Ippc 6 georgi

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.


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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


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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


© Michael Georgi

Public Pricing System in Germany

Slide 7

5 Price Categories

Market-Price

Fixed-Price

Reimbursement-Price

Conversionable-Price

Cost-plus pricing


© 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)


© 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.


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Empirical Results II: Integrated Model


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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


© 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


© Michael Georgi


© Michael Georgi

Questions?

Thank you very much for your attention!

Business

Ippc 6 georgi