3. Strategic centralisation of procurement to maximise economic benefits in Germany

The centralisation of procurement operations through the aggregation of needs, framework agreements or centralised oversight of procurement performance among other techniques, can produce numerous benefits for countries. This chapter assesses the centralisation strategies that Germany has developed at the federal level, and compares them to international initiatives. The chapter then offers recommendations to maximise the benefits reaped through centralisation. These recommendations align with the German government’s renewed interest in optimising centralised procurement processes. The recommendations also support the conclusions of a parallel spending review on the coverage of centralised procurement instruments at the federal level in Germany.

    

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

In times of fiscal austerity and scarce public resources, many countries are focusing efforts on rationalising and maximising the impact of public spending. Public procurement expenditure represents almost one-third of OECD governments’ total spending on average. Because of the scale of this spending, many countries are seeking ways to increase the efficiency of their procurement systems. A popular tool is centralisation (OECD, 2015[1]). Indeed, countries are increasingly relying on aggregation of needs through central purchasing bodies (CPBs).

A central purchasing body is a contracting authority that:

  1. 1. acquires goods or services intended for one or more contracting authorities;

  2. 2. awards public contracts for works, goods or services intended for one or more contracting authorities;

  3. 3. negotiates framework agreements for works, goods or services intended for one or more contracting authorities.

CPBs help increase the efficiency of a procurement system by aggregating dispersed needs, creating central points of contact both for suppliers and public authorities, and developing knowledge hubs. These practices are integral to the principles delineated by the 2015 OECD Recommendation of the Council on Public Procurement, which points to the role of centralised procurement in creating additional efficiencies (Box ‎3.1).

Box ‎3.1. Options for increased efficiency in the OECD Recommendation of the Council on Public Procurement
The Council:

VII. RECOMMENDS that Adherents develop processes to drive Efficiency throughout the public procurement cycle in satisfying the needs of the government and its citizens.

To this end, Adherents should:

i. Streamline the public procurement system and its institutional frameworks. Adherents should evaluate existing processes and institutions to identify functional overlap, inefficient silos and other causes of waste. Where possible, a more service-oriented public procurement system should then be built around efficient and effective procurement processes and workflows to reduce administrative red tape and costs, for example through shared services.

ii. Implement sound technical processes to satisfy customer needs efficiently. Adherents should take steps to ensure that procurement outcomes meet the needs of customers, for instance by developing appropriate technical specifications, identifying appropriate award criteria, ensuring adequate technical expertise among proposal evaluators, and ensuring adequate resources and expertise are available for contract management following the award of a contract.

iii. Develop and use tools to improve procurement procedures, reduce duplication and achieve greater value for money, including centralised purchasing, framework agreements, e-catalogues, dynamic purchasing, e-auctions, joint procurements and contracts with options. Application of such tools across sub-national levels of government, where appropriate and feasible, could further drive efficiency.

Source: (OECD, 2015[2]), OECD Recommendation of the Council on Public Procurement.

Once a country decides to centralise procurement activities, the extent of centralisation can vary to a significant degree. Because of this, the scale of the centralisation is an important feature of a procurement system, with considerable influence on performance and savings (Dimitri, Piga and Spagnolo, 2006[3]).

Applied to the German context, multifaceted centralisation of public procurement has an immense potential to increase performance and savings. Indeed, while precise estimates off total procurement spending in Germany are subject to debate, reasonable assumptions based on statistics from national accounts show that procurement spending represented 15% of the country’s gross domestic product (GDP) in 2015. This figure translates to around EUR 500 billion in procurement expenditures, out of which a little over 22.3% was spent at federal level (OECD, 2017[4]). If spending levels hold consistent, procurement expenditure at the federal level in Germany would clock in at around EUR half a trillion per year.

This chapter discusses centralisation strategies in Germany both at the federal level and Länder (state) level, as well as opportunities to further increase their effectiveness. As stressed below, avenues for increasing effectiveness exist both in terms of redefining centralised structures and redefining the nature and objectives of the procurement instruments used to support centralisation initiatives.

3.1. Creating economic benefits through centralisation strategies aligned with stakeholders’ needs and expectations

3.1.1. Germany could ensure that centralisation strategies diffuse throughout the procurement cycle

Over time, Germany has developed a number of sectorial CPBs at the federal level, as shown in Figure ‎3.1. While serving under the umbrella of different ministries, these CPBs exercise a certain degree of independence from the executive branch in their daily operations. German CPBs function in line with the government’s public policy goals, and their budgets are mostly allocated from the government. However, the German government does not directly interfere in the outcomes of individual procurement cases. Even though the heads of government agencies are often appointed, they can be removed only for cause.

Figure ‎3.1. Central Purchasing Bodies at the federal level
Figure ‎3.1. Central Purchasing Bodies at the federal level

Source: Authors’ illustration.

The four main CBPs at the federal level in Germany are: the Federal Central Customs Authority (Generalzolldirektion, GZD), the Federal Procurement Office of the Federal Ministry of the Interior (Beschaffungsamt des Bundesministeriums des Innern, BeschA), the Federal Office of Bundeswehr Equipment, Information, Technology and In-Service Support (Bundesamt für Ausrüstung, Informationstechnik und Nutzung der Bundeswehr, BAAINBw), and the Federal Institute for Materials Research and Testing (Bundesanstalt für Materialforschung und -prüfung, BAM). These entities and units were founded in the 1950s, but at that time were only responsible for procurements made by their respective ministries.

In 2005, Germany created the Central Procurement Unit of the Federal Office of Food and Agriculture (Zentrale Vergabestelle für das Bundesministerium für Ernährung und Landwirtschaft, ZV-BMEL). After centralising procurement within the Federal Ministry of Food and Agriculture, this unit further expanded its activities to support other administrations. In 2016, this central procurement unit covered the procurement needs of 17 public institutions. The expansion of the number of users also came with an increase in operational activities. The ZV-BMEL started to carry out around 500 procedures amounting to EUR 30 million in 2005. In 2016, it practiced more than 5 000 procedures representing some EUR 200 million (Bundesanstalt für Landwirtschaft und Ernährung, 2016[5]).

Germany recently began centralising information technology (IT) procurement at the federal level. The German CPB BeschA houses the latest centralisation initiative in this regard. This initiative began in late 2015. Germany plans to complete its IT centralisation efforts by the end of 2018. Germany’s centralisation of procurement spending on IT products aims to achieve a number of different objectives:

  • stable, reliable, and high-quality IT procurements

  • transparency, integrity and legal certainty

  • ensuring an effective, strategic and operative procurement management

  • efficiency through consolidated purchasing power

  • efficiency through optimised, digital processes

  • using existing procurement structures.

To support these objectives, Germany created the Central Office for IT Procurement (Zentralstelle für IT-Beschaffung, ZIB) within the BeschA and under the auspices of the Federal Ministry of Interior, Building and Community (BMI). The ZIB is tasked with defining specific procurement strategies. These strategies range from the aggregation of IT-related procurement needs, to ad-hoc support, to contracting authorities for individual contracts.

The ZIB advises and supports contracting authorities during the entire procurement process, from the expression of needs to the awarding of the contract and its completion. In implementing this new CPB, German public authorities opted for a gradual approach, minimising the risk of potential disruption. ZIB first absorbed the following tasks from 2017:

  • the tendering of framework contracts for hardware, software, information and communication technology, as well as IT services and IT-related services (ICT) in the direct federal administration

  • the preparation of an annual framework contract roadmap.

In 2018, the ZIB expects to:

  • carry out tenders for the individual planned contracts of federal entities whose estimated value exceeds EUR 135 000

  • come to an agreement with each federal entity on thresholds above which it will undertake the procurement process on behalf of contracting authorities.

