Step-by-step methodological guide: applying the principles of the Functional Economy in public procurement

Recommendations, analysis and methodological guide

June 2021

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

To download : economiefonctionnalitecommandepubliquerapport.pdf (550 KiB)

Ensure ownership of the project

Integrating the principles of the Functional Economy into public procurement requires changes in the way procurement is carried out. The approach affects the internal organisation of the local authority and the missions of the team involved in public procurement (buyer, lawyer, specifier, etc.). It is based on the provision of time and resources. This approach calls into question the scope of the markets in terms of the actors involved and the means used to meet the need. It requires bringing together the parties involved in the development of the contract in a working group in order to carry out a genuine cross-cutting co-construction process. Questioning the means used to meet the need can lead to significant changes at the budgetary, organisational or managerial level: for example, moving from an investment to operating costs, or moving from purchasing disposable supplies to reusable supplies, etc. Buyers cannot decide alone when the implementation of the contract and the act of purchasing significantly transform the practices of specifiers and users. It is therefore essential that the project be validated and supported by both political and hierarchical authorities. Raising awareness and building a case are often necessary to mobilise people around the approach. Once this has been done, the importance of the project’s support is reflected in the monitoring of the contract. The cooperation maintained over time between the service provider and the prescriber is inherent to the economy of functionality. In concrete terms, it translates into a continuous improvement process that allows the market to adapt to changing needs, but requires rigour in its monitoring.

Raising awareness of the Functional Economy

The FE is still an emerging concept that does not have a legally enforceable definition. Several definitions coexist, even if the ADEME definition is the reference. It is therefore necessary to present this model so that the teams and elected officials can appropriate it and imagine concrete applications within the community. It is also necessary to explain what the approach involves by presenting the methodology that will be used. The « workshop » format corresponds well to the objective of raising awareness. It stimulates the involvement of participants, encourages exchanges and avoids a top-down information-sharing scheme. Ideally (although this may prove difficult), the workshop should bring together elected officials and technicians from departments likely to be involved in the process (environment, public procurement, legal affairs, finance, etc.). It is important to present the EF in a playful way, using concrete examples. It may be useful to do internal research to identify a possible market that is close to the EF in order to show that actions have already been taken in this direction. Relying on what already exists allows you to launch a dynamic, to promote inspiring approaches and the ability of teams to appropriate this new concept.

Here are some examples to illustrate the EF (see also the Resources section for further information):

• Fact sheets on companies accompanied in the framework of RELIEF.

• Videos on companies involved in EF.

• Generic and well-known cases: the example of Michelin which sells kilometres travelled rather than tyres, Xerox which sells performance rather than printing volume…

Some ideas for exercises to help people understand the principles of EF:

• Express needs in terms of function and not technical means ("a car" to express « mobility »).

• Start with a concrete market presented by one of the participants and analyse what needs to be changed to integrate EF and the benefits that this could bring.

• Work around a basic fictitious case from a real example without presenting it, and then compare the participants’ thoughts with the example.

The presentation of the EF may raise questions or even fears. The steps described below will help you to find arguments to answer them.

The most frequent questions concern

• Compliance with the rules of public procurement (definition of the need, respect for competition and equal treatment of candidates, etc.). Elements of a response: agility of lawyers in handling the living legal matter, respect for a framework that ensures non-discrimination of economic actors, legal framework for sourcing that already allows dialogue with candidates, other forms of contracts that allow experimentation…

• The problem of moving from an investment budget to an operating budget. Elements of a response: political choices made by the local authority, experimentation on a market that does not jeopardise the local authority’s budget balance, etc.

• The time-consuming aspect of the approach. Answers: long-term investment, development of cross-functionality that serves the overall efficiency of the organisation…

Selecting a market

Selection requires a global and strategic vision of the markets. If the authority does not have such a vision, the work of identifying markets can be more restrictive and time-consuming, and as such, be seen as a constraint. On the other hand, if the selection is part of a more global approach (SPAR, procurement mapping, etc.), the identification process becomes more relevant and effective because it is systematic. The targeted market must relate to a need that can be met by the economy of functionality (performance issues, resource consumption issues, etc.). Then, in order to identify the markets with real opportunities, an analysis of the markets must be carried out according to several criteria: coherence with the market renewal schedule, availability and motivation of the stakeholders, existence of an offer in FE, potential impacts in terms of sustainable development, etc. In addition, the energy and means deployed in the process must obviously be adapted to the importance of the market. The grid presented in Annex 1 makes it possible to analyse the markets in the light of several criteria and to justify the choice of market by sharing the result obtained. The local authority’s internal organisation determines its ability to identify strategic purchasing segments and to anticipate certain contracts in order to benefit from longer lead times. One way to improve efficiency is to undertake a continuous process of purchasing analysis and to carry out a purchasing map. The EF approach can also be part of a sustainable procurement policy.

