THE EUROPEAN E-TENDERING SOFTWARE MARKETPLACE

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1 THE EUROPEAN E-TENDERING SOFTWARE MARKETPLACE EMPOWERING EU PROCUREMENT This report describes the current state of the European e-tendering software marketplace. Electronic tendering (or e-tendering) is a process in which procurement administration is managed through a dedicated software system or online platform. Advantages are clear in terms of cost, process and transparency, and the EU is moving towards mandating the use of e-tender management ( etm ) for all tenders above certain thresholds. We believe that the provision of e-tendering software platforms will form a lucrative growth market. Those who address this market well (through a combination of process knowhow and lean, SaaSdelivered functionality) stand to benefit significantly as it evolves. This note describes the procurement and e-tendering marketplace within the EU setting, describes some of the existing providers of software, and outlines some metrics relevant to structure and valuation of such providers. Our findings are: Tendering and procurement by public bodies is a vast activity The procurement processes currently in place are typically outdated, paper-based and thus expensive and lacking transparency. This can result in incorrect procurement decisions, legal challenges, re-tendering and poor value for public sector money Use of e-tendering software management platforms can offer far more robust and transparent tender processes, run at lower cost and with greater efficiency than traditional ways of managing procurement (which can cost tens of thousands of euros per tender) New EU Directives have been proposed by the Commission to make essential phases of e-tendering mandatory across the EU. It is anticipated that these will be ratified in the EU Parliament and Council during late 2013 or early 2014 The European e-tendering marketplace is fragmented, with a few providers active in multiple Member States, most more locally focussed, and some with just a handful of customers in one country We believe that the SaaS (Software as a Service) model fits well with the etm software marketplace, as there exist tens of thousands of authorities across the EU which will all need systems, managed and delivered in a low-cost manner and without IT challenges and long lead times ANALYSTS Gareth Evans +44 (0) gevans@progressive-research.com Ian Poulter ipoulter@progressive-research.com Finally, we provide some analysis of current valuations in the UK tech sector, and conclude that recurring revenue, which generally accompanies SaaS contracts, tends to provide the richest valuations We believe that the European e-tendering market is likely to experience material growth in coming years, driven partly by regulation, and partly by organisations simply attempting to cut costs and improve their work processes. Suppliers with the right structure, the right operating model and the right positioning could see material returns to shareholders over the medium term. Commissioned by EU Supply, this document has not been prepared in accordance with requirements designed to promote the independence of investment research. Please refer to important disclosures on the back cover.

2 EXECUTIVE SUMMARY European Union procurement overview (page 4) Procurement of goods and services by European Union public sector bodies is a massive undertaking. Public sector bodies across the European Union member states procure, annually, services, goods and works with total values measured in the hundreds of billions of euros; some estimates put the figure at 2.4trillion. This vast purchasing programme is often carried out from relatively small, local organisations, each of which may be responsible within a decentralised structure for the procurement of certain categories of services and supply. Despite the recent EU-wide focus on cost constraint within the public sector, and the implementation of various austerity programmes, these procurement budgets have changed (and will change) very little over the years. There therefore exists a major incentive to do anything possible to improve the efficiency of the process by driving out cost and streamlining logistics, and to bolster effectiveness by ensuring the correct procurement decisions are made. Even a small percentage improvement in the value-for-money achieved would have a significant impact on the European economies. Traditional management of tenders as it stands partial delivery of available benefits (page 8) The processes have been improved by EU regulation in the past, but could benefit from further process streamlining and modernisation Despite the massive sums at stake, many public sector procurement bodies are managed in a sub-optimal way. This results in significant process costs being incurred, often with errors in tender management resulting in legal challenges or retendering, and (arguably worst of all) bad procurement results. In the UK alone, we can point to the ongoing debacle of the NHS Programme for IT, and the West Coast Main Line tender processes as recent and live examples. The EU Directives (17 and 18) of 2004 established a set of ground rules for the operation of tender programmes above certain thresholds. Any procurement captured by these Directives (or the individual Member States laws evolved to comply with them) was required to be advertised and published to the Official Journal, to ensure fair and clear notification and distribution to all potentially interested suppliers of the availability of tender opportunities. While the 2004 Directives arguably have achieved significant savings for the EU through this greater focus on fair and transparent notification, most tender processes in the EU remain paper-based, manual and inefficient. There are a number of areas of cost and effectiveness which remain to be addressed : Transmission of, and availability of documents in electronic form can save significant costs in terms of logistics, printing and delivery Electronic management of tender submission by economic operators, evaluation and contract awards by authorities could streamline processes, reduce incidence of bidders challenging the processes, and (perhaps most importantly) reduce the risk of errors being made which result in incorrect or suboptimal procurement choices being made. Intelligent support for suppliers, and buyers, e.g. through libraries of standard requirements, pre-populations of responses, warnings of mistakes, and logic to control the process can both save time and prevent costly errors which would cause rejection of otherwise qualified valuable bids Transparent bidding in online reverse auctions renders significant savings, as reported by a number of authorities, including the OGC. 2