In 2003, the CBPs mentioned above created the first central electronic purchasing tools on the federal level in Germany. These tools included the e-Vergabe platform for the publication of invitations for tenders, electronic communication with suppliers and electronic awarding of contracts. Another tool is the Kaufhaus des Bundes (KdB), an electronic shopping platform that helps users manage the ordering of the goods and services that are available through framework agreements.

Apart from the ZV-BMEL, German federal CPBs have a common feature – an underlying IT infrastructure managed by a unit in the BMI. Indeed, German federal CPBs use an e-procurement system to perform procurement tasks. This e-procurement system works as an electronic shopping platform for federal authorities and institutions.

Through the KdB, German federal CPBs (except ZV-BMEL) bundle the needs of the public administration on the basis of needs surveys and implement framework agreements with suppliers. In general, the public administration seeks to purchase standard products (i.e. products that many authorities need equally), such as office supplies. Today, the KdB operates 29 product categories in which a total of 460 framework agreements and 123 000 standardised products are available. Transactions in 2016 totalled EUR 486 million, including in the following categories (Kaufhaus des Bundes, 2017[6]):

  • Textiles

  • Clothing, badges, personal equipment

  • Climate and economic equipment

  • Cleaning equipment, detergents, glue materials

  • Furniture

  • Office equipment

  • Print products, office supplies, training devices, training materials

  • ICT

  • Audio, video and photo technology, projectors

  • Power supply technology, electronic and electrical components, lighting, lighting devices

  • Optical and optronic devices

  • Detection technology

  • Direction, navigation, positioning devices

  • Explosives, ammunitions

  • Other police equipment

  • Technology for the fire brigades, rescue equipment, water treatment

  • Tools, machine tools, workshop equipment, measurement devices

  • Vehicles, bicycles, goods trailers, automotive components, helicopters

  • Medical technology

  • Laboratory equipment

  • Services (except IT)

  • Energy.

In practice, individual CPBs often define many centralisation strategies. Following the tendering phase, the CPBs then leave the operational implementation of these strategies to the unit managing the IT platform.

This structural division of tasks represents one particular feature of the German procurement system. In most OECD countries, CPBs operate technical platforms themselves. Besides providing an overview off the entire procurement cycle for centralised purchases, this method allows CPBs to ensure that centralisation strategies are aligned with operational constraints.

Digitisation efforts in OECD countries clearly point to the transformational nature of technology, and show how digitalisation impacts business processes and government objectives. Digitalisation requires the integration of digital technologies into public sector modernisation efforts (OECD, 2016[7]). This holds true in public procurement systems, particularly at times when countries are facing numerous challenges in measuring the performance and impact of procurement strategies.

The KdB is a transactional platform that supports the management of collaborative procurement instruments designed and implemented by the four main CPBs. Because of this, the KdB can store the kind of critical information that informs future procurement strategies and orientations. Digital platforms allow procurers to centralise various types of information like comprehensive needs assessments based on past spending and insights on contract execution. Thus, digital platforms supporting centralisation initiatives should not be seen as purely technical instruments, but rather as integral to the effective implementation of procurement strategies (OECD, 2017[8]).

E-procurement systems have the potential to decisively influence the efficiency and economic impact of defined procurement strategies. Because of this, policy makers should align CPB objectives with the functionalities of e-procurement systems in mind. (Infrastructure and Projects Authority, 2016[9]).

Chile, for example, has implemented specific centralisation strategies to optimise the total cost of ownership of specific procurement instruments take. These strategies into account their impact on management costs relating to Chile’s transactional platform (OECD, 2017[8]). Interviews carried out with officials at federal CPBs in Germany suggest that detailed information about the use of the platforms with regards to ordering stage, contract execution and management costs s are limited to complaints in case of non-delivery. This prevents CPBs from obtaining insights into the results of defined procurement strategies.

The CPBs at the federal level in Germany could increase the effectiveness of the country’s aggregation strategies by further institutionalising relationships with the unit managing the KdB. This increased alignment of objectives would likely be more beneficial for commodity products managed by the BeschA because of its largest product base, clients’ portfolio and higher volume of ordering.

3.1.2. Adapting institutions to centralisation could provide greater alignment with stakeholders’ needs and expectations

The vast majority of OECD countries have implemented one or more CPBs. Even in countries where a formal CPB does not exist, ministries sometimes take over some of the functions usually carried out by centralised institutions. For example, some states and territories in Australia have CPBs, but Australia does not have a federal CPB. At the same time, the Australian Department of Finance has established a number of “whole of government arrangements”. In Mexico, the Ministry of Public Administration has the capacity to carry out certain functions as a CPB (OECD, 2017[4]).

Common general objectives of centralisation (e.g. reduced direct and indirect spending through the aggregation of needs, increased harmonisation and professionalisation, more effective public service delivery) can be achieved through different institutional strategies. CPBs have different legal statuses in different OECD countries (see Figure ‎3.2). Beyond giving CPBs different degrees of independence from the political sphere, different legal statuses also provide opportunities for CPBs to implement different procurement strategies.

Figure ‎3.2. Legal status of central purchasing bodies, 2014
Figure ‎3.2. Legal status of central purchasing bodies, 2014

Note: The figure refers to CPBs at the central level where multiple CPBs exist. Data are unavailable for the Czech Republic and Israel. Some countries have several CPBs at the central level, like Germany.

Source: (OECD, 2017[4]), Government at a Glance 2017, http://dx.doi.org/10.1787/gov_glance-2017-en.

The question of centralisation has sparked debate and reforms in many countries of late. These conversations and reforms highlight different approaches to the issue, and span the entire spectrum of centralisation. For example, Japan and the Netherlands take a decentralised approach that supports joint procurement where two or more contracting authorities group their needs together. In contrast, Lithuania and Chile strongly promote centralised procurement by mandating the use of framework agreements by all central contracting authorities. In grappling with the issue of centralised public procurement, countries are faced with organisational options that provide both benefits and disadvantages.

Decentralised models often align closely with users’ expectations, making them better suited to users’ needs. Decentralised models also provide reduced time to completion for individual procurement processes. At the same time, from a system-wide perspective, decentralised models run the risk of duplication and fragmentation, resulting in isolated and sometimes contradictory procurement policies.

The main arguments in favour of centralisation are savings. Centralisation creates economies of scale through aggregation. Centralisation also reduces duplications and decreases the number of transactions between suppliers and buyers. Beyond direct financial savings, centralisation provides economic benefits that are linked to gains in process costs and increased productivity because of more concentrated procurement expertise.

Studies (Albano and Sparro, 2010[10]) describe the following disadvantages of centralised models for public procurement: higher co-ordination costs and set-up costs; serious barriers to satisfying unique requirements and meeting different realities; loss of relationships with local suppliers; possible barrier to entry for SMEs; potential lock-in phenomena (i.e. contracting authorities collectively locked with one supplier which benefit from a competitive advantage over time); inefficient engagement of the unit charged with centrally managing operational planning processes; and complex co-ordination processes.

The choice left to countries is not limited to deciding between a decentralised approach and a centralised system, however. Some countries, such as New Zealand, have developed a hybrid approach and implemented a centre-led procurement model. Under this model, the strategic orientations for public procurement are separated from the transactional activities – which remain with contracting authorities.

All of these options illustrate the variety of institutional settings countries can choose when embarking on a centralisation strategy Countries must consider the opportunities but also the risks linked with institutional alternatives. They must carefully weigh decisions relating to centralisation, and look specifically at costs and benefits before deciding on a specific model. Some countries must also grapple with an additional layer of complexity, – a variety of options that may not only be applied to the entire national system, but also to regions within the system.

