Friday, 25 October 2013

DIALOGUE INSTEAD OF PROCUREMENT - POLISH MILITARY END OF 2013

 


Guest Editorial: Dr Agnieszka Gogolewska, Senior Lecturer, Private University of Management and IT EWSIE, Warsaw
Roughly, since 2010, most sectorial reports described Poland as a country of stable military budget and rapidly growing opportunities for defence companies around the world. No doubt, there were grounds for that overriding optimism: Polish military enjoyed a fixed budget allocation of 1.95% of national GDP and reached the record value of 31 bn PLN in 2013, almost 7% up compared to the previous year. Moreover, the funds earmarked for capital expenditure originally constituted 26.2% of the overall Ministry of National Defence (MoND) budget for 2013, also the highest value ever. In addition to all the good news, the Minister of National Defence announced a 10- year modernisation plan worth 140 bn zlotys that comprised: creation of a new missile defence system, building of new navy vessels, acquisition of upgraded tanks, training aircraft, 70 helicopters, UAVs and equipment for troops. The prospect of a shopping spree in the Polish military guaranteed to draw attention of many military contractors around the world; and, indeed, many of them started to watch the Polish defence market very carefully in the hope that the MoND would soon start to announce tender after tender.

The forecasts at the beginning of the 2013 eventually proved too optimistic. The sluggish economic performance of the first half of the year forced the government's hand and in September 2013 Polish state budget had to be amended in order to curb the growing deficit. Not surprisingly, the military was the biggest victim of budgetary cuts. The Polish MoND lost almost 3 bn zlotys and was compelled to downsize capital investment plans drastically for this year. In order to make the cuts possible, the much-celebrated rule of 1.95% of national GDP earmarked for the military spending was suspended (supposedly for the current year only) while the overall procurement budget fell back to the level of the previous year. The government declares that the difference between what the military receives this year and what it should have received under the suspended law will be reimbursed in the subsequent years, but nobody is that naïve to believe such promises. The government also says that not a single important modernisation project will be affected by the cuts; but, so far, practically all the acquisitions have been stalled and only necessary repairs and current maintenance is financed according to the budgetary spending plans.

Yet, despite the severe cuts and downscaling of military investment plans, a lot is happening in the defence procurement in Poland. This is thanks to the latest amendment in the Law on Public Procurement (PPL) of February 2013 that provided the MoND with the new instrument of market research and analysis dubbed “Technical Dialogue”. Before February 2013, the law did not explicitly prohibit consultations with the contractors; however, the extremely restrictive Code of Ethics for military and civilian personnel of 2011 was in fact highly prohibitive to any direct contacts between the MoND representatives and the defence industry. This has changed with the introduction of Article 31a of PPL, which provides that economic operators may conduct Technical Dialogue before commencing any contract award procedure. The aim of Technical Dialogue may be to seek advice or information necessary to prepare the description of the subject-matter of contract, specification of essential terms of contract SIWZ, or specification of conditions of contract.

Very seldom is a new legal instrument so quickly and whole-heartedly embraced as has been the Technical Dialogue. Eight months into practicing public procurement in Poland under new rules compliant with the European Defence Directive, and one may search in vain for any acquisition procedure that would be launched without prior market research and analysis. The introduction of the Technical Dialogue has undeniably transformed the defence market in Poland and contributed to its professionalization. At long last, the specialists from the Armaments Inspectorate may openly engage in consultations with defence industry specialists regarding available products and solutions, their technical specifications, performance data and price; all this, without being exposed to possible accusations of preferential treatment or corruption charges. While until recently the military were limited to collecting random information on available equipment coming from industry leaflets and exhibitions in the process of preparing detailed technical specifications in a tender, risking the forming of technically unobtainable conception, nowadays they can invite all interested parties and discuss every aspect of the desired solutions at length, free of disciplinary risk and free of charge.  Perhaps most importantly, it is possible to conduct Technical Dialogues without initiating any procurement procedures, or even guaranteeing its commencement in the future.

Technical Dialogue has indisputable advantages in achieving transparency and precision of the defence procurement processes; however it is not  necessarily the most desired option for the military contractors.  The mechanism was introduced in Poland without any prior pilot practice, or legal framework limiting its possible scope and field, or at least a minimal guidance from the Public Procurement Office. As a result, the military have set their own ground rules for the process and now anything goes as “Technical Dialogue.” Since February, when “TD” became legal practice, the Armaments Inspectorate announced well over 20 Technical Dialogues and NOT A SINGLE TENDER PROCEDURE. Within the framework of 'Technical Dialogue' detailed legal and economic aspects are discussed at similar level of expertise as are purely technical issues.

Consequently, prospective military contractor engage similar resources into a dialogue with the Inspectorate as they would have normally engaged into preparing the offer, but without as much as a promise of prospective invitation to a tender. Yet, not participating is a hard choice to make as nobody knows what procedure the military would adopt after the completions of the dialogue and if those missing out on the dialogue would not miss out on invitation to a tender, either. There is also an additional source of discomfort for the defence industry, and that is the issue of copyrights to materials submitted by contractors during Technical Dialogue —and, thus, concerns about providing materials at all.

In brief, there is no going back to the “pre-dialogue” realities of defence procurement. Being an easily accessible, free-of-charge source of market information to the public administration, it is likely to become an accepted standard and expand to institutions other than the military, though maybe not to such a degree. Once the procurement funds are again available to the Polish military and tender procedures opened, thanks to preceding conduct of “Dialogues,” technical specifications should be deliverable and procurement budgets realistic. Conduct of Technical Dialogues will also favour big defence companies or consortia over small contractors, as only the big ones have resources to engage in Dialogue and answer increasingly complex questions from the military.

Military contractors around the world should hope that the Public Procurement Office in Poland will establish some ground rules or issue guidelines for the pre-tender consultation processes and bring about a better balance between the awarding entity and economic operators wanting to make business in Poland. Before this happens, however, brace yourselves - with the budget cuts and unsure military funds for the following year we are sure to see more Technical Dialogues coming soon. As for the actual tenders, maybe Santa will come early this year...

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