Discussion Papers

Martin Zauner, Alex Kalevi Dieke, Torsten Marner, Antonia Niederprüm

Procedures for public procurement of universal services

No. 311 / September 2008

Summary

Under German postal law, a transitory universal service obligation on Deutsche Post AG expired in 2007. Absent an obligation on any postal operator, universal service in the liberalized German postal market is provided jointly by all operators in the market. In the event that the regulator, the Federal Network Agency, should detect that universal service is not supplied adequately by the market, the agency can impose an obligation to provide certain elements of universal service on market dominant firms. If such an obligation would financially prejudice the dominant firm, and the firm could therefore claim compensation for this obligation, the regulator must solicit bids in order to procure the relevant services. Whilst a necessity to procure universal services (in Germany) seems unlikely at present, the regulator should be prepared for this case. Against this background, the study investigates areas where an undersupply of universal service could possibly occur, and discusses practical matters related to the procurement of universal services, or parts of the universal service.

First, the study discusses the legal background for procuring universal services. At present, it is unclear whether universal services should be procured according to German public procurement law, or according to EC primary legislation. Hence, the study recommends procurement procedures should be oriented towards the more restrictive German public procurement law.

Second, the study identifies several areas where the service level in the market could possibly fall short of legal requirements for universal service: a) not all universal services are offered in all postal outlets, b) too few postal outlets, c) no postal delivery in certain regions, d) too few collection boxes, e) too low frequency of delivery or collecting in certain regions, and f) too long transit times for single piece items.

Third, the study discusses practical matters related to the procedures for procuring universal services for two examples: a) operation of postal outlets, and b) delivery in certain regions. This discussion yields the following results:

  • Open procedures should be preferred over restricted procedures in order to maximise competition among bidders, and minimise compensation claimed by bidders.
     
  • The regulator should only procure services which are not provided by the market. Expanding the scope of the procurement would violate German postal law.
     
  • When soliciting bids, the regulator should use functional service descriptions rather than prescribing detailed production processes. Innovative concepts of bidders can lead to more economic solutions for providing universal
    service.
     
  • Where expected revenues for bidders are highly uncertain, the bidders’ risks can be reduced if they are compensated for their expected total cost (according to the bids), and the regulator receives all revenues from the procured service. In this case, prices charged by the successful bidder should be determined in the call for tender.

[only a german version available]

Discussion Paper is available for download.

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