For example, Australia’s experience shows that some centralisation strategies, such as the aggregation of needs for certain commodities, imply a mandatory use of procurement instruments from departments of states and other listed entities (Non Corporate Commonwealth Entities, NCCE). This does not prevent the Australian government from following different centralisation strategies for ICT procurement, however, as shown in Box ‎3.2.

Box ‎3.2. ICT Procurement Taskforce in Australia

In 2015-16, Australian government agencies reported that it had spent AUD 6.2 billion on ICT goods and services. That same year, Australian agencies estimated that they would procure AUD 9 billion of ICT goods and services in future years via 17 000 contracts.

Australia concluded that its investment in ICT was not delivering the government’s digital transformation agenda quickly enough, however. Therefore, the country established the ICT Procurement Taskforce as a part of its Policy for Better and More Accessible Digital Services 2016. The taskforce has been charged with identifying opportunities for considerable reforms of current procurement arrangements.

Through its consultation and research, the taskforce has concluded that there are three significant impediments to improving ICT procurement across the government:

  • a lack of centralised policies, co-ordination, reporting, oversight and accountability arising from more than 20 years of devolved agency decision-making.

  • limited capability and the risk adverse nature of the Australian Public Service (APS) with its focus on compliance, a fear of failure, poor collaboration and low industry engagement.

  • practices that do not reflect contemporary procurement best practices or support innovative technology choices, with existing systems firmly rooted in the bespoke and the linear sequencing design models of the past and not the agile, consumer technology models of the present.

The ICT Procurement Taskforce found that achieving real reform requires:

  • targeted re-centralisation – particularly in mandated policy settings, data collection, reporting and oversight – at least for the medium term

  • greater co-ordination of procurement activities using contemporary practices that support innovation

  • strengthening the capability of the APS to design and deliver complex ICT procurement.

The ICT Procurement Taskforce has found that it was not possible or desirable for all ICT procurement to be centralised within the government. ICT is not an end in itself, but a tool that can support departments in achieving their mandates. That said, all government agencies should actively pursue shared strategies if real ICT procurement reform is to be achieved.

The ICT Procurement Taskforce defined five overarching strategies for ICT procurement, finding that it should be:

  • measurable, transparent and based on data

  • directed and delivered by a highly capable APS

  • co-ordinated across government

  • apt at encouraging innovation and SME participation

  • apt at generating policies and outcomes that are reviewed regularly.

Source: Adapted from Digital Transformation Agency (2017), Report of the ICT Procurement Taskforce, http://creativecommons.org/licenses/by/4.0/deed.en.

While individual entities retain ownership and responsibility for their IT procurement in Australia, the Digital Transformation Agency is responsible for defining the whole-of-government ICT procurement framework. The Digital Transformation Agency defines targets in terms of total spending, maximum contract amounts and contract lengths. This approach ensures that inherently different needs are still subject to centralised and harmonised principles where aggregation would not provide tangible benefits.

It is important that countries consider the financing structure of their central purchasing bodies, as it also impacts centralisation strategies. Previous surveys (OECD, 2017[8]; OECD, 2011[11]) suggest that CPBs in OECD countries are either financed through government budgets, through fees paid by either contracting authorities or suppliers.

Advocates of the fees model argue that CPBs do not typically make large profits. In this case, CBPs set user charges with the aim of breaking even. Fees are set so that revenues cover costs, including necessary investments in skills and technologies. On the other hand, proponents of the public budget model argue that this model eliminates the profit risk and provides better incentives for cost-efficiency. Those against this model claim that it removes the incentive to find the most attractive product areas. Moreover, it runs the risk of under-investment in new technologies due to the possibility of insufficient public funds.

In Germany, only the ZV-BMEL is partially financed through fees paid by contracting authorities using its services. The other CPBs are financed through the federal budget. The ZV-BMEL receives incentives to adapt its operating costs to the fluctuation of demand. This close linkage between operating costs and demand exists to a lesser extent in the other CPBs because of their financing structures. German

The financing structure used by the majority of Germany’s federal CPBs might constrain the CBPs’ ability to adapt their activities to the strategic interests of their users. Indeed, centralisation goes beyond the mere aggregation of needs. In many OECD countries, CPBs are taking over other roles in procurement systems. By embracing a functional leadership role, CPBs are often at the forefront of strategic public procurement (see Figure ‎3.3).

Figure ‎3.3. Roles of central purchasing bodies in OECD countries, 2016
Figure ‎3.3. Roles of central purchasing bodies in OECD countries, 2016

Source: Adapted from (OECD, 2017[4]), Government at a Glance 2017, http://dx.doi.org/10.1787/gov_glance-2017-en.

Decisions on the institutional setting and financing structure of a CPB could also be determined according to the type of activities falling under its mandate and affecting its stakeholders. The cost-benefit ratio of implementing a specific model could depend on the ability to aggregate decentralised procurement needs. It could also, however, depend on the body’s capacity to diffuse best practices across contracting authorities or to increase procurement capacity.

With a number of specialised sectorial CPBs, the possibility of increasing procurement capacity should not be overlooked in Germany’s federal public procurement system. Increased subject matter expertise is one of the objectives linked to centralisation, and is vital to CPBs with sector-specific functions. It is estimated that the cost for a CPB to run a tender is about one-fifth of that of an individual contracting authority due to reduced input in terms of staff (Crown Agents, 2015[12]).

Because of this, further development of -tailored support from sectorial CPBs to individual contracting authorities could increase the productivity and efficiency of Germany’s federal public procurement system at large. Further support from sectorial CPBs to contracting authorities could also provide these CPBs with opportunities to increase their value propositions. This, in turn, could translate into larger budgets that are funded by fees paid by contracting authorities requiring ad-hoc support.

The different elements described above demonstrate some of the main variables that impact the efficiency and cost-effectiveness of CPBs from an institutional perspective. Weighing the costs and benefits of the different options and the range of alternative models is vital for several reasons. Doing so provides avenues to implementing structures that respond best to the needs and expectations of different stakeholders. In addition, weighing different options and models also allows governments to account for the unique specificities of procurement spending in their countries.

3.2. Maximising the impact of centralised procurement instruments

3.2.1. A better understanding of the costs and benefits of centralisation is essential to implementing comprehensive impact assessments

Prior to defining strategies that could maximise the benefits reaped from centralisation, public authorities need to understand the economic potentials of these strategies. Agencies tend to focus on direct financial savings when reporting on the impact of centralisation. This is problematic, because direct financial savings only capture a part of the multidimensional benefits that could be attained from centralisation. CPBs first aim to maximise public sector efficiency with an increased potential for savings in terms of net financial costs and administrative expenditures. In addition, CPBs also work to accumulate expertise in more complex procurement operations.

Despite these facts, parliaments, supreme audit institutions and public authorities have long challenged evidence on the benefits of centralisation to financial savings (Goodman, 2007[13]). In addition to being unclear because of differing calculation methodologies, financial savings only partially capture CPBs’ performance.

The impact of centralisation should not only be measured in terms of the financial savings attached to the use of collaborative procurement instruments (i.e. the difference between the price paid inside and outside centralised tools). Policy makers should also consider centralisation’s ability to aggregate isolated needs and decrease administrative expenses linked to the processing of individual procurement processes (Sanchez-Graells and Herrera Anchustegui, 2016[14]).

Examining financial savings and a decrease in administrative expenses would only provide information on the performance of CPBs at a point in time. Neither measure can capture the potential for further centralisation or calculate the total cost of ownership of a CPB.

