San Sebastian, Aprile 11 th 2005

1. “Public e-Procurement in Italy: the Consip’s role” Luca Mastrogregori –E-procurement Strategy Resp. - Consip S.p.A. San Sebastian, Aprile 11th 2005

2. Italian Public Procurement Legal Framework - Purchasing above the European thresholds Italy, as member of the European Community (EU), has adopted, within its regulations (DL 157/95 and DL 358/92), the following EU directives: • 92/50/CEE concerning open tenders for public services supply • 77/67/CEE, 80/767/CEE, 88/295/CEE concerning open tenders for public goods supply Within the above frame, three different types of tenders are regulated: • open procedures, i.e., national procedures whereby all interested providers may submit a tender • restricted procedures, i.e., national procedures whereby only providers invited by the authority may submit a tender • negotiated procedures, i.e., national procedures whereby authorities consult the chosen suppliers and negotiate with one or more of them the terms of the contract In this context, tenders which appear to be abnormally low are regulated by the following articles: 25 DL 157/95 and 19 DL 358/92

3. Italian Public Procurement Legal Framework - Purchasing below the European thresholds When the value of the purchases is less than EU thresholds (154,014.00 € or 236,945.00 €, depending on the kind of contract and administration), the general principles of open tendering are regulated by national laws. These national laws are specific to each Administration: RD 827/24 (for Central Administrations), DLGS 502/92 (for Health Agencies), DLGS 267/00 (for Municipalities and Provinces). Central Administrations have also a special regulation - Law DPR 384/01 - for a particular kind of procurement, the so called “purchasing in economy” (that is for purchases up to € 130.000 and where the administration also directly provides with its own resources a part of the work/service/supply), that provides for: • “cottimo fiduciario”, when the procurement is obtained from external providers after having asked for at least 5 estimate tenders (RFQ-Request for Quotation). If the spending is below €20.000 procurement may be made from one specific provider. • “amministrazione diretta”, when the PA uses its own material/tools and its own personnel

4. Italian Public Procurement Legal Framework - e-Procurement Regulation • In year 2002, the Italian Government has approved and signed an innovative Decree which regulates the use of digital procedures for public procurement. By means of this Decree, public administrations may use digital procedures as a whole or as a partial replacement of steps foreseen in traditional tenders. • Two different digital procedures for goods & services purchasing are taken into consideration: • on-line auctions, for purchase both above and below the European threshold limit whereby the whole tendering process is managed on-line • marketplace, (type B2G) only for purchasing below the European threshold limit • To access to these new instruments, enterprises only need a limited equipment (digital signature according to Italian legislation) • Italy has been the first EU Country to have an e-procurement regulation allowing purchases above the EU threshold limit, anticipating some of the contents of the “Legislative Package”.

5. Public Spending Rationalization The financial act 2000 (December 23, 1999 n.488) has laid down the foundations of the “Program for Public Spending Rationalization of Goods and Services”. Article 26 says: “ The Ministry of Economy and Finance (MEF), according to the regulations currently available regarding suppliers selection, draws up national frame contracts with providers. Within the frame contract, the selected providers have to accept any order coming from public administrations.” By means of 2 Ministerial Decrees (February 2000, May 2001), the Ministry entrusted Consip S.p.A. with the development and management of the Program. Note: National Frame Contract (adopted by Consip) do not fall within the category of Framework Agreement (as defined by the EU legislative Package). It falls within the general concept of contract since it is not possible to modify or negotiate the conditions of the contract

6. Public Spending Rationalization • The following Financial Acts (2001, 2002, 2003, 2004) streamlined the Program scope and the roles of involved actors. • Today, according to the current legal framework: • Frame contracts regard goods and services of national interest; • All public administrations (e.g. Central Government, municipalities, health agencies, etc.) may purchase within the frame contracts. Alternatively, whenever they run their own tenders, they have to take price and quality of the frame contracts as a benchmark; • Within the frame contracts, that specify a maximum amount of sales, selected suppliers commit themselves to accept orders coming from all Public Administrations.

