The Danish National Procurement ltd. (Statens og Kommunernes Indkøbs Service A/S - SKI)

1. The Danish National Procurement ltd.(Statens og Kommunernes Indkøbs Service A/S - SKI) EU Public Procurement Learning Lab Paris, March 7th 2005 The Danish Experience - presentation by Mr. Søren Jakobsen, CEO Søren Jakobsen, CEOwww.ski.dk / SJ@ski.dk

2. The Danish Experience .Agenda. • A few facts about the company SKI • The company’s new strategy (as from Dec. 2002) • SKI in an European perspective • Co-ordinated purchasing • Pro-active supplier policies, the local purchasing dilemma and SME’s • The future strategy of SKI • Our electronic tendering system; ETHICS • Comments and questions Page 2

3. A few facts about the company • Established in 1994 as a limited company. • Field of activity • Contributing to greater efficiency in the area of public purchasing by establishing and maintaining attractive framework agreements • Number of employees: 40 • Number of framework agreements: approximately 45 • Owners • Ministry of Finance (55%) • KL, the National Association of Local Authorities (45%) The company is situated in the heart of Copenhagen Page 3

4. A few facts about the company.SKI’s turnover. 2004 +45% (million DKK.) Estimate 2004 Total turnover: 5.100 + 900 = 6.000 m. DKK = 805 m. EUR Result: 9,5 m. DKK 5.128 +23,3% 2004 47% 30% 10% 13% -3,5% +5,8% +8,5% 4.112 4.027 Budget 2005 Total turnover: 5.500 m. DKK = 740 m. EUR Result > 1 m. DKK 3.886 3.712 1998 56% 25% 15% 4% +12,2% +20,4% 3.082 2.748 Page 4

5. A few facts about the company. Turnover breakdown by product areas, 2004. Auditing serv. XY= 342 m.DKK/23,3% Energy Food Telephony & datatrans. Electrical articles Lab. equipment Kicthen hardware %-growth from ’03 to ’04. Furniture Paper Clothing Travel services IT Cover articles Office supply Kilde: Regnskab 2004 Cars Turnover 2004 (DKK) Page 5

6. A few facts about the company. SKI’s focus on products and services. 125 billion DKK Building and construction Roadwork Special software Clothing Cleaning Hospital equipment Window-cleaning Medicine Special hardware Low Craftsman services Eldercare IT operation Hospital articles Ambulance-service & patient transport IT- and management consultancy services Lawyer- and accountant-service Administrative IT-systems Level of Standardization Open Source Handicap aid Advertising SKI’s focus in 2006 Scanning of construction drawings Newspapers/magazines SKI’s focus in 2003 Gas High Electricity Printed matters Food Financial services Travel services 4 billion DKK Cleaning articles Tele- and data communication Office stationary 8 billion DKK IT-standard software Furniture IT for education IT-standard hardware White goods Vehicles Fuel Office machines Large Potential turnover Small Page 6

7. The company’s new strategy (as from Dec. 2002).Mission. • National Procurement Ltd. creates increased returns of scale in public procurement to the benefit of its customers and the welfare of the Danish citizens. • The advantages are secured by maintaining close ties between customers as well as suppliers, but at the end of the day National Procurement Ltd. acts primarily in the interest of the public sector. • The customers are secured a more attractive price and quality than they would be able to obtain themselves, procurement expenses are held to a minimum as there is no need for them to carry out own tenders and electronic procurement systems secure efficient buying. • The suppliers are secured lower costs due to reduced public tendering and reduced marketing costs due to National Procurement Ltd.’s centralised marketing and e-procurement systems. • National Procurement Ltd acts in accordance to commercial principles and at the same time promotes green and energy saving procurement. Page 7

8. The company’s new strategy (as from Dec. 2002).Vision. • By securing attractive framework agreementsNational Procurement Ltd. wants to play a central role in contributing to greater efficiency in the public procurement. • By establishing close partnerships with the public procurement agents National Procurement Ltd. wants to establish and maintain framework agreements that are in demand, make a difference for our customers and strengthens the company. • National Procurement Ltd. wants to improve the professional dialogue and cooperationwith public procurement agents, suppliers to the public sector and consultants. • National Procurement Ltd. is committed to a policy of acting as an innovative and committed employerwith the capacity for attracting maintaining and developing skilled and motivated staff. Page 8

9. Product oriented Introvert Customer focus Framework contracts Passive Defensive Operator A place to work The company’s new strategy (as from Dec. 2002).Vision. Market oriented Extrovert Partnership focus Framework contracts andservices in demand Proactive Active Developer and integrator An effective and challenging job In other words; SKI is in the midst of a fundamental restructuring of the company … Page 9

