E-procurement in Denmark The Danish Public Procurement Portal is an electronic marketplace to which both private and public purchasers and their suppliers have access and whose functionality, interface, security and transaction costs are regulated by the public sector. Launched on 3 January 2002, it was among the first public procurement portals in Europe. 1 Background National Procurement Ltd. (Staten og Kommunernes Indkøbsservice - SKI) brings together public purchasers and suppliers by negotiating large frame contracts for their customers including approximately 11,500 institutions, ministries and public agencies across Denmark. The supplier s totals 300 suppliers on framework agreements, several with distributors, totalling more than 1200 order addresses in Denmark. The National Procurement Ltd. (SKI) has offered e-procurement for its public users since 2002. SKI is owned jointly by the state (55%) and the National Association of Local Authorities in Denmark (45%). The main task of SKI is to produce framework contracts through tendering for the public sector. SKI makes framework contracts in a lot of areas but especially IT equipment, tele and data communications, electricity, fuel and food has accounted for much of the turnover. The advantage of SKI for the public purchaser is that tendering is done centrally and thus with the greater market have the potential to generate better prices and services than the local purchaser can do on his own. SKI helps buyers avoid the complicated work involved in issuing their own tenders as mandated by European Union (EU) rules for public procurement. Figur 1 Key figures for purchasing through SKI - framework contracts (www.ski.dk) All framework contracts is established according to EU directives for public procurement. The conclusion of the tendering procedure is a selection of suppliers among the tenders. The selection is on the basis of criteria published in the tender material and the offers are not open for renegotiation. Only the public purchasers connected with SKI can procure through the framework contracts. Until recently most public purchasers were free to choose either to procure the products on the SKI framework contracts or do their own tendering but this is all changing now in Denmark.
Procurement through SKI framework contracts is becoming mandatory in Denmark for public purchasers. In January 2007 the Danish Ministry of Finance and SKI made new framework contracts on computers, office furniture, stationary and office machines through tendering. The Ministry of Finance made it mandatory for government purchasers and number of other public purchasers to put their procurement on the new framework contracts. This decision was known already in the tendering process it had a considerable effect on the prices obtained from the suppliers in the tendering process. Sometimes up to a 50% price reduction. The framework contracts were also produced before 2002 but the introduction of e-procurement has rationalised the process considerably for all involved: the suppliers, SKI and the public purchasers. Since January 2007 the mandatory framework contracts has been accessible for public purchasers at the Public Procurement Portal (DOIP - www.doip.dk) on the Internet. The Danish public procurement portal is a web-based marketplace with e-auctions, e-catalogues and integration with back-office systems. It is established and owned by private companies. 2 e-procurement in Denmark at a glance e-procurement is a rather complex process and this analysis will highlight the most important elements in the Danish e-procurement from the supplier side to the public consumer side. The diagram e-procurement in Denmark at a glance can be used as a guide to the analysis, which will include the following elements in overview A. Suppliers - is there an advantage? B. Ethics the electronic tendering system C. Electronic catalogues of goods D. Online procurement systems - The electronic marketplace E. Purchasers is there an advantage? F. Back office systems integrated e-procurement
3 Suppliers - is there an advantage? Of cause the use of framework contract tendering is making the public market an increasingly competitive market for suppliers to the public sector. But the advantages of e-procurement are considerable for the companies which win the contracts. The use of the www.doip.dk means that the suppliers only have to deal with one system integrated the with the many electronic systems and standards among the public customers. Using the DOIP opens for massive reductions in administrative costs for the supplier since all data connected to receiving an order and invoicing can be directly connected to the administrative systems of the supplier. Small suppliers without advanced IT-systems only need access to the internet to be a supplier to the public sector. But before being a supplier to the public sector through the DOIP the suppliers has to win a framework contract with SKI and this is where the meet Ethics the Electronic Tender Handling, Information and Communications System.
