Major responsible institution(s) for procurement on the national level and their function:

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1 3. Country: Germany Structure of the German public procurement system Ministry of Economics and Labour: laws and regulations National level Subnational level procurement highly decentralized Ministry of Defense Ministry of the Interior Other Federal Ministries Deutscher Städte- und Gemeindebund (German Municipalities Association) Federal Office of Defense Technology and Procurement Federal Office for Information Management and Information Technology Procurement Office of the Ministry of the Interior Decentralized procurement Information System on procurement and awarding of contracts Procurement of military goods (except IT projects) Procurement of information and communication systems for the armed forces Procurement of non-military goods and services (except construction) Information on procurement of goods and services by municipalities Procures for 26 federal agencies, foundations and international organizations Major responsible institution(s) for procurement on the national level and their function: Name: The Federal Ministry of Economics and Labour is responsible for the principles, regulations and laws regarding public procurement (Öff. Auftragswesen, Vergaberecht, Preisrecht). Name: Federal Ministry of Defence. Therein, the Federal Office of Defence Technology and Procurement (Bundesamt für Wehrtechnik und Beschaffung) procures military equipment. It is the largest federal procurement agency in Germany. The Federal Office for Information Management and Information Technology (IT-AmtBW) procures ict-systems for the armed forces Name: Procurement Agency of the Ministry of the Interior (Beschaffungsamt des Bundesministeriums des Inneren). The agency is a centralised procurement organisation belonging to the Federal Ministry of the Interior. It handles approx contracts per year with a total volume of M EUR (2003). It is the second largest federal procurement agency in Germany. 1

2 Name: E-Vergabe. Centralised internet platform for e-procurement on the national on federal level. Name: Procurement information system on the sub-national level, counties and municipalities (Vergabeinformationssystem des Deutschen Städte- und Gemeindebundes). Major documents: are there guidelines, toolkits etc. that have an impact on the role of innovation in procurement? In the following you find the formal laws and regulations on public procurement in Germany, these contain no guidelines or toolkits. The first two documents (evaluation and reaction) listed give some information and assessment on these laws and regulations: Evaluation: Analysis and evaluation of the questionnaires and the legal practice regarding the modified procurement law (April 2003): Reaction on the Evaluation: Report of the Government on the modified procurement law (Bericht der Bundesregierung zum Vergaberechtsänderungsgesetz, October 2003): Regulation concerning public procurement (Feb 2003; in German without a reference on innovation, "Verordnung über die Vergabe öffentlicher Aufträge"): New Draft (in German, Oct 2004; Verordnung über die Vergabe öffentlicher Aufträge, Begründung des Gesetztes zur Neuregelung des Vergaberechts): Guideline for public procurement practice (March 2003, in German without a reference on innovation, "Überarbeitete Richtlinie für Beschaffungsverfahren"): On page 2, it is stated, that: "The consumer/procurer has to define his demand with respect to the aims and purposes of the device to be procured. This ensures economic efficiency without restricting products and services with respect to technological specifications and innovations." 2

3 Does innovation play a role somehow in the documents? On the sustainable procurement website ( there is reference that innovation in sustainable products and their diffusion into the market can be fostered by procuring those goods. Sustainability here means not only ecologic but also economic and social sustainability, i.e. also innovation fits in here (e.g. sustainable energy/energy efficiency products). Roadmap Public procurement (in German: Nachhaltigkeit in der öffentlichen Beschaffung): Any principles of procurement as relates to innovation? No, on the contrary, it says in the Frequently Asked Questions section of the National Procurement Agency: "We are pleased about innovative and high-quality products but we don t always buy the best available on the market. We will procure the products which cover our demand most economically. Even if competitors' products are not equal to your product, they might fulfil our requirements better and possibly even cheaper. Thus, please offer adequate products." (Question: my product is outstanding no one else can offer something like that thus, we have to get the contract in any case!) In the current law (from 1999) on public procurement, it says that the interests of SMEs in public procurement contracts need to be taken into account by various measures. Furthermore, the law states that contracts are to be granted not necessarily to the cheapest bid but to the one being most economical with regard to the price/performance ratio. This law was evaluated by way of a survey among the relevant organisations in As a result of this survey the evaluation report notes thought that the law is not regarded as SME-friendly and that procurement contracts are usually not granted to the most economical bid but to the cheapest one. These facts do not suggest that German public procurement is actively fostering innovation. Within the "Innovationsoffensive" initiated by the German chancellor in 2004, guidelines on innovative public procurement will be compiled in These are supposed to foster innovative public procurement on all levels. The interim results of the working party, which includes a section on public procurement, are summarised in Jäkel, R: / Blind, K. (2005): Innovationsfaktor Staat Aktiver Promoter und intelligenter Rahmensetzer (Stuttgart). The measures announced therein contain a special brochure for procurers, high level awareness measures to convince decision makers of the importance of the issue and finally an innovation award for public agencies or departments having procured innovative products or services. Voices from industry back this approach but stressed that they "hope for a more comprehensive change in public procurement". They demand that a brochure with guidelines is to be complemented by a real change of practice supported by training of procurers and commitment of decision makers. Moreover, industry sees a poten- 3