3 Use of structures, requirements and responses can help cutting cost in the qualification and evaluation of responses where typically most time is spent. Online tenders availability of tender documents, and online submissions of responses is also expected to increase the number of bidders, including cross border bidders, hence reducing direct cost. The EU itself has published a number of documents recognising that the current regulatory framework is antiquated and leaves significant scope for improvement in a number of regards, while an increasing number of authorities themselves have already adopted solutions to obtain the benefits available through them. Further cost saving potential and regulation (page 17) The European Parliament is scheduled, in December 2013, to consider proposals to update the 2004 Directive, with the aim being to mandate the use of electronic platforms for the management of essential phases of tender processes and the delivery of relevant documents. Such a change in legislation is likely to drive many procurement bodies to adopt e- Tender Management (etm) systems, in order both to comply with new regulations, and potentially to drive additional improvements in efficiency and effectiveness. Previous drafts of the new Directives had suggested timelines involving Member State legislation by June Central Purchasing Bodies were to use electronic communication by this date, with all (smaller) procurement organisations doing so by June These dates are very likely to slip in the revised Directives, but they may give an indication of the style of enforcement and timings. Commentary on the e-tendering software market (page 21) In addition to commentary and summaries of the EU tendering market, this document includes some analysis of the e-tendering software market, divided into three separate sections as described below : Players in the e-tendering market We highlight and discuss a number of the major market participants, dividing them into US beach-head, EU-wide and smaller groups active only in one or two countries Optimal delivery model for players active in this market We suggest that the e-tendering space is highly amenable to SaaS (Software as a Service) delivery. Large groups of customers will require platforms compliant with both EU-driven and local legislations, so systems require significant functionality with a high degree of configurability Valuation metrics relevant to software groups Our analysis highlights the fact that, generally, software companies capable of delivering recurring revenue-based business models, with long term revenue growth, achieve the highest valuation metrics. This is as expected, given the high value of longterm profit streams which can be predicted with a degree of certainty. Conclusion For good reason, the EU appears to be about to mandate the next phase of automation in the tendering processes utilised by thousands of public sector procurement bodies. The market for European e-tendering management software should therefore be on the cusp of material growth. Combining a recurring revenue model with a SaaS delivery platform (which should generate high and sustainable margins) could provide an extremely compelling way to address these emerging opportunities. 3

4 EU PROCUREMENT MARKET BACKDROP Public procurement is the process used by government institutions and public sector organisations to buy supplies, services and public works. There are EU Directives and national procedures within the Member States which enact those Directives. There are many documents which evaluate the success or otherwise of the existing Directives as part of ongoing monitoring. In addition, the reform proposals for new Directives offer substantial information about the rationale for updating legislation. The age of available data varies but most refer to Market backdrop and drivers When public spending goes wrong There is a history of slip-ups in the public procurement arena that have caused outrage in many countries. Looking at the National Health Service (NHS) in the UK, the example of the national programme for IT for the NHS is a recent one that sticks in the mind. The project was started by the Labour Government and closed down by the Coalition in The National Programme for IT was established in 2002 to deliver the vision outlined in Delivering 21st Century IT Support for the NHS. The vision behind The National Programme for IT was to create an electronic patient record and to use the ability of technology to connect all parts of the health economy to improve patient care. The forecast cost was 11.4 billion (a reduction of 1.3bn from the initial forecast of 12.7 billion) compared to an actual spend at the end of March 2011 of 6.46 billion. In the Major Projects Authority (MPA) Programme Assessment Review of the National Programme for IT which has been unclassified (albeit redacted) the MPA noted some achievements from the 6.4 billion investment up to 31 March Ultimately, though, its recommended action was: To dismember the programme and reconstitute it under new management and organisation arrangements. The National Programme for IT as a concept relating to the original investment decision should be terminated. Unless the work is refocused it is hard to see how the perception can ever be shifted from the faults of the past and allowed to progress effectively to support the delivery of effective healthcare. Attempts at austerity Public purse strings have been tightened across many countries since the financial crisis and the UK and EU are no exceptions. Remaining with the example of the NHS, in August 2013, the UK Government announced that the NHS would appoint a procurement champion with experience in the private sector to help it get value for money from its suppliers. The NHS in England will also use a new price comparison website to enable health officials to see what different trusts are paying for supplies and services. The Health minister Dr Dan Poulter will also head a new committee tasked with driving down the NHS s 20 billion procurement bill which typically accounts for around 30% of the operating costs of each hospital. 4

