Opening the Door for Operating Dynamic Purchasing Systems in Romania: Are We Ready to Use the Additional Flexibility and Convenience in a Balanced Way?

March 10, 20210

Recent evolutions

On February 2nd, 2021, the National Agency for Public Procurement (ANAP) announced on its website that it was testing additional functionalities in the national electronic system for public procurement (SEAP) that would facilitate an “accessible and user-friendly” implementation of dynamic purchasing systems by Romanian contracting authorities/entities. ANAP’s announcement can be accessed by clicking here.

On March 8th, 2021, the Romanian Digitalisation Authority (ADR) announced the launching of these functionalities in SEAP. This announcement can be accessed by clicking here.

This is excellent and much awaited news. It is expected that the commissioning of the newly announced SEAP functions will effectively introduce this attractive and flexible procurement mechanism into the Romanian contracting authorities/entities’ toolbox, encouraging its appropriate implementation.

Throughout the EU, the use of dynamic purchasing systems has intensified significantly pursuant to the simplification of the rules governing them, operated by the 2014 procurement directives, though some arrangements of this type had been run under the predecessor 2004 directives.

The dynamic purchasing system: features and operation

A dynamic purchasing system can be described in simple terms as a procurement mechanism for making recurrent, off-the-shelf purchases flexibly and efficiently, throughout a longer period (in the order of years), as and when needed.

The system is “open” in that vendors meeting selection criteria can join it throughout its period of existence, and it is to be operated as “a completely electronic process” [e.g., Directive 2014/24/EU, art. 34(1); Law 98/2016 (Romania), art. 120 (2)].

It involves two main phases that basically run in parallel, except for an initial period needed for setting up the system.

In the first phase, vendors interested to supply items of the type(s) requested by the contracting authority/entity apply for admission onto the system. All applicants who meet selection criteria are admitted. The admission assessment process is quick, normally up to 10 working days [e.g., Directive 2014/24/EU, art. 34 (5); Law 98/2016 (Romania), art. 125 (3)-(6)]. Any interested vendor can apply for admission any time during the years of the system’s existence.

The second phase is competitive: the contracting authority/entity invites all vendors who have been admitted onto the system – up to the launch of the invitation – to submit tenders in response to specific purchasing needs for items of the type(s) covered by the system or, as applicable, by the relevant category of items, as and when such specific needs arise. Reduced time-limits apply to submission of tenders, normally of minimum 10 days. Vendors that were admitted to the system have the option of attending second phase competitions or not, depending on their own commercial judgement.

Thus, any vendor having applied and having been admitted to the system since its establishment will be able to attend any call-off competition during the lifespan of the system (and, thus, all competitions). Vendors having joined the system at a certain point in the life of the system will be able to attend call-off competitions from that moment onwards.

Certainly, tenders submitted in call-off competitions are evaluated against predetermined and pre-disclosed award criteria, as per the usual public procurement rules, though the award criteria stated in the contract notice for the system may be “formulated more precisely” in the invitations to tender for each of the call-offs [e.g., Directive 2014/24/EU, art. 34(6); Law 98/2016 (Romania), art. 127 (2)]

Naturally, invitations to submit tenders are not allowed during an initial period necessary for establishing the dynamic purchasing system.

That initial period is reserved for the submission of applications for admission and their assessment only, following the publication of the contract notice for the dynamic purchasing system.

There is an initial minimum 30-day period for submission of applications, which flows from the date when the contract notice for the dynamic purchasing system is sent for publication. Once the assessment of the applications received within that deadline is finalised, the first invitation to submit tenders for specific items can be issued to admitted vendors, and that competition runs amongst those vendors.

After the invitation to submit tenders has been issued for the first specific purchase under the system, no further time limit applies to submission of applications for admission onto the system by vendors who have not applied so far. As shown, such applications do not affect competitions already started under the system.

In this connection, to secure continuous publicity, the directives specify that the Publication Office of the EU ensures that the contract notice for a dynamic purchasing system “continue[s] to be published […] for the period of validity of the dynamic purchasing system” [e.g., Directive 2014/24/EU, art. 51(4)(b)].

