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LEGISLATIVE FRAMEWORK FOR PUBLIC CONTRACTS

VIEWS: 24 PAGES: 87

									    PEER ASSISTANCE IN

   PUBLIC PROCUREMENT,
      CONCESSIONS AND
PUBLIC-PRIVATE PARTNERSHIPS

        MACEDONIA




          REPORT




             #




      10 OCTOBER 2011




                              1
EXECUTIVE SUMMARY:
   EXECUTIVE SUMMARY ............................................................................................................. 2
   1.1 Overall findings ......................................................................................................................... 5
 1.2 Main findings in the area of legislative framework ..................................................................... 6
 1.3 Main findings in the area of institutional set-up .......................................................................... 8
 1.4 Main findings in the area of operational practice ....................................................................... 10
 1.5 Main findings in the area of remedies ........................................................................................ 10
   2. INTRODUCTION..................................................................................................................... 12
 2.1. Background ............................................................................................................................... 12
 2.2. The peer team ............................................................................................................................ 12
 2.3. Acknowledgements ................................................................................................................... 12
 2.4. Objectives .................................................................................................................................. 13
 2.5. Methodology ............................................................................................................................. 13
   3. LEGISLATIVE FRAMEWORK FOR PUBLIC CONTRACTS ............................................. 14
 3.1 General structure ........................................................................................................................ 14
 3.2 Issues raised................................................................................................................................ 15
   3.2.1 Definitions ........................................................................................................................... 15
   3.2.2 Scope of the PPL (covered contracts).................................................................................. 15
   3.2.3 Types of contracts ................................................................................................................ 18
   3.2.4 Methods for calculating the contract value .......................................................................... 19
   3.2.5 Rules for preparing the tender documentation .................................................................... 19
   3.2.6 Procedures ........................................................................................................................... 19
   3.2.7 Special modalities for awarding public contracts ................................................................ 20
   3.2.8 Rules on publication ............................................................................................................ 21
   3.2.9 Time-limits .......................................................................................................................... 22
   3.2.10 Criteria for qualitative selection ........................................................................................ 24
   3.2.11 Contract award criteria ...................................................................................................... 24
   3.2.12 Definition of the activities included in the utilities sector and the related exclusions ...... 24
   3.2.13 Defence procurement ......................................................................................................... 25
 3.3 Recommendations ...................................................................................................................... 26
   3.3.1 Recommendations with regard to the legislative framework .............................................. 26
   3.3.2 Recommendations with regard to the provisions representing infringements of the EU
   Directives ...................................................................................................................................... 27
   3.3.3 Recommendations with regard to the provisions which are more restrictive than the EU
   Directives ...................................................................................................................................... 29
   3.3.4 Recommendations with regard to the provisions outside the scope of the EU Directives .. 31
   4. INSTITUTIONAL FRAMEWORK ......................................................................................... 33
 4.1. Main features ............................................................................................................................. 33
 4.2. Public Procurement Bureau (PPB) ............................................................................................ 33
   4.2.1. Functions of the PPB .......................................................................................................... 33
   4.2.2. Structure of the PPB ........................................................................................................... 34
   4.2.3. Activities of the PPB .......................................................................................................... 34
                                                                                                                                                     2
  4.2.4. Recommendations with regard to strengthening institutional capacity at the central level 35
4.3. State Appeals Commission: institutional set up ........................................................................ 38
  4.3.1. Operational overview ......................................................................................................... 38
  4.3.2. Administrative capacity ...................................................................................................... 39
  4.3.3. Premises and IT equipment ................................................................................................ 39
  4.3.4. Publication of SAC decisions ............................................................................................. 39
  4.3.5. Technical support ............................................................................................................... 39
  4.3.6. Conclusion .......................................................................................................................... 40
4.4. Ministry of Economy (MoE) ..................................................................................................... 40
4.5. State Audit Office (SAO) .......................................................................................................... 41
  4.5.1. Activities and findings of the SAO with regard to public procurement ............................. 41
  4.5.2. Conclusion on the SAO ...................................................................................................... 42
4.6. State Commission for the Prevention of Corruption (SCPC) ................................................... 42
  4.6.1. Integrity of procurement operations ................................................................................... 43
  4.6.2. Activities of the SCPC as regards public procurement ...................................................... 43
4.7. Strengths and weaknesses ......................................................................................................... 44
4.8. Recommendations ..................................................................................................................... 45
  5. CONCESSIONS AND PUBLIC-PRIVATE PARTNERSHIPS: LEGISLATIVE,
  INSTITUTIONAL AND PRACTICAL DEVELOPMENTS ....................................................... 46
5.1. Introduction ............................................................................................................................... 46
5.2 Understanding PPPs ................................................................................................................... 46
5.3 The EU legal framework for concessions/PPPs ......................................................................... 47
  5.3.1 Concessions ......................................................................................................................... 47
  5.3.2 Public-private-partnerships (PPPs) ...................................................................................... 47
  5.3.3 Further EU legal acts which concern concessions/PPPs ..................................................... 48
  5.3.4 Definition of concessions and PPPs in Macedonia and current legal position in regard of
  the peers’ experience .................................................................................................................... 48
  5.3.5 Further improvements to the legal framework .................................................................... 51
5.4 Strategy/policy of the government ............................................................................................. 52
5.5 Institutional framework for concessions/PPPs ........................................................................... 53
5.6 Institutional developments ......................................................................................................... 55
5.7 Availability and quality of information about the system .......................................................... 56
5.8 Capacity building requirements ................................................................................................. 56
5.9 Current activity in the area of concessions/PPPs and lessons learnt .......................................... 57
  5.9.1 Large-scale PPPs (BOTs) .................................................................................................... 57
  5.9.2 Contract-based concessions (which may also be considered PPPs) .................................... 58
  5.9.3 Concessions based on “goods of general interest” .............................................................. 59
5.10 List of recommendations .......................................................................................................... 59
  6. OPERATIONAL PRACTICE .................................................................................................. 62
6.1. Purpose and limitations ............................................................................................................. 62
6.2. Achieving the best value for money .......................................................................................... 62
  6.2.1. Introduction ........................................................................................................................ 62
  6.2.3. State of the play .................................................................................................................. 63
  6.2.4. Findings and discussion ...................................................................................................... 63
                                                                                                                                                  3
  6.2.5. Summary of recommendations ........................................................................................... 68
6.3. Selected standard tender documentation and guidelines ........................................................... 69
  6.3.1. Introduction ........................................................................................................................ 69
  6.3.2. Guideline for the procurement of drugs ............................................................................. 69
  6.3.3. Tender documentation on mobile telephony services ........................................................ 70
  6.3.4. Contract models .................................................................................................................. 72
  6.3.5. Summary of recommendations ........................................................................................... 72
6.4. E-Procurement ........................................................................................................................... 73
  6.4.1. Introduction ........................................................................................................................ 73
  6.4.2. E-Auctions .......................................................................................................................... 75
  6.4.3. E-Catalogues ....................................................................................................................... 76
  6.4.4. Dynamic Purchasing System .............................................................................................. 77
  6.4.5. Summary of recommendations ........................................................................................... 78
6.5. Other aspects of procurement .................................................................................................... 78
  7. REVIEW AND REMEDIES SYSTEM .................................................................................... 79
7.1. Legislative framework (EU and Macedonia) ............................................................................ 79
  7.1.1. Procedural law in the PPL .................................................................................................. 80
  7.1.2. Secondary legislation .......................................................................................................... 81
  7.1.3. Time limits for applying for review ................................................................................... 82
  7.1.4. Standstill period .................................................................................................................. 82
  7.1.5. Optional derogations from the standstill ............................................................................ 82
  7.1.6. Ineffectiveness .................................................................................................................... 83
7.2. Facts and figures (Statistics) ..................................................................................................... 83
7.3. Analysis of selected procurement decisions (SAC case-law) ................................................... 84
7.4. Strengths and weaknesses ......................................................................................................... 85
  7.4.1. Public procurement environment and culture ..................................................................... 85
  7.4.2. Confidence in the review system (perception issue) .......................................................... 85
  7.4.3. Conclusion .......................................................................................................................... 86
7.5. Recommendations ..................................................................................................................... 86
  7.5.1. Publication of the decisions of the SAC ............................................................................. 86
  7.5.2. Capacity building: sufficient funds and training for the SAC ............................................ 87




                                                                                                                                               4
    1.1 Overall findings

The public procurement system in the Former Yugoslav Republic of Macedonia (fyroM, hereafter
Macedonia) has been developing steadily and earnestly for several years as regards public contracts,
whereas as regards concessions and public-private partnerships (PPPs), in terms of regulatory and
practical developments and to begin with, policy making.

Since the amendment passed in 2008,1 there has been a strong determination to use the fully-fledged e-
auctions system for public contracts, with a target of 100% to be reached in 2012.Whether such an
objective is appropriate is however questionable. Most of the activity and energy of the Public
Procurement Bureau (PPB) has been focused on implementing this ambitious reform in all of its aspects,
from hardware to training. Meanwhile, other operational features of the system may have been relegated
to the back burner.

At the request of the PPB and the Ministry of Economy (MoE), a Sigma peer review was carried out
between February and April 2011. The peer team will suggest how the system should evolve and what the
priorities should be for policy makers in the short and long term.

This peer review report analyses all aspects of the public procurement system in Macedonia as regards
public contracts and concessions as well as PPPs. It starts with a legal analysis of the strengths and
weaknesses of the legislative framework for public contracts. The next section examines the institutional
framework with its main stakeholders in terms of policy making, review and control functions. In terms
of concessions and PPPs, all aspects regarding legislative development and prospects, institutional set up,
current operational activities and lessons learnt will be addressed in the same chapter. Operational
practice concerning public contracts is then analysed in its various dimensions with a particular focus on
e-procurement. Finally, the last chapter looks at the review and remedies system.

There has not been any major change to the legislative framework for awarding public contracts since
the enactment of the new public procurement law (PPL) in 2008, save the aforementioned progressive
conversion to an e-auction system. However, the concessions and PPP law (also from 2008) is in the
process of being replaced because it was not considered to be in line with the EU acquis nor with good
international practice. SIGMA has been consulted from the very beginning of the drafting process by the
MoE and has wholeheartedly contributed to preparing the new draft law on concessions and PPPs
(CPPPL). Several of our comments and recommendations have been accepted and incorporated into the
text of the proposal, whereas some others have been ignored.

The most remarkable institutional development probably concerns the State Appeal Commission
(SAC). According to EU law, an effective and efficient remedy protection is paramount for the overall
viability of a modern public procurement system such as the one developing in Macedonia. This should
be reached through a fair balance of rights and obligations of responsible stakeholders in the tendering
process, as opposed to other models where accountability is supposedly guaranteed through numerous ex
ante and ex post controls.

On the operational side, none of the problems reported to or diagnosed by the peers are different than
those experienced by contracting authorities and economic operators in EU Member States, except
perhaps the lack of procurement culture background which might explain a certain hesitation when
coping with situations that are not specified in the regulations and guidelines. There is thus a propensity
to consider anything that is not explicitly covered by the text as forbidden. In spite of the PPB’s
continuous efforts to develop an attractive training offer, the administrative capacity of contracting

1
 Law on amendments and modifications to the law on public procurement, Official Gazette of the Republic of
Macedonia” No. 130/08, art. 24.
                                                                                                         5
authorities, the professional ability of procurement officers to properly implement public procurement
procedures, and the capacity of economic operators to draft attractive and responsive tenders must still be
improved. The PPB is currently participating in a large-scale IPA technical assistance project supporting
public procurement training in the region. The project will include in-depth training of instructors and the
publication of a comprehensive Macedonian public procurement manual. These activities should
significantly improve the current weaknesses.
Finally, some observers as well as some representatives of the Macedonian business community perceive
the practice of public procurement as frequently unprofessional and prone to corruption and political
pressure. If not properly dealt with through effective prosecution, this will hamper the cost-effectiveness
of the public procurement system as well as its credibility as a cornerstone of the rule of law in
administrative practice. Moreover, considering the sensitivity of this topic in former accession processes,
this could turn into a hindrance for future negotiations for accession to the EU.

Consequently, there is room for improvement in the various aspects of the overall procurement system
and this report presents several recommendations. Most of them could be implemented without changing
the law or with minimal legislative intervention.

The key message of the Sigma peer review to Macedonian and EU decision makers is to focus on
improving the implementation of procurement procedures rather than focusing too much on purely
legalistic aspects. Whereas there is way forward for preparing accession to the EU and completing the
necessary alignment to the acquis, attention should be on how to cope with the current reality of public
procurement on the ground in order to make practical improvements which benefit all stakeholders
including taxpayers, now.

The peer review recommendations call for concrete, practical improvements to the system to make it
more oriented towards achieving good economic results (“value for money”), less bureaucratic, more
transparent and competitive, less burdensome for business and procurement officers, more resistant to
corruption and to reduce its cost.
We are convinced that these various challenges cannot be overcome solely through a one-fit-for-all
technological solution, namely e-auctions.


1.2 Main findings in the area of legislative framework

 The Macedonian PPL is highly aligned with the EU acquis as regards public contracts. It is well on its
 way of being fully compliant with the EU directives and future work to complete this is merely fine-
 tuning. Among the outstanding issues to be resolved are:
 - a few remaining conceptual differences,
 - an imprecise implementation of some of the provisions of the directives,
 - minor gaps in the implementation of some details of the directives.
 Through the analysis developed in this report, we try to distinguish three types of improvements to be
 considered:
- adjustments to the legal provisions that represent non-compliance to EU law (a few substantial ones
     can be resolved before accession while for technical reasons the others can only be fixed at the time of
     accession),
- adjustments to the legal provisions that do not represent potential infringements, but that do not fully
     “exploit” all of the incentives and facilities provided by the directives considered as a tool-box,
- adjustments to the legal provisions that regulate aspects which are outside the scope of the EU
     directives (procedures below the EU thresholds, tender and performance guarantees).

However, where a margin of appreciation does exist (“Member States may…”), the peers are not in
favour of a mechanical copy and paste of all facilities provided in the directives, which should only be
implemented if they have a real added value for a given national system at a given point of development,
while taking into account the legal culture of each country. That is why during our fact-finding missions

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we were also keen on obtaining the views of both the PPB (why they chose not to include certain
facilities in the law?) and of the contracting authorities/economic operators (what is their position
regarding the eventual introduction of the given provisions?). Although we were not able to define these
in every case, this report invites officials to consider these questions.

 The issues of non-compliance with EU directives detected are:
- several definitions,
- the technical specifications,
- the publication of notices,
- a lack of provisions obliging contracting authorities to accept other evidence of equivalent quality
    assurance measures and equivalent environmental management measures,
- the description of the transport services,
- an imprecise implementation of the special exclusion applicable to contracts for the supply of energy
    or for fuels for the production of energy,
- the method of calculating the average turnover of an affiliated undertaking.

 A general trend is that national provisions and practice are more restrictive than the EU ones:
- rules for entities that are not contracting authorities,
- there are not any flexible rules for awarding certain small lots which are part of a high-value contract,
- more restrictive regime for applying the negotiated procedure without publishing a contract notice,
- time limits (which are only minimum, and can be extended) sometimes seem to be too long,
    particularly in the case of utilities,
- reserved contracts,
- E-auction, dynamic purchasing system.

 As regards the target of using e-auctions 100%, the main risks that we foresee were extensively
 discussed:
- The whole procurement system will be “adjusted” exclusively for the purpose of achieving this
     challenging objective. E-auctions should simply be an alternative technique for awarding contracts.
- Lack of knowledge and/or equipment might generate reluctance from economic operators to take part
     in the (final phase of) procurement procedures. According to feedback from the market, it seems that
     this is already happening and e-auctions are likely to become a real obstacle, a barrier to free
     competition.

 Our main conclusions and recommendations are as follows:
- The transposition of EU directives in the national legislation has almost been completed. There are no
    serious reasons to accelerate this process. For the time being, the needed adjustments are not a priority
    and it is therefore not necessary to force the adoption of these amendments. Attention has to be
    gradually shifted to more practical aspects in order to ensure a smooth implementation of the existing
    legal provisions as well as to provide for legal certainty.
- The national legislation tends to be more restrictive than the EU directives which might sometimes
    affect the smooth running of the public procurement process. Close monitoring of the difficulties
    faced in practice by contracting authorities and a step by step approach should be developed with the
    purpose to ”relax” but, at the same time, to increase the efficiency of their work, taking full advantage
    from all the facilities provided by the EU directives.
- We strongly recommend a more cautious approach in order to ensure efficient implementation of the
    e-auction method as a special modality for awarding public contracts. By doing so, any unforeseen
    problems will be kept under control and resolving them will be possible without compromising the
    functioning of the entire process.
- E-auctions cannot be a goal in themselves; they are only useful tools which offer contracting
    authorities an alternative for obtaining value for money. Other options should not be quasi-eliminated
    by the obligation to award “100% of contracts using e-auctions”. This mandatory target should be
    removed from the PPL, which might encourage alternatively a large diffusion and/or progressive
    generalisation of e-procurement.


                                                                                                           7
As regards concessions, our main findings are that the current legal and policy frameworks are still
uncertain, hampered by weak institutional co-operation and capacity to develop projects.

In terms of policy principles, PPPs should not be a policy aim in itself; proposed projects should rather be
examined for their economic value in the same way as other public investment projects. Concessions and
PPPs are only in fact alternative means of implementing certain projects. Therefore, a parallel system of
project appraisal should not be developed, nor should a parallel system of procurement. Finally,
significant care should be taken to manage the fiscal risks inherent in most PPP and concession projects.

The draft CPPPL could represent an important improvement over the existing concessions and PPP
system in Macedonia provided that this framework law is systematically reflected in relevant sectoral
laws, properly completed by a whole set of secondary legislation and finally, that its implementation as
well as capacity-building at sub-national and regional levels are consistently supported and monitored,
which does not appear to be the case for the existing law. Under such conditions, its adoption would not
only be a significant step towards further gradual alignment with the relevant EU legislative framework,
but it would also provide public authorities with an appropriate tool for smarter (better leveraged) use of
public and private funding in order to meet the needs of infrastructure projects or of new policies such as
high-speed broadband, energy efficiency, new models for research development and innovation, etc.

 Our main recommendations are:
- A rapid and effective harmonisation with other national laws should be undertaken. The scale of this
    effort is significant and external assistance will likely be required.
- In light of the weaknesses in the primary legislation, further support should be given to the institution
    in charge of monitoring the implementation of the law (the Ministry of Economy in the draft law), in
    order to develop a robust set of regulations and guidance that can bolster the CPPPL.
- For complex projects, which is the case of many PPP projects, the concept of competitive dialogue
    might be further elaborated in the future. This might best be handled through (or in close co-
    ordination with) the PPB with supporting regulations. Support and training may be required to ensure
    comprehension and to prevent costly mistakes.
- For the cohesion of the overall procurement system, it is a good option to have the tendering
    procedures in the CPPPL defined through simple references to the appropriate clauses in the Public
    Procurement Law.
- No strategy document for PPP exists but the peer review team heard of plans to produce one. This
    should be encouraged and supported.
- Representatives of the line ministries as well as actual practitioners currently responsible for
    managing significant concessions or PPP projects should be informed of and closely associated to any
    legislative and policy development in the field, including by-laws.


1.3 Main findings in the area of institutional set-up

 As regards public contracts, activities and services of the PPB are clearly appreciated by contracting
 entities and economic operators. The main functions needed for such a body are well covered:
- regulatory function,
- advisory function,
- training function,
- monitoring function,
- operational function,
- international relationships function.

 Whereas in the past, legal aspects came first and training focused on basic knowledge, in the future,
 training should be oriented on solving problems encountered in practice:
- the overly formalistic approach in the conduct of procurement procedures,
- a tendency to set excessively demanding qualification criteria,

                                                                                                          8
-   too many cancelled procedures,
-   the rationale for the restricted procedure, negotiated procedure and competitive dialogue must be
    explained,
-   tender documentation is often not accurate enough, contains incomplete information and/or certain
    elements that affect the fairness of the competition,
-   means and methods for the non-pricing evaluation of the tenders are needed.

In terms of training staff and methods, practical training requires both practitioners and experts in
legislative drafting; it must respond to the specific needs of economic operators and contracting
authorities, with demonstration modules for special topics such as electronic auctions.

In terms of documentation, the development of a “new generation” of guidelines and manuals is needed,
focusing more on the practical elements than on the legal aspects. The co-operation between PPB and the
private sector for developing standard tender documentation in specific fields of activity is a good
initiative; whenever possible it should be followed by similar actions in other areas. However, the PPB
should be very careful of the degree of representativeness that their counterparts really have, so as to
avoid “tailoring” – even unintentional –the standard tender documentation in favor of a small group of
companies.

A large number of tasks are expected to be fulfilled in the next phase by the PPB. The PPB will need
sufficient resources for strengthening its capacity in order to cope with all of the future challenges.

The PPB requires continuing government support, especially in terms of human and financial resources,
as well as stability.

 As regards concessions and PPPs, the main issues are the following:
- In order to ensure the harmonious development of concessions and PPPs in Macedonia as well as for
    future accession negotiations, co-ordination between the relevant institutions would have to be
    significantly strengthened in a spirit of genuine co-operation.
- The staff of the State Appeals Commission’s (SAC) will require some awareness and training to
    prepare for their forthcoming responsibility for reviewing complaints concerning the award of PPPs
    and concessions.
- In order to increase its effectiveness, the role of the PPP Council should be described and made
    transparent.
- Information about the overall types and volume of concessions and PPPs is not co-ordinated and is
    very difficult to obtain. This is a clear weakness in the system and should be fully rectified.

In terms of capacity building for PPPs/concessions, our recommendations are:
1. Developing institutional capacity is a significant task which should include:
        • providing good quality staff who have a basic understanding of the subject matter and a
             background in law, economics or one of the major technical disciplines expected in
             PPPs/concessions,
        • creating an intensive training environment during the first few months of engagement,
        • engaging individual officials within the state’s main ministries and the larger entities of local
             government considered to be ‘lead officials’ on the subject,
        • training these lead officials in the subject matter,
        • providing trainers with good communication skills and who are capable of describing and
             teaching the subject matter to a wide range of public officials,
        • training the instructors.
2. To develop capacity in and improve the participation of the domestic private sector, regular
    awareness, training and policy seminars should be held by responsible officials and qualified experts
    in order to convey concepts, policies and procedures.

As regards the system of control, the new shift towards performance audits announced by the State Audit
Office (SAO) is promising. It is expected to be a more constructive approach, likely to enable contracting
                                                                                                         9
authorities to benchmark and monitor their own progress. The State Commission for Prevention of
Corruption (SCPC) is also active in the field of public procurement, although the credibility of the entire
fight against corruption could be hampered by the absence of public prosecution.

As for the institutional aspects of the system of remedies, the State Appeals Commission (SAC) has
made considerable progress towards a mature review authority, and the previous problems seem to be
resolved. It is now an independent review institution, with no undue backlog of cases, and is generally
perceived positively by stakeholders.


1.4 Main findings in the area of operational practice

As the Macedonian legal framework for public procurement only needs small amendments, apart from for
concessions and public-private partnerships, the focus of PPB and the Macedonian authorities should
gradually be turned to supporting the practical implementation of the procurement legislation.

Instead of developing new electronic tools, the peers recommend the PPB to concentrate on stabilising
the already existing e-auctions system. In addition to further training on the functioning of the system,
training is also necessary on how to use the system efficiently and notably how to increase value for
money by using the system.

Efficient use of the system not only means using the system in different circumstances but also how
contracting authorities need to change their existing processes in order to avoid additional administrative
burdens and costs related to administering public procurement procedures. For smaller contracting
authorities, we recommend the PPB to consider acting as a platform for co-operation and co-ordination:
PPB could put forward its key role in public procurement and develop administrative practices as a
whole, through their area of expertise: procurement as a discipline.

Preferably, no new technical solutions (DPS, e-catalogues) should be introduced through 2012. Focus
should be on stabilising the existing environment and further developing the already existing e-
procurement tools.

Additionally, the PPB could concentrate on improving capacity building in procurement and focus not
just on the legislation but on how to bring about value for money within the limitations of the legislation
as well.

Even though this may all seem daunting, the benefits of helping to establish a well-functioning market
economy should be worth the effort.


1.5 Main findings in the area of remedies

The main objective of the establishment of a public procurement complaints system is to enforce the
practical application of substantive public procurement legislation. Thus, violations of the PPL and
genuine mistakes of contracting authorities can be corrected. Review and remedies are a deterrent to
infringements of the PPL and encourage compliance and integrity of the procurement process. A well-
functioning procurement review and remedies system is in the interest of all stakeholders: enterprises,
contracting authorities as well as the general public.

The legislative framework and the institutional set-up of the procurement review and remedies system in
Macedonia as well as stakeholders’ perception of it have significantly improved since the last SIGMA
assessments in 2009 and 2010 (carried out in the context of the Progress Report). Currently, neither the
review system nor the State Appeals Commission (SAC) are a key legislative concern. Stakeholders’

                                                                                                        10
perception has improved but trust in institutions and government in general still remains low for some
stakeholders. The legislative framework is basically in line with EU requirements, although the Remedies
Directive 2007/66/EC has not been fully transposed. Priority should be given to the implementation of the
PPL to further stabilise the review system and to create legal certainty for procurement practitioners
before amendments to the existing PPL are made.




                                                                                                      11
2. INTRODUCTION

2.1. Background
In 2009, Sigma envisaged and offered to carry out a peer review of the Macedonian public procurement
system, including concessions in 2010. Following discussions with the PPB, the EU Delegation and DG
Internal Market and Services (Markt), it was, however, preferred to postpone the exercise. This initiative
was put forward again in a meeting on 12 January 2011 with the heads of PPB and of the Legal Service in
the MoE as well as on 24 January in a meeting with DG Enlargement and DG Markt. It was then fully
supported by all stakeholders.

The overarching focus was on analysing the performance and efficiency of procurement procedures as
applied in practice by Macedonian contracting authorities and economic operators. The review targeted
four key elements: legislative framework, institutional set-up, remedies and operational practice. The
legislation and practice in Macedonia were compared to the relevant EU legislation and good practice in
EU Member States.

The report identifies gaps in the legislation and describes the strengths and weaknesses of the system. It
provides several recommendations, based on EU law and practice, aimed at improving the quality of
procurement operations in Macedonia.

2.2. The peer team
The members of the peer review team were:
    Annemarie Mille, member of the Federal Procurement Review Body, Austria,
    Gelu Cazan, former Head of the Directorate of Politics and Regulation, National Authority for
    Regulating and Monitoring Public Procurement, Romania,
    Martin Darcy, former adviser on Public Private Partnerships, Procurement, and Public Expenditure
    Reform to various UK authorities,
    Timo Rantanen, Head of ICT Procurement in Hansel Ltd., the state central procurement body,
    Finland,
    Olivier Moreau, project leader with the assistance of Marian Lemke, SIGMA.


SIGMA staff supporting the review process were: Yves Allain, Daniel Ivarsson, Piotr-Nils Gorecki, and
project assistants Lillie Kee, Caroline Kempeneer, Maggie Redmond, Nicole Delecluse, Caroline
Peyramaure and Valerie Forges.

2.3. Acknowledgements
The peer review team wishes to express its sincere and deepest thanks to all of the stakeholders of this
project who actively supported us and contributed to the review process, for being so generous with their
time and providing us with open, professional and helpful information and discussions.

In particular, this report would not have been possible without the personal support of Mare Bogeva-
Micovska, Director of the Public Procurement Bureau; Maja Malahova, Chairman of the State Appeal
Commission; Snežana Petkovska, Head of the Legal Service in the Ministry of Economy; and Aleksandar
Argirovski, Deputy Head of Department in the PPB. The team also wishes to thank Gabriela Papes in the
PPB; officials and managers in ministries, other institutions and organisations; and especially the NGOs
and business representatives in Macedonia, who were wholeheartedly committed to achieving a fruitful
exchange with the peers during our various interviews.


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2.4. Objectives

The main objective of the Peer Review is to give assistance and guidance to the Macedonian authorities
on the practical implementation of the public procurement system. The focus of the Peer Review is on
concrete practical improvements of the system: to make it more oriented towards achieving good
economic results (value for money), less time-consuming, more open and competitive, less burdensome
for business and procurement officers, less prone to corruption and to reduce its costs.

The second objective is to comment on the overall legal framework for concessions and public-private
partnerships (hereafter PPPs) which is currently being reshuffled, and to help define priorities for public
procurement institutions over the medium to long term.

Overall, the peer review is expected to create a momentum for taking stock of recent developments of the
public procurement system and to help orient future efforts. Like in any other Western Balkans country,
legislative alignment to the acquis has until now been the priority, together with institutional set up,
whereas little is known about actual outcomes in daily procurement and the state of stakeholders’ real
capacity. Moreover, it might be time to re-focus on achieving efficient procurement and raise awareness
that complying with EU law is not the final objective, although it is the necessary track towards getting
better value for money for citizens.

Based on a comprehensive peer review, this report intends to provide strategic advice to Macedonian
authorities on the future development of the national public procurement system, as well as to EU
institutions on how to programme assistance in the area.

2.5. Methodology

The current review focused both on the procedures for awarding public contracts, as regulated by the
Public Procurement Law, as well as on awarding and managing concessions and public–private
partnerships.

Documents relevant to public procurement (laws and regulations, reports, analyses) were first circulated
to the team.

Two weeks of fact-finding missions to Skopje, Macedonia took place in February and March 2011. The
team met staff of several organisations and people representing all sides of the public procurement
system: policy makers and line ministries, public procurement central institutions, other relevant
regulatory agencies, contracting entities (various levels of government: state, utilities and municipalities),
state control and regulatory institutions, economic operators and business organisations and non-
governmental organisations (NGOs).
The report therefore mostly reflects the status quo as for early 2011.
The initial findings of the peer review team were discussed with the Public Procurement Bureau, the State
Appeal Commission and the Ministry of Economy between February and April 2011. A draft report was
presented to the PPA and the PRB at the end of April 2011. Comments and corrections submitted by
various institutions in the beginning of July have been included in the final version of this report.

