Electronic tendering process of the City of Mainz

01. September 2002



In October 2001, Mainz city council implemented Europe’s first electronic opening date for a public tender. In doing so, the ELViS platform of the subreport Verlag Schawe was used, which is the only solution so far to support the tendering process from the point of announcement through to the opening date. Since then, the City of Mainz has consistently used the system and is hoping for significant cost savings as a result of a constant increase in the proportion of electronically processed public tenders.


1. The City of Mainz

The City of Mainz can look back on a more than 2000-year-old history and has almost 200,000 inhabitants. The city council has a workforce of approximately 4,500. Owing to the shortage of funds in the public coffers, economical and efficient procedures are crucially important to Mainz.

The city council procures goods and services to the value of approximately €75 million annually. Of this, € 50 million is spent on services with an individual order value of more than €10,000, which have to be put out to tender by the city council’s Central Office for the Award of Public Contracts. € 25 million are spent on small orders which are directly and informally processed by approximately 60 different offices and independent companies. The Central Office for the Award of Public Contracts currently has a workforce of six following substantial staff cutbacks.

Basic principles of public procurement
A comprehensive set of rules exists for the awarding of public contracts, which prevents the direct application of the mostly private-sector e-procurement solutions. The Law against Restraints of Competition (GWB) lays down general principles and forms the basis for the Regulations for Awarding contracts (VgV). Here procedures for awarding contracts are laid down and reference is made to the contracting regulations for the award of public works contracts (VOB), for the award of freelance service contracts (VOF) and for the award of service contracts (VOL).

The general procedure for tenders is laid down in the award procedures. A distinction is made between public and restricted tenders and contracts made by direct agreement. The procurement solution presented in this case study refers to public tenders. Responsibility for the institutional organisation of the award of contracts at a municipal level lies with the respective local authority. The City of Mainz chose to set up a Central Office for the Award of Public Contracts, where six employees award all contracts over €10,000.

The approval for electronic bidding with respect to public tenders was made possible by § 15 of the new VgV, which came into force in February 2001. In addition to the qualified electronic signature in accordance with the German Signatory Law (SigG), it is stipulated therein that electronically submitted bids have to be encrypted. This encryption must be maintained until the stipulated time period for the submission of bids has expired, whereby premature opening of the bids is to be prevented.


2. e-business vision and e-business strategy

The City of Mainz has been trying to use the instruments of the “New Economy” for some time. The procurement solution presented here represented one of several modules.

Under the buzzword “Town Hall Online“, the city council has been offering citizens and other user groups a variety of information and services in the Internet for quite some time. The range of online services which are currently on offer allow users to download forms and brochures, reserve requested vehicle number plates and order birth certificates online.

In the field of electronic procurement, the main focus is on reducing processing costs. It is also hoped that improvements will be achieved for the companies involved as well as a reduction in tender prices.


Partners
The e-procurement solution was implemented in cooperation with the subreport Verlag Schawe GmbH and the Chamaeleon joint-stock company for innovative network solutions.

subreport Verlag Schawe GmbH
Subreport Schawe specialises in the research and processing of tendering information. Approximately 650 new invitations to tender from private, commercial and public clients appear in various publications each day, whose volume comes to around € 230 billion annually.

The Schawe Verlag was founded in 1918. Since 1989, all products have been marketed under the brand name subreport. Parallel to the established media of subreport and subreport select, the company started using the Internet consistently in the mid nineties and now has the largest online database for tenders in Germany, which can be found at www.subreport.de.

The subject of this case study is the electronic award information system subreport ELViS. The system facilitates the award of the contract via Internet and covers the award process from the call for tenders up until the contract award.

Chamaeleon – joint-stock company for innovative network solutions
Chamaeleon AG is an IT full-service provider based in Montabaur. The company specialises in the conception, creation and operation of database-oriented high-end networks solutions, especially in the Internet. The solutions portfolio is characterised by terms such as e-government, e-support, e-business and the integration of web applications.

During the development of the system, Chamaeleon AG covered all phases from consultancy and technical evaluation, to implementation of the solution. Since the subreport ELViS was put into operation, it hosts the system (ASP model), guarantees smooth operation and carries out continuous further development. Chamaeleon AG also operates the hotline for subreport ELViS.