7. Rationalization Program on Public Spending Objectives and strategies Objectives Strategies To guarantee quality standards in P.A. purchases … • Focus on “state of the art” in supply market • Wide range of goods and services • Constant assessment of service levels • Direct costs, through: • demand aggregation (economies of scale) • competition among suppliers • product standardization • Indirect costs, through: • on-line bidding and ordering • process simplification • centralization of litigation … while reducing

8. Rationalization Program on Public Spending - Challenges • Change Management in the Public Administration • changes in P.A. may face cultural resistance • time and cost savings in processes allow re-qualification of Human Resources profiles and operations • Industry Dynamics • economical and political impact on the market operators, in particular SMEs • possibility to develop an industrial policy • Quality • possibility to obtain better quality • difficulty to monitor ex-post the respect of agreed standards (rating firms?)

9. Rationalization Program on Public Spending Spending for Goods & Services Total amount of public expenditure for goods and services sums up to about € 97 billion(*), about 15% of overall public spending and 8.8% of GDP Other P.A. 8% Central Government 16% University 2% Public spending for goods and services, 2003 (%) Local Government 24% Health bodies 50% Total = € 96,6 billion In 2003 the Program’s activity has been covering goods and services for which public expenditure amounts to approximately € 15 billion * Report on estimated needs for the year 2003 and Consip estimate Source: Consip estimates

10. Consip Task and structure Consip is a joint-stock company totally and directly owned by the Italian Ministry of Economy and Finance (MEF), and it operates exclusively to serve Public Administrations Consip’s operations are carried out through two divisions: • the DSIT (Treasury Information System Division), with about 300 employees, is in charge of managing the Information System of the Ministry of Economy and Finance • the DARPA (PA On-line Procurement Division), with about 180 employees, is in charge of implementing the RationalizationProgram on Public Spending for goods and services

11. Consip Task and structure - DARPA DARPA Legal Advice Staff (Program Mgmt, Monitoring, Innovative Projects, Research Unit) Puchasers Sourcing (Purchasing strategies) eProc Strategies (Marketplace management) eProc Systems (IT Platform management) “Marketing” Supplier side “Marketing” Purchaser side Universities Industry 1 Healthcare Admin. Industry 2 Local Authorities Central Administrations Industry n

12. E-Procurement tools www.acquistinretepa.it Electronic Shops On line Auctions e-Marketplace • Purchases within frame contract (through traditional tender or on-line auctions process) • Direct Purchase • Many to one approach • Purchase scope: • Large volumes • Standardized • Low price volatility • Slow obsolescence • Demand aggregation Development of Frame contract through electronic system ASP towards other Administration • Purchases below the Eu threshold • Direct Purchase or RFQ • Many to Many approach • Supplier defined eCatalog • Purchase Scope: • Low cost • Highly fragmented • Automatic Technical and economic offer evaluation • Purchase scope: • Specialized • High price volatility • Rapid obsolescence Above and Below EU Threshold Below EU Threshold

13. E-Procurement Portal On-line services Registration Public buyer registration Data & News Who we are, what we do, what you can buy, how you can buy, Newsletters, Magazines… Notices Tender publication, supplier qualification for Public Marketplace, .... On-line orders Opportunity to buy on line using frame contracts conditions Marketplace On line access to public Marketplace On line auctions On line access to public auctions Supplier Area Information on e-procurement models, correct way to participate to public tender, ... Specific Market Area Data and information on “Client market Area” (Central PA, Health bodies, Universities, Municipalities)

14. Electronic shops Operational model Portal www.acquistinretepa.it Frame Contracts (public tender) and e-shops activation Consip Suppliers Contracts reporting Needs Feedback Monitoring tools On-line/fax order Public Administrations Delivery Payments

15. Electronic shops Operational model E-shops represent an open window on the web in which goods and services selected through tenders and frame contracts are available to PA procurement offices registered to the Program Traditional and electronic tenders Product selection and online ordering

16. Frame contracts Process simplification From the traditional process for goods and services procurement …. Consip activities Goods/ Services delivery Payment Needs analysis Contract and tender documentation Supplier selection Possible litigation with suppliers Contract signing Fax / on-line Order …to the new process ... achieving reductions of transaction cost for both P.A. and suppliers…

