Public Procurement and Good Governance for Improved Competitiveness

The Final Report provides an account of the progress made in all three result areas on all levels, including the outcome and impact level. This was a complex project, involving a number of parallel processes that were complementary to the broader EU integration accession agenda, particularly in relation to the level of preparedness for membership in the EU with regards to Chapter 5 (Public Procurement) of the EU acquis. The project has combined active engagement of a number of stakeholders across all sectors in public-private dialogue and concrete action structured around three main pillars of activity: 1) more effective public procurement (including increased use of green and social criteria and increased trust in public procurement through better enforcement and monitoring), 2) improved governance (transparency, efficiency and quality of policy design and implementation) and 3) supporting partnerships and strengthening of public-private dialogue mechanisms. To achieve its objectives, the project has worked in parallel in several policy areas and cooperated with a variety of stakeholders from all sectors: national authorities in charge of implementation, control and enforcement of public procurement legislation (including the judiciary and prosecution), a wide range of procuring bodies (including on local level), representatives of bidders and their associations, civil society, media and academia. Coordination and ownership have been addressed through frequent opportunities for dialogue and participation. On the level of impact, the following results have been listed: 1. Improved share of SMEs in total number and awarded contracts According to the Public Procurement Office (PPO) report for 2023, SMEs have been awarded 266,908 public procurement contracts, which represents 79% of the total number of awarded contracts. The baseline in 2021 was 84% and the project target was 90%. The total number of awarded contracts has increased from 182,998 (2021) to 336,116 (2023), as well as the number of contracts awarded to SMEs (from 153,796 (2021) to 266,908 (2023)). However, the share of contracts awarded to SMEs has dropped from 84% in 2021 to 76% in 2022 and then risen to 79% in 2023. This is still far from the target. However, the target was set ambitiously and the results are a reflection of the fact that the new Law on Public Procurement had entered into force only in mid 2020 and even more importantly, the method of preparing and submitting bids in public procurement procedures that had been changed at that time affecting the statistics. Firstly, the percentage of contracts below the threshold that are not covered by the procedural requirements of the Law on Public Procurement has significantly increased in comparison with the previous Law on Public Procurement (the thresholds for goods and services had been doubled, and tripled for works). This has caused a higher number of procurements conducted without applying the Law. Procurement contracts below the thresholds to which the Law on Public Procurement did not apply and that were often awarded to SMEs due to the lack of interest of large companies to bid for contracts of lower value, are not captured in the statistics presented. Finally, the data for 2021 vs 2022/2023 are not comparable since the contracts falling within the value range above the thresholds requiring a competitive procedure by the Law are included in the data for 2021 but not in the data for 2022 and 2023. Additional reasons for lower than expected participation of SMEs in the overall share of contracts include: 1) the mandatory electronic preparation and submission of bids introduced by the Law, for which larger companies were better prepared, and 2) the global crises (the Covid-19 pandemic and the war in Ukraine), which have affected all sectors of the economy and caused market disturbancies that have disproportionately affected the smaller companies, making them more cautious towards assuming long-term obligations and additional risks. When it comes to the perspectives of achieving the targets, NALED argues that the initial drop and then rise in the share of SMEs in public procurement contract award between 2022 and 2023 (76% to 79%), shows that the market had stabilized after the Covid shock and as the Law on Public Procurement entered the second year of implementation. Improvement of the SMEs' capacity to compete according to the provisions of the new Law and the functionalities of the e-Portal, can be attributed to project activities, due to more than 30 trainings that have been held for bidders (e.g. on how to prepare tender documentation, e-Portal functionalities, use of Most Economically Advantageous (MEAT)/Quality to Price criteria, etc.) and upgrades made to the e-learning platform with a special module for bidders. In order to continue with this positive trend, further strengthening of the capacity of the SME sector to compete in public procurement is needed, especially with regard to the changes and new policies introduced by the amendments to the Law in 2024 (mandatory use of green and quality criteria for certain items), as well as increased requirements for sustainable business policies, social standards, and innovative solutions. This is a lengthy process, predicated on the improvement of technical knowledge of contracting authorities and bidders, application of acquired knowledge and gaining confidence in the public procurement system. It also cannot be attributed to the project alone, as it depends on the overall system of public procurement, trust, conditions and interest of the SMEs in public procurement. 