Simultaneously, Sigma was assisting the MoE in drafting a new Concessions and PPPs Law (CPPPL).
Sigma provided feedback to the MoE on the successive versions of the draft, in particular those issued in
February and June 2011: a number of our comments were taken on board, whereas important suggestions
were not.

Finally, to get a full picture of Macedonian public procurement practices, another study prepared by
Sigma in 2009 on mechanisms to ensure integrity and fight corruption in public procurement is also
annexed.

                                                                                                           13
3. LEGISLATIVE FRAMEWORK FOR PUBLIC CONTRACTS

3.1 General structure

The first legislation on public procurement of the Former Yugoslav Republic of Macedonia dates from
1998, but a lot of progress has been made since then in developing the legal framework. The current
Public Procurement Law (PPL) (“Official Gazette of the Republic of Macedonia”, no.136/2007) was
adopted on 6 November 2007 and entered into force on 1 January 2008. It was punctually amended three
times: in October 2008 (Official Gazette, no. 130/08), in July 2010 (Official Gazette, no. 97/2010) and in
April 2011 (Official Gazette no 53/11).

The adoption of the above-mentioned law reflects the determination and the willingness of the
Macedonian authorities to meet EU requirements and international good practice; the PPL is generally
well structured, user-friendly and very close to full compliance with:
- Directive 2004/17/EC of the European Parliament and of the Council of 31 March 2004 co-ordinating
the procurement procedures of entities operating in the water, energy, transport and postal services sector;
- Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the co-
ordination of procedures for the award of public works contracts, public supply contracts and public
services contract.

The PPL implements the EC Directives in a co-ordinated fashion and regulates the procurement process
from planning procurement through the conclusion of contract. The PPL covers the classical and utilities
sectors and all types of procurement (works, supplies and services), except for concessions. The rules
concerning the utilities sector are provided in a separate chapter. The PPL also contains provisions for
remedies, the establishment and operation of the State Appeals Commission and the operation of the
Public Procurement Bureau. The legal provisions are distributed in 12 chapters, as follows:
Chapter 1: General Provisions
Chapter 2: Public Procurement Bureau
Chapter 3: Types of Public Contracts
Chapter 4: Common Provisions Applicable to Contract Award Procedures
Chapter 5: Types of Contract Award Procedures
Chapter 6: Special Modalities for Awarding Public Contracts
Chapter 7: Awarding the Public Contract
Chapter 8: Dossier of the Contract Award Procedure
Chapter 9: Utilities Contracts
Chapter 10: Review Procedures
Chapter 11: Audit
Chapter 12: Final and Transitional provision

In order to facilitate its implementation, a set of 15 pieces of secondary legislation has been issued on the
basis of the PPL. These by-laws contain inter alia: instructions on the manner of estimating the value of
public procurement contracts, the indicative list of contracting authorities, the list of services subject to
public services contracts, the list of construction activities subject to public works contracts, rules
regulating the content of various documents (annual plan for public procurement, notices, tender
documentation, minutes of the public session for opening tenders, outcome report), the methodology for
expressing contract award criteria into points, general rules on the manner of utilising the Electronic
System for Public Procurement.

In addition, a set of models for tender documentation and for public procurement contracts (some of them
prepared with the assistance of Sigma and external experts) have been prepared. The use of standard
tender and contract documents is not mandatory.


                                                                                                          14
The PPL follows the main structure and logic of the EC Directives. Furthermore, most of the provisions
of the law have the same or very similar wording as the provisions in the EU Directives. There are still
some issues to be resolved concerning a few conceptual differences, imprecise implementation of some of
the provisions of the Directives, and minor gaps in the implementation of some relevant details of the
Directives.

3.2 Issues raised

3.2.1 Definitions

Similar to the Directives, the PPL contains a general section with definitions. However, a few of the
provisions in this section are not entirely consistent with the rules laid down in the Directives.

1. The definition of public contract (PPL art. 3 item 1) seems to limit public contracts to the category of
“contracts of financial interest”, whilst the wording of the Directives is “contracts for pecuniary interest”.
The word “pecuniary” is more comprehensive because it covers not only cases where somebody pays
money for the delivery of goods/services/works but also cases where somebody pays with something
other than money (e.g. barter contracts).

2. The definition of special or exclusive right (PPL art. 3 item 26) does not include the final condition
provided in Art. 2 para 3 of DIR. 2004/17/EC: “and which substantially affects the ability of other entities
to carry out such activity”.

3. A possible inconsistency with DIR 2004/17/EC seems to be in art. 4 (1), letter d) of PPL where
dominant influence is not defined using the same wording as in the Directive. According to the Directive
a dominant influence may be exercised over a public undertaking in three different ways: by virtue of
ownership, financial participation or the rules which govern it. In addition, the Directive lays down that a
dominant influence shall be presumed in three specific cases when a contracting authority, directly or
indirectly, in relation to an undertaking:
- holds the majority of the undertaking’s subscribed capital, or
- controls the majority of the votes attached to shares issued by the undertaking, or
- can appoint more than half of the undertaking’s administrative, management or supervisory body.

The PPL seems to link the definition of the ownership with the three above-mentioned specific cases and,
at the same time, it seems that those three conditions became cumulative (…hold major equity share in
the company, have majority vote of shareholders and appoint more than half of the managing or
supervisory board members…). The last comment is regarding the appointment of the undertaking’s
administrative, management or supervisory body. According to the PPL, the contracting authority
appoints the board members, whilst the Directive says that the contracting authority can appoint the
members, which means that it is not necessary to appoint the members; it is sufficient enough to have the
power to appoint them.

3.2.2 Scope of the PPL (covered contracts)

The PPL covers all types of contracts – works, supplies and services – which have a value exclusive of
value-added tax (VAT) estimated to be greater than EUR 500.

The exemptions allowed by the PPL for contracting authorities are in line with EC rules.
It should be noted that the EC Directives only apply to contracts whose value exceeds a threshold laid
down expressly in each directive and that the purpose of the directives is not to harmonise all national
rules on public procurement but to “co-ordinate” the procedures to be followed by Member States when




                                                                                                           15
    awarding contracts exceeding the threshold values.2 The fact that the strict special procedures laid down
    in the directives are not considered to be appropriate in the case of low-value public contracts does not,
    however, mean that those contracts are excluded from the scope of Community law. The fundamental
    principles, i.e. equal treatment, non-discrimination, transparency; mutual recognition and proportionality,
    are also applicable for procurement below the EU threshold values and outside the scope of the EU
    Directives.

    In Macedonia as well as in all EU Member States, the award of public procurement contracts below the
    EU thresholds is of significant importance and represents a large share of total procurement. Therefore,
    the effective design of national procurement policies and rules for the award of these contracts is vital to
    achieving a sound and efficient public procurement system. There is also usually a need for simplifying
    the legislation for low-value contracts.

    The PPL contains different types of thresholds and rules which are more and more flexible as the value of
    the contracts decrease, as summarised in the tables below:

    Classical sector

Estimated contract value (Euro)                          Procedures which may Specific rules
supply/services      works                               be applied
> 500 000            > 4 000 001                         Open procedure                EC Rules
                                                         Restricted procedure
T1                         T1                            Competitive dialogue
                                                         Negotiated procedure
130 001 – 500 000          -                             Open procedure                EC Rules, except for the
                                                         Restricted procedure          obligation to publish the
T2                                                       Competitive dialogue          notices in the OJEU
                                                         Negotiated procedure
-                          2 000 001 – 4 000 000         Open procedure                EC Rules with reduced
                                                         Restricted procedure          time limits, but keeping
                           T2                            Competitive dialogue          the obligation to publish
                                                         Negotiated procedure          the notices in the OJEU
20 000 – 130 000           50 000 – 2 000 000            Open procedure                EC Rules, except for the
                                                         Restricted procedure          obligation to publish the
T3                         T3                            Competitive dialogue          notices in the OJEU and
                                                         Negotiated procedure          with reduced time limits
5 000 – 19 999             5 000 – 49 999                Simplified competitive        Simplified      rules,  but
                                                         procedure                     keeping the obligation to
T4                         T4                                                          publish the notices on the
                                                                                       website of the PP Bureau

    2
      The essential notion of co-ordination must be understood in the light of recitals 2 and 3 of Directive 2004/18/EC:
    “for public contracts above a certain value, it is advisable to draw up provisions of Community co-ordination of
    national procedures for the award of such contracts which are based on these principles so as to ensure the effects
    of them and to guarantee the opening-up of public procurement to competition. These co-ordinating provisions
    should, therefore, be interpreted in accordance with both the aforementioned rules and principles and other rules of
    the Treaty.”
    Such co-ordinating provisions should comply as far as possible with current procedures and practices in each of the
    Member States.”
    This means that the main features defined by the directives have to be customised with due consideration to the
    specific context and legal culture of the country where they are implemented, and not simply copied and pasted.




                                                                                                                     16
< 5 000                    < 5 000                  Simplified    competitive Very simple rules
T5                         T5                       procedure
< 500                                               -                            No specific rules
(on monthly basis)                                                               (it is not within the scope
T6                                                                               of the PPL)

    Utilities sector

Estimated contract value (Euro)                     Procedures which may Specific rules
supply/services      works                          be applied
> 500 000            > 4 000 000                    Open procedure               EC Rules
T1                   T1                             Restricted procedure
                                                    Negotiated procedure
200 001 – 500 000          -                        Open procedure         EC Rules, except for the
T2                                                  Restricted procedure   obligation to publish the
                                                    Negotiated procedure   notices in the OJEU
-                          2 000 001 – 4 000 000    Open procedure         EC Rules with reduced
                                                    Restricted procedure   time limits, but keeping
                           T2                       Negotiated procedure   the obligation to publish
                                                                           the notices in the OJEU
20 000 – 200 000           50 000 – 2 000 000       Open procedure         EC Rules, except for the
                                                    Restricted procedure   obligation to publish the
T3                         T3                       Negotiated procedure   notices in the OJEU and
                                                                           with reduced time limits
5 000 – 19 999             5 000 – 50 000           Simplified competitive Simplified      rules,  but
                                                    procedure              keeping the obligation to
T4                         T4                                              publish the notices on the
                                                                           website of the PP Bureau
< 5 000                    < 5 000                      Simplified              Very simple rules
T5                         T5                           competitive
                                                        procedure
      < 500                                             -                       No specific rules
      (on monthly basis)                                                        (it is not under the
      T6                                                                        scope of the PPL)

    It is important to mention that, according to EC Regulations 1177/2009, the current public procurement
    thresholds (from 1 January 2010) are the following:

Directive                       2004/17/EC                           2004/18/EC
                                2009/81/EC
Supplies and services
                                                                     € 125 000
                                € 387 000
                                                                     € 193 000

Works                           € 4 845 000                          € 4 845 000

    This means that at present, the thresholds provided in the PPL for supplies and services contracts (in the
    case of the public sector) are slightly higher than the EC thresholds. The EC thresholds will be changed
    again starting on 1 January 2012 (according to the rules provided in the WTO agreement on public
    procurement). This leads to the conclusion that it would probably be useful to introduce a specific
    mechanism within the PPL for more easily changing the thresholds in order to keep pace with biennial
    changes taking place at the European level. A solution could be to provide in the PPL the possibility for

                                                                                                           17
the Minister of Finance to change these thresholds without any other intervention in the primary
legislation. Thus, the process of keeping the thresholds aligned to the EC Regulations would be much
faster and smoother.

It is strange that the threshold for supply and services above which contracting authorities are bound to
publish notices in the OJEU is so high compared with the corresponding EC thresholds; on the other
hand, in the case of works, the threshold above which notices have to be published in the OJEU is much
lower compared with the corresponding EC threshold.

In article 5 of the PPL, we found a provision which lays down that the law shall be applied when other
entities award contracts which are directly financed or subsidised by more than 50% by a contracting
authority. This provision is intended to transpose Art. 8 of DIR 2004/18/EC but the national rule is more
restrictive. The Directive only applies to public works contracts and services contracts connected with a
work contract (supply contracts are not covered by this provision) and only if the estimated value,
excluding VAT, is equal to or greater than EUR 4 845 000 in the case of works and EUR 193 000 in the
case of services. The national provision may not be considered as an inconsistency with DIR 2004/18/EC
but, at the same time, it introduces a legislative obstacle that will unnecessarily hinder the implementation
of certain projects of entities that are not contracting authorities and, as a consequence, should not be
obliged to comply with all of the bureaucratic details of the law.

3.2.3 Types of contracts

The definitions of supply, service and works contracts are very similar to those provided in the
Directives. A slight difference can be noticed in the order in which the three types of contracts are
defined. More precisely, while in the Directives the order of the definitions is works, supplies, services, in
the PPL the order is supplies, services, works. It is important to note that the order in which the Directives
define the contracts is not accidental. Those three types of contracts are defined not only based on their
specific characteristics but also using the exclusion of one over another. For instance, public supply
contracts are public contracts “other than public works contracts” and services contracts are public
contracts “other than public works and supply contracts”. This approach is not used in the PPL.

The PPL provides for the distinction between the so-called “priority” services and “non-priority”
services, which are detailed in the secondary legislation. The rules for awarding contracts for “non-
priority” services are very flexible, with the contracting authorities being obliged to observe only the
rules referring to technical specifications and publication of an award notice.

It is important to mention that “non-priority” services contracts have to be awarded taking into
consideration the fundamental principles of public procurement, which includes inter alia non-
discrimination and equal treatment, transparency, proportionality and mutual recognition. The original
text of the PPL did not contain such a provision, but it seems that article 7 of the Law on amendments and
modifications to the PPL (no.130/2008) is particularly intended to cover this gap.

It seems that “non-priority” services are covered by the provisions of Chapter X – Review procedures,
although there are no cross-references in Art 17 para 2 or Art 200 para 1. However, a cross-reference to
the general principles of art. 2 was introduced in art. 17 para 2 through amendments in 2008. Moreover,
as the SAC is competent to resolve appeals in the contract award procedures prescribed in the PPL
according to Art 200 para 1 and as the award of “non-priority” services is regulated in a procurement
light regime in Art 17 para 2, the award of these “non-priority” services is also covered by Chapter X
within the limitations of Art 17 para 2. We do not see any inconsistency with DIR 2007/66/EC in so far as
we were told that the SAC follows this interpretation of the PPL and already reviewed the award of non-
priority service contracts. However, we would recommend explicitly mentioning Chapter X – Review
procedures in Art 17 para 2 as to Art 2, 33 to 36 and 55 in the next PPL amendment for the sake of
clarity. There are two bylaws, the Decree on the types of construction activities subject to public works
contracts (“Official Gazette of the Republic of Macedonia”, no.158/2007) and the Decree on services

                                                                                                           18
subject to public service contracts (“Official Gazette of the Republic of Macedonia”, no.157/2007), which
ensure the transposition of Annexes I, II A and II B of DIR 2004/18/EC and also Annexes XII, XVII A
and XVII B of DIR 2004/17/EC. Another decree has been approved by the government introducing the
Common Procurement Vocabulary – which is practically the translation into Macedonian of Commission
Regulation (EC) no. 213/2008 amending Regulation (EC) No 2195/2002 of the European Parliament and
of the Council on the Common Procurement Vocabulary (CPV) and Directives 2004/17/EC and
2004/18/EC of the European Parliament and of the Council on public procurement procedures, as regards
the revision of the CPV.

3.2.4 Methods for calculating the contract value

A dedicated piece of secondary legislation (“Rulebook on the Manner of Estimating the Value of Public
Contracts” – Official Gazette of the Republic of Macedonia, no.154/2007) regulates the methods for
calculating the estimated value of public contracts. The Rulebook contains provisions which in general
terms are similar to the rules in the Directives. However, an inconsistency appears in art. 3 of the
Rulebook regarding the moment at which the estimate of the contract value must be valid: the Directives
indicate the moment when the contract notice is sent for publication whilst the Rulebook establishes the
moment when the procuring decision is made. Even if the general behaviour of the contracting authorities
is to send the contract notice for publication only few days after the procuring decision is taken, it is
advisable to keep the same wording as in the Directives in order to avoid any potential misinterpretation.

The PPL rulebook does not contain provisions similar to those provided in Article 9 (5) (a) third
subparagraph and (b) third subparagraph of DIR 2004/18/EC and Article 17 (6) (a) third subparagraph
and (b) third subparagraph of DIR 2004/17/EC – application of procurement rules with regard to some
lots: i.e. lots valued at less than EUR 80 000 for supplies or services and less than EUR 1 000 000 for
works, provided that the aggregate value of such lots does not exceed 20% of the aggregate value of the
lots as a whole. Once again, in this case it is not an inconsistency issue, but the PPL does not take
advantage of all of the facilities established by the Directives which make the procurement process more
flexible. In practice, such provisions could be very useful for contracting authorities.

3.2.5 Rules for preparing the tender documentation

Chapter 4, Section 4 in the PPL contains detailed rules on the content of the tender documentation and on
how to define technical specifications. However, a gap appears in the provisions of article 33 of the PPL,
as it is not explicitly stated that technical specifications shall afford equal access for tenders without
creating unjustified obstacles to the opening up of public procurement to competition (see Article 23 (2)
of Dir 2004/18/EC). In the same context, another detail which is missing is the last part of Article 23 (1)
of Dir 2004/18/EC which lays down that technical specifications should whenever possible be defined so
as to take into account accessibility criteria for people with disabilities or design for all users.

3.2.6 Procedures

The PPL implements all procurement procedures provided for in the EU Directives:
- Open procedure,
- Restricted procedure,
- Competitive dialogue,
- Negotiated procedure with prior publication of a contract notice,
- Negotiated procedure without publication of a contract notice,
- Design contest.

In general terms, the text in the PPL is very similar to the Directives. The general rule is stated in article
21 (1) of the PPL, according to which the contracting authorities shall award public contracts by applying
open or restricted procedures. The other procedures may only be applied in specific circumstances
provided for by the PPL.
                                                                                                           19
There are a few gaps in the competitive dialogue provisions. In Article 29 (6) and (7) of DIR
2004/18/EC there are rules regarding the behaviour of the contracting authority during the evaluation
process of the final tenders. The PPL does not contain such provisions. Another gap appears in the
provision regarding the content of the invitation to participate in the dialogue and for submitting the final
tender, where an indication of the language to be used is missing. However, competitive dialogue has not
yet been used in Macedonia.

Conditions for application of a negotiated procedure with prior publication of a contract notice by
public sector contracting authorities are practically the same as those provided in DIR 2004/18/EC. A
small discrepancy appears in article 89 paragraph (1) indent 1 of the PPL where referring to services
within category 6 of Annex II A and intellectual services such as services involving the design of works,
is missing. As in the case of a competitive dialogue, the content of the invitation to participate in the
negotiations does not include an indication of the language to be used.

Conditions for the application of a negotiated procedure without publication of a contract notice are
narrower than those provided in the Directives.

Firstly, two of the circumstances provided both in Dir 2004/18/EC and Dir 2004/17/EC are not provided
at all in the PPL:
1. Supplies quoted and purchased on a commodity market (see Art. 31 (2) (c) of Dir 2004/18/EC and Art.
40 (3) (h) of Dir 2004/17/EC); and
2. New works or services consisting of the repetition of similar works or services, which may be awarded
to the original contractor provided that some specific conditions are observed (see Art. 31 (4) (b) of Dir
2004/18/EC and Art. 40 (3) (g) of Dir 2004/17/EC).

In two other circumstances, the conditions are more restrictive in the PPL than in the similar provisions of
the Directives:
- It is the case of additional delivery from the original supplier where the total value of such deliveries
must not exceed 30% of the amount of the original contract. Dir 2004/18/EC limits the additional
deliveries only in terms of the length of the contracts (3 years) but not in terms of their value. Dir
2004/17/EC does not contain any limitation, neither in terms of value nor in terms of duration.
- The same situation occurs in the case of additional works and services not included in the original
contract. Here there is a double restriction: in terms of the value of the additional contracts – 30% – and
in terms of the length of the additional contracts – 3 years. Neither of the two Directives provide for
restrictions in terms of duration. In terms of value, only Dir 2004/18/EC provides for a limitation, but is
more flexible – 50%.

A more restrictive regime for applying the negotiated procedure without publication of a contract notice
does not represent an inconsistency with the EC Directives, but may complicate, in practice, some of the
contracting authorities’ activities.

3.2.7 Special modalities for awarding public contracts

Chapter VI of the PPL is dedicated to the implementation of two of the new instruments regulated by the
EC Directives: framework agreements and electronic procurement. There are no provisions for the
implementation of the dynamic purchasing systems.

The provisions regulating framework agreements are basically the same as those provided in the
Directives. There is a minor difference as regards the maximum duration of a framework agreement,
which is only 3 years in the PPL unlike in the Directives which allows a maximum duration of 4 years.

The provisions regulating electronic auctions cover almost all of the provisions of the Directives.
However, there appear to be two gaps which should be corrected. The first can be found in article 124 of

                                                                                                          20
the PPL, which does not provide for the obligation to indicate in the tender documentation the relevant
information concerning the electronic equipment used in the arrangements and technical specifications
for connection (see Art. 54 (3) (f) of Dir 2004/18/EC). The second can be found in article 125 (3) of the
PPL. The wording is not as detailed as in Art 54 (5) second subparagraph of Dir 2004/18/EC which refers
to the mathematical formula to be used in the electronic auction. Our understanding is that standards for
e-documents and e-auctions systems are not especially needed in so far as the platform and electronic
facilities provided by the PPB are compulsory. It may be preferable nevertheless to make sure that such
an approach is shared by DG Markt’s services in terms of alignment to the acquis.

According to the amendments of the PPL, contracting authorities are obliged to use the electronic auction
in a proportion which shall gradually increase starting with 30% (2010) and ending with 100% (2012) of
the number of published contract notices for open procedures, restricted procedures, negotiated
procedures with prior publication of a contract notice, as well as simplified competitive procedures with
publication of a contract notice. Such a provision may be difficult to be applied in practice and it seems to
be quite a discrepancy between article 123 of the PPL and this requirement.

3.2.8 Rules on publication

The PPL contains clear obligations for contracting authorities to publish prior indicative notices, contract
notices and award notices or - as the case is - notices for cancelling awarding procedures. All forms are
prescribed in a by-law and the SIGMA peer review team was told that they have been designed as much
as possible to the EU one from TED (Tender Electronic Daily), in order to limit to a minimum any
modifications that will be necessary at the time of accession They are incorporated as web forms in the
ESPP. However, an evolution in par with the one of EU standard forms will have to be considered, EC
Regulation 1564/2005 being replaced by Regulation 842/2011.

All of these types of notices are published on the website of the Public Procurement Bureau (PPB). The
contract notice for tenders exceeding EUR 20 000 (supplies and services) or EUR 50 000 (works) must
also be published in the Official Gazette of the Republic of Macedonia. Both the PPB and Official Gazette
of the Republic of Macedonia have the obligation to ensure the publication of the notices within 5
working days of receiving them. In addition, if the estimated value of the public contract, excluding VAT,
exceeds EUR 500 000 for supplies and services, and EUR 2 000 000 for works, the contract notice shall
also be published in the Official Journal of the European Union or in a respective business publication or
technical or specialised magazine more broadly available to international experts.

The first question concerns whether it is still necessary to maintain the obligation to send contract notices
for publication in Official Gazette of the Republic of Macedonia, given that the publication on the PPB
website seems to provide full transparency for all interested parties.

As regards the publication of the notices in the Official Journal of the European Union, it has already
been mentioned that it is unclear why the threshold for supply and services above which the contracting
authorities are bound to publish the contract notices in the OJEU is so high compared with the
corresponding EC thresholds. At the same time, the threshold in the case of works is much lower
compared with the corresponding EC threshold.

A very important provision should be introduced when the notices are published both in the Official
Journal of the European Union and on the PPB website (and in the Official Gazette of the Republic of
Macedonia): notices published at the national level shall not contain information other than that contained
in the notices published in the Official Journal of the European Union. Furthermore – if it is possible at
this stage – notices should not be published at the national level before the date on which they are sent for
publication in the Official Journal of the European Union.

According to the provisions of Art 42 (1) of Dir 2004/17/EC, the call for competition may be made:
(a) by means of a periodic indicative notice; or

                                                                                                          21
  (b) by means of a notice on the existence of a qualification system; or
  (c) by means of a contract notice.
  According to the PPL, contracting authorities awarding utilities contracts may only use the contract notice
  as a call for competition.

  3.2.9 Time-limits

  The PPL lays down minimum time limits which are sometimes longer than those provided in the
  Directives. At the same time, the general rule for fixing time limits as laid down in Article 38 (1) of Dir
  2004/18/EC and in Article 45 (1) of Dir 2004/17/EC does not seem to be transposed into the national
  legislation.

  An inconsistency seems to appear in art. 75 (4) of the PPL where, in order to benefit from the possibility
  of reducing the time limit by 5 days, the tender documentation has to be published simultaneously when
  sending the invitation to tender. According to Art 38 (6) of Dir 2004/18/EC and Art 45 (6) of Dir
  2004/17/EC, the tender documentation has to be published from the date of publication of the notice.
  A comparison between the time limits provided by the PPL and the time limits provided by the Directives
  can be seen in the following tables:

  Open procedure (T1 and T2)

 Conditions                 PPL                        Dir 2004/18/EC           Dir 2004/17/EC
 “Standard”                 52 days                    52 days                  52 days
 Publication of the prior   36 days                    22 – 36 days             22 – 36 days
 information notice
 Notices are transmitted    No provisions              Supplementary            Supplementary
 to the OJEU by                                        reduction of 7 days      reduction of 7 days
 electronic means
 Unrestricted and full      Supplementary              Supplementary            Supplementary
 access by electronic       reduction of 5 days        reduction of 5 days      reduction of 5 days
 means      to    tender
 documentation

  Open procedure (T3)

Conditions                   PPL                        Dir 2004/18/EC           Dir 2004/17/EC
“Standard”                   26 days                    Not regulated            Not regulated
Unrestricted and full        Supplementary              Not regulated            Not regulated
access    by electronic      reduction of 5 days
means       to   tender
documentation

  Restricted procedure (T1 and T2)

Conditions             PPL                             Dir 2004/18/EC              Dir 2004/17/EC
                   Requests to Tenders             Requests to Tenders        Requests to Tenders
                   participate                     participate                participate
“Standard”         37 days     40 days             37 days       40 days      22 - 37 days Mutual
                                                                                             agreement
                                                                                             between the
                                                                                             contracting
                                                                                             authorities
                                                                                             and selected
                                                                                             candidates
                                                                                                          22
                                                                                            10 – 24 days
Publication of 37 days           36 days          37 days       22 –      36 22 - 37 days   Mutual
the         prior                                               days                        agreement
information                                                                                 between the
notice                                                                                      contracting
                                                                                            authorities
                                                                                            and selected
                                                                                            candidates
                                                                                            10 – 24 days
Notices       are No provisions                   Supplement -                Supplement    -
transmitted    to                                 ary                         ary
the OJEU by                                       reduction of                reduction of
electronic means                                  7 days                      7 days
Unrestricted and -              Supplemen         -            Supplemen      -            Supplementa
full access by                  tary                           tary                        ry
electronic means                reduction                      reduction                   reduction of
to         tender               of 5 days                      of 5 days                   5 days
documentation
Urgency           15 days       No                15 days       10 days       -             -
                                provisions

  Restricted procedure (T3)

Conditions        PPL                                 Dir 2004/18/EC              Dir 2004/17/EC
                  Requests to Tenders             Requests      to Tenders    Requests to Tenders
                  participate                     participate                 participate
“Standard”        16 days     22 days             Not regulated    Not        Not           Not
                                                                   regulate   regulated     regulated
                                                                   d
Unrestricted and -               Suppleme         Not regulated    Not        Not           Not
full access by                   ntary                             regulate   regulated     regulated
electronic means                 reduction                         d
to         tender                of 5 days
documentation

  Competitive dialogue (T1 and T2)

Conditions                     PPL                                   Dir 2004/18/EC
“Standard”                     37 days                               37 days
Notices are transmitted to the No provisions                         Supplementary reduction of 7 days
OJEU by electronic means

  Competitive dialogue (T3)

    Conditions                          PPL                               Dir 2004/18/EC
    “Standard”                          30 days                           Not regulated

  Negotiated procedure with publication of contract notice (T1 and T2)

Conditions                    PPL                   Dir 2004/18/EC                Dir 2004/17/EC
“Standard”                    37 days               37 days                       22 – 37 days
Publication of the prior      37 days               37 days                       22 – 36 days
information notice
Notices are transmitted to    No provisions         Supplementary reduction of Supplementary

                                                                                                         23
the OJEU by electronic                              7 days                            reduction of 7 days
means
Urgency                15 days                      15 days (or 10 days if the -
                                                    notice was sent by electronic
                                                    means)

  Negotiated procedure with publication of contract notice (T3)

Conditions                   PPL                         Dir 2004/18/EC                 Dir 2004/17/EC
“Standard”                   12 days                     Not regulated                  Not regulated

  Simplified competitive procedure with publication of contract notice (T4)

Conditions                   PPL                         Dir 2004/18/EC                 Dir 2004/17/EC
“Standard”                   14 days                     Not regulated                  Not regulated

  Simplified competitive procedure without publication of contract notice (T5)

Conditions                   PPL                         Dir 2004/18/EC                 Dir 2004/17/EC
“Standard”                   8 days                      Not regulated                  Not regulated


  3.2.10 Criteria for qualitative selection

  The PPL provides an exhaustive list of selection criteria which may be used for verifying the suitability
  and choice of participants in the tender procedure. Practically, the list contains; the same criteria as those
  provided in Art. 45 – 50 of Dir 2004/18/EC:
  - personal situation,
  - suitability to pursue the professional activity,
  - economic and financial standing,
  - technical or professional ability,
  - quality assurance standards, and
  - environmental management standards.