4 ETHICS the electronic tendering system In 1995, SKI issued a tender for a three-year frame contract for IT equipment for its public-sector customers. But the tasks involved proved daunting: The Company received more than 30,000 pages of proposals in highly varied formats from 36 vendors. Coupled with cumbersome, paper-based contract terms, the evaluation required many government specialists. Figur 2 Project manager Vagn Andersen at SKI in 1995 with the material from 36 vendors (photo: National Procurement Ltd.) As a result SKI decided to create an automated system that would reuse contractual terms and questionnaires and ensure an open, transparent evaluation process. It needed a comprehensive e- procurement system that would ease the burden of managing public tenders, while maintaining the high levels of security, confidentiality and contractual fairness required by EU guidelines. This is the foundation of the ETHICS -the Electronic Tender Handling, Information and Communications System. ETHICS was developed by SKI in cooperation with IBM and the IBM business partner [inno:vation] and today ETHICS is the first e-procurement system from SKI, which meets the purchasers. ETHICS: A Web-based system to automate tendering processes ETHICS which works with any Java-supported browser is an open, secure Web-based procurement system enabling agencies to plan, execute and evaluate public tenders in compliance with EU-defined legal guidelines. The solution covers all aspects of operating a public tender organization, including the annual planning cycle, and tender selection and timing, plus:
Official pre warning and external tender announcement procedures Daily management issues with work in progress, including online communications with bidders Online, secure tendering using digital signatures Transparent decision making based on a questionnaire design tool Tool for creating questionnaires and integrating them into vendors own systems Reuse of knowledge and templates, contractual terms, questionnaires and forms A comprehensive tracking and exception reporting system that helps control simultaneous tenders Concurrent and multiple language support Although ETHICS was developed by in cooperation with SKI, ETHICS is now owned by IBM and marketed as an IBM product. Ethics is sold to more European countries including Portugal, Malta and Slovakia. SKI has benefited substantially from the solution. ETHICS has speed up processes and make the organization work more efficiently. SKI doubled the number of frame contracts in the portfolio with the same headcount [of specialized consultants], even in a situation with a 50 percent turnover rate of staff. At the same time, since ETHICS has addressed transparency issues, it has virtually eliminated the need for bidders to complain about the outcome of a tender, which helps eradicate potential legal issues. Every step in the procurement process, including approvals, documents, or suggestions, is now logged and nothing can be hidden away. If a vendor wants a thorough explanation of why they were not chosen, for instance, SKI is now in a position to explain that in detail. Ethics is the system handling the tendering procedures in a transparent way. After the selection of the next e-procurement system, which meets the suppliers is the electronic catalogues. Experts on ETHICS Søren Duus Østergaard, IBM SDO@dk.ibm.com ETHICS Konsulent Hans Jesper Ømand på e-mail: hje@ski.dk 5 Electronic catalogues of goods An important element of the services of SKI is the transformation the result of the procurement process into an electronic catalogue of goods. The e-catalogues is primarily XML files, which makes the framework contracts accessible on different e-procurement platforms used by public purchasers. After being catalogued at SKI the information hits the electronic marketplace. The e-catalogues can be viewed by SKI customers at www.netkatalog.dk (username and password is needed). Netkatalog is a viewer to the catalogues but actual procurement is not possible at the site. www.netkatalog.dk can viewed as the shopping centre for catalogues not for the actual goods. Experts on electronic catalogues
Team leader Peter Dam Bové, IT-archtecture, peb@ski.dk 6 Online procurement systems - the electronic marketplace After winning the tendering procedure the goods and services on the framework contract are catalogued and presented on a number of electronic marketplace platforms used by public purchasers. Some platforms are used exclusively by public purchasers and other platforms are open to private purchasers as well. But framework contracts provided by SKI can only be used by public purchasers connected to SKI. The primary e-procurement platform is the DOIP (Den Offentlige Indkøbsportal www.doip.dk The public procurement portal). An e-procurement platform with no public investments www.doip.dk is the result of a close collaboration between the public and private sectors: the public sector hasn't invested anything in the system but solely pays for using it. The agreement entails that the public sector generates the demands for the portal and that gatetrade.net makes the system available against payment per transaction. The actors involved www.doip.dk is operated by "gatetrade.net", which is established and owned by the private companies Maersk Data, Danske Bank, Post Denmark and telecomscompany TDC. The Ministry of Science, Technology and Innovation is responsible for the establishment, which is taking place in co-operation with the Ministry of Finance, who through the Agency for Governmental Management will be in charge of the continued operation. The Agency for Governmental Management coordinates state interests in the public procurement portal. The use of the portal is recommended for all public bodies, but is not mandatory. Based on a framework contract The Public Procurement Portal is based on a framework agreement with Gatetrade. This agreement implies that the public sector defines their demands to the system/portal and that Gatetrade provides a system/portal based on these demands. Gatetrade already hosts the procurement portal www.gatetrade.net - a market place for private companies. E-auctions on DOIP E-Auctions is a novelty in public purchasing offered on DOIP. Public purchasers with a single order of 500.000 Dkr (aprox. 