Form a working group and establish a framework for cooperation

Exchanges between stakeholders are important at the time of drafting the contract (and during follow-up). It is not enough to collect expectations, constraints, feedback, etc. on the basis of an analysis of technical data. Thus, the mobilisation, adhesion and cooperation between the stakeholders in the market partly condition the performance of the purchase. The objective is to improve efficiency and quality of service, and sometimes to find meaning in the purchase.

It is a question of :

1. Identify the interlocutors (not only the end users):

• Depending on the need, which skills are useful to bring together to make the purchase?

• Who impacts/is impacted by the purchase throughout its life cycle?

• The identification of stakeholders often involves trial and error; it is rare to have a precise list from the outset. Stakeholder mapping is a tool that can be useful, but it does not mean that the positions of the stakeholders should be fixed, as they may change.

2. Mobilise and determine the conditions for the commitment of each party, the challenge being to work together despite different operating methods and even interests. The organisation memorandum can be a tool to reassure stakeholders by clarifying everyone’s role in the project. When the issues at stake justify it, specific cooperation mechanisms can be created, for example the creation of a working group mobilising players from outside the community or the launch of a reflection process that goes beyond the simple market, on a theme such as energy, or even the creation of an entity such as a Cooperative Society of Collective Interest.

3. Facilitate the work group, during the design of the market, and then throughout its implementation. Shared tools facilitate this facilitation: shared online workspaces, purchase sheet, liaison sheet, incident sheet, cooperation clauses, etc. The cooperative work mode is more complex to carry out when the stakeholders are numerous and less familiar with each other (in large structures, for example). The energy invested in mobilisation and dialogue must be modulated according to the issues at stake.

Carry out a functional analysis

At the demand development stage, the EF approach involves thinking differently about the need and the ways of meeting it. The functional analysis aims to express the need in terms of functions and not technical means (e.g. lighting vs. lamps, mobility vs. cars, thermal comfort vs. boilers, document management vs. archives, etc.). The aim is to open the way to alternative responses, more in line with real needs and economic, environmental and social issues (local and global). The functional analysis is carried out by a working group (see step 4). The framework presented in Annex 2 and the mind map model presented in Annex 3 are used to facilitate working sessions on the functional analysis. The aim of the framework is to become aware of the reality of how the market works (uses, feedback from stakeholders, division of labour, etc.) and to imagine alternative approaches. The purpose of the mind map is to verbalise the stakeholders’ expectations (the « why » of the need) and to understand their concerns and constraints. These expectations concern

• The response to the need: function to be fulfilled in itself and elements related to the quality of the service. These expectations are more likely to be expressed by the end-users.

• The operational functioning of the service and cooperation with the service provider. These expectations are more likely to be expressed by the departments involved in the life of the contract (purchasing, general resources, maintenance, repairs, etc.).

• The useful effects potentially linked to the response to the need. These expectations are expressed in particular in terms of the local authority’s objectives in terms of sustainable development.

Particular attention must be paid to the objectives related to environmental impacts: what impacts should be taken into account, what can be measured, how to prioritise expectations. The functional analysis gives rise to an abundance of ideas and expectations, and even contradictions. It may be useful to invite certain stakeholders to express themselves separately to avoid confrontations between proposals. Subsequently, the synthesis and prioritisation of expectations is essential. Finally, the vision of the demand thus developed will be compared with the realities of the market.

Carry out sourcing

This section was written with the help of legal background information provided by Delsol Avocats, a law firm commissioned by the CIRIDD as part of the COEF P action. Sourcing consists of identifying and meeting economic operators before the procurement procedure in order to compare the authority’s expectations with the market offers. The aim is to :

• Know the economic market.

• Identify the players and innovations on the market.

• Determine the capacities of economic operators.

• To create synergies between local actors.

• Encourage them to expand their offer to meet the need.

• Adapt the contract amount to the actual market.

The time needed for sourcing must be anticipated in the process of drawing up the contract, but this time is not wasted as it makes it possible to avoid unsuccessful calls for tender. Dialogue is a way of making your expectations better understood and avoiding ill-adapted responses (not ambitious enough for example). This mutual understanding is a key success factor for the integration of the functionality economy in public procurement. Sourcing facilitates the drafting of specifications and opens up possibilities, stimulates competition and pushes service providers to develop their offers.

However, this practice still raises concerns about the respect of competition. According to the Public Procurement Code (Art. R. 2111-1 CCP), in order to prepare for the award of a contract, a purchaser is free to carry out consultations or market studies, to seek advice or to inform economic operators of its project and its requirements. To do this, they can choose between several forms of sourcing: monitoring, benchmarking, requesting information, online platforms listing companies and their skills, publishing newsletters, participating in events (participative workshops, working groups, etc.).

