Different approaches to acquiring goods and services can lead to public funds being used to achieve complementary policy objectives. Strategic procurement takes into account these complementary policy objectives. Strategic procurement can deliver varied policy goals in addition to the immediate objectives of achieving value for money and maximising efficiency in delivering public services. In recent years, the German government has placed importance on strategic procurement, developing several national strategies and work plans to support it. This chapter discusses the approaches Germany has taken to mainstream the use of strategic procurement. Germany’s specialised competence centres have been successful in supporting contracting authorities and suppliers, for example. In addition, several policies have created a framework for strategic procurement in the country. To maximise impact, however, additional measures may be necessary to diffuse a systematic approach to strategic procurement – especially at the sub-central level.
Public Procurement in Germany
5. The use of strategic procurement in Germany
Abstract
Public procurement represents a large economic value, delivers public services and connects the public and private sectors. Due to these factors, public procurement has become a lever to pursue several complementary benefits. How governments decide to spend the large volume that procurement represents is important for achieving broader policy objectives and reaping these complementary benefits. For years, the main and most natural focus of public procurement has been to achieve the best value for public spending by encouraging competition in order to drive down costs and obtain monetary savings. In this context, value was defined as obtaining better quantity or quality for the lowest price. Over time, the definition of value has evolved to incorporate other government policy considerations. These policy considerations include, among others, ensuring that the goods and services bought by the government are environmentally friendly, or that the businesses engaged through public procurement have characteristics that the government wishes to encourage or develop. For example, some governments may place value on procuring goods and services from small- and medium-sized enterprises (SMEs), businesses that invest in new or innovative products or services, female- or minority-owned businesses and businesses that focus on achieving social objectives.
This change in approach has introduced a greater degree of complexity to the procurement process. Tenders can no longer be assessed simply according to cost. Tender evaluations must now take a much more holistic and strategic approach. Studies by the OECD have found that this strategic approach to procurement can produce additional benefits for governments (OECD, 2017[1]; OECD, 2015[2]):
The benefits of adopting green public procurement policies are numerous. The environmental benefits alone are substantial, as procurement can be used to address issues such as deforestation, greenhouse gas emissions, water quality and waste. By focusing on these objectives, governments can also set a positive example for private enterprises and citizens. Economically, green procurement can result in lower life-cycle costs by reducing reliance on electricity and other resources. Broader societal benefits include improving citizens’ quality of life and shifting markets to focus on greener products (European Commission, 2016[3]).
Public procurement of innovative goods and services can be an important tool for contracting authorities to improve the effectiveness and efficiency of public services, while also addressing their challenges and needs. To this end, governments can use strategic procurement to improve services that address mobility, health, aging, construction, environment, security and safety, and IT services. At the same time, strategic procurement can help create jobs and boost the competitiveness of industries and SMEs. By spurring innovation from the demand side and steering the development of innovative solutions, procurers can avoid the costs of unnecessary features, prevent supplier lock-ins and take account of longer-term public sector requirements (European Commission, 2014[4]).
Increasing the participation of SMEs in public procurement markets ensures a more competitive bidding process and gives procurers access to a wider choice of available solutions. This in turn helps governments to meet the needs of contracting authorities and achieve value for money in their purchases. Increasing SME engagement can also lead to higher value purchases, better quality service and more innovation (Her Majesty's Treasury, 2008[5]).
Strategic and holistic approaches to procurement have only begun to gain prominence in the past five to ten years. During this time, a number of terms have been used to describe this type of procurement. The OECD has been at the forefront of advancing the strategic procurement agenda, together with many other international organisations (OECD, 2017[6]). The diagram below (Figure 5.1) seeks to clarify the relationship between different terms related to strategic procurement, as well as the several approaches that fall within this field.
Figure 5.1. Illustrative map of the categories of strategic procurement
Source: Procura+ (2016), The Procura+ Manual, http://www.procuraplus.org/fileadmin/user_upload/Manual/Procuraplus_Manual_Third_Edition.pdf.
Germany has already identified the benefits of pursuing strategic procurement objectives, and has launched a number of strategies and policies to pursue them. These strategies and policies have been made possible by the high-level political support Germany has given to its strategic procurement priorities. However, the success of Germany’s approach depends on strategic procurement considerations being incorporated into public tenders on a daily basis. In Germany’s federal system, challenges lay in ensuring that procurement officials are provided the necessary training and support to be able to execute this mandate. The extent to which these efforts succeed will dependent on the government’s ability to monitor and measure the impact of these efforts.
This chapter explores these areas of strategic procurement to analyse how Germany enables the pursuit of complementary policy objectives through public procurement. The first section outlines the international context and legal and policy framework, as well as the current state of strategic procurement in Germany. Second, the chapter reviews the work of the competence centres that Germany has established to support contracting authorities in implementing complementary policy objectives. The third section of the chapter highlights how strategic procurement has been implemented throughout Germany. A fourth section explores how Germany could use the ongoing monitoring and evaluation of strategic procurement to improve its adoption. Finally, a dedicated section outlines how German states fare with regards to strategic procurement.
5.1. Legal and policy frameworks, reinforced by international co-operation, support contracting authorities in pursuing complementary policy objectives
5.1.1. International organisations encourage and support the implementation of national policies and strategies to encourage the use of strategic procurement
At present, a number of international institutions, including the European Union (EU), the United Nations (UN) and the OECD, encourage the use of strategic public procurement. For example, the European Union has included strategic procurement in EU directives. Similarly, strategic procurement is crucial for achieving the UN Sustainable Development Goals (SDGs). Finally, the OECD Recommendation of the Council on Public Procurement includes strategic procurement as one of its principles (see Box 5.1).
Box 5.1. OECD Recommendation of the Council on Public Procurement – principle on balance
V. RECOMMENDS that Adherents recognise that any use of the public procurement system to pursue secondary policy objectives should be balanced against the primary procurement objective.
To this end, Adherents should:
i. Evaluate the use of public procurement as one method of pursuing secondary policy objectives in accordance with clear national priorities, balancing the potential benefits against the need to achieve value for money. Both the capacity of the procurement workforce to support secondary policy objectives and the burden associated with monitoring progress in promoting such objectives should be considered.
ii. Develop an appropriate strategy for the integration of secondary policy objectives in public procurement systems. For secondary policy objectives that will be supported by public procurement, appropriate planning, baseline analysis, risk assessment and target outcomes should be established as the basis for the development of action plans or guidelines for implementation.
iii. Employ appropriate impact assessment methodology to measure the effectiveness of procurement in achieving secondary policy objectives. The results of any use of the public procurement system to support secondary policy objectives should be measured according to appropriate milestones to provide policy makers with necessary information regarding the benefits and costs of such use. Effectiveness should be measured both at the level of individual procurements, and against policy objective target outcomes. Additionally, the aggregate effect of pursuing secondary policy objectives on the public procurement system should be periodically assessed to address potential objective overload.
Source: (OECD, 2015[7]), OECD Recommendation of the Council on Public Procurement, https://www.oecd.org/gov/ethics/OECD-Recommendation-on-Public-Procurement.pdf.
Adopted in October 2017, the European Commission’s public procurement strategy aims to improve public procurement practices in the EU by supporting government and contracting authorities in implementing strategic procurement. Amendments to EU legislation aid the execution of the strategy. These amendments encourage practices such as (European Parliament and the Council, 2014[8]):
introducing greater flexibility by allowing contracting authorities to choose the best quality-to-price ratio (value for money), and by in turn allowing price to be removed as the sole award criterion
encouraging innovation by enabling co-operation between contracting authorities and companies to develop innovative products or services that do not exist in the market
limiting turnover requirements and introducing the option of dividing tenders into lots to make it easier for SMEs to bid for public contracts
encouraging contracting authorities to purchase socially responsible goods to help enterprises make wider use of social standards in the management, production and provision of services
providing opportunities to spur eco-innovation by using new award criteria in contract notices that place more emphasis on environmental considerations.
The award criteria advocated by the revised EU directive of 2014 are based on the principle of the "most economically advantageous tender" (MEAT criteria). These criteria place more emphasis on environmental considerations, social aspects, innovative characteristics and other factors, such as the experience of the staff performing the contract and offers of after-sales service and technical assistance. Value for money is assured by taking into account the life-cycle costs of the work, good or service procured (European Parliament, 2014[9]).
The international community agreed on the Sustainable Development Goals (SDGs) in September 2015. These goals identify a number of objectives related to global issues such as poverty, sanitation, economic growth and climate action. At the global level, the 17 Sustainable Development Goals and 169 targets of this new agenda will be monitored and reviewed using a set of indicators. Countries will also develop their own national indicators to assist in monitoring progress against the goals and targets (United Nations, 2015[10]).
Two of the SDG targets relate to public procurement directly, as they ask countries to improve their procurement systems (UN Sustainable Development Knowledge Platform, n.d.[11]):
Target 12.7 calls on countries to “promote public procurement practices that are sustainable, in accordance with national policies and priorities”.
Target 16.6 requires countries to “develop effective, accountable and transparent institutions at all levels” – including procurement institutions.
In addition, a number of SDG targets have an indirect link to procurement, as the activities referenced in these targets are delivered using public procurement. These targets include:
achieving higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high value-added and labour-intensive sectors
promoting development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalisation and growth of micro‑, small- and medium-sized enterprises, including through access to financial services.
While these references help to raise the profile of procurement’s role in efforts to achieve these targets, it also means that policy makers must ensure that progress towards these targets can be monitored at a national level. In order to achieve its Sustainable Development Goals, the UN relies on countries to set a clear direction. According to SDG goal 17, implementation of these goals will require countries to re-tool the “monitoring frameworks, regulations and incentive structures that enable such investments” in order to “attract investments and reinforce sustainable development. National oversight mechanisms such as supreme audit institutions and oversight functions by legislatures should be strengthened.” (United Nations, n.d.[12])
As shown in Figure 5.2, many OECD countries have already taken steps to increase the use of strategic procurement. The work done to support the implementation of strategic procurement can be divided into three categories:
legislation, strategies and policies: the over-arching laws and frameworks put in place to encourage strategic procurement
institutions and bodies: the departments and teams that have been established to implement, oversee and monitor implementation of strategic procurement
tools and guidance: the resources that are made available to procurement staff to help them to implement strategic procurement on a day-to-day basis.
Figure 5.2. Strategies and policies for pursuing complementary policy objectives through procurement in OECD countries
Source: OECD (2016), Survey on Public Procurement.
As seen in Figure 5.2, the majority of OECD countries have developed policies or strategies to support green public procurement, SME development and innovation. A smaller proportion has also implemented policies and strategies targeting the development of women-owned businesses and the application of other types of responsible business conducts.