2. Increased percentage of public procurement procedures carried out according to MEAT criteria According to the PPO report, in 2023, price to quality ratio was 95.54% to 4.46%. This is a slight improvement in comparison to 2022, when this ratio was 96% to 4%. The total volume of procurement contracts in 2023 has exceeded the one in 2022 (10.5% to 9.34% of GDP), which underpins the the positive score in 2023. However, the percentage of procedures where price is the dominant criterion is still far from optimal. The goal set by the project was to have 10% of procedures conducted in accordance with MEAT criteria in 2024. The percentage of using MEAT criteria in public procurement in Serbia is only satisfactory (23%) in the field of healthcare. During the implementation, NALED has conducted three annual surveys on public procurement with the contracting authorities, bidders, and the general population during 2021, 2022 and 2023. One of the questions was why the quality criterion is used less in the criteria for awarding contracts. The research results highlighted three key reasons why the contracting authorities give priority to the lowest price: 1) there are no models (examples) on the basis of which it is possible to determine the criteria, 2) procurement procedures based on quality instead of price are perceived as more risky and 3) public procurement officials are not sufficiently trained to carry out public procurements procedures based on criteria other than price. These results indicated the need to take measures at all levels to improve the situation in the field of applying quality criteria for awarding contracts. The project has addressed this issue by providing a vital contribution to the adoption of amendments to the Law on Procurement introducing mandatory quality criteria for certain categories of services (computer program development, architectural services, engineering services, translation and advisory services). NALED has also developed practical guides for the application of criteria for awarding contracts and models of tender documents for certain procurement items with quality criteria, and provided training and mentoring support to contracting authorities and bidders. All this material has also been made available on their e-larning platform. In their analysis of the failure to meet this particular target, NALED argues that the introduction of the obligatory use of the e-Portal with the 2020 Law on Public Procurement has triggered a slow period of adaptation of the contracting parties to the new legal solutions and the new functionalities of the e-Portal. The development of new capacities was a lengthy process during which it was easier to fall back on established and well-known formulas for awarding contracts based only on price. On the other hand, time was also needed for the systematic promotion of the importance of quality criteria and the improvement of legislative solutions, to which project has largely contributed. NALED expects that progress in terms of higher application of the MEAT criteria would be visible already in 2024, following the obligations introduced by the amendments to the Law, and that the goal of 10% would be consequently achieved this year. However, contracting authorities will need assistance in order to internalize the perception of the importance and effectiveness introduced by using the quality criteria. 3. Increased availability and use of e-Government services for businesses and citizens Several new e-Government services have been introduced for citizens and businesses: Open Balkan (alloting citizens and businesses Open Balkan identification numbers, allowing them access to numerous electronic services and labour market of North Macedonia and Albania), Welcome to Serbia (enabling foreigners who come to Serbia to obtain a visa and temporary residence permit more easily and quickly), Electronic People's Initiative (enabling the submission of initiatives electronically), e-Citizenship (allowing obtaining certificates of citizenship electronically and without paying taxes), e-Certificates (allowing obtaining birth, death and marriage certificates), e-Consent, and e-Talents (allowing students to apply for scholarships electronically). There is no data about the use of these services, because the providers are different. The owner of the service can only provide the current number of users, but not how many there were at any given time, or how much the numbers grew in the observed period. It is also not possible to distinguish whether they are used by legal entities or individuals, because businesses are also registered with the personal number of the legal representative. However, it is known that the number of users of electronic administration has increased considerably from 1.1 million users in the beginning of the project to as many as 2.2 million users. These new users are from the ranks of both, citizens and businesses. 4. Availability of concrete elaborated and comprehensively justified recommendations for overcoming property-related issues that affect the competitiveness of the domestic economy Eight recommendations have been formulated and presented to relevant stakeholders and decision-makers and some of them were adopted, such as the amendments to the Law on Public Procurement. 5. Improved quality of Public-Private Dialogue (PPD) According to an opinion poll conducted by NALED, 47% of private sector representatives believe that the opportunities for private sector to participate through PPD in the legislative process have improved in the last 12 months. According to the indicators of the Regulatory Index of Serbia, this result is due to the fact that during 2023, public discussions and consultations were conducted for the vast majority of laws. Specifically, in 2023, public discussions were held for 83% of the laws, each lasting a minimum of 20 days, as prescribed by law. An analysis of the reports from these public discussions shows that proposals received from the business sector were considered, and in the majority of cases, explanations were provided as to why these proposals were accepted or rejected. Additionally, the mentioned 47% of business owners represent an improvement of 17 percentage points compared to the first round of research conducted in 2023. This in itself is another indicator that the quality of PPD has improved. Finally, the project contributed to the adoption of the amendments to the Law on Public Procurement, which made green procurement mandatory for some procurement items. The by-law that will prescribe the goods, services and/or works for which the contracting authorities are obliged to apply green criteria is being prepared with project support based on comprehensive market research and analyses carried out in 2023. Under the new phase of support, NALED will continue to provide trainings and mentoring support to contracting authorities and bidders in 2024. On the level of outcome, the following results have been listed: 1) Average number of bidders per public procurement procedure - According to the PPO's report, the average number of bids in Serbia in 2023 was 2.4 - 2.7 for goods, 2.6 for works and 1.9 for services. In some areas, the number of bids was higher, but the average did not go beyond the baseline of 2.5 in 2021. This result indicates that it is necessary to continue to build the trust in the public procurement system and the capacity of contracting authorities and bidders. This indicator cannot be atrributed solely to the project. It rather is a reflection of how the entire public procurement system functions, including the trust, the conditions and the interest of the bidders to participate. 