December 8, 2017, by Sebastian Barreto Cifuentes
On the decision of the Colombian Council of State to prohibit the use of Framework agreements for “minimum amount” public contracts
Colombia Compra Eficiente (CCE), the Colombian central purchasing and advisory procurement body, issued a “manual for the operation of framework agreements” in which it considers that there was concurrence between two public procurement methods: Framework Agreements (FA) (Agreements establishing the terms of contracts to be awarded during a given period of time through the placing of orders) and “minimum amount procedure” (MA) (a low value/speedy procedure).
CCE stated that the concurrence of mechanism was a conflict that “must be decided in favour of the acquisition under Framework Agreements”.
The Colombian Council of State suspended, in an interim measure decision, this part of the manual. This post considers some factors that the Council of State could take into account in deciding on the merits of this case.
- Objectives and procurement methods in the Colombian system
Competition and transparency are principles of the Colombian public procurement system. Transparency is recognised in Article 24, Act 80 (1993). There is no express reference to competition in the current legislation. However, this principle underlies the system itself. This explains why the general rule is open tendering: the mechanism that guarantees the most competition. Additionally, the Council of State (CS) has indicated that authorities must guarantee competition in the selection of suppliers.
- Framework Agreements and Minimum Amount procedure: the “conflict of mechanisms”
Along with open tendering, legislation foresees other mechanisms as well. Act 80 established “The choice of the contractor shall always be made through bidding or open tendering, except in the following cases where single sourcing might be used”.
Act 1150 (2007), that modified Act 80, is even clearer: “The selection of the contractor will be made as a general rule through open tendering, with the exceptions indicated in numerals 2, 3 and 4 of the present article”.
Act 1150, unlike Act 80, does not simply permit authorities to use other mechanisms but exempts the general rule. The language changed from facultative to one that appears mandatory.
Article 2-2-A of Act 1150 establishes that the “abbreviated selection” might be used for the acquisition or supply of goods with uniform technical characteristics and of common use (UTCCU). It also states that for the acquisition of these goods, contracting authorities must, whenever regulation mandates, use reverse auctions or FA. The use of FA, entered into by CCE, is preceded by the selection of suppliers through open tendering.
Article 2-5 on the procurement method called “minimum amount” states that when the value of the contract does not exceed 10% of the “minor amount” (a threshold set up by the law), the procurement “regardless of the object to be contracted, will be made in compliance with (…)”.
The MA procedure will be carried out following the next steps: a publication of a notice for no less than one business day, a term to present offers for no less than one business day, and the decision by the authority.
- Central purchasing body and Framework Agreements
It is worth mentioning that the establishment of the CCE and the use of FA have as their main objective the aggregation of demand. This lowers acquisition prices by using the advantages of economies of scale. Prices are usually lower than those that authorities would obtain by going directly to the market. This is true especially for individual purchases of little value as those concluded through MA.
Additionally, there are benefits obtained by reducing transaction costs, since making a purchase order within a FA might be even less expensive than carrying out an entire procurement procedure.
- The decision of the Council of State on the Manual for the Operation of Framework Agreements by CCE
CCE, in the “Manual“, clarified that there was a “concurrence of procurement mechanisms”. This was so since authorities could use both FA and the MA for the purchase of UTCCU, provided that the value of the purchase falls within the value for using MA. In an interpretation based on the principles of the system and “lex especiali derogat generali”, CCE stated that the conflict “must be decided in favour of the acquisition under Framework Agreement”.
The CS suspended in an interim measure decision this part of the manual. It ruled that there was no concurrence of mechanisms since Article 2-5 states that the MA procedure must be used “regardless of the object to be contracted”. Given that the value “must be taken into account for the choice of the contractor; the procedure to be followed will be that of the minimum amount, independently –we insist- of the object to be contracted “.
The CS concluded that “there is no concurrence between the mechanism of abbreviated selection and minimum amount”, ruling out the use of FA.
The interpretation of the CS is one based on semantics. Article 2-5 reads the purchase “will be made” through the MA procedure. This seems to be prescriptive language.
It is worth remembering that Act 80, unlike Act 1150, establishes the use of single sourcing optionally. This responded to the logic that an entity could decide to procure through a method that allowed more competition and transparency, even if a ground for using a less competitive method was met.
The UNCITRAL Model Law on Public Procurement foresees the use of less competitive and transparent mechanisms as a possibility and not as an obligation. Article 28-2 states “A procuring entity may use a method of procurement other than open tendering […] and shall seek to maximize competition to the extent practicable”. The entity is authorised to use less competitive procedures, but arguably is also encouraged to use more competitive procedures in cases where it wishes.
