The future of the market for design services

The cyclical role that public demand has on the economic system is able to support the production even in recessions. But the Italian system now has the ability to give life to an effective public-private partnership?

In Italy the market of engineering services, already eroded by a half remaining legacy of public administration, is further restricted by a new form of "in-house" all cases of contracts (contracts from design / build to those in general contractor, from concessions to ppp) in which the proponents to be "proactive" involved combining the craft also build the project activity thus relegating engineering companies to their suppliers.

The examination of the contract (public) set up an information services market remains anemic - far below the threshold of one billion euro per year - and fragmented - with an average size of 171 thousand euro (because the "big cuts" are calls that combine work in services).

In general poverty of opportunity in the race there was a growth in demand for health services for building works. A "niche" that not only drives the project finance but - at least on paper - allows for greater reliability of supply and thus favors the organized engineering.

The disappointment is that of a formula that seemed more selective (for higher barriers to access) and therefore conducive to engineering organized - the public-private partnership: After the enthusiasm of the early 2000s are witnessing a decline because circumvent the lack of public resources does not pay if the private are not adequately remunerated.

The most "bluff" seem to be the tenders carried out with "project finance": their failure rate is alarming and certainly not due to defects in design, but for all types of problems in carrying out procedures primarily to inability of government administration .

One of the critical plight of the declines in offers is worse: the average (in the public market but also in the private sector tend to be) has now reached a third, even worse than it is detected for the work. This clearly puts at risk the quality of intellectual performance (and consequently of outputs).

 

Italian Market

In 2008, the engineering market has fallen short of expectations (and 2009 is a source of great concern). Observatory Oice / Informatel show that last year there were 4,534 public tenders worth a total of about 786 million, compared to 2007 decreased by 13 per cent in quantity, but an increase of 17 percent in the amount . Consequently, the average value per contract is increased by 34.5 percent (after already more than 31.1 percent in 2007). The upward trend in the average amount of public notices is the only positive note for an engineering who organized structure costs inevitably more of the myriad of professional firms.

A breakdown of the notices published by type of work is known as the largest number of races published in 2008 has as its object services "building works", 1,288 races, more than 25.5 percent on an annual basis, driven from the building Health increased by 28 per cent in volume and well of 94 per cent in value, as they follow the "Planning Services" (plus 14.5 percent) and "services for roads and motorways" (minus 11.2 percent ). In terms of value, the "services" are in first place with 231.6 million, 18.1 percent more than in 2007, followed by "services for building works" (plus 70.2 percent) and " services topography and relief "(plus 127.5 percent).

Contracting authorities more active in 2008 were the "Municipalities" (3,033 races), despite the decline of 11, 2 percent over 2007, they follow in the "Province" (437 races, more than 0.9 per cent) and "dealerships and private subsidized" (295 races, minus 27.5 percent). These are the last in spite of calls by number, are first on the list for value: 183,200,000, less 15.7 percent in comparison with the year before, followed by "Common" (178.1 million, down 3.3 percent) and the "Government of the State" (146.6 million, more than 192.9 per cent).

As for Europe the comparison between 2007 and 2008 saw an increase of 9 per cent in the number of notices published in the Official Community (16,923 against 15,527). It should be emphasized the openness of the Italian government to the "single market" given that in 2008 the public notices were 574, an increase of 19.3 percent. Despite this there is still a long way to go to open the Italian market in the European competition, just think that Italy is preceded, in descending order from France from Spain with 5,498 (1,921), Germany (1,575), Great Britain ( 1.142) and the "emerging" Poland (1,050).

Of particular concern is the decline of the initiatives in public-private partnership (ppp) and the formula of project finance, on which you count to increase the demand for government "in trouble." For the project financing in 2008 alerts to solicit proposals from promoters were only 283 (the lowest number since 2003), of which 268 with total known value totaled 2.6 billion, down sharply from a year ago when they were issued 488 warnings, of which 437 with known value of approximately $ 7.6 billion.

Instead increase the races on a proposal from the promoter: in 2008 it recensiscono 160 - the highest number since 2000 - of which 157 with total known value exceeding 4.6 billion, up from about 3.2 billion in 2007). Also increased calls for concessions execution and management: in 2008 there were 198 of which 140 with known value to 988 million (compared to 873 million in 2007).

