The Continued Overhaul of Romania’s Public Procurement System

de     Reader's Digest Romania
Luni, 9 ianuarie 2006, 0:00


Romania’s existing legislation dealing with public procurement, public-private partnerships and concessions is currently undergoing an overhaul in line with the country’s continuing attempts to address its obligations under its Accession Treaty with the European Union.

Under the Treaty, Romania must complete its commitments to bring its own public procurement legislation (PPL) in line with that of the EU’s acquis communautaire. The current PPL, while an improvement over past practice, is still considered as inadequate to meet Romania’s needs as it joins the EU.

To address these shortcomings, Romania’s authorities plan a series of legislative initiatives during the first half of 2006 which is expected to usher in significant changes to the current PPL system.

Investors, both in Romania and abroad, looking to participate in procurement tenders organized by Romania’s government and institutions, are well advised to consider the shortcomings still plaguing the current system, as well as the changes on the horizon.

This article will assess Romania’s legal and institutional system as it relates specifically to public procurements; the status of the current regime, its shortcomings as well as probable areas of improvement for near-term legislative initiatives in early 2006.

Previous editions of the Romanian Digest, most notably our September 2003 and December 2004 issues on public-private partnerships (PPPs), have already touched upon some of the other areas associated with public tenders, so this article will not repeat those previous topics.

However, it suffices to say that changes scheduled to affect the system of public procurements as soon as the first half of 2006 are due to have a similar impact upon the regimes affecting PPPs and concessions in Romania as well.

What is Public Procurement?
In general, public procurement is the term used to describe the purchasing of works, supplies and services by national, regional and local public authorities. The public sector, utilities and other specialized government bodies, referred to as "contracting authorities," need to purchase goods and services for a huge range of activities.

Many of these are large contracts which must be advertised nationally and internationally. Within the EU, the annual value of these contracts was an estimated 16% of the Union’s combined GNP in 2004. This represents significant and potentially profitable opportunities for private companies to supply the public sector at home and overseas.

The types of contracts subject to public procurement vary widely. Some examples include the supply of goods, such as office machines, computer equipment and software licenses, street lighting materials and medical products, as well as the provision of services, such as financial and insurance services, IT services or facilities management "know-how."

The EU has drafted a series of regulations which now apply to Romania by virtue of Romania’s bilateral obligations under its program of accession within the EU. In 2004, the most important directives dealing with public procurement included Directives 2004/17/EC & 2004/18/EC (the "2004 EU Directives").

More specifically, Directive 2004/18/EC covers the coordination of procedures for the award of public works, supply and services contracts, while Directive 2004/17/EC deals with the coordination of procedures for the award of contracts in the water, energy, transport and postal services sectors.

These two directives replaced Directives 92/50/EEC, 93/36/EEC, 93/37/EEC and 92/38 EEC, relating to the coordination of procedures for the award respectively of public service contracts, public supply contracts, public works contracts and contracts in the water, energy, transport and telecommunications sectors, setting January 31, 2006 as the time limit for member states to comply with their provisions.

The principles underlying these and other EU regulations is the removal of barriers, and the opening up of new, nondiscriminatory and competitive markets. The rules aim to ensure the free movement of goods and services within the EU, and that public sector purchasing decisions are based on value for money achieved through competition.

Romania’s Current Legislation
The public procurement system in Romania is regulated by Law 212/2002, on the approval of Emergency Governmental Ordinance No. 60/2001, and its implementing norms set forth in Government Decision No. 461/2001, as modified. Some other relevant legislation and internal directives include:

• Law No. 219/1998, on the system of concessions, as amended by Law No. 528/2004, on the modification and completion of Emergency Government Ordinance No. 16/2002, concerning contracts of public-private partnership;
• Government Ordinance No. 16/2002, as amended by Law No. 470/2002, Emergency Ordinance No. 15/2003, Law No. 293/2003 and Law No. 528/2004;
• Government Decision No. 1587/2003, on the application of the conciliation procedure for resolving disputes regarding the award of public procurement contracts;
• Government Decision No. 1186/2001, on procurement in the area of national defense;
• Order of the Minister of Public Finance No. 1012/2001, and Common Orders of the Minister of Public Finance and the Minister of Public Works, Transportation and Housing No.

1013/873/2001 and 1014/874/2001, all of which govern the structure, content and use of the "Standard Documentation for the Elaboration and the Presentation of the Tender" for public procurement of goods, services and other various "works" respectively;

While a full description of the current PPL regime is outside of the scope of this article, it suffices to say that the PPL regime is considered a significant improvement over past practice.