The degree and effectiveness of centralisation not only stems from the institutional settings adopted by countries, but also from the procurement strategies and tools implemented by CPBs. Beyond the organisational structure, the use of specific collaborative procurement instruments facilitates further centralisation. At the forefront of aggregation tools are framework agreements.

In OECD countries, centralisation through dedicated procurement bodies often leads to the use of collaborative procurement instruments like framework agreements. Almost all OECD countries (97%) have one or multiple CPBs at the central or sub-central levels. These same countries also report implementing framework agreements for the use of contracting authorities (OECD, 2017[4]).

Yet, only 22% of those countries, such as Ireland, Sweden or France report framework agreements implemented by CPBs and used on a voluntary basis only. This discretionary power offered to contracting authorities reinforces the need for attractive value propositions under framework agreements.

In fact, the voluntary use of framework agreements triggers stronger consequences for the overall economic sustainability of the procurement model. Initial investments required for setting up a CPB will only be sustainable if a sufficient number of contracting authorities use the centralised procurement tools implemented by the CPB. Yet, because contracting authorities have the freedom to choose whether they want to use these instruments or not, CPBs need to demonstrate tangible financial and non-financial benefits for using them. These benefits usually increase with the number of users, or more accurately with the volume of centralised procurement expenditure. That means that communicating the benefits of centralisation is key. If there is too little communication, contracting authorities might not understand the benefits of centralisation, and in turn will not use centralisation offers. As a result, the benefits of centralised purchasing will not materialise due to a lack of economies of scale.

This sheds light on another important element to take into account, which is the ratio between centralised and decentralised procurement in a system. The higher the ratio, the greater the absorption of operational costs associated with the implementation of CPBs. Indeed, an insufficient use of centralised public procurement can lead to a failure in reaching the expected benefits (Karjalainen, 2009[15]).

A number of proxy values can provide general insights into the rate of centralised procurement in certain countries. Statistics based on the European e-procurement portal Tender Electronic Daily (TED) show the share of tenders that are issued to implement framework agreements in Europe. According to analyses carried out on TED, the number of notices above the EU thresholds relating to framework agreements in Germany amounts to 13% (European Commission, 2016[16]). This figure is close to the EU average, which is 13.78%. However, other countries with similar features in terms of voluntary use of collaborative procurement instruments, like Sweden, reported almost 40% of notices related to framework agreements in 2017 (National Agency for Public Procurement, 2017[17]).

Measuring the volume of centralised procurement spending based on transactional information against total procurement spending could help authorities better understand the potential for centralisation. Based on estimates of federal procurement expenditures (OECD, 2017[4]) in Germany, volume transacted under framework agreements available in the KdB represent less than 0.5% of the amount spent with suppliers by federal entities. This reinforces the need to implement measures and strategies aimed at increasing the use and impact of centralised procurement instruments.

3.2.2. Germany could consider strengthening communication with regards to the benefits of using centralised procurement instruments

A first and sometimes overlooked tool that could be used to reinforce the effectiveness of centralisation strategies is communication. Efficient and effective communication is often considered to be a potential success factor for inter-organisational co-operation (Schotanus, Telgen and De Boer, 2010[18]). This holds true for procurement, as communication is a cornerstone of effective centralisation.

Indeed, inadequate communication significantly impacts costs relating to the implementation of collaborative purchasing. From risks relating to the misunderstanding of decentralised needs to inadequate assessment of a contract’s execution, a number of centralisation strategies rely on regular and effective communication. In addition, reinforcing communication between users and contracting authorities can attract more users to centralised procurement instruments. Attracting more users is an imperative for CPBs, because they are used on a voluntary basis by contracting authorities (see Box ‎3.3).

Box ‎3.3. Communication benefits in Ireland

The Office of Government Procurement (OGP) in Ireland commenced its operations in 2013. Together with the country’s CPBs in four key sectors (health, defence, education and local government), the OGP is responsible for sourcing commonly used goods and services.

Overall procurement spending in Ireland is estimated at EUR 12 billion, out of which the total value of all framework agreements is estimated at EUR 3.5 billion per year. Therefore, spending on framework agreements represents approximately 30% of total procurement spending in Ireland, and almost 50% of the contract values for goods and services.

One of the most demanding elements associated with the use of framework agreements are the requirements to assess the needs of a large number of organisations and to reach a common solution. Therefore communication is central to ensuring the appropriate development and use of framework agreements. The OGP has defined the roles of different stakeholders in developing a framework agreement as follows:

The OGP and CPBs’ role is to establish framework agreements and use extensive knowledge of public procurement to provide professional procurement services to clients under framework agreements. Thus, the OGP and CPBs provide: :

  • advice on specifications to ensure goods and services are market ready

  • advice on tailoring selection and award criteria

  • commercial acumen to achieve value for money

  • advice on risk identification and management strategies

  • preparation of all documentation for client approval

  • acting as independent chairpeople for qualitative evaluation panels to support compliance

  • administration of the procurement process from initiation to completion.

The contracting authority’s role consists of:

  • budgeting and planning

  • development of a corporate procurement plan

  • control of decisions including specification, selection and award criteria and evaluation

  • selection of suppliers

  • contract signature and management

  • purchase to pay activity.

Since the implementation of the OGP, the use of framework agreements has increased. In total, the OGP awarded and managed 150 framework agreements in eight of 16 categories in 2017. Contracting authorities at the central level are not obliged by law to use framework agreements, yet guidance documents to support implementation like the Circular 16/2013 clearly endorse their use. Contracting authorities deciding to award their own framework agreements therefore need to provide a value-for-money justification for this decision that includes the cost of carrying out the procurement process independently.

In addition to communication directed at contracting authorities, the OGP also developed strategies to further reach companies of all sizes to attract them to public procurement markets, notably SMEs. In order to ensure an optimal approach to SME participation, Ireland has created a SME advisory group composed of different stakeholders. The advisory group meets on a quarterly basis to address industry concerns. Based on this feedback, Ireland organised workshops dedicated to SMEs in 2018. In addition, a SME communications strategy subgroup has been established to help increase awareness of potential opportunities and supports available for SMEs.

Source: Information provided by Office of Government Procurement (OGP).

As shown in the example above, communication can take many forms, but needs to be strategically designed so as to convey the right messages to different audiences. Indeed communication with contracting entities would largely focus on the outcomes achieved by CPBs in terms of savings or in terms of the variety of product offerings. Conversely communication with suppliers would focus on the benefits they can reap from being a vetted supplier, as well as statistics relating to access to public markets.

Aside from incentivising public institutions to further rely on CPBs, countries could also develop focused communication for suppliers. For example, the annual statistical reports elaborated by the National Agency for Public Procurement and the Swedish Competition Authority (Swedish National Agency for Public Procurement and Swedish Competition Authority, n.d.[19]) provide detailed information about the typology of suppliers, their statistical potential to be granted public contracts and the funds received for the provision of goods, services and public works to the public sector. Communicating on those aspects could provide suppliers with a better understanding of their ability to win public contracts and the benefits derived from them.

In addition, communicating on the benefits of centralisation would allow users and providers to better understand the advantages of centralised procurement instruments. Examples of this type of communication include publishing annual activity reports, and organising dedicated events for both contracting authorities and suppliers. This type of communication could result in a greater uptake of centralised purchasing options and increased competition. As the unit responsible for the overall co-ordination of the four main CPBs at federal level in Germany, the KdB could invest additional efforts into promoting the use of centralised procurement through targeted communication initiatives.

In addition to the active promotion of CPBs’ value to users and the touting of their achievements, maximised impacts of centralisation could be attained with the deployment of centralised tools adapted to the needs of users. Furthermore, these centralised tools could utilise the capacity of the private sector to optimise responses to them.