10. The company’s new strategy (as from Dec. 2002).Strategies and specific action plans. Priority • Discontinue unsatisfactory framework agreements • Strengthen analyses and follow-up • Strengthen user-involvement • Extend co-ordinated purchasing 1. Attractive framework agreements Why? How? • Dissemination of knowledge • Meetings for procurement agents • New marketing strategy • Partnership programmes • Education and training of customers • Offer consultancy • Publish guides to public procurement 2. Partnerships with public procurement agents • By securing attractive framework agreements National Procurement Ltd. wants to play a central role in contributing to greater efficiency in the public procurement • By establishing close partnerships with the public procurement agents National Procurement Ltd. wants to establish and maintain framework agreements that are in demand, make a difference for our customers and strengthens the company • National Procurement Ltd. wants to improve the professional dialogue and cooperation with public procurement agents, suppliers to the public sector and consultants • National Procurement Ltd. is committed to a policy of acting as an innovative and committed employer with the capacity for attracting maintaining and developing skilled and motivated staff • Adjustment of the organisation • Project-groups regarding tendering • Further improvement of qualification • Involvement of employees • Further improvement of management • Benchmarking of efficiency • Secure key qualifications 3. Revitalising the organisation • Customer prioritisation • Differentiated targeting of customers • Prioritise use of resources to match potential turn-over • Partnerships with consultancy firms and architects • Commercial use of ETHICS 4. Focused marketing activities 5. Focus on profitability • Strengthen financial control • Strengthen debtor control • Strengthen employees knowledge of expenditure • Create benefits for suppliers • Marketing in cooperation with suppliers • Consultancy regarding choice of supplier • Precision of demands to suppliers 6. Active supplier-policy • The Public Procurement Portal must function according to demand • Development of an e-procurement catalogue that is independent of e-marketplaces 7. Dissemination of e-procurement • Establish close relationships to: • Shareholders • Interest groups • Trade organisations • Consultants • Media 8. Strengthen closepartner-relationships Page 10

11. The company’s new strategy (as from Dec. 2002). SKI’s turnover and result. Estimate 2004 2000 1999 2001 Years result (in million DKK) 2003 2002 Total turnover from framework contracts (in 1.000 DKK) Page 11

12. SKI in a European perspective.A study of 12 central procurement agencies in 11 countries. • Belgium • Denmark • Finland • France • Greece • Ireland • Italy • United Kingdom • Sweden • Germany • Austria Page 12

13. SKI in a European perspective.The size of the procurement agencies. Relatively small specialised agencies. Consultancy and coordination of tendering and purchasing Focused on framework contracts. All three agencies in this group are limited companies. A more varied group. UK resembles the above group in most aspects. Greece concentrates on consultancy services. Ireland has many other responsibilities – and is therefore a very large organisation. Ireland and France are characterised by a large degree of decentralisation. Page 13

14. SKI in a European perspective.The size of the procurement agencies. DK has the second largest turnover if compared to the size of the population 2.749 Page 14

15. SKI in a European perspective.The size of the procurement agencies. • SKI has relatively few framework contracts • In comparing one must remember that there is a difference in the breadth of the framework contracts Ireland has not supplied data Page 15

16. SKI in a European perspective.The size of the procurement agencies. • SKI’s relatively high turnover and few frame-work contracts results in a high average turnover per framework contract. Page 16

17. SKI in a European perspective.SKI’s characteristics. • The business oriented strategy has resulted in earlier framework contracts that had modest turnovers, were time-consuming or complicated have been unrolled. • The companies’ status as a limited company and the actions of the companies’ board means that the strategy is very focused and that political considerations are reduced to a minimum. • SKI has been spared time-consuming political accounts. Page 17

18. Co-ordinated purchasingSKI’s primary goal. • SKI’s main challenge: How can SKI secure attractive framework contracts, that are better than the contracts that each of it’s customers in the public sector can obtain themselves? • Exactknowledge concerning the customers demands and needs through their active involvement in SKI’s processof generating framework contracts • Co-ordinated purchasing where the customers before and during the tendering process are invited to pool their expected turnovers on the different framework areas • Secure an effective competition amongst the potential suppliers. Page 18

19. One or more customers One or more customers One or more customers One or more customers One or more customers One or more customers One or more customers One or more customers One or more customers One or more customers Co-ordinated purchasing.Basic principle. Large and small SKI-customers both obtain larger discounts and/or lower prices through co-ordination than they could obtain themselves Discount from supplier Additional discount through co-ordination Total turnover Page 19