A June 2005 Assessment Report by the SIGMA organization, which is a joint initiative of the OECD and the EU, concluded that "a significant effort has been made in the development of primary as well as secondary legislation, with the result that the current legal framework [relating to public procurements] now includes standard tender documents, model notices and contract forms, guidelines and instructions."

Some additional highlights of the current regime include the following:

• The current PPL covers all public authorities and institutions at all levels of government. Legal entities (both public and private) operating in the utilities sector are also covered, as long as they hold a monopoly position or have been granted special or exclusive rights.
• Basic procurement procedures in most cases where the threshold is greater than €40,000 are open and restricted procedures, but the negotiated procedure may be used under clearly-defined circumstances.
• The current PPL is largely based on the text of EC Directives adopted prior to the approval of the 2004 EU Directives.
• The procurement procedures set standards for common advertising rules. Tender announcements, tender award notices and indicative notices are published in the Official Gazette.
• The public authority acting as the procurement body is obliged to form a tender commission and to define all tasks and responsibilities related to the handling of procurement contracts within the entity. The contracting entity formally grants the award and concludes the contract in accordance with the commission’s decision.

Criticism of Current Regime: EU and SIGMA Reports

The most recent European Commission assessment of Romania’s progress in the area of public procurements is contained in the European Commission’s "2005 Comprehensive Monitoring Report for Romania." Notwithstanding the very real progress Romania has made as embodied in the current regime, the Report continues to list this as an "area of significant concern" and notes that "the legislative

efforts to achieve full alignment with the acquis need to be continued." According to the Report, these efforts will have to include the transposition of the 2004 EU Directives, as well as "the elaboration of a fully coherent and comprehensive legal framework for public procurement, including harmonized rules on concessions and public-private partnerships, a fully aligned framework for

e-procurement as well as an independent and efficient remedies mechanism." The Report goes on to say that "Romania has to demonstrate continued commitment to fully respecting and enforcing competitive and transparent public procurement procedures" in order to avoid the significant abuses of the past.

Finally, it concludes that "significant efforts are needed to strengthen administrative capacities both at the central and operational levels in the relevant procuring entities. Administrative procedures and systems for the monitoring and controlling of procurement activities should be substantially upgraded."

Echoing the EU criticism, the previously-mentioned SIGMA 2005 Assessment Report adds that legislative improvement has been overshadowed by lagging progress in two principal areas: i) the application of new and existing legislation, institutional coordination and the training of responsible personnel and managers; and, ii) inadequate monitoring and complaint mechanisms. These two areas are addressed separately, as follows:

a) Application of legislation, coordination and training

According to the SIGMA report, "[t]he public procurement system needs to be improved at the operational level to ensure uniform and open procurement practices, and to promote competition in the domestic market." According to the SIGMA report, the current system falls short for several reasons:

• Inconsistent and inadequate capacity of contracting entities to effectively carry out public procurement operations. While several ministries and other bodies covered by the PPL (including large utilities) have developed effective procurement procedures and internal decision-making routines, great difficulties remain within legal governments and small procuring entities.
• Procuring entities have failed to create, within their structures, separate units that are primarily focused on the procurement process. As a result, few permanent staff members view procurement as a long-term career opportunity, and, accordingly, have not developed their professional skills in this area.
• Outside of the formal reporting functions between procuring entities and a central procurement body, few clear links exist between the different elements of the system. Accordingly, the necessary "know-how" is not passed from one institution to another unless that coordination is done by that central body.
• The entire procurement system suffers from poor communication, both inside and outside the system. For example, while Romania published approximately 8,000 tender notices in the Official Gazettle for 2004, only about 6,000 contract award notices have been recorded, which means that the results of approximately 2,000 tenders are not accounted for.

In addition, very little data is available concerning the award of small and medium sized contracts of up to €100,000 by the public authorities.
• Lack of adequate formal public procurement units within the larger procuring entities at the central and local government levels reduces the professional capacity of managers responsible for procurement.
• Recent training programs, while a step in the right direction, have, thus far, had an insignificant impact on Romania’s actual needs. For example, only about 1,000 individuals, out of a total of roughly 10,000 civil servants in need of training in the public procurement process, managed to secure even elementary outside training by the end of 2004.

b) Inadequate monitoring and complaint mechanisms

Auditing public procurement is one of the functions of the Romanian Court of Audit (RCoA) when dealing with bodies (including central and local entities, other autonomous budget organizations and utilities) covered by its audit mandate.