These policies and strategies typically pursue a number of different tools in order to support strategic procurement. For example, in pursuit of the objective of increasing SME participation in public procurement, OECD countries have implemented a range of approaches. These approaches include encouraging or mandating the division of contract opportunities into smaller lots so that public tenders are not beyond the reach of SMEs. Some OECD countries have also provided training to SMEs themselves to support them in responding to public tenders.
To encourage the adoption of innovative practices for strategic procurement, countries take different avenues. These avenues include the introduction of legislation, the creation of a dedicated body to support and monitor implementation, and the provision of tools, training and guidance to procurement staff (see Figure 5.3).
Figure 5.3. Different approaches to supporting complementary policy objectives through public procurement in OECD countries
Source: OECD (2014, 2016), Survey on Public Procurement.
If applied effectively, these tools can build an environment that is conducive to strategic procurement. However, achieving this outcome requires a clear strategy supported by a comprehensive implementation plan and subsequent monitoring of progress. To attain these three key steps within the German public procurement system, each tool and step must be well co-ordinated and aligned.
5.1.2. Germany has established overarching policies and strategies to launch its sustainability agenda
Germany’s pursuit of sustainability pre-dates the establishment of the Sustainable Development Goals. Germany’s first national sustainability strategy was established in 2002. An updated strategy was officially approved in January 2017 to align it with the Sustainable Development Goals. Germany’s updated strategy is now known as the German Sustainability Strategy 2016 (Deutsche Nachhaltigkeitsstrategie Neuauflage 2016). The updated strategy incorporates the government’s Programme of Measures on Sustainability (Maßnahmenprogramm Nachhaltigkeit) (Staatssekretärsausschuss für nachhaltige Entwicklung, 2015[13])
In addition, Germany has adopted a plethora of action plans, strategies and laws related to sustainability and procurement. There are two main types of policies. First, Germany has implemented sustainability policies that aim at the sustainable development of the country as a whole. These sustainability policies specifically mention the role of public procurement. Second, Germany has implemented policies aimed at increasing the sustainability of the German federal administration in its daily work. These policies count procurement as an aspect of administrative activity. Post-implementation monitoring reports follow many of these policies, and authorities subsequently improve them. While the policies related to increasing the sustainability of the federal administration are more relevant for the purpose of this public procurement review, the number and depth of overarching policies illustrates the increasing importance of sustainability in the German policy landscape. At the same time, a large number of strategies make it increasingly complex for the individual civil servant to work towards these strategies. Table 5.1 provides an overview of the different policies in place.
Table 5.1. Evolution of Germany’s sustainability framework, focus on procurement
Source: Author’s compilation.
Germany’s first national sustainable development strategy was adopted in 2002. However, the strategy did not reference public procurement at first (Die Bundesregierung, 2002[14]). Following several rounds of monitoring, the role of public procurement gradually increased. The 2008 monitoring report suggested orienting public procurement towards sustainability, and increasing the role of public procurement in a more binding sustainability strategy (Die Bundesregierung, 2008[15]). In 2012, the monitoring report highlighted several individual initiatives that had been introduced or were about to be introduced. These initiatives included: the Alliance for Sustainable Procurement, the Programme of Measures for Sustainability of the Federal Administration and the Centre for Sustainable Procurement.
Germany’s federal government issued its new National Sustainability Strategy in January 2017, following the adoption of the Sustainable Development Goals (SDGs). The National Sustainability Strategy mainly describes the contribution of different levels of government and institutions to achieving Germany’s targets under the SDGs. In addition, the federal administration has featured public procurement as a part of its sustainable management plan. The key activities cited in the strategy in relation to public procurement are the revised procurement law (see section 5.1.3) and a programme of measures to increase the sustainability of the federal administration (see below). The administration also included additional provisions on public procurement in the thematic aspects of the strategy. A major focus of the strategy, for example, is increasing investment in infrastructure. However, the strategy does not explicitly mention the use of strategic procurement as a means to achieving greater sustainability in infrastructure projects.
Germany could benefit from mainstreaming sustainable procurement through the different action areas of its sustainability strategy. Often, public procurement is central to implementing major policy goals like sustainable infrastructure. Handling the procurement process for large-scale projects – such as infrastructure projects – in a smart way can deliver additional benefits. Beyond the general planning of these projects, procurement processes can determine the outcome of these projects through technical specifications and via the selection and award criteria. Innovative procurement strategies like pre-commercial procurement can facilitate sustainable solutions that might not have been presented otherwise.
Public procurement is a strong focus of the German federal administration’s sustainability goals. The Programme of Measures for Sustainability (Nachhaltigkeit konkret im Verwaltungshandeln umsetzen. Maßnahmenprogramm Nachhaltigkeit) lays out these goals. While the programme of measures is a part of the National Sustainability Strategy, the Committee of State Secretaries for Sustainable Development (Staatssekretärsausschuss für nachhaltige Entwicklung) developed a first version of the programme in 2010. Subsequently, the Committee of State Secretaries for Sustainable Development adopted a second version in 2015.
The Programme of Measures for Sustainability includes 12 action points to support the achievement of sustainability goals. The programme tasks all institutions in the federal administration with implementing these action points. While many of the action points are not explicitly about public procurement, they are nevertheless affected by it, such as the goal to make administrative buildings more energy efficient. One action point specifically targets “further focus of public procurement on the guiding principle of sustainable development”, according to the Programme of Measures for Sustainability. The action points emphasise the value for money that sustainable procurement can achieve, suggesting that sustainable procurement can be budget-neutral (Staatssekretärsausschuss für nachhaltige Entwicklung, 2010[16]) (Staatssekretärsausschuss für nachhaltige Entwicklung, 2015[13]).
The Programme of Measures for Sustainability presents eight concrete activities that pertain to sustainable procurement:
1. Each contracting authority shall appoint a contact person responsible for liaising with the Competence Centre for Sustainable Procurement (Kompetenzstelle für nachhaltige Beschaffung, KNB). That person shall be responsible for the planning, organisation and implementation of changes to procurement processes recommended by the KNB. This contact person will also be tasked with acting as the link between the KNB and the contracting authority more generally.
2. Authorities should utilise the framework agreements available on the online catalogue portal of the federal government, the KdB, to bring about sustainable outcomes. As new framework agreements are made or existing ones renewed, sustainability criteria and guidelines should be included.
3. Sustainability considerations in German law should be strengthened by the transposition of EU directives.
4. The KNB will undertake a number of activities to support the implementation of sustainable procurement, including: supporting sustainable contracting of the KdB, developing the advisory material and guidance available on their portal, organising and participating in events to promote best practices, delivering an annual monitoring report, and building on existing training programmes by embracing other media such as e-learning.
5. Continue the work of the Alliance for Sustainable Procurement, a cross-government working group currently chaired by the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie, BMWi). In addition, expand the influence of the Alliance for Sustainable Procurement so it can co-operate with states and municipalities.
6. Ensure that other legal requirements related to sustainability are taken into account, such as increasing the proportion of recycled paper that is purchased, achieving emissions targets for government vehicles and ensuring that wood and textiles are bought according to pre-agreed criteria.
7. Measures should be implemented so that procurement and construction factors help to ensure that bio-diversity preservation standards are met by 2020.
8. The purchase of green electricity (electricity derived from 100% renewable energy sources) should be continued and expanded.
Implementation of the national sustainability strategies and the programme of measures for the federal administration were supported by a set of working groups from different levels of government. Each working group operated with different levels of public involvement. The working groups included the Committee of State Secretaries for Sustainable Development, the Parliamentary Advisory Council on Sustainable Development and the Council for Sustainable Development (Die Bundesregierung, 2017[17]). With regard to sustainability in public procurement, the BMWi has created and chaired the Alliance for Sustainable Procurement (Allianz für eine Nachhaltige Beschaffung, AfNB). Since 2010, the AfNB has convened representatives from procurement institutions at the federal, state and municipal level. The goal of AfNB is to promote the exchange of good practices and lessons learned in implementing strategic procurement (Die Bundesregierung, 2016[18]). AfNB has brought together experts on many procurement-related topics, including e-mobility, public transport and resource efficiency. These groups then developed suggestions on how to increase sustainability in their areas (Bundesministerium für Wirtschaft und Energie, 2014[19]).
Overall, a large number of actors and strategies in the field of sustainability have not yet been brought into the mainstream of public procurement in Germany. Germany has to be careful not to thwart the positive effects of its focus on sustainability by confusing government officials and the public with a number of different strategies, each seeking to achieve different objectives. In addition, international best practices are moving toward encouraging sustainability as the standard approach – rather than a one-off activity. This standard, integrated approach is also described in the OECD Recommendation of the Council on Public Procurement’s principle on balance (see Box 5.1). According to this recommendation and international best practices, sustainable public procurement should be routinely included in strategic considerations. For example, investment in infrastructure with a large potential for sustainability can be realised by using public procurement strategically.
5.1.3. Germany’s legal and regulatory framework provides sufficient flexibility for contracting authorities to pursue complementary objectives
Germany’s 2016 procurement reform has facilitated the pursuit of complementary policy objectives. In fact, this was one of the main intentions of the reform, following developments at the EU level to place greater focus on complementary policy objectives. The 2016 reform established a new legal basis for incorporating sustainability criteria into the public procurement process (Die Bundesregierung, 2016[18]). All procurements of goods, works and services with a procurement value above and below the thresholds specified in the law must now give consideration to environmental, social and innovative aspects.
Germany’s 2016 procurement law broadened the possibilities for procurement officials to include complementary policy objectives in their tenders. The law specifically mentions social, environmental and innovative aspects as possible specifications for tenders, and lists these aspects as suitable for selection and award criteria (Law against Restraints on Competition, § 97 paragraph 3). In addition, contracting authorities can exclude companies that have violated environmental, social or labour law obligations from procurement processes. Equally, a company can be excluded if they are found to have engaged in fraud in connection with these obligations (e.g. if the company incorrectly claimed to comply with obligations). Any decision to exclude a company must be based on the principle of proportionality (i.e., consider the extent of the wrongdoing) and must be supported by evidence (Law against Restraints on Competition, § 124) (Kompetenzstelle für nachhaltige Beschaffung, 2016[20]).
The Ordinance on the Award of Contracts (Vergabeverordnung, VgV) further specifies that contracting authorities have the option to include complementary objectives in procurement processes. For example, the application of criteria or specifications related to complementary objectives can take a broad view of the good or service being procured. As such, authorities can take the whole life cycle – from sourcing and production to delivery – into account. However, complementary aspects must be linked to the procurement in question (Ordinance on the Award of Contracts, § 31 paragraph 3). For example, when assessing environmentally friendly transport, criteria cannot be applied to the entirety of a supplier’s fleet in addition to the vehicles being requested in a tender (Von Wietersheim, 2017[21]).