5 In its Procurement Development Programme publication, the Government noted that the more transparent we can make procurement performance, the more it will drive behaviours to improve. More procurement information needs to be in the public domain. The size of the procurement market in Europe means that it is vital to get public spending right to see it managed in an efficient manner. The scale of EU procurement budgets The last published EU Annual Public Procurement Implementation Review was for In that document, for most Member States, the data collected relate to the year Other Member States provided data for The statistics for the European public procurement market are based on the OJ/TED database, desk research undertaken by DG MARKT and the statistical reports from the Member States. OJ TED (Tenders Electronic Daily) is the online version of the Supplement to the Official Journal of the European Union, dedicated to European public procurement. The 2012 Review noted that government and utilities expenditure was a significant and influential factor in the economy with around one fifth of EU GDP annually spent on goods, works and services. Almost 20% was spent on purchases exceeding the value thresholds set in the Public Procurement Directives and was therefore governed by EU public procurement rules. According to Commission estimates, the total value of invitations to tender for contracts above the thresholds in 2010 was approximately EUR 447 billion or 3.7 % of EU GDP. The Member States annual statistical returns reported that the contracts awarded in 2010 were worth approximately EUR 340 billion. The differences are attributed to, inter alia, the level of compliance with the statistical obligations, reporting styles, differences in coverage of procurement in the utilities sectors and possible time-lags between the two estimates. It is nevertheless remarkable that we may not even know with sufficient accuracy the total value of contracts procured. European Commission estimates for the value of tenders published in the OJ/TED and the total value of procurement above the thresholds reported by Member States in [in EUR billion] Commission's estimates Member States' reports Source: EC Annual Public Procurement Implementation Review

6 The Review says that, in 2010, approximately 36 % of the value of contract award notices published in the OJ/TED was attributable to works contracts. 42 % was spent on services and 22 % on goods. European Commission estimates for the number and value of contract award notices published in the OJ/TED in 2010, by type of contract [%] Works Supplies Services Number Value Source: EC Annual Public Procurement Implementation Review 2012 The typical (median) value of a contract awarded in line with the EU rules on public procurement was around EUR 345,000 with the average higher at just over EUR 3 million The EC data also show that the typical (median) value of a contract awarded in line with the EU rules on public procurement was around EUR 345,000 in 2010 although the average was higher at just over EUR 3 million reflecting a number of large contracts. Of the notices (again using EU data), around 90% were for contracts governed by the Public Sector Directive with the remaining 10% falling under the rules of the Utilities Directive. In terms of value, the numbers are 81% and 19% respectively. EU public procurement indicators The EU also produces estimates of the total expenditure on works, goods and services by the general government and utilities sectors, the value of calls for tender published in the Official Journal for , and the number of calls for tender published in the Official Journal in The most recent was Public Procurement Indicators 2011 published on 5 December 2012 to provide estimates of three indicators of performance in public procurement within the EU. These public procurement indicators are derived from information published in OJEU through the Tenders Electronic Daily database (TED), from National Accounts data provided by National Statistical Institutes to Eurostat and from annual reports and other sources for some of the utilities sectors. The numbers include estimates and extrapolation and the 2011 figures were not complete in the publication with the value of the utility component simply reflecting a repeat of the 2010 figures. Nonetheless, it gives a broad indicator of the level of overall spending. 6

7 This table shows, for 2007 to 2011, an estimate of the total expenditure of the public sector and utility service providers on public works, goods and services. Estimate of total expenditure by general government and utilities on works, goods and services. [2010 utilities estimate re-used for 2011] Source: European Commission Other indicators estimate the value of procurement for which tenders have been published in TED. These figures are calculated by the services of the Commission from the information published in the Official Journal and the TED database. We show some of the findings in the table below along with the total expenditure estimates which relate to the sum of the numbers in the chart above. EUR 2.4 trillion of total expenditure on public procurement European Commission 2012 public procurement indicators for Estimate of total expenditure (EURbn) Estimated value of tenders published in TED (EURbn) The estimated value of tenders published in TED as % total expenditure Source: European Commission Conclusion It is clear that, on any measure, the EU public sector is a vast purchaser of goods and services. Some of the procurement is above the established thresholds and is subject to transparency imposed by the 2004 Directives, but much procurement falls below these thresholds. Any opportunity to improve the efficiency of operations, or the effectiveness of the decisionmaking is therefore capable of saving many billions of euros across the EU. 7