The disappointment of the market of project financing is confirmed by a report dell'Ocap, the Observatory on the change of government set up by the SDA-Bocconi. Analyzing 2,236 initiatives between 2005 and 2008, it turns out that those were actually awarded just 274 and there was a worrying failure rate of 88 percent. According to the Ocap the causes of this failure are due to internal assessments to the public administration (27 percent), problems related to the provision of public assistance (25), in the absence of proposals from promoters (20), elimination the work - initially considered of public interest - the three-year programming of the public (18), a failure to comply with the requirement of "public benefit of the proposal" in the case of private initiatives (15), a lack of bidders (11), a suspension of the race by the courts (10) and, finally, lack of authorization by the competent bodies.

Looking at other forms of works contract with the related services design: according to the Oice the "integrated contracts" in 2008 totaled 616 calls, of which 607 with known value for $ 5.3 billion (previous year: € 3.6 billion) and "procurement competition" involving 74 calls, including 73 with known value of 393 million (compared to 862 million in 2007). Also struggling contracts involving the use of the formula for the general contractor in 2008 were only published two calls for a value of € 1,185 million, compared to four in 2007, which were worth 1,865,000.

An interesting way to look at the engineering market is separate notices (public) providing for tendering of the first type (in the European tradition) design-only those that constitute a so-called "new" market ("new" because the firm construction has not only the responsibility embodiment but also the design), both of the second type (design and construction) that of the third type (of creation "by any means"). By combining various sources of information the user finds a "new market" in 2008 is approaching $ 16 billion and then is almost half of the market "traditional" (in which the moment of realization and the design are separated): 33 billion.

As a result the market that engineering companies have at their disposal directly at the service of public patronage appears to be very small: it is estimated an incidence of the design on the total value of calls by 10 per cent, is a potential demand estimated at 3.3 billion .

Taking into account that about half of the design is done in house by the public administration, the "traditional" market open to the world of engineering is something like 1.6 billion.

Instead, the "new" market - characterized by average amounts were much higher and therefore more interesting - it is difficult to quantify because to some extent the direct counterparty is not the administration but the construction company that carries out a part of the design. The engineering company (unless it is able to act as a direct counterpart of the proposer and public administration) reflects well not only a limitation of its assets (and its contractual role), but also a pressure on prices.

Sighting in 2009 the Observatory Oice / Informatel disclose alarming. In the first eight months of the tenders for engineering services and architecture are 2,749 amounting to about 471.7 million, a decrease of 10.9 per cent in the number and in the amount of 3.6 percent compared to the same period in 2008 . The decline was extended to the European Union: in the first half of the races are published only 10,846, a decrease of 6.5 percent in both number and value.

For forms of contract the second type (design and construction) in the first eight months of 2009 races for integrated contracts are 412, of which 403 with known value of 3.2 billion (compared with the known value of 391 to 2.3 billion in the first eight months of the year before), while those for contract competition are 52 to a value of 392.1 million (against 320 million in the same period of 2008).

Among the types of races of the Third Kind (execution by any means) those most in need are in the public private partnership (ppp). The notices to solicit proposals from promoters are less than one sixth than those recorded in the same period the year before and the known value is in free fall: 108 million compared to over 1.9 billion. Also struggling races suggested by the promoter: 97 against 115 in number and less than 16.8 per cent in value over the same period of 2008. On the contrary tenders for concessions execution and management: in the first eight months of 2009 were 189 including 125 with known value for a total of 6.9 billion (compared to only 653 million the year before). Finally, the general contracting projects: in the first eight months of 2009 are published in two races for a total value of 1,195 million.

 

Trend of public procurement

A better understanding of the market provides the 2008 annual report of the Authority for the Supervision of public contracts for works, services and supplies, presented last July at the Chamber of Deputies,

According to the Authority in 2008, the economic crisis had not yet resulted in significant consequences in the public market because government expenditure is planned well in advance of its financial event: public works amounting to more than EUR 100 000 are made on the basis of a three-year plan updated annually and the purchase of goods and services is planned in the annual approval of the budget. In the case of design services, they are less subject to rescheduling the annual updating of the budget are closely linked with the work, whose spending plan has a broader horizon. As a result, a substantial rigidity of the public demand both in the short and medium term which effectively serves as a "flywheel" anti-crisis support in the production and employment for both direct and indirect effects. Provided that - of course - does not undermine this role delaying payments!