Germany’s revised procurement ordinance also permits the use of life-cycle costing (Ordinance on the Award of Contracts, § 59). The law outlines the different elements that can be considered a part of life-cycle cost analysis, and how they should be evidenced. Contracting authorities must develop a methodology to calculate life-cycle costs that follows the three requirements below (Ordinance on the Award of Contracts, § 59 paragraph 3):
1. the methodology has to be based on verifiable and non-discriminatory elements;
2. the methodology has to be accessible to all interested parties;
3. the required information has to be reasonable (i.e. balancing the use of life-cycle costing against the efforts that are necessary to come up with the assessment).
German authorities have included additional legal requirements in the revised procurement law that relate to several complementary objectives in particular:
Energy efficiency: For goods and services that consume energy, the Ordinance on the Award of Contracts requires that contracting authorities demand the highest energy efficiency class where possible as a part of technical specifications (Ordinance on the Award of Contracts,§ 67). For works, energy efficiency must be considered to an adequate extent (Regulation on Contract Awards for Public Works, § 8c) (Von Wietersheim, 2017[21]).
SMEs: Dividing tenders into lots is mandatory above and, in general, below the EU threshold for goods, works and services. This requirement helps ensure that SMEs, mid-sized and family-owned businesses (the German Mittelstand) can participate in tenders. Exceptions are allowed due to technical or economic reasons (i.e. exceptions are allowed so that the contracting authority can balance the gain from splitting the tender into lots against any additional costs and technical limitations) (Law against Restraints on Competition, § 97 paragraph 4; Regulation on Contract Awards for Public Works, § 5; Code of Procedure for Procuring Supplies and Services below EU-Thresholds, § 22). For example, a contracting authority can decide not to divide a tender into lots if it would result in too many lots or lots that are too small, rendering the entire tender uneconomical. A technical limitation may relate to the need to secure matching parts or to simplify the supply chain in order to have clearer ownership of the solution (Von Wietersheim, 2017[21]).
Minimum wage: According to Germany’s Act against Restrictions of Competition, companies have to adhere to all applicable laws when implementing a public contract. The law specifically requires adherence to the Law on Minimum Wage and any collective wage agreements (Law against Restraints on Competition, § 128).
Overall, following the 2016 reform, the current legal and regulatory framework in Germany provides procurers support in conducting strategic procurement. The following sections of this chapter explore how the legal framework has been implemented to date, and what tools have been effective.
5.2. Drawing upon the expertise of dedicated institutions to support the rollout of strategic procurement
5.2.1. Competence centres: Centralised advisory services to support the implementation of strategic procurement
In the heavily decentralised environment of the German government, where new initiatives and directives must be implemented by over 30 000 contracting authorities, the centralisation of expertise and resources on particular topics can be highly beneficial. To support the implementation of strategic procurement in Germany, the government has established a number of dedicated bodies to house expertise in specific areas of strategic procurement. The rest of the government can then deploy this expertise widely.
The Competence Centre for Sustainable Procurement (KNB) plays a key role in the achievement of sustainability goals. The KNB was established in 2012 within the Federal Procurement Office of the Ministry of the Interior (Beschaffungsamt des Bundesministeriums des Innern, BeschA). This competence centre has the status of a central authority. According to the German Sustainability Strategy 2016, the KNB “helps contracting authorities consider sustainability criteria in their procurement projects. It thus offers the approximately 30 000 contracting agencies of the federal government, states and municipalities information, materials and training, and develops new approaches for anchoring the sustainability principle in the activities of contracting authorities, drawing on the assistance of an expert body set up for this purpose.” (Die Bundesregierung, 2016[18]) Because of its broad mandate, the KNB has been highlighted in Germany’s new sustainability strategy as a flagship project. (Die Bundesregierung, 2016[18])
The KNB uses a variety of channels and techniques for disseminating information and building knowledge related to sustainable procurement. To begin with, it provides a telephone and email hotline to respond to questions and provide advice to procurement staff. The KNB also provides training through one-day, on-site seminars covering strategic sustainable procurement, the legal framework for sustainable procurement, climate-friendly procurement and training focusing on specific product groups. The KNB supplements this training by disseminating procurement guidelines, information brochures and newsletters. Many of these approaches have been developed in collaboration with important stakeholder groups, such as representatives of contracting authorities from across government and members of industry, NGOs, and associations.
A dedicated competence centre called the German Competence Centre for Innovation Procurement (Kompetenzzentrum innovative Beschaffung, KOINNO) supports innovation in public procurement. KOINNO is a registered association hosted by the Association of Materials Management, Purchasing and Logistics (BME) on behalf of the Federal Ministry for Economic Affairs and Energy (BMWi). KOINNO was founded in 2013. KOINNO’s objective is to increase public procurement of innovative goods and services in Germany, and, by doing so, trigger innovation and increased competiveness in the German economy. In order to measure progress towards this objective, KOINNO has targeted a considerable increase in the percentage of procurement procedures for new technologies, products and services. Both the KNB and KOINNO co-ordinate their work in order to learn from successes and challenges. Furthermore, many innovative solutions also further sustainable and environmentally friendly outcomes, so both centres often work towards the same objectives.
The services provided by KOINNO are similar to those of KNB in that they provide contracting authorities with training, workshops, networking opportunities, on-call consulting and a website containing best practices, templates and guidance. KOINNO also supports contracting authorities in obtaining funding from the EU’s Horizon 2020 fund for research and innovation. Given that KOINNO operates on periodic mandates from the German government in the form of memoranda of understanding, the centre must continue to demonstrate value in order to have its commission renewed periodically. (KOINNU is currently in its second term of renewal).
KOINNO’s work also targets businesses in order to encourage the adoption of innovative practices and to ensure SMEs understand and participate in unique tender procedures like pre-commercial procurement. A next step for KOINNO is to launch an idea symposium in order to bring businesses together and facilitate networking and matchmaking, particularly between start-ups and SMEs. New Zealand has taken a structured approach to developing products and solutions that can improve interactions between government and businesses, as described in Box 5.2.
Box 5.2. The R9 Accelerator Programme as a launch platform for start-ups
Businesses have to deal with government in a number of areas, including navigating the tax system, complying with labour laws, registering company details and providing infrastructure. When these services are complex and fragmented, it can mean that businesses have to expend a lot of effort to accomplish these basic tasks. Result 9 – Better for Business is one of the New Zealand Government’s focus areas for improving the interaction between businesses and the New Zealand government.
The R9 Accelerator programme, a sub-programme of Result 9, was started to test new ways of sourcing and procuring innovative solutions to governmental problems. Working with partners such as Creative HQ, an association supporting innovative start-ups that use proven innovation methodologies like design thinking and agile management, the R9 Accelerator selects teams of creative innovators from the public and private sector for an in-residence accelerator programme. The programme takes innovators through the following steps:
Opportunities identified: The programme works with sponsoring organisations to identify and define opportunities, such as government-customer interactions, that do not currently meet customers’ needs.
Rev’ up: Rev’d up is the name of the launching weekend that is used to allow potential participants to meet and form teams, explore opportunities, and get a taste of how the programme will work.
Team application and selection: Applicants are selected based on their entrepreneurial and innovative skills. They are then paired with participants with complimentary skillsets.
Accelerate: Teams go through the three-month structured process with support and mentoring by Creative HQ in order to test and re-develop their products.
Demo Day: Teams pitch their products to an audience of senior decision makers in the public and private sector who have an opportunity to sponsor projects that meet their needs.
Post-Accelerator Support Programme: Teams that are successful in securing funding for their products proceed to this stage where further support is provided to develop their products.
The R9 Accelerator programme is one of the first programmes of its kind in the world, and was a finalist for the New Zealand Innovation Awards 2016.
Source: Better for Business (n.d.), R9 Accelerator, https://www.r9accelerator.co.nz/about/how-it-works/.
The services provided by the competence centres seem to have a positive impact on the work of contracting authorities. However, a lack of data to provide an impact assessment makes it challenging to substantiate this assumption. In the course of evaluating the activities undertaken by competence centres, the German government should consider the mandate and the scope of their work in order to consider whether additional steps could be taken to increase their impact.
5.2.2. To increase the impact competence centres have, they must focus on raising awareness of strategic procurement at all levels of government
Both KNB and KOINNO operate with a limited number of staff due to budget restrictions. Therefore, both competence centres are limited in the amount of hands-on support they can provide to contracting authorities. KNB operates with a staff of only five people and KOINNO has a team of eight. This limited workforce means that their websites are a prominent tool for disseminating information to stakeholders. The KNB website acts as an information platform and a communication and networking hub for its customers. Because of different state laws on procurement, each state has its own web page and is responsible for its content. The popularity of the KNB’s website has grown of late, with more than 25 000 documents downloaded in a single year. The number of page views has also more than doubled since the website was launched. The KNB’s online platform offers practical advice and modules on life-cycle analysis for many different products, from motor vehicles and consumer electronics to household appliances.
Much of the support that KOINNO provides to contracting authorities involves providing practical and detailed advice. Because this work is in-depth by nature, a limit of 20 workdays is applied to each initiative in order to ensure resources are not too heavily consumed by one project. The risk of overconsumption is significant, given that the service provided by KOINNO is free. Unfortunately, this fact gives contracting authorities little incentive to regulate their use of support services.
According to representatives from both competence centres, the greatest challenge they face is building the skills of a large number of procurement staff to enable them to execute increasingly complex criteria. Procurement officers must demonstrate a broad range of skills to be successful in the current environment, including business expertise, technical knowledge, management and soft skills such as confidence, assertiveness and public speaking. The Chief Procurement Officer role in private sector organisations is a senior (and often board-level) manager, whereas the role does not typically have the same seniority and importance within German contracting authorities. This in turn impacts the status and capability levels of procurement officers.
A 2017 OECD study on innovation procurement echoed this assessment and identified a number of barriers to using procurement for innovation successfully. According to the study, countries cite staff capacity as the third most commonly encountered challenge (OECD, 2017[1]). The top five most commonly cited challenges were as follows (listed from the most- to least-reported challenges by responding countries):
1. risk aversion;
2. management and co-ordination;
3. capacity (in terms of numbers and skills);
4. political support;
5. resistance to change.
Furthermore, the study found that successful strategic procurement for innovation requires governments to (OECD, 2017[1]):
communicate on the positive outcomes of innovation
co-ordinate more closely on the horizontal and vertical management of tasks in government
demonstrate political leadership and political commitment
increase the capacity and numbers of skilled staff
cultivate a more open culture towards new ways of working
encourage co-operation between different branches of government on public procurement processes.
Applied to the German context, the findings from this study demonstrate that additional steps could be taken to improve the effectiveness and reach of German competence centres. While the federal government supports many of these priorities, in the case of procurement for innovation and green procurement, contracting authorities must undertake a complex decision-making process involving procurement officials and various department officials. Many of the barriers to implementing strategic procurement, particularly those that exist within contracting authorities, are beyond the scope of the “arm’s length” support provided by KOINNO and KNB.
