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Public contract awarding, procurement

2018 Annual report No. 26 - Savings potential of €52 million or more in the procurement of ambulance vehicles for the Armed Forces

Executive summary

The Armed Forces are planning to purchase new ambulance vehicles to replace its current aging fleet. They intend to buy 240 vehicles that are not harnessed for the medical care of soldiers in Germany.

Data on capacity utilisation covering the last three years indicate a current need for 200 new vehicles only. This number also provides for a fleet reserve. We therefore recommend reducing the procurement requirements by 40.

To harness the ambulance vehicles for operation in Germany, the Armed Forces intend to rely on the same standards as for those vehicles designed for operations abroad. Ambulance vehicles that are not harnessed for missions abroad are subject to special requirements. Equipped with advanced defence technology, each of them costs €190,000 more than vehicles with basic defence equipment.

To provide adequate medical care to soldiers in Germany, vehicles need basic harness and equipment only. Such vehicles should be procured. This will enable the Armed Forces to save at least €52 million when purchasing new ambulance vehicles.


2017 Annual report No. 17 - Federal Armed Forces: efficient fuel supply to ships

Contrary to the promises made by the Federal Ministry of Defence in 2012, the Federal Armed Forces continued to not efficiently supply fuel to their ships. They also tolerated avoidable expenditure on processing fuels and disposing of other liquids.

The Navy requires fuel for operating its ships and boats. As from 2015, we reviewed whether the Navy addressed earlier shortcomings in managing marine fuels. In doing so, we again found several shortcomings.

The Federal Armed Forces could have ensured more competition by stipulating different lots in transport contracts for fuels. Since only one supplier for one lot remained after excluding one offer, the Federal Armed Forces needed to have checked whether the invitation to tender achieved good value for money. It might have been necessary to have the invitation to tender cancelled. Since the Federal Armed Forces did not resort to collective transportation (simultaneous supply of several ships in one port and supply of several locations in a “round trip”) and tolerated unnecessary long transportation routes, they incurred avoidable expenditure.

When the Federal Armed Forces were looking for a supplier of waste management services, they inadmissibly restricted competition by requesting an own pier – that is a longer landing place extending into the sea – even though this was unnecessary. The Federal Armed Forces also acted inefficiently when they repeatedly tolerated the contamination of large quantities of fuels.

Therefore, we recommend that:

  • the contracts for the transportation of marine fuel and waste management services be terminated as soon as possible;
  • the need of the Federal Armed Forces for these services be determined;
  • the services be properly put out to tender; and
  • attention be paid to an efficient approach when using services.


2017 Annual report No. 18 - Federal Armed Forces equipment not used as provided for

The German Federal Armed Forces procured transport and storage containers for mobile satellite reception systems and has not used them for that purpose for five years. The containers will likely not be used for transport purposes in the future. In many cases, we have already objected to the Federal Armed Forces procuring equipment without a stated need.

In 2012 and 2013, the German Federal Armed Forces procured 20 transport and storage containers for mobile satellite reception systems for €450,000. These containers have their own power supply, light and heating.

In 2016 and 2017, we found that the Federal Armed Forces did not use the containers at all at some of the locations and at others they did only use them as storage containers. They had never been used for transport purposes. According to the justification provided by the Federal Armed Forces, the transport capacity to the mission areas was limited.

Thus, the Federal Armed Forces procured equipment without justified need as in many cases in the past. The Public Accounts Committee of the Budget Committee of the German Parliament has already repeatedly requested that the Federal Ministry of Defence first analyse its needs in future, while taking into account what is technically feasible.

We expect the Federal Armed Forces not to procure equipment in the future unless there is a real need.


2016 Annual report Volume II No. 4 - When awarding contracts for towing services for the Navy, Armed Forces service centres infringed applicable law

Although the Ministry had promised in 2013 that contracts for civilian towing services would in future be awarded in compliance with applicable legal provisions, the Armed Forces service centres again infringed procurement law. This resulted in contracts providing poor value for money. The Ministry must ensure compliance with procurement law without delay by means of improving technical oversight.

In 2011 and 2012, we had already found considerable shortcomings in the awarding of contracts for civilian towing services by the Navy. We informed the Ministry of this in a management letter dated October 2012. The Ministry acknowledged the shortcomings and promised that it would ensure compliance with procurement law by enhancing technical oversight.

In 2016, we audited the awarding of contracts for civilian towing services once again. We found that, contrary to the Ministry’s promise, the service centres still did not comply with procurement law. As before, numerous infringements resulted in contracts providing poor value for money which led to excessive federal spending. The Ministry had failed to communicate our management letter of 2012 to the Federal Office responsible for technical oversight.

The Ministry acknowledged that shortcomings in contract award procedures and technical oversight continued to exist, adding that it intended to significantly step up technical oversight by the Federal Office by means of organisational and staffing measures

However, we continued to doubt that such corrective action can be reasonably expected. Up to now, the Ministry has not ensured that existing framework agreements were terminated and that civilian towing services would be awarded in a way complying with procurement law and providing good value for money.

We will therefore monitor whether the Ministry takes adequate steps to ensure compliance.


2016 Annual report Volume II No. 23 - Armed Forces develop strategy for the purchase of small arms

The Armed Forces have developed a strategy for the purchase of small arms, e.g. pistols and rifles. The strategy is to improve the decision-making process. The Armed Forces aim at avoiding investment errors.

In the 1990’s, the Armed Forces began to replace their obsolescent small arms, e.g. pistols and rifles, by new ones. Since then, they purchased about 244,000 handguns at a cost of more than €210 million. There was no sound planning for the purchase of the new handguns. The Armed Forces had only few selection criteria for deciding which handguns to buy. Moreover, the criteria were often not measurable. The Armed Forces’ leeway for stipulating in the contracts the requirements the handguns had to meet were thus limited.

We demanded the purchase of small arms to be soundly planned and, in particular, measureable selection criteria to be defined. The Armed Forces need to take due regard to the requirements the handguns have to meet during missions.

In 2015, the Federal Ministry of Defence promulgated a strategy for the purchase of handguns that takes all our recommendations into account. In future procurement projects, measurable selection criteria for small arms are to be defined. These criteria are to be decisive for the choice of weapons to be procured and for the contractual obligations to be complied with by the manufacturer.

We shall monitor compliance of the Armed Forces with the provisions stipulated in the strategy.


2016 Annual report Volume I No. 10 - Costly hardware remaining idle

The Federal Ministry of the Interior purchased IT assets at a cost of €27 million but hardly use them. The Ministry transferred the assets to other federal authorities free of charge but they also did not use them much either. Soon, the assets will need to be discarded.

In 2011, the Federal Ministry of the Interior purchased IT assets at a cost of €27 million to implement its “Networks of the Federal Government” project. These assets included e.g. costly cabinet-sized routers for operating data networks. The Ministry decided in the following year to no longer rely on in-house staff to implement the project but to commission the task to a general contractor. The general contractor did not take over the IT assets available. The original seller also refused to take them back even though some of them were still in their original packaging. The Ministry had not adequately assessed the risks associated with project handover to a general contractor.

As from year-end 2013, the Ministry let other federal authorities use the IT assets free of charge. The federal authorities did not provide justifications of their need, e.g. the key authority receiving the assets did not state its need. This authority had received more than half of the IT assets which included almost 80 per cent of the assets with a procurement value exceeding €100,000. In spring 2016, we found that the authorities taking the IT assets hardly used any of them.

The Ministry should have decided on what to do with the procured assets before awarding the project to an external contractor. The Ministry could not reasonably expect the general contractor to take over the assets. The Ministry has the duty to analyse relevant project risks before decision-making.

We urged the Ministry not to procure high-quality assets in the future until it really needs them. Unnecessary IT assets need to be disposed of as soon as possible or passed immediately on to federal authorities that have provided justifications for their need.


2015 Annual report – spring report - No. 08 - Primary armament of the corvettes becomes mission ready with several years delay and high subsequent costs

The Armed Forces spent €60 million on missiles without adequately checking mission readiness. Subsequently, it paid several millions of euros for an additional operational suitability test (OST).

In 2005, the Armed Forces purchased 30 guided missiles at a cost of €60 million to serve as primary armament of their corvettes. As early as in 2004, we had drawn attention to high technical and time-related risks of the project.

The contractor supplied the guided missiles in 2011-12 and the Armed Forces paid for them completely. In 2013, the guided missiles were tested on a corvette. This OST failed; two guided missiles crashed. This was due to technical errors on the part of the contractor. The Armed Forces were therefore unable to use the missiles. The Armed Forces repeated the OST in 2015. As a result, the missiles can be used against see targets but not against land targets. The repeated OST cost the Federal Government several millions of euros. Based on the contract terms, the Armed Forces did not see any possibility to make the contractor pay part of these costs.

The missiles have to be technically checked only four years. The Armed Forces initially planned to contract out the technical checks to industry. Following our recommendation, they changed their intention and now plan for the checks to be carried out by own personnel. This will enable them to save €66 million during the missiles’ in-service life. Germany held discussions with another nation about potential cooperation in the use and maintenance of the missiles. The Armed Forces could save another €16 million by means of such cooperation.

The Defence Ministry was of the opinion that the Armed Forces had not incurred high technical and time-related risks with the purchase contract. It stated that preparations were being made for the technical checks of the missiles by Armed Forces personnel and that talks about cooperation with another nation were not on the agenda.

We demanded that the Ministry ensure that the missiles will be made capable of being used also against land targets as soon as possible. In future, contract terms should be stipulated so as to adequately take development risks into account and to ensure that consequential costs are apportioned in accordance with the causation principle. Moreover, we expect the Armed Forces to complete the preparations for the technical checks to be carried out by their own personnel as soon as possible and to consider options for cooperation.


2015 Annual report – spring report - No. 06 - Data from Armed Forces IT system hardly usable for analysing purchases

The Armed Forces are unable to accurately analyse and control their purchases. This is attributable to the inadequate use of their IT system for purchasing decisions and to pour data quality. By analysing its purchasing operations, the Armed Forces could save budget funds. The Federal Ministry of Defence should work out a strategy for remedying the deficiencies and assign overall responsibility for implementing the strategy to a specific administrative entity.

