Transparency of Small-Scale Public Contracts (CZ0040)

Brief Description of the Commitment

The goal is to find agreement on the key principles in the awarding of small- scale public contracts so that key data serving, among other things, for public control over the awarding of public contracts is available.

Problem Definition

1. What problem does the commitment aim to address? Several hundred billion crowns are invested annually through small-scale public contracts (i.e., public contracts worth CZK 2 million without VAT in the case of services and supplies, or CZK 6 million in construction works). However, such a significant impact of public funds is not subject to clearly defined rules, and the supervision of processes is rather complex. On the other hand, in terms of administrative efficiency in spending resources in the order of, for example, only tens/hundreds of thousands of crowns, it is obvious that the system cannot be burdened by complex rules. It is therefore necessary to find a balance between both views.

2. What are the causes of the problem? Small-scale public contracts (SSPC) are not clearly regulated – as is the case with other higher- value public procurement, for example. In terms of the effectiveness of the process/administration of the expenditure of resources under the SSPC, this would not be a problem if there were no high probability of corrupt or non-transparent behaviour and if the State had and evaluated accurate data in this area. The limitation of the data is also related to the limitation of civil control, but also possible mistrust of potential suppliers.

Commitment Description

1. What has been done so far to solve the problem? The key is the functioning of the Register of Contracts, where control can take place for all transactions with a value of over CZK 50,000. Furthermore, the practice is relatively fragmented – it often depends on the strictness of internal rules. There are similar rules at ministerial level, which have historically been influenced by the rules for public procurement on electronic marketplaces. The situation at local government level is very different.

2. What solution do you propose? It is necessary to provide key data concerning the awarding of small-scale public contracts. That is, how structured is the market in this area, what are the approaches of contracting authorities, how does their behaviour differ at the level of SSPC/sub-limit public contracts. Furthermore, agreement must be found on the basic rules of operation – i.e., where is the balance between the effectiveness of the administration and the added value in terms of transparency. The consensus that needs to be found among the key actors in this field, however, needs to be found on the basis of accurate data.

3. What results do we want to achieve by implementing this commitment? In general, improving the work with data in the case of SSPC, thereby increasing transparency, finding key rules for the process of awarding SSPC, and thus also setting a balance in the approach to SSPC. Analysis of the commitment

Questions Answer

1. How will the commitment promote transparency? Increased data transparency and enhanced methodological support undoubtedly increase the transparency of public asset management.

2. How will the commitment help foster accountability? Increased transparency and methodological support will lead to a better understanding of the processes and data in SSPC, and thereby also to increased accountability of the persons representing the contracting authority, where they are elected representatives.

3. How will this commitment improve citizens' participation in the development, implementation, and monitoring of solutions adopted? The commitment ensures a better overview of SSPC and possibly citizens' understanding of decision-making processes.

Commitment Planning (Milestones | Foreseen outputs | Estimated date of completion)

Obtaining more accurate data about SSPC for further decision-making | Analysis of key data related to the awarding of SSPC and sub-limit public contracts by the structure of contracting authorities. | 1 March 2023

Establishment of working group (s) to address issues of SSPC transparency and SSPC limits | The functioning of working groups with a clear content and goals of the work, which will allow finding a consensus between the public and NGOs sectors | 1 August 2023

Developing key negotiation outputs and their reflection in contract practice | Ensuring that the work outputs of the individual WGs are incorporated into the contract practice, in particular with regard to training processes and methodological support | 31 December 2023

Action Plan Review

Commitment 6. Small-scale public contracts transparency

Ministry of Regional Development, Transparency International Czech Republic, Oživení, Datalab

For a complete description of the commitment, see commitment 4.6 in the Czech Republic’s 2022–2024 action plan: https://www.opengovpartnership.org/documents/czech-republic-action-plan-2022-2024.

Context and objectives

Each year, a hundred billion CZK are invested through small-scale public contracts (i.e., public contracts worth up to 2 million CZK for provision of services and supplies, or up to 6 million CZK for delivery of construction works). [1] Small-scale public contracting is problematic due to weak regulatory framework and absence of judicial oversight, which in turn result in ineffective use of public funds, nepotism, and corruption. [2] Anti-corruption CSOs have exposed defrauding schemes that demonstrate the nature and extent of this problem. [3]

Anti-corruption CSOs have long called for clear and transparent rules for small-scale contracting. [4] The recently adopted Government's Anti-Corruption Strategy 2023–2026 answers these calls in part and promises methodological support in certain areas of public procurement. [5] Small-scale contracting, however, is not expressly mentioned.

This commitment promises to agree on the key rules in the awarding of small-scale public contracts to facilitate public monitoring by making relevant data available. [6] A methodological guidance will be adopted as guide for contracting authorities in awarding small-scale contracts. [7] Such guidance, especially if binding—at minimum for central state authorities, has potential to bring about change in the transparency and accountability of the use of public funds.