2) Increased percentage of procedures using MEAT criteria, green and social criteria - According to the PPO report, green criteria were applied in 1,592 procedures in 2023, which is an increase in comparison with the baseline of 650 in 2021. The adoption of the amendments to the Law on Public Procurement in October 2023 is the key result of the cooperation, as it has introduced mandatory use of green and quality criteria for some procurement items. A particular attention was dedicated to transparency and enforcement aspect of public procurement. In that regard, the project supported the work of the PPO, the Republic Commission for Protection of Rights in Public Procurement Procedures (the Republic Commission), Judicial Academy, and the Administrative Court. The PPO monitors the implementation of public procurement regulations, drafts laws and other regulations and prepares guidelines, manuals and other publications in the area of public procurement, certifies public procurement officers, keeps a register of public procurement officers and manages the Public Procurement e-Portal. NALED has supported the PPO to prepare the Plan for the Development of Public Procurement in the Republic of Serbia 2024-2028 and the accompanying action plan and the by-law on using the Portal for Public Procurement to facilitate the first registration and renewal of registration in the context of the amendments to the Law. They also received support in terms of practical guides for specific public procurement tools, such as dynamic purchasing system and innovation public procurement. NALED organized seven webinars about the amendments to the Law, reaching 3,022 representatives of contracting authorities and bidders. Another six in-person events have been organized for an audience of 223 participants. The Republic Commission is an independent institution with a mandate to decide on requests regarding the protection of rights, appeals on procuring entities' conclusions and appeals on conclusions made by the PPO and initiate minor offence procedures and first instance proceedings for the offences prescribed by the Law on Public Procurement. They received trainings to strengthen their managerial and communications skills. They also received security upgrade of their software for better protection of sensitive data and the opportunity to participate in the meeting of first instance public procurement review bodies organized by the European Commission in Brussels. Judicial Academy has participated in the project to help identify the training needs of the judiciary in the field of the protection of rights in public procurement procedures. Trainings have been held for 76 judges and prosecutors from basic courts and prosecution offices and 46 judges and judges' assistants from commercial courts. An e-learning course was also prepared for judges and prosecutors and made available on the e-learning platform. The Administrative Court has participated in joint trainings for 242 judges and judges' assistants in basic concepts and rules of public procurement procedures. In relation to monitoring of contract execution, which is of paramount importance with regard to building of trust and overall transparency, the project organized a workshop for the representatives of the Budget Inspection and a study visit to Hungary to look into their system for exercising control over the execution of public procurement contracts. In relation to green public procurement, NALED conducted a Market Analysis together with the PPO and the Chamber of Commerce to look into the potential for introducing green criteria. The Analysis has identified 13 procurement items that can be procured with the mandatory application of green criteria without distorting the market. Based on the Analysis, NALED assisted the PPO and the Ministry of Environmental Protection in drafting the By-law on Green Public Procurement, followed by practical guides with technical specifications. Based on these, NALED provided training and mentoring support regarding the use of green criteria for 535 representatives of contracting authorities. A study visit to Sweden was organized for a group of representatives of Serbian institutions to look into the way green and social criteria are applied in Swedish procurement practice. In relation to social criteria in public procurement, NALED conducted an analysis, which identified three procurement items and developed practical guides with technical specifications for these items. Based on these, NALED provided training regarding the use of social criteria for 144 representatives of contracting authorities. 3) Increased number of local self-governments (LSGs) that provide e-services to citizens and businesses through e-Counters. This goal has been achieved, with the current 1386 e-Counters in Serbia, in 157 LSGs and 25 municipalities, including the counters of the local tax administration and the Postal Office of Serbia. This is a major improvement in comparison with the baseline of 130 e-Counters in 2021. 4) Recommendations for transparent and more effective resolving of property ownership issues issued. The Blueprint for the Comprehensive Real-Estate Reform has been drafted and presented at a session of the NALED's Alliance for Property and Investment co-hosted by the Embassy. Eight recommendations from the Blueprint have been accepted by relevant institutions. It is important to note that the consultative process around the Blueprint was inclusive, widely publicised and open for comments by interested stakeholders. 5) Percentage of businesses and civic stakeholders included in PPD. In a research conducted in 2024, 26% of private sector representatives reported having been involved in PPD through associations or directly. This is an increase in comparison with the 2019 baseline, which was 11%.

The overall objective is to contribute to improved competitiveness through better governance and more effective public procurement. The overall objective is expected to be reached by targeting the following specific objectives, structured as three project components/result areas: 1) To increase competition and improve quality of procured goods and services (public procurement); 2) To improve business environment for the growth of the SME sector and transparency, efficiency and quality of government services and 3) To improve the quality of dialogue and capacities of relevant stakeholders to meaningfully participate in inclusive dialogue.