In 2004, the Armed Forces introduced a new IT system which they can use to purchase goods and services. It intends to analyse and control its purchasing operations. One of the system’s functions is to centrally record and combine blanket agreements. According to their own estimates, the Armed Forces can save up to 10 per cent of the value of their purchases by analysing its purchasing operations.

In 2013, the Armed Forces purchased goods and services worth €4.5 billion. The major portion of this total (€3.8 billion) was not ordered through the Armed Forces IT system. Therefore, the Armed Forces lacked important data for analysing its purchase operations, e.g. quantities and prices. The reason was that the Armed Forces had not required all its sectors to use the IT system for purchasing.

In their IT system, the Armed Forces created the same suppliers several times and with different spellings. Furthermore, it recorded the durations of many blanket agreements inaccurately. Analyses relating to suppliers therefore generate inaccurate results. Moreover, the Armed Forces cannot identify expiring contracts in order to merge them in a new invitation to tender. The Armed Forces created data bases on blanket agreements outside their general IT system. They argued that the data of the general IT system were insufficient and unreliable. The databases contained only part of the blanket agreements. The Armed Forces thus failed to achieve their goal of recording all blanket agreements centrally.

The Ministry informed us that it had meanwhile ordered all master data to be entered and maintained centrally and that datasets created several times had been deleted.

In addition to that, we hold that it is necessary to require all sectors of the Armed Forces to use the general IT system. Furthermore, they necessary data need to be defined. Only thus can the Armed Forces achieve the necessary data quality for reliable analyses of their purchasing operations. Such analyses are indispensable in order to achieve savings. We therefore recommend that the Ministry develop a comprehensive strategy on the data to be stored, the quality of data and the use of the IT system. Moreover, it should assign overall responsibility to a specific entity.


2015 Annual report No. 66 - Foundation scheme for technology transfer foils budgetary law

Ministry of Education and Research supported a scheme used by research institutions for the exploitation of research results (technology transfer) contrary to the federal interest. It initiated a scheme which evades the requirements of budgetary law. As a result, certain activities became largely exempt from the influence of the Federal Government and from our audit.

As early as in 2001, research institutions that received basic public financing established a foundation and an exploitation company as a common scheme for technology transfer. The Federal Ministry of Education and Research supported the scheme to evade the provision requiring the consent of the Federal Ministry of Finance. It also funded the exploitation company by ensuring, by means of special-purpose contributions to the research institutions, that the company obtained ‘assured’ contracts whose volume meanwhile exceeds €10 million.

We pointed out fundamental deficiencies with respect to legal provisions about Federal Government shareholdings, about federal grants and public procurement. The Ministry subordinated the federal interests which it had to safeguard in its function as manager of a Federal Government shareholding to the economic interests of the research institutions. By doing so, it set aside the Federal Government’s impact on and supervisory powers over the company. Moreover, by funding the exploitation company via ‘assured’ contracts, it also evaded requirements imposed by the law on grants and on public procurement.

The Ministry must create a legally compliant basis for the scheme. To do so, it is indispensable that the Federal Government be given adequate influence on the corporate governance of the companies in which it holds shares and relevant audit rights. The Ministry must also decide whether to give grants to the exploitation company with regard to its role as infrastructure for the research institution or whether to treat the company as a contractor of the research institutions. In any case, the foundation will align its research funding to scientific criteria and does not primarily pursue economic interests of the research institutions.


2015 Annual report No. 50 - Avoid expenditures of €5 million for unnecessary life vest accessories

In 2004-2011, the Federal Armed Forces bought complete sets of modular-design body armour and life vests for the crews of their transport aircrafts and helicopters. However, they did not purchase individual components as needed. In future, the Federal Armed Forces could save €5 million if they solely bought the components required. Furthermore, the Federal Armed Forces continued to use older models whilst storing new vests. This is inefficient.

In 2004, the Federal Armed Forces introduced a modular-design body armour and life vest for the crews of transport aircrafts and helicopters of all services. The modular design allows purchasing individual components as needed. Ballistic protection, restraint harnesses for standing passengers and life-saving collars are not needed for each and every flight and by every crew member. They account for two thirds of the complete vest’s price. We hold that just for ballistic protection and restraint harnesses for standing passengers the stock may be reduced by half. Thus, expenditures of at least €5 million could be avoided when buying new vests. Furthermore, the Federal Armed Forces continued to use older models of survival jackets and life vests for aircrews and stored new body armour and life vests which were supposed to substitute the older models.

We noted that the Federal Armed Forces did not use the less costly modular-design vest. The modular design allows purchasing individual components as needed.

We also pointed out that it is not efficient to continue to use older models whilst storing new vests.

The Federal Ministry of Defence pledged to examine whether the ballistic components can be stored and purchased separately. It also pledged to replace the older models still in use with the new vests as soon as possible and thus terminate the unnecessary effort of storing and safety inspections.

The Federal Armed Forces need to identify the need for the components restraint harnesses for standing passengers and life-saving collars. Then they are expected to examine whether it is efficient to store and purchase the vest’s components separately or rather the complete sets.


2015 Annual report No. 26 - Non-compliance with procurement law in organising a traditional event

Since 1962, the Federal Ministry of Food and Agriculture has organised an international seminar every two years. From the beginning, it purchased accommodation and meals for the participants and additional services from a seminar house without inviting competitive tenders. The last three seminars cost more than €200,000 each. A competitive tendering would have been required for all these events.

Since 1962, the Ministry has organised an international two-week seminar for about 70 participants every two years. From the beginning, the Ministry commissioned the same seminar house without public invitation to tender. The most recent event cost €209,000.

We noted that this was a case of non-compliance with procurement regulations and the principle of efficiency and economy. We demanded that the Ministry publicly invite tenders for this purpose.

The Ministry intends to continue to award the relevant contract to the same seminar house without competitive tendering, arguing that only that establishment would be able to host the event. To justify this, the Ministry invoked the long tradition of the seminar, the seminar house’s capacity to accommodate more than 100 persons, the convenient transport connections and the outstanding commitment of its staff.

We uphold our view that, being a public authority, the Ministry may award contracts for services only in compliance with public procurement law, i.e. by competitive tendering. The arguments put forth by the Ministry do not justify an exception.


Good Practice Note 06/07: Suitability verification by means of pre-qualification procedures pursuant to part A of the German Code for Awarding Public Services Contracts


(1) The pre-qualification procedure pursuant to part A of the German Code for Awarding Public Services Contracts relieves the contracting authorities from much of the work not related to a specific contract otherwise to be done to verify suitability.

(2) The pre-qualification procedure can considerably reduce administrative burden on businesses if the contracting authorities abandon their reservations against this tool.

(3) In order to enhance the acceptance of the pre-qualification procedure, the contracting authorities should admit pre-qualification certificates in as many cases as possible. They should demand additional proofs of suitability only where the specific contract so requires.


Businesses that apply for public contracts must prove their suitability (professional expertise, capacity and reliability). The compilation of proofs of suitability, which mostly consists of completing forms, is expensive and reviewing them is time-consuming.

In order to simplify the verification of suitability, a nationwide uniform pre-qualification procedure for contract award purposes was introduced by part A of the German Code for Awarding Public Services Contracts. This legal provision enables verifications of suitability to be carried out beforehand and independently of individual contracts. Businesses may file their proofs of suitability with pre-qualification bodies set up at chambers of industry and commerce and contract advice agencies. Once they have ‘passed the test’ they are given a pre-qualification certificate that certifies their suitability according to part A of the Code for the duration of one year. All pre-qualified businesses are recorded on a database that can be accessed via the internet. Contracting authorities may electronically access, in a private area, the suitability proofs filed.

Since contracting authorities are free to admit or reject pre-qualification certificates as proofs of suitability (Art. 6 para. 4 of part A of the Code) in the year 2013, the German SAI did a horizontal audit of the admission practices of 16 superior federal authorities within the remits of nine departments.

(1) The audit found that most authorities did not admit pre-qualification certificates. In most cases, they considered their contracts as unsuitable for the standardised pre-qualification procedure. In a number of cases, they emphasised the merits of their own forms for the verification of suitability.

The audit showed that the reservation of the authorities was attributable largely to misconceptions on the possibilities and limits of the pre-qualification procedure. For instance, they did not take regard to the fact that any verification of suitability involves examining formal aspects such as the submission of valid documents. The pre-qualification procedure can effectively relieve the authorities from such routine tasks irrespective of the specific contract. A further verification is only necessary if and insofar a contract requires the contractor to meet certain suitability criteria (e.g. special professional expertise) which naturally cannot be taken into account by the pre-qualification procedure. Where authorities preferred using their own forms in connection with routine aspects of the verification of suitability, they disregarded the additional administrative burden on the businesses resulting from the parallel use.

(2) We found that few potential bidders sought to obtain a pre-qualification certificate.

Given the restrictive admission practice, this reservation appears understandable at this time. As long as most authorities insist on separate proofs of suitability, the input of work needed for the pre-qualification procedure is ultimately only an additional administrative burden on the businesses.

(3) With regard to unquestionable merits of the prequalification procedure and the absence of any disadvantages, the German SAI recommended that pre-qualification certificates be admitted in all cases. It suggested that the Federal Ministry of Economics and Technology (now known as: Federal Ministry of Economics and Energy) inform and instruct the authorities accordingly.


In a circular dated 30 October 2014 (I B 6 – 260500) addressed to all federal departments, the Federal Ministry of Economics and Energy advocated the increased use of the pre-qualification procedure when awarding contracts pursuant to part A of the Code. The Ministry considered a binding obligation as unnecessary.


Good Practice Note 06/06: Impact of the type of contract award procedure for public works


(1) Public invitation to tender is the most cost-effective type of contract award procedure for building services.

(2) Public invitation to tender best ensures competition and reduces the risks of corruption and manipulation.

(3) There is no proof that public works are completed more speedily if a larger portion of building contracts is awarded by procedures other than public invitation to tender.


Article 55 Federal Budget Code requires that contracts for supplies and services are, as a rule, awarded through public invitation to tender. This precedence of public invitation to tender is also a core element of the regulations governing the awarding of contracts for supplies and services by government entities.

