Sector News
Slowdown in Italian Public Construction Procurement – Temporary, We Hope!

There is an interesting article on the Lexology website (which we believe is free if you register). The site carries a wealth of useful legal information, provided by a range of leading law firms and from different countries. It is not restricted to procurement related matters of course.

Cesare Milani and Francesca Serafini from law firm Latham & Watkins LLP in Italy write about an apparent slowdown in new tenders for public works (construction) in Italy following the introduction in April of the new public procurement legislation in that country – relating to implementation of the 2014 EU directives.

In the article, the authors say that “According to data made available by the Italian National Association of Building Contractors (Associazione Nazionale dei Costruttori Edili), the regulatory change has already resulted in the retreat of the public works market”.

Why is that? It looks as if the more rigourous processes involved under the new regulatory regime might be at the very least delaying the advertising and issue of tenders and the start of major tender processes.

“In addition to strengthening the role of Autorità Nazionale Anticorruzione (ANAC), the national anti-bribery and corruption authority in the public procurement sector, the new code has also established a qualification system of contracting authorities and introduced other provisions to consolidate public tenders. Such revisions have led to a decline in both the value of the calls to tender made public and the number of large public procurement procedures launched”.

So in May this year, the tender value was no less than 75% down from the same month in 2015, and only 10 major new projects were commenced as compared to 45 in 2015.  One of the changes in the legislation is the focus on “most economically advantageous” tenders, and the article suggest this may be one of the delaying factors. But surely major construction projects already worked on that basis – it can’t have been simply the “lowest price” criterion previously used, could it?

In any case, the new regulations are obviously causing uncertainty for public procurement staff and for the supply market. That is not helped by the lack of guidance; as the authors explain, “the issuance of general guidelines on the new applicable regime by the Ministry of Infrastructure and Transport (Ministero delle Infrastrutture e dei Trasporti) is pending”.

Now it is obviously too early to say whether this is a long-term problem or just timing. Another few months of data will be needed to see if a backlog of delayed projects results in a rush of tenders issued in the months after May. We would expect this to be the case. However, even if this is just a case of displacing government procurement activity by a few months, the consequences cold still be serious.

The Italian economy is not strong at the moment. The International Monetary Fund now expects growth in the economy to be just 1% this year and the same next, and their forecasts are being revived downwards. The banking sector is in real crisis, and unemployment is running at 11%. Delaying a major part of government expenditure by even a few months could have a very negative effect on struggling suppliers in that sector, for instance. So let’s hope the budget holders, procurement professionals and lawyers get back on track as quickly as possible, and get those tenders out into the market.

Do read the whole article too – here is the link again.