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Chair of Accounting &
Management Control
„Pricing for Public Purchase –
A Qualitative-Empirical Analysis of Public Procurement
and Price Setting Practices”
Michael Georgi
TU Dortmund University
6th International Public Procurement Conference
Dublin
August 2014
Agenda
Introduction
Slide 2
1
2 Public Purchase System in Germany
3 Status Quo, Research Questions and Methodology
4 Empirical Results
5 Conclusion
Chair of Accounting & Management Control
© Michael Georgi
Introduction
In Germany goods and services for about 360-450 billion Euros are ordered by public
institutions
This reasoned about 17% of the German gross domestic product
[Over 500 billion Dollars were spent by federal institution in the US]
For getting the goods and services in the most economical way, basically two key
questions come up:
1) How do we find the contract partner with the best offer?
2) Is the price appropriate?
Slide 3 Chair of Accounting & Management Control
© Michael Georgi
Public Purchase System in Germany
The need for goods or services is
announced by a public institution
Public procurement Process
Public Pricing Process
Slide 4
Public Procurement and Public Pricing Systems are individual but
connected laws
Public Procurement is a regulatory instrument that helps federal
institutions to generate and decide about the best offer.
Price regulation for public purchase displays a discrete framework to find
the adequate price based on market mechanisms.
Chair of Accounting & Management Control
© Michael Georgi
Public Procurement System in Germany
Slide 5
Public Need
German Law
VOL-A
Bidding
Process*
Direct award of a contract
If bidding process is impossible
Limited number of
bidders
European Law
VOL-A EG
Restricted
Procedure
1. Ability Check
2. Calling for an
offer
Negociated
Procedure
Competitive
Dialogue
Conditions can
be negotiated
Product features
and conditions can
be negotiated
Conditions cannot be negotiated
Open
Procedure
Restricted Procedure
1. Ability Check
2. Calling for an offer
Open
Procedure*
< 207 000€ >= 207 000€
* No communication between potential contract partners
Chair of Accounting & Management Control
© Michael Georgi
Unlimited number
of bidders
Public Pricing System in Germany
Public Procurement Rules refers to Public Pricing Law (§ 2 (4) VOL-A to VO PR
30/53)
„In Public Procurement VO PR 30/53 must be considered.“
Step 1: Ascertainment of Price Category for the specific public order
Are Market Mechanisms Working?
If yes, the negotiated price is fixed
Step 2: If not: Cost-puls Price Calculation
Prices are verified by public price auditors
Slide 6 Chair of Accounting & Management Control
© Michael Georgi
Public Pricing System in Germany
Slide 7
5 Price Categories
Market-Price
Fixed-Price
Reimbursement-Price
Conversionable-Price
Cost-plus pricing
Chair of Accounting & Management Control
© Michael Georgi
prio
rity
market no market
Status Quo, Reseach Questions and Methodology
Status Quo:
Setting is Complex
Area is relatively unknown in research
Pricing law VO PR 30/53 is of 1953
o Different economic structure (services-orientation, globalization, group
corporations)
o Modern (cost) accounting standarts did not exist when the law was
implementeed
Reseach Questions:
How is the pricing system for public purchase executed?
Which Problems occur?
How can they be solved?
Methodology
Qualitative-empirical Investigation based on an Grounded Theory approach
20 interviews (10 within companies, 10 with price auditors)
Slide 8 Chair of Accounting & Management Control
© Michael Georgi
Empirical Results I: Who is concerned?
structure of companies: mostly defence industry, R&D institutes, PPP companies,
IT companies
structure of public orders:
Basically any kind of goods and services
Growing need for service
Cost-based pricing occurs more often for military equipment, IT solutions as well
as R&D services.
o Because of a high level of specialization market mechanism seem to fail
here more often.
A high dependence on public contracts can be seen especially in R&D, PPP as
well as military companies.
Slide 9 Chair of Accounting & Management Control
© Michael Georgi
Empirical Results II: Integrated Model
Slide 10 Chair of Accounting & Management Control
© Michael Georgi
Determinants
• Company-Internal
• Size and branche
• Type of organization
• Dependence on public contracts
• Knowledge
• Professionalism
• Experiece with price audits
• Public Order
• content
• duration
• Public Institution
• Knowledge about VO PR 30/53
• Price Audit competencies
• Price Auditors
• capacities
• Date of price audit within the process
Design
• Public Procurement Regulation
• Connection with Public Pricing regulation
• Public Pricing
Effects
• Price Category
• Size of Price
• Experiences with Price Regulation
• Negative Effekts
• Back payments
• High effort
• Heterogenity of decisions of price auditors
• Disadvantages for service companies as well as SME‘s
Empirical Results III: Reasons for negative effects
Connection of Public Procurement with Pricing Regulation
Pricing System and Cost-based Pricing Calculation norms are not
adaptable to the current economy
Uncertainties within the companies
Uninformed public institutions and companies
Differing decisions of price auditors
Decreasing acceptance of public pricing rules
Slide 11 Chair of Accounting & Management Control
© Michael Georgi
Conclusion
This study gives a first holistic empirical overview
that integrates public procurement and price setting practices
that identified various needs for further research:
More detailed empirical and normative investigations
o Connection between public procurement and pricing regulation
o Rework of the Public Pricing System including Cost-Plus Calculation
Norms
o Development of Price-audit standards
International comparative investigations
o Procurement is already unified on a european level, pricing system is
not
o Best Practice might help to solve problems
Slide 12 Chair of Accounting & Management Control
© Michael Georgi
Slide 13 Chair of Accounting & Management Control
© Michael Georgi
Questions?
Thank you very much for your attention!
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