We studied the impact of the relaxed procurement rules promulgated for the years 2009-2010 under the Second Economic Stimulus Package on federal construction projects. These rules permitted the increased use of restricted or negotiated procedures, thus reducing the weight of the precedence of public invitation to tender. By increasing the proportion of restricted and negotiated procedures, public works were to be completed more speedily without impairing the procurements’ competition, transparency or cost-effectiveness.

The German SAI’s study is based on information about more than 16,000 contract award procedures for the construction of buildings, roads and waterways. This information did not only permit analyses of the impact of the relaxed provisions made under the Second Economic Stimulus Package but also the development of cross-cutting findings concerning the comparison of types of contract award procedure:

(1) The choice of type of award procedure and the decisions about the scope of competition have a major impact on cost-effectiveness. Public invitations to tender yield the most cost-effective results.

In the course of its study, the German SAI found that cost-effectiveness differed significantly among the types of contract-award procedure. A comparison of contract volumes for restricted or negotiated procedures relating to building construction showed that construction work awarded by restricted invitation to tender cost 7 per cent more and construction work awarded by negotiated procedure cost 13 per cent more than comparable work awarded by public invitation to tender.

(2) Competition is best ensured by public invitations to tender. In contrast to restricted or negotiated procedures (without competition for participation), public invitations to tender enable all interested businesses to compete for the contracts. Analysis showed that public invitations to tender yielded twice as many bids as restricted invitations and three times as many bids as negotiated procedures.

Public invitation to tender, which implies an unlimited number of competitors, reduces the risk of manipulation and corruption in connection with the awarding of contracts for services, while the number of potential competitors is reduced in the case of restricted and negotiated procedures. When choosing competitors, it is possible to give preference to some businesses and to discriminate against others. These procedures also facilitate collusion among the businesses asked to submit bids. Therefore, the principle that public invitations to tender are to have preference, is also an important ingredient to preventing corruption.

(3) The audited construction administrations have not been able to identify any cases where the use of restricted or negotiated procedures have accelerated construction projects. While they did not generally exclude the possibility of speedier completion in the case of small-scale projects, they considered these shortenings of completion times insignificant. They felt that other factors, such as aspects of budgetary law or planning and the execution of the work as such, were much more relevant for the speedy completion of construction projects.


The German SAI presented the results of its study in a report pursuant to Art. 99 of the Federal Budget Code.1 The audit findings support the precedence of public invitations to tender laid down in budgetary law. The Federal Building Ministry confirmed the results of the German SAI’s study on the basis of analysing data of its own.2 In terms of cost-effectiveness of the types of award procedure, the differences between public invitations to tender on one hand and restricted and negotiated procedures on the other hand, the differences being 10 per cent or 22 per cent on average.

The Federal Building Ministry concurs with the German SAI’s view that public invitation to tender is the most cost-effective contract award procedure. A similar study of the Baden-Württemberg State Audit Institution3 looked into construction projects of local and state governments also demonstrated that public invitations to tender provide better value for money than restricted or negotiated contract award procedures.

1       cf. the German SAI’s report dated 9 February 2012 submitted pursuant to Art. 99 of the Federal Budget Code about the impact of the relaxed provisions made under the Second Economic Stimulus Package and on the procurement of building services and professional services for federal construction projects published in German on the German SAI’s website

.2          The function is charged by the former Federal Building Ministry had been transferred as from 2013 to the Federal Environment Ministry and the Federal Transport Ministry. The report dated 31 August 2011 evaluating the relaxed provisions promulgated by the Second Economic Stimulus Package is available (in German) from the Federal Environment Ministry.

3          cf. “Advisory opinion on the speeding up of contract award procedures”, dated 26 April 2012, published in German on the website of the Baden-Württemberg State Court of Audit.


2014 Annual report No. 79 - Successful cooperation in the audit of motorway construction with the Supreme Audit Office of the Slovak Republic

The German SAI and its Slovak counterpart coordinated their audits of two motorways. This enabled them to make concordant recommendations to their national road construction administrations. For instance, we had the opportunity to draw the attention of the Federal Ministry of Transport and Digital Infrastructure to the high prices of composite bridges.

 The Supreme Audit Office of the Slovak Republic and the German SAI separately audited sections of the motorways D 1 and A 73 according to a predetermined common audit framework. They analysed the data gathered in the respective countries and compared them. Analysis showed that, in Slovakia, road construction was 10 per cent less expensive than in Germany, although the motorways in Slovakia are broader and of more elaborate design. This was attributable mainly to the difference in labour costs. In Germany, the bridges cost even one third more than in Slovakia. Apart from differences in labour costs, a major factor was design. In particular, composite bridges that were only built in Germany are more expensive.

The German SAI and its Slovak counterpart communicated their respective audit findings to the responsible national authorities independently of each other. Furthermore, they concordantly recommended that the national construction administrations

• standardise bridge designs and

• have composite bridges built only where concrete bridges are not suitable.

This international comparison of costs will be helpful for the further work of the German and Slovak SAIs. Their cooperation also follows the goal of sharing experience formulated by the European Organisation of Supreme Audit Institutions. In October 2012, they issued a joint report on how they proceeded in this audit exercise.


2014 Annual report No. 78 - Successful cooperation with the Supreme Audit Office of the Czech Republic in the audit of public contract awards for construction work and in the field of corruption prevention

The German SAI and its Czech counterpart conducted parallel audits in their respective countries of the compliance with EU procurement law and corruption prevention in connection with contract awards for construction work. Among other findings, the comparison revealed that the time-tested principles applicable in Germany of giving precedence to public invitations to tender and the award of contracts by lots are advantageous. The two SAIs summarised their studies in a joint report, which attracted much interest in the Czech Republic and in the International Organisation of Supreme Audit Institutions (INTOSAI).

In the years 2011-2013, the German SAI and its Czech counterpart carried out parallel audits of public construction projects in their respective countries. The audit findings thus generated showed that both countries had not only implemented the provisions of European law in their national legislation but also complied with them in their building contract awards.

The comparison of the legal bases on corruption prevention and procurement mechanisms prescribed by law showed that, in Germany, the applicable provisions are more comprehensive and more detailed than in the Czech Republic. The Supreme Audit Office of the Czech Republic is generally positive especially concerning the principles time-tested in Germany of giving precedence to public invitations to tender and the award of contracts by lots. However, both SAIs feel that the construction administrations of their respective countries should step up their efforts in the field of corruption prevention.

The Secretary General of the International Organisation of Supreme Audit Institutions (INTOSAI) prized the joint report (cf. as a good example of successful bilateral cooperation. He advocated the international dissemination of the report and its communication to INTOSAI’s specialised bodies, e.g. the INTOSAI Working Group on the Fight Against Corruption and Money Laundering.


2014 Annual report No. 56 - Prevention of corruption in federal building projects in the State of Saxony is improved

Following our recommendation, the Saxon Ministry of Finance has taken steps to further improve the prevention of corruption in the procurement of building services for federal construction projects in Saxony. This will further impede manipulations in the awarding of building contracts.

We found that the regulations on preventing corruption in the awarding of building contracts for federal construction projects in Saxony were largely complied with. However, omissions and infringements were found in a number of contract-awarding procedures. For instance, possibilities for manipulations were not precluded or the cross-check principle was not complied with.

These omissions were attributable mostly to inadequate knowledge of the regulations on corruption prevention, mistakes in implementing these regulations or organisational deficiencies. In addition, some of the regulations on the prevention of corruption are inadequately harmonised and can be misunderstood.

The Saxon Finance Ministry has acknowledged the audit findings and emphasized the importance of the regulations on corruption prevention. It took up our proposals and will improve corruption prevention measures. The Federal Ministry will consider a harmonization of the concepts used in the federal building regulations.

We consider the measures thus announced as an important step towards improving the prevention of corruption in the awarding of building contracts and towards eliminating uncertainties in the application of the relevant regulations.


2014 Annual report No. 54 - No action taken on inefficient purchase of works of art worth €200,000 by regional association of company health insurance funds

The legal predecessor of a regional association of company health insurance funds bought 86 original works of art worth about €200,000. By doing so, it did not make efficient and economic use of the insurance contributions which it held in trust.

The legal predecessor of a regional association of company health insurance funds (Association) bought 86 original works of art for its office building at a cost of about €200,000. It considered this as appropriate. The Association had documented the purchase of this work of art only incompletely. The invoice gave rise to questions about the circumstances of the transaction which it was impossible to clarify without further examination. In particular, the itemized costs per work of Art stated in the aggregate invoice were implausible without further explanation.

We considered the purchase of the 86 original works of art at a cost of €200,000 as a particular infringement of the Association’s duty to use funds efficiently and economically. Like all social insurance bodies, the Association has to use the contributions of its insured persons on the basis of stewardship. The association is obliged to collect revenues such as compensation claims timely and completely.

The Association admitted that the purchase of the works of art had been wrong. However, it declined to claim compensation from the persons then in charge. It argued that the purchase had not resulted in any damage and that is view was also confirmed by a legal opinion it had commissioned. The Association further argued that ‘adequately’ decorating its premises with works of art was appropriate in the circumstances. Therefore the Association denied that it had infringed any obligations under budgetary law.

We uphold our opinion that, by purchasing the 86 original works of art, the Association infringed its obligation to spend resources efficiently and economically. Moreover, the Association has to account for its expenditure in a comprehensive and transparent way. In conjunction with the supervisory authority of the state in question, the Federal Health Ministry should take action to ensure that compensation claims are considered and enforced by the Association if appropriate.


2014 Annual report No. 52 - Armed Forces improve their management of ammunition stocks

After we had pointed out several deficiencies in the management of ammunition stocks, the Armed Forces have taken remedial action. They revised their procedures for identifying ammunition needs and stocked unnecessary procurements. They have taken measures to prevent the corrosion of small arms and ammunition. The Armed Forces procured ammunition on the basis of the requisitions made by the services.

Ammunition needs were estimated on the base of assumptions. In the case of high-consumption ammunition calibres, the estimates were practically always excessive. In the years 2001-2007, we had repeatedly pointed out the deficiencies of this method of determining ammunition needs. We also had pointed out deficiencies in the management, storage and monitoring of ammunition stocks.

In 2012, we once more audited the procedures for ammunition stock management. We found that the Armed Forces had not yet eliminated the deficiencies. The procurement of ammunition on the basis of assumptions, which we had criticized on the basis of our previous audits, still led to excessive procurements. In several cases, the services requisitioned much more small arms ammunition than they actually consume.