The rules to be followed are nevertheless not to distort competition and to respect the principles of public procurement (equal treatment of candidates, freedom of access and transparency of procedures) (art. R. 2111-1 CCP). Care must be taken not to draft consultation documents according to the proposals of economic operators, to cut off all contact once the procedure has been launched, to keep a record of exchanges (obligation for high-value contracts, Art. L. R2184-3 CCP) and to respect the business secrecy of economic operators.

Finally, in order to be effective, the meeting with the operators must be well prepared. It is advisable to send them elements in advance so that they prepare the meeting according to the expectations linked to the market, this also gives them time to understand the model of the economy of functionality. Furthermore, it is advisable to use the same questioning frames for each operator in order to easily compare the information collected.

Integrating the principles of the Functional Economy into the drafting of the contract

This part has been written with the help of legal context elements provided by Delsol Avocats, a law firm commissioned by CIRIDD in the framework of the COEF P action.

The functional specifications

A functional analysis (step 5) leads to the drafting of functional rather than technical specifications. The public procurement code has already been open to the possibility of this type of specification for about fifteen years. This makes it possible not to close the consultation with too many technical details and to open it up to alternative, potentially more virtuous and efficient offers. For example, if the community orders a lawnmower, it will get a lawnmower, but if it expresses the need in the form of functionality, in this case mowing, it may be offered eco-pasturing… Appendix 4 provides details on the drafting of functional specifications.

The cooperation agreement

Prior to contracting, other tools such as cooperation clauses can prepare the contract by setting out the intentions of each stakeholder. A model cooperation agreement developed by the ATEMIS laboratory for the European Institute of Functional Economics is proposed in Appendix 5. This stage of listening and mutual understanding is essential for the smooth running of the contract. Indeed, one of the obstacles encountered by the prescribers and users of the market is the risk-taking linked to cooperation and its management. The mutual consideration of each other’s constraints and needs, inherent to the functionality economy, must lead to a new management of the risk and the unexpected. This raises a number of questions: how to manage risk? How can it be shared so that it no longer falls solely on the service provider or the community? How can we ensure a framework of cooperation that allows us to manage the evolution of the market in a spirit of prevention and continuous improvement rather than penalisation? Backed by the specifications, the cooperation agreement is one way of providing for the risk and its distribution, in order to reassure both parties.

The global cost approach is well suited to functional specifications (difficulty in comparing prices of non-standardised offers) and more generally to the logic of the economy of functionality. The overall cost of a good or service is the sum of the costs it represents over its entire life cycle, minus the value it creates. It includes :

• Purchase (purchasing process, installation, commissioning…)

• Use (consumption of resources, labour, maintenance, etc.)

• End of life (dismantling, collection, recovery…)

• Social, environmental and economic risks (litigation, pollution, etc.)

• The value created for the company or the community and society (attractiveness, jobs, etc.)

The cost approach makes it possible to move away from a price-centred approach, which reduces public purchasing to a simple act of acquisition, without taking into account use, maintenance and management. A product may seem inexpensive to buy but have a high overall cost (over-consumption of resources, pollution, etc.). Thinking in terms of overall cost in the specifications and during the evaluation process makes it possible to integrate additional factors in order to make purchases more sustainable and circular, as well as to integrate it into the public policy indicators of the community.

The economic model of the market

Several economic models are possible depending on the nature of the purchase and the constraints of the market. Through the economic model, it is a question of taking into account the use and not the ownership of the goods in order to create a sustainable partnership relationship over time with the service provider. The contract will be considered as a supply, service or works contract depending on the nature and value of the various services.

1. Selling the performance of a good or service:

• The performance contract makes it possible to commit the service provider to results and not to means, to set objectives that are rewarded by a fee. Energy performance contracts are the most common.

2. Rental:

• Sale of a use and not a good, or hire purchase: possibility to buy back the good at the end of the rental period.

3. Sharing:

• Sharing of the asset between several users with other internal services of the local authority, or external users (e.g. collective catering offer shared by several structures).

4. Bartering, short-term loans:

• For example via online platforms.

5. Design, construction, maintenance and upkeep contracts:

• By committing the service provider to these 4 stages, it increases the quality of the service, promotes cooperation and transparency.

When the economic operator remains the owner of the goods, this can lead to the replacement of a purchase, and therefore an investment, by a rent and cause a blockage because of the obligations to reduce operating costs to which the authorities are subject.

Tools for continuous improvement and performance

In order to generate useful effects and achieve performance objectives (optimisation of consumption, reduction of waste, etc.), several legal tools can be adapted:

• Review clauses: allow adjustments to be made during the course of the contract, reopening the dialogue with the company.

