Procurement

S pace projects are marked by their highitechnologies and their lengthy develop-ment and operations. The procurement

process is a critical element that must adapt toa changing industrial landscape and newmethods and tools, such as electronic procure-ment. ESA will host an international symposiumin May to bring all the major players together.

IntroductionWhat is the connection between alauncher and a submarine, an aircraftcarrier and a manned spacecraft, or anantitank missile and an Earth observa-tion satellite? At first sight, there seemsto be none, their purposes beingcompletely different.

They do have, however, one thing incommon. The processes governing theirprocurement are totally different fromthose for off-the-shelf goods, owing totwo key aspects of their nature: the hightechnology involved and the long dura-tion of the programmes.

These aspects, often coupled withmonopoly or duopoly contractors, andinfluenced by international and/ordomestic industrial policy considera-tions, significantly determine the

Eric Morel de Westgaver, Pieter van Beekhuizen& Stefano M. Fiorilli ESA Procurement Department, Directorate ofResources Management, ESTEC, Noordwijk,The Netherlands

esa bulletin 129 - february 2007 63

fiorilli 2/9/07 9:25 AM Page 62

Procurement

S pace projects are marked by their highitechnologies and their lengthy develop-ment and operations. The procurement

process is a critical element that must adapt toa changing industrial landscape and newmethods and tools, such as electronic procure-ment. ESA will host an international symposiumin May to bring all the major players together.

IntroductionWhat is the connection between alauncher and a submarine, an aircraftcarrier and a manned spacecraft, or anantitank missile and an Earth observa-tion satellite? At first sight, there seemsto be none, their purposes beingcompletely different.

They do have, however, one thing incommon. The processes governing theirprocurement are totally different fromthose for off-the-shelf goods, owing totwo key aspects of their nature: the hightechnology involved and the long dura-tion of the programmes.

These aspects, often coupled withmonopoly or duopoly contractors, andinfluenced by international and/ordomestic industrial policy considera-tions, significantly determine the

Eric Morel de Westgaver, Pieter van Beekhuizen& Stefano M. Fiorilli ESA Procurement Department, Directorate ofResources Management, ESTEC, Noordwijk,The Netherlands

esa bulletin 129 - february 2007 63

fiorilli 2/9/07 9:25 AM Page 62

procurement path and the price/ cost-auditing methods to be used. In thespace and defence domain, these issuesare part of the day-to-day decision-making processes for both the publicprocurement authorities and the supply-ing industries.

Procurement is often the mandatorychannel for a public organisation,whether national or international, tofulfil the mission assigned to it.Procurement tends to be at the centre ofan organisation’s daily activities, and theefficiency of the process reflects on theoverall working of the organisation.

The natural requirement to ensure themost economical use of resources takeson a particular dimension for publicprocurement, where these resourcesusually stem exclusively from thetaxpayers.

It is therefore important to buildprocesses and practices that satisfy theprogramme they are serving, while at thesame time remaining flexible enough toincorporate new trends throughout theprocurement cycle, such as invitations totender and requests for proposals,evaluation of offers, cost auditing,contract conditions, price type,industrial policy, risk-sharing and risk-management.

A major element of the reform

programmes under way within ESA is toimprove procurement, both in terms ofinternal processes and policies for thecontractual relationships with industry.

ESA covers the whole spectrum ofprocurements: minor-value purchaseorders, off-the-shelf procurements,maintenance services, manpower servicecontracts, technical assistance activities,software procurements (with or withoutopen source codes), research anddevelopment contracts, co-funded con-tracts with industry, major developmentcontracts for ESA satellites, in-orbitinfrastructures and launcher develop-ment contracts.

All of these are handled by the ESAProcurement Department.

Auditing is directly linked to theprocess, before, during and after theprocurement. It plays a major support-ing role by auditing the labour, facilityand overhead rates used by industry forits proposals to and contracts with theAgency. Detailed audits are conductedunder cost-reimbursement and co-funded contracts.

While the industrial landscape hasdrastically changed in recent years, withcontinual mergers and take-overs, theprocurement procedures, processes andtools used by the Agency have basicallyremained the same. Within Agenda2011, the Director General and hisDirectors have targeted the evolution ofESA’s procurement process andindustrial policy for urgent action.