The excessive procurements of ammunition resulted in excessively long storage periods. Together with inadequate storage of the ammunition, various types of small arms ammunition were damaged by corrosion. This was not prevented by ammunition monitoring.

The Defence Ministry has eventually taken up the potential for optimisation which we had pointed out. The Ministry worked out solutions, which it means to implement in the handling of ammunition requisitions by the services and in the management of ammunition stocks. The Ministry also committed itself to make improvements in the storage conditions, the packaging and the monitoring of ammunition stocks. Damage through corrosion is thereby to be avoided in future. We shall observe further developments.


2014 Annual report No. 04 - To stipulate appropriate remuneration levels, clarity about services and costs is necessary

Two federal ministries were unable to reliably verify whether the lump-sum remuneration they paid to the Development Loan Corporation are appropriate. To do so, they must in future specify all services commissioned in sufficient detail. Moreover, the Development Loan Corporation has promised to improve its cost accounting system.

The Federal Ministry for Economic Cooperation and Development and the Federal Ministry for the Environment and Building commission the Development Loan Corporation to perform tasks in international cooperation. Essentially, the Corporation grants loans and subsidies from federal budget funds towards development cooperation and climate protection projects abroad.

We objected to the practice of the two Federal Ministries to pay lump-sum remuneration for the services provided by the Corporation without being able to verify the appropriateness of these remunerations. While the operation’s cost accounting system was methodologically suitable for such verification, it presented deficiency in practice. For instance, the Corporation was not able to link its annual costs to the individual projects and thus to the individual contract-awarding entities. The Corporation committed itself to improving its cost to the individual projects and thus to the individual contract-awarding entities. The Corporation committed itself to improving its cost accounting.

We expect the two Federal Ministries to precisely specify the support services to be provided for the Corporation independently of individual projects when they commission services in future. In contrast to the Federal Ministry for Economic Cooperation and Development, we hold that the Ministry may award individual contracts in terms of topics and timing also for such services of the Corporation.


2013 Annual report – spring report - No. 09 - Lacking cost transparency of the EUROFIGHTER

The Federal Defence Ministry lacks transparency about the total expenditure incurred so far and to be incurred in future for the EUROFIGHTER. Actual expenditure is likely to considerably exceed earlier estimates. This reduces the funds available for other defence systems. This lack of transparency makes it difficult to determine the volume of resources available for alternative defence projects.

In 1997, the Armed Forces planned to procure 180 EUROFIGHTER aircraft at a cost of about €11.8 billion. This amount will be almost completely exhausted by the procurement of 140 EUROFIGHTERs. The Defence Ministry expects life cycle costs to total at least €30 billion.

The Armed Forces use the term “life cycle costs” for all expenditure that is incurred during the life cycle of a defence system and can be imputed to the operational system. Knowing the life cycle costs serves to help plan expected expenditure in the long-term.

Although the number of EUROFIGHTER aircraft to be procured is to be reduced from 180 to 140, we estimate that the life cycle costs will be about twice higher than those estimated at the beginning of the procurement process. The increase of operational expenditure is exceptionally large; this applies especially to the expenditure on material maintenance.

Moreover, additional needs for complementary developments and procurements are arising and only a small portion of these is already reflected in the budget and the medium-term financial plan.

We criticised that, in spite of changing conditions, the Federal Defence Ministry failed to update life cycle costs and did not keep track of all incurred and expected expenditure on the EUROFIGHTER. We demanded the Ministry to ensure greater transparency of expenditure and to enhance its monitoring. To do so, the Ministry should re-estimate life cycle costs, to look into the causes for cost increases and to press for cost reductions. In our opinion, it is imperative that the Ministry’s annual progress reports compare the expenditure actually incurred with the re-estimated life cycle costs.


2013 Annual report – spring report - No. 08 - Unnecessary expenditure for private-sector service providers

Through the years 2011-2013, the Armed Forces spent more than €2 million on purchasing an unnecessary service. It commissioned a private-sector service provider to procure equipment and materiel for the two Armed Forces universities. The service provider was able to carry out the procurements without any significant effort. We repeatedly recommended that the Armed Forces make themselves the procurements.

The two Armed Forces universities have procurement units of their own which partially cover their needs of equipment and materials. Simultaneously, the Armed Forces have for more than 30 years commissioned a private-sector service provider who also procures items for the universities. Through the years 2011-2013, the Armed Forces paid remunerations totalling €2.1 million to the service provider.

Assisted by our Munich regional audit office, we audited procurements made by the contractor on behalf of one university. We found that, apart from standard items, e.g. tablet computers and digital cameras, the contractor also procured technical equipment for laboratories. As a rule, the university described the items to be purchased in such detail that the contractor was able to directly place orders on this basis. For instance, the Armed Forces paid a remuneration of €2,400 for the following procurement. The university forwarded to the service provider the negotiated five-page tender of a supplier for a robot system with all desired component and technical specifications. On this basis, the service provider bought the robot system from the supplier.

Already in 1988, 2001 and 2003, we had pointed out to the Federal Defence Ministry that the permanent use of a private-sector service provider for making the procurements on behalf on the universities was unnecessary.

The Ministry stated that, apart from the examples we gave, the contractor had provided much more demanding services and that the universities had installed extremely complex facilities and laboratories with the assistance of the contractor’s technical competence. The Ministry promised that the Armed Forces would in future process “less complex” procurements on their own.

In our opinion, this is not sufficient. In all procurement cases we audited, the university informed the service provider in detail about requirements and technical specifications and even about the results of price negotiations with suppliers. Therefore, the service provider’s own input was limited to placing orders on this basis and monitoring delivery. Neither the Ministry nor the university gave examples for more demanding services rendered by the contractor. This shows that the university does not need the technical competence of the service provider. Expenditure in the range of millions of euros on purchasing these services could therefore be saved.

The Ministry has for several years failed to ensure that the Armed Forces make procurements with their own personnel. In particular, the necessary resources for doing so are available in the universities’ own procurement units and the Armed Forces’ central procurement office. The Ministry should ensure that the Armed Forces do not permanently rely on a service provider for processing procurements on behalf of the Armed Forces’ universities.


2013 Annual report No. 54 - Projects of the privatised clothing supplier of the Armed Forces funded

 The Federal Defence Ministry has funded several technical projects of the privatised clothing supplier of the Armed Forces with an amount of €5 million. There was no legal basis for doing so. In addition, the Ministry cannot exclude the possibility that its grant towards one of the projects actually exceeded its costs. The Ministry has not acceded to our demand to clarify the circumstances of such funding.

On behalf of the Federal Government, the Federal Defence Ministry holds 25.1 per cent of the share capital of LH Bekleidungsgesellschaft mbH, a limited liability company established jointly with two private sector companies. Being the sole customer of Bekleidungsgesellschaft, the Armed Forces do not only bear the cost of procuring clothing but also the company’s other expenditure. For this purpose, the Armed Forces and the company annually agree on a fixed price.

In December 2011, the Armed Forces paid €4.13 million to the company for a new IT system. The Ministry’s directorate arranged for payment within a few days on the basis of an inadequate project application and without sufficient back-up documentation. The company intended to commission the IT system as late as in 2013. We hold that this prepayment was inadmissible. Moreover, there was no legal basis for this funding. The decision has been poorly documented and the Ministry cannot exclude that the company took costs of the IT system into account when calculating the fixed price. If this is the case, the Armed Forces would have overpaid the IT system.

For the year 2009, the company offered the Armed Forces to credit them an amount of €913,000. The Ministry’s directorate arranged for most of the credited amount to be spent by the company for technical changes of two high-bay warehouses, “passing by the federal budget”. In our opinion, this infringement of budgetary law is particularly grave since, during decision-making in the Ministry, the directorate had previously not been authorised to fund this measure from the federal budget.

The Ministry has not acceded to our demand to review and comprehensively assess the legal aspects of all decisions concerning the funding of the projects.


2013 Annual report No. 51 - Armed Forces purchase unsuitable green electricity certificates for €3.5 million

The Armed Forces purchased green electricity certificates worth more than €3.5 million, which were not suitable for increasing the share of green electricity in the power consumption of their installations. The certificates merely served to declare the conventional electricity consumed as green electricity. The purchase of the certificate did not contribute to meeting the climate protection goals of the Federal Government.

By means of green electricity certificates, producers of energy can market the value added of their green electricity separate from the physical electricity. If, e.g. a customer purchases green electricity certificates, he is permitted to re-label electricity generated from nuclear fuel or coal as green electricity.

In the years 2010-2012 the Armed Forces purchased green electricity certificates at a total cost of €3.5 million. Their intention was to increase the share of green electricity in the power consumed on their real estate and to support the Federal Government in meeting the climate protection goals. The Federal Environment Ministry and the Federal Environmental Agency considered green electricity certificates as unsuitable for proving compliance with environmental requirements. Therefore, they discouraged contracting authorities from purchasing green electricity certificates. Nevertheless, three Armed Forces entities purchased green electricity certificates. One entity actually purchased so many green electricity certificates that it nominally used green electricity in excess of its actual power consumption. The green electricity certificates purchased by the Armed Forces almost exclusively related to green electricity from existing hydro-electric power stations in Norway. No electricity from there flows into the German green power grid. Thus, the real share of green electricity in the power consume on Armed Forces real estate has not increased. Thus, the purchase of the certificates was ineffective. Moreover, the purchase of green electricity certificates for 100 per cent of the power actually consumed could not be justified in terms of cost-effectiveness, since 30 per cent of the power actually consumed were green electricity.

The Federal Defence Ministry admitted the weaknesses of the green electricity certificates. Nevertheless, it announced that it would continue to purchase them. It pointed out that it did not concur with the opinion of the Federal Environment Ministry and the Federal Environmental Agency concerning the promotion of green electricity.

The arguments of the Federal Defence Ministry have not convinced us. We cannot see why the advice of the Environment Ministry and its subordinate Agency should not be valid for the Armed Forces. To us, it is a matter of particular concern that, while admitting the weaknesses of the green electricity certificates, it wishes to continue purchasing them. The Federal Defence Ministry has spent budget funds in the range of millions of euros on an ineffective measure.