Choice of partners
While searching for a possibility to achieve cost savings through electronic procurement, it turned out to be a problem that of the over 20 consultancy and software companies consulted not one of them offered a solution that would completely meet the needs of public procurement. In particular, the requirements stipulated by VOB and VOL for submitting a bid could not be covered. Where the informal submission of a bid by post or e-mail normally suffices for private-sector tenders, the regulations for public administration require that the bids are kept secret until the fixed opening date and that the security principle is observed during the opening process. For this reason, only the distribution of the tendering documents and not the acceptance of bids could have been supported using the majority of the solutions available.

Subreport Schawe was the first (and is to-date the only known) provider with whom complete support of the process from the call for tenders through to the opening date is possible. As the system was set up for free, the launch also only constituted a minor risk for the City of Mainz. In addition, the company’s excellent reputation and its decades of experience in the field of public tenders were good reasons for choosing subreport.


3. Procurement solution

In principle, a distinction must be made between internal processes carried out in preparation for inviting tenders, which are distributed between approximately 60 different offices and institutions belonging to Mainz city council, and the tendering process, in which The Central Office for the Award of Public Contracts and external providers are involved. The tendering procedure is subdivided into the announcement of the tendering documents, submission of bids and the opening date. Fig. 3.1 refers to tenders which are processed centrally via the Office for the Award of Public Contracts of the City of Mainz as their volume extends to more than €10,000.

Fig. 3.1: Phases of the tendering process
Fig. 3.1: Phases of the tendering process



Existing processing system for public tenders
To begin with, the procedure which was in place prior to working with subreport ELViS is explained. The changes will be discussed in the subsequent chapters.

Tendering preparations
The tendering documents – known as the specifications – are first prepared in the institution of the City of Mainz in which the procurement need exists. They consist of a cover sheet, terms of contract, technical conditions, a description of the expected service and, if applicable, the necessary forms, and comprise around 100 pages on average. After completion, a draft of these documents is sent by courier to The Central Office for the Award of Public Contracts, where a pre-inspection is carried out. The pre-inspected copy with the relevant comments is then sent back to the procuring office, so that they can prepare a fair copy. This is then duplicated and rechecked at the Office for the Award of Public Contracts before the announcement text can be prepared. On average a total of 18 days elapsed by then, a large part of which constitutes postal transit times and reproduction.

Call for tenders
The announcement texts drafted by The Central Office for the Award of Public Contracts contain the key data for the public tender and are designed to attract the attention of potential bidders. They are published by various publishing houses. Since 1999, the announcement texts have also appeared on the City of Mainz’s website. Interested companies can obtain the tendering documents from the city by paying a token fee. On average the specifications are requested by around 15 prospective bidders and are issued in duplicate, which corresponds to a paper volume of approximately 3,000 pages per tender.

In the course of the tendering period, which lasts 20 days as a rule, on average 10 companies submit a bid in the form of completed specifications. These tenders remain unopened until the tendering period is over.

The submissions manager and his assistant only start sifting through, checking and evaluating the specifications when the opening date starts. In order to avoid irregularities, the security principle has to be maintained during the process. The most favourable bid is selected and an appropriate contract is awarded. The remaining bidders receive a rejection letter.


Use of subreport ELViS in the tendering process
The procedure for the tendering process is largely stipulated by laws and regulations. One of the key requirements is therefore to generally leave the procedure unchanged, but to support the individual steps in such a way that a significant increase in efficiency can be achieved.

Fig. 3.2: Support in the announcement phase
Fig. 3.2: Support in the announcement phase


Announcement
All public tenders are now prepared using ELViS. For this, both the announcement texts and the specifications are loaded onto the ELViS server. During this process each tender is allotted a clear ID number. The company subreport publishes the announcements in the media it publishes together with this ELViS ID (offline media) and/or a hyperlink on the tendering documents (online media). The Office for the Award of Public Contracts can also set up a mailing list, via which the announcement is sent by e-mail to other publishing houses for publication. The publishing houses are requested to also publish the ELViS ID with the announcement.

Submission of bids
A provider who is interested in a certain tender has the possibility to obtain this directly from the ELViS server. To do this, he/she enters the appropriate ELViS ID under www.subreport-elvis.de or follows the hyperlink in the online publication. To pay the token fee he/she has to submit a direct debit declaration and can then download the documents.