  A shortcoming which can be noticed in the last two criteria for qualitative selection is the fact that the
  PPL does not provide for the obligation of the contracting authority to accept other evidence of
  equivalent quality assurance measures and equivalent environmental management measures besides
  certificates that might be presented by the economic operators.

  3.2.11 Contract award criteria

  There are no discrepancies between the provisions in the PPL and the Directives. Both criteria – the
  “most economically advantageous tender” (MEAT) and the “lowest price” – are provided in the PPL
  without special restrictions. However, many problems are encountered in practice when contracting
  authorities apply the MEAT criteria.

  3.2.12 Definition of the activities included in the utilities sector and the related exclusions

  Chapter IX of the PPL regulates the special rules for awarding contracts in the utilities sector. As a
  general rule, the provisions provided for the classical (public) sector are “transferred” to the utilities
  sector unless otherwise stipulated in Chapter IX of the PPL (see art. 176 (2) of the PPL).



                                                                                                             24
As regards the activities included in the utilities sector and the related exclusions, it is obvious that the
text of the PPL has the same or very similar wording as the provisions of the Dir 2004/17/EC. However, a
few provisions do not seem to have exactly the same meaning as the Directive.

The first remark concerns article 185 of the PPL, where the description of the transport services seems to
be incomplete. For instance, is transport by cable covered by this provision? On the other hand, given the
fact that the definition of “network” is missing, how will the provisions of article 186 of the PPL be
applied? “The same conditions” should be linked to the conditions to operate a certain network, such as
routes to be served, the capacity to be made available or the frequency of the service.

In article 192 of the PPL we found an imprecise implementation of the provisions of Art 26 (b) of Dir
2004/17/EC. According to the Directive, a special exclusion is applicable to contracts for the supply of
energy or fuels for the production of energy, if awarded by contracting entities engaged in an activity
referred to in Article 3 (1), Article 3 (3) or Article 7 (a) of the Directive. It should be noted that Article 7
(a) only covers activities related to the exploitation of a geographical area for the purpose of exploring
for or extracting oil gas, coal or other solid fuels.

Article 192 of the PPL provides for a similar exclusion if such contracts are awarded by contracting
authorities engaged in an activity referred to in articles 182 and 188 of the PPL. Unfortunately, article 188
includes activities related to the exploitation of a geographical area not only for the purpose of exploring
for or extracting oil gas, coal or other solid fuels but also for the purpose of the “construction and
operation of airports or ports (river or lake ports) or other terminal facilities to carriers by air or
inland waterway.” In this case the exclusion is wider than in Art. 26 (b) of the Directive and represents
an inconsistency with Dir 2004/17/EC.

Articles 193 and 194 of the PPL are intended to transpose the exclusion provided in Art 23 of Dir
2004/17/EC. There is a slight discrepancy between paragraph (2) of article 192 of the PPL and paragraph
(3) of article 23 of the Directive. According to the Directive, the exclusion may be applied to:
- Services contracts provided that at least 80% of the average turnover of the affiliated undertaking
derives from the provision of such services…
- Supplies contracts provided that at least 80% of the average turnover of the affiliated undertaking
derives from the provision of such supplies…
- Works contracts provided that at least 80% of the average turnover of the affiliated undertaking
derives from the provision of such works…

In the PPL, the wording gives the impression that the exception may be applied in the case of, for
example, a services contract if at least 80% of the average turnover of the affiliated undertaking derives
from the provision of supplies, services or works (calculated together) to undertakings with which it is
affiliated. This seems to be an inconsistency with the provisions of the Directive.

On the other hand, the last two paragraphs of Art. 23 (3) of DIR 2004/17/EC are not transposed in the
PPL, which makes the exclusion provided in the PPL narrower - from this point of view - than that
provided in the Directive.

3.2.13 Defence procurement
Article 346 of the Treaty on the Functioning of the European Union (TFEU, formerly the Treaty
establishing the European Community), a derogation to EU rules when essential national security
interests are at stake, is reflected in article 116 (b) of the Stabilisation and Association Agreement,3 as



3
  „Nothing in this Agreement shall prevent a Party from taking any measures:(...) which relate to the production of,
or trade in, arms, munitions or war materials or to research, development or production indispensable for defence
purposes, provided that such measures do not impair the conditions of competition in respect of products not
intended for specifically military purposes“
                                                                                                                 25
well as in article 6 of the PPL.4 A government decision dated 12 February 2008 (Ministry of Defence,
document con. 13/1) determines what is considered procurement in the defence sector. The process of
procurement in the MoD is regulated through an internal procedure signed by the Minister of Defence
(doc. 02-4109/1 dated 20.10.2009); a 2004 law for the production and trade of military items submits
them to a certificate issued by the Ministry of Economy (for trade) and the government of the Republic
Macedonia (for production). Companies participating in defence tenders must also be security certified by
the Agency for Security of Classified Information with at least the rating of “confidential”. The
procurement process is the same as for open tenders, the only difference is that it is not publicly
announced; companies which fulfil the above stated conditions are invited to pick up the tender
documentation from the MoD and submit their offer. Two commissions are in charge of evaluating the
bids and proposing which is the best offer.

Together with a Directive on Intra-Community Transfers of Defence Products,5 adopted in December
2008, a defence and security procurement Directive was issued in July 20096 which constitutes the legal
cornerstone of a truly European defence market. The defence procurement Directive sets specific rules for
an area which had been practically excluded from European integration due to extensive use of the
aforesaid Treaty derogation. Defence and security markets are nowadays formally recognised to be
“different”, but nevertheless part of the Single Market. Implementation of the defence procurement
Directive into Macedonian law will have to be considered.


3.3 Recommendations

3.3.1 Recommendations with regard to the legislative framework

From the very beginning, it is worthy to emphasise that the Macedonian PPL ensures a high level of
harmonisation with the EU acquis and is well on its way to be in full compliance with the EU Directives.
Our recommendations with regard to the legislative framework took the following factors into
consideration. These factors characterise both the evolution of the Macedonian public procurement
system over the last few years and the existing strategies/plans foreseen for the future:
     The key staff of the PBB have reached a level of professional maturity which enables them to go
        beyond “mechanically copying” the Directives. They are fully capable of understanding the
        subtleties of certain rules or the reasons behind particular wording in the Directives and, at the
        same time, they are able to discern what is the best option for adapting such rules to the local
        conditions;
     Strategic documents concerning further developments and improvement of the public
        procurement system clearly state that one of the major goals is to ensure full compliance of the
        national legislation with the EU Directives. However, Macedonia is not at the moment obliged to



4
  „(1) The contracting authority in the field of defence shall apply this law, unless:
- it may lead to disclosure of information that threatens the essential security interest of the country, or
- it threatens the essential security interest of the country, which is related to the manufacture or trade in weapons,
ammunition and military materials and systems pursuant to a law.
(2) For procurement in the field of defence, the contracting authority shall be obliged to inform the government, by
end-January of the current year at the latest, about its annual procurement plans in the current year.
(3) The government shall prescribe the procurements referred to in paragraph (2) of this Article.”
5
  Directive 2009/43/EC of the European Parliament and of the Council of 6 May 2009 simplifying the terms and
conditions of transfers of defence-related products within the Community.
6
  Directive 2009/81/EC of the European Parliament and of the Council of 13 July 2009 on the co-ordination of
procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities
or entities in the fields of defence and security, and amending Directives 2004/17/EC and 2004/18/EC.
                                                                                                                   26
         fully align its public procurement legislation with EU standards. Full with the EU acquis only has
         to be reached by the end of accession negotiations;
        There is room for improvement not only in terms of transposing the Directives, but also in terms
         of increasing the flexibility of the procurement process, eliminating certain bureaucratic issues
         and reducing burdensome requirements which can affect the efficiency of the process.

 Positive developments continue to take place in the practical implementation of the PPL. However, we
 think there is still a need to focus more on the implementation of the PPL than on new legislation.
 Constantly modifying the PPL discourages procurement practitioners, multiplies training needs and
 creates legal uncertainty. We therefore recommend first to consolidate the procurement practice (e.g.
 elaborate practical guidelines, procurement manuals, and model tender documents, organise training
 sessions) then to further align the PPL with EU legislation. We consider a comprehensive overhaul of the
 PPL in order to fine tune it with EU legislation as a second step.

 This second step will have to include the transposition of the Remedies Directive 2007/66/EC, several
 provisions of which have not yet been fully transposed, including:
- time limits for applying for review (Art 2c) partially transposed;
- standstill period (Art 2a) partially transposed;
- derogations (Art 2b) partially transposed;
- ineffectiveness of contracts (e.g. awarded without prior publication of a contract notice; direct award of
   contracts) - (Art 2d);

 The PPL does not seem to provide for effective remedies after the conclusion of the contract.

 There are three types of improvements which should be considered:
    1. To make adjustments to the legal provisions which represent infringements of the EU Directives,
         such as deviations from the original meaning or omissions of certain articles/paragraphs/parts of
         paragraphs or phrases. Part of these adjustments could be taken into account in 2012, when the
         PPL is supposed to be amended again, but this is not a top priority. A few of the adjustments will
         only be possible when Macedonia will become a Member State, and in this case effective
         mechanisms to ensure such provisions can only be set out in the legislation in the future.
    2. To make adjustments to the legal provisions which do not represent infringements of the EU
         Directives, but which do not fully “exploit” all of the incentives and facilities provided by the
         Directives. Such improvements could lead to smoother and more effective procedures and make
         the work of the contracting authorities easier.
    3. To make adjustments to the legal provisions that regulate aspects which are outside the scope of
         the EU Directives but once improved, could produce positive effects in the public procurement
         process.

 3.3.2 Recommendations with regard to the provisions representing infringements of the EU Directives

 Most of the provisions which are inconsistent with the EU Directives have already been indicated in
 section 3.2 – Issues Raised. In order to have a clearer picture of the existing shortcomings, below is a
 summary of the most questionable provisions:
 - The definition of public contract (PPL art. 3 item 1),
 - The definition of a special or exclusive right (PPL art. 3 item 26),
 - The definition of dominant influence (PPL art. 4 item 1, letter d),
 - The definitions of supply and services contracts (PPL art.16 item 1 and art. 17 item 1),
 - The review procedures are not mentioned in the provisions applicable for ‘non-priority” services (PPL
 art. 17 item 2)
 - The moment when the contract value must be valid (Rulebook 154/07 art. 3),
 - A lack of clear provisions explicitly stating that technical specifications shall afford equal access for
 tenders and not create unjustified obstacles. They should be defined taking into account accessibility
 criteria for people with disabilities or design for all users (PPL art.33 item 1),

                                                                                                         27
- There aren’t any provisions regarding the publication of the PINs and award notices in the OJEU (PPL
art. 52 item 3 and art. 55),
- The thresholds for supply and services contracts above which the contracting authorities are bound to
publish contract notices in the OJEU are too high (PPL art. 54 item 2),
- The thresholds for supply and services contracts are too high compared with EC Regulations 1177/2009
(PPL art. 65 item 1, art. 69 item 1, art. 80 and art. 90 item 1),
- The moment when the tender documentation has to be published in order to reduce the time limit by 5
days (PPL art. 75 item 4),
- There is no reference to which language that will be used during the dialogue (PPL art. 85 item 1 and
art. 88),
- There are not any provisions regarding the minimal rules to be observed by the contracting authority
during the evaluation phase of the final tenders within a competitive dialogue procedure (PPL could be a
new article 88 bis),
- There is no reference to the language that will be used during the negotiations (PPL art. 96 item 1),
- There is a lack of provisions indicating the relevant information concerning the electronic equipment
used and the technical specifications for connection (PPL art. 124),
- There is a lack of provisions indicating the mathematic formula to be used in electronic auctions (PPL
art. 125 item 3),
- There is a lack of provisions stating the general rule for fixing time limits (PPL art. 130),
- There is a lack of provisions stating the obligation for contracting authorities to accept other evidence of
equivalent quality assurance measures and equivalent environmental management measures (PPL art. 156
and art 158),
- The description of the transport services is incomplete (PPL art. 185),
- An imprecise implementation of the special exclusion applicable to contracts for the supply of energy or
of fuels for the production of energy (PPL art. 192),
- The manner of calculating the average turnover of the affiliated undertaking (PPL art. 193 item 2).

A few other articles of the Directives – whose absence is considered as an inconsistency - are not
transposed at all in the PPL:
- Art. 27 of Dir 2004/18/EC and art. 39 of Dir 2004/17/EC as regards the obligations relating to taxes,
environmental protection, employment protection provisions and working conditions.
 - Art. 41 (3) of Dir 2004/18/EC and art. 49 (2) last subparagraph of Dir 2004/17/EC.

Some of the above-mentioned provisions can be adjusted (or added) without major impediments the next
time the PPL is planned to be amended. Some of the inconsistencies cannot be resolved in the near future
and can only be rectified 6 – 12 months before Macedonia will become a Member State. This could be
the case of provisions regarding the publication of notices in the OJEU. If the Macedonian authorities
seek to obtain a greater openness of the domestic market for high-value contracts, the publication of PINs
in the OJEU as well as reducing the publication thresholds for supply and services contracts might be a
good solution well before accession. Publication of the notices in the OJEU may, in practice, cause some
difficulties for contracting authorities, at least in the beginning. They will sometimes need support and it
is likely that this type of support can only be offered by PPB.

In order to change certain thresholds in accordance with the biennial changes at the European level, the
most suitable solution is to adopt a mechanism that avoids modifying the PPL solely for this purpose.
Probably the best solution is to introduce a special provision in the PPL giving power to the Minister of
Finance or the Prime Minister to modify the thresholds through a special Order/Decree (secondary
legislation).

The statistical obligations provided in the EU Directives shall become mandatory for Macedonia only
from the date of accession. Meanwhile, the procurement system can benefit by beginning to develop the
necessary mechanisms for collecting data and information. The ESPP represents one of the most powerful
tools for collecting various data from all of the contracting authorities. It should, however, be recognised
that certain information will not be available in the ESPP database. Therefore, a new article should be
added in Chapter XII of the PPL – Final and Transitional Provisions stating that contracting authorities
                                                                                                           28
are obliged to submit, at the request of the PPB, any information regarding the application of the
awarding procedures. This will ensure the possibility for PPB to receive any missing information.

General recommendation:
The transposition of the EC Directives in the national legislation is a target that has almost been
accomplished. There are no serious reasons to recommend accelerating this process. The needed
adjustments do not represent a top priority for the time being and it is not necessary to force the adoption
of the amendments immediately. Attention has to be gradually shifted to the practical aspects in order to
ensure a smooth implementation of the existent legal provisions as well as to provide for legal certainty.

3.3.3 Recommendations with regard to the provisions which are more restrictive than the EU Directives

The PPL contains a number of provisions which are intended to transpose certain provisions of the
Directives, but the national approach is more restrictive than the European approach. These issues are not
likely to prejudice the provisions of the Directives, but they may eventually affect the smooth running of
the procurement process.

Article 5 of PPL is an example in this respect. This provision introduces a legislative obstacle that will
unnecessarily hinder the implementation of certain projects initiated by entities that are not contracting
authorities. If the state decides to support - within a special programme - small projects, for the
development of rural tourism, for example, or with the purpose of stimulating a specific agricultural
culture, by ensuring funds for acquiring supplies, services or works needed for such developments, how
can the farmers learn and implement all the rules provided in the PPL? Such programmes have failed in
some new Member States solely because the potential beneficiaries found that the rules were too
cumbersome and they did not feel capable of meeting all of the legal requirements. Most of them simply
decided not to participate or to withdraw from these programmes.

Our recommendation is to introduce more flexible rules for entities that are not contracting authorities,
but may fall under the scope of the PPL in certain conditions. The provisions of Art 8 of the Directives
only impose obligations for certain high-value works and services contracts in the case of contracts
subsidised by more than 50% by contracting authorities. For contracts which are outside of the scope of
the Directives, a wiser solution would be to impose the application of the national simplified competitive
procedure.

The Directives also contain provisions which can facilitate, under certain conditions, the awarding of
small lots which are part of a high-value contract. In such cases, the use of an open or restricted
procedure is not mandatory and contracting authorities are not bound to comply with the entire set of
rules. This type of provision may be very useful in Macedonia. For instance, at the end of the year a
contracting authority may need of an additional small quantity of products that were recently the subject
of a supply contract. If the first contract was awarded as a result of an open procedure, according to the
current provisions of the PPL, the additional quantity of products can only be purchased following a new
open/restricted procedure. Otherwise article 27 of the PPL would be breached. Sometimes, it is
impossible to apply an open procedure due to the longer time limits and, in any case, it is clearly
disproportionate to follow the rules for a contract whose estimated value is only EUR 6 000 for example.

Our recommendation is to introduce a similar provision in the Rulebook which regulates the methods for
calculating the estimated value of public contracts. It is not immediately necessary to establish the same
thresholds as the Directives (EUR 80 000 for supplies and services and EUR 1 000 000 for works); in the
first stage, the provision may establish the same thresholds as those provided in article 100 (1) second
indent of the PPL.

The negotiated procedure without publication of a contract notice represents, without a doubt, the
least transparent way of awarding a public procurement contract and for this reason it is understandable
why the PPL contains such well-thought-out rules for regulating the circumstances in which this

                                                                                                         29
procedure may be applied. On the other hand, it seems unreasonable to eliminate circumstances in which,
nevertheless, a certain level of transparency does exist. This is the case of supplies quoted and purchased
on a commodity market. We may include in this category another circumstance not provided in the PPL,
which regards new works or services consisting in the repetition of similar works or services. In this last
case, there is a clear requirement in the Directives to disclose the possible use of this procedure as soon as
the first project is put up for tender.

This more restrictive regime for applying the negotiated procedure without publication of a contract
notice for additional deliveries and for additional works or service may complicate, in practice, certain of
the contracting authorities’ activities. For instance, a limitation in terms of the duration of additional and
unforeseeable works could become an insurmountable obstacle for the completion of the original contract
if the normal execution of the latter is, say, five years.

It is understandable that Macedonian Government seeks to strengthen the integrity of the procurement
process by restricting the opportunities for favouritism and discretion at the level of the contracting
authorities. However, it will always be necessary to find and maintain the right balance between the
benefits and the drawbacks of certain decisions. We are not in a position to strongly recommend making
the rules more permissive, but we clearly sustain that periodic analyses should be made in order to avoid
situations where important projects may be blocked or drastically delayed due to overly restrictive rules.

Time limits are another relevant example where the PPL does not fully exploit the possibilities for
reducing the terms for submitting tenders. The tendency of having more restrictive rules can be observed
particularly in the case of the utilities sector.

More flexible rules could be introduced, using a step by step approach, over a period of three years. This
plan should take into account the problems faced in practice by contracting authorities as well as the
capacity of economic operators to prepare in due time well-structured tenders. At the same time, the
opportunity for and the usefulness of introducing other tools for making calls for tender should be
analysed, such as periodic indicative notices and/or notices on the existence of a qualification system.

The PPL does not contain any provisions giving contracting authorities the right to reserve participation
in award procedures to sheltered workshops or to provide for public contracts to be performed in the
context of sheltered employment programmes where most of the employees concerned are handicapped
persons.

Employment and occupation are key elements in guaranteeing equal opportunities for all and promote
social integration. Given that sheltered workshops and sheltered employment programmes might not be
able to obtain contracts under normal competitive conditions, provisions such as the aforementioned ones
can contribute efficiently towards the integration or reintegration of people with disabilities in the labour
market.

The dynamic purchasing system is the only special modality for awarding public contracts that is
missing from the PPL. The Directives introduce this facility in order to enable contracting authorities to
take full advantage of all of the possibilities afforded by electronic purchasing systems.

The question in this case will be how useful such a system can be in practical terms and whether the
implementation of DPS(s) would be a good investment. But before making such an analysis, the PPL
must first regulate the use of DPS. The implementation of such a system could be deferred, after
sufficient information has been gathered regarding the functioning of models developed in different
countries.

General recommendation:
The national legislation tends to be more restrictive than the EC Directives sometimes affecting the
smooth running of the public procurement process. Close monitoring is required regarding the
difficulties faced in practice by contracting authorities and a step by step approach should be developed
                                                                                                           30
with the purpose to ”relax” while at the same time increasing efficiency, taking full advantage of all of
the facilities provided by the EC Directives.


According to the amendments of the PPL, starting in 2012, electronic auctions will become a
compulsory mechanism of the Macedonian procurement system for almost all contracts, irrespective of
their size and nature. The EU Directives acknowledge the development of electronic purchasing
techniques and important explanatory work has been carried out in order to ensure the consistent
development of e-procurement methods throughout the Member States. However it is clearly stated
(Directive 2004/18 recital 14, also reflected in its art. 54) that “provision should be made for such
electronic auctions to deal only with contracts for works, supplies or services for which the specifications
can be determined with precision”, and that “only the elements suitable for automatic evaluation by
electronic means, without any intervention and/or appreciation by the contracting authority, may be the
object of electronic auctions”.

Such a decision is very questionable. It is important to underline that e-auctions may be an appropriate
method only for certain items and for cases where the requirements subject to such an auction can be
precisely specified (particularly for standardised products). Consequently, for contracts concerning
sophisticated equipment, intellectual services or large works, the utilisation of electronic auctions can
create evaluation problems, due to the automatic ranking of the tenders.

The main risk is that the whole procurement system will be “adjusted” exclusively for the purpose of
achieving this challenging objective: 100% e-auctions.E-auctions should simply be an alternative
technique for awarding contracts (hence the situation of the relevant provision in the structure of both
directives). At the same time, it is impossible for an electronic system to be able to cover and match all of
the highly complex aspects encountered in the procurement process. Some of the technical limitations
cannot be resolved in a few months’ time and some can only be settled many years from now as they
might require the development of new technologies.

It is important to emphasise that the peer team is not against the development of e-auctions in Macedonia.
The benefits generated by e-auctions cannot be denied. However, if the lack of knowledge and/or
equipment generates reluctance from economic operators to take part in the (final phase of) procurement
procedures – and according with the feed-back from the market, it seems that this is already happening –
then e-auctions are likely to become a real obstacle, a barrier to free competition.

We strongly recommend a more cautious approach in order to ensure the efficient implementation of e-
auctions as a special modality for awarding public contracts. By doing so, any unforeseen problems can
be kept under control and resolving them will be possible without compromising the functioning of the
entire process.

E-auctions cannot be a goal in themselves; they are only useful tools which offer contracting authorities
an alternative for obtaining value for money. The use of other options should not be quasi-eliminated by
the obligation to award “100% of the contracts using e-auctions”. This mandatory target should be
removed from the PPL, which might encourage alternatively a large diffusion and/or progressive
generalisation of e-procurement.

3.3.4 Recommendations with regard to the provisions outside the scope of the EU Directives

3.3.4.1 Procedures below the EC thresholds

The procedural changes introduced in the PPL continue to improve practice and are clearly welcomed by
the procurement community. The simplification of procedures for low-value contracts has been
particularly welcomed. The PPL contains different types of thresholds and rules which are more and more
flexible as the value of the contract decreases. Is there room for other improvements and simplifications?

                                                                                                          31
Time limits might be slightly reduced in some cases. For instance, the difference appears to be too
important between, on the one hand, an open procedure for a supply contract whose estimated value is
EUR 21 000 (26 days) and on the other hand, an open procedure for a supply contract whose estimated
value is EUR 19 000 (14 days).

The rules provided in article 102 (3) – (4) of the PPL may be “transferred” (carefully, using eventually
once again a sequential approach) to the contracts whose estimated value is higher than that provided in
article 100 for a simplified competitive procedure.

As a general guiding rule, procedural requirements imposed should be proportional to the value and
complexity of the contract.

3.3.4.2 Tender and performance guarantees

The PPL stipulates that the contracting authorities may require the tenders to provide tender guarantees
and in the case of the winning tender to provide a performance guarantee. The size of these guarantees is
3% maximum for a tender guarantee and 15% for a performance guarantee.

In practice, it seems that in almost all cases the contracting authorities choose to require guarantees and,
moreover, they establish the size at the maximum level allowed by the PPL. The request for guarantees is
an apparent obstacle for all tenderers (but particularly for SMEs) in terms of participating in award
procedures or the conclusion of a contract. In addition to being an administrative burden, it represents a
financial cost for all competitors. In the end the costs will be borne by the contracting authorities.

During our discussions with various economic operators, some of them said that the size of the guarantees
is too high and they encountered difficulties when they tried to participate in several award procedures
organised in the same period.
One issue that may have the potential to affect competition among economic operators is the provision of
art 50 of the PPL according to which the contracting authority is obliged to require in the tender
documentation all bank guarantees to be issued by banks of which it approves. Criteria to define which
banks may be considered acceptable or inacceptable have not been laid out, not even in the secondary
legislation. In this case, clear rules regarding the acceptability of banks should be introduced in the
legislation.

Our recommendation is to analyse the possibility of removing the provisions on guarantees for low-value
contracts. The value of the tender guarantee may be relevant for high-value contracts where a possible
withdrawal by a tenderer could be very costly for the contracting authority but even in that case, the size
of the guarantees could be reduced.




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4. INSTITUTIONAL FRAMEWORK

4.1. Main features
An effective institutional and regulatory framework for monitoring and control of public procurement not
only helps to procure value for money, but at the same time constitutes a key factor for preventing
potential irregularities in public procurement. Public procurement is considered as one of the most
exposed areas at risk for corruption and fraudulent practices in any country due to the extensive volume
of business transactions that take place involving private and public sector bodies, and thereby potentially
offering great opportunities for irregularities and private gains. This is also the case in Macedonia. Public
procurement represents a significant part of total public expenditure, amounting to approximately 12% of
GDP in Macedonia.

The key institutions for ensuring fair and transparent public procurement in Macedonia are:
   1. Public Procurement Bureau (PPB)
   2. State Appeals Commission (SAC)
   3. Ministry of Economy (MoE)
   4. State Audit Office (SAO)
   5. State Commission for Prevention of Corruption (SCPC)

These institutions each have different responsibilities, with either a direct or indirect influence on how to
maintain a high level of good procurement practice.

4.2. Public Procurement Bureau (PPB)
The central body responsible for co-ordinating and monitoring the public procurement system is the
Public Procurement Bureau (PPB). At the end of 2009, its independence was strengthened by making it a
(separate) legal entity within the Ministry of Finance.
The PPB’s main objectives include providing a coherent legislative framework that is harmonised with
the EU public procurement acquis, providing the framework for unitary application of the legislation in
the field of public procurement and developing the implementation capacity horizontally in Macedonian
contracting authorities.

4.2.1. Functions of the PPB
The main functions of the Public Procurement Bureau are:
    1. Regulatory function – drafting the normative acts in the field of public procurement and
        submitting them for approval by the Parliament or government;
    2. Advisory function – issuing opinions regarding the provisions and the enforcement of the PPL;
        counselling contracting authorities and economic operators; developing models of standard
        tender documentation;
    3. Training function – organising and conducting training activities for civil servants and other
        persons; setting the minimum requirements of professional qualifications for public procurement
        officers; developing guidelines and manuals;
    4. Monitoring function – collecting, processing and analysing public procurement data and
        preparing statistical reports; maintaining and updating records of the public contracts awarded;
        overseeing the lawfulness of the procurement procedures; submitting the annual report on the
        functioning of the public procurement system to the government;
    5. Operational - development function – developing, managing and operating the Electronic
        System for Public Procurement;
    6. International relationships function – co-operating with international institutions and other
        foreign entities on the development of the public procurement system.



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4.2.2. Structure of the PPB
The PPB is managed by a Director who is appointed (and dismissed) by the Government of the Republic
of Macedonia based on the proposal of the Minister of Finance, for a period of four years.
The total number of PPB staff at the time of this assessment was 17; it employs 20 full-time persons now

In September 2009, a new “Rulebook on the Systematization of Working Posts in the Bureau” was
adopted, as well as a new “Rulebook on the Organizational Setup and Operations of the Bureau”, which
modified the number of units within the departments and established an independent unit (see below). In
addition, two new State Adviser positions were created.

In terms of organisational structure, the PPB has two departments and one independent unit:
     1. The Department for Normative Affairs, Training and International Relations comprises three
        units, as follows:
        - Unit for European Affairs and International Relations,
        - Unit for Normative and Legal Affairs, and
        - Training Unit.
     2. The Department of Monitoring the Public Procurement System and ESPP Management also
        comprises three units:
        - Unit for Review, Analysis and Preparation of Statistical Reports,
        - Unit for ESPP Management and ICT Support, and
        - Accounting Unit.
     3. The Human Resource Unit was established as an independent unit in 2009. This function was
        previously carried out by the Ministry of Finance.

The PPB has an important number of written internal procedures designed to regulate the staff’s working
tasks, certain deadlines, as well as workflow, including the segregation of duties when carrying out
specific activities.

4.2.3. Activities of the PPB
The PPB’s activities and services are clearly appreciated by contracting entities and economic operators.
It is known for being proactive, responsible and efficient. The PPB also enjoys good co-operation with
other competent authorities related to public procurement – the State Audit Office, the State Appeal
Commission, the State Anti-Corruption Commission and the Commission for the Protection of
Competition.

As regards the regulatory function, it is very clear that over the last few years the PPB has focused on
aligning national legislation with the EU Directives. As mentioned above, only minor adjustments remain
to be made to the legislative framework (excluding the remedies procedures).

The PPB’s comprehensive, user-friendly and well-structured website contains a wide range of
information (also in English) including a full set of the primary and secondary public procurement
legislation, contract notices, standard tender forms and contract documents, and frequently asked
questions.

PPB now offers a helpdesk function in writing or by telephone. According to the information provided
by PPB representatives, in 2010 contracting authorities as well as economic operators sent more than 300
official letters asking for advice on the application of the law and bylaws. Another 350 requests were sent
by e-mail through the web contact available on PPB website regarding application of the Law on Public
Procurement (and over 125 in the first six months of 2011). The number of requests for advice in 2010
only represented 60% of the total number of such requests in 2009. This trend indicates that contracting
authorities are more knowledgeable about the procurement procedures, at least in terms of basic elements.