With their current mandate, the areas of greatest impact for German competence centres are restricted to: building the capabilities of procurement staff in certain areas, building awareness of their respective topics more broadly, and monitoring and reporting on benefits and results. By promoting the successes of strategic procurement and the benefits that can be achieved from these practices, the competence centres have had an important role to play as vocal advocates for strategic procurement (see Box 5.3).
Box 5.3. Communication and co-ordination of strategic procurement in OECD countries
In many OECD countries, dedicated bodies have been established to further the cause of strategic procurement. Those bodies typically have an important role to play in communicating and co-ordinating strategic procurement activity. These activities often involve:
disseminating information about the different aspects of the strategic procurement framework (e.g. legislation, policies, key stakeholders)
regularly communicating successes delivered through strategic procurement
leading co-ordination between different levels of government (horizontally and vertically)
communicating risk management strategies to policy makers, particularly in balancing risk and benefit in strategic procurement
developing strong partnerships with relevant stakeholders
engaging with business associations and stakeholder groups to garner support for strategic procurement
co-ordinating between different branches of government involved in the public procurement process.
Source: (OECD, 2017[1]), Public Procurement for Innovation: Good Practices and Strategies, https://doi.org/10.1787/9789264265820-en.
Some OECD countries have expanded the role of such bodies so that they play a more intermediary role. For example, in relation to procurement for innovation, installing an institution or agency to help manage risk through intermediation between purchasers and suppliers has been identified as a successful approach (Edler and Yeow, 2016[22]). Countries such as Korea have established similar bodies. At the same time, countries using intermediation institutions have given them the authority to conduct monitoring and reporting on the implementation of green procurement. In Belgium, the Federal Institute for Sustainable Development plays a leadership role by consulting with a broad network of stakeholders to provide guidance on strategic procurement (see Box 5.4).
Box 5.4. Leadership for Sustainable Competence Development in Belgium
Since the 1999-2003 parliament, the Belgian government has attached great importance to issues of sustainable development. During this period, the government appointed a Secretary of State to oversee sustainable development, and created the Public Service for Sustainable Development Planning (PODDO). In 2014, the Federal Institute for Sustainable Development (FIDO) replaced the PODDO.
The Secretary of State realised that the Belgian federal authorities could not roll out a sustainable public procurement policy without a web-based user’s guide. This guide should outline the technical sustainability criteria to be included in specifications for the purchase of supplies and services. These efforts resulted in the development of the Sustainable Procurement Guide. In order to ensure that the guide was kept up to date and was based on knowledge from industry experts and locally based operational staff, the FIDO set up a standing working party with members from Belgium’s communities, regions, provinces and municipal councils. FIDO also founded this working party in order to avoid taking one-sided decisions. Finally, FIDO decided to update the Sustainable Procurement Guide in collaboration with Belgium’s other public bodies.
FIDO’s role in the process of creating the guide helped ensure that all interested parties worked closely together, and that high-level support (in this case from the Belgian federal government) was in place. FIDO also made sure that businesses were aware that collaboration was in their best interests, and that communication channels with all parties and stakeholders should be kept open and active.
Source: (OECD, 2015[2]), Going Green: Best Practices for Sustainable Procurement, https://www.oecd.org/gov/ethics/Going_Green_Best_Practices_for_Sustainable_Procurement.pdf.
The German federal government should consider whether more could be done to empower its competence centres to provide leadership in the area of strategic procurement. For example, the competence centres could act as focal points for gathering relevant stakeholders and reporting from contracting authorities. According to their current mandates, the KNB and KOINNO must continue to build awareness and capacity in the field of strategic procurement, including by educating senior government officials and decision makers.
5.3. Enabling contracting authorities to translate legislation and policy into implementation
5.3.1. Despite the German government’s efforts to promote broader evaluations of tender submissions, procurement officials still primarily use price-based criteria
The implementation of strategic procurement approaches is ultimately dependent on the ability of procurement officials to implement these approaches during their day-to-day work. Adjusting technical specifications and incorporating diverse award criteria, as well as reorganising requirements to include a broad array of environmental, social and economic concerns, can be complex. At the same time, procurement officials must use discretion when pursuing these approaches to avoid overloading tenders with additional requirements that add unnecessary cost and complexity. The OECD Recommendation of the Council on Public Procurement notes that tenders must be clear and simple in order to encourage businesses (and, in particular, new suppliers and SMEs) to participate (see Box 5.5).
Box 5.5. OECD Recommendation of the Council on Public Procurement – principle on access
The Council:
IV. RECOMMENDS that Adherents facilitate access to procurement opportunities for potential competitors of all sizes. To this end, Adherents should:
ii) Deliver clear and integrated tender documentation, standardised where possible and proportionate to the need, to ensure that:
1. Specific tender opportunities are designed so as to encourage broad participation from potential competitors, including new entrants and small and medium enterprises. This requires providing clear guidance to inform buyers’ expectations (including specifications and contract as well as payment terms) and binding information about evaluation and award criteria and their weights (whether they are focused specifically on price, include elements of price/quality ratio or support secondary policy objectives); and
2. The extent and complexity of information required in tender documentation and the time allotted for suppliers to respond is proportionate to the size and complexity of the procurement, taking into account any exigent circumstances such as emergency procurement.
Source: (OECD, 2015[7]), OECD Recommendation of the Council on Public Procurement, http://www.oecd.org/gov/public-procurement/recommendation/.
In an OECD survey on green procurement, OECD countries highlighted the risk of overloading procurement with policy objectives such as environmental protection, in addition to the primary objective of public procurement (which is to deliver necessary goods and services in a timely, economical and efficient manner that allows for fair competition) (OECD, 2015[2]). This is not an uncommon sentiment. According to research conducted in the UK, the burden of overly prescriptive requirements, including qualification criteria like health and safety policies, is SME’s most common concern. Efforts to include some complementary objectives (such as environmental and social considerations) into procurement will increase the complexity of requirements and may then be detrimental to other objectives (such as increasing the participation of SMEs) (Loader, 2015[23]).
As discussed above, Germany has established a number of dedicated bodies to support procurement officials in navigating these complexities. At present, however, many procurement officials in Germany are not including these complementary considerations in tender processes. As shown in Figure 5.4, the number of tenders posted on Tenders Electronic Daily (TED) – Europe’s central electronic procurement platform – by German contracting authorities using MEAT criterion in procurement procedures above the EU thresholds was low when compared to other EU countries. Additionally, these numbers have fallen since 2013. Germany is not alone, however, in facing challenges in getting contracting authorities to use the MEAT criterion. Statistics show that 55% of procurement procedures in countries across the EU still use lowest price as the only award criterion (European Commission, 2017[24]).
Figure 5.4. Use of the MEAT criterion in TED tenders in selection of EU countries over time (percent)
Source: (Schaupp, Eßig and von Deimling, 2017[25]), Anwendung von Werkzeugen der innovativen öffentlichen Beschaffung in der Praxis: Eine Analyse der TED-Datenbank.
Continuing to use price as the only criterion for procurement has consequences. These consequences can be seen, for example, in the low engagement of SMEs in Europe. Nevertheless, SMEs do account for a larger percentage of the total value of public contracts in Germany. 48% of public contracts go to SMEs in Germany, while only 29% go to SMEs in the EU on average. However, both of these figures are low considering the weight that SMEs carry in both economies. Contracting authorities begin to realise the importance of SME participation, and conduct their own monitoring and reporting on the share of contracts awarded to SMEs (Schaupp, Eßig and von Deimling, 2017[25]).
According to the German federal government’s monitoring report on the implementation of the EU directives on procurement, monitoring of SME participation in procurement varies greatly between different contracting authorities. On the one hand, the way information is collected differs; on the other hand, wherever figures are available, large differences exist in terms of the level of participation by SMEs (Bundesregierung, 2017[26]). For example, the German Federal Press Office has stated that three contracts were awarded to SMEs since the implementation of the new procurement law in 2016. According to the report, the Ministry of Justice and Consumer Protection awarded one contract to SMEs during that time. The ministry has left the overall number of contracts unclear, however. The Ministry for Family Affairs, Senior Citizens, Women and Youth has stated that two out of two contracts went to SMEs in 2016 – but this overall number of contracts seems low for a ministry. The Federal Ministry of the Interior, Building and Community reported that it awarded 71% of its contracts to SMEs during this same time. Finally, the Federal Ministry of Transport and Infrastructure has provided a more disaggregated picture of the share of contracts awarded to SMEs by the ministry in 2016:
Up to 50% of contracts were awarded to SMEs in the area of research services.
The majority of contracts awarded in the area of building services went to SMEs.
14 out of 16 contracts for the General Directorate for Water Ways and Shipping (Generaldirektion Wasserstraßen und Schifffahrt) went to SMEs.
76 out of 110 contracts in the area of highways went to SMEs.
SMEs received 46 out of 79 contracts for delivery services.
The above summary illustrates a general challenge. The federal government and its institutions do not gather evidence on progress towards achieving the strategic goals of public procurement, such as increased SME participation, in a consistent manner. Without this evidence only limited insight into the status of implementation of strategic procurement policy can be achieved. However, the BMWi could make guidelines and data gathering tools available for voluntary application by government authorities.
Already available data on the current application of strategic procurement in Germany points to the fact that more can be done to increase its application by contracting authorities. According to the European Commission, to achieve optimum outcomes in public procurement, strategic criteria need to be applied systematically. Systematic application of strategic criteria can be enabled if the government disseminates good practices and provides training and extensive practical support to contracting authorities. Training and support include the introduction of tools and regular updates of labels and evaluation criteria (European Commission, 2017[24]).
5.3.2. Building procurement capabilities through training and guidance
SMEs surveyed in the UK have indicated that, while the procurement process itself served as a barrier to entry for some SMEs, SMEs also held a poor opinion of public procurement staff. Issues noted included the poor preparation of technical specifications, a lack of knowledge of the market, and a lack of communication, especially in the form of feedback (Loader, 2015[23]). As discussed in Chapter 6, the expectations of what is required from procurement staff have increased over time. Governments must now provide staff with additional training and support in order to implement and bolster strategic procurement. As shown in Figure 5.5, an evolution of practices to build the skills of procurement staff in relation to strategic procurement has taken place among OECD countries.
Figure 5.5. Evolution of capability-building practices in OECD countries
Source: Author’s illustration.
According to Procura+, a network of European public authorities that exchanges ideas and practices on implementing procurement for sustainability and innovation, a lack of understanding of the benefits of sustainable procurement among politicians and budget holders continues to be a barrier to strategic procurement. Key to addressing this issue is changing the “lowest price only” mind-set, and altering perceptions regarding the true cost or value of a purchase. Changing this mind-set and perception is particularly important in situations where only purchase prices are assessed, as opposed to life-cycle costs. Therefore, as demonstrated by the city of Vienna in Box 5.6, countries’ education efforts must begin with an understanding of how to communicate the value of strategic procurement in a tangible way.