67.000 ) are advised by SKI to make a mini-tender among the suppliers already on the framework contract at SKI. This allows the suppliers to offer prices even lower than the prices in the framework contract. If the purchase criteria is lowest price the tender can be made a an e-auction where the lowest price win. Public purchasers can even pool their procurement with other public purchasers. A coordinated procurement can result in better prices. Using e-auctioning on the DOIP is relevant in relation to Procurement of all goods and service (excluding building and construction) Tendering of framework contracts
Mini-tender on existing framework contracts Public and limited tendering as an extension of framework contracts. E-auctions are only open to vendors already on the framework contracts. To the vendors this insures that no fictive vendor can lower the prices artificially. The interest in eactions is increasing but new regulation and new purchase methods means that it takes time before the potential of this novelty in public procurement is fully exploited. But according to gatetrade there is no rational reason for holding back on using e-auctions. E-auctions: Increase competition among vendors Better prices and quality for the public purchasers Optimize price negotiations with the vendors Insures transparency and equal access among vendors are in line with recommendations from the EU Commission. Results from using e-auctioning has been remarkable gatetrade offer the following examples E-Auctions on saved Clothing 20% 1 year of coffe consumption 35% Steel and tools 21% Fire extinguishing equipment 15% 3 years worth of printing paper 20% Printed materials 15% Steelwire 30% The system The public procurement portal is a web-based system based on Oracle exchange software. The current version supports: e-auctions, e-catalogues and integration with back-office systems. Buyers can be both public and private sector customers. When an order is submitted at the marketplace portal, the workflow is controlled in relation to that order. Furthermore the portal enables all parts to integrate the companies' buy-, sales- and payment terms into their underlying financial systems. This makes it possible for the companies to save money on administration since manual check- ups and other time consuming procedures can be considerable reduced. With a public sector procurement of goods and services for approx. DKK 100 billion per year, even modest improvements in efficiency will be of great value for the Danish society. By virtue of the public sector's purchasing volume, increased use of e-commerce will furthermore contribute to the penetration of e-commerce in Denmark in general. The suppliers will get accustomed to e- commerce and an infrastructure will be established. To secure small suppliers' access, particularly favourable conditions have been made for them. WWW.DOIP.DK the electronic marketplace www.doip.dk will facilitate the purchasers and suppliers' exchange of data, and provide better
possibilities for electronic management of purchases and invoices. Common standard solutions are advantageous for both purchasers and suppliers, as the Public Procurement Portal gives the user one common IT infrastructure with one common set of standards for the trade, to which the public sector units and the suppliers can hook up. The portal includes the processes in the procurement work, during which a company and its supplier exchange electronic data in the forms of orders, invoices, payments, etc. In addition, there are the processes that include the companies' search in purchasing contracts and list prices in electronic forms. Reduced procurement costs are obtained by better utilisation of framework agreements and by ensuring simple access to qualified information about suppliers and their products. Reduced transaction costs for suppliers and purchasers can be obtained by complete or partial automation of the information flow between procurement/financial systems and the suppliers' order and payment systems.. Simpler access routes, as both purchasers and suppliers only have to integrate with one portal. A supplier can reach the whole public sector by presenting his product catalogues on the portal, and the purchaser can access the suppliers on the same portal. Everybody shares the catalogue this way, but only has access to own agreements. Access to DOIP Since this is a completely browser based solution all thats needed to get access to DOIP is an Internet connection. Users sign the agreement granting access to DOIP and shortly after receive a username and a password giving immediate access to DOIP. Experts on gatetrade and www.doip.dk and the electronic