                                                                                                        34
A special “call centre” became operational in March 2010. It operates every day from 9AM to 3PM.
Contracting authorities and economic operators can obtain answers related to the legislation and advice
on its practical application.

Since 2008, the PPB has been organising various training workshops and seminars. The first stage of this
training programme was supported by USAID and Sigma.

An important project for the PPB in 2009 was the organisation of training for instructors (USAID
support), following which 48 participants were awarded a trainer’s certificate.

In 2010, one of the main priorities of PPB was to prepare and implement a special Programme for
Education on Public Procurement for staff responsible for conducting public procurement. This included
contracting authorities and economic operators as well as other public bodies with specific roles in public
procurement, such as the State Audit Office and the State Commission for the Prevention of Corruption.
The PPB Training Department organised 18 seminars which were attended by 354 participants. Training
activities were carried out by the instructors who received their certification in 2009 (see previous
paragraph).

The training programme was divided into the following six modules:
   1. Introduction to public procurement - basic principles, legal and institutional framework,
   2. Law on Public Procurement - scope of its application,
   3. Activities to carry out before conducting a tender procedure,
   4. Carrying out the tender procedure,
   5. Electronic procurement and electronic auctions,
   6. System of legal protection, management of complaints procedures and control.
The training programme will continue.

A few years ago, one of the most important weaknesses of the Macedonian public procurement system
was the lack of statistical data concerning the contracts awarded by contracting authorities (see CFA,
2007). In 2008, two parallel electronic systems were functioning: a publication system and the new (at
that time) electronic procurement system. The decision to unify these two systems has to be appreciated
because it has greatly improved the public procurement system. The new e-procurement system was
established and upgraded in January 2010 with the assistance of the USAID e-Gov Assessment of the
Former Yugoslav Republic of Macedonia Public Procurement Project and it is able not only to ensure the
publication of all procurement notices (PINs, contract notices and award notices) but also offers the
possibility to publish tender documentation, ask and answer questions during the tendering procedure,
submit tenders and conduct e-auctions.

One of the most important advantages of the ESPP is the facilitation of gathering procurement data and
the compilation of statistics, which enable PPB to properly carry out its monitoring function. Based on
this information, PPB has conducted studies and statistical analysis that fairly accurately reflect the
overview of the system and should be very useful input for future actions.

4.2.4. Recommendations with regard to strengthening institutional capacity at the central level
The Public Procurement Bureau is a key institution and although in the beginning it did not have
sufficient staff or adequate premises, it has certainly proven its ability, skills and capacity to develop the
public procurement system. The PPB’s work is of high quality, proactive and well appreciated by the
procurement community. The PPB has a very good reputation throughout the administration for being
supportive and knowledgeable.

In the previous phase, the main objective of the PPB was to harmonise national legislation with the EU
acquis. Enormous progress has been made in this area and the Macedonian legislation is almost fully
compliant EC Directives.


                                                                                                           35
A more complex phase has been underway since the approval of the PPL, namely strengthening the
capacity of contracting authorities to implement its legal provisions. There has already been some
progress but it is a long-term process and will require adequate resources. Contracting authorities need
support for assimilating the new legislative provisions and for developing their specific knowledge, skills
and capabilities.

It is evident that the major role in strengthening the implementation capacity at the level of contracting
authorities goes to PPB. The PPB has already acted in this respect by developing three action lines:
     1. Providing consultancy and advisory for contracting authorities and economic operators;
     2. Elaborating certain standard tender and contract documents as well guidelines (Guidelines on
         Tender Evaluation for Public Procurement or Guidelines on the Qualitative Selection of
         Economic Operators on Public Procurement Procedures);
     3. Developing of training programmes.

A first matter of concern relates to the large number of tasks that are expected to be fulfilled in the next
period by PPB and to the workload of the staffs. The PPB will need sufficient resources for strengthening
its own capacity in order to be able to cope with future challenges, which will require their full attention
and commitment. Some of the staff are already involved in these various types of activities. Staffs dealing
with policy issues, for instance, also participate in training initiatives and answer questions to contracting
authorities or tenderers.

Our recommendation is to find the appropriate solution for increasing the human resources of the PPB.
This would free the PPB staff of their current workload thus allowing them to focus more effectively on
the tasks designated by the PPL. The PPB will also require continuing government support, especially in
terms of financial resources and stability.

Despite the fact that considerable efforts have been made to support contracting authorities with training,
information and the publication of secondary legislation – including model tender and contract
documentation – further enhancement of support to purchasers is required to strengthen the operational
side of public procurement.

Until now, training focused on acquiring basic knowledge and obtaining prerequisites for further
upgrading knowledge in public procurement. Some contracting authorities still exhibit a number of
weaknesses in their day to day practice that were highlighted during peer missions. This was also
reflected in the statistical data:
      Contracting authorities still have an overly formalistic approach in their conduct of procurement
         procedures. If this happens when a large number of documents and certificates are required, the
         situation becomes even more intricate. Too much emphasis is put on “form” and it appears that,
         sometimes, the ultimate goal of the public procurement process – to achieve the best value for
         money – is completely forgotten.
      Although the law does not impose such severe conditions, contracting authorities sometimes have
         the tendency to set excessively demanding qualification criteria.
      Too many procedures are cancelled – according to statistical data in the PPB annual report,
         around 10% in 2008, 14% in 2009 and 20% in 2010 and, according to the NGO Center for Civil
         Communications, one-third of the published tendering procedures during the second quarter of
         this year.7 This growing number of cancelled procedures is worrying. More than a third of
         cancelled procedures are due to the fact that no tenders or no acceptable tenders were submitted.
         One of the factors that led to this situation is likely to be the formalistic approach mentioned
         above; many tenders are rejected for minor irregularities or deviations that would have been
         easily remediated if the evaluation commission had requested certain documents to be
         supplemented or rectified. Another factor could be the excessive level of the qualification criteria.

7
  9th quarterly report on monitoring the implementation of public procurement in the Republic of Macedonia,
available at www.ccc.org.mk.

                                                                                                           36
       The open procedure and simplified competitive procedure are, in terms of number, the most used
        procurement procedures (90% in 2009, 77% in 2010). Only 37 restricted procedures were
        conducted in 2009 and 93 in 2010 (however, in terms of value, restricted procedures represented
        16% of total public procurement in 2009 and 6% in 2010). Despite of the fact that in terms of
        value there is a noticeable increase in the use of restricted procedures compared with 2008,
        contracting authorities are still clearly reluctant to award contracts by conducting such
        procedures. This is noticeably different to the situation in many EC Member States where the
        restricted procedure is commonly used for large or complex works and goods contracts and
        frequently for services contracts. The situation is the same for the utilities sector, where the law
        allowed for free use of the negotiated procedure with prior publication of a contract notice.
       Interestingly, in contrast with other countries from the region, the MEAT criterion is much more
        frequently used in Macedonia (74% in 2009, 66% in 2010) than the “lowest price” criterion. This
        is not a weakness, but a strength. Notwithstanding, this trend is clearly declining compared with
        2008 when the MEAT criterion was used in 85% of procurement procedures. It is very likely that
        this tendency was accentuated as result of using of the e-auctions on a larger scale, in which only
        the price criterion was possible before 2011. On the other hand, the way in which evaluation
        factors other than price are used usually arouses suspicions and raises questions on the
        application of the principle of cost-effective and efficient public spending.
       Tender documentation is often not accurate enough, incomplete and/or contains elements that
        affect the fairness of the competition, such as the selection and award criteria chosen and the lack
        in precise explanation of bid-evaluation and point-ranking method used.

Future training programmes should be more and more oriented on solving the above-mentioned
problems. They should address the mentality and culture of public procurement.

For instance, a special topic explaining the principle of proportionality, with practical examples, may
mitigate the tendency for an overly formalistic approach in the conduct of procurement procedures.
During our missions, the impression we got was that most public officers consider that a certain
activity/action/behaviour is forbidden if it is not explicitly provided in the law. A law can never regulate
all of the possible situations that could occur in practice; a procurement officer has to be flexible and
must have the courage to take decisions insofar the law does not forbid it and the general public
procurement principles are observed. This “message” must be communicated in each training session, to
increase the awareness about how PPB itself interprets the legal provisions and to understand that this is a
common practice across the EU.

Contracting authorities should be aware that very often – particularly in the case of low- and even
medium-value contracts - demanding excessive qualification criteria creates a needless and unprofitable
obstacle to the participation of economic operators. The PPB could take the decision to introduce in the
secondary legislation a certain limit, a maximum ratio, in order to ensure the proportionality of the
qualification criteria (e.g. maximum turnover or similar experience required may not exceed a certain
multiple of the contract value).

In terms of future training activities, special emphasis should be placed on increasing the understanding
of the rationale for the restricted procedure, negotiated procedure and competitive dialogue; contracting
authorities should be encouraged to use these procedures more frequently, where appropriate.

New instruments such as framework agreements and other practical aspects such as non-pricing
evaluations should be developed. The desire to ensure practical training is very important. Many of those
interviewed expressed their concern that the illegalities of a procedure are often unintentional but result
more from an inadequate practical understanding of the PPL. It has also been suggested that many
unfounded complaints may have been submitted for this reason. The choice of trainers should be revisited
if practical training is to be put in place; practical training requires practitioners and not only experts in
legislative drafting.


                                                                                                           37
The operation of procurement commissions raises some practical concerns about members’ levels of
expertise and knowledge. Commission members are now drawn from a wider range of officials, some of
whom may have limited experience with procurement obligations and purchasing processes. Further
support and training should target public procurement commission members.

Personnel in both contracting authorities and economic operators lack training. Training in public
procurement should also thus include economic operators. This is particularly the case for electronic
auctions, where the very small number of participants is alarming. This is mainly due to the lack of
practical information on how to use the electronic system.

The PPB has made considerable efforts to support contracting authorities and economic operators by
providing training as well as guidelines and model tender and contract documents. However, old habits
are hard to break and further support is needed to strengthen the operational side of public procurement.
Training should be more and more oriented on practical issues and not only on the legal aspects.

Value for money aspects should be a top priority in future training programmes.

In parallel with the development of training programmes, special attention will be given to development
of new guidelines and manuals, which in turn will also have to focus more on the practical elements than
on the legal aspects.

The PPB has already started consultations with the business community in several domains of activity
(mobile telecommunications services and pharmaceutical products). The purpose of these consultations is
to develop standard tender documents in order to avoid imposing restrictive requirements and to ensure
fair competition. The initiative is laudable and the effects should be positive.

However, the PPB should be very careful of the degree of representativeness that their counterparts really
have, so as to avoid “tailoring” – even unintentional - of the standard tender documentation in favour of a
small group of companies.

If the degree the representativeness covers the majority of the market in that business sector, the standard
tender documentation will undoubtedly be a very useful instrument for both contracting authorities and
economic operators.

Co-operation between PPB and the private sector for developing standard tender documentation in
specific fields of activity is a good initiative and should be followed by similar actions in other areas,
whenever possible.

4.3. State Appeals Commission: institutional set up
The State Appeals Commission (SAC), located in Skopje, is responsible for ensuring the application of
the PPL rules. It is the independent review authority in the review procedure for all contracting authorities
and entities in Macedonia above and below EU thresholds. It is defined in Art. 201(1) PPL as an
independent state authority with the status of legal entity. The SAC is based on the PPL and the Rules of
Procedure which were adopted in November 2008 and amended in 2010 with minor procedural issues.

The SAC is permanent, its decisions are legally binding, its procedure is an inter partes procedure and it
has to take its decisions on the basis of legal rules.

4.3.1. Operational overview
Following some delays, the new State Appeals Commission (SAC) started work on 26 November 2008.
The SAC replaced the Complaints Committee, which was lodged in the PPB and was thus not fully
independent. The establishment of the SAC as an independent review institutions marked a significant
step forward in Macedonia’s institutional organisation. The SAC has reached full operational capacity
during the last two years. The SAC chairperson and members are appointed by Parliament following a
                                                                                                          38
public announcement. According to Art. 202 (2) in combination with Art. 203 PPL, members shall be
dismissed upon proposal of the Election and Appointments Commission within Parliament.

4.3.2. Administrative capacity
According to Art. 202 (1) PPL, the SAC should consist of one chairperson and four members (the Expert
Office), who professionally carry out their function. Recently, one member was appointed as an
administrative judge and the procedure to replace that missing member is under way. The member’s
status is equal to that of an independent judge. SAC membership is incompatible with appointments to
any other bodies elected or appointed by Parliament or government.

The SAC is currently assisted by a professional service of four expert associates and administrative staff.
The SAC continued to strengthen the capacity of its professional service in 2010 with two new
employees. The total number of SAC’s staff is currently 14. Because of financial difficulties and cuts in
public expenditures, the SAC has not yet reached the planned full staffing level (19). As the SAC’s
budget does not cover expert technical advice for matters outside the competence of its members, the
SAC relies on informal support when it needs assistance, for example in understanding the technical
aspects of a particular specification.

4.3.3. Premises and IT equipment
The SAC moved to its own premises in May 2009. At present, the office space for the SAC staff is
sufficient. However, more space for additional staff will be needed when the SAC will also control the
award of concessions and PPPs.8 The budget constraints mentioned in previous SIGMA reports do not
currently endanger the work of the SAC. The SAC has adequate IT hardware facilities. Whilst it does
comply with requirements of the Law on Archiving, keeping various records electronically and
publishing its decisions on its website, it is currently searching for new software solutions under the
auspices of an IT project jointly financed by the UK Embassy and Macedonian funds. Since the
beginning of 2011, the first phase of DMS – Document Management System – has started. DMS is a
system for “e-session”, including archive filing, receiving, recording and distributing cases, decisions
from the sessions, preparation and dissemination of the decisions.

4.3.4. Publication of SAC decisions
Since October 2009, the SAC website (www.dkzjn.gov.mk) has been providing access to information on
the public procurement review system and SAC’s decisions. However, according to our understanding,
the publication of pdf documents is only a first step because this publication alone is not enough to
guarantee a consistent interpretation and application of the PPL.

The SAC, having developed into a mature review institution, could also organise workshops and
conferences in co-operation with the PPB to disseminate information. This initiative could help to further
increase awareness of the procurement review system in Macedonia as well as to strengthen the SAC’s
visibility for stakeholders and the general public.

4.3.5. Technical support
In 2010, SIGMA continued its technical assistance to the SAC with support for a SAC study visit to
Slovenia in order to learn about their public procurement system and legal protection. SIGMA also
financed a project which provided on-the-job support from the State Appeals Commission for Control of
the Public Procurement Procedures in the Republic of Croatia. This project aimed at increasing
transparency through legal protection and included counselling for the preparation of the decisions of the
SAC, support for the preparation of a strategy as well as the preparation of manuals for contracting
authorities and economic operators.


8
 Although the amount of concession award procedures/PPPs to be controlled by the SAC cannot be predicted at the
moment, the SAC may need more professional lawyers and corresponding administrative staff.

                                                                                                            39
As a result of the workshops, a guide on “Legal Protection in Public Procurement Procedures” was
published. This technical support considerably helped the SAC to become a mature and professional
review institution and was appreciated not only by the beneficiary itself (SAC) but also by the other
public procurement stakeholders. The SAC largely benefitted from European Court of Justice (ECJ) case
law translated into local language, which they received from their Croatian counterpart. Further training
in the field of ECJ case law and, in particular, concessions/PPPs is needed and would be highly
appreciated by the SAC.

4.3.6. Conclusion
The PPL has created the framework for a review system in Macedonia that is more efficient than the
previous one and that complies with EU requirements. The establishment of the SAC was a good starting
point and went a considerable way to addressing previous concerns. Other concerns about delays in
review procedures and the significant backlog of decisions have also been fully addressed by the SAC.
There has been good progress towards a mature review authority.

The SAC has reached this stage due in part to technical assistance provided by SIGMA and other
international institutions.

However, it is important that the newly established SAC continues to receive sufficient organisational and
budgetary support. It needs to be well-staffed by experts and administrators, underpinned by adequate
technology, including office facilities and IT systems. It must also have the financial capacity to seek
independent specialist technical advice when necessary.

It is important to provide the SAC’s newly recruited members and staff with the extensive training,
advice and technical support they require, both during the first couple of years of its operation and in the
long term. In particular, training is required on ECJ case law and concessions/PPPs, as the SAC will be
given the responsibility to review the award procedure for concessions/PPPs.

The SAC has proven to be on its way towards a mature review institution that copes well with its
obligations. However, it still requires support and training in both the short and longer terms to ensure
that problems with the appeals process and any perceptions of bias in decision making are tackled and
resolved.

4.4. Ministry of Economy (MoE)
Whereas there is currently no legal basis for the MoE to monitor the system of concessions/PPPs, it has
been endowed with the task of developing a new framework law in the field. This project was developed
in early 2009 by an inter-ministerial working group led by the chief of the Legal Service in the MoE
seconded by one desk officer.

According to this draft law, the MoE would be responsible as well for its future implementation and
monitoring. Its ambition as co-ordinator in this field is to establish effective co-ordination and
harmonisation within the other entities involved, both in the public and private sectors. Considering that
designing a better system – which took three years – is less time-consuming than embedding it and
training stakeholders to implement and enforce it, administrative capacity within the MoE to take on such
a task will have to be considerably strengthened with relevant and professional personnel.

However, such a perspective depends on the vote and enactment of the aforesaid draft law, which at the
time of this report was finalised was in parliamentary procedure.

As regards the overall present and possible future institutional arrangements in the field of
concessions/PPPs, further analysis can be found in Sections 5.5 and 5.6.


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4.5. State Audit Office (SAO)

4.5.1. Activities and findings of the SAO with regard to public procurement
Macedonia’s supreme audit institution is the State Audit Office (SAO), which was established in 1999.
The financial control of public procurement activities is practically assigned to SAO. The SAO’s
financial audit, where relevant, includes a chapter on public procurement. Cases where suspicions of
fraud and corruption appear are directed to SCPC (see Section 4.6) and finally to the Public Prosecution
Office for Prosecuting Organized Crime and Corruption. In the last few years, staff has been permanently
increasing and today this institution counts almost 100 employees. A new Law on State Audit was
adopted in May 2010 and was intended to ensure the harmonisation with the standards and criteria of the
European Union in this field.

The SAO’s mandate covers all state budget-users and funds - including state-owned enterprises and local
government - as well as the audit of EU-funded projects. The State Audit Office may also, where needed,
conduct extended audits of entities that have business relations with the entities covered by the scope of
its audit. According to the Law on State Audit, the SAO prepares the Annual Report on Operational
Performed Audits, and submits it to the Assembly of the Republic of Macedonia. The SAO plays an
important role in ensuring the integrity of the procurement process together with internal audit.
Especially, the work of SAO provides information on the outcome of the procurement proceedings after
the conclusion of the contract indicating whether the funds were used for their intended purpose.

Central governmental organisations and the City of Skopje are audited on an annual basis, but other
entities – involving local government – are audited on a much more ad hoc basis, depending on risk and
resources.

In February 2009, the SAO set up a task force comprised of SAO members specialised in public
procurement. The aim of this task force is to develop a public procurement audit methodology that
addresses: (1) organisational issues: how the contracting authorities’ own internal systems assess risk
levels and controls; and (2) procedural compliance: using detailed tests for each tendering procedure to
identify irregularities and determine financial impacts. The SAO plans to carry out horizontal audits on a
thematic basis (covering several institutions) in the area of public procurement. It has decided to wait
until 2011 at the earliest to undertake these audits so that it will have the opportunity to assess at least two
years of operational experience.

At the time of this assessment, the SAO was unable to comment on the implementation of performance-
based audits, as these audits were just about to begin; however, the intention is to gradually increase such
an approach. So far the SAO has only performed compliance audits with the PPL and other legislative
acts The SAO checks the entire process from the preparation (e.g. securing funds) through the conclusion
of the contract, including the outcome of the contract execution (initial versus final prices, completion
dates,…).

In addition, the SAO can choose to conduct special audits of public procurement. Contracting authorities
have 90 days in which to set out in writing how they will respond to recommendations made in the SAO
report, and the SAO monitors compliance with these responses. This monitoring by the SAO is a
potentially powerful tool for improving procurement practice.

The SAO commented on the dramatic increase in compliance with procurement requirements since 2000.
The SAO pointed out that the smaller contracting authorities more often face problems complying with
public procurement rules.

The SAO checks the entire process from the preparation (e.g. securing funds) through the conclusion of
the contract, including the outcome of the contract execution (final prices, completion dates, etc.). The
most frequent findings were:


                                                                                                             41
       contracts were awarded without organising a public procurement procedure; the existence of
        contract elements that were not part of the procurement procedure (“additional” procurements),
        over-exploitation of contracts,
       inconsistencies in evaluating tenders (e.g. inappropriate application of the ranking methodology,
        proposing certain tenders for selection even though they did not meet the qualification criteria),
       public procurement planning was often poor: contracting entities failed to adopt public
        procurement plans or failed to comply with them,
       contracting authorities did not always provide complete, accurate and precise information in the
        tender documentation about the manner of performing the procedure (e.g. it did not include the
        obligatory elements, there were technical characteristics indicating the origin and the type of
        product; there were no clear criteria or the technical documentation was modified after the
        opening session); changes to the technical specifications after the receipt of tenders,
       contracts concluded that did not include the basic elements of the tender documentation or the
        tender: price, quantity or deadlines. Other contracts included conditions different from those of
        the tender or the tender documentation (e.g. the price was higher than the one included in the
        tender or above the amount allowed by the law),
       contracting authorities did not apply the penalty provisions of the contract, or the submitted
        guarantees were not activated in cases of failure to met the deadlines and/or other contractual
        obligations.

4.5.2. Conclusion on the SAO
It appears that when auditing procurement processes, the SAO tends to focus on procedural compliance
and less on value-for-money issues. In some cases, they interpret the requirements of the PPL in a very
formalistic manner. This approach potentially has a negative secondary effect on the procurement
practice of contracting authorities. As contracting authorities try to avoid criticism by the SAO, even
when the PPL permits the exercise of discretion in the procurement process, they are more likely to take
an approach that involves a lower risk in terms of procurement. This approach may result in poorer value-
for-money than a higher risk approach involving the exercise of more discretion. Evidence shows that
both internal and external audit activity seem to be limited to legal compliance (process).

The SAO should introduce “performance audits” as a fundamental part of its work. At the same time,
contracting authorities could be scored on their performance. Not only will this enable each contracting
authority to see where it stands (and how it can improve) but also to monitor its progress. It would create
a “competitive” element amongst contracting authorities in seeking improvement that has been very
successful in the United Kingdom for instance.

The ranking system used in external audits in the United Kingdom has created a genuine competitive
element amongst contracting authorities seeking to demonstrate improved performance. The results of
audits should be published, preferably on the internet. An added benefit would be to increase
transparency and the perception of transparency.

All audits should at least comment on contracting authorities’ achievements of value for money.

Evidence shows that both internal and external audit activity seem to be limited to legal compliance
(process). The State Audit Office continues to play a key role in reviewing procurement processes and in
setting out steps aimed at improving procurement practice and increasing the integrity of the process. The
SAO’s new task force on public procurement is a welcome development, as are future plans to carry out
horizontal audits of procurement.

4.6. State Commission for the Prevention of Corruption (SCPC)
The State Commission for Prevention of Corruption (SCPC) is another institution that has, or should
have, a “watchdog” role as regards public procurement policy and practices in Macedonia.


                                                                                                        42
The SCPC was established in 2002 on the basis of the Law on Prevention of Corruption, in order to
implement the measures and activities for preventing:
- corruption while exercising power, public authority, official duty and politics,
- conflicts of interest and corruption when legal entities perform activities of public interest, related to the
exercise of public authority, as well as
- corruption in companies.
The SCPC is formed by seven members appointed by and reporting to the Parliament of the Republic of
Macedonia, for a four-year period.
The SCPC may open cases both on its own initiative as well as on the basis of complaints submitted from
any natural person or legal entity, including anonymous complaints. According to the law, anyone can
report an action where there are suspicions that a public authority/official position, have been abused in
order to achieve personal gain or to inflict harm on someone.

4.6.1. Integrity of procurement operations
Corruption is perceived by some NGOs and the SCPC as one of the pressing problems in Macedonia.
Transparency International’s Corruption Perception Index (CPI) for 2010 indicated that Macedonia
ranked 62 out of 180 countries, with a rating score of 4.1, on a scale of 0 to 10, which is a minimal
improvement in comparison to previous years when it was rated 3.6 in 2008 (a ranking of 72 out of 180
countries) and 3.8 in 2009 (a ranking of 71 out of 180 countries). Some legislative activities related to
anti-corruption during the past years such as the amendment of the Law on Conflict of Interest
(September 2009) have supported this positive development, as the law now also covers professional civil
servants.

Although public procurement is perceived by the SCPC and some NGOs as one of the most exposed
areas at risk of corruption and fraudulent practices, the issue of integrity was not addressed by our other
interviewees. Thus, we got the impression that corruption is taboo. We therefore cannot clearly state if
corruption is a big problem in public procurement in Macedonia or which types of corruption (system
related, political corruption, lack of leadership, personal motives) – if any - prevail. .

The regulatory framework for public procurement in Macedonia is sound and if correctly implemented
represents a good basis for procurement operations. However, the PPL’s main goal is not to prevent
corruption and fraud. The PPL does not include any specific provisions for tackling corruption in public
procurement other than conflict-of-interest provisions and provisions for the exclusion of economic
operators found guilty by court decision of corruption and other irregularities. However, the aim of the
PPL in general is to prevent corrupt and fraudulent practices. The PPL ensures the transparency of public
procurement procedures by laying down extensive publication rules and favouring open competitive
procedures including e-procurement methods. As mentioned above, the PPL also contains rules on
conflicts of interest, which provide better guarantees for fair and impartial procedures that are potentially
free from biased decisions or irrelevant influences.

4.6.2. Activities of the SCPC as regards public procurement
The SCPC has the competence to investigate corruption complaints and allegations raised by a range of
sources, including the State Audit Office, the Public Procurement Bureau (all of them being signatories of
the State Programme for Prevention and Repression of Corruption, elaborated in 2007), as well as the
State Appeals Commission, local auditors, citizens and the press. However, it seems that they have not
yet realised the enormous potential of the information that could be provided by the Electronic System for
Public Procurement. The SCPC has identified public procurement as an area at great risk of corruption;
its annual report always addresses this issue in a separate chapter. As its goal is to prevent corruption, the
SCPC prioritises allegations of corruption in procurement. This means that any complaint received about
the conduct of an ongoing public procurement procedure must be dealt with swiftly if they are to prevent
a corrupt award of a contract.

In 2010, the SCPC received approximately 600 complaints and submitted 13 initiatives for instigating
criminal procedure related to the misuse of public duty. Eight of those were for misapplication of the Law

                                                                                                             43
on Public Procurements. According to the SCPC these cases are still pending at the prosecutor’s level.
Three cases led to the dismissal of the responsible persons from civil service. All of these cases related to
the misuse of public funds.

According to the SCPC, the most frequent problems relate to the determination of award criteria and
their misapplication, particularly in the construction sector (works contracts). Another important category
of problems are encountered after the conclusion of the contracts, when it seems that there is a clear lack
of monitoring and “nobody is interested in the final results of the projects”. Due to the stricter protection
mechanisms at the federal level, procurement at the local level is more prone to corruption. The SCPC
considers the PPL 2008 with its amendments to be an important step in reducing corruption at federal
level but there is still room for improvements.

The SCPC has been heavily involved in training under the State Programme on Conflict of Interest. This
training has been delivered to all municipalities throughout the country, and has included mayors,
counsellors and key officers. It covers nine areas of risk; procurement is identified as an issue in three of
these nine areas. The training of trainer’s programme of the PPB in public procurement also covers
conflict of interest and was developed in cooperation with the SCPC.

Public procurement is acknowledged as a high risk area for corrupt practices. The PPL has brought clarity
into the law. The general training and support provided by the PPB and the consequent increased
professionalism of procurement officers are also helping to reduce the potential for corruption. The
implementation of training on conflict of interest and the proposed national policy and action plan on
integrity in public procurement are other important and positive elements in tackling this issue.

4.7. Strengths and weaknesses
During our missions we perceived that most of the stakeholders of the procurement process interviewed
know the PPL provisions very well. They often follow the letter of the PPL to such an extent that the
correct application of the PPL becomes the main subject of their procurement processes, often neglecting
the economic aspects involved. Procuring value for money is generally not the main objective of
procurement in Macedonia. The contracting authorities often apply the PPL in a legalistic, often over-
bureaucratic way. CAs generally consider “everything that is not explicitly allowed in the PPL as
forbidden”, which is another obstacle for procuring value for money.

The marked declining trend in the use of the most economically advantageous tender (MEAT) criteria
could undermine the effectiveness and economy of public procurement by neglecting quality and long-
term costs. Whilst there would be compensating factors if quality was integral to technical specifications,
only rarely does that appear to be the case. That situation might change in 2011, as in addition to the
lowest price auctions which have been available thus far, e-auctions have been developed using the
MEAT criteria. The lowest price only approach should be also reconsidered for below threshold
contracts, as value for money is an economic concept that should also be used for smaller contracts,
which actually constitute the majority of public procurement.
By way of comparison, 80% of tenders above the thresholds in some EU Member States are evaluated on
price/quality.

The reason for Macedonia’s policy of lowest price only is that evaluations limited to price are seen as
ultimate in transparency, whereas price/quality evaluations involve an element of subjectivity and are
therefore more open to abuse. This view is largely shared by internal and external auditors. Whilst the
logic is unarguable, many contracting authorities in the EU have learnt to reinterpret quality as a “score”,
just as price can be reduced to a “score”. These evaluations, whilst quite sophisticated, are generally
perceived as fair and transparent within the EU, and for the most part able to withstand rigorous analysis.
Best practices from other EU Member States could be helpful for Macedonia.