Act 1150 eliminated the optional language and used one that seems prescriptive; which is, it is submitted, contrary to international best practices and the objectives of the Colombian procurement system.
- May the Council of State rule to allow the use of framework agreements even when the ground for using the minimum amount procedure is met?
The answer to this question is affirmative. The Council of State can adopt a substantive decision different from that adopted as an interim measure indicating that there is indeed concurrence of procurement mechanisms.
The Constitutional Court (CC) has already opined on this issue: “the grounds for abbreviated selection are also special with regard to the minimum amount […] therefore, the lex specialis criterion does not exclude the use of this mechanism, specially, when the selection must be made under a Framework Agreement”. This was stated under the assumption that a concurrence of mechanisms exists, and that concurrence is not equal to a conflict of mechanisms.
The argument of the CS, that because MA should be used “regardless of the object” solves the apparent conflict, is difficult to accept. Article 2-2-A, like 2-5, has a prescriptive language and the concurrence should not be solved by resorting to the isolated interpretation of one of them. When the law refers to the use of FA for purchasing UTCCU it makes no distinction as to the price. Thus, it is hard to accept that the use of FA should be restricted to above MA value contracts: the law makes no distinction and the interpreter wrongs by creating one.
Article 2-2-A establishes that “whenever regulation indicates so”, the “entities must use” FA. An argument could even be made in the sense that the instruction of CCE in the manual was in exercise of the power conferred by Article 2-2-A.
The CS can rule that regardless of the language of Article 2-5, entities can use FA based on the fact that 2-2-A is also prescriptive and the isolated interpretation of the interim measure decision was adjusted to the legal requirement: making a “confrontation” between the higher norms and the Manual. However, a final decision can favour a systematic interpretation that takes 2-2-A and its prescriptive language into account.
Moreover, an interpretation that is adjusted to principles can also be made to allow the use of FA in this case. This might be so because concurrence of mechanisms is not necessarily a conflict to be decided, but can authorise the use of either MA or FA. Additionally, FA allows more competition and transparency than MA procedure. It might be said that the use of FA is more transparent and competitive when compare to MA procedure that is very short, speedy, and not preceded by any open tendering.
In this regard, it is worth mentioning the Guide to Enactment of the UNCITRAL Model Law on Public Procurement: “some methods may be considered to be more vulnerable to abuse and corruption than others”. Arguably this is the case of MA when compared to the use of FA; the periods of MA are shorter, and there are fewer stages. Although MA is needed to achieve other objectives such as efficiency and economy, because of its lower value and short procedure might be said that it is more vulnerable to corruption and improper use.
There is no data on the level of corruption in MA compared to FA. Nonetheless, arguably, more transparency and competition, granted by the use of FA, is generally better. Additionally, efficiency of MA against FA needs to be revisited because placing an order under FA currently could be as, or even more, efficient than carrying out a whole procurement procedure under MA.
If the principles should be carried out to the greatest extent possible, the CS would be adjusting its interpretation to maximise the achievement of transparency and competition.
The CS can use a pro-competition interpretation, and decide that the use of FA is compatible with the spirit of the law, even if it allows so as a possibility and not as an obligation, meaning that concurrence allows the use of any mechanism. The manual states the use of FA as an obligation, and the conflict might be solved as allowing the use of both of them. This would be consistent with international best practices of allowing entities to opt for more competitive procedures, despite the existence of a ground allowing the use of less competitive ones.
The CS can also take into consideration the practical effects of its decision. Prohibiting the use of FA for low value contracts falling within the ground for using MA means prohibiting the use of a mechanism that is less vulnerable to corruption. It would not be surprising to see that following the prohibition to use FA for these contracts, there is an unusual increase in the use of MA procedure and an unusual increase in the practice of splitting contracts throughout the country.
In addition, the CS can take into account that its decision would deprive the contracting entities of achieving savings through aggregation of demand, and reduction of transaction costs. A decision of CS prohibiting the use of FA would be a decision against the interests of taxpayers since it would prevent entities from saving; these savings have been calculated by CCE.
The Council of State has the possibility to interpret the law in a fashion that is adjusted to the principles of public procurement law allowing for the achievement of its objectives; an interpretation that is consistent with international best practices and that allows significant savings for contracting authorities, and consequently for taxpayers. The CS has also the possibility to keep its interim measure decision when deciding on the merits, thereby undermining the objectives of the system, hindering savings for the public by obstructing the achievement of public procurement objectives, and going against internationally recognised best practices.