Recommendations for practitioners of public procurement in the functional economy

Recommendations, analysis and methodological guide

June 2021

Agence pour l’Environnement et la Maîtrise de l’Energie (ADEME)

To download : economiefonctionnalitecommandepubliquerapport.pdf (550 KiB)

Using public procurement as a lever to deploy the functionality economy

Implementing innovative and responsible procurement

The public procurement code, an obstacle to the functionality economy?

Public procurement is defined in the Environmental Code as a tool for the transition to the circular economy. Public procurement offers room for manoeuvre to take sustainable development into account, both in terms of purchasing procedures, economic models of contracts, tools and means…

However, some rules may appear to be obstacles to innovative and responsible purchasing, a category in which we place the functionality economy. The obligation to clearly state the need and the rules concerning the respect of equal treatment of candidates raise questions when, in a FE approach, it is a question of defining the need in a functional way, of strengthening cooperation with economic actors, of making the contract evolve during its life, etc.

To be able to exploit the room for manoeuvre in public procurement, certain obstacles must be overcome:

• Lack of knowledge of the economy of functionality, of disruptive economic models.

• Lack of knowledge of the mechanisms available in public procurement, and the need to increase skills to implement them.

• Fear of litigation (linked to the need to develop skills).

• The time and resources available (varies according to the size of the contract).

• The ability to change practices (motivation, support from the hierarchy and elected representatives, dissemination of practices within the community, strength of the community’s support network).

practices in the community, strength of habits, etc.).

• The need to enhance the value of the purchasing profession and its importance within the local authority.

The objective of the COEF P action was to remove these obstacles by

• Giving departments the opportunity to spend more time on a market.

• Raising awareness of the functionality economy.

• Providing a « candid » outside view, by broadening the topics.

• Redefining the need for the market.

• Providing facilitation support.

• Providing support in terms of legal expertise (DELSOL Avocats was commissioned for this).

Good practices in favour of innovative and responsible purchasing

Certain measures provided for in the public procurement system encourage innovative and responsible purchasing (purchasing procedures, economic models for contracts, clauses, etc.). In addition, the COEF P action has highlighted the importance of good practices:

• Mobilising and cooperating around contracts (drafting and monitoring).

• Putting in place tools to have a global and strategic view of purchases. It is then easier to identify the contracts at stake and to anticipate their drafting.

• Collectively question the need to which the contract responds in order to bring out more appropriate responses than the classic offers. Practise sourcing / open dialogue with companies to encourage them to change their offers (particularly when faced with doubts about the ability of companies to respond, the risk of obtaining responses that are not very ambitious in relation to the objectives, etc.).

• Explore the possibilities in terms of purchasing procedures, economic models, existing

to ensure that the form of the contract is adapted to its content.

• Design the indicators of success for the contract and cooperation when it is drawn up so that it can be followed up later.

The application of the principles of the Functional Economy in public procurement

Constructing the contract

Functional economy is embodied in the market economic model. To achieve this result, a market construction method consistent with the objective of mainstreaming the functionality economy must be implemented.

1. Identify suitable markets for the application of the functionality economy:

• Importance of having a global and strategic vision of the markets (example of tool: procurement mapping, sustainable procurement scheme, procurement strategy).

• Choose a market for which actors will be available and will drive the process internally.

• Choose a market for which it is relevant to apply the economy of functionality (performance commitments, purchase of a use instead of a material). For some purchases, this approach is less relevant (consultancy, IT services, one-off works, etc.).

• Choose a contract for which there are strong issues that justify and motivate a change of approach. These issues must be linked to public policy objectives (zero waste, air quality, etc.). These issues must be clearly identified and agreed upon: over-consumption (equipment, copies, energy), an organisational problem (management of flows and orders in an administrative restaurant, management of tyres in a fleet of vehicles), an opportunity to integrate relevant environmental or social criteria (re-use in telephony, etc.).

• Choose a contract for which it is interesting to call on a tender integrating

services: if the local authority provides maintenance, repair, servicing (…) of a material good for example, the added value of a service is not

For example, if the local authority is responsible for the maintenance, repair or upkeep of a material asset, the added value of a functional offer will be limited.