As regards the control of public procurement, one of the weakest points of the system is the general
perception that it all gets blocked at the prosecutor’s level. Indeed, at the time our peer mission took

                                                                                                          44
place, not even one final decision had been issued by the Basic Public Prosecution Office for Prosecuting
Organized Crime and Corruption confirming SCPC’s findings.

4.8. Recommendations
Inadequate or poor performance by contractors, due to the lowest price only criteria, has a negative
impact on public service delivery. This was highlighted as a major problem by a number of interviewees
during our peer missions. The transactional nature of public purchasing means that it is vulnerable to
corruption and thus needs internal controls and rigorous processes, as well as a ”public sector ethos” and
a clear vision of “how and what to procure”.

Evidence shows that both internal and external audit activity seem to be limited to legal compliance
(process). The SAO should introduce “performance audits” as a fundamental part of its work. At the same
time, contracting authorities could be rated on their performance. Not only will this enable each
contracting authority to see where it stands (and how it can improve) but also to monitor their progress. It
would create a “competitive” element amongst contracting authorities in seeking improvement that has
been very successful in the United Kingdom for instance.




                                                                                                         45
   5. CONCESSIONS AND PUBLIC-PRIVATE PARTNERSHIPS: LEGISLATIVE,
INSTITUTIONAL AND PRACTICAL DEVELOPMENTS

  5.1. Introduction
  The framework in Macedonia for concessions and public-private partnerships (PPP) remains
  unsatisfactory and further support and improvements are necessary to the legal and institutional
  arrangements in order to arrive at a fully functioning system that might be comparable to the standards of
  many EU Member States. Examples of PPP projects exist, some of which are quite impressive, but they
  are mainly being supported by international financial institutions (IFIs) and relate mainly to very
  substantial infrastructure projects. Effective and efficient PPPs that are prepared and procured by public
  bodies in Macedonia and supported by private equity and debt financing from commercial banks, still
  remain a future prospect.

   The recent history of developing the legal framework for concessions and PPPs - and especially the lack
   of follow-up and monitoring of the implementation of the existing law, dated 2008 - creates doubt about
   the government’s capacity to successfully implement a new, effective law to regulate this area and
   provide the necessary political and institutional support for implementing it harmoniously and effectively.

   A second substantial area for concern is the absence of effective institutional co-ordination.

   These two critical issues will have to be tackled by the time accession negotiations are opened up; it will
   otherwise be considered a hindrance to the completion of Chapter V.

   More efforts are therefore needed to prove that the government is providing support to this area and
   implementing an effective law. Substantial efforts will be required in supporting an embryonic
   institutional structure and in capacity building both within public contracting authorities and domestic
   private sector entities that might become future partners in these PPP and concession arrangements.

  5.2 Understanding PPPs
  The EU does not define PPPs in law.9 The term “PPP” might be considered more of a marketing phrase to
  describe arrangements where the government sector10 enters into contractual arrangements with private
  entities in order to implement public infrastructure or service – a programme or project - for mutual
  benefit. Depending on the objectives and needs of the public entity, the private entity might be invited to
  design, construct, finance and operate the project. The expected benefit for the public entity (and
  therefore the taxpayer) is the same (or maybe better) service delivered at a more efficient cost and with
  greater effectiveness. The expected benefit for the private entity is to make a profit from doing so.

   Whether these benefits materialise is highly dependent on the legal and regulatory framework of the host
   nation and the institutional capacity of the host authority. At a strategic level, there are a number of issues
   that must be considered by all governments that want their administrative units to engage in PPPs.




   9
     Although it might in the future. A non-legal definition of PPPs can be found in a Green Paper on Public-Private
   Partnerships and Community Law on Public Contracts and Concessions, European Commission, 30.4.2004,
   COM(2004) 327 final. It states: “In general, PPPs can be described as forms of co-operation between public
   authorities and private economic operators, often with the aim to ensure the funding, construction, renovation,
   management and maintenance of an infrastructure or the provision of a service”.
   10
      References to “public sector” shall mean central government, municipal/local government, semi-autonomous
   public bodies and other entities falling under EU Directives 2004/17 and 2004/18.
                                                                                                                 46
First of all, it is of vital importance for governments to understand that concessions and BOT11/PPP
transactions are not ends in themselves. They are the result of an economic need. This need should be
elucidated, options considered for achieving the required outputs, and an assessment of whether the
concession/BOT methodology or more conventional contracting is likely to produce the best economic
result. This assessment should be recorded in the interests of transparency so that decision makers can be
accountable for their actions.

5.3 The EU legal framework for concessions/PPPs

5.3.1 Concessions
Concessions are defined in Directive 2004/18/EC where two types of concessions are mentioned: “public
works concessions” and “service concessions”.

A “public works concession” is defined as “a contract of the same type as a public works contract except
for the fact that the consideration for the works to be carried out consists either solely in the right to
exploit the work or in this right together with payment”.12

A “service concession” is defined as “a contract of the same type as a public service contract except for
the fact that the consideration for the provision of the services consists either solely in the right to exploit
the service or in this right together with payment”.13 However, Article 17 of the same Directive states that
service concessions are outside the scope of the Directives. This does not mean that service concessions
(and other concessions outside the scope of Directive 2004/18/EC) are not subject to the rules and the
fundamental principles of the EC Treaty.14 It should also be remembered that the concept of a service
concession is a concept in Community law and therefore should be interpreted within Community law
even when the concept of concessions is defined differently under national law.

5.3.2 Public-private-partnerships (PPPs)
As already mentioned, the EU legal framework does not contain a PPP law or a separate legal system
regulating the choice of private partners by public bodies for PPPs. Furthermore, many Member States
(most notably the United Kingdom, due to its large number of PPP contracts in place) do not even find
the need for a national law but instead allow PPPs to be regulated through existing laws on public
contracts, since in EU Law, PPP contracts can be either public contracts or concessions or even contracts
that are excluded from the scope of the Procurement Directives.

Any PPP projects that are considered as a public works or public service contract under the EU
Procurement Directives must be awarded in accordance with the provisions of those Directives. Where
PPPs are considered to be public works concessions, the provisions governing the award of works
concessions must be applied.



11
   Build/Operate/Transfer.
12
   Article 1 (3) of Directive 2004/18/EC.
13
   Article 1 (4) of Directive 2004/18/EC.
14
   See for example ECJ judgment C-324/98, Telaustria, relating to the award of a service concession. The
judgement stated that, “notwithstanding the fact that, as Community law stands at present, such contracts [service
concessions] are excluded from the scope of Directive 93/38 [the old Utilities Directive, now replaced by Directive
2004/17/EC; see also ”Classical Directive” 2004/18/EC], the contracting entities concluding them are, nonetheless,
bound to comply with the fundamental rules of the Treaty [of Rome], in general, and the principle of non-
discrimination on the ground of nationality, in particular, that principle implying, in particular, an obligation of
transparency in order to enable the contracting authority to satisfy itself that the principle has been complied with.
That obligation of transparency which is imposed on the contracting authority consists in ensuring, for the benefit of
any potential tenderer, a degree of advertising sufficient to enable the services market to be opened up to
competition and the impartiality of procurement procedures to be reviewed.”
                                                                                                                  47
PPPs that are considered to be service concessions or those that are exempted contracts (e.g. in the
defence area) are outside the Procurement Directives. However, all PPPs in which a public body awards a
contract involving an economic activity to a third party, are subject to the fundamental principles of the
EC Treaty, perhaps the most prominent of which are transparency, equal treatment, non-discrimination,
proportionality and mutual recognition.

5.3.3 Further EU legal acts which concern concessions/PPPs
There are other related areas of EU law that will need to be considered in the development and
implementation of the concessions and PPP framework. The Acquired Rights Directive, for example, is
applicable when a private contractor assumes the responsibility for employing public sector workers that
have been engaged in the service element of an existing facility under a PPP arrangement (for example in
a renovation project). Such matters are outside the scope of this Review and it is assumed that these types
of issues will be managed through other existing or future legislation. Mention is made here as it is
important to recognise the links between the implementation of PPP contracts and the wider legal
framework.

Furthermore, sectoral laws that regulate individual sectors of the economy, for example energy, often
have conflicting (or at least non-harmonised) clauses that may put potential PPP projects in peril of legal
challenge over their legal status.

5.3.4 Definition of concessions and PPPs in Macedonia and current legal position in regard of the peers’
experience
Due to long-standing traditions, Macedonia, like other countries in the region, has a concept of
“concession” that is slightly different to that which is legally defined and understood in the EU.

It is then no surprise that the current draft Concession and Public-Private Partnership Law (hereinafter
CPPPL) tries to legislate all forms of concessions regardless of size, complexity or modalities. This is
very difficult to do effectively. The law thus tries to legislate for large, privately financed BOT15-style
infrastructure projects as well as for simple concessions for small-scale natural resource exploitation. This
should be carefully considered during the drafting of any future revisions to the concession law.

The current law on concessions and PPPs dates back only to 200816, but concerns expressed by the
European Commission services about its shortcomings led to a decision to draft a new law to govern
concessions and PPPs. This initiative is led by the Ministry of Economy (hereinafter MoE) and advised
by a Working Group comprising officials from a number of key ministries. It remains to be seen how
effective the Working Group has been in delivering improvements to the draft CPPPL.

The mission of the Working group was to draft and implement a coherent, transparent and efficient piece
of umbrella legislation covering concessions and other forms of public-private partnerships, respecting
best international practice and EU rules deriving from the EU acquis.

Initial decisions on the future structure of the legislative framework were driven by the peculiarities of the
existing Macedonian concessions system and corresponding government decisions. This new framework
had to facilitate a procedure for the award of all types of concession contracts, which would include
public works concessions and service concessions in the meaning of Directive 2004/18/EC and so-called
non-EU license type contracts, which refer to the exploitation of “goods of general interest”, in the
meaning of the Macedonian Constitution and under the national legal system.

Previous concessions laws, including the one currently in force, did not make any specific distinctions
between the different types of concessions and corresponding procedures as it is required by the acquis.

15
 Build Own Operate – still a form of PPP.
16
  Law on Concessions and Other Types of Public Private Partnership (Official Gazette of the Republic of
Macedonia No. 7/2008, 139/2008, 64/2009 and 52/2010).
                                                                                                           48
In addition to the umbrella law, concessions are also covered by other pieces of legislation regulating
specific economic activities and areas, such as transport infrastructure and services, utilities, waste
management, mining, exploitation of inland waters, and cultural heritage sites among others.

Taking this into account, and considering similar experiences of other candidate countries, the following
decisions have been initially adopted by the Working Group:
     draft a single piece of legislation covering all three types of concessions (public works, services
        and exploitations of common goods),
     facilitate the implementation of other forms of PPPs,
     fully harmonise the law with the relevant EU acquis,
     utilise the existing Public Procurement Law with regard to specific award procedures,
     draft sub-legal acts,
     harmonise all sectoral legislation (law regulating concessions in different areas and for different
        activities) with the new law on concessions and PPPs.

SIGMA’s initial proposal was to exclude licensing types of concession contracts and develop a
concessions/PPP law covering only EU concession contracts. However, the government had already
taken their decisions on the scope and structure of the law, so further assistance was directed towards
implementing this solution in the best way possible, all the while respecting EU rules and procedures.

Since 2009, the draft law has experienced numerous modifications, some more significant than others.
The two key issues were the small number of officials and institutions designated for this task, and the
strict opposition of some ministries or institutions to some of the proposed legal solutions. Additionally,
some of the foreseen solutions encountered either false expectations of implementation or faulty practical
execution. Frequent internal debate and changes in government decisions created further drawbacks. A
draft PPP Act was proposed in March 2009, covering works, services and institutional concessions/PPPs,
but it was somewhat disregarded by the government. It was followed by a new draft developed in October
2009 which was in turn deemed unsatisfactory. Similar modus operandi continued for the remainder of
the process. New drafts were developed in intervals of three to four months, which proved to be too slow
and inefficient.

The process picked up in the second half of 2010 when SIGMA drafted a report on the legal framework
arising from sectoral legislation and another paper with proposals for amendments to the Public
Procurement Law with regard to the new concessions and PPP legislation. SIGMA submitted a new set of
observations as well as answers to comments on the draft law.

Some of the key issues raised at that time proved to be critical and are still somewhat existent. They
included:
     The Law leaves a lot to be desired with regard to the clarity of legal solutions, the efficiency of
        the proposed procedures and “user-friendliness’’.
     The Macedonian authorities’ decision to have all forms of public-private partnerships and
        concessions addressed in the same piece of legislation, namely public contracts and concessions
        in the meaning of EU public procurement law, and other contracts such are concessions for
        “goods of general interest” (i.e. licenses), is one that requires additional efforts in legal
        provisioning to be undertaken in order to achieve clarity and transparency within one piece of
        legislation.
     The need to thoroughly consider decisions taken with regard to rules and regulations arising from
        Directives 2004/18/EC and 2004/17/EC, primarily the specific situation of:
        - public service concession contracts,
       - the exclusions set out by Directive 2004/18/EC (for operating telecommunications, for secret
       contracts and contracts requiring special security measures, for contracts awarded pursuant by
       international rules),



                                                                                                        49
       - public works concessions awarded by contracting authorities exercising one or more activities in
       the scope of Directive 2004/17/EC, where those concessions are awarded for carrying out those
       activities.
      It was also proposed that all award procedures should be tested on practical examples of projects
        and that a thorough analysis of solutions and expressions used within the law be conducted (in
        co-operation with the government and Parliament Legislation Office). Special, country specific
        issues should be analysed with respect to concessions for “goods of general and public interest”;
        licensing type arrangements could be considered for those contracts that are outside the scope of
        Directives.

Moreover, completion of the draft law was complicated by the option to avoid amending the Public
Procurement Law, as previously foreseen in order to facilitate the CPPPL’s solutions and strengthen the
systemic liaison between both pieces of legislation. However, having the electronic system of publishing
tender and award notices adjusted for the same purpose was finally accepted. Solutions were arranged in
the draft law to cope with this issue. SIGMA still stands by the proposal to scrutinise the PPL in detail in
order to ensure that all the linkages with the CPPPL are functioning.

Additional proposals were made including trying to incorporate provisions regulating rights of
securitisation over the assets in the final draft, rights of financiers (senior debt holders) to enter into direct
agreements with authorities, compensation on termination, fiscal risks in PPP projects and dispute
resolution procedures. Some - but not all - of the advice given has been adopted by the drafting team in
the MoE. The draft of March 2011 was communicated to the European Commission services (DG Markt)
for consultation, then reviewed again in detail by the main stakeholders of the drafting group (Ministry of
Economy and Public Procurement Bureau essentially) with assistance from SIGMA in order to address
DG Markt’s concern for greater clarity. The draft law was sent in government procedure in mid-July, and
to the Parliament in September, at the time of finalising this report.

Governments that are interested in the development of concession and PPP activity should generally aim
to develop legal frameworks that:
- Allow for PPP projects to be implemented,
- Provide clarity regarding the conditions and principles by which such contracts may be awarded,
- Describe the manner and quality of preparation of the proposed project,
- Describe procedures that will be adopted during the procurement process and the manner of selection
and/or award,17
- Address investor and financier concerns.

Interested governments will want to ensure that the law encourages bidders to engage in concession and
PPP activity, thereby increasing the level and quality of competition resulting in better value outcomes. It
is therefore important to understand the concerns of bidders and potential bidders.

Where concession/PPP activity involves investment by the private sector, potential bidders will be
concerned about a number of additional issues not always fully understood by governments. Amongst
these are: security over the assets related to the project; the right for banks to “step-in” to failing
operating contracts in order to service the debt repayments and the concessionaire’s right to compensation
upon termination of a contract where assets are involved even when it is at fault.

It seems that during the course of the preparation of the draft CPPPL, the views of the private sector were
not sufficiently understood and this became clear when SIGMA reviewed the draft law dated February
2011. As an example, the present law does not appear to contemplate the possibility of two-stage
tendering even though it is permitted in the Public Procurement Law (PPL).

17
  SIGMA’s preference is that these selection and award procedures should be regulated through the core legislation
on public procurement in order to ensure systemic consistency of the whole public procurement scope in the
meaning of the EU Directives and avoid misunderstandings and mistakes that could lead to legal challenges to the
process.
                                                                                                               50
Whilst this situation might be sensible for smaller scale concessions - such as the right to rent equipment
to the public - using an open procedure as per PPL, it is almost anathema to bidders on large BOT
transactions and particularly to international investors. The reason is simple: the scale of work required to
tender for an infrastructure BOT project is significant – and costly, often running into many hundreds of
thousands of euros just in external costs, not to mention their own internal (lost opportunity) costs.

Bidders will want to quantify their risks before they commit to a complex and expensive tender
submission. For this reason they prefer to enter a pre-qualification stage where they are qualified (or dis-
qualified) by means of their technical competence and financial capacity to submit and realistically fulfil
a competent tender. In order to quantify their risks further, if they think that their tender will be one of a
large number of other tenders, they will believe that their prospects of success are limited. However, if
the pre-qualification process eliminates all but (for example) four possible bidders, they can quantify their
risks and are more likely to participate. On top of this, it is also costly for the government to engage with
large numbers of tenderers and a two-stage procedure will also save them money and time.

For complex projects such as some BOT projects, the concept of competitive dialogue might be further
elaborated in the future, although this might best be handled through the PPB with supporting regulations.
Support may be required to ensure understanding and to prevent costly mistakes.

The most important observation about the draft CPPPL as developed at the time of the Peers’ visit is that
there is a mismatch between the objectives of the law and what it promises to deliver.18 The draft CPPPL
is mainly a law addressing procedural rules for the award of concessions and PPPs rather than securing
the relationship between the private and public sectors under all its relevant aspects. An argument could
be made that the CPPPL does not need to exist since procurement issues should be dealt with exclusively
by the PPL in order to avoid parallel systems from developing.19

The existing draft is more or less technically and academically compliant with Chapter V requirements. It
should be reflected upon that a CPPPL of this nature can both “tick the box” for Chapter V but at the
same time not be effective in its objectives.

5.3.5 Further improvements to the legal framework
Whilst understanding the shortcomings of the draft CPPPL as regards especially some issues of interest
for the private sector, the Ministry of Economy expressed a preference for secondary legislation to deal
with these missing items. Interestingly, we are presently in a situation somewhat similar to the one
experienced with the 2008 law on concessions and PPPs.20

Several draft regulations were in the final stage of preparation during the course of the Peer Review. Our
understanding is that they were developed by national experts. These by-laws were as follows:
- Rule Book on the Contents of the Feasibility Study,
- Rule Book on the Contents of the Contract,
- Regulation on the Concession and PPP Registry,
- Contents of the Reports into Unfulfilled Projects.

18
   Article 2 states: “The objective of this law shall be to enable private initiative for financing concessions and
public private partnership….” Several key requirements of investors and financiers that might allow this to happen
are missing from the draft.
19
   A good example of such drafting can be found in the Law on Public Private Partnerships of the Republic of
Ukraine adopted 1.7.2010. Art.6.1 states: “State procurement under the public and private partnership framework is
conducted in accordance with the legislation on procurement of goods, works and services for public funds.”
20
   Letter from the Minister to SIGMA, 22 October 2007: “Keeping in mind that it is too late to amend it, i.e. to
intervene in direction of your comments, I would like to inform you that it is necessary that the law be enacted as it
is in its draft version, and in the preparation of its amendments, or preparation of a new text, we take the obligation
to incorporate all your comments, suggestions and remarks, with your assistance and co-operation in the
preparation of the text.”
                                                                                                                   51
In view of the weaknesses in the primary legislation, further support should be given to the Ministry of
Economy in order to develop a robust set of regulations and guidance that can bolster the CPPPL. A
certain level of maturity is still needed in order for the legislation to fulfil these true needs. The four that
are mentioned are a good start. An additional one that seems obvious would be a regulation that governed
fiscal risk and the indebtedness of individual public authorities. Others are needed but can only be
determined following further discussion, thoroughly examining what is required in the national context.
We assume this is an area where SIGMA could assist, as envisaged by decision makers in the MoE.

Currently, a number of the larger projects are being supported by international financing institutions
(IFIs). It is quite possible that when larger privately financed projects are procured without the support of
IFIs, that some amendments to the primary legislation will be required. Often such requirements are at the
insistence of commercial financing institutions.

It should be understood that even the best Concession/PPP Law in the world will not guarantee a
productive programme of such projects. The entire relevant legal framework, including property law,
laws on the provision of public services and sector laws, needs to be harmonised with the CPPPL.
Following its adoption, significant efforts shall have to be undertaken with regard to this overall
harmonisation of the national legal framework for concessions and PPPs with the umbrella act, and the
responsible institutions need to be effective in implementing them. It should not be under-estimated that
the scale of this work is significant. A similar exercise in Ukraine has just been scoped by legal
professionals. It identifies 35 legal acts that have potential conflicts with the PPP Law and estimates the
time to draft, consult and process the amendments might be as much as three years.

The need to address this issue appears to have been understood and embraced by the Ministry of
Economy that has stated that it will continue to co-ordinate other sector authorities in order to ensure a
rapid and effective harmonisation. However, the scale of the effort to do this is likely to overwhelm the
existing capacity of the Ministry of Economy. External assistance will likely be required. The importance
of this work and its timeliness cannot be understated as the potential for legal challenge in the event of
conflicting laws is very high.

Concession and PPP laws should avoid mimicking existing procurement legislation and should
specifically avoid allowing a parallel system to develop by default. When trying to draft tendering
procedures into concession/PPP laws, mistakes can easily be made. The confusion created can result in
delays through interminable legal proceedings. Instead, for the cohesion of the overall procurement
system, references to tendering procedures should be made through simple references to the appropriate
clauses in the Public Procurement Law (PPL). This remains SIGMA’s preferred solution and should be
addressed in future amendments and reforms to the CPPPL. Concessions, as they are defined in EU Law,
could be entirely regulated in the PPL, as they are in a number of other EU Member States. The PPP Law
would then only need to deal with issues that specifically relate to such projects, for example: scope of
the law, protection against fiscal risk, provisions regarding security over assets and compensation on
termination, etc.

5.4 Strategy/policy of the government
The credibility of Macedonia’s desire to engage in more concessions and PPP projects could be greatly
enhanced through the publication of an authoritative strategy document or policy statement of the
government.

The major benefit of producing a document of this nature is that it obliges one to take the entire strategy
into account as well as how various elements of the policy would need to be co-ordinated. It should give:
- Background – What is the document about?
- A statement about why the government is interested,
- A description of the benefits that might accrue to the economy,
- A description of the possible risks of the policy and plans to manage those risks,


                                                                                                             52
- A description the scope and scale of PPP/concession activity. It is also common to announce a small
number of pilot projects,
- The institutional arrangements for implementing the policy and projects,
- Principles to be adopted in developing further policy on PPP/concessions,
- How the projects will be chosen for the PPP/concession procedure and how they will be implemented.
The main audience for the document would be potential investors and financiers but also public officials,
media and, importantly, citizens.

Currently, no such document exists, but the Peer Review team heard of plans to produce one. This should
be encouraged and supported.

5.5 Institutional framework for concessions/PPPs
Our perception is that “competitive tension” exists between different line ministries – in particular the
Ministries of Finance and Economy. According to the peers’ experience, such “turf wars” often hamper
the correct and harmonious institutional arrangements that are vital to progressing to a fully functioning
system for concessions and PPP. “A Public - Public Partnership” is an essential pre-requisite to good
Public - Private Partnerships.

However, it is not the intention of the peers to take part in such a debate, which can only be solved by the
national authorities taking due consideration first and for all of the national interests. Regardless of the
option chosen, one of these interests in particular will guarantee success in conducting negotiations for
accession to the EU, once opened. According to the current accession processes with Croatia and Turkey,
it is likely that Macedonia will be requested to “ensure that, during the pre-accession period, an
organisation for procurement guarantees a coherent policy in all areas related to public procurement,
and steers its implementation, in order to facilitate the process of alignment to the acquis, and to
facilitate the future negotiations on the chapter.”21

Considering the legislative prospects as well as the current state of play in Macedonia, it appears that
there are four relevant institutions in the field of concessions and PPPs:

One is the PPB in so far as, according to national law,22 it shall carry out “The tasks related to the
development of the public procurement system, as well as the provision of rationality, efficiency and
transparency in the procurement processes”. Although no reference is made to concessions in the PPL,
attention must be paid to the fact that, according to EU law as it is reflected in some case law of the
European Court of Justice and in the doctrine developed by the European Commission services,
concessions and PPPs are encompassed in the notion of procurement, though concessions are excluded
from the scope of the Directive 2004/17/EC and only public works concessions are addressed in Directive
2004/18/EC. As a matter of fact, the peers noticed that the PPB Strategy states under the heading
“Objectives and Priorities Promoting the Legal Framework” that: “PPB will seriously consider the
possibility for undertaking the works concessions and services concessions and their integration into the
public procurement system”.23 Additionally, Objective No 5 of the Action Plan24 states it will be
responsible for analysis of the legislation for concessions for services and works. When asked how this
objective was progressing, we were told that it was still in negotiation. Our understanding is that this is
one of the symptoms of the aforementioned competitive tension.

Another relevant institution – at least in the future - is the State Audit Commission (SAC), which
appears to be developing in a positive manner. They currently do not have the competency to examine
concession and PPP contracts but it is envisaged that this issue will be resolved in the new CPPPL -

21
   Wording of the first benchmark for opening Chapter V in the case of Turkey.
22
   PPL art. 12.
23
   Page 6/17 in the English language version.
24
   “Action Plan for the Implementation of the Strategy of the Public Procurement Bureau”. Page 11/17 in the
English language version.
                                                                                                         53
Article 54: Right to Appeal states: “The review procedures to all contract award procedures pursuant to
this law shall be provided in compliance with the Law on Public Procurement.” This is a commendable
approach.

An example of SAC’s current lack of authority in this area concerns a case where a procedure was
cancelled because the awarding authority didn’t have the necessary funds to pay for it. It only had the
funds for one year instead of for five years - the length of contract. Funds needed to be approved by the
Ministry of Finance. The administrative court overturned the decision because the awarding authority
successfully claimed that the SAC didn’t have the legal power to pass a decision on this issue.

SAC’s forthcoming additional responsibility for making decisions regarding PPPs and concessions will
require some basic awareness and training for its staff.

A third important institution in the area of concessions and PPPs is the Ministry of Economy, in so far as
it is responsible for drafting a new law in this field as well as for implementing it in the future, according
to the draft. It is struggling to keep pace due to inadequate resources (see Sections 4.4 and 5.6).

Beyond prospects of responsibilities for the MoE, the SAC and the PPB according to the draft act or a
strategy document, the Ministry of Finance should theoretically be the main stakeholder in the field of
concessions and PPPs at the present time. As a matter of fact, according to the 2008 law on concessions
and other types of PPPs currently in force, the Ministry of Finance is theoretically responsible for:
- participating in the Council for concessions/public-private partnerships (art. 8);
- prescribing the methodology for calculating the estimated value of the concession (art. 29);
- appointing a representative in the Commission established by a grantor for implementation of the
procedure for granting a concession (art. 37);
- enacting the methodology by expressing in points the criteria for selection of the best bid (art. 66);
- receiving requests for approval of budget funds when needed for implementing a PPP (art. 91);
- prescribing the format and the contents of the report prepared for any initiated, but not completed
procedure for concession and any concluded concession/public-private partnership contract (art. 106);
- maintaining the Register for the granted concessions to be published on the website of the Government
of the Republic of Macedonia, and stipulating its format and contents as well as the form to submit the
data regarding the granted concessions (art. 107);
- receiving reports of all the changes related to the granted concessions (art. 108);
- and finally, receiving monthly reports from grantors on the regularity of payments of the concession
fees (art. 109).

However, the peers came to the conclusion that there is no record of what has already been awarded in
the area of PPPs and concessions. There is no overall picture, no operational co-ordination and it is
believed that there is not one institution in the country that has any idea of the types and numbers of
concessions and PPPs that have been awarded. Even though a number of the PPP projects that are being
developed are significant in size (but supported heavily by IFIs), competent authorities do not even seem
to be aware of their existence. Such projects provide great opportunities to transfer skills and knowledge
to officials in other parts of the administration but these opportunities are mainly being missed.

It is believed that the Ministries of Transport, Energy, Health and Culture all have plans for PPP and
concession projects, but responsible officials in the Ministry of Economy have no idea what they are. The
lack of institutional co-ordination is a highly prominent feature of the PPP and concessions system in
Macedonia. More worrying is that the lack of co-ordination might lead to real problems in some of the
projects. For example, officials responsible for one major PPP project in the country had no idea of the
existence of the new draft CPPPL going to the government. Not only could this have a potential impact
on the progress of their own project, but it also seems a missed opportunity - those involved in a real
project could have commented with some degree of knowledge and authority on drafts of the CPPPL as it
was developing.



                                                                                                           54
5.6 Institutional developments
Although the draft CPPPL covers the high-level advisory and co-ordinating functions of the
administration, it doesn’t offer much clarity about the specific institutional arrangements for preparing
and awarding concessions: it refers constantly to “the government” instead of the specific responsible
entity. This may imply to interested bidders, particularly international investors, a higher degree than
normal of politically based decision making rather than decisions based on objective economic and
technical criteria. This might be a deterrent to bidders.

Future attempts at drafting a revised law should therefore aim to provide greater clarity on the precise
institutional arrangements and what each institution is responsible for. The institutional arrangements
could also be simplified, it is probably not necessary for the government or the National Assembly to be
involved to such a great extent as is required by the present law.
Article 12 of the draft CPPPL describes the Public Private Partnership Council as having an advisory role
to the government, although it is not clear where the competencies to do so will have been developed. Its
role should be described and made transparent if it is to become more effective. It envisages members as
representatives from the Ministry of Economy; Ministry of Finance; Ministry of Transport and
Communications; Ministry of Health; Ministry of Education and Science; Ministry of Agriculture,
Forestry and Water Economy; Ministry of Environment and Physical Planning; Ministry of Culture;
Secretariat for Legislation; Public Procurement Bureau; the Association of the Local Self-Government
Units; the business community, as well as independent experts particularly in the field of the economy
and law.