3.2.3. Efficiencies of centralised procurement instruments increase with tailored procurement strategies

Many governments have been increasing their use of framework agreements to achieve costs savings and generate productivity gains over the past years (OECD, 2013[20]). Indeed, framework agreements constitute the lion’s share of centralised procurement instruments, and are widely used among OECD countries. Framework agreements follow the same underlying principles. They aggregate multiple needs across the greatest possible number of contracting authorities, and standardise the offering so as to maximise the public sector’s purchasing power and reduce red tape costs.

At the same time, procurement strategies adapted to framework agreements should respond to different and sometimes contradictory objectives. Framework agreements can generate operational and administrative efficiencies by reducing red tape costs and delivering economies of scale. At the same time, they also need to address the likely heterogeneity of needs among contracting authorities.

Highly disposable and standardised products require defined procurement strategies aimed at reducing costs. More complex or critical goods and services demand strategies that minimise the likelihood of the disruption of supply. These types of goods and services also prioritise quality over prices. Differences such as these require further considerations with regards to the number of suppliers admitted to the corresponding framework agreement.

In addition to demand analysis, an assessment of market capabilities in response to a CPB’s request to implement a framework agreement is also essential during its preparation. Implementing efficient procurement strategies for the award of framework agreements involves understanding market performance and concentration (Church and Ware, 2000[21]). Efficient procurement strategies also require authorities to gather information about the price structure of targeted goods or services. The role of price structures is more pronounced when considering that economies of scale can only occur when suppliers are able to operate at a lower unit cost. An example of this is when production costs comprise a notable fraction of fixed costs, independent of production scales (Albano, Ballarin and Sparro, 2010[22]).

Before looking into the details of specific procurement strategies for the implementation of framework agreements, however, a broader element has to be taken into consideration. Indeed, a critical choice countries must make is whether framework agreements should be mandatory or not. The European Commission stresses the importance of this element, and recommends making framework agreements mostly mandatory (European Commission, n.d.[23]). As discussed above, the voluntary use of framework agreements reinforces the importance of developing attractive value propositions that appeal to contracting authorities and suppliers. Making framework agreements mandatory provides for greater certainty. It also has potential additional spillover effects for the entire administration beyond public procurement.

Figure ‎3.4. Mandatory and voluntary use of framework agreements established by CPBs in selected OECD countries
Figure ‎3.4. Mandatory and voluntary use of framework agreements established by CPBs in selected OECD countries

Source: (OECD, 2017[4]), Government at a Glance 2017, http://dx.doi.org/10.1787/gov_glance-2017-en.

The vast majority of OECD countries using framework agreements distinguish between contracting authorities at the central and sub-central levels, as shown in Figure ‎3.4. In the majority of OECD countries, the use of framework agreements is mandatory for public institutions at central level. Institutions on other levels are free to join on a voluntary basis.

By making framework agreements mandatory for central contracting authorities and allowing other institutions to join if they wish, CPBs can rely on a minimum portfolio of clients. At the same time, CPBs have opportunities to expand their client portfolio based on the attractiveness of the offering. The certainty on minimum volumes purchased through framework agreements implied by this structure provides CPBs with a greater understanding of the economic sustainability of its business model.

Given the structure of the federal German public procurement system, the country could consider distinguishing between direct and indirect federal administration in further specifying rules for centralised purchasing and notably in the recourse to framework agreements. At the same time, distinguishing between direct and indirect federal administration might not influence German CPBs’ economic efficiency if the procurement volume attracted by existing framework agreements is already high. As for other strategic choices, those policy options depend critically on specific procurement information and subsequent analyses.

Alongside framework agreements, other instruments for pursuing centralisation strategies exist. Examples of these instruments include dynamic purchasing systems and e-catalogues. They generally address different aspects of centralisation such as increasing inclusiveness of procurement strategies by removing legal barriers to entry or fostering competition at the call-off stage.

Dynamic purchasing systems in the European context allow suppliers to join existing agreements provided they comply with minimum technical criteria. Indeed, as opposed to framework agreements, dynamic purchasing systems only request that suppliers fulfil technical requirements at the initial competition stage. The second stage (call-off stage) then provides for competition among suppliers on the financial aspects. Framework agreements and dynamic purchasing systems are not exclusive and often provide complementary options to respond to collective government procurement.

For low-value contracts and repetitive purchases some countries have implemented e-catalogues in addition to the two instruments listed above, which provide different benefits and also pursue centralisation strategies. While they are not designed to increase direct financial savings they provide indirect economic benefits to both the public sector and suppliers, notably by reducing transaction costs, increasing participation and providing greater transparency. Italy has been able to reap these benefits, as shown in Box ‎3.4.

Box ‎3.4. Impact of the use of e-catalogue in Italy

Consip, the national Italian CPB, implemented an electronic catalogue called the Mercato Elettronico della Pubblica amministrazione MEPA for the use of contracting authorities. Unlike other centralised tools, Consip does not act as the contracting authority in procurement procedures conducted via the MEPA. Consip: 1) provides infrastructure and related services; 2) defines authorised product categories; and 3) manages access rights that allow administrations and companies to negotiate their supply contracts with total autonomy.

In 2017, about 600 000 transactions were carried out on the MEPA with a value of EUR 3.1 billion. This compares with EUR 360 million in 2012.The average growth recorded in this period was more than 50% per year.

The MEPA allows contracting authorities to purchase goods, services and works for values below the EU thresholds below which contracting authorities can use simplified procurement procedures. The total volume of procurement procedures carried out under the MEPA accounts for 99% of procurement procedures and for approximately 20% of procurement value.

The MEPA is a tool designed especially for small and medium-sized enterprises, which, in Italy, account for 99% of qualified suppliers. Almost seven in ten companies are micro-enterprises with fewer than ten employees. This means that even companies that do not have a sufficient size to participate in large tenders are able to access public markets.

MEPA provide suppliers with a number of benefits: reduction of commercial costs and optimisation of sales times; opportunities to propose offers throughout the national territory, which enhances the most dynamic and innovative companies; competitiveness and direct comparison with the reference market; and incentives for the renewal of sales processes.

Public administrations also see benefits in making their below-the-threshold purchases on the MEPA. These benefits include: time savings on purchasing procedures; transparency and traceability of the whole process; widening the possibilities of choice for public administrations, as they can compare products offered by suppliers present throughout the national territory; and satisfaction of specific needs, thanks to a wide and deep range of available products and the possibility of issuing requests for offers.

Source: Adapted from Consip (2018), Consip: il Mercato elettronico della PA (MEPA) supera i 3 miliardi di acquisti nel 2017, http://www.consip.it/media/news-e-comunicati/consip-il-mercato-elettronico-della-pa-mepa-supera-i-3-miliardi-di-acquisti-nel-2017.

The use of distinct collaborative procurement instruments could provide German CPBs with complementary economic benefits and diverse centralisation strategies. However, choosing a procurement instrument depends to a significant extent on trends and patterns evidenced by analyses of procurement information. This information should also be considered when weighing centralisation strategies.

The German Federal Government initiated a spending review exercise in 2017 to understand major trends in the use of framework agreements in specific product categories, as well as improvements. The spending review’s recommendations for action align with many of the OECD’s recommendations on centralised procurement. Indeed, this review highlights that further strategic centralisation could be achieved by ensuring that collaborative procurement instruments meet the needs of decentralised contracting authorities. To do so, the review suggests that Germany develop the roles of the KdB and product managers in CPBs to implement a more inclusive approach for addressing the needs of final users. It also points to the strategic importance of regular and structured communication between different stakeholders. Building on these foundations, the review then suggests that federal contracting authorities progressively introduce the mandatory use of framework agreements. Considering their potential for economic efficiency, the review proposes implementing a rule according to which framework agreements have to be used with priority when an option is available for these product categories.