• The progress plan: allows the company to commit to objectives (e.g. reduction in material consumption, comfort and user satisfaction objectives, etc.) and to propose innovations (e.g. a new second life solution).

• Improvement plan: based on review meetings once or several times a year. The service provider is encouraged to make proposals based on its experience. On the basis of the proposals, it is then a matter of making the changes contractual, such as improving the service or reducing the cost of over-quality.

• A contract with tranches: a firm tranche corresponding to a period of experimentation, and one or more optional tranches corresponding to the service/good in question if the tests are conclusive. If the trial period is not successful, the optional tranches will not be awarded.

• Successive performance contract: the completion of the order phase is conditional on the success of the first phase (achievement of a performance objective, for example energy).

Choose the consultation mode

It is a question of selecting a mode of consultation that is conducive to cooperation, leaving room for alternatives and innovation. The following is a non-exhaustive list of procurement procedures that can meet these objectives:

• Innovation partnership: allows participation in the development and application of an innovative solution, the company is not put out to competition.

• Competitive dialogue: if the purchaser is not in a position to define a solution itself (atypical, complex), dialogue with selected candidates makes it possible to develop solutions that meet its needs and to obtain offers on this basis.

• Procedure with negotiation: allows the conditions of the contract to be negotiated with the economic operators in order to improve the content of the offers.

• Adapted procedure contract (MAPA): allows for a period of negotiation with service providers on the content and price of the offer.

• Variant: requires or allows candidates to propose an equivalent alternative solution to meet the need.

These methods of consultation are only valid under certain conditions. Moreover, some procedures are long and complex to carry out and can also be costly for companies. The consultation method should therefore be adapted according to the issues at stake in the contract.

Evaluate the offers by guaranteeing equal treatment

In the case of functional specifications, the offers received may not be standardised. They may propose different ways of meeting the same need. It is therefore difficult to compare prices. In addition to price, the technical aspect and relevance of the proposed means are also evaluated in a functional specification, as well as the production of useful social and environmental effects.

The criteria for « selecting the most economically advantageous offer » are mandatory. If the price criterion is not appropriate, the local authority can base itself on the costs it bears and knows, which it can rate objectively: purchase, operating and end-of-life management costs. However, it seems complex to analyse in depth the costs linked to the life cycle and the indirect costs linked to externalities. The purchaser should indicate the data to be provided and the calculation method used to calculate this cost, but the areas where the methodology exists are rare. Public procurement makes it possible to select offers by taking into account sustainable development concerns and to integrate the social and environmental dimension. A number of sub-criteria make it possible to take these aspects into account in relation to performance objectives: favouring short circuits to reduce the carbon footprint linked to transport; reducing energy consumption; producing renewable energy; reducing greenhouse gas emissions; using recycled materials, integration, etc.

Monitoring the contract (and preparing the next one)

Monitoring is essential to ensure that the contract is running smoothly, to quickly identify and correct any malfunctions, but above all to check that the desired results have been achieved. It is also very useful for drawing up the next contract and provides a reliable reference base for assessing the relevance of future tenders. However, it is often made difficult by the lack of resources, the lack of time and the coordination it requires between the legal, technical and procurement departments. As mentioned in step 4, the mobilisation, adhesion and cooperation between the parties involved in the contract, including the service provider, partly determine the performance of the purchase. Tools and methods exist to facilitate contract monitoring:

• Designate a contract monitoring team: continue to lead the working group mobilised for the construction of the contract (step 4). A key element is the development of the monitoring team’s skills in order to understand the different issues at stake in the market. In the event of limitations linked to pressure on internal human resources, it is possible to set up a reduced team, made up of the contract prescriber and the buyer. This does not preclude the occasional use of other staff.

• Define indicators for the successful completion of the contract. The indicators vary according to the nature of the contract. They make it possible to measure the impact of the contract, but also to ensure that the intention of the offer meets the reality of its execution.

• Organise regular meetings with the service provider, for example at the start, after 6 months and then every year. Cooperation is not innate, it has to be learned. The terms of effective cooperation with the economic operator can be defined in the specifications, listing the interlocutors, the methods of communication, the frequency of meetings, the monitoring indicators, etc. The aim is to build a relationship of trust, to encourage a partnership approach, and to prevent rather than penalise.

• Use a system for evaluating commitments (monitoring table, etc.).

• Set up liaison sheets, incident / dispute sheets, or any other tool that acts as a common framework for obtaining feedback on the performance of the contract. It is important to ensure that these tools are understood and appropriated by the internal services. The tools must be easy to use to facilitate the management and work of the teams.

It is possible that the « scope of cooperation » will change during the course of the contract. It may become apparent that the people identified in theory are not actually mobilised or that others have been forgotten… It may then be useful to remobilise and involve new stakeholders.

Sources

To go further