Within the Procurement Department,a dedicated structure will be set up tohandle the actions and the associatedplan leading to the required improve-ments.

The ESA Procurement EvolutionThe evolution of the procurementprocess is outlined below:

Small procurementsThe vast majority of ESA contracts arefor less than €250 000, but theiradministration by both the ProcurementDepartment and the initiating Director-ate demands a disproportionate amountof time for all concerned. The mainreason is that these contracts are basedon the same procedures as used for largedevelopment contracts.

A range of measures has simplifiedthe process, leading to shorter procure-ment cycles, which also benefitsindustry. All the changes accommodatethe standard checks and balances of thepublic procurement process. Lessons-learned will studied after the newprocedures have been introduced.

E-procurement toolsThe main objective for ESA in electronicprocurement is to meet the target set bythe European Union: to carry out atleast 50% of the procurements that havevalues above the EU’s specific thresholdfor each activity.

To achieve this, the first priority is tofocus on the labour-intensive smallprocurements, following published stan-dards on inter-operability and functionalrequirements.

Evolution of procurement regulations The Agency’s fundamental texts regula-ting procurement were drafted at theend of 1970s; only Part II of theGeneral Clauses and Conditions forESA contracts has been fundamentallyrevised recently. It is obvious thatEurope’s space industry has evolvedsignificantly during the same period. Itwill therefore be reviewed in detail inorder to reflect better the regulatory andindustrial environment.

Resources Management

esa bulletin 129 - february 2007 www.esa.int64

fiorilli 2/9/07 9:25 AM Page 64

procurement path and the price/ cost-auditing methods to be used. In thespace and defence domain, these issuesare part of the day-to-day decision-making processes for both the publicprocurement authorities and the supply-ing industries.

Procurement is often the mandatorychannel for a public organisation,whether national or international, tofulfil the mission assigned to it.Procurement tends to be at the centre ofan organisation’s daily activities, and theefficiency of the process reflects on theoverall working of the organisation.

The natural requirement to ensure themost economical use of resources takeson a particular dimension for publicprocurement, where these resourcesusually stem exclusively from thetaxpayers.

It is therefore important to buildprocesses and practices that satisfy theprogramme they are serving, while at thesame time remaining flexible enough toincorporate new trends throughout theprocurement cycle, such as invitations totender and requests for proposals,evaluation of offers, cost auditing,contract conditions, price type,industrial policy, risk-sharing and risk-management.

A major element of the reform

programmes under way within ESA is toimprove procurement, both in terms ofinternal processes and policies for thecontractual relationships with industry.

ESA covers the whole spectrum ofprocurements: minor-value purchaseorders, off-the-shelf procurements,maintenance services, manpower servicecontracts, technical assistance activities,software procurements (with or withoutopen source codes), research anddevelopment contracts, co-funded con-tracts with industry, major developmentcontracts for ESA satellites, in-orbitinfrastructures and launcher develop-ment contracts.

All of these are handled by the ESAProcurement Department.

Auditing is directly linked to theprocess, before, during and after theprocurement. It plays a major support-ing role by auditing the labour, facilityand overhead rates used by industry forits proposals to and contracts with theAgency. Detailed audits are conductedunder cost-reimbursement and co-funded contracts.

While the industrial landscape hasdrastically changed in recent years, withcontinual mergers and take-overs, theprocurement procedures, processes andtools used by the Agency have basicallyremained the same. Within Agenda2011, the Director General and hisDirectors have targeted the evolution ofESA’s procurement process andindustrial policy for urgent action.

Within the Procurement Department,a dedicated structure will be set up tohandle the actions and the associatedplan leading to the required improve-ments.

The ESA Procurement EvolutionThe evolution of the procurementprocess is outlined below:

Small procurementsThe vast majority of ESA contracts arefor less than €250 000, but theiradministration by both the ProcurementDepartment and the initiating Director-ate demands a disproportionate amountof time for all concerned. The mainreason is that these contracts are basedon the same procedures as used for largedevelopment contracts.

