1 s t High Level Seminar

on E-pr ocurement

Good Governance for Development in Arab

Countries Initiative

The e-procurement regulatory framework

The Italian experience
in the light of Community Directives 17 and 18 of 2004

Davide Colaccino
Italian Presidency of the Council of Ministers

Naples, 30—31 January 2006

DIPARTIMENTO PER MINISTERO DIPARTIMENTO

L’INNOVAZIONE E DEGLI DELLA
LE TECNOLOGIE AFFARI ESTERI FUNZIONE PUBBLICA
The views expressed do not imply the expression of any opinion
whatsoever on the part of the Italian Department for Public
Administration, and Formez.
The e-procurement regulatory framework. The Italian experience
in the light of Community Directives 17 and 18 of 2004
Davide Colaccino, consultant, Presidency of the Council of Ministers - Italy

1. The European context: e – public procurement in directives 17 and 18 of 2004

Public contracts represent 16% of GDP in the European Union, totalling 1,429 billion euro. They
therefore constitute one of the strategic sectors of the single market. Despite its economic
importance, the European Union public contracts market is not yet sufficiently open and
competitive. Inefficient and inorganic management of public contracts at European level results has
been damaging for productivity. In April 2004 the Commission’s strategy for the overhaul of the
public procurement sector was finalised with the adoption by the Council and the European
parliament of directives 17 and 18. Directive 17 relates to tender procedures for suppliers of water,
energy and transport services (“special” or “excluded sectors”), while directive 18 relates to
adjudication procedures for public contracts governing supplies, services and works (“classic” or
“ordinary” sectors”) 6.

The “legislative package” is considered essential for the consolidation and modernisation of the
current system public contacts and for the creation of the conditions necessary for the development
of a more efficient and competitive European contracts market.

The new directives have three main aims:

Simplification and strengthening of legislation through the unification of regulations;

Flexibility - achieved through the introduction or strengthening of procedures and innovative

institutions that recognise greater freedom of action for public procurers in the drafting of contracts;

Modernisation, fully applied to the contracts sector, and the full use of new information and
electronic technologies (e-public procurement).

On this last point, the use of ICT in contract procedures represents one of the most rapidly
changing areas of public administration. Electronic public procurement refers to the ensemble of
technologies, procedures, operations and organisational modalities derived from information
communication technology. On the one hand this allows the reorganisation and simplification of the
public procurement management process, and on the other it guarantees greater transparency,
competition, economy and timeliness in the tendering process.

The most important e-procurement developments introduced by the new legislative package are as
follows:

• Use of electronic means in communications and presentations of offers;

• Electronic tenders;

• Dynamic purchasing systems.

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1.1 Use of electronic means in communications and presentation of offers
The new directives, unlike the preceding ones, allow recourse to electronic media for the
communication and presentation of tenders, to the exclusion of all other methods (for example the
sending of hard-copy communications via post).

In Considerando 33, it was stated that “in view of the effects of the new information and
communications technologies, such as the simplification they can bring to the publicising of
contract tenders, as well as increased transparency of adjudication procedures, it is advisable that
electronic media be placed on the same plane as the classic instruments of communication and
information exchange”.

The relevant norm here is directive 18, article 42 (Rules applicable to communications), paragraph
1, which states, “all communication and information exchange referred to in this Title may be by
post, by fax or by electronic means, in accordance with paragraphs 4 and 5, by telephone in cases
and circumstances referred to in paragraph 6 or by a combination of such means, according to the
choice of the contracting authority”.

Naturally, the use of electronic means must not imply the construction of “technical barriers”. This
means that the instruments used for electronic communication and their associated technologies
must be non-discriminatory in nature, as stated in paragraph 4 of article 42, “commonly available to
the public and compatible with information and communication technology products in general
use”.

The provisions in the new directives are not limited merely to the use of ICT instruments in contract
procedures, but are intended to reduce deadlines for tender applications and submissions in the
case of use of electronic means. Article 38, paragraph 5, establishes that if tenders be drafted and
submitted electronically, the deadline for receipt of submissions in open, restricted and negotiated
procedures and in competitive dialogue can be reduced to seven days. A further reduction in
submission deadlines to five days is determined by the following paragraph 6 of article 38 cited, in
cases in which beginning from the publication of the invitation to tender, the contracting authority
offers, in accordance with Annex VIII, free, direct and complete electronic access to the tender
document and to every complementary document, with a text reference to the electronic address of
the documentation.

1.2 Electronic auctions

The electronic auction is an instrument for the adjudication of public contracts and has been
defined as “a repetitive process involving an electronic device for the presentation of new prices,
revised downwards, and/or new values concerning certain elements of tenders, which occurs after
an initial full evaluation of the tenders, enabling them to be ranked using automatic evaluation
methods” (art. 1, par. 7). The electronic auction is therefore not a new tender procedure but is a
negotiating instrument that allows offers to be classified automatically. This means that the
classification of tenders and the selection of the best offer shall not be performed by a commission
but by a completely automated system. It therefore follows that contracts for the provision of

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intellectual services, such as the design of works, cannot be subject to the electronic auction
process, as the technical specifications cannot be converted into mathematical algorithms.
Electronic auctions can be used in open, restricted or negotiated procedures with calls for tenders,
in the context of the dynamic purchasing system and in the case of the reopening of competition
between parties to a framework agreement.