8 TENDERING PROCESSES AND E- TENDERING In the EU s own words, the correct, efficient and effective application of public procurement rules across the Union remains a constant challenge. Procurement is a minefield of complexity and risk, and there is a perception that most tenders are still awarded to local favourites, with little cross-border procurement and presumably the loss of economies of scale that should be achieved. This section of the note will discuss : 1. Types of procurement procedures in use within public bodies, together with some example details to demonstrate the complexity involved 2. Costs of these procedures, using estimates of time employed in the different aspects of managing the tender 3. How the challenges have been, and are being addressed (a combination of infrastructure carrot to assist smooth processes, and legislative stick to ensure adherence to minimum standards determined by the scale of tender) 4. The potential cost savings and other benefits still to be achieved by moving to a full e-tender Management (etm) platform 1. Types of procurement procedures The EU Directives and member state legislation provide a wide menu of procedures and techniques for contracting authorities who are organising tenders. The choice of tender methodology is determined partly by legislation, and partly by the specific aspects of the tender itself and the market conditions, but only well defined tender procedures may be used (above the EU thresholds), e.g. open procedure (one round of requirements and full tender response all in one go), restricted procedure (with two stages where the bidders first have to provide a response to a set of requirements in a qualification stage, and only the qualifying bidders are invited to the second stage for the full tender response), negotiated or competitive dialogue. The level of advertising or notification required must also be decided depending on type of contract. Legislation already today (following the implementation of the 2004 Directives) mandate that all tenders above the OJEU thresholds must be advertised on the Official Journal of the European Union (OJEU) in accordance with defined rules. Tenders below the appropriate thresholds may still be subject to local (national) legal requirements, and national laws may still require publication on certain national notices portals and journals if they meet lower regional scale criteria. The aspects of the tender itself often drive the selection of tender procedures. For example, if a tender is expected to require complex negotiation to ensure the best value outcome, it may be wise to select a negotiated procedure, even if this may take more time. In cases where this need may not exist, the authority may choose to run either an open procedure or a restricted procedure, where the latter includes an initial qualification stage ( tollgate ). This eliminates a number of non-qualifying bidders early in the process, thereby reducing the amount of bidding work for unsuccessful bidders and cutting the workload for the authority which avoids the need to evaluate a large number of full tender responses. Steps to restrict or qualify-out bidders can therefore save cost but such steps in themselves require a longer tender process, so such multi-step processes should not be used when the number of likely bidders is relatively small. 8

9 Within each type procedure there are detailed rules, all serving the principles of non-discrimination, transparency, predictability and aiming to reduce cost and ensure fair open market competition. The bar chart below highlights the numbers of each type of procedure as disclosed by a European Commission survey. Open, restricted and negotiated processes are clearly the most frequent, both by number and by value. Contracting Authorities use of procedures ( ) 100% 90% Open 80% 70% 60% 50% Restricted Negotiated without publication Negotiated 40% 30% Accelerated resticted 20% Accelerated negotiated 10% 0% Number Value Competitive dialogue Source: European Commission The flow charts below show the process for the two most commonly used procedures; it is clear that processes are complex and involved, an environment within which solid software-controlled structures can prove very valuable. Note that this chart does not include all the detailed exceptions and workflows that may be involved internally in the authority and the bidder organisations. It is also noted that the Freedom of Information Act (and similar legislation across EU) give bidders options to review competitor bids. Any failure of the authority to comply with all the rules, especially any procedural mistakes, means that bidders who are not awarded are well positioned to mount a challenge to the authority. Without much risk, a losing bidder may claim against the authority, delaying the process or requiring a re-tender. Transparency thus means even greater need for process support to minimise the risks of mistakes throughout the whole tender process, and correctly so for each procedure type. 9

10 Open Procedure and Restricted Procedure summary process flows Open Procedure Restricted Procedure OJEU Contract Notice Time limit 52 days minimum. 36/22 days with PIN Expressions of interest/tenders Unsuitable candidates excluded Evaluation of tenders and appointment of preferred bidder Conduct standstill period 10/15 calendar days Issue Contract Award Notice OJEU Contract Notice Time limit 37 days minimum. Accelerated 15 days Expressions of interest/receipt of Pre- Qualification Questionnaire (PQQ) Unsuitable candidates excluded Scoring of PQQ, pre-selection of minimum of 5 qualifying bidders, issue of Invitation to Tender Time limit 40 days 36/22 days with PIN Accelerated 10 days Evaluation of tenders and appointment of preferred bidder Conduct standstill period 10/15 calendar days Issue Contract Award Notice Source: European Commission, Dundas Wilson diagram wording 2. Costs of procurement on average 28,000 The EU has published a document entitled EU Public Procurement Legislation Delivering Results Summary of Evaluation Report which includes some useful information about the cost of procurement : The average cost of running each procedure above EU threshold was approximately 28,000 (as per an EU evaluation). The average cost of running a procedure of lower value ranges between 18 and 29% of the contract value. The total cost to society of procuring the goods and services (i.e. the process of acquiring them) covered by the Directives was estimated at around 5.26 billion per year in EU estimates put the additional cost of the compliance with the EU Directives compared to national/below-threshold procurement at 0.2% of total contract value for public purchasers, and a further 0.2% for suppliers or approximately 1.68 billion in Among the specific objectives of the new Directive is the improvement of the costefficiency of EU public procurement rules and procedures. The same evaluation had found that increased openness and transparency created by the procurement Directives had increased competition and, consequently, produced cost savings. They suggested that publication of a contract notice results in a saving of 1.2% and that using an open procedure is associated with further 2.6 % savings. 10