A range of measures has simplifiedthe process, leading to shorter procure-ment cycles, which also benefitsindustry. All the changes accommodatethe standard checks and balances of thepublic procurement process. Lessons-learned will studied after the newprocedures have been introduced.

E-procurement toolsThe main objective for ESA in electronicprocurement is to meet the target set bythe European Union: to carry out atleast 50% of the procurements that havevalues above the EU’s specific thresholdfor each activity.

To achieve this, the first priority is tofocus on the labour-intensive smallprocurements, following published stan-dards on inter-operability and functionalrequirements.

Evolution of procurement regulations The Agency’s fundamental texts regula-ting procurement were drafted at theend of 1970s; only Part II of theGeneral Clauses and Conditions forESA contracts has been fundamentallyrevised recently. It is obvious thatEurope’s space industry has evolvedsignificantly during the same period. Itwill therefore be reviewed in detail inorder to reflect better the regulatory andindustrial environment.

Resources Management

esa bulletin 129 - february 2007 www.esa.int64

fiorilli 2/9/07 9:25 AM Page 64

Restructuring of industryThe restructuring of European industryinto monopolies or duopolies entitieshas implications for ESA’s procurementprocess. This restructuring affects notonly the satellite manufacturing indus-tries but also the satellite operators.

Important questions on strategicindustrial capabilities, capacities andskills need to be reviewed carefully,taking due account of the localsituations and investments in each of theESA member states.

Industrial contractual issuesWith the maturing of industry capabili-ties and competences and the increasedcomplexity of ESA programmes, thetime is opportune for a deep review ofcontractual issues governing therelationship between ESA and industry.

For end-to-end procurements, it isessential that the ESA programmerequirements are properly understoodby industry during a project’s Phase-Aand -B. It is equally important to ensurethat adequate financial envelopes areavailable for these initial phases, in orderto avoid costly development risks duringthe later Phase-C/D.

The full range of issues will bereviewed in consultation with industry,both with individual companies andEurospace. This will be followed by adetailed evaluation and decisions by theAgency’s Industrial Policy Committeeand Council.

Developments in Procurement and AuditingMost, if not all, of the different topicsbeing pursued are not unique to theESA environment, but are beingreviewed in parallel by other large public

performance (monitoring and measure-ment) and those relating to contracttermination.

Procurement authorities and industryThe relationship between procurementauthorities and the industrial reality willbe addressed. This includes the indus-trial policy dimension, IntellectualProperty Rights, and the effect of theevolving industrial landscape on theprocurement process and rules.

Procurement techniques, approaches andtoolsThe various workshops will addressprocurement phasing/cycles and compe-tition, such as frame contracting, spiraldevelopment and smart procurement.The use of lists and pre-qualification ofbidders will also be discussed, as well asthe form of dialogue between procure-ment authorities and (potential) biddersduring the tendering process. Theincreasing role of e-procurement willalso be addressed.

The audit processThis topic deals with the operationalaspects of the audit process. The

procurement entities. The key commondenominators are the high technologyinvolved and the lengthy durations ofthe programmes.

It is predominantly the space anddefence sector that is confronted bythese specialised procurement andauditing factors, which cannot becontrolled by market conditions to agreat extent.

The process of studying, reviewingand/or implementing the various newconcepts for procurement and auditingcannot be handled by ESA in isolation. Itneeds to be done in concert with ourcounterparts in industry, and to accom-modate the experiences and developmentsunder way in similar public procurementbodies, notably those in defence.

As a consequence, ESA will host aninternational symposium from 14 Mayto 16 May 2007 at ESTEC. The organis-ing committee is finalising a programmethat ensures overall coverage of themain topics, with various plenary andparallel sessions. Committee represent-atives are from the space and defencesector, involved in both awardingcontracts and receiving them.

presentations will focus on the involve-ment of public audit authorities in theagreement and acceptance of industriallabour, facilities and overhead ratesbaselined for industrial offers.

Important aspects of agreeing theindustrial rates is the handling of therecovery of self-financed research anddevelopment costs and the role of theinstitutional procurement authorities.

The costs of maintaining industrialcapabilities during periods of over-capacity is a recurring issue for the space and defence institutionalprocurement authorities. The role of theprocurement authorities, the planningprocess and the responsibilities ofindustry will be addressed duringpresentations and/or workshops. Thiswill thus also touch upon the practicalimplications of the changing industrialbusiness bases.