• Choose a contract for which the service provider can have a real impact on performance, i.e. that it is not prevented by managerial or organisational measures that reduce its scope for progress (e.g. to regulate energy or material consumption, clear internal rules are needed to prevent waste).

• Amount of the contract: the time spent on the contract will be greater, so it must be possible to « write it off ». Furthermore, a low-value contract will not be a strong motivating factor for economic operators to propose original offers. On the other hand, the willingness to take risks may be limited on a large market.

• It may be interesting to move to a new market to be more free to experiment.

to experiment.

2. Agree to (re)question the need:

• Breaking free from history: renewing a contract in the same way may be perceived as saving time, but may result in a sub-optimal use of the community’s resources because the need no longer corresponds.

• On the contrary, the EF requires more time in the design of the contract upstream, but should be seen as an investment that pays off in the medium and long term.

• Limitation of volume technical specifications: sometimes agents do not know exactly what they need, or do not have the expertise to properly calibrate the need. They may close themselves off to alternatives, yet there are often several ways to meet the same need.

• Expressing a need in the form of a functionality is an unusual exercise. It

It requires a mobilisation and cooperation effort.

• Remain flexible about the scope of the market (who is involved? what are the means to meet the need?

Who will benefit from the solution?) The contract is part of a global vision and contributes to a public policy, a territorial project, etc.

• Measure the acceptability of any changes. Example: what will the change from disposable to reusable food change for people working in the catering industry?

3. Adopt a responsible purchasing approach:

• Environmental and social benefits are sought: it is necessary to clearly state this ambition when writing the contract, to transcribe it into the contract and to give oneself the means to evaluate the results…

• … while adapting the argument to the various stakeholders: other elements of the discourse can be more effective (gaining in efficiency, security…).

Translating the functionality economy into a market

1. Reflections may not lead to a « 100% FE » market:

• The transition to FE is seen as a trajectory, a progression: the cursor is to be placed according to the maturity of the market, the team, the potential of the order, the objectives, etc.

• The reflections may reveal the need to work on a solution internally, but integrating the notion of performance / useful effects / transformation of uses (example of internal printing services).

• At first, it may seem too complex to integrate performance objectives into a contract or to extend its scope too much. However, it is possible to set milestones to improve the overall performance of the next contract.

• The impossibility of extending the operating budget sometimes blocks the possibility of establishing the contract on a rental/subscription model.

• Public procurement is not the only lever for carrying out a public policy, it can sometimes be the gateway to more in-depth and innovative modes of cooperation. Example: creation of a Société Coopérative d’Intérêt Collectif (SCIC) to meet the challenges of local food supply.

2. The EF can be translated in different ways in a contract:

• It is a question of translating objectives into market elements: commitment to useful effects, performance, global offer « goods + services », taking into account the life cycle, internalisation of externalities, scalability, supplier involvement, result objectives and not means…

• The means chosen to achieve the objectives depend on trade-offs when the contract is drawn up. These trade-offs take into account budgetary and technical constraints (choice between performance contract, progress plan, performance-based payment, rental, etc.).

• Depending on whether it is a supply of goods or a service, the question of the economic model does not arise in the same way (the question of rental does not arise for a service).

• The market may require a shift from a volume-based logic to a service-based logic: the choice of the market’s unit of account may be very important for thinking about the economic model in relation to the market’s raison d’être.

• It may also be a question of guaranteeing the conditions of cooperation between the provider and the client during the time of the contract, in the specific framework offered by the economy of functionality.

3. 3. Complexity points:

• Budgeting and securing financing: question of remuneration, distribution of value for performance contracts.

• Paradox of the scalability of the offer compared to the rules of public procurement, according to which one can only make adjustments at the margin once the contract has been awarded.

• Accepting the share of risk as inherent in the contract and sharing it with the provider, since the value of the contract is co-produced and sometimes revealed during the execution of the contract.

• Establish benchmarks to measure performance (e.g. Grenoble lighting: the equipment was old before the contract was awarded, it was difficult to establish a baseline to set performance targets as the initial situation was distorted).

• Need for models for drafting contracts, need for inspiration for environmental criteria.

• Overcome the silo organisation within the local authority’s departments and the segmentation of the purchasing profession.