11 Cost vs. Speed The evaluation report noted that the typical time from the dispatch of an invitation to tender to an award across all procedures was 108 days. However, the range between the fastest and the slowest was around 180 days with a consequent impact on the comparative efficiency and cost procurement procedures. Although the time required for publication of contract notices is prescribed by EU Directives and subject to limited flexibility, the time taken by contracting authorities to award contract is subject to their control. The average time taken to evaluate and award a contract is around 58 days but the range is huge: from 45 days for the simplest lowest price contracts up to 245 days for complex competitive dialogue procedures. The restricted procedure takes on average 160 days compared to 53 days for the open procedure. As well as the overall time taken, there is a significant variation in the person-day costs associated with carrying out the procedure between Member States. The average is 38 days for the time invested by authorities and by the winning firm. Again there is a significant difference of 71 days between the top and the bottom performing countries. The diagram below shows the relative amounts of time spent on a number of different aspects of the tender management process. As one might expect, in a small (low value) tender, proportionately more time is spent on specification and notification, and less on the detailed qualification and evaluation. Example relative time spent on elements of procurement processes Share of Contracting Authority time spent on tendering (%) 100% 90% Specification 80% 70% 60% Notification Access/Distribution 50% 40% 30% Submission/ Qualification/Evaluation 20% 10% 0% High Value Tenders Low Value Tenders Negotiation/Award Source: EU Supply, Progressive Equity Research 11

12 3. Current attempts to optimise procurement : facilitation and Directives aimed at transparency The EU Commission is clearly aware of the vast amounts being spent through the various member nations budgets, and various parts of the relevant organisations have attempted, over the years, to both facilitate and force improvements. Facilitation The facilitation aspects relate to the availability of various platforms, promotion of good practices and infrastructure upon which member states procurement bodies can rely in the course of conducting their tenders. Examples of facilitation include : The Golden Book e-teg PEPPOL and OpenPEPPOL The Golden Book and e-teg attempt to help organisations understand and plan elements of e-procurement, and PEPPOL (together with OpenPEPPOL) is aimed at ensuring interoperability between e-procurement platforms. Details of all three can be found in Appendix 1. Forcing to date, through the 2004 Directives The EU has acted to force improvements in procurement mainly, to date, through the 2004 Directives (described below) which are mainly to do with transparency and electronic publication of the existence of a tender. The management of the tender process itself, and all the associated documentation can still be a manual and paper-based task. Transparency & OJEU the 2004 Directives As noted in the UK Government s Procurement Development Programme, greater transparency is a key aspiration. EC notices for contracts above the thresholds are published in the OJ/TED: either a contract notice (CN), which contains the invitation to tender or a contract award notice (CAN). The number of contract notices advertised continues to grow - around 2500 new notices are advertised every week - and the number of contract award notices has grown even faster as compliance with post-award publication requirements has improved. The current regulations require authorities to advertise public contracts in an open and transparent manner and for them to be advertised in prescribed forms on the Official Journal of the European Union (OJEU). Contracts below the prescribed EU thresholds (see various points later in this document) may still require adequate advertising to comply with more general requirements of EU law. 12

13 4. Potential benefits of e-tender Management and the new draft Directives Certain benefits have undoubtedly resulted from the efforts above to ensure that procurement bodies are both empowered to use electronic platforms when they choose to, and required to at least properly advertise the existence of a tender above certain value thresholds. Nevertheless, as shown below, the uptake of e- Procurement has been limited. e-procurement (pre- and post-award) uptake limited to date In 2010, less than 5% of total procurement budgets in the first mover Member States was awarded (ordered) through electronic systems. The European Commission publishes periodically an e-procurement State of Play Report of the Study on e-procurement Measurement and Benchmarking. According to the report published on 17 June 2013, the overall value of e- Procurement in the EU in 2011 was estimated to be between 170 billion and 203 billion. Those numbers correspond to a level of take-up between 10.6% and 11.7%. This take-up is the proportion of public procurement contracts that have been processed electronically in the pre-award phases, at least through e-submission, as a proportion of the total public procurement contracts processed in the same period (all procurement contracts, above and below the EU threshold). It includes e-auctions and the use of e-ordering and e-catalogues. These areas are shown in red on the chart below. The e-procurement Process e-notification e-access e-submission Pre-Award e-auction e-marketplace e-ordering Post-Award e-invoicing e-payment Source: European Commission, IDC 13