Attractiveness

The content of this section and the following one arises from literature and practice, including the doctoral research and analysis conducted by the author of the current material, and certain approaches of Emerita Professor Sue Arrowsmith.

Dynamic purchasing systems can offer flexibility, efficiency, transparency and traceability of actions and results, and fairness. They can reduce bureaucracy, facilitate cost savings and reduction of administrative effort, support lean or agile supply and standardization, as well as promote participation of SMEs in public procurement.

Since a dynamic purchasing system is an open arrangement, allowing an indefinite number of vendors to join the system throughout its duration, it is unlikely to affect competition on the relevant market segments.

In light of these features, dynamic purchasing systems are also very amenable to centralised or other types of cooperative purchasing. There is an option for them to be used by additional contracting authorities/entities, not just by those originally contemplated.

Great flexibility arises from the fact that, under the arrangement, the participants – on the demand or supply side – are not locked in with rigid commitments to buy or sell, or to terms, until a second-phase call-off is being organised or a contract is awarded. Even then, such commitments are limited to the specific call-off in question.

The contracting authority/entity is normally able to proceed to actually buying under the system – by inviting competitive tenders amongst admitted vendors – as, when, as many times, and to the extent needed (subject to applicable “maximum allowable size” of orders). On the other hand, as shown, vendors on the system may or may not attend call-off competitions depending on their commercial judgement and circumstances, including production or delivery capacity – that can be particularly relevant in the case of SMEs.

Efficiency is likely to arise from publishing a single (continuous) contract notice covering all (recurrent) purchases to be made under the system, from conducting qualitative selection of suppliers at once for a number of purchases, from reduced time-limits applicable, and from an intensive use of electronic means. At the same time, significant value can be derived from large competition resulting in terms being offered that reflect the current market conditions at the time of the purchase.

The process, from setting up the system to organising call-offs and the award of contracts, is subject transparency, objective criteria, as well as remedies and other enforcement mechanisms.

Complexities

Certain aspects of setting up and operating a dynamic purchasing system are straight-forward. This arrangement is likely to be attractive in many ways, and it potentially represents – in the contracting authority’s or contracting entity’s procurement toolbox – a serious ‘competitor’ to framework agreements, and in particular, though not limited, to multiple-supplier ones involving second-stage competitions.

Reaping full benefits of a selected procurement mechanism as part of managing a procurement portfolio (at the level of a contracting authority/entity) requires a proper consideration of all relevant aspects, to see if that mechanism is likely to be the best fit for those circumstances. This includes the configuration of the contracting authority’s / contracting entity’s requirements, the relevant market segment, and the features of the contemplated mechanisms.

For example, the rather “non-committal” nature of a dynamic purchasing system makes it more amenable to procurement needs that are less definite or predictable but might affect security of supply. Similarly, it might not yield significant economies of scale from aggregation of demand, since a vendor on the system cannot really assess the volume of sales it might derive throughout the duration of the system.

But on the other hand, opening competitions on full terms with what can be large numbers of vendors on a dynamic purchasing system can generate significant value, by reflecting terms prevailing on the relevant market segment, at the time of the call-off, as shown.

This is particularly so on dynamic markets, where remaining locked-in with just one or a few suppliers, or with outdated terms that no longer reflect technological progress or market practices can be particularly problematic (this could be the case with a framework agreement).

From a different perspective, whilst in many cases more efficient than repeating a full procurement exercise for each and every purchase, a second phase competition under a dynamic purchasing system is likely to involve more effort and time than awarding a contract under a framework agreement, simply because the former involves the evaluation of tenders referring to all terms and conditions of the specific purchase in question, and also given the likely higher number of tenderers.

For procurement planning and preparation purposes, it would thus be relevant to analyze all these factors and their potential interactions.

Other complexities may involve the margins for adjustment of award criteria amongst various call-offs, whilst observing the criteria as specified in the contract notice for the dynamic purchasing system, or the use of electronic catalogues for operating the system.

