examples are on the one hand the outsourcing of big parts of the public ... corruption, the misuse of (market) power and the pursuit of political objectives, a legal.
Public Performance Contracting Andreas Glas
Public Procurement of Services Public organizations are operating production or more generally business processes to conduct public tasks. Although the state’s responsibility can be explained with economic theories, namely the theory of public goods, natural monopolies and the free rider problem, the public organizations conduct public tasks which depend on the political-social interpretation of the public interest. Therefore public tasks considerably differ in character and complexity depending on the political system or government (Eichhorn 2001, p. 410). The broad scope of public tasks ranges from security services, e.g. police or fire department, to social or health care services, educational services and sovereign mandatory services of the judiciary or administrative activities like taxes and fees, population statistics, employment services and so on. Apart from some exceptions most of public business processes are providing services for the citizens (Reichard, 2002, p.27). Either in the public or private sector goods and services have to be acquired as a precondition for the execution of business processes. The function of public procurement is to guarantee the supply of public organizations with required goods and thus to ensure public performance in all areas of public duties and responsibilities (cp. Arnold, 1997, p.3). The high relevance of public procurement results from the public procurement volume in Germany of about € 260 billion (BMWi/BME 2006, p. 8). This corresponds with a share in the gross domestic product (GDP) of 11.6%. In the European Union the average is about 16.3% and goes up to the point of 21.5% of the GDP of a single member state (Europe, Portal of the EU-institutions 2007). Altogether the European Union spends € 1550 billion for public procurement (Commission of the EU 2007). The share in the total procurement volume of services in contrast to material goods depends on the line of business and is between 25 and 50% (Thiell 2006, p. 1). Assuming similar rates for the public sector, the procurement of services stands for at least € 65 billion every year. Additionally the importance of complex services in terms of business process outsourcing or service solutions will increase, due to the rising number of outsourcing projects in recent years (Proll/Drey 2006, p.6). Two striking examples are on the one hand the outsourcing of big parts of the public administration in the Great Britain district East Riding or on the other hand the contracting of private sector enterprises to perform the logistical support for the Armed Forces within Germany (Behördenspiegel 2006). The high relevance of services is backed with the results of a study made by the Center for Advanced Purchasing Studies (CAPS) in 2002: “[…] services continue to be a large untapped profit lever in today’s enterprise“ (CAPS Research 2002, p. 4). In view of scarce public budgets and the rising number of public tasks the potential of a more efficient public procurement function is immense and possibly offers politicians and public managers a financial and political scope for decision-making (cp. Brede 2005, p. 106).
Due to a wide variety of motives, e.g. the creation of market survey, the prevention of corruption, the misuse of (market) power and the pursuit of political objectives, a legal framework for public procurement activities has been created (Hertwig 2002, p. 2). In contrast to the private sector public procurement law sets the regulations for procurement activities in the public sector. Some central principles of the procurement law, particularly the principle of efficiency, are aimed at an economically most efficient procurement. Against it other principles or regulations prevent or constrain the usage of modern procurement management concepts. One conflict exists e.g. between the principle of competition and the concept of long-term buyer-supplier relationships (Essig 2005, p. 2). The economic optimization of public procurement would require an adaption of the public procurement law. Indeed the public procurement law intends non-economic objectives as well. Therefore a reasonable further development of public procurement law must base on a precise analyse of all (non-economic) factors of influence and a reliable theoretical concept. Likely the adaption of the public procurement law is only possible via long-term and complex juridical
and political processes. In the meantime the task is to optimize the procurement management within the existing legal boundaries. (Ilius 2004, p. 6). In contrast to procurement of private sector enterprises research didn’t recognize public procurement management very much (Eichhorn 2001, p. 409). A comprehensive literature research of publications on public procurement in the last 30 years shows that only some articles really treat economic questions. Most publications are concerned about judicial or social-political aspects of public procurement, almost none of which contributes to a basic theory of public procurement management (Bogaschewsky 2003, p. 25). The majority deals with special issues, e.g. public procurement of hospitals or universities. Even if public procurement is getting more and more into the focus of practice and research, a fundamental theoretical framework for public procurement management still doesn’t exist. As regards the research contents the understanding of public procurement is divers and unclear. Oftentimes authors focus very strictly on the public procurement law, naming this approach in contrast to the term public procurement the „regulated procurement“. (Ilius 2004). Legal restraints are important influence factors, but the general precondition for management decisions is a leeway with a sufficient scope of decision-making. To raise efficiency it is therefore necessary to broaden the scope of analysis. All relevant factors, not only the legal regulations, have to be considered to make public procurement management more efficient. (Thom/Ritz 2004, p. 26). Indeed the rapid or maladjusted transfer of ideas and concepts from the private to the public sector is not advisable (Reichard 1998, p. 53, Schedler/Proeller 2006, p. 42). The mentioned facts and arguments reveal the relevance in theory and practice for more research on public procurement, whereas the focus in a narrower sense is on public procurement of services.