According to the SIGMA Assessment Report, "it is generally recognized that the capacity of the RCoA to carry out such audits is insufficient, and a great deal remains to be done to strengthen procedures in this area." In addition, current auditing techniques involve merely a review of the formal aspects of the procurement procedure (i.e., its adherence to legal norms), but current RCoA

procedures or guidelines covering performance audits (i.e., to review the efficiency of the conduct of each procurement body) is almost completely lacking. In the area of complaint review, the SIGMA Assessment Report noted the lack of complaint mechanisms still plaguing the current regime.

For example, many appellate aspects available under the 2004 and previous EU Directives, especially as they relate to procedures of conciliation and attestation, were lacking under Romanian law. In addition, Romanian courts will have to further develop their institutional ability to handle appeals and award damages in favor of tender participants suing Romanian institutions.

Romania’s Efforts to Overhaul the System in 2005
In order to address at least some of the shortcomings set out in the EU and SIGMA reports, the Romanian authorities went on to pass several pieces of legislation in the second half of 2005, the most important of which were: i) Government Decision No. 901/2005, which endorsed a strategy to reform the public procurement system for the years 2005-2007; and, ii) Emergency Ordinance No.

74/2005, which established the National Authority for the Regulation and Monitoring of Public Acquisitions (the "NARMPA").

a) 2005-2007 strategy

The strategy approved by the Romanian Government was designed in consultation with EU officials and aims to push through legal and institutional adjustments, as well as the adoption of the EU practices in the field and streamlining efficiency, transparency and competitiveness of the public procurement system, specifically along the lines of the 2004 EU Directives.

In addition to these changes, the Romanian authorities have promised to submit semi-annual progress reports to the EU.

According to the Romanian authorities, the action guidelines are thought to improve the existing legal framework and strengthen the ability of the authorities to initiate legislative reforms. The new laws on public procurement must come into force six months before Romania joins the EU, at the latest.

However, adjusting the Romanian laws to the EU legislation is only the first guideline of the strategy.

The second step constitutes strengthening the capacity of the authorities to enact the laws on public procurement at the level of all Romanian contracting authorities, both central and local, at the level of such authorities’ institutional structure, for the purpose of regulating and monitoring public procurement activities, all of which goes a long way in addressing many of the concerns set forth in the EU and SIGMA reports.

A commission made up of the state secretaries of various Romanian ministries, such as the ministries of European Integration, Finance, Justice, Transport, Building and Tourism, Communications and IT, and the Ministry of Environment and Water Management will monitor the progress of the implementation of the measures along the lines set forth in the 2005-2007 Strategy.

The commission will meet quarterly, or whenever needed, but it is not as yet clear which role various NGO’s, not to mention NARMPA, will have in their proceedings.

b) The National Authority

The second important event to take place in 2005 is the establishment of a new coordinating body in the form of NARMPA, with the powers to coordinate and refine Romania’s public procurement regime, both from the perspective of institution-building and legislative reform.

NARMPA has also been given authority to "monitor, evaluate and control" the use of standard procurement documents in particular tenders, assist with civil servant training activities, as well as represent the Romanian authorities in all public procurement consultative bodies in which the EU is also a participant.

As such, it has taken over some of the responsibilities and authority previously held by various departments within the Romanian Ministry of Public Finance, and the Ministry of Transportation, Construction and Tourism. NARMPA.

NARMPA started its operations in October 2005, and is due to have a maximum of 125 employees (mostly from the Finance and Transportation ministries), although it remains unclear as to what resources it currently has at its disposal.

Equally unclear is the true extent of NARMPA’s authority, since the current legislation explicitly subordinates NARMPA’s power to the Romanian Government, and continues to emphasize a strong role for the traditional ministries over the 2005-2007 strategy.

In addition, as of the time of writing, the norms governing NARMPA’s operations have yet to be formulated, so we will have to wait for more clarity in 2006.

Addressing the shortcomings of Romania’s procurement system is not only good strategy for joining the EU, but also good medicine for addressing some of the ills plaguing Romania’s public institutions.

A faulty public procurement system usually means that public money will be diverted to line the pockets of officials and paid to undeserving "winners" of public tenders, as well as providing a poor supply of goods and services to Romania’s authorities – and to the public at-large.

Romania’s pot-holed roads, crumbling infrastructure and its poorly-supplied public services speak volumes about government mismanagement of existing resources.

In this light, we can only applaud the formation of NARMPA to create, monitor and reform the existing regime into something more in tune with EU norms, and the needs of Romania’s public sector.

We also look forward to an honest, consistent, effective and transparent implementation of the 2005-2007 strategy, so that Romania’s public procurement regime, already improved, will finally meet the moral and legal challenges which confront it prior to accession into the European Union in 2007.

The article was published based upon approval of:
Rubin Meyer Doru & Trandafir

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