After supplementing the specifications with a price and other details, this can be submitted by the bidder as an offer. To do this, he/she loads the relevant document onto the ELViS server. It is possible to retrieve and amend bids up to the opening date. In the latter case, the bidder loads an updated version onto the server.

Fig. 3.3: Support in the bid submission phase
Fig. 3.3: Support in the bid submission phase


In general, the Office for the Award of Public Contracts has the possibility to restrict the number of bidders taking part in the tender. If this option is chosen, a bidder must already be authorised by the party calling for tenders after entering the ELViS ID. An appropriate function is implemented in the ELViS system and is used in isolated cases by the City of Mainz to exclude companies who are not sufficiently competent or efficient at an early stage. If authorisation is refused, the direct debit declaration, download, bid preparation and submission phases no longer apply.

If it is necessary to make changes to the specifications during the tendering period, a revised version can be published on the ELViS server by the Office for the Award of Public Contracts. All bidders who have already downloaded documents are informed by e-mail, receive access to the new version and can update any tenders already submitted.

The City of Mainz currently operates its public tenders using the hybrid process, i.e. in addition to the described support by subreport ELViS, it is still also possible to obtain tendering documents using conventional means and to submit bids by post or in person.

Opening phase
The submitted bids are protected by an electronic time lock and cannot be viewed by staff at the Office for the Award of Public Contracts until the stipulated opening date. It is only possible to open bids after the time limit has expired. To do this, both the submissions manager and his/her assistant must be logged into the system, in order to guarantee that the security principle is observed. The bids submitted via ELViS are then downloaded and read. The bids which have arrived in paper form are also read. Finally, the most favourable bid is selected. The opening date ends with preparation of the submissions protocol and the letter of acceptance or refusal and their provision on the ELViS server. The bidders are informed by e-mail about the availability of these documents.

Fig. 3.4: Support in the opening phase
Fig. 3.4: Support in the opening phase



Making changes during tendering preparations
Although use of subreport ELViS does not directly affect the preparation of calls for bids, significant improvements have also occurred in this area. The necessity to have all documents for electronic tender available in a digital form, has now led to the exchange of documents between the Office for the Award of Public Contracts and the procuring offices and institutions by e-mail and no longer via couriers. The technical possibilities for this were already in place for this before, but only seldom used.


Security mechanisms [security]
Public tenders must meet high security standards, both with respect to keeping secret the transmitted information and protecting it from wire tapping and guaranteeing the conclusive authentication of the parties inviting tenders and the bidders. Therefore, state-of-the-art encrypting processes and a qualified electronic signature subject to the Germany Signatory Law are used for subreport ELViS. Data is transmitted via the Internet exclusively in an SSL-encrypted form. In addition, all bids are coded by the bidder prior to upload with a 1024 bit key and are only stored on the server in an encrypted form. In this way, it is guaranteed that nobody can read the documents apart from the intended addressee – not even the staff of the operating company of subreport ELViS.

All exchanged documents are signed electronically, so that the author can be verified beyond reasonable doubt and interim manipulation can be ruled out. To do this, all those involved in the procedure have a PKS chip card (PKS = Public Key Service). When uploading documents this is inserted in a card reader connected to the PC and it creates a qualified electronic signature. When uploading the tendering documents, the card also encrypts the documents. To protect against abuse, the PKS card is protected by a PIN code and access to it can be blocked round the clock at the issuing certification office.


4. Implementation

The launch of the ELViS system at Mainz city council only required minimal inverstment and could be implemented quickly.


Organisational changes
Owing to the basic legal requirements for public procurement, the possibilities for reorganising procedures are very limited. As the launch of the ELViS system in the City of Mainz therefore did not give rise to any procedural changes, the parallel operation of online and offline processes turned out to be virtually problem-free.

Acceptance of the system by the staff of the Central Office for the Award of Public Contracts was assured through their participation in the selection process at an early stage. When logging into the system for the first time, employees from subreport were on hand to guide users.

Producing acceptance from the bidding company turned out to be difficult. This is attributed to a lack of experience in dealing with the utilised information technology, especially with electronic signatures and digital encryption. By explaining the system and the associated benefits, the proportion of electronic submissions could, however, be continually increased. The first electronically awarded contracts are also having a positive effect in terms of increasing acceptance. Should questions or uncertainties arise, the bidding companies can contact both the Office for the Award of Public Contracts and the ELViS hotline.