Cooperation at the heart of the change of practices towards the economy of functionality

Steering a process of integration of the economy of functionality in purchasing

Internal support and management

The approach differs according to the type of local authority: the relationship with elected representatives is not the same in a department and in a city for example. The organisation of services and tasks (legal affairs, public procurement, purchasing, etc.) and the distribution of competences also vary.

1. The support of elected representatives is invaluable in supporting the process or overcoming blockages:

• The purchasing process must be reflected in the mandate project.

• It enables the time/resources devoted to the process to be validated and the possible risks involved in the new way of constructing the market to be taken into account.

• Depending on the way the local authority operates, it will be more or less easy to mobilise elected representatives and they will use different arguments.

2. The role of the project leader is crucial:

• In COEF P, the project leaders come from different departments: Legal affairs/public procurement, ecology/circular economy, buildings and general resources, purchasing and general resources.

• The role of the pilot is largely to mobilise other departments, to « promote » the approach, to ensure that the EF is integrated into the contract: - Efforts to raise awareness of the EF: arguments and translation of its principles into the reality of agents. - At the time of market selection: survey to identify potential markets and judge whether the context is favourable to a EF approach. - Set up the working group on the chosen market: identify the stakeholders, mobilise them; identify the key functions / resource persons and drivers. - Facilitate the process.

• It responds to the need to gather technical information and information on the context, on relationships, on « stakeholder games », on current projects, etc.

• If the project leader does not work in the field of purchasing, he or she must become more competent in the subject. The project leader should be in the purchasing department to have more legitimacy and knowledge on the subject.

• His role does not end with the signing of the contract: he must ensure that the contract is followed up.

3. Risk for the project manager: difficulty in delegating, tendency to carry the experimentation process at arm’s length. In the opposite direction, the difficulty of mobilising the different services or the final users of the contract may be encountered. For greater efficiency, it may be desirable to establish a co-sponsorship between two departments, such as public procurement and the environment, for example.

4. Useful step for a first approach: call on external support. In COEF P, the CIRIDD plays the role of an external viewpoint, facilitator, support in defining the need, contribution of resources, etc. An external « guarantor of cooperation » can also support the legitimacy of the project leader in his or her mobilisation of local authority services, users or beneficiaries who are less willing to get involved.

Adaptation to the system of constraints

1. More or less mature subjects / more or less established practices depending on the local authority (experience, skills, knowledge more or less developed):

• Implementation of certain purchasing procedures.

• Integration of sustainable development into contracts.

• Agility / multi-actor approaches.

• Culture of innovation / experimentation.

• Cross-functional work between departments. Relationship to time:

• Market calendar and ability to anticipate in order to have time to adopt a more collaborative approach / to question the need.

• Periods that are more or less favourable for experimentation (election period, etc.).

• The time available to stakeholders (plan several meetings, feedback on working documents, etc.): the challenge for the project leader is to manage to delegate, to involve people so that they contribute.

2. The political context :

• More or less sensitive/political subjects, therefore more or less favourable to the approach (no willingness to take risks, difficulty in mobilising).

• The challenge of making purchasing practices sustainable from one mandate to the next, via training for staff, a sustainable purchasing scheme, and the provision of resources (guides, standard contracts, etc.).

3. The « already there », the context: budgetary constraints, contracts already awarded, user habits, etc.

Strong needs for mobilisation and cooperation

1. The conditions for effective cooperation :

• Cooperation cannot be decreed, it is made possible by the establishment of a common framework and the implementation of mechanisms (animation, tools…).

It is based on taking into account the constraints and resources of other actors.

• Informal times and inter-activity are important because they foster trust and creativity.

• As a facilitator, it is necessary to gauge the postures (proactive, reactive, observer, inactive, etc.), to understand why these postures are adopted and to try to keep the stakeholders mobilised using facilitation tools.

• The quality of cooperation can be assessed and defined as one of the needs of the market to ensure the involvement of everyone.

• Tools such as cooperation clauses can be used to formulate the intentions of all stakeholders.

Cooperation between services

1. The need for cooperation and transversality is strong:

An organisation is by nature divided into directorates, departments… Transversality and cooperation must nevertheless be part of the approach:

• To identify and select the markets at stake. Depending on the amount of purchases, it is not the same departments that are in charge. We always have a partial vision depending on who is in charge of the process, hence the need to question other departments.