We expect the Federal Defence Ministry to renounce future purchases of green electricity certificates or similar instruments and to take regard to the advice of the Federal Environment Ministry about the cost-effective purchase of green electricity.


2013 Annual report No. 48 - Waterways and shipping directorate: Purchase of protective equipment

Following our advice, the Waterways and Shipping Directorate East has taken steps to ensure that its subordinate offices do no longer procure personal protection gear for their staff by means of numerous individual contracts. Instead, the needed equipment will be procured efficiently via centralised blanket agreements.

When on duty, the staff of the waterways and shipping administration need equipment for their protection against dangers to their health and safety. This includes e.g. working cloths and protective cloths, life wests and protective footwear. According to a strategy developed by the Federal Transport Ministry, the waterways and shipping administration is generally to cover its equipment needs via central federal procurement offices because this is usually cost-effective.

In the years 2008-2011, the offices procured identical protective equipment by means of 2,600 individual contracts, usually non-competitively. They neither requisitioned the needed equipment from the central procurement offices nor did they use the blanket agreements made by the latter.

We noted both the inefficient decentralised purchasing and the lack of competition for most individual contracts. We demanded that procurement become efficient and that the federal Transport Ministry’s strategy be complied with.

The Waterways and Shipping Directorate East took up our demand. Especially, the Directorate instructed its subordinate entities to generally cover their needs for protective equipment by means of the blanket agreements and it created the technical prerequisites for centralised electronic purchases.


2013 Annual report No. 47 - Waterways and shipping directorates improve contract management

Following our advice, the North and North-West Shipping Directorates will improve the design and implementation of their procurement contracts. For this purpose, they step up the training of specialists and intensify their technical oversight. This will avoid unnecessary expenditure.

The waterways and shipping offices (which are subordinate to the directorates) award numerous public contracts in order to perform their tasks. Such contracts relayed e.g. to the repair of ships or the supply of stones for hydraulic engineering. Many of the contracts made by the waterways and shipping offices audited were incomplete. For instance, contractual provisions defining the content and acceptance of supplies or services were incomplete or lacking. The waterways or shipping offices rarely monitored the deadlines for warranty claims. In almost half of the contracts audited, they subsequently extended the contract volume, which led to high additional expenditure.

We attributed the deficiencies to the fact that the waterways and shipping offices failed to design and implement the contracts with due care. Moreover, we considered the technical oversight of the waterways and shipping directorate over the offices as inadequate. We called upon the directorates to significantly improve contract management.

The directorates committed themselves to significantly step up their training programmes on procurement and contract management. In addition, they are considering organisational improvement, e.g. the obligatory use of central monitoring lists for acceptances and warranty deadlines.


2013 Annual report No. 36 - Enhanced utilisation of training capacities generates savings amounting to millions of euros

Following our recommendation, the Federal Employment Agency intends to make better use of pre-vocational training programmes. In the future, above a specified participation rate, the Agency will only have to pay for training places that are actually filled.

The Federal Employment Agency (Agency) can help school leavers to gain easier access to the labour market by offering them pre-vocational training programmes. The programmes are implemented by providers with whom the Agency has concluded relevant framework contracts. Under these contracts, the Agency's field offices (offices) can call off training places. They are, however, obliged to call off a specified minimum number of places irrespective of whether these are actually filled or not. Where the offices had called off a number of places exceeding the specified minimum, they also had to pay for places not used.

We found that the offices had called off a significant number of places above the minimum threshold although they were, in fact, unable to assign participants. Thus, in our sample alone, places worth €4 million remained unfilled.

We recommended that the Agency only call off training places above the minimum threshold if and as long as these can actually be filled. To this effect, it should continuously monitor the current utilisation of training capacities and make use of contractual options available.

The Agency has instructed its field offices to adjust their planning so as to fill all places that have been called off. It uses an IT application to monitor capacity utilisation. Furthermore, it has amended the framework contract. The offices are now only required to pay for places exceeding the minimum number if these are actually filled.


2013 Annual report No. 34 - Federal Employment Agency spends up to €2.6 million annually for unnecessary document scanning capacity

The Federal Employment Agency had unemployment insurance documents digitised. When contracting out the corresponding services, it failed to accurately specify the quantities of documents to be captured. As a consequence, the capacity made available exceeded the Agency's actual needs. Annual lump-sum costs incurred for the allocated capacity totalled up to €2.6 million. We demanded that the Agency only pay for services actually needed. In a possible renewal contract, the Agency needs to provide for the relevant amendment.

The Federal Employment Agency wished to introduce electronic files for unemployment insurance issues and child benefit offices. It therefore awarded a contract to a contractor for digitising services. The service provider charges an annual lump-sum for the allocation of digitising capacity.

We found that the amount of documents which the Agency had in fact digitised was significantly lower than originally planned. Nevertheless, the lump-sum paid for the capacity allocated remained unchanged as the contract did not provide for subsequent amendment. For this reason, the Agency is obliged to pay an annual amount of up to €2.6 million for the provision of digitising capacity not needed.

We demanded that the Agency only use its budget funds for procuring the digitising capacity that is actually needed. To this effect, it needs to clearly and consistently specify the type and amount of documents to be processed.

We expect the Agency to amend the inefficient contract accordingly prior to its possible renewal.


2013 Annual report No. 19 - Federal Police renounces the unnecessary construction of office and laboratory premises

In response to our recommendation, the Federal Police renounced a construction project for new office and laboratory premises for its research and test centre in Lübeck. Instead, it accommodated the staff concerned in an existing federal property. This will save €700,000 in federal expenditures.

The Federal Police built up a central research and test laboratory for command, control and operational equipment. This included devices for detecting objects and dangerous substances such as explosives. Such equipment is used e.g. for security checks at airports. The research and test laboratory evaluates and accepts these items. The Federal Police intended to build new office and laboratory premises for the staff at a planned expenditure of €700,000.

We found that the Federal Police had not conducted an investment appraisal for this construction project. In particular, it had failed to consider other options for accommodation, although federal premises on the same property were unoccupied.

We recommended that the Federal Police use the existing premises to accommodate staff. The Federal Ministry of the Interior and the Federal Police followed our recommendation, permanently accommodating the staff concerned in another building available.


2013 Annual report No. 15 - Federal Foreign Office reorganises the procurement of furnishings and office equipment

The Federal Foreign Office identified and eliminated errors in the procurement of equipment, furniture etc. for the German embassies and consulates-general. It reorganised the procurement process and the allocation of responsibilities for procurement. Thus, budget funds will be saved and corruption will be prevented.

The Foreign Office provides its foreign missions (office buildings and ambassadors’ residences) with office equipment, furniture, carpets, curtains, antiques, silverware and other furnishing items. To do so, it can draw on €5 million of funds annually. We found that the division in charge of procurement and contract awards frequently purchased items inefficiently and non-competitive by ordering them from particular manufacturers or suppliers with which it maintained long-standing business relationships. This was due to requirements provided by the Office’s unit in charge of equipment for missions abroad. The two units were closely linked. Some staff members were responsible for contract awards over a period of more than ten years.

Budgetary and procurement law require that contracting authorities procure goods and services efficiently under a formal procurement procedure, taking special regard to open competition. The awarding of public contracts is particularly vulnerable to corruption. The Federal Government’s Guideline on Corruption Prevention calls for preventive measures. One of them is to separate the awarding process from procurement planning functions and the specifications of the goods and services to be procured. Moreover, the assignment of individual staff members to areas of activity involving contract awards should not last longer than five years.

We demanded that the Federal Foreign Office reorganise the procurement of furnishings and office equipment for its foreign missions, comply henceforth with budgetary and procurement law and take steps to mitigate risks of corruption. Furthermore, we suggested that suitable standardised products be procured more frequently either by means of blanket agreements or by having the needed items purchased locally by the respective foreign mission in order to achieve better bargains and save transport costs.

The Federal Foreign Office has taken up all our recommendations and suggestions.


2013 Good Practice Note 04/06: Project funding: distinguishing between grants and public contracts


(1) Where authorities need supplies or services from third parties for their projects, they should carefully consider whether to fund these by means of a grant or of a public contract. 

(2) To ensure efficiency and to avoid litigation risks, where appropriate, they should opt for a public contract. Such contract comes into existence where an exchange of goods or services against remuneration is intended to cover a procurement need.


Each year, the Federal Government spends several billions of euros on project-funding grants. In this way, it supports a wide variety of projects (e.g. research projects, conventions or exhibitions). A grant may only be awarded where there is a considerable federal interest. The closer the federal interest is related to the tasks to be performed by the authority itself, the closer does it come to the interest in procurement, which is typical for a public contract.

In reason years, we have often addressed the fringe between grant and public contract. We conducted cross-boundary studies to ascertain whether the administration sufficiently clarified the nature of the transactions well in advance in order to rule out the applicability of public procurement rules.

(1) We found that, when deciding to found supplies or services via grants, the authorities rarely considered the option of a public contract even in cases of doubt. Even given that budgetary law does not provide unambiguous delimitation criteria, they ignored the fact that, in view of their procurement interest, the proposed transaction constituted an exchange of goods and services which would have suggested a public contract.

Furthermore, we found quite a number of cases in which a public contract awarded in line with the provisions of procurement law would have been more cost-effective than a project-funding grant awarded by the authorities. The main reason is that, in the case of a public contract, the contractor has the duty to actually deliver the goods or services stipulated in the contract. In case of a grant, the primary requirement is that the grant funds are used for the specified purposes. Where the grantee has used the grant funds for other than the specified purposes, the Federal Government may revoke the grant award fully or in part. In that case, the grantee has to refund (part of) the grant. Where, however, the grantee has used the funds in line with the specified purposes and has not infringed any other condition, a refund is ruled out even where the grant-funded project fails.

(2) In our opinion, the application of procurement law would in many cases have been the preferable option also under regularity aspects.

The requirements of EU public procurement law have been stipulated without regard to national peculiarities and therefore cannot be derogated from by choosing national forms of action, no matter if they grant awards or contracts. Key features of a public contract which is subject to procurement law are:

  • a definable performance obligation governed by the sponsor’s needs and
  • a remuneration that is largely in line with market rates.

Where these criteria are met, there is, as a matter of principle, no scope for a grant. Commercial competitors of a grantee could successfully take legal action against a decision to award a grant.