Use of the electronic auction allows requests to be made to tenderers, after an initial thorough
evaluation of their offer, for further reductions in their prices and possibly improvements to other
elements, provided that these can be evaluated electronically. This means that legislation enables
the administration to hold an auction in which tenders are submitted and evaluated exclusively by
electronic means, on the condition that the evaluation criterion is represented by price; or when the
adjudication criterion is the most economically advantageous tender, by other quantifiable factors.
In accordance with article 54, paragraph 4, all admissible tenderers are invited simultaneously, by
electronic means, to submit new prices and /or new values. The invitation must contain:

• all information necessary for individual connection to the electronic device used,
• the time and date of the start of the auction (at least 2 working days away),
• the results of the complete evaluation of the offer from the tenderer concerned (when the
evaluation occurs according to the criteria of the most economically advantageous tender),
• the mathematical formula used during the electronic auction for determining automatic
reclassifications in consideration of new prices and/or new values submitted.
Obviously, the use of electronic auction for adjudication of a contract must be expressly stated in
the call for submissions. The invitation to tender or the contract document must indicate:

1. The elements subject to automatic evaluation in the course of the electronic

auction;
2. Any minimum or maximum values of the elements of the tender, as indicated in the
contract specifications;
3. The information to be made available to the tenderers during the electronic
auction, with an indication of when it will be available;
4. Information regarding the execution of the electronic auction;
5. The circumstances in which tenderers may make renewed offers and any
minimum
6. changes required for the submission of renewed offers;
7. Information regarding the electronic device used, as well as the methods and
technical specifications of the connection.
1.3 Dynamic purchasing systems
The dynamic purchasing system is a wholly new, entirely electronic procurement procedure, for
current use purchases, limited by time and open for its entire duration to any operator that satisfies
the selection criteria and that has submitted an indicative tender pursuant to the contract
specifications. Thanks to the creation of a list of already admitted and prospective new tenderers,
this electronic device system allows contracting authorities to avail of a wide range of offers, and
therefore assure optimal, competition-based use of public finances.

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The methods and rules stated in article 33 of directive 18 govern the execution of dynamic
purchasing systems. The legislation requires contracting authorities to follow the norms of the open
procedure in all its phases through to the award of the contracts to be concluded (para. 2).

There are two main phases in the execution of the procedure. Firstly, in order to institute a dynamic
purchasing system, the contracting authorities must publish a call for submissions and a contract
document indicating the selection criteria, the nature of the purchases and the indicative offer
requirements as well as all necessary information regarding the electronic system. The contracting
stations, from the time of the publication of the call for submissions until the conclusion of the
system, must offer by electronically means, direct and complete access to the specification and any
complementary documents, indicating in the call for submissions the Internet address at which
such documents can be consulted (para. 3). All economic operators who satisfy the selection
criteria and who have submitted an indicative offer pursuant to the contract document and any
complementary documents are admitted to the system for its entire duration (maximum four years
exceptional cases permitted). Indicative tenders can be improved at any time providing they remain
in accordance with the contract document (para. 4).

In the second phase each specific contract must undergo a competitive comparison (para. 5).
Therefore, with the dynamic purchasing system, each time the contracting authority intends to
award a single contract, they publish a further “simplified call for submissions”, inviting all interested
economic operators to resubmit an indicative offer (in order to be admitted to the dynamic system,
which for this reason is consequently permanently open) within a minimum 15 day deadline from
the date on which the simplified call for submissions was sent.

The administrations can proceed to the competitive comparison only after completion of
evaluations of all the indicative offers from new tenderers. After this evaluation the contracting
authorities invite all tenderers admitted to the system to submit a specific offer relative to the
contract (possible award by electronic auction). A suitable deadline is set for the submission of
tenders.

The awarding of the contract to the best offer shall be on the basis of the adjudication criteria
indicated in the call for submissions for the establishment of the dynamic purchasing system and
as stated in the invitation to offers for a specific contract (para. 6).

1.4 European Commission: Action Plan for institution of legal framework for
electronic public tenders
The inappropriate adoption of electronic auctions creates a serious risk of fragmenting the market.
The legal, technical and organisational barriers that can result from online contracting are one of
the main challenges to be faced. In order to ensure the timely institution of the new regulatory
context established by the directive, and to ensure the correct operation of the “common market of
electronic public contracts”, the European Commission has made joint efforts with the member
states to produce an Action Plan for the creation of the legal framework for e-public procurement,
called for by directives 17 and 18 of 2004.