17. Frame contracts and electronic catalogues Usage and break down by public sectors Source: Consip estimates

18. Customer satisfaction Customer satifaction Index (1-100) by sector Evaluation: 1= Very low 10= Very high

19. Innovative e-procurement toolsOn line auctions Advantages (vs traditional auctions) • Transparency : • Each step is recorded; • Clearness of procedures; • It is not possible to modify data recorded; • The procedure can be seen by hundreds of persons • Time reduction • Automation of awarding criteria evaluation, that can lead to choose to have no Awarding Commission • Closing steps (e.g.: notification to participants; signing of contract) can be performed on-line • Cost reduction • Facilitate participation • travel costs Disadvantages (vs traditional auctions) • Tenders can be contended on a minor number of parameters • IT equipment required

20. Innovative e-procurement toolsOn line auctions Possible Procurement auction formats: • Standard Sealed Bid or one Single Auctions: bidders submit a single secret bid; the person submitting the best bid wins the auction and pays what she bids (pay-as-you-bid) OR the person submitting the best bid wins the auction but pays only the second best bid (pay-as-the-second-best). • Descending Auction (English Auction): the price starts high and competing bidders cut the price until no-one is willing to bid any lower. • Multiple-Round Descending Auction: multiple round auctions are similar to descending ones; in multiple round the price does not decrease continuously but round by round with a predefined percentage. A multiple round auction is the discrete version of the descending auction. • Descending-Clock Auction (Japanese): the price decreases continuously in a predetermined period of time (e.g. 1 hour) in which players do not have to submit bids and they are considered to stay in the auction until they decide to exit. The prize is awarded to the last bidder remained in the auction. • Anglo-Dutch Auction: consists in adding a final sealed-bid round (e.g. only for the two best bids) to a descending auction.

21. Innovative e-procurement toolsOn line auctions Auction rules Time Bids

22. Innovative e-procurement toolsOn line auctions Base Price: € 199,000 Awarding Price: € 116,000 Saving: € 83,000 % cost reduction: 42% N° of competing vendors: 8 200 Last 10 min. Best bid at 147,500 Euro (-25.8%) 190 180 Extension time starts Best bid at 137,000 Euro (-31%) 170 160 € M 150 Tender awarded Winning bid at 116,000 Euro (-42%) 140 130 120 8 vendors 7 vendors 6-5-4 vendors 3 vendors 2 vendors 110 0 10 20 30 40 50 60 70 80 90 100 110 120 Minutes

23. Innovative e-procurement toolsPublic Administrations’ Marketplace • The Marketplace is a virtual market in which any P.A. can select goods and services offered by several suppliers, for purchases below EU threshold • The Marketplace is open to qualified suppliers (and goods) according to non restrictive selection criteria • The entire process is digital, using digital signature in order to ensure legal compliance and overall trasparency of process Qualification notice (public announcement) Buying administrations Suppliers Qualified suppliers selected through a qualification process, starting from the date of publication of the “qualification notice” Public Administration Marketplace • Central Government • Universities • Local Government • Health bodies Market

24. Public user Supplier Direct purchase Request for Quotation Marketplace: buying options • Public users may buy in 2 different ways: • making a direct purchase selecting goods and services from the catalogue • negotiating the product quality and service levels with qualified suppliers (Request for Quotation), handling on-line the entire purchasing process and digitally signing the order

25. Innovative e-procurement tools Public Administrations’ Marketplace Item name technical specifications (standardized catalogue) Supplier’s name Price

26. Public Administrations’ Marketplace:A snapshot (March ‘05) Product categories Number of Items: > 125.000 • Available • Electric material • Office equipment • IT (SW/HW) • IT aid for disabled (HW/SW) • Individual protection devices • Small laboratory equipment • Products and accessories for venous and arterial catheter • Stationery and printing supplies • Office furnishings • Air Conditioning supplies • Surgical instruments • Phone products and accessories • Facility Mgmt Services Registered Users: >2.200 Active Users: 700 Performed Transactions (Jan 2004 – March 2005): 5000 (12 Mio Euro) Registered Suppliers: 450

27. Public Administrations’ Marketplace - Major advantages To Public Administrations: • costs and length of process reduction • potential broadening of suppliers base • easy access to selected goods (pre-defined quality standards) • information transparency and ease of comparison among goods • purchases logging and subsequent expenditure monitoring To Suppliers: • higher visibility and broadening of potential customers base • selling cost reduction (due to lower intermediation cost) • possibility to exploit competitive advantages in local markets (for small and medium sized enterprises) • B2G introduction, especially for large sized enterprises, in addition to existing B2B and B2C