Although a body also known as the PPP Council is said to exist already,25 at the time of this peer review,
it was believed not to function. In particular, though the Council has the task of preparing “proposals,
opinions and initiatives that will be the basis for the development of a strategy for implementation of
projects related to the concessions/public-private partnerships”, the peers are not aware of the current
existence of such strategy. Since members are to have four-year fixed terms of office that are paid and
there is no defined role other than “advisory”, it could be fathomed that the body would be a sinecure.
However, we were explained that members were appointed and held one or two meetings, though they
were not remunerated.

The draft CPPPL however, clearly sets out the precise roles of the Competent Authority for Public Private
Partnership - the Ministry of Economy. Article 14 assigns it the following tasks:
     developing and implementing measures and activities in order to achieve and maintain fully
        transparent and efficient systems for public-private partnerships;
     keeping and maintaining the Register for the awarded public-private partnership contracts, public
        works concession contracts and public services concession contracts;
     preparing draft proposals on amending the regulations in the area of public-private partnerships
        as well as instructions for implementing the provisions of this law;
     organising and carrying out education and training on public-private partnerships for all
        participants;
     monitoring, analysing and providing expert assistance and opinions on the implementation of the
        procedures for public-private partnerships;
     executing other works and assignments related to public-private partnerships.

The legal department within the Ministry of Economy, having led the work on the CPPPL, currently has a
holding role prior to the approval of the law and has practical responsibility for the subject area. Current

25
  Ref: Article 62 of the draft CPPPL – ‘Continuance with the Work of the Public Private Partnership Council’. The
Public Private Partnership Council established pursuant to the Law on Concessions and Other Types of
PublicPrivate Partnership (Official Gazette of the Republic of Macedonia No. 7/2008, 139/2008, 64/2009 and
52/2010) shall continue to work pursuant to the provisions of this law’; see also article 12 in the draft law
establishing the Public Private Partnership Council. Indeed, the Council is established in very similar terms under
art. 8 of the 2008 law but we did not get its track-record.
                                                                                                                 55
work demands are still far greater than the available resources. Current activities are focused on
developing supporting regulations for the draft law. They are also starting to provide legal advice to
public entities that are considering or preparing PPP/concession projects. They are also starting to get
involved in pilot projects in the Ministry of Health, although these are clearly at a very early stage. They
will also be in charge of the PPP database and plan to take a prominent role in the future of policy
development.

Current plans for the future PPP Unit envisage a team comprising: one Head, two economists and two
lawyers. From the assessment of the draft regulations and the need to develop guidelines to support the
implementation of the legal framework, a lot of support will need to be provided in this area. It was not
made clear how these individuals would be sourced or when.

5.7 Availability and quality of information about the system
During discussions with the responsible institutions, it became clear that the availability of information
about the overall types and volume of concessions and PPPs was not co-ordinated at all and is very
difficult to obtain. This is in clear contrast to the quantity and quality of information available to the
authorities through the efforts of the PPB. This situation probably exists because the current responsible
authority for concessions/PPPs does not actually monitor the policy in the field and/or does not share its
monitoring data with the Ministry of Economy, which presently has very few resources to conduct any of
its own assessments as it has been fully engaged for some time in the development of the draft CPPPL.
The present situation is a clear weakness in the system and should be fully rectified.

It is fair to say that this weakness is recognised by the responsible institutions and one of the draft
regulations in support of the proposed new CPPPL aims to fix this problem and regulate the amount, type
and quality of information that contracting authorities should provide. This is a positive development and
its full implementation should be supported.

5.8 Capacity building requirements
The capacity of the administration to prepare, procure and manage concession/PPP projects without the
support of IFIs is extremely limited at the moment. The capacity of the domestic private sector to engage
in these types of projects must also be considered limited, although it became clear in discussions with
industry representatives that they are interested in the possibilities and opportunities presented by an
effective and fully functioning system.

PPB already has an annual programme for training and 48 trainers. The costs are recovered through
charges for training. It might seem obvious to extend this current activity to the field of concessions/PPPs
but this would need to be done with the co-operation of the Ministry of Economy due to their institutional
role in the subject matter.

Regardless of the actual delivery arrangements, the tasks that face the administration to develop
institutional capacity are significant and would likely be as follows:
      providing good quality staff who have a basic understanding of the subject matter and a
         background in law, economics or one of the major technical disciplines expected in
         PPPs/concessions,
      creating an intensive training environment during the first few months of engagement,
      engaging individual officials within the state’s main ministries and the larger entities of local
         government considered to be ‘lead officials’ on the subject,
      training these lead officials in the subject matter,
      providing trainers with good communication skills and who are capable of describing and
         teaching the subject matter to a wide range of public officials,
      training the instructors.



                                                                                                         56
In order to develop capacity in the domestic private sector, regular awareness, training and policy
seminars should be held by responsible officials and qualified experts in order to convey the concepts,
policies and procedures necessary to improve participation from the private sector. Such training should
be preferably tailor-made for the specific needs of the private sector, which are partly different from those
of contracting authorities. A reasonable charge might be made to those delegates in order to recover the
costs of staging such events and seminars but such charges should not be set so high that it becomes a
deterrent to participate.

It is important to state though, that seminars should not be held until the government policy towards
PPP/concessions is formulated in the strategy/policy document mentioned above. In other words, there
should be a consistent and credible story to tell to potential partners. Otherwise they may not participate
in future tender exercises.

5.9 Current activity in the area of concessions/PPPs and lessons learnt
Much of the activity in this area has been unreported and is not recorded in a single register. It is difficult,
therefore, to understand its scale. The following information was collected through the limited meetings
held by the Peers and may not be complete.

What became clear during the Peer Review is that there are three main types of existing activity:

5.9.1 Large-scale PPPs (BOTs)
As described by one official, these projects are amongst the biggest the country will ever undertake;
therefore, it is important that they are adequately prepared and correctly procured. The most prominent
examples of these large-scale PPP projects currently in Macedonia are listed below.

5.9.1.1 Concession on the Airport System of Macedonia (Ministry of Transport)
In 2008, the government, through the Ministry of Transport, signed a contract with the Turkish company
Tepe Akfen Ventures (TAV) for a 20-year concession during which this company would manage
Macedonia’s two existing airports: the Alexander the Great Airport in Skopje and the St. Paul the Apostle
Airport in Ohrid. The planned works include the construction of a new terminal building in Skopje, the
extension of the runway, a new administration building, and a new access road with parking facilities, all
of which would increase the capacity of Skopje Airport to 4 million passengers per year. The deadline for
the completion of the work is 31.10.11 and is said to be on target, but it is not within the competency of
this Peer Review to assess the validity of this claim.

At Ohrid airport, the terminal building and VIP sections were modernised. The concession contract also
includes the construction of a third airport intended for cargo transport near the eastern Macedonian town
of Štip. The total amount of the investment is envisaged at EUR 200 million, with EUR 30 to 40 million
of anticipated concession payments to the Macedonian Government over the whole 20-year concession
period. It is claimed that the obligations regarding Ohrid airport have been completed on time and that the
planning for the Štip airport is underway.

The project was awarded under the 2008 Concession Law and the restricted procedure available within it.
Commendably the project was announced in the international press and the OJEU26 and this action
resulted in 20 expressions of interest. Four international companies pre-qualified: one French, one
German, one Austrian and one Turkish. The authorities, supported by Dutch consultants, held a bidder
conference and prepared a data room at Skopje airport. All of these actions represent international best
practice but no judgement can be made about the quality of the output.

The award criterion for the project was established as the “size of the concession fee” and the draft
contract was included in the tender documents. It transpired in the end that only the Turkish company

26
     Official Journal of the European Union.
                                                                                                             57
submitted a tender for the project. It might be argued that the concession fee would simply be added to
the construction price and that the concession fee is almost never the most economical method of
realising a privately financed infrastructure project. There is no transparent methodology for establishing
whether or not this project was implemented in the most economically advantage manner for the state.

5.9.1.2 Major highway concessions (Ministry of Transport)
The Ministry of Transport is currently seeking tenders for a highly significant project of privately
financed highways, with an estimated investment value of EUR 1 billion. The 2008 Concession Law is
being used and again, advertisements were placed in the international media and the OJEU. So far, six
companies (from eight expressions of interest) have pre-qualified. This time the award criterion is
established as the minimum number of vehicles that need to be guaranteed by the state – that is the size of
the required state guarantee. It remains to be seen whether the scale of the required guarantee would
overwhelm the authorities, making it an unaffordable project, as the bids are still outstanding. Because of
the outstanding status of the bids, it would be inappropriate to comment further.

5.9.1.3 Large power generation (ELEM; MoE)

The state provider of electricity ELEM is 100% owned and regulated by the state but operates
commercially. As a result, they are still obliged to follow the provisions on utilities under the Public
Procurement Law. The company works for profit so they believe they are not connected to the state
budget. Investment projects in recent years have been of a significant scale and have generally been
unaffordable by the state.

They have therefore sought a combination of their own (ELEM) equity, donor funding, and in one case, a
commercial loan.

They use external, usually international, consultants appointed by their partner donor (examples quoted
on existing projects were: EBRD, WB, IFC and KfW) to do the preparation. As a result, much of the
actual work is done by these consultants rather than by officials. Nonetheless, this is a very useful
knowledge transfer for thee officials working on the projects as the work appears to be of a very high
standard. For tender evaluations, price/quality ratios of 30:70 minimum are encouraged.

Examples of live projects of this nature, either in preparation or procurement stage, are:
    Crne River Project: EBRD co-financed. Restricted procedure.27 Investment value = up to
      EUR 700 million,
    Borško Most: EBRD co-financed. Restricted procedure. Investment value = EUR 80 million,
    Wind Energy Park: KfW co-financed. Investment value = EUR 75 million,
    Thermal project at Bitola. Investment value = EUR 56 million – financed through a commercial
      loan28 and ELEM equity in a ratio of EUR 30 million: 26 million (this will make it a fairly
      expensive project),
    Lukovo/Pole: WB co-financed. Investment value = EUR 62 million. Loan value = EUR 52
      million; ELEM equity = EUR 10 million,
    Rehabilitation of 6 x hydroelectric schemes: KfW co-financed with ELEM equity in a ratio of
      EUR 27 million: 4 million.

5.9.2 Contract-based concessions (which may also be considered PPPs)
Since the Energy Strategy in Macedonia is the responsibility of the Ministry of Economy, it is also
responsible for awarding concessions in this sector. Big projects, such as those mentioned above, are
typically realised through ELEM; small plants that would not normally interest ELEM due to their small
size, are usually awarded through a competitive procedure through concessions. There is a department


27
     Possible under the EBRD rules but not envisaged under the draft CPPPL.
28
     Mainly because WB/IFC/KfW will not participate in thermal power projects of this kind.
                                                                                                        58
within the Ministry of Economy that manages this process. It is on quite an impressive scale. It was
surprising, therefore, that when discussing the prospect of the new CPPPL with a responsible official, he
stated that the department had not really been consulted on the drafts of the new CPPPL, despite the fact
that the two responsible entities are in the same ministry and in the same building. This can be regarded
as another example of poor institutional co-operation.

The vast majority of the smaller power generation projects were hydroelectric schemes. A technical study
some years ago had identified sites for some 400 possible hydroelectric schemes. Of these, 47
concessions have already been awarded for a total of 36MW of generating capacity and one has already
been completed. The concessions are awarded for 23 years, comprised of a 3-year period to construct the
plant, followed by 20 years of operation. They are envisaged on a Design, Build, Operate and Transfer
(DBOT) basis.

All of the concessions were announced in the National Gazette and in the Financial Times.29 Participation
appeared to be good with generally three, four or five bidders30 although sometimes there were not
enough bidders to justify continuing with the procedure in one or two additional remotely located
opportunities. Slightly more than 50% of the awards went to foreign companies and slightly less than
50% to Macedonian companies.

Following this success, the Ministry of Economy has advertised a further 44 opportunities, with an
estimated combined investment value of EUR 63 million, with a deadline for expressions of interest in
May 2011.

The award criteria for these projects are relatively simple: “installed generating capacity” at a particular
location and “price”.

5.9.3 Concessions based on “goods of general interest”
Concessions based on goods of general interest – such as aggregates and minerals are unlikely to be
considered PPPs. This area seems to cause the most concern and confusion not least because of the
difficulty in defining it in a way that is consistent with EU law. SIGMA advice to the Working Group of
the Ministry of Economy was that these concessions should be regulated outside of the CPPPL.
Unfortunately, this was not possible. It is clear a significant number of these concessions (usually small)
are concluded each year but since there is no Concession Register, it is not possible to estimate how many
or of what nature they might be. Since these concessions fall outside of the remit of the Peer Review, they
are not further commented upon, although procedures for the grant of a licence to a single operator or for
the renewal thereof have to comply with the fundamental principles of the Treaty on the Functioning of
the European Union (TFEU), especially the principle of equal treatment and the consequent obligation of
transparency.31

5.10 List of recommendations
(in the order they appear in the text – not in order of importance)

     1. For complex projects such as some BOT projects, the concept of competitive dialogues might be
        further elaborated in the future, although this might best be handled through the PPB with
        supporting regulations. Support and training may be required to ensure comprehension and to
        prevent costly mistakes.




29
   It was not clear whether or not the opportunity was published in the OJEU – nobody was able to confirm.
30
   They were happy to use the open procedure since there is a very limited market of suppliers of these schemes.
31
   See f.i. ECJ case law C-203/08 Betfair, regarding exclusive rights to organise and promote games of chance.
                                                                                                                   59
    2. In view of the weaknesses in the primary legislation, further support should be given to the
       Ministry of Economy in order to develop a robust set of regulations and guidance that can bolster
       the CPPPL.

    3. A rapid and effective harmonisation with other national laws, and especially sectoral laws, should
       be undertaken. The scale of this effort is likely to overwhelm the existing capacity of the Ministry
       of Economy. External assistance will likely be required.

    4. For the cohesion of the overall procurement system, references to tendering procedures in the
       CPPPL should be made through simple references to the appropriate clauses in the Public
       Procurement Law (PPL). This remains SIGMA’s preferred solution and should be addressed in
       future amendments and reforms to the CPPPL.

    5. No strategy document for PPP exists but the peer review team heard of plans to produce one.
       This should be encouraged and supported.

    6. For the sake of future accession negotiations as well as for the harmonious development of
       concessions and PPPs in Macedonia, co-ordination between the relevant institutions should be
       significantly strengthened in a spirit of genuine co-operation.

    7. Representatives of the line ministries, but also the actual practitioners currently responsible for
       managing significant concessions or PPP projects should be informed of and closely associated to
       any legislative development in the field, including by-laws.

    8. The staff of the State Appeals Commission’s (SAC) will require some awareness and training to
       prepare for their forthcoming responsibility for making judgements concerning PPPs and
       concessions.

    9. In order to increase its effectiveness, the role of the PPP Council should be described and made
       transparent.

    10. Information about the overall types and volume of concessions and PPPs is not co-ordinated and
        is very difficult to obtain. This is a clear weakness in the system and should be fully rectified.

    11. Regardless of the actual delivery arrangements, the tasks that the administration faces to develop
        institutional capacity are significant and would likely include:
    a. providing good quality staff who have a basic understanding of the subject matter and a
        background in law, economics or one of the major technical disciplines expected in
        PPPs/concessions,
    b. creating an intensive training environment during the first few months of engagement,
    c. engaging individual officials within the state’s main ministries and the larger entities of local
        government considered to be “lead officials” on the subject,
    d. training these lead officials in the subject matter,
    e. providing trainers with good communication skills and who are capable of describing and
        teaching the subject matter to a wide range of public officials,
    f. training the instructors.

    12. To develop capacity in and improve the participation of the domestic private sector, regular
        awareness, training and policy seminars should be held by responsible officials and qualified
        experts in order to convey concepts, policies and procedures.

MoE comment: Having in mind that the comments and recommendations in the Report are mainly in
direction of providing bigger cooperation and coordination among the relevant institutions, both in
enacting legislation for regulation of this field and in the practical realisation of projects, we believe that
with the enactment of the new Law on Concessions and PPP this problem would be solved. Namely, the
                                                                                                            60
Law would provide a legal basis for the Ministry of Economy (which currently doesn’t exist) to take the
necessary measures in direction of establishment of system-data base for public private partnership
contracts (contracts for public procurement of works/services, including the concessions for public work
and public services). Thus, the Ministry of Economy as coordinator in this field will establish bigger
coordination and harmonisation to the other involved entities, both in the public and the private sector.
In this direction is also the role of the Public Private Partnership Council, where members will be
representatives of the most relevant bodies (public and private), which have activities with procedures for
concessions and public private partnership, through which each of them, pursuant to the competences of
the organ it represents, would enable bigger coordination and development in this field. By enacting the
Law, due to performing the determined competences, there is also a need for strengthening the
administrative capacity of the Ministry of Economy- Unit for concessions and public private partnership
with relevant and professional personnel.
Certainly, we further expect the additional support of SIGMA, i.e. technical and professional assistance,
which as so far would be provided, both in the field of preparation and enactment of the Law on
concessions and PPP and the by-laws (including the strategic document and relevant rulebooks for
easier understanding and implementation of the Law) and providing and organising intensive and quality
trainings for the engaged officials and trainers in this field, who would later participate in the realisation
of the PPP projects, but also the possibility for them to transfer their knowledge to other interested
entities, including the private sector by holding seminars.

Peer team reply: This report acknowledges and tries to reflect the gap of leadership observed in the area
of concessions/PPPs: due to a transitory situation, while the MoE was entrusted with the preparation of a
new law as of the enactment of the 2008 law, the implementation of the latter does not appear to have
been monitored as scheduled in the law.
As regards the future law, according to experience in EU Member States or other countries in the Western
Balkans, the key to proper enforcement is, beyond the pertinacity of provisions in the law, an effective
and sustained political will for it to be properly implemented. Although SIGMA is indeed willing to
support the process, the peers insist on the urgent need to strengthen the administrative capacity of the
institution responsible for implementing this law in terms of number of experienced staff, thus simply
echoing recommendations already given by the European Commission through the Progress Reports.




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6. OPERATIONAL PRACTICE

6.1. Purpose and limitations
This section deals with efficient purchasing and focuses mainly on the practical aspects of the
procurement system in Macedonia. Although legal and cultural issues cannot be undermined, the focus is
on bridging the legal, technical and practical aspects of the public procurement system in order to address
strategies for operating it efficiently and effectively within the applicable legal rules.

During the transitional process, Macedonian authorities have been occupied with bringing the public
procurement legislation in line with EU requirements. Focusing mainly on statutory questions can,
however, lead to inefficiency and impair the main focus of the underlining principles of the EU directives
and general principles of procurement: achieving the best value for money.

This section also deals with macroeconomic factors of public procurement and outlines issues for
understanding not only the law and legal processes but also procurement strategy and policy as well as
the economics of public procurement. Especially in Macedonia, with a proportionately small population
and relatively high public spending in relation to GDP, the importance of publicly funded projects - and
thus public procurement, concessions and public-private partnerships - are significant for maintaining the
macroeconomic stability already achieved by the country.

Thirdly, this section deals with practical issues related to training on public procurement as well as
general principles for understanding procurement and market economy as a whole. Additionally, this
section addresses the standard tender documentation and the standard contracts provided by the Public
Procurement Bureau.

Fourthly, matters relating to e-procurement are discussed. Imposing a regime under which 100% of
supply contracts are to be awarded using e-auctions is likely to have a short-term benefit of lowering
prices. However, the regime can in the longer run have some adverse effects. Additionally, the plan to
introduce e-Catalogues is addressed.

Fifthly, the practical implementation of procurement procedures and especially the more advanced tools
for public procurement are dealt with. Usage of negotiated procedure as well as competitive dialogue is
discussed. Additionally, the use of framework agreements and centralised procurement is pondered.

Lastly, other aspects of procurement are discussed drawing conclusions on the envisaged future
development needed for the Macedonian public procurement system and, more importantly, the practices
vis-à-vis the regulations already in place.

6.2. Achieving the best value for money

6.2.1. Introduction
During the transitional process, Macedonian authorities, and specifically the Public Procurement Bureau
(PPB), have focused on bringing the legal framework in line with the EU legislation. By early 2011, other
than for concessions and public-private partnerships (see Section 5), there were only a few minor details
that still needed attendance. The positive development in bringing the public procurement legislation in
line with the EU requirements, as outlined in OECD Sigma assessments from previous years, continues.

With the legislative framework largely in place, the attention of public procurement could gradually be
moved towards the question of achieving best value for money within the possibilities of the existing
public procurement system.


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6.2.3. State of the play
The PPB has already taken steps towards incorporating a more in-depth view of procurement in its
agenda. This includes training not only contracting authorities but economic operators as well. Training
now also focuses on aspects that are outside of the scope of public procurement legislation but which
affect the procurement discipline to a large extent. Questions related to corruption and codes of ethics are
the first steps towards a more comprehensive view of procurement discipline. Additionally, the PPB
provides standard tender documents and standard contracts on their website at contracting authorities’
disposal and has added some sectoral guidelines to its assortment.

6.2.4. Findings and discussion

6.2.4.1. New prevalence of the price only criterion
Based on the interviews with selected contracting authorities and economic operators, the Peer Team
concludes that the focus of the PPB and contracting authorities during 2010 was largely on price only
bidding. This tendency manifests itself partly as a result of the e-auction system which during that time
was not able to handle any other award criterion. That is also why the training the PPB has provided to
date has focused on the system and on how to conduct procurement using the system, i.e. using price as
the only awarding criterion.

6.2.4.2. Choice of the procedure
The concept of value for money is, however, not limited to price only. The Directives and the
Macedonian public procurement law provide several options that have not yet been fully explored for
achieving the best quality with the money available. The usage of negotiated procedure and competitive
dialogue remain low, framework agreements are only for a short period and even the most complex
procurement is conducted using open procedure and in extreme cases using price as the only awarding
criterion.

In cases where the contracting authority cannot objectively define the technical specifications or pricing
model, the Macedonian public procurement legislation provides options other than open and restricted
procedures, such as negotiated procedure or competitive tendering, both of which should be encouraged.
Additionally, contracting authorities should be provided with practical, hands-on examples on how to
conduct the various procedures for awarding contracts.

6.2.4.3. Insufficient planning
The economic operators, contracting authorities and NGOs we interviewed raised several problem areas
of public procurement area. Difficulties in defining the technical documentation, pricing models and
terms of the contract derive at least partly from weak planning of the procurement. Tenuous tender
documentation can lead to unfavourable terms for the contracting authority during the contracting period.
Weak planning for public procurement will greatly affect the contracting period and often gives the
economic operators possibilities for overcharging for the additional elements the contracting authority did
not include in the competitive tendering process, but will inevitably need during the contracting period.

Contracting authorities should consider issues for achieving the best value for money before publishing a
contract award notice. In some cases, this may determine that no public tendering is necessary as the
work could be carried out at a lower cost by using internal resources (taking into consideration life-cycle
costs including e.g. costs related to personnel, existing infrastructure and processes). In some other cases,
the consideration might determine that outsourcing is a cheaper alternative in the longer run.
Understanding the procurement process, not just the phases governed by the public procurement
legislation, would be important in bringing the Macedonian public procurement to the level of best
practices already adopted by EU Member States.

As a conclusion of the Peer Team’s visits to selected contracting authorities and economic operators, the
team would recommend introducing more detailed and thorough feasibility studies to be carried out by
contracting authorities. Such a feasibility study could address the following:

                                                                                                          63
       available funds and necessary approvals for using the funds,
       contribution to the contracting authority’s priorities,
       fitness for purpose, quality, services and support,
       life-cycle costs including the costs of acquiring, using, maintaining and disposing of supplies or
        equipment purchased,
       internal administration costs including transaction costs to the contracting authority on
        conducting the public procurement procedure,
       technical compliance issues,
       risk exposure,
       value of any associated environmental benefits.

A procurement procedure would only be launched after a thorough deliberation. The PPB should
incorporate a wider view of the procurement process in its training sessions. The focus should not be
solely on the processes governed by the public procurement law but include as well planning the
procurement and how to carry out the contract management phase.

Including these areas into the training programme could reduce the number of cancelled procurement
procedures. In 2009, the reasons for cancelling procedures were:
     no acceptable tender was submitted,
     no tender was submitted,
     acceptable tenders were submitted, but were not comparable due to different approaches in the
        financial or technical proposals,
     unforeseeable changes occurred in the contracting authority’s budget,
     tenderers offered prices and conditions for executing the public contract which were less
        favourable than real market prices and conditions,
     tender documents had major shortcomings or faults,
     the needs of the contracting authority changed due to unpredictable and objective circumstances,
     the contracting authority could not select the winning tender due to major infringements to the
        Law on Public Procurement pursuant to Article 210 of this law.

The above-mentioned issues are likely to derive from weak planning and could largely be eliminated if
contracting authorities carried out more thorough feasibility studies, including consulting the market
before publishing a contract award notice.

Additionally, better planning could reduce the number of negotiated procedures without prior publication
of a contract notice. In 2009, altogether 487 procedures, or 48% of the negotiated procedures without
prior publication of a contract notice were due:
- either to reasons of extreme urgency caused by events unforeseeable by the contracting authority, nor
attributable to it as an omission,
- or to technical or artistic reasons, i.e. reasons connected to protection of exclusive rights (patents, etc.),
the contract may be executed only by a particular economic operator.
It should also be pointed out that in 2009, 1 015 procurement procedures were conducted without prior
publication of a contracting notice. This corresponds to 12% of all concluded contracts. Even though the
value of contracts without prior publication of a contracting notice was relatively low (3% of all
concluded contracts), the number of contracts concluded should be in proportion to the value. The Finnish
experience has shown that the urgency of concluding a contract without prior publication of a contract
notice has in nearly all cases been deemed to result from poor planning on the part of contracting
authorities and is therefore not a reason for concluding a contract without a proper competitive tendering
procedure. The Macedonian authorities should thus seek to minimise the number of contracts concluded
using this justification. In a majority of the cases, better planning and preparedness would resolve this
issue.

The Peer Team would like to remind the Macedonian authorities that the public procurement legislation
only covers the phases after the publication of the contract notice. The Macedonian law and the
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Directives as well acknowledge, and best practice encourages, the use of technical dialogue. As defined
in the Directives,32 technical dialogue is a process where before launching a procedure for the award of a
contract, contracting authorities may seek or accept advice which may be used in the preparation of the
specifications provided, however, that such advice does not result in precluding competition.

Figure 1 shows the procurement process in a simplistic form, illustrating the phase where the technical
dialogue could be used.

Figure 1: technical dialogue as part of a procurement process




For example, when a contracting authority publishes a prior contract notice, the contracting authority may
ask interested suppliers to submit their contact details. Once the contracting authority has made
preliminary plans, it may contact the economic operators who have submitted their contact details for
consultation on the preliminary plans. Depending on the number of interested economic operators, the
contracting authority may arrange individual meetings with the economic operators or ask for their
comments in writing. Using this method, the principles of equal treatment, non-discrimination, mutual
recognition, proportionality and transparency would be fulfilled.

The technical dialogue should start six to eight months before the contract notice is planned to be
published. An additional six months should be allocated for the procurement procedure. The time can be
somewhat shorter when the procurement authority uses a simplified or open procedure. Based on
practical experience, conducting only the parts governed by the procurement legislation takes at least four
months. In a majority of cases, even a procurement procedure from phase 5 is likely to take a minimum of
six months.

Besides the technical dialogue, carrying out a feasibility study is another way to carefully consider what
one is buying before rushing into a procurement process. The template adopted by Hansel for a feasibility
study is annexed to this report.33 Although it is focused on a framework agreement, with very few
modifications, it could be adapted to other types of contracts.

6.2.4.4. Public opening in E-auctions
According to the Rulebook on Electronic Auctioning System (Nr. 23-48780/1 19 December 2007),
contracting authorities shall task the system with opening and evaluating the tenders or requests to

32
     Dir. 2004/18/EC, recital (8).
33
     Annex IV.

                                                                                                        65
participate in the procedure for awarding public procurement. Electronic auctions are conducted in two
phases. During the first phase, economic operators submit their request to participate in an electronic
auction including documentation for verifying their suitability for participating in the tendering process,
and, when the award criteria are MEAT, the quality of the offered goods or services and the initial price.
In the second phase, the e-auction system is used for bidding on the price.

In practice, the tenders or requests to participate in an e-auction are read in the first phase at a public
opening. According to the Rulebook describing the procedure of opening the bids (Nr. 23-48777/1
19 December 2007) the commission reads the bids out loud, including at least the reference number of the
contract notice, the name of the tenderer, the tender price and currency, possible discounts and guarantees
(PPL, article 136, paragraph 5).

It needs to be observed that public opening of received bids in e-auctions is not practiced in EU
countries.34 Even though the Peer Team acknowledges in principle the need to increase the openness of
the public procurement system, such a practice can encourage collusion in the specific context of e-
auctions where, as opposed to paper-based tendering procedures, bids can be reiterated. The practice can
lead to price rigging as well when economics operators know beforehand who will be taking part in the e-
auction. To reduce the risk of failure, the PPB should monitor whether such cases occur and be ready to
rethink its guidelines.35 It should be mentioned that the PPB, contracting authorities and economic
operators did not regard the public opening of bids as a problem. On the contrary, it was concluded that in
a small market like Macedonia, economic operators are likely to know who is taking part in which public
procurement procedures. Notwithstanding this circumstance, EU law and practice in this regard is
recommendable, which is also consistent with international standards.36

Furthermore, the Peer Team considers it important to pay attention to contracting authorities’ tendency to:
- split up the procurement against what has been ruled in the Rulebook (Official Gazette n° 154 of
21.12.2007),
- cancel procurement procedures,
- pay late,
- neglect public sector productivity in managing public procurement.

