives are most sensitive to non-compliance (Gelderman, Ghijsen and Schoonen, 2010). However, according to our knowledge, only limited information exists about the actual characteristics of non-compliance.

   The risks of non-compliance in procurement and public procurement greatly differ from one another (Karjalainen, Kemppainen and Van Raaij, 2009). As public procurement in the European Union is based on a uniform set of rules, an exceedingly great deal of experience has been accumulated about the risks of non-compliance in the public procurement market. The difference is largely in the fact that expressly from the viewpoint of the public purchaser, the contracting authority needs to comply with rules other than the internal ones of a company. The internal rules of a company may be exceedingly administrative and lengthy, yet they can be changed and they serve first and foremost the interests of the purchaser. In the profit-oriented sphere, the purchaser needs to worry about sanctions not in the course of the procurement process, but mostly in the course of performance. A purchaser is affected by the risk of non-compliance with the corporate internal rules primarily as a person because if she/he fails to comply with the corporate internal rules, she/he may be called to account. The organisation itself is entitled to interpret internal corporate rules, which means that so long as the competition rules of the Civil Code and, of course, competition law are complied with, the risk of not following the company's own procedural rules poses little threat. Naturally, one of the reasons for this in the profit-oriented sphere may be that market actors are not fully informed of the procedure and they are unable to enforce their interests the same way as in public procurement, where in many cases there is a dedicated forum of legal remedies addressing their problems. Of course, economic actors are always restrained knowing that if they harm the entity inviting bids, it will no longer be willing to contract with them later on. This restraining force is less enforced in public procurement because if a bidder meets the conditions of the publicly announced procedures, the contracting authority has little possibility to blacklist them and not to contract with them as in the non-public procurement market.

   Our assumption is that the approach, innovativeness and, accordingly, the ability of the purchaser to assume risks is influenced by the extent to which the system of legal remedies is prepared to solve the legal problems arising in the course of the procurement procedure. Similarly, if the purchaser is aware, he may be influenced by the knowledge that financing legal remedies is expensive, thus few can afford it. Another important factor is the length and efficiency of such a legal dispute, because the purchaser may suffer the gravest damage, if she/he cannot continue procurement, she/ he cannot meet the demands because of waiting for the results of the legal remedy procedure. There are a number of other factors, which may affect that approach and decisions of the public purchaser in the course of the procurement procedure.

   The innovativeness of the public purchaser may be manifested in the choice of the type of the procedure, in drafting the selection criteria, in delineating the technical content, in working out the content of the contract and in developing the set of contract award criteria. In our case, we would regard it as innovative if the purchaser chose the innovation partnership procedure, for instance, where the purchaser and his partners engage in innovation jointly and economic actors compete only thereafter. Similarly, the use of the eco label among the contract award criteria, or taking the criteria of environmental protection into account when defining the technical content, whether in setting the selection and contract award criteria, could be innovative. Paying particular attention to social criteria in the course of contract performance with a view to preventing child labour being employed by any actor across the supply chain could also be innovative.

   Our point of departure is the assumption that the legal remedy systems of public procurement may impact in many ways whether economic actors make use of their rights and whether they initiate legal remedy procedures. In the course of our research, we do not study the reliability and independence of the fora of legal remedy, but the implementation of the same EU PP Directive-based regulatory environment in nine European Union Member States under study.

3. Methodology

   Our goal is to develop a categorization of types of non-compliance, taking into account national remedies and the legal environment. Our assumption was that the main characteristics of the remedy system influence the approach, innovativeness and ability of the purchaser to assume risks. Particular attention is paid to the application of green and social considerations in public procurement, which is one of the most important proofs of the innovative attitude of public purchasers.

   To assess the actual non-compliance problems, we conducted in-depth interviews with 9 national experts from the European Union.

   We began our research with the exploration of the systems of legal remedy, studying these systems in nine EU Member States. National experts answered our questions (see the interview guide in Annex 1). Following the interview template was obligatory for all the interviewees in order to compare their answers. The experts were asked to answer all nine questions and to seek typical legal cases and national examples. The experts were lawyers, who...