This commitment is one of the three new commitments added to the action plan during the November and December 2022 meeting of the Government Council for the Coordination of the Fight against Corruption. [8] It was formally proposed by Jakub Michálek, an MP of the Czech Pirate Party, in cooperation with anti-corruption CSOs. [9] CSOs find the commitment to be in line with their efforts to enhance the transparency and accountability of small-scale contracting. [10] The inclusion of this commitment opens a new policy area on public procurement transparency that has not been covered in the previous action plans.

Potential for results: Modest

The commitment could improve transparency and public accountability since small-scale contracting is widely used by central as well as municipal contracting authorities. [11]

Small-scale public contracting is regulated by Act No. 134/2016 on Public Procurement. However, only general principles of transparency and proportionality, equal treatment, and non-discrimination apply. [12] On 10 May 2023, the Senate approved a legislative amendment increasing the threshold for small-scale contracting, which is currently being re-assessed in the lower chamber of the Parliament. [13]

In 2020, the Ministry of Regional Development adopted a methodological guidance on small-scale public contracting which it had developed with CSOs. [14] The guidance simplified the administrative burden for procurement of small-scale contracts and strengthened the requirements for transparency significantly. CSOs have expressed general satisfaction towards the guidance for its brevity (11-page long), simplicity, and flexibility; while balanced by strict requirements for transparency, notably publication of the reasons for selecting a contract winner. [15] However, it is not binding and thus serves only as recommendation for contracting authorities. As such, it is not widely used and practices among contracting authorities differ considerably. [16] Many of these contracting authorities have their own rules for small-scale contracting, while some disclose almost no tender information. [17]

Commitment 6 seeks to address this by creating working groups comprising civil society and government representatives to agree on basic rules of operation and a balance between administrative requirements and transparency. Government and civil society representatives agree that the commitment is ambitious and could have a substantial impact by lowering corruption risks and improving business environment. [18] However, the potential for results depends on whether the rules would be made binding, at least for central state governmental bodies, to ensure its wide use in practice. The current non-binding nature of the rules mean they have modest potential for results. Stakeholders interviewed by IRM stated it is unclear whether there is political will to do so but note that making the rules binding could standardise and enhance the transparency and reliability of small-contracting practices.

Government and civil society stakeholders agree that the methodological support is important to make contracting authorities confident to operate in this area given lacking legal regulation. [19] However, CSOs argue that lack of transparency in the selection of contract winners is more of a problem given that it exposes small-scale contracting to corruption risks and thwarts business environment. [20] CSOs stated that procurement rules for small-scale contracts do not need to be complex and it is important for the public to learn the clear and concrete reasons of why contracting authorities select a winner. [21] They added that clear selection rules could improve business environment and the reliability of the procedures. [22]

Opportunities, challenges, and recommendations during implementation

Stakeholders mentioned two factors that could contribute to the success of this promising commitment. Firstly, implementation will be vested with the Ministry of Regional Development, which has demonstrated strong political and administrative leadership in the policy area and has openly endorsed the objective of improving procurement environment. [23] Some respondents interviewed by IRM suggested that this commitment presents the best momentum to move things forward in the policy area in the last ten years. [24] Secondly, the commitment provides an opportunity to alter the rules for small-scale contracting from the EU funds in line with the strict procurement procedures required by EU agencies. The methodological guidance could have an enormous impact in terms of transparency and legal certainty if applied in this area. [25]

Lack of consensus among relevant stakeholders on the final shape of the methodological support and its binding versus non-binding nature could derail commitment implementation. Existing distribution of political forces as well as cooperation between the implementing agency and CSOs may mitigate this risk. In the end, the binding nature of any future methodological rules on small-scale contracting is vested with the government and the commitment would, therefore, need continuous political support. The success of the commitment may also depend on whether the procurement rules are adopted in practice by all contracting authorities (approximately 10 to 20 thousand entities) [26].

To achieve promising results, IRM recommends the implementing agency of Commitment 6 to:

• Actively cooperate with civil society organisationsin the development of the rules on small-scale contracting. CSOs with substantial experience in contracting and procurement could engaged through regular meetings to discuss implementation progress, solicit input, and enable oversight. It could also be formalised into a working group with similar participation rules to the multistakeholder forum.
• Ensure that continued political support for the commitment is expressed in the Government's Anti-Corruption Strategy 2023–2026 and aim to make the rules binding, at least for central state governmental bodies. While guidelines can help to change practice where there is already much institutional support for such measures, binding rules can ensure broader implementation from across institutions. Inclusion in the government strategy and ongoing political support are momentums for the commitment to generate stronger results in small-scale contracting transparency. Further ambition could seek to make the rule binding for government bodies at lower levels.
• Promote the new rules and train key government officials. Once adopted, the government could further support the application of the rules by promoting it among key government stakeholders. This may also require training for relevant users to ensure proper understanding of the new rules, which could be designed and conducted in collaboration with civil society.