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The objectives and actions stated in the action plan are as follows:

a) guarantee of an internal market in electronic public contracts:

- new standard forms for publication in the TED
- CPV (Common Procurement Vocabulary)
- identification of functional requirements and accreditation systems (digital signatures, platform
certification)
- interpretative document, demonstrators
b) greater efficiency in contracts, improvement of governance and competitiveness:
- national programmes with measurable performance priorities and objectives, and programmes of
the largest national purchasing authorities
- electronic provision of commercial information and enterprise certificates;
implementation of electronic catalogues;
- European public contacts networks as sites of exchange of experiences
c) Commitment to working for an international context of electronic public contracts (as par of the
overhaul of GPA)
2. The Italian context: e-procurement and its relation to the single Code for
contracts and current legislation
What is the situation in the Italian regulatory context?

Italy is about to implement directives 17 and 18 of 2004 and therefore, and by doing his shall thus
acknowledge Community directions on e-procurement. Our system should not experience any
particular difficulty in applying the norms of the above-mentioned directives, since a thorough and
detailed e-procurement system had already been developed in recent years, in anticipation of the
actual Community arrangement, on the normative level and in terms of practice.

In accordance with member states’ obligations to implement Community directions by 31 January

2006, our legislator responded with Law no. 62 of April 2005: (“Directions for fulfilment of
obligations deriving from Italy’s membership of the European Community. Community Law 2004”).
With this measure, parliament authorised the government to adopt one or more legislative decrees
designed to define the regulatory framework of acknowledgement of the two directives. To this end,
the Presidency of the Council of Ministers created a Commission of sectoral experts, appointed to
the elaboration of the implementation text. As article 25 of the delegate law requires, the task of
acknowledgement was achieved largely by drafting a single text pursuant to the principles of the
EU Treaty. The necessity of implementation within Community norms presented an opportunity for
the organic reorganisation of the rules for public contracts, achieved by bringing them into line with
the principles elaborated by Community case law: the Code for public works, services and supply
contracts. The scheme was approved on 23 March 2006 by the Council of Ministers and is
proceeding towards publication.

The Code has acknowledged, with some degrees of variation, the e–procurement instruments
called for by the above mentioned directive.

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2.1 Current Italian legislation: presidential decree 101 of 2002
A consideration of the Italian e-procurement system must involve reference to the regulations,
approved in presidential decree 101 of 4 April 2002, containing the “criteria and modalities for
public administrations execution of electronic purchase procedures for the procurement of goods
and services”.

Presidential decree 101 of 4 April 2002, anticipating the Community directives, provided for the
regulation of the criteria and modalities for the execution of electronic procurement procedures on
the part of the public administrations. The norm governs two distinct procedures (with specific times
and modalities): electronic tendering above and below the Community threshold; the electronic
market only below the Community threshold.

These two procedures bear certain similarities to the procedures called for in directives 17 and 18.

The electronic tender is an instrument capable of supporting online management of the entire
contracting process. It is arranged as a specific, distinct procedure that exists as an alternative to
traditional tender procedures governed by Community and national legislation. It is more than just
another instrument for the submission of documents or a new means of delivery. The innovations
introduced by the decree allow the submission and evaluation of tenders, as well as their
adjudication, to be conducted electronically. Provisioning procedures can also be supported by the
use of electronic instruments.

Electronic tendering, in accordance with presidential decree no.101/2002, is distinguished by four

specific procedural phases: the issue of the prequalification notice of invitation to tender (to aspiring
participants), the call for submissions, the invitation to participate in the tender, the online
negotiation phase (online opening of the envelope containing the offer).

In the sense of article 11 of the regulations, the electronic market consists essentially of an IT
structure that the contracting authorities can use, pursuant to the regulations governing the
purchase of public administration goods and services, for making direct purchases or to request
further offers through the catalogues provided by the selected users, through a prequalification
notice.

The marketplace allows the contracting authority to operate according to two different electronic
procedures for the provisioning of goods and services: Direct Purchase and Request for Quotation.
In the former case, ex para. 1, the administration purchases “directly from the catalogues provided
by the selected users“. In the latter case, ex para. 2, it requests “further offers from the users” .
When an offer is requested, “the electronic negotiation system makes an automated evaluation of
the offers received, and compiles a classification table based on the criteria the contracting
authority has selected from among the options proposed by the system itself”.

All goods and services available on the marketplace must therefore be identified in the electronic
catalogue, which constitutes the database from which products and/or services can be ordered
from authorised suppliers.

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3. Conclusions
The use of e-procurement is governed both by Community norms, in acknowledgement of the
single Code for contracts, and by current national legislation (which regulates the electronic market
and electronic tenders, in accordance with presidential decree no. 101 of 2002.

The normative framework seems to have reached a level of development that allows the full
functioning of electronic provisioning modalities and indeed the full development of e-procurement.
Despite this, the adoption of electronic contract procedures in the public sector has not yet taken
off . Although normative arrangements are close to completion, there is still a need for an organic
implementation plan that will back the definition, coordination and activation of objectives and
strategies for the computerisation of public contracts. The effective fulfilment of these objectives
requires action that will result in more efficient implementation of e-procurement in the public
administrations.

There appears to be a need for regulatory, institutional and organisational changes13. Legislation
must be accompanied by a solid strategy for the implementation of general lines for use of e-public
procurement and the effective coordination of policies promulgated at various levels (European,
state, regional and local).