marketplace Gatetrade Gatetrade is a privately owned company. Gatetrade is responsible for operating, maintaining and developing The Public Procurement Portal. The use of the procurement portal is based on a framework agreement with Gatetrade. The agreement entails that the public sector sets the demands for the portal and that Gatetrade makes the system available against payment per transaction. For further information please contact: Gatetrade, Tel. +45 7011 0111, - e-mail: info@gatetrade.net. The Ministry og Science, Technology and Innovation IThe purpose of the Ministry is to promote the interaction of trade and industry, centres of research and education and to strengthen coordination in pursuance of industry and research policy. The Ministry has been very active in the preparation phase of the project in which focus was on technology. Additionally, the Ministry has developed an electronic toolkit (The Digital Merchant) that can be used by both public procurement officers and private companies to check their
readiness for e-business. For further information please contact: Head of Division Kim Brinckmann, Tel. +45 33 92 97 00 - e-mail: kbr@fsk.dk. The Agency for Governmental Management This government institution is a part of the Ministry of Finance. Its mission is to contribute to ensuring efficient institutions in central government and subsequently to make the purchasing process in the state sector more efficient. The primary function of the Agency in the portal project is to supervise the rollout of the project in the State and therefore the agency has been involved in both the preparation and the implementation of the portal project. Furthermore the Agency is responsible for developing an integration between the Public Procurement Portal and ERP-systems.. Signe Lynggaard Madsen, Head of the procurement secretariat in the Ministry of Finance, Phone: +45 33 92 26 71, e- mail: slm@fm.dk Henrik Jeberg, Phone +45 33 92 80 00 and E-mail: hjb@oes.dk 7 Purchasers is there an advantage? The advantages for the purchasers are listed at the WWW.DOIP.DK, who as a registered buyer on DOIP gets access to an electronic tool, which consists of e-catalogues, price lists, and net price lists of selected suppliers. This means that buyers only have to access one place to see all agreements with updated goods and prices. In all DOIP provides an easy access to e-business - inexpensive to log on to and simple to use. DOIP provides: Overview of the purchase with regards to supplier and goods through statistics Easy way to see the price by showing examples Improved purchase control with the help of central agreements with decentral buyers One catalogue containing all suppliers Easy method of searching for specific goods - through a good overview of suppliers/goods and a reorder functionality Possibility of seeing which goods carry the environmental label IT-supported transfer of disposal rules Please note that DOIP's functionality provides a variety of possibilities to access both historical and statistical data - for example statistics on accomplished transactions and purchases of the previous quarter. DOIP can be integrated into almost any financial system thereby improving the automation of the purchasing processes - for example invoicing and payment.
8 Back office systems integrated e-procurement Gatetrade is offering an extended version of www.doip.dk. DOIPEI is marketed as the complete solution to e-procurement with a an integration into the back office ERP systems at both the supplier and the purchaser. The integration is adaptable to existing systems and includes e- negotiations and e-auctioning. DOIPEI opens for letting the economic back office system follow all the way form an order to the supplier to the delivery of the goods. The electronic invoice is automatically registered in the system. Navision is the most common ERP back office system in the Danish government and DOIPEI integrates readily. DOIPEI is made as an ASP solution hosted by Gatetrade, so no new hardware is required. DOIPEI is developed in cooperation with the The Agency for Governmental Management in accordance with Danish government electronic standards such as OIOXML, OCES digital signature, EANnumbers and so forth. Electronic Invoicing As of 1 February 2005, all public institutions in Denmark may only accept invoices from suppliers in electronic format. Thus, all public-sector entities have been required to convert all systems and administrative processes from physical to digital handling of invoices, credit notes and other transactions. This reform affects approximately 15 million invoices a year, and applies to the entire public sector, from government ministries to nursery schools. It is expected to save the public EUR 100 million annually, in addition to savings in internal administrative processes. Electronic invoicing requires a transportation system which is the VANS network and an electronic postal address which is an EAN number that identifies each public-sector entity. Suppliers who cannot, or do not wish to, submit electronic invoices can still send them in paper format, with the EAN number, to a so-called Read-In bureau, which converts them to digital XML format and forwards them to the correct public institution. By definition, an electronic invoice is a bill converted to a particular format, which can be read directly by the public sector s accounting systems. This particular format is called an "OIOXML electronic invoice." The project is based on proven market solutions, including the VANS infrastructure and the systems that can receive and process electronic invoices. The compulsory transition ensures a modernisation of the entire payment infrastructure so the old-fashion 'paper channel' is closed for good. It provides security and convenience for the supplier, because all invoices to public-sector customers can be sent in a single, standard format, and it enables the individual public institution to immediately begin the digitalisation of all internal work processes and systems. Experts on ERP systems integration with e-procurement Gatetrade The Agency for Governmental Management This government institution is a part of the Ministry of Finance. Its mission is to contribute to