Beside these proposals, the review also addressed opportunities for optimisation of the overall procurement organisation of federal ministries. In particular, the review stated that federal ministries should further examine procurement centralisation in their area of responsibility for a more effective, professional, strategic and demand-oriented procurement system. Finally, the review also recommended procurement centralisation as a means of enhancing legal certainty.

3.2.4. Germany could maximise benefits arising out of centralisation initiatives by further investing in procurement intelligence

To support the costs and benefits assessments of collaborative procurement instruments, e-procurement systems with extended reporting capabilities provide necessary insights. E-procurement can help authorities decide on the centralisation of specific product categories. It can also help policy makers assess the efficiency of collaborative procurement tools in reaching their objectives. Finally, e-procurement can produce economic benefits by reducing red tape, aggregating needs and diversifying the supply base.

Collaborative procurement instruments represent the optimal procurement alternative when CPBs are able to reconcile heterogeneous needs, revenue uncertainty and incentives for suppliers to offer competitive proposals. Furthermore, collaborative procurement instruments are especially effective in a system where contracting authorities have discretionary choices on their use. In accordance with a survey carried out by the Danish Competition Authority on suppliers awarded under a framework agreement, revenue certainty (or uncertainty) is the most decisive factor in a supplier’s decision to participate in a call for tender for a framework agreement (Danish Competition and Consumer Authority, 2015[24]).

Increased revenue certainty can come, as discussed above, with a mandatory use of framework agreements. However, it can also be linked to the nature of the goods, services or works targeted for aggregation through the use of framework agreements. Indeed, not all product categories are prone to same centralisation techniques, as shown in Figure ‎3.5.

Figure ‎3.5. Product categories used by CPBs in OECD countries, 2016
Figure ‎3.5. Product categories used by CPBs in OECD countries, 2016

Source: Adapted from (OECD, 2017[4]), Government at a Glance 2017, http://dx.doi.org/10.1787/gov_glance-2017-en.

Choices between different centralisation strategies are often made based on product characteristics, market structure and demand analysis. Indeed, maximised benefits from centralised instruments such as framework agreements occur when: 1) demand can be accurately assessed; and 2) when suppliers can provide offers based on reasonable estimates of procurement volumes.

For now, the needs of German federal contracting authorities are collected through different means, including ad-hoc surveys, Excel, files and web forms. These diverse collection mechanisms prevent authorities from conducting a detailed and consistent assessment of individual needs. This ultimately hinders the ability of German CPBs’ to define the most suitable procurement strategies for maximising value creation.

In most of cases, estimates of needs on the demand side does not exceed six months – despite the fact that framework agreements typically run for several years. While this might not affect total volume estimates in certain product categories, other categories are more volatile. This means that volume estimates would not offer optimum benefits because of revenue uncertainties and fluctuations.

A structured approach to needs collection would provide German CPBs with a greater understanding of the demand side of procurement. In turn, this could influence procurement strategy. From the type of collaborative procurement instrument to the number of suppliers and the duration of the contracts. OECD interviews with authorities showed that long-term projections of needs at German CPBs are lacking in certain areas.

To develop estimates of demand-side needs that are as accurate possible, CPBs could consider verifying self-needs of contracting authorities against could consider past procurement spending. Such investigations could prove decisive when designing future procurement strategies and developing corresponding tender documentation. Several elements contribute to sound future procurement strategies. These elements include: information on the share of products transacted, distribution of revenues across suppliers in cases where multiple suppliers have participated and patterns relating to purchasing cycles.

International examples, such as in Korea, the United States and Chile, show that strategic centralisation relies heavily on a strong underlying technological environment. In turn, this environment promotes evidence-based decision-making, as shown in Box ‎3.5.

Box ‎3.5. Assessing operational efficiencies of framework agreements in Chile

Chile’s central purchasing body, the Directorate of Government Procurement and Contracting of Chile (also known as ChileCompra), has developed framework agreements in a number of product categories. In addition, Chile’s CPB has also developed an electronic marketplace called ChileCompra Express where purchase orders can be processed by contracting authorities.

In 2014, around 850 public entities procured goods and services through the electronic platform administered by ChileCompra. That same year, a total of 810,434 purchase orders valued at approximately USD 1.8 billion were made on ChileCompra Express. The number and value of purchases made via ChileCompra’s electronic platform made it the largest virtual store in the country – almost equivalent to all private electronic commerce in Chile.

ChileCompra’s electronic platform provides detailed procurement information. This information informs future procurement strategies and allows the CPB to carry out multidimensional efficiency assessments of existing framework agreements. Furthermore, the platform provides:

  • User benefits due to the use of framework agreements. In Chile, a dual arrangement exists where central contracting authorities are obliged to use framework agreements and municipalities, the army and police forces can voluntarily adhere to them. Through this arrangement, authorities are able to gather information on the number of products purchased under framework agreements and those procured outside these agreements. In turn, this information allows authorities to gain greater understanding of their capability to respond to user requirements. ChileCompra can also optimise the product offering under framework agreements to users’ needs because it has access to detailed information on the share and number of products transacted under each framework agreement.

  • Benefits for suppliers participating in framework agreements. Detailed analyses of transactions carried out on ChileCompra’s e-procurement platform allow authorities to assess the share of transacting suppliers (i.e. suppliers having received at least on purchase order) and the revenue accumulated by the biggest suppliers.. These analyses can then provide information on market concentration and optimal design (in terms of the number of suppliers). Such analyses can be coupled with an assessment of the number of suppliers providing the same products to gain a better understanding of market structure and benefits for the suppliers.

  • CPB’s costs in operating framework agreements. To assess the cost effectiveness of framework agreements, ChileCompra carries out analyses on the internal costs associated with the management of framework agreements. It can also calculate the average number of hours spent on modifications to the online catalogue, according to the type of modifications.

Source: Adapted from (OECD, 2017[8]), Public Procurement in Chile: Policy Options for Efficient and Inclusive Framework Agreements.

Detailed analyses of the demand and supply-side of procurement allow countries to decide on the optimal centralisation tool for their unique contexts. The centralisation tools countries can choose from include framework agreements with one or multiple suppliers, e-catalogues and dynamic purchasing systems.

Indeed, different procurement instruments provide for alternatives in the mechanisms used for pooling the needs of the public sector and defining supply arrangements.

3.3. Different centralisation strategies and practices exist in Germany’s Länder

3.3.1. An overview of centralisation strategies in the Länder

Centralisation initiatives developed at the federal level in Germany often mirror those carried out at the sub-central level. In addition, federal-level centralisation initiatives can reflect initiatives begun at the sub-central level. That said, an OECD survey carried out at the Länder level revealed differences that provide additional insights into the state of centralisation in Germany (see Figure ‎3.6). Accounting for more than two-thirds of procurement expenditure, the centralisation initiatives undertaken at the sub-central level in Germany could provide substantial economic impacts.

Figure ‎3.6. CPBs in the German Länder, a quantitative overview
Figure ‎3.6. CPBs in the German Länder, a quantitative overview

Note: While North-Rhine Westphalia (Nordrhein-Westfalen, NRW) does not have CPBs, NRW has introduced the concept of lead buyers. This means that certain entities can centralise the procurement activities of other institutions. There are eight lead buyers in NRW.

Source: Responses from German federal and state-level institutions to an OECD questionnaire and interviews.

As shown in the figure above, a number of Länder have implemented different CPBs. Almost all of these CPBs function as specialised units for certain product categories. One noticeable exception is the CPB in Lower Saxony (Logistik Zentrum Niedersachsen, LZN). The LZN has a broader mandate than other CPBs in that it provides Länder across the country with protective clothing for police forces, forestry and correctional services.