20. Before the tender During the tender After the tender • Market-analysis • Customer- and • supplier- • analysis • Turnover expectations are distributed between suppliers • Co-ordination with • other customers Co-ordinated purchasing. Co-ordination - before and after the tender. Attractive framework contracts – pooling of expected turnovers • Binding turnover expectations are • collected • Customers are invited to join the process Page 20

21. Pro-active supplier policies, the local purchasing dilemma and SME’s.Goals. • Purpose of the pro-active supplier policies: • Coordinate mutual expectations. • Secure that each and every collaboration between supplier and SKI creates value for the customers. • The suppliers must be secured a benefit from the collaboration. • SKI must be able to ”move customers” between suppliers. • Joint marketing of products and services. • Guidance in choice of supplier. • Emphasize each suppliers special advantages. • Spill over-effect on the public procurement market, and the private procurement market. • Provide an effective and long-term, viable competitive situation on all of SKI’s framework contract-areas. • Involve both local/regional and international suppliers. • Reduce experienced barriers in relation to bidding on SKI’s tenders. Page 21

22. Pro-active supplier policies, the local purchasing dilemma and SME’s.The local purchasing dilemma. Economically most advantageous in a narrow sense (tied to the product or service) Economically most advantageous in a local community sense • Attractive prices in relation to quality • Economical savings • Jobs • Effect on the local community • Maintaining a high level of service in the local community • Tax-base • Preventing depopulation SKI provides this alternative It is tempting to favour the local business sector, but is it really worth it? Is it appropriate to mix policies regarding local business and procurement? The answer is no, because ”wrong” prices result in inappropriate arrangements and adaptations within the public sector as well as amongst the local suppliers. Page 22

23. Pro-active supplier policies, the local purchasing dilemma and SME’sThe local purchasing dilemma: EU. • As a member of the EU, Denmark believes that an intensified competition and specialisation within The European Union will increase the welfare of the citizens. • Notice from the Commission dated 11th of March 1998. • ”(…) The Scoreboard confirmed that public procurement is one of the key areas of the single market where results do not yet meet expectations.(...)” • ”(…) Community-wide competition for public contracts will lead to an efficient allocation of resources and thus enhance the quality of public services, improve economic growth, competitiveness and job creation. (…) (…and…) will help create a system which minimises opportunities for corruption.(…)”. • From an article in the Danish magazine Økonomisk Ugebrev dated 23rd of February 2004. • ”The EU-countries will miss the opportunity to harvest savings on large public procurement spendings, because the internal market is not functioning, when it comes to public procurement. Each country tends to its own national interests, and only in 1.5 percent of all the EU-tenders is it a supplier from a foreign country, that gets the contract. This figure is an estimate by the Commission … but nothing indicates that Denmark is a pioneer in this respect…” Page 23

24. Pro-active supplier policies, the local purchasing dilemma and SME’sThe challenge of the SME’s. • Many SME’s have been recently established and will therefore not be able to document years of stable economic development. • It is difficult for SME’s to keep up with announcements concerning new tenders. • Tenders under the threshold amounts of the EU directives are not publicised • Potential suppliers have difficulties in understanding the EU directives in principle and in practise and find it difficult to enter bids that are of the required quality. • The public tendering process is perceived as long-drawn-out, complex and costly. • Many technical specifications are either inaccurate or too detailed. • The marketing resources of the SME’s are often limited, and the SME’s therefore find it difficult to make the public sector aware of them. • It is often difficult to identify the public decision-makers. • The public sector often has long-standing partnerships with existing suppliers, which means that the willingness to change supplier is often perceived as limited. • The public sector continuously tries to reduce the number of suppliers in an attempt to make the public procurement more efficient, and this makes it more difficult for the SME’s that are met with tenders for larger and larger amounts. • When bids are turned down the response from the public sector is often either non-existent or not very helpful. • SME’s are in a EU-context defined as: • Small enterprises< 50 employees • Small and medium-sized enterprises (SME’s) < 250 employees Page 24