4 tial and in their view negative - trade off between more R&D inducing procurement on the one hand and a reduction of R&D support programmes on the other hand. The relevance of variants in German public procurement All stakeholders interviewed agree that the German public procurement regulations and practice do not support innovations. The MEAT criteria are often applied, but "the price remains overwhelmingly important" (one interviewee from industry). In the perspective of interviewed procurers and industry alike - the central and somehow the only option for fostering innovation through public procurement is a procuring agency authorising variants of the original tendered product/service and the offer of such modified goods and services by potential suppliers. Still variants need to be equivalent to the main offers, which has to be exhausted and proofed by the supplier in a detailed and comprehensible way. The decision in favour of one of the bidders has to be based on the consideration of the most economically advantageous offer. That means, a variant understood as a more innovative solution for a procured good or service has to be either equivalent in quality compared to the original tendered solution and cheaper or equivalent in price and the better alternative in terms of the demanded solution. Beside this, there is only a very limited range of possibilities to negotiate technical adjustments and in the following adjustments of the price for the procurer. All this characterises a rather narrow corridor for the procurement of innovation in which both sides (the procurer's and the supplier' side) have only very limited options to procure and supply innovations respectively. The European Court of Justice has decided that an authorisation of variants is licit only in case the text of the tender contains a minimum requirement for these variants. German jurisdiction is inconsistent here but this is perceived as a major obstacle for procuring innovation or even as a priori exclusion of new and innovative goods and services. "Procurers are in a dilemma: to get a really innovative solution, they cannot be too specific in the tender text, however, for the sake of comparability they need to specify minimum requirements in a way that may exclude really innovative solutions" (an interviewee from industry). Since the variant should make innovative solutions - which could even be completely unknown to the procurer available to the procuring agency there cannot be any kind of characterisation of the innovation. Especially the German construction industry which traditionally makes use of variants most often perceives a problem here that has been worsened by the obligation for clear minimum requirements for variants. One clear hope in the interviews with German stakeholders has been that in the new regulations the transparent, ex ante weighing of the MEAT criteria has been made obligatory, offering the possibility to signal the relative importance of innovative solutions and thus potentially reducing the relative importance of the price criterion. As a result of many interviews with German stakeholders it seems that above all successful procurement processes in Germany are closely linked to informal and 4

5 creative handling of the regulations and the potential suppliers by the procuring agency itself. Therefore, procuring innovation in Germany is basically a question of attitudes on both sides of the procurement process. Any recent structural or changes? For several years the German Bundeswehr has installed for their complex procurement a new approach called Customer Product Management. This entails a pre-procurement market analysis and intensive discussions between suppliers and the procurer. In many cases this procedure demands from suppliers to produce a prototype without having the guarantee to get the contract. Thus, the risk for the public procurer (military) is severely reduced, but suppliers bear the burden of development costs that may not pay off especially as the market for the military is a very specific one. Moreover, the negotiations before the tendering phase are seen critical by the industry as the disclosure of secret technology is asked for without a full guarantee of confidence. In 2004, the Government decided on streamlining the existing law on public procurement to reduce the bureaucratic burdens (im Rahmen der Initiative Bürokratieabbau") and to implement the EU-directives on procurement. Set up of website on sustainable procurement ( Public procurement here is explicitly linked to sustainability and should be used to foster innovative sustainable products by "buying green". Since 2002, the internet platform "public purch@sing online" is available online. By the end of 2005, all federal-level tenders will be made online there, and even municipalities are supposed to use this platform later on (meaning one platform for all public procurement in Germany). By way of this platform the contract notification and award procedures is streamlined. Furthermore, all offers can be handed in electronically then as well, and contracts for goods and services are awarded online. In addition, a virtual marketplace ("Kaufhaus des Bundes") makes it easier for federal authorities to procure their supplies online fast and easy (under framework agreements) and to conclude framework arrangements taking advantage of economies of scale. As one stakeholder from the public realm in German expressed, in the future, this should enable a new organisation by which the users and operative procurers would signal to a central procurement manager what they would need and central, more strategic procurers, with their specialised market knowledge, would aggregate, procure and distribute. This would allow systematic combination of size effects with market knowledge and thus raise the potential for innovation

6 Any reactions to the EU directive (does it make a difference)? By way of the new law on public procurement which was negotiated in 2004 and which will most likely be implemented in 2005, the prevailing law will be modernised and streamlined and the two relevant EU-directives on public procurement will be implemented in German law. Auftraege/vergaberecht-vorschriften,did=43140.html 6