Research objectives and methodology Business administration as an applied science aims at theoretical but also practical research findings (Schanz 1977. p.76). Thus there is a distinction of fundamental (theoretical) and application-oriented research (Ulrich/Hill 1976), p. 305). Due to the few fundamental research work done on this heterogeneous field of public procurement one concern is to give a conceptual framework for public procurement. This objective is part of fundamental research (theoretical objective I). On basis of this concept the public procurement of services shall be analysed to specify this object of research and to identify problems, relevant factors and interdependencies between them. Particularly outsourcing decisions and very complex services or service bundles will be of interest. The objective is to analyse the procurement of services as one important strategic option for public buyers. This objective is as well part of fundamental research. (theoretical objective II). As an applied science the next objective is concerned with the management of service procurement in the public sector. On basis of the foregoing analysis and the two more theoretical objectives it is intended to develop a management approach for a more efficient and effective public procurement of services. This implies adequate methods and instruments for all phases of the management process. One main focus is on the management, planning, measuring, controlling of service quality for complex services in longterm buyer-supplier relations. Therefore this management approach is called Performance Contracting. This objective is part of the application-oriented research (pragmatic objective). To achieve these objectives it is necessary to develop a theoretical and fundamental framework or conception for public procurement. A conception doesn’t emerge from experiential knowledge but rather from deductive conclusions (Chalmers 2001, p. 41). Conceptions are related to theoretical patterns of explanation (Stölzle 1999, p.146). By using and developing a conception this thesis takes a factual-analytical research strategy (cp. Grochla 1978, p. 78 et. seqq.). Grochla distinguishes three different research strategies to reach new conclusions on the way to form theories: The empiric, the formal-analytical and the factual-analytical approach.
The factual-analytical research strategy tries to develop new conclusions via existing theories and concepts in making reasonable and plausible deductions. Some specific concepts and models are used for the identification of possible coherence. This approach is heuristic, but appropriate for this topic. Even if public procurement hasn’t been in the focus of researchers, it is possible to refer on research results in related fields of interest, likely public management and particularly private sector procurement management. In order to reflect research findings it is intended to make at least two empirical references in form of a brief study in cooperation with the Research Center for Law and Management of Public Procurement in Munich and one case study. Expected results This thesis is concerned with public procurement of services and therefore has to address economic, legal, organizational, administrative and at least political issues. Due to the differentiation of public buyers and procurement procedures, political procurement objectives, indirect customer-relations, the characteristics of services and other aspects the complexity of public procurement is expected to be much higher than in the private sector. However this thesis tries to contribute to public procurement theory and expects to reveal some key findings: - Identification of demand definition and performance management (supplier evaluation) as the most important parts of the public procurement process. This means a shift from the focus onto the public procurement procedures to other more strategic activities of public procurement. - Development of a public procurement conception concerning all phases of the procurement process as well as strategic and operative activities. - Conclusions about the astonishing importance of provided services for the public sector, e.g. effects for the value chain / supply chain, effects on the n i formation asymmetries and effects for the cost structure. - Development of a management approach for the procurement of services, with instruments for the evaluation of required service quality, for cost/prize evaluations, for the development and measurement of performance indicators etc.) (Performance Contracting) - Recommendations for the long-term adaptation of public procurement law. References
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