In difference to a public contract, a grant means the concession of a pecuniary benefit to accomplish a public interest objective, but such objective and the pecuniary benefits granted are reflecting a transaction outside the market place.


Following our suggestion, the supreme federal authorities’ Working Group on Budgetary Law addressed this issue on 29 August 2012. It was agreed that an exchange of goods or services against remuneration in order to meet procurement needs of the Federal Government can only take the form of a contract. It was also agreed to follow our recommendation to give greater emphasis (see Administrative Regulation no. 1.2.4 on Art. 23 Federal Budget Code) to the concept of an exchange of goods or services as the decisive characteristic of a contract. 


2013 Good Practice Note 06/05: Drafting of blanket agreements with respect to the appropriateness and efficiency of contractual penalties


(1) The contract awarding authorities should consider contractual penalties for time slips in contract performance only in isolated cases, taking regard to the overall design of the contract.

(2) When fixing contractual penalties, the ceilings prescribed must be observed.

(3) Contractual penalties, the claiming of which would be inefficient, should not be stipulated.


According to the Contracting Regulations for Public Works Part A (VOL/A), contractual penalties for schedule overruns in implementing the works should only be stipulated where the time slip may cause considerable disadvantages. The penalty is to be kept within reasonable limits. The details are laid down in the Contracting Rules for the Award of Goods and Services Contracts (VOL/B). One of the relevant provisions stipulates that the penalty may not amount to more than 8 per cent of those goods or services that cannot be used.

In 2010, we audited the design of blanket agreements and also looked into the provisions on contractual penalties.

(1) We found that the blanket agreements often provided for contractual penalties although the bidders were already burdened by costing risks (e.g. undefined quantities). We recommended that contractual penalties not be stipulated in these cases. Moreover, we advised against the practice of procurement units to threaten contractual penalties merely for purposes of deterrence.

(2) Furthermore, we found that ceilings for contractual penalties were often not stipulated in relation to that part of the supply or services that could not be used but on other quantities (e.g. the non-binding estimated quantity or the agreed maximum quantity). We pointed out that such provisions are inadmissible.

(3) In some blanket agreements, contractual penalties were agreed although their forfeiture would only have resulted in penalty amounts of less than one euro. We recommended that such provisions should in future be dispensed with since claiming minute amounts is inefficient.


The Federal Ministry of the Interior has informed us that, taking regard to our recommendations, regulations on standardising blanket agreements have been issued.

Concerning the ceilings for contractual penalties, reference is made to the ruling of the Federal High Court of 23 January 2003. According to this ruling, the admissible ceiling is 5 per cent of contract volume.


2013 Good Practice Note 06/04: Provisions on quantities envisaged and authorities entitled to call off under framework agreements


(1) Where possible, blanket agreements should specify binding minimum order volumes so as to provide contractors with a sound basis for calculating their bids. The difference between the binding order volumes and non-binding estimated order volumes should be kept as small as possible to reflect the idea under budgetary law.

(2) To make the blanket agreements as flexible as possible, optional maximum quantities should be agreed. Where IT-assisted contract management systems are available, blanket agreements should automatically expire when the optional maximum quantities have been ordered.

(3) Blanket agreements should always name the Federal Republic of Germany as the purchasing party. Blanket agreement of the ‘federal department store’ should moreover be drafted so as to permit as many authorities as possible to cover the needs under the blanket agreements. To achieve this, any listing of authorities entitled to place individual orders should be omitted.


In 2010, we looked into the blanket agreements entered to by various federal ministries and the ‘Federal Department Store’.

(1) We found that often the provisions on the quantities to be purchased laid down in the blanket agreements were not reliable enough to furnish the bidders an appropriate basis for calculating their bids. Some of the agreements did neither specify quantities to be purchased nor stipulate obligations to accept certain quantities. In a number of cases, the estimated and the obligatory quantities to be purchased differed considerably (e.g. estimated order volume 300 vehicles, obligatory order volume 6 vehicles). We doubt that favourable purchase prices can be obtained in this way. In our opinion, economies of scale the bidder may achieve and (partly) pass on in the form of more favourable prices are proportionate to the precision and binding character of the stipulations about quantities. Moreover, binding provisions about minimum quantities to be purchased will increase the willingness of contractors to enter into blanket agreements with the Federal Government. To the extent that the available budget funds permit, it is therefore recommended to stipulate minimum purchasing quantities as close as possible to actual needs.

(2) An optional maximum quantity may further enhance the flexibility of blanket agreements.

It may e.g. enable authorities that have not notified their demand in time (known as ‘stragglers’) to place an order under the blanket agreement. The maximum should possibly not significantly exceed the estimated demand. For IT supplies and services, it is recommended that the maximum quantity should not exceed the estimated order volume by more than 10 per cent. We advocate the practice already followed in some quarters to stipulate that the blanket agreement shall expire as soon as the maximum quantity has been ordered.

(3) Federal departments and agencies are no separate legal entities. Therefore, all blanket agreements from which they are to benefit should be concluded in the name of the Federal Republic of Germany. Since not all contract-awarding authorities observed this principle, we recommended that the Federal Republic of Germany should always be named as the purchasing party in all blanket agreements.


We further found that some of the blanket agreements of the ‘Federal Department Store’ often were expressly restricted to individual entities authorised to order supplies or services. Since the ‘Federal Department Store’ has been set up for amalgamating the demand for standardised goods and services and therefore is to benefit all federal entities, we recommended that the specification of individual entities authorised to order goods or services should be omitted. If this recommendation is followed, all federal departments and agencies will be able to cover their needs under the blanket agreements of the ‘Federal Department Store’. Where the required volumes of supplies or services are available, this also applies where they have not notified their demand earlier. 


The Federal Ministry of the Interior informed that, taking regard to our recommendations, arrangements have meanwhile been made to make blanket agreements as uniform as possible.


2013 Good Practice Note 06/03: Implementing procurement processes


(1) The responsibilities associated with the contract-awarding procedure should be centralised at a specific procurement unit of the entity in question.

(2) The procurement procedure should be standardised and supported by suitable IT systems (e.g. by a procurement management system).

(3) The entities should use tools that are available government-wide for supporting the procurement process (‘federal department store’, ‘e-procurement’, central procurement units). These are suitable means to ensure compliance with procurement law and good value for money.

(4) In organising the procurement procedure, the Federal Government’s anti-corruption guidance needs to be complied with. In particular, the procurement and contract-awarding procedures should be dealt with by other staff than those making the decisions about the need for a specific procurement.


Public procurements are subject to complex procurement rules. Those staff of an entity that are assigned to procurement functions need to identify these rules and apply them completely in line with the legal requirements. In 2008, the Bundesrechnungshof audited the procurement of equipment and fixtures (e.g. office furniture and office cars) at six non-departmental public bodies and the procurement of services (e.g. cleaning of premises). We found that the structural organisation of procurement is one of the decisive factors for compliance with procurement law and the efficiency of procurements.

(1) While the audited entities had bought similar goods and services, their structural procurement organisation differed and was partly decentralised. Responsibilities for procurement were assigned to several organisational units, in some cases at different locations. The staff commissioned to procure supplies or services also had other responsibilities and did not have the specific knowledge needed to apply procurement law accurately. Moreover, decentralised structures and fragmented responsibilities contributed to inefficient procurements, as orders were not pooled.

Centralising responsibilities for the procurement procedure and the related tasks (such as product research, specifications, inviting of bids, efficiency studies) is a key prerequisite for an expedient and functional organisation and thus for the regularity and efficiency of procurements.

(2) In most cases, the procurement processes were not standardised. Staff were involved in the procurement process unnecessarily or several times. In particular, supervisors were involved several times in coordination and approval processes. Procurements were processed manually, e.g. in determining needs or dealing with invoices.

To organise the procurement process efficiently, a procurement management system should be used which implements the entire procurement procedure electronically, without media discontinuity, from the preparation and publication of the tender documents via the examination and evaluation of the bids received to the awarding of the contract. This can shorten processing times and generate efficiency gains.

(3) Very few non-departmental public bodies used the tools for supporting procurement processes made available centrally by the Federal Government. In 2008, only 34 out of several hundred non-departmental public bodies used the ‘federal department store’, the centralised authority run by the Ministry of the Interior. Only two entities used the ‘e-procurement’ platform. None of the non-departmental public bodies cooperated with the central procurement units.

The tools available government-wide for facilitating procurement can improve effectiveness and efficiency. Goods and services may be procured at better prices and conditions. Also, the coverage of needs can be sped up. Moreover, due to the large number of procurements they handle, central procurement units frequently have better qualified staff than decentralised procurement units.

(4) Those entities with a decentralised procurement structure did not consistently implement the Federal Government’s directive on corruption prevention. This applied e.g. to the separation of planning, contract awarding and budgetary implementation of procurements.


Federal entities may order standard services and products via the ‘federal department store’. Taking regard to the Bundesrechnungshof’s recommendations, the Federal Government enlarged the product catalogue of the ‘federal department store’. As of year-end 2011, the ‘federal department store’ was used by 53 non-departmental public bodies. This reduced the workload of central procurement units.


2013 Good Practice Note 06/02: Restricted procedures and limited competition


(1) In case of restricted procedures and restricted invitations to tender, contracting authorities should ensure the widest possible competition by inviting as many bids as possible. It has to be borne in mind, though, that usually only one half of all invitations to bid result in bids eligible for consideration.

(2) Given the precedence of public invitations to tender and open procedures, sound reasons must be stated for choosing other contract award procedures. This obligation for justification should be enforced by means of administrative and technical supervision.

(3) Greater centralisation of procurement functions permits the assignment of better qualified staff. This can improve the quality of contract-awarding decisions, especially those concerning the choice of the type of procedure.


In 2008, we audited contract award procedures of the years 2006-2007 where authorities opted for restricted invitations to tender (below the EU thresholds) or restricted procedures (above the EU thresholds). In both cases, a limited number of enterprises were asked to submit tenders in line with a formalised procedure.

(1) We found that, on average, the authorities asked six enterprises to make bids. The average number of bids eligible for being considered was three. As a rule, this number is not sufficient to adequately comply with the principle of competition which is one of the pillars of procurement law. If the invitation to bid refers to products readily available in the market, many more than six contractors interested can be expected. We therefore recommended an increase of the number of invitations to bid.