6.2.4.4. Splitting up the procurement
Splitting up the procurement might be a result of imposing a regime under which the majority of the
procurement is to be conducted using e-auctions. Contracting authorities may find it difficult to procure
goods or services with e-auctions without splitting the procurement into smaller parts. The contract notice
might be published as a simplified procedure (below thresholds) even if the value of the contract, when
following the rules on the Rulebook, exceeds the thresholds. In addition, splitting up the procurement can
lead to higher prices and higher administrative costs for conducting the procurement procedure over and
over again.


34
   See Dir 2004/18/EC art. 54.6) last sentence: “In no case, however, may [the contracting authorities] disclose the
identities of the tenderers during any phase of an electronic auction”. See also ibid Annex X g): “simultaneous
action by authorised persons must give access to data transmitted only after the prescribed date”. This is known as
“the four eyes principle”: see Functional requirements for conducting e-procurement under the EU framework
(2005), esp. Vol I, § 4.5.3 p. 89/107 at
http://ec.europa.eu/internal_market/publicprocurement/e-procurement/documents/index_en.htm
35
   The Swedish Competition Authority issued a practical and straightforward checklist Twelve ways to detect bid-
rigging cartels: www.konkurrensverket.se/t/IFramePage____1687.aspx
36
   Revised draft text of the Government Procurement Agreement (GPA), art. XV 1: “A procuring entity shall
receive, open, and treat all tenders under procedures that guarantee the fairness and impartiality of the
procurement process, and the confidentiality of tenders.” See also the newly revised UNCITRAL Model Law (art.
53 & 54): according to its draft, the guide to enactment will underscore that the provisions of art. 53 § 4 have been
designed with a view to preserving the anonymity of bidders and the confidentiality of information about their initial
bids and the results of any examination or evaluation.

                                                                                                                  66
6.2.4.5. Cancelling procurement procedures
Cancelling procurement procedures might arise from real fiscal constraints. The Peer Team learned that
in 2010, several procurement procedures had to be cancelled because of cuts in the government budget
and its allocation to individual contracting authorities. Another possibility, which was raised by some of
the economic operators we interviewed, was the “wrong” economic operator having submitted the
winning bid. In this instance, “wrong” designates an economic operator other than the one anticipated to
be awarded the contract.

Cancelling procurement can erode trust in government, in addition to causing unnecessary costs to
economic operators for submitting bids that are only used for collecting information from the market.
Information gathering should be done as part of the feasibility study; public procurement procedures
should not be used for this purpose.

Some of the tender documentation the Peer Team downloaded from the electronic publishing system of
procurement notices implied that some contracting authorities use the contract notices for information
gathering alone, with no intent of following the procurement procedure to its end. Such a practice is
abusive and deters economic operators from investing earnestly in tendering.

As the Macedonian public procurement legislation (article 89) provides provisions for contracting
authorities to move from open and restricted procedures, as well as from competitive dialogue to
negotiated procedures without a prior contract notification in cases where no acceptable tender was
received, the relatively high number of cancelled procurement procedures should be studied further and
the reasons for cancellations clarified. Based on those findings, an action plan to reduce the number of
cancellations should be formulated. The above-mentioned recommendations could be useful when
formulating the strategy to resolve this issue.

6.2.4.6. Paying late
During the visits to selected economic operators, the Peer Team observed that contracting authorities in
some sectors postpone their payments to economic operators for more than one year on the basis of the
transitory law passed.

Late payments can seriously damage trust in the public procurement system and in the government as a
whole. Furthermore, the late payments are likely to reduce competition thus increasing prices as
economic operators will quickly learn which contracting authorities pay their bills late and factor interest
into their bid prices. Economic operators may not even bid at all if the contracting authority is known for
paying late, thus reducing competition.

The Peer Team would also like to draw the Macedonian authorities’ attention to Directive 2000/35/EC as
well as to the new Directive 2011/7/EC that will have to be transposed into national law in the course of
accession negotiations.

Even though Directive 2000/35/EC does not harmonise payment periods, it creates a statutory right to
interest 30 days after the date of the invoice, unless another payment period has been negotiated in the
contract. Unless otherwise specified in a contract, the interest rate for late payments is the total of the
applicable reference rate and the margin rate:
- The applicable reference rate is the European Central Bank’s main refinancing rate. Outside the Euro
zone, the rate is set by the relevant national central bank. The reference rate on 1 January applies until 30
June while the reference rate of 1 July applies until 31 December.
- The margin rate is at least 7 percentage points.

The provisions of the new directive include, among others:
    Harmonising the payment period of public authorities to businesses: public authorities will have
       to pay for goods and services that they procure within 30 days or, in very exceptional
       circumstances, within 60 days.

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       Contractual freedom in businesses’ commercial transactions: enterprises will have to pay their
        invoices within 60 days, unless they expressly agree otherwise and if it is not grossly unfair.
       Enterprises will automatically be entitled to claim interest for late payment and will also be able
        to obtain a minimum fixed amount of EUR 40 as compensation for recovery costs. They can
        claim compensation for all remaining reasonable recovery costs.
       The statutory interest rate for late payment will be increased to at least 8 percentage points above
        the European Central Bank’s reference. Public authorities are not allowed to fix an interest rate
        for late payment below this rate.

6.2.4.7. Productivity and public procurement
Public sector productivity is more important in tight financial times. Public procurement can bring about
savings for the government budget but requires specialised staff to tackle its complicated rules and
regulations.

Although procurement officers may object, the Peer Team would like to stress that procurement is only a
supporting function for the government’s operations. The detailed rules of public procurement can,
however, create the need to hire and train additional staff. Hiring, training and retaining procurement
officials may become a burden, especially for smaller contracting authorities and more specifically for
municipalities.

The focus on savings should not only be on prices but on the indirect costs and savings for the whole
community, beginning with the economic operators.

To ease the burden on smaller contracting authorities, the PPB could act as an intermediary in organising
joint procurement between the smaller contracting authorities.

Alternatively, centralised procurement could be explored. Centralising, e.g. some of the procurement
categories or procurement authorities, could bring about further savings both in terms of prices and in
terms of indirect costs related to procurement. According to a recent study by the Helsinki School of
Economics on centralising procurement, centralising brought about 10 – 15% savings in prices and
innumerable savings in man/years. Additionally, the professionalization of procurement would increase
the quality of tender documentation and play a vital role in reducing corruption and the alleged preferred
treatment a contracting authority may give to an economic operator it has been working with for several
years.

6.2.5. Summary of recommendations
The Peer Team would like to draw the Macedonian authorities’ attention to the following issues for
achieving the best value for money:
    1. Introducing technical dialogue as part of the procurement process could alleviate the issues rising
        from weak planning and could thus reduce the number of cancelled procurement procedures and
        the number of contracts awarded without prior publication of a contract notice.
    2. Contracting authorities need training on procurement as a discipline, not only on public
        procurement procedural rules.
    3. Issues related to late payments should be resolved as soon as possible.
    4. Issues related to contracting authorities’ possible tendency to deliberately split up the
        procurement needs addressing.
    5. Productivity issues as a result of public procurement legislation and practice should be attended
        to. Joint procurement or centralising some functions should be explored.




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6.3. Selected standard tender documentation and guidelines

6.3.1. Introduction
The PPB has supported the implementation of the PPL through a range of activities including training,
guidelines, standard form documents and day-to-day telephone and e-mail assistance.

The PPB website (http://bjn.gov.mk) is comprehensive and easily accessible. Electronic publishing of
notices for contracts over the national threshold is obligatory and the system functions well. The e-
procurement system (ESPP 37), which was upgraded in January 2010 with the assistance of the USAID e-
Gov project, not only handles all procurement notices but also enables contracting authorities and
economic operators to publish and access all other tender documents, ask and answer questions during the
tendering procedure, and submit and evaluate bids and conduct e-auctions. A further upgrade to the e-
auction system was carried out in early 2011 when economically most advantageous tender (MEAT)
criterion was introduced to the system. Previously, the system was only capable of handling price only e-
auctions.

In its strategy for developing the public procurement system for the period 2010-2012, the PPB identifies
issuing manuals and conducting sectoral training in public procurement as one of its targets.

By early 2011, the PPB had issued two industry specific documents on its website:
- Guideline for procurement of drugs, and
- Standard tender document for procurement of mobile telephony services.
The Peer Team finds the initiative necessary and encourages the PPB to further address training and
publishing guidelines for the procurement of certain goods and services. However, the Peer Team feels
that the provided guidelines and standardised tender documents still need further development, especially
by including industry specific questions and recommendations.

6.3.2. Guideline for the procurement of drugs
The Guideline for the procurement of drugs was prepared by the Public Procurement Bureau in
collaboration with the Health Insurance Fund of Macedonia and a group of economic operators who
participate in public procurement procedures in the health sector.

The publication extensively covers the public procurement legislation and the by-laws. The PPB takes a
stand on certain areas, where it recommends contracting authorities take into account several issues
mainly related to the public procurement legislation. One such example is: “Criterion for selecting the
winning bid using the lowest price is possible in all cases. Manipulative elements such as date of
payment, delivery and quality should not be used because they can be accurately determined in
mandatory elements of the contract in the tender documentation”.38 As a matter of fact, setting minimum
requirements in the tender documentation does not exclude scoring added value proposed in a bid
regarding the said elements, subject to variants being authorised.

However, the document does not adequately address specific questions related to the health sector and the
procurement of drugs. The document lists the industry specific legislation contracting authorities need to
take into consideration, namely: the Health Protection Act (Official Gazette no. 17/97, 11/02, 10/04,
84/05, 111/05, 65/06, 5/07, 77/08 and 67/09); the Law on Health Insurance (Official Gazette no. 25/2000,
96/2000, 31/03, 84/05, 119/05, 37/06, 18/07, 36/07, 82/08, 98/08, 6 / 09, 67/09 and 50/10); the Public
Health Act (Official Gazette no. 22/2010); the Law on Drugs and Medical Devices (Official Gazette no.
106/2007); and the Law on Medicines, Remedial Medicines and Medical Devices (Official Gazette no.



37
     https://e-nabavki.gov.mk/eProcurementIntegration
38
     Rough translation from the original Macedonian text.
                                                                                                       69
21/1998). But it does not explore the contents of the laws nor what requirements the laws impose on the
procurement of pharmaceuticals.

The document also includes references to issues that contracting authorities should consider. The industry
specialisation is relatively superficial as the majority of the “tailoring” is simply replaces the word
“goods” with the word “drugs”. The guideline could be further developed by giving practical examples
on how contracting authorities have conducted the procurement of drugs, how the technical specifications
should be completed and how the procurement procedure could be conducted using the available
electronic tools. As nearly all of the invitations to tender are published electronically on the e-
Procurement system, PPB could extract industry specific tender documents from the system, explore the
documentation in order to define best practices and make recommendations based on these findings.

A working group of officials from the heath sector could assist in formulating the best practices and
making recommendations on how to achieve the best value for money in the procurement of drugs. After
the working group has made its recommendations, the draft document should be submitted to the public,
and especially to economic operators active in the sector, for a review. After being revised, a second
version of the guideline could be published on the PPB website. The PPB could also consider co-
operating with a university and, for example, have the work done as a thesis.

Similar challenges can be found as well in the model tender documentation on mobile telephony services.

6.3.3. Tender documentation on mobile telephony services
Telephony services are one of most complex areas of standardised services contracting authorities are
likely to encounter frequently. The international nature of services, including roaming and international
calls, in addition to the industry structure where economic operators pay interconnection and termination
charges to each other complicates the nature of these services even further.

It is an excellent initiative from the industry and the PPB to address the contract awards criteria of
telephony services separately from the other standard tender documentation. The standard tender
documentation for telephony services was published on the Public Procurement Bureau’s website in early
2011. In its release note, the PPB confirms its plan to continue preparing standard tender documents for
specific areas of procurement.

The standard tender documentation for telephony services is drafted for open procedure. The usage of a
framework agreement is specifically opted out, even though the use of a framework agreement in this
sector could be a useful tool as telecommunications is rapidly developing and new services are introduced
continuously. A framework agreement might give contracting authorities more flexibility as the exact
number and type of services rendered (for example the number of subscriber lines, 2G vs. 3G services)
could be elaborated during the period of the framework agreement.

Even though the standard tender document states that the contract will be awarded based on the most
economically advantageous tender criteria, the documents do not state or propose any quality criteria that
should be evaluated. In effect, the standard documentation is drafted for the lowest price only criterion for
a procedure to be carried out through an e-auction.

According to the Macedonian public procurement law (article 161), the elements of the economically
most advantageous tender criterion may be price, it may also include other characteristics such as quality,
technical and functional level, environmental characteristics, running costs, cost-effectiveness, post-sale
services and technical assistance, delivery date or execution date or other significant elements for the
evaluation of the tenders. Furthermore, the public procurement law states that these elements, as well as
their maximum relative weights, shall be clearly defined in the contract notice, specifically related to the
subject matter of the public contract and, after being established, they shall not be modified for the entire
period of the contract award procedure. The contracting authority shall be obliged to explain in the tender
documentation how it intends to score and apply these elements.

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The document lists half a page of technical specifications, seven items altogether. The specifications
provided are minimum criteria for submitting a tender and hence are not to be evaluated. Even though it
is understandable that it might not be possible to include all of the quality criteria in the standard
documents, the PPB could provide a list of quality criteria that have been found to be the most useful. It
would be useful as well to give contracting authorities at least some idea on how the weighting and
scoring should be stated in the tender documentation and how the criteria should be evaluated. For
example, chapter 1.10 of the standard tender document could be developed further in the following way:
1.10 Criteria for the award of contract

1.10.1. The criterion for awarding the contract is the economically most advantageous tender. The
contract will be awarded to the tenderer whose offer will be evaluated as the economically most
advantageous and who receives the greatest total number of points.

1.10.2 The criteria for the economically most advantageous tender are as follows:
Price                                                         60%
1. Monthly subscription
2. Compensation for the establishment of a call for national voice calls to mobile and fixed networks
3. Voice calls to national mobile and fixed networks
4. Roaming calls
           Roaming outgoing voice calls
           SMS roaming
5. International calls
6. Subsidy for mobile phones per subscriber line
7. Internet in the national network
8. National SMS
The evaluation of the prices of the above items will use the unit price of each item separately excluding
value added tax; with the lowest priced bids receiving the most points. Price points for the elements
under items 1, 2, 3, 4, 5, 7 and 8 will be awarded according to the following formula:
                                  lowest price (without        .        maximum number of
Number of                         VAT)                                  points
                         =
points
                                  Price (without VAT)
1.10.4 Points of entry under item 6 will be awarded according to the following formula:
                                                             .       Maximum number of
Number of                        offered a subsidy
                        =                                            points
points
                                 offered the highest subsidy
The evaluation of the bids will be carried out in accordance with the methodology for expressing the
criteria for awarding the contract in points (Official Gazette no. 41/08).
In case a particular item is offered rate 0 (zero), the commission for public procurement will add 0.01
denars in all offers subject to evaluation, in order to be able to apply the formula for evaluating the cost.
The initial price will remain as it is offered in the signed contract.

Quality                                                        40%
1. Number of roaming countries and operator partners                   x%
2. Opening hours of customer services                                  x%
3. Activation time for new subscriber line                             x%
4. Etc.


                                                                                                            71
It should be noted that article 161 requires the contracting authority to further elaborate how it plans to
evaluate each of the elements. For example, the quality criteria 1 should state how the countries and
operators are evaluated separately, e.g. 70% for most countries and 30% for most operator partners.

In cases where the PPB finds it inappropriate to give examples of the quality criteria in the standard
tender document itself, an explanatory note could be provided on how to use the standard tender
documentation for mobile telephony services. Furthermore, the use of the standard documents could be
explained during the training sessions. The standard tender documents could be developed further with
experience and feedback from contracting authorities and economic operators.

Lastly, in order to obtain the best possible price, contracting authorities should also supply current usage
data (define the number of mobile subscriber lines) for different types of services. Providing this
information would allow all of the providers to base their financial bid on the same foundation. Omitting
this data, which is likely to affect the pricing, might be considered as giving preferable service to the
current provider of services as it has all the data at its perusal.

6.3.4. Contract models
In addition to providing standardised tender documents, the PPB provides model contracts for the
procurement of goods and public works on its website.

The reason no model was provided for services contracts is the complexity and versatility of services
procured. As the procurement of services is likely increase in Macedonia with the market development
and increasing competition, it is likely that contracting authorities will want to purchase more and more
services.

Some examples of model contracts that could be used for drafting new models are annexed to this
document. These examples are from Finland where the contract models were drafted after a broad public
consultation (similar contract models for public procurement are used in Estonia as well):
- JYSE2009 general terms39 are intended for procurement of goods and services in all sectors except ICT.
- JIT2007 general terms40 on the other hand area are intended to be used in the field of ICT.

6.3.5. Summary of recommendations
The Peer Team would like to draw the Macedonian authorities’ attention to the following issues
concerning standard tender documentation and guidelines:
    1. PPB should continue to elaborate sectoral guidelines, standardised tender documents, contract
        models and provide training to contracting authorities and economic operators alike.
    2. PPB should focus on stabilising the existing tools and procedures instead of providing new tools
        or practices.
    3. PPB should consider possibilities for co-operation with private partners in providing sectoral
        training.
    4. PPB should consider possibilities for co-operation with universities and students if its own
        resources are restrained.
    5. PPB should facilitate co-operation and co-ordination of public procurement procedures and best
        practices. PPB should act as a platform for establishing co-operation between the ministries and
        the agencies. More importantly, PPB should focus on bringing smaller contracting authorities
        together to establish joint procurement practices. PPB should consider the possibility for
        establishing a central procurement function within the administration. The foundations for
        centralised procurement already exist within the Macedonian public administration (Office for
        Common and Mutual Matters). Capabilities of the already existing organisations should be

39
   See : www.vm.fi/vm/fi/04_julkaisut_ja_asiakirjat/01_julkaisut/08_muut_julkaisut/20100217Julkis/name.jsp
English language version at the bottom of the page. Also attached as Annex II.
40
   See: www.jhs-suositukset.fi/web/guest/jhs/recommendations/166
English language version in the middle of the page. Also attached as Annex III.
                                                                                                             72
        studied and a development plan should be established. Centralising at least part of the public
        procurement would inevitably yield to increased professionalisation in public procurement and
        would alleviate the administrative burden of public procurement specifically placed on smaller
        contracting authorities.

6.4. E-Procurement

6.4.1. Introduction
Even though e-procurement methods have increased in importance in the public procurement system, it
must be underlined that electronic devices are only a tool for alleviating the administrative burdens of the
public procurement process. No electronic system can remedy or completely abolish the possibilities of
misusing the system. The electronic means should thus only be seen as a tool – not as a means in itself.

E-Procurement refers to the use of electronic communications and transaction processing by contracting
authorities when procuring goods and services or tendering public works. E-Procurement has the
potential to yield important improvements in the efficiency of individual purchases, the overall
administration of public procurement and the functioning of the markets for government contracts.

Whereas there is a certain consensus of what it means to conduct “public procurement”, the same cannot
be said for “e-Procurement”. The 2004 Public Procurement Directives refer to the “use of electronic
means”. At its simplest, e-procurement is a term for the replacement of paper-based procedures with ICT-
based communications and processing throughout the procurement chain. In addition, the use of
electronic means allows for new purchasing techniques, e.g. innovative repetitive purchasing methods
based on the re-use of data. E-Procurement involves the introduction of electronic processes to support
the different phases of the procurement process – publication of tender notices, provision of tender
documents, submission of tenders, evaluation, award, ordering, invoicing and payment.

Figure 2. Overview of possible phases and tools in an e-Procurement process41




Although each of the phases/tools has a certain role to play in the full e-Procurement process, it is not
always necessary or even appropriate for all of these elements to be provided electronically. Not all of the


41
  Modelled after Siemens-time.lex report, 9 July 2010:
http://ec.europa.eu/internal_market/publicprocurement/e-procurement/documents/index_en.htm.
                                                                                                         73
currently available solutions are suited to all types of procurement and different approaches may be
needed to integrate contract management phases with other back-office practices. It is quite possible that
some solutions, e.g. for e-Evaluation, may never be developed to deal with all types of procurement, e.g.
procurements which require predominantly qualitative assessments.

It is evident that the same confusion exists in Macedonia as well as to what e-Procurement is in reality
and what infrastructural tools different phases/tools require. In documents the government provided us
with, the usage of terms “by electronic means” and “e-Auctions” sometimes seem to be used
synonymously and in other instances as complementary.

When comparing the available e-Procurement tools, the situation in Macedonia is better than in several
EU member states. Using the methodology of the Siemens-time.lex report,42 the available tools in
Macedonia are:

Figure 3. Available e-tools in Macedonia (modelled after the Siemens-time.lex report, 9 July 2010,
http://ec.europa.eu/internal_market/publicprocurement/e-procurement/documents/index_en.htm)

     Supported           e-Notification        e-Access      to e-Submission        e-Evaluation and
     contract   award                          tender                               award
     phases                                    documents
     (green=supported;
     red=not
     supported)
     Supported           e-Ordering            e-Invoicing      e-Payment
     contract            through          e-
     management          Catalogues
     phases
     (green=supported;
     red=not
     supported)
     Supported tools     Dynamic               e-Auctions       Buyer’s Profiles
     (green=supported;   purchasing
     red=not             system
     supported)

The Law on Amendments and Modifications to the Law on Public Procurement 2008, which has been in
effect since October 2008, made provisions for introducing an obligation to use electronic auctions for
awarding 30% of the estimated value of the planned public contracts in 2010, 70% in 2011 and 100% by
2012. An amendment passed in 201043 sets the requirements for 2011 and 2012 as the number of
published contract notices for open procedure, restricted procedure, negotiated procedure with prior
publication of a contract notice, as well as simplified competitive procedure, with publication of a
contract notice.

In 2010, despite the legal obligation of 30%, only 14.6% of the total number of procurement procedures
were concluded using e-auctions.44 However, at that time, the obligation was defined as the estimated
value of the planned procedures for awarding public contracts (PPL, 2008 amendments), which was
hardly controllable.


42
     For definitions and more in-depth information, the report can be downloaded from:
http://ec.europa.eu/internal_market/publicprocurement/e-procurement/documents/index_en.htm.
43
   Law on modifications and amendments to the law on public procurement, Official Gazette of the Republic of
Macedonia n° 97/2010, art. 8.
44
   Source: Quarterly Report of the results of monitoring the progress of public procurement, Centre for Civil
Communications, March 2011.
                                                                                                          74
The Peer Team stresses that carrying out 15% of all procurement using e-auctions is a high percentage
compared to many EU member states. It is necessary to point out that out of the 32 countries surveyed in
the Siemens-time.lex report, only 7 countries were using e-auctions systematically or frequently. The
majority of countries surveyed (21) showed no reported usage of e-auctions and 4 countries infrequent,
trial or regional usage.

6.4.2. E-Auctions
With the introduction of economically most advantageous tender criterion, the Macedonian e-auctions
suite became a fully-fledged e-auction system in early 2011. The PPB provides extensive user manuals
for contracting authorities (210 pages and 68 pages) as well as for economic operators (76 pages). The
user manuals describe the functions of the system in extreme detail. In spite of this apparently well-
defined system, the Peer Team would like to debate the following issues related to e-auctions:
     Process modifications needed at contracting authorities,
     Obligation for 100% e-auction in 2012,
     MEAT criterion and the need for further training,
     Alleged slow functioning of the system and data security concerns,
     Possible new applications for the e-auction system.

In order to use the system effectively, in addition to understanding the functionalities, one needs to
understand how the system should be set up for each separate procurement procedure. In fact, contracting
authorities should not just transfer their existing paper-based procedures to electronic format. Conducting
procurement using e-auctions requires adjusting existing processes and procedures.

Without adjustments to the process, it is likely that the system and the requirement of 100% e-auctions by
2012 will create unnecessary inefficiencies for contracting authorities trying to keep up with two parallel
processes: one that has been set up mainly for paper-based public procurement and another one needed
for the functions of the e-auction system.

A common flaw in implementing new technological solutions is a lack of understanding of the main
incentives of the system. A technological solution should never be implemented for its own sake. The
introduction of any such solution must at least: a) fulfil a need; b) bring relief to existing challenges; and
c) have a clear implementation plan.

In addition to an implementation plan, a strategy should be formulated for building the required
capabilities and of what to do with the excess human resources. Any technological solution will
inevitably bring about changes in existing processes which should also be planned for beforehand. The
technological solution should be procured and implemented after careful planning.

With the introduction of MEAT criterion, contracting authorities in particular are likely to require
extensive training. Training should focus not only on the functionalities of the system but on how to use
the system efficiently in any given procurement category as well. If the Macedonian authorities insist on
100% e-auctions, it needs to be understood that for smaller contracting authorities in particular, it will
often not be feasible or possible to hire or build capabilities. Smaller contracting authorities should seek
ways of collaborative procurement. Joining forces and co-operating with other contracting authorities
would potentially, in addition to reducing the needed personnel and capabilities, bring additional savings
in the form of smaller administrative burdens and indirect costs as well as in direct costs related to the
procurement in question.

During visits to contracting authorities and economic operators, the Peer Team was informed of some
problems within the e-auction system. These problems apparently had not yet been resolved at the time of
writing. The system is sometimes slow and it takes a long time to upload large files, sometimes timing
out as well. This might arise from Macedonian national Internet exchange point (IXP) and from the fact
that the users of the system are likely to have asymmetric connections to the Internet. In an asymmetric
connection, the upload and download speeds of the Internet connection are different. Even if the

                                                                                                           75
download speed is e.g. 1 Mbps, the upload speed might be limited to 56 kpbs only. This causes problems
for contracting authorities when uploading large files to the e-procurement system and to economic
operators when uploading their bids to the system.

Even though some statistics show over 51% penetration rates of Internet connection in Macedonia,45
other statistics show a relatively low rate of 12%46 of fixed broadband Internet connections. The
difference might arise from varying statistical approaches: while other statistics consider Mobile Internet
when calculating the penetration rates, the Mobile Internet connections very often remain limited
particularly in upload speeds causing the above-mentioned problems.

Despite audits carried out in 2010, some of the stakeholders we interviewed raised concerns about data
security. In order to alleviate the accusations the PPB should publish the results of the security audit and
the measures it has taken to remedy the vulnerabilities detected.

Additionally, the ownership questions related to the e-procurement platform should be clarified. In some
documents, the Ministry of Information Society and Administration seems to take the ownership of all e-
Government solutions including the e-Procurement platform. In other instances, the Ministry of Finance
and PPB seem to proclaim ownership of the systems. From a purely legal point of view, if the
Government of Macedonia is one and only corporate body, which is likely the case, this makes no
difference. However, it is an important point in terms of moral ownership and internal leadership. The
question of leadership is important especially in relation to the further development of the electronic
platforms. It is often easier if there is only one decision maker. A partial ownership where, for instance,
the Ministry of Information Society and Administration might take up the ownership and run the platform
and where PPB would be responsible for the subject matter (i.e. public procurement), could cause
unnecessary hindrance in the development process.

Lastly, the PPB could explore the possibilities of introducing e-auctions for conducting mini-tendering
within framework agreements where a framework agreement has been awarded to three or more
suppliers. Introducing e-auctions as a tool for awarding contracts within a framework agreement could
increase the usage of frameworks, which currently appears to be limited to the most experienced and
professional contracting authorities. In 2009, 478 framework agreements (2% of all contracts) were
awarded. This number could be higher when taking into account the apparent tendency of contracting
authorities to conclude frameworks for one year only.

6.4.3. E-Catalogues
In its strategy for developing the public procurement system for the period 2010-2012, the PPB outlines
the introduction of e-catalogues as one of its priorities.

Finland procured an e-catalogue system in spring 2007. The system was procured as Software as a
Service (SaaS). The contract was awarded for Basware (www.basware.com).

The purpose for acquiring the system was to facilitate procurement under existing agreements, either
those that the state central procurement unit Hansel Ltd had concluded or the contracts that authorities
had concluded themselves. Additionally, the system was to bring about more detailed information on
what the contracting authorities are procuring, how much is spent in each category, and how much the
state agencies pay for similar products and services.

Despite the fact that negotiated procedure was selected for conducting the procurement, after awarding
the contract, it became apparent that the system the vendor demonstrated during the contract award
procedure was only a demo version that could not handle the volume of the state procurement. Moreover,
many of the functionalities offered were not ready and still needed to be developed. After several stages

45
     Internet World Stats.
46
     Estimate for 2010, Paul Budde Communication Pty, Ltd.
                                                                                                         76
of development, the system was implemented in the autumn of 2010 with only the bare minimum
features. It quickly became evident that the system was not able to cope with the complexities of each
separate agreement. It also became apparent that the limitations of the e-catalogue system would need to
be taken into account from the contract award phase. Tenders would need to be designed specifically for
the e-catalogues in order for the system to work as planned.

The main problems encountered during the implementation phase have been:
    Economic operators’ inability to provide e-catalogues using the needed UNSPSC numbers (the
       United Nations Standard Products and Services Code),
    Issues related to integrating economic operators’ existing ordering systems, especially those
       provided from abroad and by the mother company of its Finnish subsidiary,
    Issues related to e-Invoicing, especially in cases where the invoicing is issued abroad by the
       mother company,
    Contracting authorities’ need to change their existing processes and systems,
    Contracting authorities’ insufficient capabilities and resources in implementing the needed
       changes.

After solemn resistance both from contracting authorities and economic operators, the Ministry of
Finance and the State Treasury, who is the owner of the e-catalogue system, finally issued a decree under
which all state contracting authorities are obliged to use the system by 2012. In spite of the decree, all
contracting authorities and economic operators may not be able to implement the e-catalogues by 2012.

Based on the lessons learnt, the Peer Team cannot envisage an e-catalogues system being implemented in
Macedonia in the near future as we did not witness the necessary readiness. Implementation would also
require sophisticated co-operation and co-ordination practices that are not yet present, neither between the
Macedonian authorities nor amongst economic operators nor between the authorities and economic
operators. The PPB should instead focus on stabilising the existing systems and facilitating best practices
in using the e-auction system. Moreover, the PPB should focus on providing assistance to the contracting
authorities in amending their processes and practices related to public procurement.