Box 5.6. Raising awareness of strategic public procurement in the city of Vienna
The public procurement expenditure of the city of Vienna amounts to EUR 5 billion annually, of which approximately 50% is spent on supplies and 50% on works and services. The Vienna ÖkoKauf programme was set up in 1998 to use this large purchasing volume to support the procurement of ecologically sound products and services. It aims to orient the procurement of the Vienna city administration toward climate protection while respecting legal requirements and achieving value for money.
Since 2003, an ordinance of the director general of administrative services has obliged all services of the city of Vienna to take the objectives of ÖkoKauf into account. Thus, in any given procurement, the responsible procurement officer integrates the relevant texts from ÖkoKauf into the tender documents. Subsequently, this officer makes sure that the ecological requirements become part of the contract.
When ÖkoKauf was set up in 1998, the main challenge was to raise awareness of the importance and feasibility of ecologically sound procurement at the level of policy and decision makers. The political support of the City Councillor for Environment helped to initiate the project and overcome the belief that ecologically sound and organic products and services were more expensive than conventional products.
Apart from achieving technically measurable results, ÖkoKauf also aims to raise the awareness of the city’s employees, private households and businesses with regard to ecologically sound goods and services. ÖkoKauf publishes the results of its efforts on a publicly accessible website.
In addition to high-level political support, two initial decisions have been key factors in the successful implementation of the ÖkoKauf project:
Authorities focused their work on the development of standards to define and describe ecologically sound products and services, instead of defining qualification and award criteria and contract clauses. This focus helped authorities to achieve buy-in by procurement staff, as well as the adoption of the project’s solutions.
The establishment of a legal committee boosted the acceptance of the results of the project, as legal compliance plays an important role in procurement practice.
Source: (OECD, 2015[2]), Going Green: Best Practices for Sustainable Procurement, https://www.oecd.org/gov/ethics/Going_Green_Best_Practices_for_Sustainable_Procurement.pdf.
To further promote this change of mind-set with regards to procurement, the European Union has shown its support for life-cycle costing as a way of implementing MEAT criteria and considering all of the costs that will be incurred during the lifetime of a product, work or service. To support the use of this methodology, the European Union developed detailed green procurement criteria for 22 different product groups. The criteria were designed to facilitate the inclusion of green requirements into public tender documents, and help procurement staff to understand the environmental impacts of common product groups (European Commission, 2018[27]). Life-cycle costing methodology takes into account:
purchase price and all associated costs (delivery, installation, insurance and more)
operating costs, including energy, fuel and water use, spare parts and maintenance
end-of-life costs (such as decommissioning or disposal), and residual value (i.e. revenue from the sale of the product).
The German government has supplemented European standards with the provision of tangible support and guidance for procurement officials in relation to sustainable procurement. The Sustainability Compass (Kompass Nachhaltigkeit) website established by the German federal government provides a number of learning materials and practical examples to support procurement staff in increasing their skills (see Box 5.7).
Box 5.7. Certification of suppliers by the Sustainability Compass in Germany
As the German federal government’s commitment to sustainable procurement increased, authorities realised that procurement practitioners needed support in implementing sustainable procurement. In 2010, the federal government, in partnership with a consultancy firm specialising in sustainable procurement, developed an electronic platform to provide both buyers and suppliers with support and advice on how to overcome challenges at each step of the procurement process. At present, two full-time employees manage the platform, called the Sustainability Compass. These employees work on supporting the system and developing new product groups.
The Sustainability Compass contains a number of resources on both the ecological and social aspects of sustainable procurement, including:
a self-check for companies to identify risks in their supply chains and guidance on how to manage them
a five-step process providing standard tools and instruments (complete with detailed guidance on their use) for each stage of the tender process, suitable for all users from beginners to experts
an overview of relevant social and environmental issues along the supply chain for certain product groups – which can be taken into consideration in the procurement process
the ability to analyse and compare sustainability labels (such as certification for sustainable practices) to more effectively establish that works, services and supplies correspond to certain sustainability criteria
best practice examples of operational aspects of procurement, such as sustainability evaluation criteria
ready-made text modules to be used in tender documents
comprehensive information on legal frameworks at the German state level.
Authorities have recently created a version of the Sustainability Compass for procurement staff within municipalities. This version of the platform provides municipal staff with information specific to their region, such as lists of local suppliers and the sustainability certificates they hold.
Source: Deutsche Gesellschaft für internationale Zusammenarbeit (GIZ) GmbH (n.d.), Kompass Nachhaltigkeit, http://oeffentlichebeschaffung.kompass-nachhaltigkeit.de/en/.
Since its launch, the popularity of the Sustainability Compass website has grown. The site now has an average 1 800 visitors per month. The use of these resources is voluntary however, and contracting authorities remain free to select their own procurement strategies. Some countries have identified that training and guidance alone are not sufficient for assisting procurement professionals to balance the many factors at play in a tender process. In response, these countries have developed tools to help operationalise guidance on strategic procurement. For example, the Netherlands developed a number of tools to incorporate life-cycle costing into the tender evaluation process. In doing so, Dutch procurement officials were able to see the true cost of the products and materials they purchased (see Box 5.8).
Box 5.8. Developing detailed assessments of environmental impacts in the Netherlands
In 2010, the Dutch House of Commons ruled that Dutch public authorities had to implement 100% sustainable procurement by 2015. In response to this, the Department of Public Works of the Ministry of Infrastructure and the Environment (Rijkswaterstaat, RWS) developed a methodology for infrastructure projects. This methodology mandated the functional specification of the tender together with quality input from the client to ensure an innovative and high-quality solution.
The RWS has decided to focus on two criteria when assessing the sustainability attributes of offers, work processes and associated products. These two criteria are CO2 emissions and environmental impact. Furthermore, the RWS developed two instruments to support the assessment: the CO2 performance ladder and the DuboCalc.
CO2 Performance Ladder
Contractors in the Netherlands can apply for a CO2 performance ladder certificate. In order to receive the certificate, contractors need to take steps towards reducing their carbon footprints. The first step (or “rung” on the ladder) is to measure the company’s CO2 emissions. Subsequent steps measure the CO2 emissions of the contractor’s supply chain and, more importantly, set goals toward reducing emissions. The higher levels on the CO2 ladder include steps towards CO2 reduction in the supply chain. A commitment to a higher level of compliance results in a greater deduction from the submission price, which increases the contractor’s chances of winning the contract. Each CO2 ambition level corresponds to a different percentage reduction from the submission price.
DuboCalc
To quantify the sustainability of materials to be used as a part of a project, Dutch authorities developed a software tool that calculates the environmental impact of different construction materials. The software is called the Sustainable Building Calculator, or DuboCalc. DuboCalc was developed as a part of an overall shift toward performance-based tendering for assessing the overall environmental impact of constructions rather than prescribing details. With DuboCalc, the embedded environmental impacts of a material’s use can be calculated, from raw material extraction and production up to and including demolition and recycling. As such, DuboCalc measures the entire life cycle of materials. DuboCalc also calculates the energy consumed by infrastructure works during the use phase.
Source: (OECD, 2015[2]), Going Green: Best Practices for Sustainable Procurement, https://www.oecd.org/gov/ethics/Going_Green_Best_Practices_for_Sustainable_Procurement.pdf.
Germany has developed a tool to assist procurement professionals in overcoming another complex aspect of strategic procurement – the inclusion of SMEs. Promoting the participation of SMEs in public procurement has at times appeared to be at odds with the pursuit of better value for money for the public sector. Governments’ attempts to pursue a strategy of supplier reduction via collaboration and aggregation of contracts was found by researchers to be “perhaps the most fundamental strategic issue” (Loader, 2015[23]) for SMEs attempting to provide services to the public sector. Inclusion of SMEs is a concern for many OECD countries, which is why nearly 80% of OECD countries divide contracts into lots in order to encourage SMEs to participate. This is also true of Germany, where legislation dictates that contracting authorities must divide contracts into lots. However, procurement professionals must still consider a number of market factors in order to divide contracts into lots that are of an appropriate size for businesses within a particular industry. The German government has identified this challenge and developed a tool to support procurement officials with their decision making (see Box 5.9).
Box 5.9. An automated SME lot division tool in Germany
Procurement practitioners often find it difficult to reconcile the competing priorities of aggregating spending in order to generate cost savings and developing tenders that are accessible for SMEs. A common approach for supporting SME participation in public procurement in OECD countries is to divide contracts into lots. However, dividing contracts in a fair and proportionate way can be a challenging activity that must be tailored to each industry. Incorrectly dividing contracts can have a negative impact on an industry, adversely affecting both SMEs and large organisations.
To assist procurement practitioners, the federal government in Germany partnered with a consultancy firm to develop a tool that uses complex algorithms to support decision-making. The tool uses statistics from the Federal Statistical Office (Destatis) on the number of employees, sales and production values from various industries and trades. For reasons of simplification, the tool uses nationwide data to provide a high-level industry assessment. However, a separate setting in the tool enables smaller-scale regional markets to be taken into account as well. Once relevant information on the procurement in question is inserted into the tool to take into account the specifics of the industry, the tool then generates a suggested split of the contract.
The tool can be used by all major industries that are relevant for public procurement, and can be further developed to include additional sectors if required. There has been limited feedback on the success of the tool to date, given it was only launched in 2014, but the government continues to monitor its progress.
Source: Responses from German federal and state-level institutions to an OECD questionnaire and interviews. Guidelines (in German) available at: https://www.bmwi.de/Redaktion/DE/Downloads/J-L/leitfaden-mittelstandsgerechte-teillosbildung.html; electronic calculation tool (in German) available at: https://www.bmwi.de/Redaktion/DE/Downloads/berechnungshilfe.html.
In some countries, authorities have developed programmes aimed at institutionalising the pursuit of complementary objectives. The Southeast Norway Health Region, for example, developed a programme called Win-Win. Win-Win has aimed at professionalising procurement practices to include the consideration of sustainability in a more structured way (see Box 5.10).
Box 5.10. Developing a structured approach to strategic procurement at Southeast Norway Health Region
The Southeast Norway Health Region is the largest of four health regions in Norway. It covers 56% of Norway’s population, providing healthcare for 2.7 million people. Norway developed the Win-Win programme to ensure that the EUR 8 billion spent each year on healthcare was targeted at environmentally sustainable products and suppliers that upheld fair working conditions.
Sustainable procurement began from the bottom up in the Southeast Norway Health Region, with a focus on socially responsible procurement of individual products. These first experiments proved that sustainable public procurement was possible and beneficial, and these examples were used to build the business case for the broader use of strategic procurement. Officials analysed between 60 and 100 procurement categories. In doing so, these officials used a specifically designed input-output methodology to identify products and services with significant potential for carbon savings through sustainable procurement. The aim was to achieve practical sustainable procurement that was knowledge-based and grounded in evidence.
