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“Captivity effect”: Competition Council’s recommendations for institutions not to become dependent on providers who win tenders in IT and health sectors

de Victor Bratu , 23.5.2018

Authorities are often dependent on a single vendor or distributor, mainly in the acquisition of software developed on demand and medical devices, is the conclusion of a study by the Competition Council on the captivity effect in public procurement.

Captivity is a market phenomenon generated by technical and legal restrictions.

The study highlights the main problems faced by contracting authorities regarding the captivity effect and proposes solutions to reduce the risk for contracting authorities to become dependent on a supplier beyond the timeframe specified in the initial awarded contract.

In IT field

The captivity of contracting authorities has been identified particularly in the case of public procurement for the development of customized software products.

Cause – contracting authorities’ omission to include the ownership of the applications in the contract, namely the source code.

The Competition Council recommends in this field that in the tender specifications to be specified the requirements on licensing and other legal aspects such as:

  • unlimited licensing of applications acquired based on licenses
  • the transfer of intellectual property of all deliverables resulted from the implementation process to the respective institution.

The Council recommends that provisions on project deliverables and knowledge transfer to be established when drafting the specifications for the software acquisition.

Provisions that should ensure the continuity of the solution and allow the contracting authority to make changes:

  • transfer of the source code (for customized solutions) with the possibility of making changes independently of the supplier
  • transfer of all deliverables produced within the project in an editable form
  • data ownership and/or the possibility to automatically extract them without the need for the provider to intervene (data export)
  • including a plan for transferring the technical knowledge at the end of the contractual relationship with a supplier

*

  • Public procurement by the types of IT goods and products
  • IT maintenance services
  • Licenses acquisition
  • IT services (processing, archiving and databases)
  • Consulting services for IT project management
  • Hardware
  • Software development

*

In addition to the functional software solution, the beneficiary will ensure that other related deliverables such as the project technical documentation, the source code, technical documentation, administration and operating documentation, test plans, etc. are also provided”, recommends the Council.

If the product brands are used in drafting the awarding documentation, there will be a restriction in the competition to the suppliers offering that mark or a monopoly situation will be created which will have an impact on the acquisition prices.

Brand use is permitted only as an exceptional situation when a sufficient description is not possible by other means provided by law.

The main suppliers of IT products/services that between 2011 – 2016 recorded the highest revenues from contracts signed with public authorities, found the Competition Council:

In the field of medical equipment and devices

Captivity is most often manifested by the fact that a contracting authority finds itself forced to purchase spare parts and consumables for an equipment only from the provider of that equipment, as all the others are incompatible.

In this case, drafting technical specifications is very difficult, both for public procurement specialists and doctors/nurses.

The specifications must contain technical details specific to the area of use of the equipment to allow/make possible the access of several companies to the procedure, says the Competition Council.

The Council recommends for medical units to carefully analyse the technical characteristics of the product they hold, the performance of the good to be purchased, post-warranty maintenance costs, and the cost of spare parts when drafting the specifications.

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