The Peer Team would like point out as well that even though the Siemens-time.lex report outlines that e-
catalogues could be used in a fashion similar to a dynamic purchasing system in the contract award phase,
the Directives do not acknowledge such practice. The deviation is likely to derive from Italian practices
where e-catalogues appear to be used in substituting dynamic purchasing system and in compensating for
the shortcomings of framework agreements. As differences in opinion and motivation of the stakeholders
appear to exist for the implementation of e-catalogues, any further implementation should be more
thoroughly pondered. Additionally, the Macedonian authorities should follow the developments within
PEPPOL (Pan-European Public Procurement On-Line, www.peppol.eu) rather that rushing into
implementing such a system without thoroughly thinking it through.

6.4.4. Dynamic Purchasing System
The PPB has outlined the introduction of dynamic purchasing system (DPS) as one of its development
priorities for the public procurement system for the period 2010-2012.

The Peer Team would like to point out that the usage of DPS is still in its infancy in most EU countries.
Of the 32 countries surveyed in the Siemens-time-lex report, only France has a functioning DPS. Poland
and Portugal are considering it and Denmark has done some trials.

The Peer Team would like to point out that the rules and functioning of DPS are extremely complex.
Introducing DPS in Macedonia would require significant resource allocation from the PPB, both in
developing a functioning system and more importantly in running the system. As the DPS is open to new
economic operators who fulfil the selection criteria set for entering the DPS during the whole life-cycle of
a specific DPS, the PPB would constantly need to evaluate applications for entering the DPS.


                                                                                                         77
Taking into consideration the PPB’s other obligations and tasks, the Peer Team does not consider the
introduction of DPS feasible, or necessary. Instead of wasting resources in developing and maintaining
DPS, the PPB should focus on stabilising and further developing the current e-auction system. Usage of
MEAT criteria in the e-auction system will take 2 - 3 years to start picking up and the PPB will be busy
training and supporting contracting authorities and economic operators alike in how the system functions.

Moreover, the EU Commission has indicated that further development in procurement directives is
necessary. It is envisaged that improved directives will be in place in 2012 possibly bringing changes to
e-Procurement as well.

6.4.5. Summary of recommendations
The Peer Team would like the Macedonian authorities’ to take into account the following
recommendations in the area of e-procurement:
    1. Concentrate on stabilising and further developing the already established e-auction system.
    2. Concentrate on providing support for contracting authorities in efficiently and effectively
       implementing the e-auction system.
    3. PPB should focus in providing assistance for contracting authorities in implementing necessary
       changes required by the e-auction system, both in terms of processes and in terms of in-depth
       knowledge and best practice sharing between authorities. The PPB could act as a “collaborative
       platform” in establishing co-operation and co-ordination between contracting authorities. PPB
       could organise as well collaborative purchasing arrangements between the authorities as the need
       to establish such a platform is apparent.
    4. PPB should abdicate from the plan to introduce e-catalogues and re-consider the need and
       applications in 2013 at the earliest.
    5. PPB should abandon the plan of introducing a dynamic purchasing system and re-consider the
       need and applications in 2013 at the earliest.

6.5. Other aspects of procurement
Along with the EU 2020 Strategy (http://ec.europa.eu/europe2020/) several initiatives have been
launched. As public procurement is a key element in establishing co-operation with the private sector and
plays a pivotal role in fostering innovation and good practices in the private sector as well, the EU
Commission has, in its Green Paper47 published on 28.1.2011, outlined several policy changes for
modernising EU public procurement. As a result, changes to the Directives are imminent in 2012. The
changes are likely to affect not only the legislation but operational practices as well.

Bearing in mind the forthcoming changes to the legislation, the Macedonian authorities should first
concentrate on stabilising established operational practices.

However, there are several areas of procurement the Macedonian authorities have not yet fully taken into
consideration. Having downloaded and translated several tender documents from the electronic
publishing system, the Peer Team observed that the Macedonian contracting authorities have not yet
taken into consideration the Council’s decisions and Directives particularly in the field of Green Public
Procurement48 and issues related to social considerations in Public Procurement.49 Moreover the issue of
fostering innovation in procurement50 remains a low priority. The PPB should take the above-mentioned
issues into account and incorporate aspects of green public procurement, social responsibility and
fostering innovation to the material provided on its website and in the training it provides to contracting
authorities.



47
   http://ec.europa.eu/internal_market/publicprocurement/modernising_rules/consultations/index_en.htm
48
   http://ec.europa.eu/environment/gpp/index_en.htm
49
   http://ec.europa.eu/social/main.jsp?langId=en&catId=89&newsId=978&furtherNews=yes
50
   E.g. www.proinno-europe.eu/inno-grips-ii/article/fostering-innovation-through-public-procurement
                                                                                                        78
7. REVIEW AND REMEDIES SYSTEM

7.1. Legislative framework (EU and Macedonia)
The public procurement review and remedies systems of EU Member States and Candidates must be
established and developed on the basis of the specific requirements of the European Public Procurement
Remedies Directives 89/665/EEC and 92/13/EEC, amended by the “new” Remedies Directive
2007/66/EC (introducing stricter and more detailed rules on remedies), the Treaty of the functioning of
the European Union, and the case law of the European Court of Justice (ECJ).

In particular, these systems must provide aggrieved bidders and candidates with rapid, effective,
transparent and non-discriminatory review and remedies. Member States are free to choose the
organisation and procedures for their review system as long as the rights and corrective measures are
implemented in accordance with EU legislation. There are no requirements as to whether the review is to
be conducted through ordinary, special or administrative courts or as to the type of law in which the
review and remedies system is to be enshrined. This has led to the emergence of a great variety of review
mechanisms among EU Member States and Candidates.51

A functioning review and remedies system is necessary to ensure the effective application of the public
procurement rules and contributes significantly to the achievement of the objectives of the substantive
rules, such as transparency, non-discrimination and equal treatment, proportionality, value for money, and
integrity.

As a general rule, EU Member States and Candidates must provide that decisions taken by a contracting
authority or entity can be reviewed effectively and as rapidly as possible. The notion of “effectiveness”
has been clarified by ECJ case law (e.g. C-92/00, paragraph 67 and C-390/98 Banks vs. Coal Authority
and Secretary of State for Trade and Industry). Such a system must have e.g. operational review bodies,
rules on standing in review procedures, and the possibility to set aside individual procurement decisions
including the award decision. Moreover, aspects of effectiveness also include general transparency and
the simplicity of the system as well as questions of access and satisfaction of tenderers with the system.
Indicators are, for example, frequency of proceedings and appeals against decisions.

Functioning review and remedies systems for public procurement must be:
    available to all economic operators wishing to participate in a specific contract award procedure
       without discrimination;
    clear and easy to use for economic operators;
    effective in preventing or correcting unlawfulness of contracting authorities and economic
       operators;
    subject to judicial review.

These criteria are basically fulfilled by the Macedonian review and remedies system.

Macedonia is not obliged to fully align its public procurement legislation with EU standards at the
moment. Full harmonisation with the EU acquis only has to be reached by the end of the EU accession
negotiations.

However, according to the Strategy of the PPB for Developing the Public Procurement System for
the Period 2010 to 2012, priority is given to further harmonise national legislation with EU
requirements. Although the strategy prioritises the alignment of Macedonian law with EU legislation and

51
  “Public Procurement Review and Remedies Systems in the European Union”, SIGMA Papers No 41, OECD
(2007).

                                                                                                       79
envisages an immediate transposition of the EU Remedies Directive 2007/66/EC in 2011, we recommend
to further stabilise the present review and remedies system as a first step in order to create legal certainty
for practitioners. Constant changes to the PPL rather discourage procurement practitioners and thus
destabilise the procurement system. The full transposition of the EU Remedies Directive 2007/66/EC
should follow later on as a second step.

7.1.1. Procedural law in the PPL
Procedural law covers issues such as legal standing (i.e. the right to initiate review proceedings), time
limits (i.e. deadlines for the initiation of proceedings), fees, publication of decisions, and appeals. Broadly
speaking, the procedural law of the SAC is regulated in the PPL, the Law on Administrative Procedure
and the Rules of Procedure of the State Appeals Commission. The SAC must consider the content of the
complaint, but it also has to investigate more widely (ex officio) where there is a major infringement of
the PPL (as defined in Art. 210 PPL).

7.1.1.1. Right to appeal (legal standing)
Any economic operator with a legal interest in obtaining a contract who has suffered or could suffer
damage by an alleged infringement of the PPL, may initiate an appeal. The appeal can be lodged against
the contracting authority’s decisions, actions or failure to take action during the contract award procedure.
The Attorney General may also initiate an ex-officio appeal whenever he/she feels it necessary for the
protection of the interests of Macedonia or of the public interest. According to the SAC, the Attorney
General did not initiate a single appeals procedure in 2010.

7.1.1.2. Conduct of appeals
The PPL sets out the process to be followed for appeals to the SAC. According to the PPL, public
procurement proceedings may not be brought at any given point of time. Applicants for review have to
initiate proceedings within specified time limits, counting from the moment in time when they learned
about the alleged infringements of procurement law.

Once an appeal is lodged, the signing and execution of the public contract are suspended by law.
When the appeal is directed against the tender documentation, the contracting authority may continue the
procedure (e.g. open the bids received). However, we learned from the SAC and other stakeholders
involved in public procurement that in practice the contracting authorities stop all further steps of the
award procedure in case of an appeal to the SAC.

The SAC must take its decision within 15 days of receiving all of the specified documentation. The SAC
meets weekly to consider and decide on cases so that decisions are made within the statutory period.
However, the fact that the time period for decision making starts on the date upon which all specified
documentation is available means that more than 15 days can pass between the receipt of the appeal and
the decision.

A member of the Expert Office within the SAC prepares the proposal for a SAC decision; all SAC
members participate in all decisions. Each member has an equal vote.

The PPL provides the possibility of an oral hearing, which can be requested by the parties concerned.
The SAC decides whether or not to hold the hearing. The SAC can also decide on its own initiative to
hold a hearing if it deems it necessary in order to clarify complex legal issues. The SAC held two public
hearings in 2010.

7.1.1.3. Ex-officio investigations
Following Art. 211 PPL the SAC not only has to decide the cases within the limits of the request
indicated in the appeal, but has an ex-officio investigation obligation for major infringements as defined
in Art. 210 PPL.



                                                                                                            80
 There are no EU requirements for ex-officio investigations done by a review institution. Croatia has such
 a provision in its legislation, but plans to abandon it in its new PPL draft, as the outcome of these
 provisions was negative in practice. The Croatian review institution received a lot of applications from
 tenderers which were not well founded. Thus, the applicants transferred the burden of investigation to the
 review authority. This led to lengthy and costly procedures. However, as the present system is
 appreciated by all stakeholders in Macedonia and as the SAC apparently copes with the workload of ex-
 officio investigations, we do not see any reason why the Macedonian system should be changed.

 7.1.1.4. Appeals fee
 The PPL states that a complainant must pay a lump-sum fee. This requirement was introduced to reduce
 the number of unfounded appeals. The amount of the fee depends on the value of the contract in question.
 It was recently moderately increased and varies at the moment from 100 EUR (for low-value
 procurement) to 400 EUR (for contracts above EUR 200 000). These fees are quite reasonable and do not
 seem to restrict the right to lodge a complaint. However, fees should remain at this moderate level so as
 not to create an undue obstacle for the submission of justified complaints.

 7.1.1.5. Appeal of SAC decisions
 The decisions of the SAC can be appealed. Such an appeal results in an administrative court procedure;
 the court is to handle public procurement cases as a matter of urgency.

 7.1.2. Secondary legislation52
 There have been no significant changes to secondary legislation since SIGMA’s last report.
 We analysed the following bylaws:
- Rules on Working method and deciding in the SAC (Gazette no 136/2007 and 130/2008) adopted on
   26 November 2008 (hereinafter: Rules),
- Rulebook on Internal Organization adopted in accordance with the Rules of Procedure on the Manner
   of Operation and Decision-Making of the SAC (hereinafter: Rulebook).

 The Rules govern the mode of operation and procedure for decision making of the SAC and include in
 particular provisions for the election of the Vice president (Art. 5); the competences and tasks of the
 President (Art. 6), the SAC members (Art. 7), the professional civil servants (Art. 8) and the Board (Art.
 34); the procedure for deciding appeals (Art. 9 to 17); specific rules on oral hearings (Art. 18 to 26) as
 well as rules on the enforcement of SAC decisions (Art. 32). These Rules were amended on 21 January
 2009 by minor administrative issues including an extension of the reaction period for the SAC members
 and professional civil servants from five days to seven days, which seems to be justified particularly in
 the case of complex appeals and the official inclusion of all SAC members into the Board. According to
 the previous provision in Art. 34, the other SAC members were only allowed to attend, but were not
 formally part of the Board. We think that the inclusion of all SAC members into the Board is helpful to
 strengthen the internal co-operation and identification of all SAC members with the review institution.

 During our Peer mission we asked the SAC if it goes beyond the supervision of the enforcement of SAC
 decisions (Art. 32) to the actual control of the execution of public contracts. We were advised to see the
 conclusions of the SAC’s Annual Report to Parliament (2009) dated 22 March 2009, where the SAC
 clearly states that this is an important task but that they are not competent to control the execution of
 public contracts. However, the SAC would be ready to share its knowledge and experience with the
 already existing institutions (auditors) or any new institution to be established. We uphold our previous
 recommendation that the monitoring of the execution of contracts is vital for the proper functioning of a
 procurement system and is also helpful to reduce public expenditure as well as to increase integrity in that
 respect (see also institutional part of this Peer Review).


 52
   All comments above are based on the assumption that the Google translation from the Macedonian bylaws is an
 accurate representation of the original Macedonian language version. It is fully recognised that some of the
 comments made above may result from a mis-interpretation of the original document in the Macedonian language.
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 The Rulebook determines the internal organisation of the SAC and provides for lawful, efficient and
 rational performance of its work, independence and responsibility in the performance of work
 assignments and quality management of the SAC. Appeals have to be assigned to the SAC staff according
 to the type, size and degree of their complexity as well as interrelation and similarity. The Rulebook also
 provides for seven units within the SAC:
- Unit for Resolving Appeals on Public Procurement by the Contracting Authorities,
- Unit for Resolving Appeals on Public Procurement by the Authorities of the Local Self-Government
    Units, the City of Skopje and public enterprises,
- Unit for Financial and Material Affairs,
- Unit for Professional and Administrative Affairs,
- Unit for Information System,
- Unit for Human Resources Management, and
- Unit for Internal Audit.

    7.1.3. Time limits for applying for review
 Art. 216 (2) PPL provides for just one universal time limit for the initiation of a review procedure,
 namely eight days (three days for the simplified competitive procedure) for the submission of an appeal
 to the SAC. The time period of eight days established by the PPL is too short for contracts that fall within
 the scope of the EU Directives. The duration of this time limit as determined in the Remedies Directive
 depends on how the specific decision which gives rise to the submission of the review request was
 communicated:
- 10 days if by fax or electronic means,
- 15 days if other means of communication are used.

    Although there is no EU requirement for the time limit for applying for review below EU thresholds, the
    deadline of three days seems to be too short and seems to be an obstacle to easy access to remedies –
    especially for SMEs.

    7.1.4. Standstill period
    Art. 208 PPL provides for a standstill period, which is 12 days counting from the day the decision is
    received by the economic operators concerned. The PPL does not differentiate, however, the length of the
    standstill period on the basis of how the contracting authority’s decision is communicated and defines this
    time period as the receipt of a decision by the economic operator.

    Art. 2a Remedies Directive determines that a minimum time must elapse between notifying the tenderers
    or candidates concerned about the contract award decision and conclusion of the contract, which,
    depending on the means of communication used, should be at least 10 or 15 days.

    7.1.5. Optional derogations from the standstill
    Art. 2b Remedies Directive provides for optional derogations from the standstill period, meaning
    circumstances under which the contracting authority is entitled to sign a contract without waiting until the
    expiry of the standstill period.

 There are the following optional derogations:
-  procedures where a contract notice in the OJ is not required (e.g. Annex B services, application of
   negotiated procedure without notice);
- procedures with only one tenderer and without candidates concerned;
- framework agreements (and dynamic purchasing systems) for call-off contracts.

    The derogations of Art. 208 PPL (negotiated procedure without notice) are not as far reaching as Art. 2 b
    Remedies Directive. However, as there is no obligation for EU Member States to provide for the
    derogations from the standstill period as specified in Art. 2b Remedies Directive, it is left to the


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 individual state to transpose these provisions. Thus, there is no need for Macedonia to transpose these
 derogations into the Macedonian legislation if they do not see the need to.

 7.1.6. Ineffectiveness
 In accordance with Art. 2d Remedies Directive, contracts are to be considered ineffective in the following
 cases:
- if there is a failure to publish a contract notice in the OJEU as required by EU legislation; and
- if there is failure to comply with the rules on review procedures (e.g. suspension of the contract award
    procedure as required by Art. 1 (5) Remedies Directive; conclusion of the contract before the
    independent review body has made its decision on at least interim measures, infringement of the
    standstill requirement).

 Art. 2d (2) Remedies Directive leaves it to Member States to determine the consequences resulting from a
 contract considered ineffective: retroactive cancellation (ex-tunc) or prospective cancellation (ex-nunc).
 If an ex-nunc option is used, cancellation has to be accompanied by additional penalties.

 According to Art. 2d (3) Remedies Directive, a contract may nevertheless be kept in force if there are
 exceptional circumstances requiring certain overriding reasons related to general interests to be respected;
 alternative punishments should then be applied.

 Only parts of this EU provision are found in Art. 217 (3) PPL. If a public contract is signed contrary to
 Art. 217 (1) and (2) PPL, it is deemed null and void ex lege while the Remedies Directive requires this to
 be rather a decision of the Review Body. The SAC does not seem to have any prerogatives concerning
 rendering a contract ineffective (see also Art. 220 PPL concerning possible rulings of the SAC: none of
 the possible decisions refer to rendering a contract ineffective.) This might cause some difficulties in
 practice (e.g. when a supplier has already started to fulfil the contract and there is no reasonable factual
 possibility to reverse this delivery: consumed buffet, basement constructed). The PPL specifies the
 consequences of “voidness”, as ex tunc termination of the contract with the possibility of damages. Only
 in the case of ex nunc termination of contracts is alternative punishment needed according to the
 Remedies Directive. Therefore, there is presently no need to introduce alternative punishment according
 to Remedies Directive, Art. 2e.

7.2. Facts and figures (Statistics)
Pursuant to Art. 205 PPL, the SAC submits its Annual Report to the Parliament of the Republic of
Macedonia by the end of March in the current year for the previous year. In 2010, the SAC received a
total number of 868 appeals, 820 of which had been resolved at 31 December 2010, whereas 48 remained
open. Thus 94.47% of the appeals were solved in 2010 whereas 5.53% remained unsolved on 31
December 2010. From a total of 996 cases, 960 were appeals in 2009.

 Pursuant to Art. 230 PPL, an administrative dispute can be initiated against the decisions of the SAC
 before the administrative court. In 2010, a total of 94 (11.46%) out of 820 cases were submitted as
 lawsuits to the Administrative Court of the Republic of Macedonia. Thus, the parties were to a large
 extent satisfied with the decisions of the SAC (88.54%), which could be verified during our peer missions
 with contracting authorities and suppliers.

 The SAC adopted 855 rulings concerning appeals submitted in the course of 2010, of which the SAC
 found 272 appeals (31.81%) to be justified. In 363 cases (42.46%) the appeals were rejected, 121 cases
 (14.15%) were dismissed as ungrounded (failure of the applicant to pay the legally prescribed fee for the
 appeals procedure or applications made after the legally prescribed deadlines). In 70 cases (8.19%) the
 appeals were withdrawn. Twenty-nine appeals (3.39%) were accepted by the contracting authorities.
 According to the SAC, approximately 95.5% of all appeals are decided within the legally prescribed
 deadlines.


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Compared to 2009, there was a small decrease in the number of cases (868 instead of 1 044), which might
be due to the economic crisis, decreasing public budgets and thus fewer procurement projects.

In 2009 and 2010, the most common problems the SAC had to decide in the appeals included 53.6%
unclear and discriminatory tender documents, 45.2% contract award criteria, 41.7% delayed payments,
37.1% biased tender documents.

Decision making by the SAC is now timely and there are no more backlogs of reviews. In the period from
01.01.2011 till 02.03.2011, the SAC received 173 cases of which 139 cases (80.35%) are solved, and in
34 cases (19.65%) the procedure is under way.

Some economic operators perceive that SAC’s decision making is biased towards contracting authorities
and focuses mainly on procedural issues. While Sigma has not had the opportunity to fully investigate the
reality of this perception, neither our analysis of SAC case-law nor the statistics on the rejection of
appeals support this perception.

When analysing the statistics we received from the SAC’s annual report to Parliament, we found a high
percentage of rejected appeals, namely 44.67% of all cases in 2009 and 42.46% in 2010. However, the
analysis of individual cases showed that economic operators did not comply with procedural PPL
provisions (e.g. disregard of deadlines, no payment of fees). The high percentage of appeals rejected by
the SAC indicates that economic operators still have deficiencies in their procurement knowledge.
Training for economic operators might improve this situation considerably.

7.3. Analysis of selected procurement decisions (SAC case-law)
During our missions we collected SAC decisions from both contracting authorities as well as suppliers
and selected some recent SAC decisions published on the SAC website. That became the basis for our
fragmented analysis of a few randomly selected cases. As we did not receive the entire procurement file
including applications of the suppliers, response of the contracting authority or external expert opinions,
but only the final SAC decisions, our evaluation is based on the final SAC decisions only and may thus
not reflect the full reality of the particular case.

Most of SAC’s decisions analysed consist of five to six pages each. They include a summary of the
complainant’s alleged breaches of the PPL, the contracting authority’s response, the “facts” of the case as
seen by the SAC and a profound legal reasoning. The decisions are perceived to be understandable by
procurement practitioners, contracting authorites and economic operators, as well as the interested
general public communicated to us during our peer missions. That general impression gained from many
interlocutors could be easily confirmed by our analysis of SAC decisions.

The SAC decisions analysed contain enough details on the facts and findings for each case reviewed.
Economic operators as well as contracting authorities are largely satisfied that the issues have been fully
and properly considered. They generally understand how a decision has been reached. It became obvious
for us that the previous negative perceptions among economic operators were addressed and that the SAC
has won the confidence of the majority of the procurement community in Macedonia.

Although we did not detect any problems of inconsistent decisions, we would suggest the SAC to give
reference to other decisions that deal with the same legal problem (cross references) in order to help
practitioners to follow SAC case-law.

Although there is no data on the full and timely implementation of SAC decisions due to the absence of
reporting obligations for contracting authorities, we did not see any irregularities in that respect.




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7.4. Strengths and weaknesses

7.4.1. Public procurement environment and culture
The term of “review environment and culture” refers to the operation of the system in practice. As we
learned during our meetings with contracting authorities/entities, representatives of private business,
control institutions and civil society (e.g. NGOs, Chambers of Commerce, Transparency International)
the review system including the SAC were largely perceived as professional, transparent and honest.
Only some NGOs perceived the SAC as not sufficiently professional and not totally free from political
pressure.

The present complaints review and remedies system is perceived as a very important and decisive
preventive factor for corruption in the procurement system. Economic operators are usually the best
equipped watchdogs when it comes to ensuring the fairness and correct execution of the procurement
operations. Whilst the review system is designed with the purpose to secure fairness and equal treatment
of tenderers in accordance with the PPL, it works at the same time as an important deterrent against non-
integrity related actions.

During our missions we learned from virtually all stakeholders in the procurement process that the
attempts to reform the public procurement system in practice have been successful and that the SAC has
developed into a mature review institution. This development was helped by a SIGMA technical support
programme, meaning a Twinning light project between the Croatian Review Authority and the SAC. It
was appreciated by the SAC and the other stakeholders of the procurement process, as the outcomes of
that project were obviously beneficial for the review system (improved quality of SAC decisions, timely
decisions).

7.4.2. Confidence in the review system (perception issue)
The review culture includes questions such as how frequently the review and remedies system is used by
tenderers, how many complaints to contracting authorities /entities end up as appeals to the SAC, whether
many SAC decisions are appealed with the courts of Macedonia, whether tenderers are successful and
satisfied with the outcome of proceedings overall, and which remedies are actually awarded in practice.
Even if many of these aspects are difficult to measure, stakeholders’ comments during our meetings as
well as the number of complaints, SAC reviews and appeals to the courts might be seen as indicators for
general trust in the review and remedies system.

Given the rather high number of SAC review procedures (868 appeals in 2010 compared to 1 044 in
2009); we came to the conclusion that there is widespread trust and credibility in the review system, no
self-restriction of tenderers for business reasons and sufficient time limits to introduce claims.

During our Peer meetings with contracting authorities as well as with representatives of private business,
we learned that neither party in general has any major complaints as to the functioning of the review
system including the SAC. Economic operators, however, occasionally complained about the SAC when
decisions of the SAC were not in their interest.

Some Macedonian NGOs perceive public procurement practice and the review system as frequently
unprofessional and not totally free from political pressure. They expressed concerns about formalistic
decisions of the SAC and lengthy review procedures. Both issues seem to be perceptions from previous
years, as on the one hand the SAC’s reports to parliament in 2010 and 2011 give clear evidence of timely
decisions (approximately 95% of the appeals were decided during the legally prescribed period). The
formalistic nature of SAC decisions and the tendency to favour contracting authorities could also not be
verified during our SAC decisions analysis. Some NGOs also informed us that the SAC is not fully
independent from political pressure, which we could not confirm.


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Thus, the high number of appeals seems to rather indicate a lack of knowledge on the part of contracting
authorities and economic operators of how to interpret and apply PPL provisions, which is also perceived
in other countries of the region. The administrative capacity of contracting authorities and the
professional ability of procurement officers to properly implement the provisions of the PPL remain
unsatisfactory. Training for contracting authorities and economic operators is still needed.

7.4.3. Conclusion
The review and remedies system set up in the PPL is basically in line with EU requirements, although
Directive 2007/66/EC has not yet been fully transposed. We see a positive trend in the work and the
general perception of the SAC, which has been moving towards a mature review authority.

The remedies system including the SAC may, therefore, no longer be seen as a weak part of the public
procurement system as described in SIGMA assessment reports in 2009 and 2010. The SAC is well on its
way towards becoming a fully fledged review institution.

7.5. Recommendations
Our recommendations for the review system are split into short- and medium-term recommendations
and focus on concrete practical improvements of the system: to make it more oriented towards achieving
good economic results (value for money), to make it less time-consuming, more open and competitive,
less burdensome for business and procurement officers and less prone to corruption as well as to reduce
its costs. We see our recommendations as complementary to already existing initiatives including
international assistance projects.

The EC Delegation in Skopje informed us that the EU has planned to provide significant assistance to the
Public Procurement Bureau (PPB) and the State Appeals Commission (SAC). That assistance started in
2010 and will continue in 2011. Its focus is on:
    Capacity-building of central institutions (PPB, SAC);
    Development of operational tools (guidelines, manuals);
    Mass training for public procurement officers and economic operators (training of trainers);
    Support for e-procurement.

Taking this technical assistance into consideration, we recommend the following accompanying short-
term measures:

7.5.1. Publication of the decisions of the SAC
The State Appeals Commission is proactive in disseminating information on the public procurement
system through the publication of its decisions and in providing contracting authorities (and economic
operators) with practical assistance.

However, we see the publication of decisions in pdf format just as a starting point for transparency, as it
is still hard for public procurement practitioners to quickly find solutions to legal problems in these
individual decisions, without reading and analysing all of them. The publication in its present form does
not secure a consistent interpretation and subsequent application of the law by procurement practitioners.

Thus, as a second step, a database of the decisions of the SAC including search and browsing
facilities is needed for individual legal problems as orientation for practitioners in their daily
procurements. The database should be structured by referring to the individual articles of the PPL to help
practitioners to find reference cases and precedents.

During our meetings with the SAC we learned that there is an IT project under way supported by the
Embassy of the United Kingdom for hard and software for the SAC’s activities. It started in early 2011
with the implementation of the first phase of DMS – Document Management System, which includes


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archive filing – receiving, recording of cases and their distribution. If this project does not cover search
facilities for SAC decisions, further technical support financed by EU funds would be helpful.

In addition, the SAC should publish analyses of certain legal problems and how they deal with them in
their decisions (e.g. qualification criteria, preparation of technical specifications, MEAT).

The SAC could also organise workshops and conferences to disseminate information together with the
PPB, which could be part of a technical assistance programme of the EU to strengthen capacities in
Macedonia.

7.5.2. Capacity building: sufficient funds and training for the SAC
However, it is important that the SAC, although being well on its way towards becoming a mature review
institution, continue to receive sufficient organisational and budgetary support. It needs to be well-staffed
by experts and administrators, underpinned by adequate technology, including office facilities and IT
systems. It must also have the financial capacity to seek independent specialist technical advice where
necessary.

Public procurement is multi-disciplinary and covers virtually all sectors of the economy including sectors
as diverse as engineering (e.g. road and tunnel construction, works), natural sciences (e.g. laboratory
equipment, pharmaceuticals), logistics, medicine (e.g. supplies for hospitals), intellectual services (e.g.
civil engineering, consultancy, financial and banking services, meteorological services). Given the wide
range of procurement activities, the SAC (as all other procurement review institutions) will have to hire
external technical experts when certain technological, scientific or economic aspects have to be clarified
as a basis for the SAC final decision (e.g. the use of certain technical specifications/materials/methods,
examination of abnormally low tenders). Additional funds for the SAC to cover these expenses would be
helpful.

It is important to provide the SAC’s (newly recruited) members and staff with the extensive training,
advice and technical support they require, both today and in the long term. This is of particular
importance, as the SAC will be given new competences (review of concessions/PPPs). Thus, training is
required on concessions/PPPs and ECJ case law and would be appreciated by the SAC.




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