The Southeast Norway Health Region also takes an active role in ensuring acceptable working conditions and human rights for labour in their supply chain. This involves visits and inspections at factories. Results from the due diligence conducted include a reduction in working hours for staff at an Indian textile factory, and much improved conditions for workers in a medical glove factory in Malaysia. The Malaysian workers had previously had their passports removed, had received low wages and had worked in poor conditions.
Source: Procura+ (2016), The Procura+ Manual: A Guide to Implementing Sustainable Procurement, http://www.procuraplus.org/fileadmin/user_upload/Manual/Procuraplus_Manual_Third_Edition.pdf.
Efforts to go beyond training and provide procurement tools that institutionalise complementary policy objectives appear to have borne fruit for the countries that have pursued this approach. The German government has developed numerous practical resources for procurement professionals, and their adoption and use of these tools is increasing. However, given that price-based criteria are still the most commonly used approach, Germany must take steps to make the use of strategic procurement the default approach. This will require the use of a number of methods, including training, dissemination of evaluation criteria and ongoing monitoring and communication.
5.4. More structured monitoring of public procurement can further increase the impact of Germany’s strategic procurement
In practice, strategic procurement is often a careful balance of several complementary and “traditional” objectives like cost reduction. Different objectives have to be reconciled and prioritised to achieve strategic procurement. To manage this process of balance in the most effective and beneficial way, policy makers need hard evidence on the impacts of the different policy measures used to pursue complementary objectives. This is why the OECD Recommendation of the Council on Public Procurement includes one sub-principle on monitoring within the principle of balance:
iii. Employ appropriate impact assessment methodology to measure the effectiveness of procurement in achieving secondary policy objectives. The results of any use of the public procurement system to support secondary policy objectives should be measured according to appropriate milestones to provide policy makers with necessary information regarding the benefits and costs of such use. Effectiveness should be measured both at the level of individual procurements, and against policy objective target outcomes. Additionally, the aggregate effect of pursuing secondary policy objectives on the public procurement system should be periodically assessed to address potential objective overload. (OECD, 2015[7])
Monitoring policy impact can prove or disprove that policies are having their intended effects – even when experience points to logical causation. For example, a 2013 study found that while there was an overall push by contracting authorities in the UK to facilitate SME access to public tender opportunities, the reality was that SMEs were faced with increasingly complex requirements that discouraged their participation. (Loader, 2015[23]). In this case, an open feedback survey of SMEs provided to be a “reality check” for contracting authorities. In other circumstances, insights might be drawn from alternative methods, notably procurement statistics derived from results-based reviews of procurement cases.
Germany is in the process of building a system to collect procurement statistics. This sub-section of the chapter attempts to analyse the monitoring landscape with regards to strategic procurement in Germany, while acknowledging the fact that Germany is currently undertaking steps to improve it. The short timeframe since the introduction of the most recent sustainability strategy in January 2017 has not yet allowed for meaningful monitoring. However, previous monitoring reports and academic studies provide an overview of the current status of strategic procurement in Germany. A combined analysis also provides insight into the monitoring approaches that could be used in the future to reap further benefits.
5.4.1. Official monitoring and evaluation reports by German institutions
Germany monitored the 2002 National Sustainability Strategy through a series of progress reports. In addition, the Federal Statistical Agency (Destatis) developed more frequent reports about progress on concrete, quantitative indicators. The Federal Statistical Agency has published six reports every two years since 2004. However, none of these reports include indicators related to procurement (such as the proportion of procurements conducted that observe sustainability criteria or the rate of participation of SMEs). This makes it difficult to gauge progress on strategic procurement. As argued in Chapter 1, solid data gathering with regards to public procurement would support the attainment of all public procurement goals in Germany.
Germany’s Programme of Measures on Sustainability included one requirement to monitor the goals set by the programme. For public procurement, the programme of measures contained targets that were easily quantifiable. For example, the programme made it mandatory for procurement officials to either: 1) include life-cycle cost analysis in purchasing processes; or 2) purchase the products with the highest possible energy efficiency level. The Programme of Measures on Sustainability was followed by two monitoring reports - one in 2015 and the other in 2016. However, these two monitoring reports did not include analysis of the extent to which the mandates for public procurement specifically had been followed. This seems to be due to insufficient data gathering on the part of contracting authorities at the federal level. The programme also tracked some other quantifiable targets, which were not reached across the board, such as the average amount of CO2 emissions from government car fleets, for example. For some areas, such as the requirement to purchase goods with the highest energy efficiency level, many contracting authorities seemed unaware that this was a requirement which meant that no attempt had been made to measure progress (Die Bundesregierung, 2017[28]; Die Bundesregierung, 2016[29]).
The Programme of Measures on Sustainability’s monitoring report for 2016 also found a tension between different policy goals, namely between increasing centralisation and increasing sustainability. According to the monitoring report, many contracting authorities assumed that all framework agreements available through the KdB complied with the sustainability standards of the programme of measures, which was not the case. Because not all framework agreements honoured the goals of the programme, contracting authorities were required to favour one of the conflicting policy goals (of purchasing centrally for greater efficiency or purchasing sustainably to comply with the programme of measures). The monitoring report sought to resolve this conflict by suggesting that all framework agreements in the KdB be amended to comply with the sustainability criteria (Die Bundesregierung, 2017[28]). The Finnish central purchasing body (CPB), Hansel, has incrementally implemented green criteria in framework agreements (see Box 5.11).
Box 5.11. Implementing green criteria in framework agreements in Finland
When establishing framework agreements for use by the central government of Finland, the Finnish CPB Hansel tries to impact what is available in the market by incorporating environmental considerations into the procurement process. With the exception of framework agreements for consultancy services, all framework agreements in Finland now include green criteria.
In order to receive Hansel's environmental marking, framework contracts must incorporate environmental considerations into at least two of the following:
1. Requirement analysis: Can the good or service be fulfilled in a more environmentally friendly way? Such as travelling by train instead of flying, or performing meetings via videoconference instead of travelling.
2. Compulsory requirements for goods or services: These are detailed for each product or service group based on the Swan label, the EU Green Public Procurement (GPP) GPP Criteria, or assistance from environmental agencies. The energy efficiency requirements are set for lamps, televisions and for household machinery. Office equipment must also have energy star labelling.
3. Qualification of the supplier: These can be used to assess a supplier’s ability to manage environmental issues in the course of producing or delivering goods, for example by reducing CO₂ emissions from deliveries or reducing the use of harmful chemicals
4. Evaluation criteria: This might involve the use of evaluation criteria that cover the product life cycle or extending the life cycle of the good or service.
5. Contract clauses: Additional terms might require the recycling of products after use, use of recyclable packaging or the use of recycled material in packaging.
Hansel tracks the amount of green consumption by contracting authorities. It tracks this consumption by monitoring spending against contracts that have obtained Hansel’s environmental marking.
Source: (Bauer et al., 2016[30]), Greening state framework contracts – Approaches in the Nordic countries, https://doi.org/10.6027/TN2016-506.
As a part of the implementation of the 2014 EU public procurement directives, Germany was obliged to provide a report on implementation. Per EU mandate, the report had to examine implementation of the directives throughout the German federal and state administrations one year after the reform entered into force (Bundesregierung, 2017[26]). The majority of Germany’s report relates to the legal structures in place to ensure compliance with the EU directives. That said, the report also asks federal institutions to what extent their procurements were awarded to SMEs, and to what extent strategic procurement was pursued. According to the monitoring report, all federal institutions observed requirements to support SMEs, and all followed requirements to incorporate complementary policy objectives. Not all federal institutions could provide data to prove their compliance, however. Few federal institutions could provide information on the share of contracts awarded to SMEs or the share of tenders that took complementary policy objectives into account. Most institutions referred to the other legal obligations that they complied with, for example the General Administrative Regulation on the Procurement of Energy Efficient Products and Services (Allgemeine Verwaltungsvorschrift zur Beschaffung energieeffizienter Produkte und Dienstleistungen, AVV-EnEff) (Bundesregierung, 2017[26]). The reporting and data available offer limited insight into the implementation of strategic procurement, making it difficult to make decisions to amend policy.
In 2016, the BMWi tasked the consulting firm Technopolis Group with an evaluation of KOINNO. Several of the findings of the Technopolis Group’s report are relevant to the broader implementation of strategic procurement in Germany. Indeed, lessons can be drawn from the report regarding activities beyond procurement for innovation. The report identified successful activities, as well as areas where approaches should be changed. The report identified the most relevant impact of KOINNO’s work as direct interaction and advice activities, confirming that case-related, concrete and detailed support for contracting authorities is an important tool for increasing procurement for innovation by building the capacity of procurement officials. Similarly, the award given by KOINNO for innovative practices helped to increase the visibility of good practices in the country (Berger et al., 2016[31]).
Based on OECD interviews with experts, it was not possible to determine the more general impact of KOINNO’s work with regards to certain subjects. These subjects include the objective of raising awareness of procurement’s potential to spur innovation, and the objective of increasing the number of innovative procurement practices. OECD interviews indicated that KOINNO’s profile (and the profile of procurement for innovation) was not as high as it should have been with decision makers. The Technopolis Group’s report also points to the lack of reliable data in this area. To overcome these issues, Germany’s monitoring report highlighted the need for a more structured communications strategy. Authorities could improve the usability of the website for example, and increase the involvement of political decision makers in KOINNO’s work (Berger et al., 2016[31]).
Finally, Technopolis suggested that KOINNO expand its services for the municipal level of government. This recommendation is consistent with a recognised disparity between stronger contracting authorities (often closer to the federal level) and smaller contracting authorities with less capacity to implement complementary policy objectives (Berger et al., 2016[31]).
In addition to these official monitoring reports, academic studies have attempted to determine the status, extent and potential for inclusion of strategic policy objectives in Germany. In 2016, researchers Eßig and Schaupp authored a study aiming to determine the potential volume of public procurement that could use procurement for innovation. The study was conducted on behalf of KOINNO and the Research Centre for Law and Management of Public Procurement (Forschungszentrum für Recht und Management öffentlicher Beschaffung, FoRMöB). The study found that innovation for procurement could be applied to approximately 12% to 15% of Germany’s public procurement, representing approximately EUR 40-50 billion (Eßig and Schaupp, 2016, pp. 53-54[32]).
The study by Eßig and Schaupp attempted to gauge the impact that such a sum would have on innovation in Germany. In doing so, the researchers compared the volumes that are potentially available to support procurement for innovation with similar projects to support innovation through other means. For example Eßig and Schaupp compared funding for research provided by public institutions or subsidies for purchasing newer, greener and more innovative cars. The sums available for these conventional innovation support programmes were relatively small, and, according to the study, only accounted for 1% of the public procurement volume (Eßig and Schaupp, 2016[32]).
5.4.2. Data gathering, methodological monitoring and sound policy making go hand in hand
The existing efforts to provide strategies and tools to support strategic procurement in Germany should be complemented by a more rigorous set of tools to monitor their implementation. Currently, limited information is available to determine where implementation is already reaping the expected benefits from sustainability strategies, and where additional support could enable institutions to increase their efforts.