It should be stressed that it is necessary to combine the investment planning a series of measures for the proper use of public spending aimed at the simplification and streamlining of procedures (especially in the processing and approval of projects). To date, in fact, according to the Authority, as the design for designation at the time of publication of the notice of work spend an average of 800 days: 600 from the reliance of office to the approval of the project, about 75 for the 'actual approval and 143 days to the publication of the notice. A further compromise the effectiveness / efficiency of the market are also involved excessive markdowns between the auction and the auction price. According to the Observatory Oice / Informatel in 2008 the average decrease was 32.5 per cent (compared to 30.2 and 25.1 percent respectively in 2007 and 2006).

According to the Authority in 2008, the contracting authorities have announced the launch of 47,937 procedures for awarding public contracts, for a total amount of EUR 76 billion, broken down as follows: 35.2 percent in "work", 34 percent " services, "24.5 percent" supplies "(and a residual" gray area "not classifiable because not traceable to any of the three categories mentioned by 6.3 percent).

How to works from the Annual Report shows that in 2008 67 percent of the races has a base bid amount between 150 and 500 thousand euro, 16 per cent between 500,000 and one million, the 14th, 5 percent between 1 and 5 million, the 1, 8 per cent between 5 and 15 million, and only 0.8 percent exceeds 15 million. On average, the amount of the base bid in 2008 amounted to € 1,256,897. Among the procedures for awarding government is the one preferred by the "open procedure" which in 2008 affected 72.2 percent of contracts for a corresponding 59.1 percent in terms of amount. The "restricted" while representing a small 9.8 per cent of the total mode of custody used, it is very significant in economic terms (33 percent) being worth the average amount of these contracts over three times the average. The "negotiated procedure" instead affects 16.8 per cent of the procedures in number but only 7.4 per cent in value while the '"Framework Agreement" and the "competitive dialogue" still count just as new modes, respectively 1.2 and 0.1 percent in quantity and 0.8 and 0.1 percent in value.

As for the prevailing categories resulting from calls for proposals the "lion's share" to make the OG1 (civil and industrial) and OG3 (roads, highways, bridges, etc..), Which together accounted for 60.9 percent of the work to be contracted both in terms of number and amount.

However, as regards to services contracts, including those designing, in 2008 the contracting authorities have activated 9,676 procedures at a value of about 20 billion. The breakdown by class of amount of demand, in terms of numbers, shows a prevalence of absolute contracts worth between 150 and 500 thousand euro (56.8 percent), while for the amount exceeding 15 million contracts while being just 2 percent in the number accounted for 45.7 percent of the amount in value.

Regarding the choice of contractor was used in 55 percent of cases to "Open" to spend 70 per cent of the total, in 30.2 per cent to "negotiated procedures" (12.9 percent of ' total) and 13.3 percent in "Restricted procedures" (15.3 percent of the terms of the amount). For service contracts' s "Framework Agreement" and the "competitive dialogue" are marginal: only 1.5 percent of the races at 1, 9 per cent of the basic overall race.

Specifically, engineering services, classified by the Authority with the term "services Architectural, construction, engineering and inspection", they represent 8, 2 per cent of the total calls and account for 5.5 percent of 'total amount. In 2008, this market is worth 1,105 million but could also double if the contracting authorities could decide to have recourse to the market by outsourcing the design and focusing more on programming of interventions based on the criteria of cost-effectiveness, transparency and social utility and control.

 

Conclusions

From what we have seen so far three points emerge: first, the cyclical role that the public demand, especially at work (but also of services and supplies when they are closely related to work) has on the economic system, as expenses are planned well in advance of generating a real and just "fly" crisis can support the production even in recessions (provided of course that the crisis continues for a period of time longer than a planning of public administration). Secondly, the difficulty on the part of the "Italian system" to seize the opportunity of the public-private partnership (and project finance in particular). A better subsidiarity between the level of public and private in fact allow one hand to recover the infrastructure gap that historically plastered our country in the European competition, on the other hand would lead to a new era of investment of private capital increasingly attracted to forms of investment more concrete after the "chimeras" of speculative finance in recent times.

Finally, the growing disillusionment on the part of the public works market provides design and consultancy services in the face of a "new market" (in which the design and execution are owned by a single operator) increasingly concentrated in the hands few large firms that have the qualifications to apply to the high-end of the market, when it subtracted the public administration.

The systematic failure of the project financing initiatives highlighted in this article combined with the numbers that were presented and show an increasingly skimpy for the activity of design, suggest that much more needs to be done to stimulate the investment of capital private works of public interest, starting with a higher profitability initiatives and a greater transparency and reliability of public administration.

 

21/09/2009

----------------------------------------

Translated via software

----------------------------------------

Source:

Italian version of CercaGeometra.it

Seguici su Facebook