But any of these, as applicable, can be overcome, and dynamic purchasing systems can be success procurement stories in a considerable number of situations. Preparation and planning are essential, as well as adequate comprehension of the relevant market dynamics, of the products (items) envisaged, and of contracting authority’s / contracting entity’s expected needs. Thus, category management can also be particularly useful.

Brief comments at this stage

Commissioning SEAP’s specific functionalities for dynamic purchasing systems is a very positive development and it is to be welcomed; and so is the encouragement in ANAP’s announcement for public contracting authorities/entities to use the flexibility offered by this procurement instrument.

Certainly, it is for contracting authorities/entities to consider whether, or for which of their procurement needs, a dynamic purchasing system could be the most suitable procurement approach.

A recommendation for considering using dynamic purchasing systems should also be extended towards centralized procurement bodies, as well as other forms of cooperative procurement.

Every contracting authority or entity, irrespective of type or sector, should in fact ask itself, when analyzing its procurement portfolio, whether this procurement instrument, soon to be effectively enabled in Romania – the dynamic purchasing system – could better meet some of its procurement needs.

It is also to be hoped that the legislation amendments announced by ANAP, whilst clarifying relevant matters, will preserve the flexibility offered by the EU directives to dynamic purchasing systems. This is particularly relevant if the arrangement is to meet its purpose and in order to facilitate uptake, especially since framework agreements are rather tightly regulated in Romania.

For example, we respectfully think that establishing (even in principle) a limit of three years to the duration of dynamic purchasing systems, as currently contemplated in ANAP’s announcement, might be unnecessary, even though the possibility to extend the duration is clearly mentioned.

As shown, a dynamic purchasing system does not close competition throughout its duration – for the demand of the contracting authority/entity in question concerning the items covered by the system – to just one or very few vendors, as would be the case with a framework agreement. This suggests that contracting authorities/entities should be permitted to set up dynamic purchasing systems even with a longer duration than that permitted for frameworks (four years for the public sector and eight years for the utilities sector) without the additional burden of having to extend.

It is further suggested that the current option afforded to contracting authorities/entities to either submit a contract award notice for each contract awarded under a dynamic purchasing system as per the usual rules, or group the notices and submit them for publication on a quarterly basis should be maintained, as is currently provided for under the legislation, in line with the directives. This would permit contracting authorities/entities to calibrate their administrative effort.

Similarly, maintaining the option to observe or not a standstill period for a contract awarded under a dynamic purchasing system should also be considered, certainly subject to the procedural and information guarantees required under the procurement and remedies directives. Naturally, the contract would run the risk of being declared ineffective where a stand-still is not observed (and if the award has been made in breach of law). But this approach permits contracting authorities/entities to balance efficiency of the process against ineffectiveness risks on a case-by-case basis.

Such matters could also be appropriately placed into perspective through general guidance. We are certainly looking forward to the public consultations on the draft amendment.

Integrate Investment and dynamic purchasing systems

Integrate Investment has the expertise to advise public buyers in designing and running dynamic purchasing systems, including potential access to international professionals in this area. Also, Integrate Investment has extensive practical experience in providing ancillary procurement services to buyers, as well as public procurement policy consulting and professionalization services in Romania.

Dr Șerban Filipon
Senior Procurement and Management Consultant
Integrate Investment, Bucharest, Romania

PhD in Public Procurement Law (University of Nottingham, UK)
MSc in Procurement Management, with Distinction (University of Strathclyde, UK)
MCIPS

Note:
Șerban’s PhD research, conducted under the supervision of Professor Sue Arrowsmith, within the Public Procurement Research Group, at the University of Nottingham, School of Law, analyzed in depth and comprehensively the regulation, policy and implementation of recurrent purchasing mechanisms as available in seven public procurement systems including the World Bank, United States (the federal level), United Kingdom, European Union, France, Romania, and the UNICITRAL Model Law on Public Procurement, also investigating the particular features of such arrangements in centralized or joint procurement.

Photo source: Pexels.com

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