The OECD issues note on competition and emergency procurement during COVID-19

Health concerns, confinement measures and border closures adopted in the wake of the Covid-19 crisis have caused severe disruption in the supply and distribution chain of goods, works and services that the public sector needs. At the same time, public buyers around the world need some goods urgently and at dramatically increased volumes. In particular, the demand for health care material (face masks, protective gloves, ventilators, beds, medicines, intensive care material, Covid-19 tests, lab supplies and hospital infrastructure) has massively surged in the last weeks.

The consequence is that, in many cases, a public buyer may find that there is only one supplier able to deliver the material it requires. In the best of cases, there may be a limited pool of suppliers with delivery capacity, but no time for the buyer to run a competitive procurement process due to the urgency of the needs to be covered. In these cases, buyers may need to directly negotiate and buy from supplier(s) that have capacity (hence “direct awards”).

Limiting the use and decreasing the risks of direct awards

Whilst direct awards are normally strongly discouraged by procurement rules across OECD members, they may be considered necessary in cases of emergency and force majeure. In normal circumstances, public procurement bodies should opt for competitive tendering, which enables them to obtain the most adequate goods, services and works at the optimal price versus quality ratio (i.e., value for money). For example, the OECD estimated that competitive tenders by the Mexican Institute of Social Security (Instituto Mexicano del Seguro Social, IMSS) resulted in a price 11.2% to 11.9% lower than the price achieved through direct awards or tenders restricted to few suppliers. [1]

The Covid-19 pandemic is such a major global public health emergency that when certain conditions are met it may justify direct awards. Procurements to address potential future needs or cover needs not related to, or affected by, the pandemic do not justify a direct award, unless there is, in each case, a demonstrable justification linked to emergency reasons.

There are genuine reasons to procure specific goods, services and works through direct awards when the following conditions are met:

  1. A number of potential suppliers exist, but time constraints mean that traditional competitive tenders or fast-track simplified competitive procedures cannot be run.
  2. Alternatively, there is only one supplier that has capacity to deliver.
  3. Direct awards should aim to address current urgent needs that were not foreseeable before the crisis, i.e. procure indispensable material that needs to be used immediately, or replace an urgently needed existing supply source that has ceased to deliver, as a result of pandemic-related disruption. To assess the immediacy, types and volumes of such urgent needs, procurers should be in continuous communication with the units that will use the procured material, e.g. hospitals.
  4. Existing public contract arrangements cannot be renewed, extended or otherwise used, for any reason, which may include the fact that the contractor does not have the capacity to deliver additional volumes. These arrangements are likely to have been agreed on terms that meet usual procurement and competition standards and should be preferred, if the contractor has capacity to deliver and agrees to do so.

Renewal or extension of existing contracts should be limited in time and scope to what is strictly necessary to respond to the emergency situation.

Footnotes

[1OECD (2018) Fighting Bid Rigging in IMSS Procurement: Impact of OECD Recommendations, https://oe.cd/imss18.

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Author

  • OECD - Competition Division (Paris)

Quotation

OECD, The OECD issues note on competition and emergency procurement during COVID-19, 26 May 2020, e-Competitions June 2020, Art. N° 95265

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