(2) When choosing the type of contract award procedure, precedence is to be given to the public invitation to tender, which is named open procedure when contract volume reaches the EU thresholds. Restricted invitations to tender and restricted procedures may be applied only in justified exceptional cases. In more than one half of the cases we studied, the reasons stated for opting for restricted procedures were not sufficient. We attributed this to lacking technical and legal oversight.

(3) Where the procurement function was centralised, only eight per cent of the reasons given for restricting the invitations to tender were inaccurate. In contrast, the number of inaccurate justifications was 65 per cent where the procurement function was decentralised. In our opinion, an essential reason for these differences in quality was that, given the large number of procurements they handle, centralised procurement units usually had more specialised and better qualified staff than decentralised procurement units for whose staff procurement is often a secondary task only.


Taking our audit-based recommendations into account, the Federal Government upgraded the ‘federal department store’, through which supplies for the entire federal administration are procured. This has taken some of the burden of decentralised procurement units.


2013 Good Practice Note 06/01: Compliance of grantees with procurement law


(1) When auditing documents by which grantees provide proof for the use of the grant funds, grant-awarding authorities should focus more strongly on whether the recipients of institutional grants have complied with procurement law.

(2) Infringements of procurement law should be described precisely and be followed by sanctions. The option of claiming the refund of the grant in cases of non-compliance should be considered.

(3) The inclusion of recipients of institutional grants in the Federal Government’s centralised procurement mechanisms is a suitable means for ensuring that grantees comply with procurement law.


In their annual documentation to prove the use of grant funds received, grantees may show that the public funds received by them are used in line with the specified purposes and in compliance with the ancillary provisions stipulated in the grant award notice. These provisions generally include the obligation of grantees to comply with the procurement law that governs procurements by public authorities. The department or agency awarding the grant has to audit the documentation that gives proof of the use of grant funds. In 2006, we examined audit reports of the grant-awarding authorities from the years 2002-2004 looking especially into information in these audit reports which related to compliance with procurement law.

(1) We found that 60 per cent of these audit reports did not provide any information about whether and to what extent procurement law had been complied with. Our sample audits revealed a large number of infringements of procurement law. Some procurement officials were even unaware of the relevant provisions in place. Thus, there would have been cause to thoroughly address questions of procurement law in the audit reports.

(2) Where the audit reports addressed infringements of procurement law, they did so in a much generalised way so that the precise nature of the infringement remained unclear. The grant-awarding authorities failed to take action in response to the infringements found. Given that relevant findings were lacking or expressed in general terms only, the grantees were unable to see how infringements of procurement law could be eliminated. Since relevant infringements were not sanctioned, grantees did not have a driver for taking corrective action.

Compliance with procurement law is not an end in itself. Rather than that, procurement law serves to ensure cost-effective procurements. Thus, it also contributes to a targeted use of grant funds. In addition, many recipients of institutional grants are already to be considered as contract-awarding authorities by virtue of the Act against Restraints of Competition. Erroneous procurement decisions therefore imply the risk that they will be set aside by court rulings, as a result of which considerable costs of litigation may be incurred. In the face of these threatening consequences, grantors should definitely have considered sanctions. In particularly grave infringements of procurement law, claiming the refund of the grant would have been an option.

(3) Many grantees did not have staff knowledgeable in procurement law. Training for imparting relevant knowledge was rejected. The lack of qualified staff can be offset by assigning, whenever possible, procurements on behalf of grantees to specialised organisational units within the Federal Government. The most suitable platform is the Federal Department Store run by the Ministry of the Interior.


The Federal Department Store procures supplies for all federal departments and agencies. At the time we reported the audit results set forth above, the Federal Department Store was still in its inception stage. The Store has taken up our recommendation and increasingly includes grantees in the circle of those entities that are entitled to call for supplies through the Store.


2012 Annual report No. 66 - More cost-effective rescue chain for soldiers deployed in Afghanistan

Following our recommendation, the Armed Forces replaced unsuitable distress transceivers used in the Afghanistan mission. Thus, it ensures a rescue chain for air crews in distress.

Air crews in distress need to alert rescue forces as quickly as possible. Therefore, they carry emergency locator beacons with them during missions that communicate their position in case of distress. The nations which participate in the Afghanistan mission operate a joint rescue coordination centre for the entire country.

In the years 2006-2009, the Defence Ministry spent €7.7 million on the purchase of 711 distress transceivers that were not sufficiently compatible with the distress radio equipment of the Coalition forces. In November 2009, the joint rescue coordination centre in Afghanistan found that it was impossible to integrate the distress transceivers into the multinational rescue chain. The mountain chains in the deployment area absorbed the radio signals and the German distress transceivers could not be used for communication via satellite. In response, the German troop contingent in Afghanistan demanded the procurement of new distress transceivers of the type used by the other Coalition forces as “immediate mission requirement” in December 2009. The need for new distress transceivers had not yet been met by mid-2011, since the Ministry had not yet finally decided about this procurement.

In response to our recommendation, the Defence Ministry has replaced the incompatible transceivers. From now on, the German forces deployed in Afghanistan use the same type of transceivers and radio system as the allies. It does no longer use the unsuitable transceivers as emergency locator beacons.


2012 Annual report No. 64 - Manufacture of pharmaceutical products by Armed Forces too costly

The Armed Forces manufacture pharmaceutical products in their own pharmacies. According to their own policy, they are primarily to manufacture products that are either completely unavailable or only available to a limited extent in the free market. If the Armed Forces consistently paid attention to obtaining medical supplies cost-effectively, it could renounce its own manufacture of common products on an industrial scale.

For their military personnel, the Armed Forces manufacture pharmaceutical products on a small scale in the pharmacies of military hospitals, e.g. pain killers or skin care products. In Ulm and Coblence, it has own capacities for the serial production of tablets, ointments and sterile solutions (manufacture on an industrial scale). For this purpose, they spent €19.8 million for the new construction of a pharmaceutical lab in Ulm.

We found that the pharmaceutical products manufactured on an industrial scale were commonly available in the market places. Apart from pain killers, cough drops and nasal sprays, they included sun cream, lip balm and insect repellents. Only 10 per cent of these products were needed by military personnel deployed in Afghanistan and Kosovo. 

When deciding about ways to secure a cost-effective supply of pharmaceuticals, the Armed Forces based their calculations of manufacturing costs on inaccurately low figures. Thus, they failed to detect that the pharmaceuticals manufactured in military labs are too expensive, generating a deficit of several millions of euros annually in commercial terms. Cosmetics e.g. sun cream can be bought from the pharmaceutical industry at prices lower than the Armed Forces’ own manufacturing costs.

We recommended that the Federal Defence Ministry realign the manufacture of pharmaceutical products. Industrial-scale production of pharmaceuticals in military labs should be restricted to products not sufficiently available in the market. The Armed Forces should periodically review the range of products manufactured in their own facilities and centralise the manufacture of indispensable pharmaceuticals whose availability in the market is limited in the newly-built pharmacy lab in Ulm. Capacities in the Coblence lab should be downsized.

The Federal Defence Ministry announced that it would review the entire process chain of the drug manufacture. In doing so, it also intended to consider the expediency and possibility of manufacturing pharmaceuticals in Armed Forces’ facilities.

We uphold our opinion that the industrial-scale manufacture in Armed Forces’ labs of pharmaceutical products that are sufficiently available in the market is generally unnecessary.


2012 Annual report No. 63 - No need for air cushion vehicles

For more than a decade, the Federal Defence Ministry sought to procure air cushion vehicles (ACV), which were not needed. It considered two ACVs purchased for testing as unsuitable. It repudiated the contract for the purchase of a third ACV and intended to seek for other solutions. Based on the experience gathered, the Ministry should entirely abandon the intended procurement.

As from the year 2000, the Defence Ministry proposed to purchase 65 amphibious ACVs at a cost of €20 million for the Army. It successively procured two different ACVs for testing, both of which did not meet the requirements. Thereupon, it reduced initial requirements. A third ACV was also considered unsatisfactory. The Australian manufacturer intended to appoint a used-car dealer who was inexperienced in the boat trade as its distributor for the ACV in Germany. The ACV was still not operational by mid-2012. Therefore, the Defence Ministry repudiated the contract. Up to then, it had already spent more than €1.1 million on the purchase of the two unsuitable ACVs.

We found that the ultimately unsuccessful procurement of ACVs was unnecessary. The procurement process took twelve years and involved considerable administrative burden. The long time taken suggests that replacing the previous assault boats was not a priority issue for the Armed Forces. During the entire period, alternative options for the crossing of bodies of water were relied on. Given the gradual reduction of requirements, it was impossible anyway to achieve the utility originally sought with any of the ACVs.

Especially in connection with the procurement of the third ACV, it appeared that the Ministry had not obtained assurance about the reliability, technical and professional capacity of the Australian manufacturer and the German distributor. We advised the Ministry to abandon the procurement of ACVs.

The Ministry admitted planning weaknesses and technical difficulties. It cancelled the project to explore new options.

We hold that this substantiates our opinion that the ACVs are neither suitable nor necessary. We expect the Defence Ministry to discontinue all efforts to purchase or develop ACVs. Moreover, we consider this case representative of how future defence projects can be enhanced by appropriate project control.


2012 Annual report No.47 - Short deadlines for road construction render extra remunerations for speeding up work unnecessary

The Federal Transport Ministry could avoid extra remunerations for speeding up work in the annual amount of €5 million. To do so, road construction administrations should accurately determine the time needed for work on the federal motorways and to stipulate short deadlines for completion of the work.

For some years, the Federal Transport Ministry has pursued the objective of reducing congestions caused by road works on federal motorways. Therefore, the road construction administrations pay additional remunerations for completing work earlier than stipulated in the contracts. These extra remunerations are to be paid to the contractors for modifying construction processes or for additional shifts worked. According to Part A of the Contracting Regulations for Public Works, extra remunerations for speeding up work are admissible only where completion prior to the contractual deadlines results in considerable advantages.