14 When evaluating the existing public procurement Directives, the EU has noted the following points: Of the 250,000 different contracting authorities and entities involved in public procurement in the EU, only about 35,000 publish a notice in the OJEU (the gazette record of the European Union) in any one year. In 2009 over 150,000 invitations to tender above OJEU thresholds were published (by the 35,000 authorities) in conformity with EU Directives. The estimated value for these contracts was 420 billion. Most of the smaller authorities may never make a purchase large enough to fall within the scope of the Directives (or may incorrectly fail to aggregate purchases within a category). A significant amount of procurement is carried out by bodies which are neither central nor local government administrations. Different countries have take up the e-procurement banner to differing degrees, as shown in the chart below. These figures include post-award use of e-procurement, not just pre-award. The UK represented 46% of the total estimated value of e-procurement in Europe in 2011, with Germany (23%) and Sweden (12%) representing the next largest proportions. These figures are based on an e-procurement market at the low end of the range described above. However, the relative size of the economies masks the level of take-up within individual Member States. Lithuania, Portugal and Sweden reported a take-up rate of over 30%, closely followed by the UK. e-procurement value share by Member State, 2011, (minimum estimate) Rest of Europe, 9% Sweden, 12% Portugal, 5% UK, 46% Italy, 2% Germany, 23% France, 3% Source: European Commission (pre- and post-award data) 14

15 Push towards full e-tender Management Increasing the use of electronic procurement (e-procurement) is of strategic importance for achieving the smart and sustainable growth objective of the EU 2020 Strategy. Such procurement will : Increase efficiency of procurement programmes through reduced cost, more streamlined processes and lower incidence of error (and re-work) Improve effectiveness of procurement, by encouraging the participation of more bidders, and helping to ensure that relevant and material criteria are used to determine the outcome The EU, and a number of the more forward-thinking procurement organisations, believe that significant further gains can be made if additional elements of the process are automated. The relevant draft Directives are described in the following section on regulation, but in terms of the tender process, the diagram below shows the areas covered by the new draft Directives : E-tender management and the proposed new directives Share of Contracting Authority time spent on tendering (%) Addressed by: 2004 Directive New Directives etender Management 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% High Value Tenders Low Value Tenders Specification Notification Access/Distribution Submission/ Qualification/Evaluation Negotiation/Award!!!!!!!! Time spent here means time saved here Source: Progressive Equity Research 15

16 Cost saving potential of full e-tender Management The diagram below depicts the potential cost savings available through the use of e-tender Management. Clearly, the figures are illustrative only, but the use of automated and standardised systems for managing tenders should, logically, reduce the time required to perform the various functions : if bids are specified using standard forms, with pre-populated elements and reusing previous documentation, time is saved. if all bids are received and acknowledged electronically and by an automated process, human involvement is minimal compared to existing processes involving physical documentation, couriers, or telephone acknowledgement and so on. finally, if the tender management programme is used to ensure clear and welldefined structured specifications, it also stands to reason that significant time can be saved in the qualification and award phases of the process. Example time savings through the use of e-tender management 40 Man days Specification Notification Access / Distribution Submission/ Qualification/Evaluation Negotiation/Award 0 Existing process etm Source: EU Supply, Progressive Equity Research 16

17 REGULATION AND EU DIRECTIVES The previous sections have described the vast scale of the European member states procurement machinery. We have highlighted the fact that, although contracting authorities have been forced into broad notification of major contracts (OJEU etc) and have been assisted with various platforms and infrastructure, little has been done to force such organisations to adopt fuller e-tender Management. This is about to change. This section describes : 1. The existing legislation; mainly two Directives from 2004 which have been adopted into member state laws across the EU 2. The proposed new Directives and what they aim to achieve 3. The likely timelines associated with the new Directives 1. Existing legislation the 2004 Directives (as amended) The two relevant EU Directives of 2004 (2004/17/EC and 20004/18/EC) commenced the coordination of the procurement procedures above EU thresholds (see below). They dealt with Contracting authorities which it defined as State, regional or local authorities, bodies governed by public law, associations formed by one or several such authorities or one or several of such bodies governed by public law. The initial Directives applied to contracts which had a value excluding value-added tax (VAT) exceeding certain thresholds. There have been a number of amendments and changes to the Directives since 2004, mainly aimed at gradually extending the scope of the tenders caught by the legislation, to extend the proportion of tenders subject to the transparency and disclosure requirements. The table below depicts the thresholds relevant for general (non-utilities, nonconstruction) service contracts. European Commission 2012 application thresholds for public works, public supply and public service contracts Central Government authorities Sub-central contracting authorities Source: European Commission Works contracts, works concessions contracts, subsidised works contracts All contracts concerning services listed in Annex II B, certain telecommunications services and R&D services; all design contests concerning these services and all subsidised services All contracts and design contests concerning services listed in Annex II A except contracts and design contests concerning certain telecommunications services and R&D services All supplies contracts awarded by contracting authorities not operating in the field of defence Supplies contracts awarded by contracting authorities operating in the field of defence Concerning products listed in Annex V Concerning other products Works contracts, works concessions contracts, subsidised works contracts All service contracts, all design contests, subsidised service contracts, all supplies contracts EUR 5,000, , , , , ,000 5,000, ,000 17