Even in Länder where CPBs do not exist, such as in North-Rhine Westphalia (Nordrhein-Westfalen, NRW), centralisation initiatives exist. Indeed, NRW has implemented a concept of lead buyers, whereby if a public entity is designated as a lead buyer in certain product categories, other public institutions are obliged to purchase those products via the lead buyer. The concept differs from the functioning of CPBs, since lead buyers primarily procure for themselves. However, the concept also operates according to certain overarching principles that are common to collaborative procurement and centralised institutions. These principles include responding to diverse needs and delegating oversight on contract execution to decentralised contracting authorities.

In terms of the roles carried out by CPBs at the Länder level, analyses show that these CPBs mostly implement framework agreements for the use of other contracting authorities at the Länder-level. However, some CPBs such as that of the City State of Berlin, have expanded their role to ad-hoc support and training (see Figure ‎3.7).

Figure ‎3.7. The roles of CPBs at the Länder level in Germany
Figure ‎3.7. The roles of CPBs at the Länder level in Germany

Source: Responses from German federal and state-level institutions to an OECD questionnaire and interviews.

The most common activity of CPBs at the Länder level is implementing framework agreements on behalf of contracting authorities. That said, Länder-level CPBs and contracting authorities also carry out the collection of needs on an ad-hoc basis through informal contacts. One interesting exception lies with the CPB in Lower-Saxony, which carries out surveys with client institutions in a thorough manner, and analyses past procurement spending. As discussed further below, the reason why this CPB carries out stronger demand analysis might reside in its specific status as a wholesaler.

Länder seldom carry out assessments of their CPBs’ operational efficiencies and financial impacts. Interestingly, the first and most common objective of CPBs – that of generating savings through centralisation – is the least measured in the German Länder (see Figure ‎3.8).

Figure ‎3.8. Measuring the performance of CPBs in Germany’s Länder
Figure ‎3.8. Measuring the performance of CPBs in Germany’s Länder

Source: Responses from German federal and state-level institutions to an OECD questionnaire and interviews.

In fact, only one institution, the CPB of Schleswig-Holstein, has reported calculating savings generated through the use of centralised procurement instruments. Another Länder, North-Rhine Westphalia, is in the process of defining a methodology to calculate savings deriving from centralised initiatives. That said, North-Rhine Westphalia is one of the few Länder that does not have a CPB, but rather uses the lead buyer concept. The following two boxes, Box ‎3.6 and Box ‎3.7, feature two of the centralisation initiatives at Länder level in more detail: those in Lower-Saxony and in Schleswig-Holstein.

Box ‎3.6. Alternatives in institutional settings for CPBs: The case of Lower-Saxony

In the beginning of the 2000s, the state of Lower-Saxony took a strong centralised approach to public procurement at the Länder level. It empowered five different CPBs to procure goods, services, works and infrastructure. Two main procurement entities fall under the responsibility of the Ministry of Interior and Sports. They are:

  • the Logistic Centre of Lower-Saxony (Logistik Zentrum Niedersachsen, LZN), a state-owned enterprise founded in 2001

  • IT.Niedersachsen, an office that in 2013 succeeded the State Office for Statistics and Telecommunications of Lower-Saxony (Landesbetrieb für Statistik und Kommunikationstechnologie Niedersachsen, LSKN).

In principle, all direct administrations in Lower Saxony are obliged to procure through these two CPBs. Indirect public administrations can join existing collaborative procurement instruments. To manage centralised tools, both CPBs have also developed electronic platforms on which individual contracting authorities can place orders.

IT.Niedersachsen is responsible for the procurement of goods and services in the field of information technology and telecommunications. The LZN has a more general mandate in that it is responsible for the procurement of all other goods and services, with the exception of public buildings and infrastructure.

The LZN supplies more than 2 300 offices of the state of Lower Saxony. More than 100 000 standardised articles can be accessed from around 40 catalogues via its online system. IT.Niedersachsen provides centralised procurement of IT hardware and software for around 50 000 users.

Aside from aggregation strategies leading to the implementation of framework agreements, these entities also support individual procurement of by contracting authorities. Both not-for-profit entities are financed through fixed fees added to the prices of standard products and on a cost recovery basis for ad-hoc services.

At present, IT.Niedersachsen is embedding some of the main objectives of the Lower-Saxony Digital Strategy 2025 into its procurement strategies. This strategy reaffirms the importance of centralised and standardised procurement for achieving the objectives of greater data security and interoperability. It also stresses the importance of skilled procurement officials in supporting the needs of individual contracting authorities.

Source: Responses from German federal and state-level institutions to an OECD questionnaire and interviews.

Box ‎3.7. Increasing the use of CPBs: The case of Schleswig-Holstein

The Building Management Schleswig-Holstein (Gebäudemanagement Schleswig-Holstein, GMSH) is a state-owned enterprise responsible for property management of all public buildings in the state. The GMSH also serves as a CPB for the procurement of all sorts of goods and services.

A noticeable feature of this CPB is its operating model. While most CPBs procure on behalf of contracting authorities that place individual orders when a specific need arises, the GMSH serves as a wholesaler. This means that the GMSH buys products and resells them to contracting authorities. This model is not common in OECD countries, but it does exist in France, with the national CPB UGAP (Union des Groupements d’Achats Publics). Wholesale models such as this are usually financed via sales revenue.

The total procurement expenditure managed by GMSH in 2017 amounted to approximately EUR 350 million. This figure falls in line with average annual procurement levels. Prior to 2017, the GMSH embarked on two years of exceptional procurement spending (around EUR 650 million) due to the heavy construction work it undertook to host refugees.

All direct public administrations in Schleswig-Holstein are obliged to use the centralised procurement services of GMSH. Indirect public administrations and municipalities can use centralised procurement instruments on a voluntary basis. The share of procurement carried out for contracting authorities using the services of GMSH voluntarily has steadily increased by 10% every year, thanks to a greater understanding of the benefits of centralisation. In 2016, more than 53% of the 75 municipalities surveyed reported using the services of GMSH (Wegweiser, 2016[25]).

The benefits of using the GMSH began to be better highlighted and communicated following the reorganisation of the GMSH in 2005, and the creation of a sales team. This strategic reorganisation corresponded to a law passed by the government of Schleswig-Holstein the same year. The law mandated that all direct public administrations procure through the GMSH.

Specific aggregation strategies have been implemented for certain product categories to maximise financial benefits for both the CPB (which adds a margin to the purchased price) and for the contracting authorities. Because of its operating model and financing structure, GMSH is incentivised to identify product categories that are prone to economies of scale.

Because of this, the GMSH has created a specific unit dedicated to standardisation to ensure that costs-benefit analyses of aggregation through framework agreements are carried out whenever the same product is being ordered more than five times in a year. Depending on the most beneficial outcomes, framework agreements are either concluded with one or multiple suppliers. These efforts have led to an increase in the use of framework agreements where their volume corresponds to 75% of the total procurement volume of GMSH.

Source: Responses from German federal and state-level institutions to an OECD questionnaire and interviews.

Proposals for action

Centralisation initiatives maximise the attractiveness of their value propositions by adapting structures and tools tailored to specific objectives. These objectives include increased financial benefits stemming from economies of scale and the development of procurement expertise that supports decentralised entities.

