Position and Background
The representative of Statens Vegvesen (SV) interviewed for this thesis was Mr. Lars Kalfoss, who holds the position of Director in the ICT department and works with SV since 2009. SV has yearly procurements on all types of equipments ranging from PC’s, servers, audio or video conferencing systems, and software, to storage, network, and mobile applications, accounting for approximately NOK 400 Million per year. By the time he joined the organization, major ICT initiatives took place, such as the Autosys project: NOK 300 Million procurement for a vehicle and driving license registration system, where the lead suppliers include companies as IBM, Bekk, Steria and Ciber.
R60 may damage fertility R61: may be harmful to the child during pregnancy Contract Clause Packaging: If the supplier uses packaging, it shall no later than by closing present evidence that the material is being taken care of in an environmentally sound manner. If it gets delivered excess equipment, the vendor must collect and process it securely through electronic waste processes, or for reuse if the employer requires it. For all equipment, documentation must be attached showing how equipment should be used to minimize environmental impact. When it is possible, manufacturers must ship products already set up with an environmentally efficient layout.
Tendering procedures and innovation drivers
Regarding the procurement procedures most used for SV purchases, Mr. Kalfoss explained that in a public company a procurer can adopt one of three procedures: a process where procurers state very fixed requirements and choose the best offer with no prior negotiation with suppliers; a process similar to the first, but that allows negotiation with suppliers; and a third process of a dialogue with competition. For particular purchases, such as networking and telephony contracts, SV had run a negotiation procedure, but for purchases of equipment as PC’s, servers, storage, media conferencing, and software, it usually resorts to the Fixed-price procedure (Open procedure) with no negotiation. For this, the procurer had fixed requirements, evaluated different options, and picked one of the companies that participated in the bid competition.
We discussed that SV mostly awards these type of contracts for two years, in a 1 + 1 basis, up to a maximum of four years, to assure that the contract can be renegotiated when the supplier (for any reason) does not meet what was accorded. “It would be best for the organization if it was allowed to run Negotiation procedures all over, but that is not how the rules and regulations are put in place: the main rule is the Fixed‐price: that is the dominant rule. Negotiations are exceptions and Dialogues even more so”.
He also explained that, according to the current regulations, if it is difficult to express in much detail and predictable requirements what it is to be purchased, then one can run a negotiation process. In the case of PC’s per example, one can easily specify the requirements, and therefore cannot run a Negotiation process: that should be a Fixed-price contract. “I think it is a bad approach but those are the regulations. I think the idea behind it is good, because when you buy “bread and butter”, it should be possible to specify to great detail and then choose the best offer. It is very visible, it is transparent, and then you go public with a vendor or producer and can tell the difference between the offers. The bad thing with it is that I do not think you get the best price. I think you can achieve to get a better price when you negotiate, but it takes longer time, so it is a more resource consuming process”.
In his view, the most time and resource consuming procedure is the Dialogue Competition, but that he would like to be able to combine both
negotiation and development. “This way, the organization can get new ideas and develop new products, concepts, etc”. On the other hand, by sticking to one vendor, the purchaser benefits with attractive discounts. “Some people believe in having two vendors competing on every delivery. Other people believe in one vendor. I believe strongly in one vendor, because then you can commit a certain volume and you get a far better price. Our process’ costs dropped more than 30% going from two vendors to one vendor. You have to figure out in great detail how the market and the price mechanisms work. You should decide on your procurement process accordingly.”
Major barriers
We then turned our discussion to his perception of major barriers in public procurements, when Mr. Kalfoss argued that the biggest barrier is the regulations favoring Fixed-price procedures. He explained that it would be best to be able to drive more negotiations and dialogues. “I think that it would be nice to drive more negotiations. I think that the vendors would like that too, because when you ask a bid, you have to put some risk margin on top, since you’re not quite sure what the requirements are (…) there should be some premium on top, and then you can discuss in much more detail and run a negotiation process.” The potential for innovation from specifying the need to the suppliers on functional terms instead of technical requirements, gave way to some discussion. “I agree of course: when you buy a PC, it is still functionality you are
acquiring. But PC’s from Dell are just like HP’s, so even on functional level it is very easy to translate this into technical requirements. But I do agree that it is better to focus on the functional level.”
He commented on the out-coming benefits: “We have a functional approach because, when you are running a process, you are interested in having several areas to maximize the participants in the process. If you give that in technical requirements, you very often can experience that you half the numbers of participants.” I also asked what specifically do the regulations say (see EC 2004). ”If you can, you have to specify in great detail. It does not say technical requirements, but that you have to specify to great detail what you are looking for.” Since for equipment such as PC’s, functionality is very easy to translate into technical requirements, the regulations require using a Fixed-price
procedure for these cases. This focus on price, in his view, is a big problem for innovation in public procurement.
As a result, Mr. Kalfoss argues that public procurement is currently a weak driver for innovation in ICT. He added that he remembers the Norwegian project Altinn (a public reporting online platform) to have been very innovative at its time, but still has several problems today.
At this point we discussed an example of external pressure in public procurements. “We are running a project now. We are going to replace the toll
collection system for roads: it is a central system, and we will replace that for a new one in 2014. We consider that this (process) cannot be with a fixed price procedure, since it is hard to define. (…) For this project we have first run a Dialogue phase. But the problem with the dialogue is that it is extremely time consuming. And we have a fixed date: we have to have the new system in place by the 1st of November, 2014. It’s a matter of running against time to manage that process. So now we are now running a more traditional negotiating process on that project, even if the main rule is a fixed process. “
Lastly, we discussed his opinion on the major barriers to PPI. To this, Mr. Kalfoss’ opinion was that the major barriers are the EU regulations, the time and resource consumption of these procedures, the increased lead-time for innovative products, and the risk of supplier-lock in reflected in the rigid contracts. He concluded that the MEAT criteria and complex tendering procedures are more relevant for projects: when buying PC’s, these are very similar from one vendor to another, and therefore of no need for such elements. It is his opinion that to divide the tender would result in losing powerful volume discounts, and finally, that the best option for increasing SME participation in big procurements is to make subcontracting more visible, or to have public procurers define segments, or niches, where SME’s could participate.