18 2. The new Directives on Public Procurement In December 2011, the European Commission adopted its proposals on public procurement. They are part of an overall programme of modernisation of public procurement in the European Union. This includes the revision of 2004 Directives and the adoption of a directive on concessions, which were only partially regulated at European level. All Contracting Authorities to provide electronic means of communication for specified phases of procurement procedures (electronic notification of tender opportunities and electronic availability of other documents). Mandatory transmission of notices in electronic form, mandatory electronic availability of procurement documents and switch to fully electronic communication in all procurement procedures. Streamlining of dynamic purchasing systems, e-auctions and e-catalogues and introduction of e-certis, a mandatory electronic clearing-house which lists exhaustively the certificates and other proofs which Contracting Authorities may request from suppliers. Inter-operability between systems is encouraged to address the current divergence in technologies. The proposed Directives will run together as a group but here we look at the main elements of the Directive on Public Procurement. It provides for the mandatory transmission of notices in electronic form, the mandatory electronic availability of the procurement documents and imposes the switch to fully electronic communication, in particular e- submission, in all procurement procedures within a transition period of two years. Source : 2011/0438 (COD); Proposal for a Directive of the European Parliament and of The Council on public procurement, p.11 Procedures and techniques Member State systems will provide two basic forms of procedure, open and restricted procedure. They may, subject to certain conditions, use the competitive procedure with negotiation, the competitive dialogue and/or the innovation partnership. Contracting authorities will have a set of six specific procurement techniques and tools which have been improved and clarified to facilitate e-procurement: framework agreements dynamic purchasing systems electronic auctions electronic catalogues central purchasing bodies joint procurement Time-limits for participations and submission of offers have been shortened, allowing for quicker and more streamlined procurement, all enabled by the electronic transfers of tender documents, signing, validation and submission/receipt of tender responses. 18

19 The proposal gives public purchasers the possibility to base their award decisions on life-cycle costs of the products, services or works to be purchased. Thresholds The new Directive applies to procurements with a value exclusive of value-added tax equal to or greater than the following thresholds. The figures here are for the standard sector directive; different levels apply for certain other specified sectors: EUR 5,000,000 for public works contracts EUR 130,000 for public supply and service contracts awarded by central government authorities (subject to specific restrictions on defence) EUR 200,000 for public supply and service contracts awarded by sub-central contracting authorities EUR 500,000 for public contracts for social and other specific services These are subject to review and revision every two years, and it could be expected that thresholds over time will be taken to lower levels to ensure increasing transparency and competition on a higher share of all public sector spend, currently targeting just 450bn of the 2.4trillion. Any lowering of the thresholds over time would give potentially higher degrees of competition on public sector contracts, but would also generate more significant workloads for procurement bodies. In this situation, the use of e-tendering platforms, which often incorporate functionality to streamline areas not even covered by the Directives, would be the most logical way for procurement organisations to proceed. Governance Member States will appoint a single independent body responsible for the oversight and coordination of implementation activities. Reform proposals for EU Directives on Public Procurement New Directives Proposal Impact Study To replace COM(2011) 895: Proposal for a Directive of the European Parliament and of the Council on procurement by entities operating in the water, energy, transport and postal services sectors COM(2011) 896: Proposal for a Directive of the European Parliament and of the Council on public procurement COM(2011) 897: Proposal for a Directive of the European Parliament and of the Council on the award of concession contracts SEC(2011) 1585 and SEC(2011) 1586 SEC(2011) 1585 and SEC(2011) 1586 SEC(2011) 1588 and SEC(2011) /17/EC coordinating the procurement procedures of entities in the water, energy, transport and postal services sectors 2004/18/EC on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts Source: European Commission 19

20 3. What is the timing? Timing of Directives : European Parliament plenary session due in late 2013 In December 2011, the proposal for new Directives on public procurement was published (as described in section 2 above), along with a proposal for a Directive on concessions and an impact study. During 2012, the EU Council and the Internal Market Committee of the EU Parliament negotiated the details of the proposed new e-procurement Directives. The European Parliament website shows that the measures have been debated in Council on three occasions during The procedural history of the draft Directives suggests that negotiations have been taking place, and the indicative date for the plenary session is 9 th December Timing of requirement for Member States to implement The specifics around deadlines by which Member States must have legislation in place are not entirely clear. The previous draft of the legislation suggested a twophase approach, with Member States required to enact legislation, and Central Purchasing Bodies required to make the full transition to electronic communication by June Given the delays in legislation at the EU level, this timeline is now not probably realistic. The previous draft also included timings for a general obligation to use electronic means of communication in all procurement procedures after a transition period of two years (to have run from the June 2014 date). This two year transition process may be unaffected by the delays in initial legislation. It may therefore be reasonable to assume that the deadline for legislation and Central Purchasing Bodies might slip to June 2015, with the two-year transition phase then running to June 2017; this would be assuming progress of the Directives through the European Parliament in relatively short order. Clearly, if such Directives were enacted, Member States and their procurement organisations would then have a clear and mandated timeline within which to move to a fuller e-procurement system. This would be likely to drive a major uptake of commercial e-tendering Management software and platforms. The next section describes a number of the relevant players in the e-tendering Management software landscape. 20