In recent years, the road construction administration paid bonuses for speeding up work in annual amounts of €5 million on average. They set generous completion deadlines. In many cases, the building contractors therefore did not need to reschedule their work nor have additional shifts worked in order to complete construction projects earlier. The considerable advantage called for by German Code for Awarding Public Services Contracts as a prerequisite for speedy work bonuses is thus not attributable to such bonuses.

The road construction administrations should accurately schedule building times and set the strictest possible deadlines. Construction work could thus be sped up without paying bonuses for speedy completion which are not compatible with purpose and intent of the relevant provisions of procurement law.

To encourage speedy work by contractors, the road construction administrations should set tight deadlines for completion. If this were done, the companies would have to allow for the required larger input of resources already when drafting their bids. At the same time, construction work would be subject to competition and the road construction administrations could obtain more favourable prices in most cases.


2012 Annual report No. 46 - Grave deficiencies in contract-awarding and monitoring of external research projects by the Federal Highway Research Institute

The Federal Highway Research Institute awarded research and development contracts by negotiated procedure without adequate justification for doing so. In more than half of the projects it modified the initially agreed scope of services during project execution. In the case of most projects, it prolonged project duration. Total contract volume of the projects increased by €6.2 million to €68.1 million.

The Federal Highway Research Institute annually awards contracts for about 100 research and development projects to third parties, on which it annually spends €10 million.

We audited the award of 16 selected R&D projects and the project run of 298 R&D projects that the Institute had awarded to external contractors and monitored in the 2006-2010 period. We found that the Institute had awarded half of the selected R&D contracts to a single bidder by negotiated procedure. Moreover, the Institute modified the contractual scope of services for 55 per cent of the projects during contract duration. It extended project duration for 85 per cent of the projects. This increased the aggregate contract volume by €6.2 million to €68.1 million.

We pointed out that the Institute did not adequately comply with procurement law. As a matter of principle, it is obliged to award the contracts by public tendering. Where the Institute derogates from this requirement in exceptional cases, it must plausibly justify and document such derogation. Moreover, we asked the Institute to improve project management without delay. The first step would be to analyse the causes of the frequent changes in the contractual scope of services, remunerations and project duration.

The Federal Transport Ministry described the extensions of contractually agreed services as insignificant in most cases, adding that contract awards by negotiated procedure with a single bidder had been exceptional.

We demand that the Institute pay more attention to complying with procurement law. We do not consider the subsequent modifications of R&D contracts as insignificant. Our assessment is supported by the fact that the aggregate remuneration for all R&D projects has increased by 10 per cent and that project duration has increased by 50 per cent on average. Therefore, the Institute should analyse why it had to modify the scope of services, the remuneration for and the duration of the R&D projects in so many cases subsequent to concluding the contract. It should take corrective action on the basis of such analysis.


2012 Annual report No. 45 - Federal Aviation Office waives procurement of new aircraft

The Federal Aviation Office waived the procurement of a new aircraft that could have cost as much as €12 million. To justify the procurement, it argued that its staff needed to keep in practice on an own aircraft. We held that the Office has not justified this need.

The Office uses its aircraft to keep its flying examiners and flight inspectors in practice. In 2011, it intended to replace the old aircraft by a new one at an estimated total cost of €12 million.

The Office did not prove that its flying professionals need to keep in practice by means of an own aircraft. Neither international nor national regulations impose such a requirement.

Furthermore, the Office’s investment appraisal of the planned procurement did not comply with statutory requirements. It remained unclear how the Office had calculated the likely purchase price for the aircraft. It also failed to illustrate to what extent it had taken into account further costs e.g. for maintenance and repair when considering alternative options.

The Federal Transport Ministry promised that the Office would waive the procurement of a new aircraft. Nevertheless, flying examiners and flight inspectors were to keep in flying practice also in the future. Therefore, the requirements for initial and continued training of these flying professionals were being reviewed.

We consider the waiver of procuring the new aircraft appropriate. The Ministry and the Office will have to study ways in which any need stated for flying professionals to keep in practice can be met cost-effectively without an own aircraft that needs to be continuously available.


2012 Annual report No. 43 - Waterways and shipping office procures tug for €8.8 million without having proven the need for such procurement

A waterways and shipping office procured a vessel without proving the actual need for it. The Federal Transport Ministry could have noted that the need was not adequately proven. Moreover, it approved the purchase without examining the investment appraisal submitted.

In 2010, the Federal Transport Ministry approved the procurement by a waterways and shipping office of a tug at a price of €8.8 million. The tug was to replace an inspection vessel already decommissioned and an old rarely used tug. In the past, the office also chartered vessels owned by private ship-owners. In its investment appraisal, the office compared the costs of continued operation of the two vessels to be replaced with those of the new tug. It did not consider the option of using private contractors for performing the relevant functions.

We pointed out that the office neither had duly proven the need for nor the cost-effectiveness of a new tug.

The Federal Transport Ministry is of the opinion that the cost-effectiveness of the procurement is essentially justified by the need to quickly and flexibly respond to emergencies in the Kiel Canal. It argued that private contractors are not able to do so.

We uphold our assessment that private ship-owners can completely take over the tasks of the tug. Our argument is that, at present, the office can use the tug only during the regular service hours. Outside these service hours, on weekends and public holidays, the office already now uses private tugs to deal with emergencies.

We therefore expect the Federal Ministry of Transport to analyse without delay the cost-effectiveness of procuring the new tug, giving due regard to alternative options. Should it not be able to prove the cost-effectiveness of the procurement, it must consider using the tug for other purposes or of selling it.


2012 Annual report No. 42 - Waterways and shipping directorate intends to procure a vessel for €28 million without justification

A waterways and shipping directorate intends to replace one of its buoyage tenders by a new vessel costing €28 million without being able to prove the need for and cost-effectiveness of such procurement. It stipulated performance requirements for the new vessel which were not in line with actual needs and failed to consider more cost-effective procurement options.

Furthermore, current developments such as the proposed substitution of plastic buoys did not induce the directorate to adjust its investment appraisal.

A waterways and shipping directorate intended to procure a new vessel to replace the buoyage tender deployed on the river Ems. It ascertained that the capacity of the new buoyage tender would be needed for buoyage work at best half of the time. Therefore, it was to perform additional functions on the river Ems in the fields of fire protection and control of pollution caused by accidents. These functions require the vessel to be permanently present on the river section to which it has been assigned and can therefore not be deployed in other river sections for which the directorate is responsible.

The Federal Transport Ministry initially approved the procurement of a new buoyage tender for €17 million. Due especially to the additional equipment of the vessel for pollution control, the directorate’s current cost estimate has increased to €28 million. The Federal Transport Ministry has so far not approved the additional cost.

We found the investment appraisal for the procurement of the new buoyage vehicle to be deficient and not in compliance with the Federal Budget Code.

The Directorate stipulated additional performance requirements for the new vessel in order to reach a higher degree of capacity utilisation. It refrained from considering alternative options especially the possible use of existing vessels of the Federal Waterways and Shipping Administration or outsourcing of the work to the private sector. Moreover, it failed to consider new developments e.g. the more cost-effective use of plastic buoys.

Nevertheless, the directorate rejects our audit findings. In the directorate’s opinion, the need for and the cost-effectiveness of the new buoyage tender has been fully justified. Moreover, it argued that its investment appraisal had considered all options for optimisation.

We expect the directorate to revise its investment appraisal and to prove the need for the new vessel to the Federal Transport Ministry. The procurement should be postponed until this has been done.

The Federal Transport Ministry has to ensure that the cost-effectiveness of procurements will in future be assessed in a way that is open as to the outcome and that procurements meet the federal budget requirements.


2012 Annual report No. 31 - Federal Employment Agency improves motor vehicle fleet management

In response to our recommendation, the Agency reduced its fleet of office cars by 115 vehicles. Furthermore, it deploys the office cars and their drivers more cost-effectively. To this end, it has updated its regulations for the procurement and use of its office cars and relies more strongly on IT.

The Agency procured office cars without either justifying the need or prove that the procurement was cost-effective. Temporarily, it had at its disposal nearly 300 excess office cars. The leasing costs for the surplus office cars alone totalled €600,000 in the years 2008 and 2009.

The Agency deployed its office cars and their drivers inefficiently. Frequently, only a single person was transported. Neither did the Agency consider alternative options such as public transport or car rental. Moreover, the office cars did not reach the mileage threshold from which the use of the cars was considered cost-effective.

We demanded that the Agency exclusively procure vehicles, if it has proved the need for and the cost-effectiveness of the procurement. It must sell or return surplus office cars. It must check whether it uses its vehicles and drivers in a cost-effective way. In this connection, it has to consider whether public transport or car rental are more cost-effective options.

The Agency followed our advice. It reduced the number of its vehicles by 115. It revised its internal regulations on the management of its car fleet in line with our recommendations. Moreover, it promised to deploy its vehicles and drivers more cost-effectively. It increasingly relies on IT to manage its motor vehicle fleet.


2012 Annual report No. 27 - Grave shortcomings in procurements and management of IT assets of the Federal Insurance Office

The Federal Insurance Office repeatedly infringed procurement rules when purchasing IT assets. It could account for only part of its IT assets. Many items of IT equipment could not be located. In an audit carried out in 2005, we had found similar deficiencies. The Federal Insurance Office did not honour its promise then made that it would remedy these deficiencies.

Assisted by our Coblence regional audit office, we audited the procurement and management of the IT assets of the Federal Insurance Office in 2010.

We found that its accounting for IT assets continued to be inadequate. For instance, the whereabouts of 94 laptops recorded in the inventory were not known. The Federal Insurance Office frequently infringed procurement rules. From 2004 to 2010, it awarded contracts worth more than €1.8 million to a single contractor without inviting competitive tenders. No justification was given for this practice. In a number of cases, it awarded contracts to individual permanent suppliers at excess costs. Furthermore, the Federal Insurance Office frequently procured unnecessary IT equipment. For instance, ten staff members of the IT section had 27 mobile phone contracts and radio data transmission contracts at their disposal. In addition, each of them used between one and three notebooks.

We pointed out that the Federal Insurance Office did not honour its promise to remedy the deficiencies which were known since 2005.

We expect the Federal Ministry of Social Affairs to tighten its administrative and technical oversight, e.g. by conducting administrative audits of the Federal Insurance Office. The Ministry needs to ensure that the Federal Insurance Office remedies the deficiencies stated.

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