• To co-construct the market, gather feedback, expectations and constraints from stakeholders. Get them to contribute, and make the most of their respective expertise as technicians, users, prescribers, etc.

• To monitor the contract, in connection with the need to circulate information between users, people who are in contact with the service provider and those who are in charge of purchasing and legal affairs, etc.

• Cooperation between departments is a challenge for the internal dissemination of purchasing practices.

2. Obstacles to be overcome :

• The approach generates additional activity, uncertainties and changes in the organisation of work. It is to be expected that teams (at different levels) will be reluctant. They can do without the project, it is something additional.

• The process sometimes reveals tensions between directorates/departments (e.g. tensions linked to the sharing of a skill between two departments, etc.).

• Faced with the difficulty of mobilising certain people, it is preferable to assume that the actors want to do their job well. If they have difficulty with what is being proposed, if they think that they will not be able to do their job well, this can cause a blockage. To unblock the situation, these people must be able to verbalise their fears.

3. The potential useful effects to be highlighted in order to convince and mobilise :

• Increasing efficiency, listening to expectations, giving meaning to the purchase, making the link with the wider objectives of the community.

• Opportunities to meet and exchange ideas between departments, to take a step back on certain subjects.

• The organisation in project mode can allow for faster progress and freedom from certain organisational/hierarchical constraints.

Cooperation with companies

1. Opening the economic dialogue allows to favour the integration of the economy of functionality in the public order:

• It develops the inter-knowledge between companies and public authorities on their mutual functioning.

• It challenges companies on their offers, favours ambitious offers. There is not always an offer on the model of the economy of functionality existing to meet the need of the community. It is a question of adapting the demand according to the level of maturity of the market so that the economic operators can answer by making their offers evolve gradually (in connection with the idea of trajectory).

• Beware, the formulation of the market may have an impact on the ability of companies to respond, and may exclude SMEs. This impact must be taken into account when drawing up the specifications.

• It allows for a better understanding and identification of innovative offers in the local authority’s territory. By taking an interest in the actors of the economy of functionality, the inter-knowledge can give rise to future cooperation.

2. Dialogue is a source of performance (pending feedback from the implementation of the contracts selected in COEF P):

• Hypothesis of the economy of functionality: performance is not defined ex-ante, it is the result of a long-term supplier/recipient relationship.

• The objective is to build a relationship of trust, to encourage a partnership approach, to bear joint responsibility for quality, efficiency, etc.

• At the stage of drafting the contract, the dialogue makes it possible to express one’s expectations and constraints and to compare them with the offers on the market, to detect innovations, to encourage the offer to evolve so that it better corresponds to the needs…

• At the consultation stage, depending on the purchasing procedure chosen, more or less room may be left for dialogue and negotiation, with the aim of better matching demand and supply or co-construction of the solution.

• The economic model of the contract (rental, performance contract, distribution of value, etc.) is decisive in establishing a win-win relationship: a model in which the operator benefits from the achievement of the local authority’s objectives (not selling more but selling better).

• During the performance of the contract, cooperation makes it possible to test solutions, to better monitor the objectives set, to make the necessary adjustments and to adopt a preventive approach rather than applying penalties.

• Certain measures provided for in public procurement contracts encourage dialogue and cooperation (review clauses, progress plans, etc.). Beyond these mechanisms, the challenge is to include the conditions for cooperation in the terms of the contract: the commitments of each party, the frequency of meetings with the service provider, the communication channels favoured, the objectives and monitoring indicators, etc.

3. The market is not the only form of relationship with economic actors: other forms of relationship can be established around an issue (energy, food) rather than a market: monitoring, working groups, creation of a territorial « ecosystem », creation of a SCIC.

In short, public procurement is a lever to encourage the development of functionality economy offers on the territory. Through the life of the contract (design, awarding, implementation, monitoring…), the principles of this new economic model reexamine the practices of buyers. Indeed, the economy of functionality puts cooperation at the heart of markets, in multiple dimensions: inter-service during the definition of the need, between elected officials and technicians to establish the legitimacy of the approach, with companies to co-construct the solution and make it evolve over time … The lessons of COEF P and the analysis of feedback from the four territories involved have therefore fed the design of a methodological guide by step to accompany the technicians of local authorities wishing to apply the principles of the economy of functionality in the public procurement.

Sources

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