25. Pro-active supplier policies, the local purchasing dilemma and SME’sWhat can SKI do to ease access to public procurement contracts? Before the tender During the tender After the tender • More precise sourcing-strategy • An active attitude towards local/ regional- and international suppliers roles and possibilities • Wider publication of tender notices • Increase communication regarding forthcoming tenders • A plan of forthcoming tenders for the next 24 months will be published on SKI’s homepage. • Meetings will be held with trade organisations and their members where schedules and selection criteria can be discussed. • Strengthen confidence in the contract awarding system • Keen compliance with the rules of treating bidders equally and non-discriminatorily • SKI offers elaborate explanations to all bidders – whether chosen or not • A complaint from a bidder shall not influence the possibilities of the supplier in question in later tenders • Counselling regarding bidding • Courses • Printed information • Tender material made easy: • Better and easier comprehended tender material and guidance • Focus on limiting size of material • Questionnaires with more multiple-choice questions and fewer written answers. • Precise and balanced selection criteria (relevance evaluated) • Effective phase regarding hearing for comments • Avoid lengthening or stopping the tender process. • Shorter contract periods • Package bidding for lots divided into for example geographical segments. • As supplier can bid as itself, as a supplier with connected distributors or as part of a consortium. • Assistance in bringing the contract to market • E-commerce • SKI offers help in distribution of e-commerce catalogues to all relevant portals. • The new EU-directives • An electronic portal for publication of tenders under the threshold amounts of the EU directives is planned Page 25

26. The future strategy of SKI. Primary focus points. 1. wave 2. wave 3. wave Today 2007 • A deepening and broadening of partnerships • Knowledge sharing & value-based leadership • Marketorientation • Revitalisation of the organisation • Processes and systems • Buildingup of competences Page 26

27. Our electronic tendering system. ETHICSElectronic Tender Handling, Information & Communication System [inno:vasion] Page 27

28. Modernising National ProcurementEuropean Union Procurement Focus • eProcurement is seen as a driver towards eSociety ”In view of the rapid expansion of electronic purchasing systems, appropriate rules should now be introduced to enable contracting authorities to take full advantage of the possibilities afforded by such systems...” ”In view of new developments in information and communications technology, and the simplifications these can bring in terms of purchasing contracts and the efficiency and transparency of procurement processes, electronic means should be put on par with traditional means of communications and information exchange.” ”The use of electronic means lead to savings in time. As a result, provisions should be made for reducing the minimum periods where electronic means are used ... ” EU draft proposal dated May 14, 2002 [inno:vasion] Page 28

29. ETHICS Background:The Challenge: IT Tender in 1995 • More than 30.000 pages from 36 vendors • Highly varied formats • Decision process manual – discussing and voting • Contract terms only in paper archives. • ... Extremely cumbersome [inno:vasion] Page 29

30. Scope of ETHICS: The Procurement Process Delivery Logistics Transaction “Buying” Supplier Info Collection Tendering Tender Info Dissemination Contracting ETHICS Buying phase • All phases of the Tendering Process • Contract administration, market analysis, requirement assessments, planning, announcements, questionnaires, execution and evaluation • Best Practices – based on practical experience • Ease of use – intuitive user interface • Based on Standard Software Tools – flexible implementation • Easy Integration with existing System through Open Standards [inno:vasion] Page 30

31. Benefits of ETHICS: Net based Tender Execution Client Features • Browser based clients • Multiple, concurrent language support • On-line announcements • XML based questionnaire design tool • eTendering • Document repository • Off-line capabilities • Digital Signatures • Encryption and Time stamping Internal Tools • Transparent decision support • Collaboration Tools for evaluators • Results based on Gap analysis • Transparent and precise feed back to vendors Page 31

32. Experiences using ETHICS: National Procurement • Productivity doubled with same Head Count • 50% change of Staff • Easy involvement of new users • No Complaints or legal Issues with Vendors • Double-digit growth in turnover on contracts • Highly effective management overview • Effective knowledge management tools • No Complaints • Easy to use/no training needed • Easy to adapt to own working style • More effective tender procedure • Re-use of documents • Trusted on line service Vendor Feedback Page 32

33. ETHICS users outside SKI: • The National Association of Danish Municipalities: Tender for Electronic Document handling – Autumn 2003 • County of Funen Denmark: Electronic patient Journal System – Spring 2004 • Association of Counties + 4 counties in Denmark: Medicine Module for epj – Spring 2004 • UMIC – Digital Task Froce for Portugal: 6 months contract for ETHICS signed April 2004 [inno:vasion] Page 33

34. Our electronic tendering system.ETHICS is a central element in our new strategy. Besides being an exciting business opportunity ETHICS offers: Compliance with EU rules • Complies with thresholds, time frames, methods and standards Efficiency Transparency • Internal productivity • Development and re-use of knowledge and legal terms • Workflow controlled execution • Document Library • Easy involvement of new users • Management overview and control • Growth in turn-over • Strengthen user-involvement and accelerate use of contracts • Efficient use of experts in the evaluation phase • Help customers run own tenders • No complaints from vendors have lead to legal issues • Ability to handle an increasing number of complaints in the future • Involvement of users easy and meaningful Page 34

35. Comments and questions … Page 36