As the largest economy in Europe, Germany has a massive public procurement market, accounting for around 15% of GDP (EUR 500 billion) per year and affecting many areas of the economy and society. This review analyses public procurement's impact on the well-being of Germany's citizens by focusing on six areas: economic impact and beyond, the legal and governance framework, centralisation, e-procurement, strategic procurement and human capital. In addition, it analyses procurement at subnational level, since almost 80% of procurement in Germany is conducted by Länder and local governments.
Public Procurement in Germany
Strategic Dimensions for Well-being and Growth
OECD Public Governance Reviews
Abstract
Executive Summary
As the biggest economy in Europe, Germany boasts one of the largest public procurement markets in the region. Public procurement represents an estimated 15% of German GDP, an immense sum of EUR 500 billion per year. Public procurement has a considerable impact on all areas of well-being. Public procurement is crucial for delivering public services, whether in health, education, infrastructure or public safety. More indirectly, the goods, works and services Germany purchases via public procurement affect the environment, jobs and many other areas.
This review focuses on six aspects of procurement that are particularly salient to the German context: 1) the large economic impact public procurement has on the German economy; 2) the legal and governance framework of public procurement and how it constitutes the basis of procurement performance; 3) centralisation and the extent to which public procurement is reaping economies of scale and other benefits of consolidation; 4) e-procurement as an enabler of performance and accountability; 5) strategic procurement and how public procurement affects a variety of policy areas that need to be balanced strategically; 6) human capital and how procurers act upon strategic, legal and institutional frameworks.
In Germany, the sub-central level of government conducts approximately 78% of public procurement. This proportion is above average for OECD countries, where just over 63% of procurement takes place at the sub-central level on average. Therefore, an analysis of the German federal states (Länder) is necessary to fully grasp the impact of public procurement in Germany. This review surveys practices at all levels of the public procurement system in Germany. Each chapter also examines the Länder, and features good practice case studies.
Key findings
Public procurement accounts for 35% of general government spending in Germany. The impact of this spending is complex, and goes beyond economic effects. Public procurement influences environmental, social and human factors, as well as other issues highlighted in the OECD Framework for Measuring Well-Being and Progress.
Germany’s 2016 public procurement reform significantly streamlined the legal framework for procurement, and aligned Germany’s system with the new EU directives on procurement. Given that the system is highly decentralised and segmented, further improvements could focus on increasing co-ordination and further aligning systems at different levels.
Germany has several centralised procurement initiatives, but this instrument is not used as extensively as it could be. A spending review conducted in 2017 and led by the Ministry of Finance and the Ministry of Interior supports this finding. Stakeholders could be better informed about the benefits of bundled procurement; strategic communication is paramount. Policies could also be more closely aligned with users’ needs.
Digitalisation helps increase the productivity of procurers and businesses alike. Germany could expand its use of e-procurement. A market-driven approach has led to the proliferation of privately owned e-procurement systems, creating an increasingly complex environment for businesses. Ensuring that data is systematically collected and analysed through state-of-the art systems is crucial to tracking procurement performance across the system.
Germany has created initiatives for strategic procurement, such as specialised competence centres to support contracting authorities and suppliers. Initial evidence demonstrates the relevance of these initiatives. More methodological data gathering and evidence-based monitoring could support more effective policy implementation.
Germany’s procurement workforce is part of the country’s civil service. Education and training, combined with specialised competence centres, provide a solid basis for general public service delivery. A comprehensive capacity-building strategy for public procurers could respond to the increasing need for strategic, centralised and specialised public procurement.
Key recommendations
Public procurement has a major impact on citizen well-being. To understand this impact and adapt policies, Germany could increase data gathering and measurement. A first step could focus on key aspects, such as centralised procurement. The nuanced benefits of individual procurement exercises could be tracked by gathering data at a more granular level. Effective and efficient implementation requires a centrally developed measurement framework that allows for comparisons. A consistent methodology for voluntary use at the sub-national level could support better measurement.
Germany’s legal and governance frameworks lay the foundation for a public procurement system that serves citizens. Germany could build on the successes of its latest procurement reform and further streamline the legal framework. Furthermore, it could support implementation through more structured co-ordination mechanisms across levels of government. Greater opportunities for exchange among institutions at all levels could further harmonise and facilitate policy implementation in the area of public procurement.
Consolidation has been proven to increase the effectiveness and efficiency of public procurement. Germany could maximise the benefits of bundled procurement through several measures. First, better connecting users, central purchasing bodies and the electronic ordering platform could allow all participants to better understand the impact of centralisation initiatives. Second, bundled and consistently measured procurement processes could generate concrete evidence on how different procurement instruments perform.
E-procurement enhances the impact of public procurement. In a fragmented e-procurement landscape, structured collaboration, change management, increased communication and incentives are vital to increasing the use of e-procurement across levels of government and across the phases of the procurement cycle. Germany could focus on improving data collection systems, for example by expanding them to cover the full tender process and ensuring integration with other information systems.
Procurement must be managed strategically if it is to meet and balance its objectives. Germany could enhance data collection by allowing for structured monitoring of policy results. A consistent framework could be established to guide institutions at all levels when gathering evidence on implementation. National strategies on sustainability could incorporate strategic procurement. Capacity-building efforts could equip procurers with the skills required to conduct increasingly complex strategic procurement processes.
Effective implementation without good human resources is impossible. Germany could develop a capacity-building strategy for public procurement, focusing on specialisation. This strategy could establish procurement advocates in the German administration to promote good practices. Germany could support interested contracting authorities at all levels of government through the provision of competency frameworks, guidance and help desks.