21 MAJOR PLAYERS IN E-TENDERING Global players with European operations SAP Ariba Ariba was founded in 1996 and was acquired by SAP for US$4.3 billion in October At the time of the acquisition, Ariba was the second largest cloud vendor and ran the largest global trading network, driving more than $319 billion in commerce transactions among more than 730,000 companies. It produced FY 2011 revenue of $444 million, growing at 39% versus FY It had around 2,600 employees, more than 1,100 buyer customers, mainly in the private sector, and 59,000 supplier customers. The aim of the acquisition was for SAP to deliver an end-to-end procurement solution and become the leader in inter-enterprise cloud-based business networks. Ariba combines cloud-based applications with the world's largest web-based trading community (post-award). The group s procurement software, worldwide supplier network, and global support enables its customers to automate all or part of their procure-to-pay process, regardless of backend ERP, purchasing, or spendgenerating systems. Ariba had earlier acquired Procuri, another sourcing solution provider mainly targeting the private sector. Ariba Commerce Cloud for Sellers enables a seller to use a consolidated company profile across all of Ariba's cloud-based, e-commerce solutions. On a single platform, it provides access to potential customers, free buyer-seller matching and tools for participating in buyers sourcing events. IBM Emptoris The IBM acquisition of Emptoris was completed in May At the time of the deal, Emptoris had more than 350 customers (mainly in the private sector) in 75 countries and it was based in Burlington, Massachusetts with offices in the US, the UK, France, Germany, Australia, India, Brazil and China. Emptoris' client base spanned industries including consumer products, financial services, healthcare services, telecommunications, chemical/oil/gas, utilities, construction and industrial manufacturing. Emptoris' spend management solutions complemented the existing B2B integration and supply chain management capabilities that IBM had acquired through the purchase of Sterling Commerce in IBM Emptoris Strategic Supply Management solutions help companies increase savings, improve supplier performance and mitigate risk through a suite of solutions that connect disparate systems and teams to provide greater visibility into and control over spend, contracts, service providers and supplier intelligence and processes. The suite includes solutions for sourcing, contract management; spend analysis, supplier lifecycle management, services procurement and telecom expense management, which can be deployed individually or as a single platform. 21

22 EU-wide EU Supply EU Supply is a Sweden-based e-commerce business that has an established, multilingual e-procurement platform for e-sourcing, e-tendering and contract management, tailored for the highly regulated European public sector market. The platform is provided under a SaaS contract model, which allows the company to maintain only one version of the platform at any time. The platform has been designed to be configurable online to deliver compliance with different EU member state legal requirements, and a bespoke solution to each client s unique requirements without any additional programming or separate hosting. The system is available in 16 different languages and is already used by over 6,500 European public sector bodies. EU Supply is active in public sector e- procurement in the UK, Ireland, Denmark, Norway, The Netherlands, Sweden, France, Lithuania, Portugal, Spain and Greece. The platform has National Procurement System status in the UK, Ireland, Norway and Lithuania. Over 250,000 tenders have been managed on the Group s CTM platform since 1999 and there are over 250,000 supplier organisations currently registered. The software handles more than 75,000 tenders per year, most of which it hosts end-to-end, from specification to award. Bravo Founded in June 2000, BravoSolution has offices in Australia, Brazil, China, France, Germany, Italy, Mexico, Spain, the Netherlands, the UAE, the UK and the US. Its supply management solutions are delivered through software, professional services and category expertise. It has 600 clients in 40 countries, across 18 industry sectors. The group boasts a staff of over 500 procurement professionals in its 15 offices. Bravo reports that there are over 300 supply management suites deployed for international clients, and that over 500,000 supplier organizations are involved in Supply Management processes conducted through BravoSolution technology. Group turnover for the 2012 financial year was 62 million. The client base in the UK includes a number of NHS bodies, DECC and DEFRA. European Dynamics European Dynamics is the creator of the Electronic Public Procurement System (e- PPS) which is an open, secure, interoperable e-procurement modular platform with re-configurable code, addressing the full lifecycle of e-procurement. European Dynamics notes that e-pps complies with both national and EU legislation on public procurement. e-pps is provided either as a Software as a Service or as a stand-alone application installed at the customer s premises. European Dynamics portfolio of ICT contracts, covering a wide range, has a value exceeding 200m. The annual turnover of the group in was in the range of 38m. The group aims to invest around 7% of turnover in R&D. 22