The first call for tenders using ELViS was carried out in October 2001. The use of digital documents associated with the system’s launch led to the decision in March 2002 to only process preparations for tender by e-mail in order to avoid media breaks.


Technical platform and architecture [system architecture]
The architecture of the ELViS system is based on the application service providing model (ASP). ELViS is operated on a server at Chamaeleon AG. The connection to the system is established via the Internet.

The technical requirement for users is a PC with 266 MHz Intel Pentium II processor, at least 64 MB main memory as well as a windows operating system and a standard Internet browser. In addition, a card-reading device and a PKS card must be available. The required browser plug-in that contains the software eSigner for the electronic signature can be downloaded on the subreport website at no charge.

As no cost and maintenance-intensive software has to be installed at the user’s premises for the ASP model, the launch and follow-up costs for hardware and software are low. Due to the legally prescribed standardisation of the tendering process, ELViS can be utilised by new users, without having to be adapted to individual conditions beforehand. Software updates only have to be installed on the central server at the premises of Chamaeleon AG and are immediately available to all users.


5. Operation

Subreport ELViS has be in operation since 22 May 2001, coinciding with the entry into force of the amended German Signatory Law, and is now used by almost 70 offices inviting tenders. The platform is operated by Chamaeleon AG on behalf of the subreport Verlag Schawe.


Allocation of tasks
subreport online and subreport ELViS take on the role of a neutral mediator between parties inviting tenders and the bidders. The system can therefore be termed an electronic tendering marketplace

Fig. 4.1: Allocation of roles and functions in the electronic tendering system
Fig. 4.1: Allocation of roles and functions in the electronic tendering system


Fig. 4.1 shows the distribution of roles and functions in the tendering process:

  1. The office calling for bids loads the announcement text and the specifications into the system.
  2. Providers search for the relevant calls for bids.
  3. Interested providers download the tendering documents upon payment of a token fee.
  4. Providers load bids into the system.
  5. After the tendering period is over the office inviting the tenders downloads the bids.

A further important role is taken on by the Trust Center TeleSec. TeleSec is responsible for issuing and administering the PKS cards and is used by all the parties involved as a trustworthy office for authenticating their communication partners. The PKS cards issued by TeleSec are not restricted to use for subreport ELViS, but can also be used in a any other connection for signature or encryption.

As subreport ELViS is an open system, anyone who is in possession of a valid PKS card can use the system in principle. The user administration in the City of Mainz is limited to the allocation of internal roles such as submission managers, submission assistants, planners, etc.

Payment processing is not carried out using subreport ELViS. Only the token fee for the tendering documents is levied with the aid of the electronic direct debit process. The reporting functionality of the system is restricted to an overview of the status of interested parties and bidders and to supporting creation of the submissions protocol.


Benefits
From the point of view of the City of Mainz, direct savings in reproduction and forwarding have been achieved from using the system. The lower staff expenses have been much more noticeable than the reduction in materials and postage costs. In the medium term it is hoped that the range and attractiveness of the tenders will increase. The resulting increase in competition between the providers could lead to a reduction in procurement prices. Whether this effect actually occurs cannot be judged yet at the present time. Indirectly use of subreport ELViS has contributed to an improvement in the tender preparation process. Here above all the faster throughput time, the reduction in media breaks and the savings in courier services are worth mentioning.

On the side of bidders there have also been improvements in the preparation and forwarding of documents. It is hoped that these benefits will motivate as many providers as possible to swiftly change to the online procedure.

For both parties a special benefit has arisen through the utilisation of electronic specifications where standardised formats are used (currently especially GAEB for the construction industry). Here, it is possible to import data directly into the corresponding software and process it further.


Costs
The use of subreport ELViS is free for all parties involved and is possible without membership. Providers only pay a fee for downloading the tendering documents, whose size is identical to that for obtaining the paper documents using the offline procedure. This charge is paid to subreport Schawe rather than to the City of Mainz.

Parties inviting tenders and bidders require a chip-card reader for the PKS cards. These are available from various providers at prices in the region of € 40.00. The PKS cards are issued by Trust Center TeleSec and can be ordered from any T-Punkt (Deutsche Telekom shops). In order to make purchase easier for providers, the City of Mainz and subreport have had themselves certified as the issuing office. Issue of the chip card is subject to a one-off charge of around € 27.00 and the annual fee is approximately € 50.00. For providers it is sufficient as a rule if one member of staff has a PKS card. On the part of the party inviting tenders at least two persons must be equipped with one (submissions manager and submissions assistant).