ensuring efficient institutions in central government and subsequently to make the purchasing process in the state sector more efficient. The primary function of the Agency in the portal project is to supervise the rollout of the project in the State and therefore the agency has been involved in both the preparation and the implementation of the portal project. Furthermore the Agency is responsible for developing integration between the Public Procurement Portal and ERP-systems. Signe Lynggaard Madsen, Head of the procurement secretariat in the Ministry of Finance, Phone: +45 33 92 26 71, e- mail: slm@fm.dk Henrik Jeberg, Phone +45 33 92 80 00 and E-mail: hjb oes.dk 9 Results and impacts The strategy pursued by the consortia behind the Public eprocurement Portal was to select a marketplace where there was a potential for business transactions from day one. This objective was to a large extent fulfilled, given that the Public eprocurement Portal involved itself in an already ongoing electronic marketplace. The potential scope of e-procurement for the public sector was estimated to be DKK 8 billion per year. By February 2004, two years after the launch of the Public eprocurement Portal, the total value of public procurement transactions on the portal was approximately DKK 48 million. 10 Learning Points Despite initially high expectations, adoption of the Public eprocurement Portal in public administration has been low. As a procurement manager of a municipality stated: The Public eprocurement Portal could be beneficial especially when budgets get tighter; while there are huge possible savings, there are also huge efforts to be made to make them come true. During the 1990s the responsibility for individual institutions was decentralized. One crucial issue is therefore whether the economically independent institutions are interested in subscribing to a system that, in principle, centralizes purchase processes and facilitates central monitoring and central control. The 2007 decision by the ministry of finance to make the use of certain framework contracts mandatory for the public purchasers might accelerate the process in combination with a well functioning www.doip.dk.
11 Sources Private companies GateTrade.net a/s Gatetrade is running the preferred public procurement platform DOIP in Denmark. Gatetrade Lautrupvang 6 DK-2750 Ballerup Phone +45 70 110 111 e-mail info@gatetrade.net web: http://www.gatetrade.dk Contact person Inno:vation Is an IBM businesspartner and the developer of the Ethics system. Ethics means Electronic Tender Handling, Information & Communications System [Inno:vation] Forskerparken Symbion Fruebjergvej 3 DK-2100 Copenhagen OE Denmark Phone +45 7022 7007 Fax +45 7022 7008. Web: http://www.innovasion.dk/1.html Contact person Søren Duus Østergård at sdo@dk.ibm.com Public authorities National Procurement Ltd. - Denmark Zeppelinerhallen, Islands Brygge 55 DK 2300 København S Phone.: +45 3342 7000 Fax.: +45 3391 4144 Homepage: www.ski.dk E-mail: ski@ski.dk Project Manager at National Procurement Ltd., Vagn Andersen, Ethics the electronic procurement system, va@ski.dk Consultant Hans Jesper Ømand på e-mail: hje@ski.dk
Team leader Peter Dam Bové, IT-archtecture, peb@ski.dk, electronic catalogues The Ministry of Finance Signe Lynggaard Madsen, Head of the procurement secretariat in the Ministry of Finance Phone: +45 33 92 26 71 e- mail: slm@fm.dk Henrik Jeberg, Økonomistyrelsen Phone +45 33 92 80 00 E-mail: hjb oes.dk The Ministry of Science, Technology and Innovation Head of Division Kim Brinckmann Phone. +45 33 92 97 00 e-mail: kbr@fsk.dk. Helle Schade-Sørensen Phone. +45 33 95 52 36 E-mail: hss@vtu.dk Litterature and websites IDABC (May 2006): egovernment in the Member States of the European Union, p. 221 egovernment Good Practice Framework, Good Practice Database Case: Electronic Invoicing in Denmark URL: http://www.egov-goodpractice.org/gpd_details.php?&gpdid=1848 egovernment Good Practice Framework, Good Practice Database Case: ETHICS: Electronic Tender Handling, Information and Communications System (Denmark) http://www.egovgoodpractice.org/gpd_details.php?&gpdid=232 Helle Zinner Henriksen & Volker Mahnke (2005): E-Procurement Adoption in the Danish Public Sector The Influence of Economic and Political Rationality. In Scandinavian Journal of Information Systems, 2005, 17(2):85 106. URL: http://www.cs.aau.dk/sjis/journal/volumes/volume17/no2/06henriksenmanhke.pdf Gatetrade.dk website: http://www.gatetrade.dk Ethics website: http://www.innovasion.dk/ Staten og kommunernes indkøbscentral (SKI) (URL: http://www.ski.dk/ ) E-tendering solutions: Public E-procurement Platform website: http://www.doip.dk Netindkøb website: http://www.netindkob.dk/ Netkatalog website: http://www.netkatalog.dk/