The monitoring reports Germany has undertaken have shown that the largest impact strategic procurement tools have had has been on two aspects that are relatively easy to monitor qualitatively: 1) compliance with the requirements delineated in the legal and regulatory framework; and 2) direct guidance to support contracting authorities. However, Germany has yet to realise a broader impact that could enable high levels of performance across many contracting authorities (Berger et al., 2016[31]). This broader impact depends on changing the mind-set of procurers. The change in mind-set that is required can be brought about by several actions. These actions include ongoing strategic communication to highlight good practices, the dissemination of results of monitoring and the provision of incentives to procurers and contracting authorities as a whole to achieve better results.
International good practices demonstrate that systems can be used to transparently monitor the achievement of quantitative targets (see Box 5.12 on Korea’s efforts in that regard). Once an electronic system to gather statistics has been developed in Germany, measures could be set up to track procurement processes that support the goals of the Programme of Measures on Sustainability or the National Sustainability Strategy. However, this approach will only work if, as described in Chapter 4, electronic procurement is more broadly used at all levels of government in Germany.
Box 5.12. Monitoring and evaluating green public procurement in Korea
The Korean government established the Act on Encouragement of the Purchase of Green Products in 2005. The act aimed at preventing the waste of resources, reducing environmental pollution and contributing to sustainable development by encouraging green purchasing.
The act did not set a quantitative target for these goals, but it did compel contracting authorities to produce and report to the Ministry of the Environment on their implementation plans and the green procurement they have conducted voluntarily. The act also compelled authorities to produce an annual performance report that includes the amount of green products they have purchased overall.
Products can be classified as green if they meet the certification standards Korea Eco-Label or the Good Recycled Mark. Products can also be labelled as green if they meet other environmental standards set by the Ministry of the Environment in consultation with relevant ministries.
The metrics produced on the total amount of green products purchased measure both the number of units and their economic value, as well as the percentage of green purchases in relation to total spending. Each institution submits its implementation plan and reporting via the electronic Green Product Information System (GPIS). Korea’s central purchasing body, PPS, then compiles performance reports.
Over the eight years in which reporting has been available, the public sector’s green procurement in 19 product categories resulted in 3.71 million tons of CO2-equivalent emission reduction and 12 143 new jobs.
Source: Lee (n.d.), Monitoring and Evaluating Green Public Procurement in the Republic of Korea https://cleanenergysolutions.org/sites/default/files/documents/Monitoring-and-Evaluating-GPPHyunju.pdf.
To demonstrate commitment to sustainability objectives and increase awareness of the role that procurement has to play in pursuing sustainability, a quantitative target for indicators representing sustainable procurement could be included in Germany’s national sustainability strategy. Quantitative targets for strategic procurement can be developed in several ways with varying levels of sophistication, as demonstrated in Box 5.13.
Box 5.13. Establishing targets for strategic procurement
Quantitative measurement of strategic procurement can be challenging given the often ambiguous nature of strategic procurement objectives. However, many countries have managed to establish and monitor targets using different methods. Monitoring can take different formats depending on the type and quantity of data that is available. The following examples illustrate the different types of targets.
Targets based on implementing strategic criteria: The CPB for the central government in Finland, Hansel, aims to implement green criteria in all of its framework agreements. The criteria differ according to category (e.g. vehicles vs. paper), making it challenging to aggregate performance. To meet this challenge, Hansel established a target of 100% of framework agreements containing environmental criteria. This allowed Hansel to report the amount of spending through framework agreements (EUR 770 million in 2016) that could be considered green procurement.
Targets based on specific outcomes: As described in Chapter One, there are several ways to measure the achievement of specific strategic procurement outcomes. For example, the city of Vienna was able to set targets such as a 15 000 tonne annual reduction in CO2 emissions and a reduction of harmful solvents by over 4 000 kg per year. Based on these targets, measurement is made possible through a comparison of previous spending with new spending, comparing the environmental characteristics of old and new products.
Targets based on spending levels: To encourage the use of procurement to encourage the development of innovative businesses, the government of Finland established a target of 5% procurement spending toward innovative goods and services. Subsequently, a number of dedicated institutions have been tasked with supporting and monitoring progress toward the target.
Source: Hatvan et al. (2014), Oko Kauf Wien: Protecting our Climate and Our environment, https://cleanenergysolutions.org/sites/default/files/documents/Monitoring-and-Evaluating-GPPHyunju.pdf; Hansel (2016), Annual Report 2016, https://annualreport2016.hansel.fi/year-2016/from-the-managing-director/.
Aside from a requirement to improve data gathering in Germany, the results of monitoring reports and studies to date also point to a need to increase knowledge and skills, particularly at the sub-national level.
5.5. States use different approaches to pursue a common set of strategic objectives
For the purposes of this report, the OECD submitted a questionnaire on strategic procurement to all 16 German states; ten states responded. In responding to the questionnaire, all ten states reported undertaking measures to pursue complementary policy objectives in public procurement. Some states were at the forefront of creating a favourable policy environment before the federal level broadened the scope for complementary objectives. At the same time, states are diverse in the way they implement support for complementary policy objectives. This section of the chapter takes stock of German states’ efforts to support complementary policy objectives. It also looked at factors that are relevant to the implementation of strategic procurement at all levels of government.
5.5.1. All German states pursue complementary policy objectives to procurement through their legal and policy frameworks
The majority of German states surveyed by the OECD have a broad suite of instruments in place to support complementary policy objectives. Laws and strategies are the most common instruments among states. In most cases, these laws and strategies also contain mandatory requirements for the pursuit of complementary policy objectives. In most states, capacity-building initiatives and monitoring support high-level strategic and legal frameworks. Evidence suggests that few states are advanced in the gathering of data for monitoring purposes. One of the surveyed states implements hard targets for the achievement of objectives. The OECD’s 2017 report on good practices in implementing procurement for innovation identified the definition of targets at national, sub-national and regional levels as a good practice for securing strong political commitments (OECD, 2017[1]). See Figure 5.6 for an overview of the different policy tools German states use to support strategic procurement.
Figure 5.6. Tools employed to implement strategic procurement
Note: 10 out of 16 German federal states responded.
Source: Responses from German federal and state-level institutions to an OECD questionnaire and interviews.
German states are not required to have individual procurement laws. Where there is no law on the state level (such as in Bavaria), federal law takes effect. However, up until the 2016 reform of the federal procurement legal framework, many states went further in their implementation of complementary policy objectives than was mandated and allowed by the federal legal framework. The use of public procurement to achieve complementary policy objectives was the impetus for the creation of many procurement laws at the state level. Many states used legislation primarily to ensure that requirements to pay minimum wage were also mandatory for businesses engaged in public procurement. Dedicated minimum wage laws or collective wage agreements generally mandate minimum wage requirements in German states. Courts have handled complaints on the question of whether a universal requirement of a set minimum wage is in line with German constitutional law and European law. A dispute over the minimum wage has arisen in cases where there is no collective wage agreement or other requirement, yet a procurement law establishes a quantified minimum wage. While German courts have upheld, for example, Berlin’s requirement for a minimum wage, the European Court of Justice ruled that Lower Saxony’s legal framework violated EU law in the most recent cases of Regio Post – EuGH and Bundesdruckerei – EuGH (Rechten, Röbke and Koke, 2017[33]).
The first push by states for certain social objectives allowed for other complementary policy objectives to be included in state procurement laws. Most German federal states (Länder) require businesses engaged in public procurement to follow the standards of the International Labour Organisation. In addition, Länder commonly prioritise environmental objectives, as well as other social objectives like the inclusion of the long-term unemployed or SMEs in procurement processes. Following the reform of the federal procurement law to include complementary policy objectives, some states are considering repealing their laws. Others, such as North Rhine–Westphalia, have already done so (Bundesregierung, 2017[26]).
Today, the different types of complementary objectives states pursue are fairly consistent. This consistency demonstrates an alignment of strategic procurement objectives across Germany. As demonstrated in Figure 5.7, the majority of surveyed states pursue objectives related to the environment, employee wages, access for people with disabilities and global value chains (namely requiring that standards are upheld through supply chains). Less than half of surveyed states pursue objectives related to innovation. Germany’s monitoring report following the implementation of the 2014 EU directives on procurement suggested that the low use of public procurement for innovation in states was due to capacity constraints (Bundesregierung, 2017[26]).
Figure 5.7. Strategic and complementary objectives pursued by different German states
Note: 10 out of 16 German states responded.
Source: Responses from German federal and state-level institutions to an OECD questionnaire and interviews.
5.5.2. German states diverge when it comes to practical implementation of measures to support complementary policy objectives
In line with international good practices, German states employ several tools to support the use of complementary policy objectives in public procurement. The majority of states divide procurements into lots in order to ease the participation of SMEs. Similarly, 80% of surveyed states require the certification of suppliers’ products and services. The MEAT criterion is used relatively scarcely to support complementary policy objectives, however. In fact, the MEAT criterion is not widely used in general (whether in support of complementary objectives or traditional objectives such as financial savings). Figure 5.8 illustrates these findings.
Figure 5.8. Procurement strategies used by German states in pursuit of strategic procurement
Note: 10 out of 16 German states responded.
Source: Responses from German federal and state-level institutions to an OECD questionnaire and interviews.
The A 2016 Eßig and Schaupp survey of the implementation of strategic procurement by contracting authorities (in particular, their use of procurement for innovation) further illustrates the lack of use of the MEAT criterion. While the survey targeted contracting authorities on all levels, two-thirds of the respondents were located at the sub-national level. Furthermore, the majority of respondents hailed from municipalities. The results of the survey highlighted a substantial implementation gap when it comes to complementary policy objectives at sub-national levels. The survey found that, while good practices with regards to complementary policy objectives do exist, contracting authorities do not generally prioritise complementary policy objectives (Eßig and Schaupp, 2016, p. 5[34]). In addition, 76% of procurers responded that they always awarded contracts based on price-only comparisons (Eßig and Schaupp, 2016, p. 6[34]). See Figure 5.9 for further details.
Figure 5.9. Prioritisation of procurement objectives by German contracting authorities in 2015
Source: Adaptation from (Eßig and Schaupp, 2016[34]), Erfassung des aktuellen Standes der innovativen öffentlichen Beschaffung in Deutschland – Darstellung der wichtigsten Ergebnisse [Recording the Current Status of Innovative Public Procurement in Germany – Presentation of the Most Important Results].
According to the Eßig and Schaupp survey, German states made surprisingly strong efforts to adhere the federal strategic procurement framework, including efforts to monitor policy. A state that has succeeded in creating a comprehensive environment for strategic procurement in pursuit of societal wellbeing is North Rhine-Westphalia (NRW), as described in Box 5.14.