  • Profitability

Each tender which is processed using the online procedure means an economic benefit for the City of Mainz, as the costs saved by doing so clearly exceed the revenue shortfall caused by transferring collection of the tendering fee to subreport ELViS. The very low launch costs for creating PKS cards and reading devices had already paid for itself after a short period.

As bidders are only changing to the online system relatively slowly, the proportion of bids submitted via ELViS is still very small at present. This is currently preventing a reliable quantification of the overall benefit to be expected. On the part of the City of Mainz, a reduction in process costs of between 20% and 50% and a reduction in prices of up to 10% is deemed possible in the long term. They are also thinking about shortening the tendering periods as soon as bidders start to use the system on a suitable scale.


6. Success factors

Even if a large proportion of bids are still submitted using conventional means, the ELViS launch can already be called a success.


Specialities of the solution
According to market enquiries by Mainz city council, ELViS is currently the only system that supports the complete tendering process up to the dispatch of the letter of acceptance and rejection. Through the ASP model and system requirements that are met by virtually any PC, only the costs for the PKS procedure are incurred by the parties inviting tender and the bidders. This can also be used for other purposes. At Mainz city council they are for example considering launching a catalogue system for office materials procurement, for which PKS cards can also be used.

Resistance from the bidding companies, which are attributable to minimal experience with the utilised procedure, can mostly be broken down through explanation and demonstration.


Changes
The complexity of the hybrid system is minimal due to the similarity between the process steps. With each bidder who prepares his/her bid using ELViS, the costs compared to the conventional system are reduced. The danger of manipulation is cited as minimal in the online procedure.

As the bidding companies are only gradually switching to ELViS, the changes in the preparation of tenders are carrying the most weight at present. Here the time-consuming and cost-intensive paper-based processes are being replaced by a considerably more efficient e-mail-based system.


Lessons Learned
The decision to choose ELViS was preceded by a long process at the City of Mainz, which was characterised by the observation of legal developments, numerous discussions with system providers and the analysis of technical feasibility. They are therefore all the more satisfied with the result. The launch of ELViS went off quickly and smoothly. The response from users is equally positive at the city council and amongst bidders. In particular the outstanding support offered by subreport Schawe and Chamaeleon AG is emphasised. It has already been possible to attract bidders through the system who had not previously taken part in public tender campaigns organised by the City of Mainz. In the medium term, it is hoped that competition will intensify and bid prices will fall. The fact that neither long-term obligations have to be entered into nor do high investments have to be made represents a considerable plus point for the City of Mainz. The market is still being carefully monitored for procurement solutions.

The launch of ELViS was carried out on the initiative of the Central Office for the Award of Public Contracts. The stated activities could be implemented without external support. The use of additional personnel would be sensible though, to be able to attract even more bidders to use ELViS, and thus to increase the proportion of electronically submitted bids more quickly.

The launch of ELViS has prompted a great deal of interest in professional circles. This is due, amongst other things, to the high transferrability of the solution to other institutions. Potential customers who have contacted the City of Mainz also include decision-makers from politics and commerce in addition to other local councils.

The case of the City of Mainz and subreport ELViS demonstrate the high potential of electronic procurement in the public sector. Owing to their extremely positive experiences in the field of tendering, the City of Mainz is considering introducing other procurement innovations, such as the use of desktop purchasing systems for low-value items.


Betreiber der Lösung

Stadt Mainz
Branche: Öffentliche Verwaltung/Sozialversicherung/Polizei/Armee
Unternehmensgrösse: MittelunternehmenStadt Mainz

Lösungspartner

Robert Schäffer, Project Manager
subreport
Michael Roth
Chamaeleon AG

Autoren der Fallstudie

Andreas Voss
Universität Bern
Claas Müller-Lankenau
Universität Münster

01. September 2002
Voss Andreas; Müller-Lankenau Claas (2002): City of Mainz case study in: Schubert; Petra; Wölfle; Ralf; Dettling; Walter (Ed.; Procurement in e-business; pp. 149-163; Munich; Vienna: Hanser Verlag; 2002

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