Ensuring that centralisation strategies – from institutional settings to roles and financing schemes – are tailored to stakeholders’ needs and expectations creates economic benefits. Germany can tailor centralisation to stakeholders’ needs by further emphasising strategic alignment between different stakeholders participating in centralisation efforts. Notably, German public authorities could:

  • reinforce links between CPBs and the unit responsible for the electronic platform on which products and services subject to centralisation strategies are ordered

  • tailor operating models of CPBs according to specific centralisation objectives and characteristics of the product categories in which they operate.

These aims could be achieved by:

  • deciding on mandatory or voluntary use of CPBs for direct federal administration, depending on the centralisation objectives

  • defining the roles of CPBs – be it in order to aggregate needs, support individual contracting authorities in ad-hoc procurement processes or developing training activities

  • adapting the financing structure of the CPBs according to their roles.

Germany could implement a number of measures and initiatives to maximise the impact of centralised procurement instruments. Maximised impact could be achieved by:

  • Implementing a structured and automated method for collecting and analysing the needs of contracting authorities. Such a method could provide greater visibility to the estimated procurement volumes of contracting authorities. It could also help authorities to monitor the effective use of centralised procurement instruments and refine demand analysis over time.

  • Developing indicators, such as the volume of centralised procurement as a share of all procurement, so that authorities better understand the potential benefits of centralisation

  • Strengthening communication with both contracting authorities and suppliers on the benefits of centralisation. Stronger communication would encourage greater use of centralised purchasing options and increased competition. At the federal level, the KdB could undertake communication strategies, considering its co-ordination role.

  • Diversifying collaborative procurement instruments would provide complementary centralisation benefits. Collaborative procurement instruments could include dynamic purchasing systems and e-catalogues.

  • Devoting additional resources to strengthening the technological environment supporting the implementation of centralisation strategies so as to increase analysis of procurement performance data.

References

[22] Albano, G., A. Ballarin and M. Sparro (2010), “Framework Agreements and Repeated Purchases: The Basic Economics and a Case Study on the Acquisition of IT Services”, http://ippa.org/images/PROCEEDINGS/IPPC4/04EconomicsofProcurement/Paper4-1.pdf (accessed on 5 February 2018).

[10] Albano, G. and M. Sparro (2010), “Flexible Strategies for Centralized Public Procurement”, Review of Economics and Institutions, Vol. 1/2, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1887791 (accessed on 2 February 2018).

[5] Bundesanstalt für Landwirtschaft und Ernährung (2016), Geschäftsbericht 2016, https://www.ble.de/SharedDocs/Downloads/DE/Publikationen/Geschaeftsbericht_2016.pdf?__blob=publicationFile&v=5 (accessed on 31 January 2018).

[21] Church, J. and R. Ware (2000), “Industrial Organization: A Strategic Approach”, http://works.bepress.com/jeffrey_church/23 (accessed on 19 February 2018).

[12] Crown Agents (2015), Report on policy recommendations concerning the establishment of centralised public procurement bodies in Ukraine, http://eupublicprocurement.org.ua/wp-content/uploads/2015/11/Report-on-procurement-centralisation_ENG.pdf (accessed on 6 February 2018).

[24] Danish Competition and Consumer Authority (2015), Competition on public procurement through central framework agreements, https://www.en.kfst.dk/media/3299/20150416-coi.pdf (accessed on 16 February 2018).

[3] Dimitri, N., G. Piga and G. Spagnolo (2006), Handbook of Procurement, Cambridge University Press, Cambridge, http://dx.doi.org/10.1017/CBO9780511492556.

[16] European Commission (2016), Stock-taking of administrative capacity, systems and practices across the EU to ensure the compliance and quality of public procurement involving European Structural and Investment (ESI) Funds, https://publications.europa.eu/en/publication-detail/-/publication/d1082259-0202-11e6-b713-01aa75ed71a1 (accessed on 22 February 2018).

[23] European Commission (n.d.), Make better use of framework agreements, http://ec.europa.eu/regional_policy/sources/good_practices/GP_fiche_16.pdf (accessed on 20 February 2018).

[13] Goodman, H. (2007), Assessing the value for money of OGCbuying.solutions, Thirty–third Report of Session 2006–07 The Committee of Public Accounts, https://publications.parliament.uk/pa/cm200607/cmselect/cmpubacc/275/275.pdf (accessed on 22 February 2018).

[9] Infrastructure and Projects Authority (2016), Assurance of benefits realisation in major projects, https://www.gov.uk/government/publications/assurance-of-benefits-realisation-in-major-projects (accessed on 12 February 2018).

[15] Karjalainen, K. (2009), Challenges of Purchasing Empirical Evidence from Public Procurement, Helsinki School of Economics, http://epub.lib.aalto.fi/pdf/diss/a344.pdf (accessed on 19 February 2018).

[6] Kaufhaus des Bundes (2017), Produktsortiment und Zuständigkeiten, http://www.kdb.bund.de/SharedDocs/Downloads/02_kdb_subsite/gesetze_beschluesse_etc/Kategorien-Zust%C3%A4ndigkeiten.pdf?__blob=publicationFile&v=3 (accessed on 16 July 2019).

[17] National Agency for Public Procurement, S. (2017), Statistics on Public Procurement 2017 (Statistik om offentlig upphandling 2017), https://www.upphandlingsmyndigheten.se/globalassets/publikationer/rapporter/rapport-2017_5-statistik-om-offentlig-upphandling-2016.pdf (accessed on 22 February 2018).

[4] OECD (2017), Government at a Glance 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/gov_glance-2017-en.

[8] OECD (2017), Public Procurement in Chile: Policy Options for Efficient and Inclusive Framework Agreements, OECD Public Governance Reviews, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264275188-en.

[7] OECD (2016), Digital Government Strategies for Transforming Public Services in the Welfare Areas, http://www.oecd.org/gov/digital-government/Digital-Government-Strategies-Welfare-Service.pdf (accessed on 9 February 2018).

[1] OECD (2015), Government at a Glance 2015, OECD Publishing, Paris, http://dx.doi.org/10.1787/gov_glance-2015-en.

[2] OECD (2015), OECD Recommendation of the Council on Public Procurement, http://www.oecd.org/gov/public-procurement/recommendation/OECD-Recommendation-on-Public-Procurement.pdf.

[20] OECD (2013), Implementing the OECD Principles for Integrity in Public Procurement: Progress since 2008, OECD Public Governance Reviews, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264201385-en.

[11] OECD (2011), “Centralised Purchasing Systems in the European Union”, SIGMA Papers, No. 47, OECD Publishing, Paris, http://dx.doi.org/10.1787/5kgkgqv703xw-en.

[14] Sanchez-Graells, A. and I. Herrera Anchustegui (2016), “Impact of public procurement aggregation on competition. Risks, rationale and justification for the rules in Directive 2014/24”, pp. 129-163, http://dx.doi.org/10.2139/ssrn.2534496.

[18] Schotanus, F., J. Telgen and L. De Boer (2010), “Critical success factors for managing purchasing groups”, Journal of Purchasing and Supply Management, Vol. 16, pp. 51-60, http://dx.doi.org/10.1016/j.pursup.2009.10.002.

[19] Swedish National Agency for Public Procurement and Swedish Competition Authority (n.d.), Statistics on Public Procurement 2017 (Statistik om offentlig upphandling 2017), http://www.upphandlingsmyndigheten.se/globalassets/publikationer/rapporter/rapport-2017_5-statistik-om-offentlig-upphandling-2016.pdf (accessed on 16 February 2018).

[25] Wegweiser (2016), Evaluierung des Gesetzes über die Sicherung von Tariftreue und Sozialstandards sowie fairen Wettbewerb bei der Vergabe öffentlicher Aufträge, https://www.wegweiser.de/de/downloads/evalttg_abschlussgutachten.pdf (accessed on 29 January 2018).

End of the section – Back to iLibrary publication page