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Trial lecture - time and place
Adjudication committee
- Professor Ola Mestad, University of Oslo (leader)
- Partner Grith Skovgaard Ølykke, Poul Schmith Kammeradvokaten (1 opponent)
- Professor Michael Steinicke, Aarhus University (2 opponent)
Chair of defence
Acting Vice Dean Eirik Østerud
Supervisors
- Professor Finn Arnesen
- Professor Carina Risvig Hamer
Summary
This thesis examines Norwegian and EU legal regulations governing public procurement from 1821 onwards and the reasons given by politicians for adopting these regulations. In other words, the thesis examines why and how public procurement is regulated.
An important finding and argument is that the most significant measure that has been prescribed is the requirement to organise formal competitions. There are good reasons for this, as organised competitions provide opportunities for political governance, control and economic efficiency. However, when competitions do not work, i.e. when they do not trigger actual effort and struggle between participants, they are unnecessarily rigid, unnecessarily costly and open to abuse. For this reason, there have always been a large number of exceptions to the obligation to organise these formal competitions.
The thesis provides a basis for asking whether there should be more exceptions.
Why do we require public purchasers to organise competitions?
When you and I buy swimming trunks, a car or a house, there are no laws or regulations governing how we should go about doing so. You are free to call the carpenter directly or hope that he submits a bid in a tender competition. The same applies if it is the KPMG or Chevron Group that is making the purchase. It is a fundamental assumption in our society that those who buy know their needs best and are best able to make purchases that are reasonably cost-effective.
Nevertheless, we have had rules for public procurement since 1822 that stipulate that the public sector must normally arrange formal competitions when making purchases. Do public purchasers not know best what they should buy and how they should buy it?
The short answer is that those who have adopted public procurement regulations have not justified this on the grounds of cost-effectiveness. It is not true, as the Norwegian Ministry once wrote, that ‘the specific and detailed procedural rules of the regulations are primarily intended to stimulate the best possible use of resources in the public sector’.
If the purchaser's main objective is to meet their needs, the most cost-effective option will be to purchase the goods that meet those needs at the best price-quality ratio, while spending as little as possible on the purchasing process itself. In that case, it is not cost-effective to have to pay extra to take into account environmental considerations, regional policy or the EU's business sector in competition with China, Japan and the USA. Yet, although it is not cost-effective, virtually all public procurement regulations have pursued such diverse political objectives. By requiring purchasers to organise rule-based competitions, the central authority can force purchasers to take these considerations into account and enlist the help of suppliers to ensure compliance.
It is neither cost-effective to organise a formal competition when you “know” in advance who will win or when the value of the contract is not proportional to the costs of organising the competition. Nevertheless, politicians have wanted to make extensive use of organised competitions, partly because they are transparent and rule-based, and can thus ensure public trust in the use of public funds.
Assumptions must be turned on their head
We must reverse our assumptions about why public procurement is regulated. While the primary objective of the activity of public procurement is clearly to secure favourable agreements, this has not been the primary objective of the regulation of public procurement . On the contrary. The regulations have been put in place to ensure trust in the state and to safeguard society's political objectives at all times, without compromising cost-effective procurement to too great an extent.
Organised competitions
Research literature, both in law and economics, has overlooked the fact that different types of organised competitions share common characteristics. They are time-limited, rule-governed events that allocate limited prizes among participants based on the rules of the event. Thus, the Tour de France, Papal Conclave and Squid Game have more in common with public procurement than one might think. They are all examples of organised competitions.
It has also been overlooked that organised competitions are fantastic tool for political governance. They can give win-win situation. When they work, you get the effort and creativity of several competitors trying to do better than the others, whether they are bidders in an offshore wind auction or suppliers competing for a road contract.
In addition, organised competitions can be filled with whatever rules you want, such as giving preference to Norwegian suppliers, as was done in the oil industry, or, conversely, prohibiting advantages for Norwegian suppliers, as in the EEA regulations. Finally, organised competitions ensure the rule of law through regulation, transparency and control.
This insight into organised competitions is important outside public procurement, such as in commercial auction processes, sports and games, recruitment processes, conscription schemes and reality TV.