Box 5.14. Obtaining the right balance for businesses in North Rhine-Westphalia
The state of North Rhine-Westphalia (Nordrhein-Westfalen, NRW) has attempted to promote the use of strategic procurement, in particular sustainability, in different areas and at different levels across the state. NRW has adopted a strategic plan to create a sustainable administration. Part of this strategic plan is dedicated to sustainable procurement. Following insights into what has worked and what has not, policy makers in NRW have adapted their approaches to sustainable public procurement. Previously, NRW followed legal provisions related to minimum wages and International Labour Organisation (ILO) labour standards in public procurement projects. Following feedback from contracting authorities, these requirements have been repealed from the legal and regulatory framework (see below). In their place, NRW has increased its emphasis on measures beyond the legal realm to increase sustainability in public procurement.
NRW initially introduced requirements in 2011 to ensure minimum wages in public contracts because there was no minimum wage legislation at the federal level. At the time, additional procurement rules in the state included rules on compliance with union-negotiated wages, sustainable and green procurement, compliance with international ILO labour standards, and the promotion of gender equality. Local authorities and state contracting authorities were also required by decree to favour suppliers that aimed to integrate staff with disabilities. Since 2011, however, two factors have encouraged the NRW government to reconsider its policies:
Feedback from contracting authorities, especially smaller ones and those on the municipal level, revealed that the legal requirements were too complex for efficient and effective implementation in practice.
A general minimum wage law was adopted at the federal level.
In light of these factors, NRW undertook a study to assess the success of sustainable procurement laws. Results were mixed but insightful, as they demonstrated that:
Some companies were dissuaded from participating in public tenders, as they were concerned about delivering in light of more concrete sustainable requirements and goals.
It is challenging to measure compliance with social goals, as not all products have meaningful seals or certificates.
Not all core labour standards of the ILO are verifiable, meaning not all aspects of compliance can be verified.
If certification processes are too complicated for companies, they lose an incentive to qualify to participate in public tenders.
As a consequence of this study, NRW repealed the detailed requirements in its public procurement law. Instead, public procurement in NRW now focuses on measures beyond the legal and regulatory framework, such as ad hoc support for contracting authorities in implementing strategic procurement. Finally, a sustainable procurement newsletter is used to raise awareness of strategic procurement.
Source: Responses from German federal and state-level institutions to an OECD questionnaire and interviews.
A large number of German states are able to provide concrete estimates of the share of SME participation and the share of procurement processes in pursuit of complementary policy objectives they undertake. Some states are also able to share estimates with a good level of detail. However, as Table 5.2 illustrates, the estimates vary not only in value, but also in terms of what and how they measure policy objectives. This is due to the fact that no overarching guidance for monitoring complementary policy objectives exists.
Table 5.2. Available quantitative estimates on SME participation and complementary policy objectives in public procurement in different German states (2016 and 2017)
Source: Author’s compilation based on information in. Bundesregierung (2017), Monitoring-Bericht der Bundesregierung zur Anwendung des Vergaberechts 2017, https://www.bmwi.de/Redaktion/DE/Downloads/M-O/monitoring-bericht-der-bundesregierung-zur-anwendung-des-vergaberechts-2017.pdf?__blob=publicationFile&v=6.
Schleswig Holstein, a state with an advanced electronic procurement system and high capacity to conduct data-driven impact monitoring, was able to show that the participation of SMEs in state-level procurement was declining – despite a general push to support SMEs. The decline started in 2013, following the implementation of Schleswig-Holstein’s law on abiding by collective wage agreements (Tariftreuegesetz, “wage loyalty law”). This law required suppliers to provide proof that their employees were paid the wage required by collective wage agreements. In the wake of the law, a quarter of contracting authorities in Schleswig Holstein observed the trend of declining SME participation. Subsequently, Schleswig-Holstein identified two factors as reasons for why fewer SMEs submitted bids. These two factors were: 1) increased requirements that were mainly concerned with more formal standards; and 2) low expectations of winning the bid (Bundesregierung, 2017[26]).
Across the board, SME participation is high in the German federal states. Often the majority of companies winning bids at the state level are SMEs. In contrast, the use of strategic criteria, like energy efficiency or social criteria, in procurement at the state level in Germany is less well-tracked. From the available information it is clear that states need additional support in pursuing complementary objectives. This information is in line with the findings of the aforementioned 2016 survey by Eßig and Schaupp, as both show that states do not prioritise complementary objectives. Policy makers therefore need to make additional efforts to demonstrate the tangible results of strategic procurement, and communicate these benefits widely. Berlin has demonstrated how monitoring can be combined with the communication of the benefits procurement through two related monitoring studies on green procurement (see Box 5.15).
Box 5.15. Monitoring the implementation of green public procurement in Berlin
Berlin is one of the federal states in Germany that has tracked the implementation of regulations related to complementary policy objectives. Berlin has included in its procurement law the option to give preference to environmentally friendly products and services. In 2013, Berlin issued its Administrative Regulation of Procurement and the Environment (Verwaltungsvorschrift Beschaffung und Umwelt, VwVBU) in order to further support contracting authorities. VwVBU made it mandatory for authorities to conduct environmentally friendly procurement. The regulation also contained a number of templates that could be used to draft environmentally friendly specifications for 65 standard goods and services.
In 2015, Berlin took steps to determine to what extent the regulation had been implemented. To do so, Berlin hired a think tank to conduct two detailed studies. The think tank Öko Institut e.V. explored the extent to which Berlin’s contracting authorities observed requirements for environmentally friendly purchasing. The think tank also looked at the economic and environmental impact of the public procurement of 15 goods that were frequently purchased in the state. The studies made the case that VwVBU was successful because it combined binding requirements with very concrete support for implementation. In addition, analysing the savings potential of environmentally friendly procurement, the studies were able to highlight the tangible economic advantage environmentally friendly procurement can produce. Therefore, the studies provided additional incentives for contracting authorities to comply with policies on environmentally friendly procurement.
Status of the implementation of VwVBU
Berlin’s senate made the decision to require an evaluation of the implementation of VwVBU. Berlin has 2 000 contracting authorities that are required to implement VwVBU. Öko Institut e.V. conducted written and face-to-face interviews with procurers, bidders and suppliers. The analysis found that VwVBU was well implemented, with most procurement following environmentally friendly criteria. According to the interviews, a decisive factor was that the regulation included templates that were relatively simple to transfer into every day procurement cases. Challenges remained in areas where technical specifications were complex, and where deep knowledge was required to evaluate proposals. The study recommended creating a centralised procurement unit combined with an online catalogue to alleviate pressures for individual contracting authorities.
Economic savings through environmentally friendly procurement in Berlin
Furthermore, the study aimed at identifying how much money Berlin could save by procuring environmentally friendly goods instead of standard versions. It is worth noting that the study did not attempt to identify actual savings due to a lack of data. Instead, it compared 15 products and services typically procured by Berlin’s administration, like computers, paper, lamps, garbage disposals and cars against market prices. The study analysed two aspects: 1) the life-cycle costs of the 15 products and services; 2) the aggregated savings that these 15 products would accrue per year if purchased through an environmentally friendly as opposed to conventional process.
Overall, the study found that purchasing these 15 products in an environmentally friendly way would result in: 1) savings of 3.8%; and 2) a 47% reduction in CO2 emissions. The study found that ten items had lower life-cycle costs, while five were more expensive. However, the more expensive products included some for which the environmental effect was much more positive than the limited cost increase. For example, dishwashers were much more energy efficient and cost only a small amount more. In addition, by using more expensive construction equipment in works projects, those works projects emitted fewer particles. This demonstrates that Berlin could adopt a policy to require contracting authorities to always purchase in an environmentally friendly way.
Source: Öko Institut e.V. im Auftrag der Senatsverwaltung für Stadtentwicklung und Umwelt in Berlin (2015), Umwelt- und Kostenentlastung durch eine umweltverträgliche Beschaffung, http://www.nachhaltige-beschaffung.info/DE/DokumentAnzeigen/dokument-anzeigen.html?idDocument=1546&view=knbdownload.
Öko Institut e.V. im Auftrag der Senatsverwaltung für Stadtentwicklung und Umwelt in (2015), Evaluierung der Verwaltungsvorschrift Beschaffung und Umwelt (VwVBU), http://www.nachhaltige-beschaffung.info/DE/DokumentAnzeigen/dokument-anzeigen.html?idDocument=1548&view=knbdownload.
Proposals for action
Germany has a robust framework for facilitating the pursuit of complementary policy objectives through public procurement. Germany’s 2016 procurement reform broadened opportunities for contracting authorities to implement strategic procurement. Beyond the work done to establish a strong legal framework, Germany should now focus its efforts on the implementation of strategic public procurement. Monitoring and capacity-building measures in particular promise to make the most impact. As such, Germany could consider:
Building the profile of public procurement as a tool for achieving the goals of the country’s sustainability framework while ensuring that all aspects and activities of the sustainability strategy use strategic procurement where possible (e.g. in the area of infrastructure investment).
Carefully managing the policy and strategy landscape to ensure alignment and clarity of objectives, targets and the roles of different institutions.
Regularly evaluating the work of the country’s competence centres and further empowering them to play a leadership role in championing the cause of strategic procurement.
Providing more supportive measures to help procurers navigate the complex strategic procurement framework in their daily work. A range of training courses should target different levels of sophistication in strategic procurement, from introductory courses to implementing complex evaluation criteria and conducting supplier due diligence. These efforts can be supported through broader use of implementation tools and templates.
Conducting regular and thorough evaluations of the country’s progress toward sustainability goals. Germany can help contracting authorities on all levels to achieve their sustainability goals by providing assessment tools for voluntary use. Finally, Germany should continue to gather data on the use of sustainability criteria.
Legal texts
GWB (2016), Gesetz gegen Wettbewerbsbeschränkungen, https://www.bmwi.de/Redaktion/DE/Downloads/Gesetz/gesetz-gegen-wettbewerbsbeschraenkungen-gwb-teil4-konsolidierte-nicht-amtliche-fassung.pdf?__blob=publicationFile&v=8
UVgO (2017), Unterschwellenvergabeverordnung, https://www.bmwi.de/Redaktion/DE/Downloads/U/unterschwellenvergabeordnung-uvgo.pdf?__blob=publicationFile&v=6 (accessed on 07 February 2018).
VgV (2016), Verordnung über die Vergabe öffentlicher Aufträge, https://www.bmwi.de/Redaktion/DE/Downloads/Gesetz/vergabeverordnung-vgv-konsolidierte-nicht-amtliche-fassung.pdf?__blob=publicationFile&v=8
VOB/A (2016), Vergabe- und Vertragsordnung für Bauleistungen – Teil A, https://www.fib-bund.de/Inhalt/Vergabe/VOB/VOB-A%202016_nichtamtliche%20Fassung.pdf (accessed on 07 February 2018)
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