Long-term strategic partnershipsbetween procurement authorities andindustry, via multi-year rate agreements,is one of the options being applied.

Audit interfacesFor international procurement organisa-tions, the approach to cooperation withother international or national auditauthorities is an essential factor. Thesymposium will reflect on the differentinternational methodologies andapproaches to auditing in the space anddefence sectors.

Another important issue will be thebasic question of the right approach toauditing competitive and non-competitiveprocurements.

Different public procurement audit

authorities have different approaches forinsourcing or outsourcing of the auditactivities. Presentations will be made onthe advantages and disadvantages of thedifferent approaches, as well aspresenting the rationales for thedecisions made.

Finally, the role of the procurementauditor within the overall procurementprocess will be highlighted.

ConclusionThe procurement and auditing processneeds to adapt to the changing industriallandscape, the contractual models, newtools and the roles and responsibilities ofthe contractual partners.

This process of change is under waywithin ESA, with the approval of theCouncil and the Industrial PolicyCommittee. Extensive consultation hasbegun with the different players, and it is envisaged that the organisation ofthe international symposium willcontribute new ideas, suggestions andexperiences. e

The symposium alternates plenarysessions with keynote addresses andsplinter/parallel sessions.

The topicsBringing the key actors and decision-makers together in this symposium fromboth sides of the procurement fence willallow for a stimulating and interestingforum. The very essence of procurementis based upon an established partnershipof agreed objectives, principles andoutputs. Against this background, themain objective of the symposium is todetermine whether the lessons learnedfrom past high-technology/long-duration procurements, as seen fromboth sides, can lead to new ways ofdoing business together.

Contractual options in high-technology/long-duration procurementsThe symposium addresses the impact ofthe prevailing legal framework, thevarious types of contract models,contractual tools such as incentive/penalty schemes, variable profit schemes,risk-sharing, price types, earned valueschemes, and the elements linked to

Resources Management

esa bulletin 129 - february 2007esa bulletin 129 - february 2007 www.esa.intwww.esa.int 6766

Procurement

For further information on thesymposium, please seehttp://www.congrex.nl/07a01/

or contact:

Eric MorelHead of ESA Procurement DepartmentTel: +33 1 5369 7340Email: Eric.Morel@esa.int

Pieter van BeekhuizenHead of ESA Procurement AuditingDivisionTel: +31 71 565 3005Email: Pieter.van.Beekhuizen@esa.int

Stefano FiorilliHead of Space InfrastructureProcurement DivisionTel: +31 71 565 5054Email: Stefano.Fiorilli@esa.int

Pierre ReynaudHead of Procurement Management &Regulations DivisionTel: +33 1 5369 7161Email: Pierre.Reynaud@esa.int

fiorilli 2/9/07 9:25 AM Page 66

Restructuring of industryThe restructuring of European industryinto monopolies or duopolies entitieshas implications for ESA’s procurementprocess. This restructuring affects notonly the satellite manufacturing indus-tries but also the satellite operators.

Important questions on strategicindustrial capabilities, capacities andskills need to be reviewed carefully,taking due account of the localsituations and investments in each of theESA member states.

Industrial contractual issuesWith the maturing of industry capabili-ties and competences and the increasedcomplexity of ESA programmes, thetime is opportune for a deep review ofcontractual issues governing therelationship between ESA and industry.

For end-to-end procurements, it isessential that the ESA programmerequirements are properly understoodby industry during a project’s Phase-Aand -B. It is equally important to ensurethat adequate financial envelopes areavailable for these initial phases, in orderto avoid costly development risks duringthe later Phase-C/D.

The full range of issues will bereviewed in consultation with industry,both with individual companies andEurospace. This will be followed by adetailed evaluation and decisions by theAgency’s Industrial Policy Committeeand Council.

Developments in Procurement and AuditingMost, if not all, of the different topicsbeing pursued are not unique to theESA environment, but are beingreviewed in parallel by other large public

performance (monitoring and measure-ment) and those relating to contracttermination.

Procurement authorities and industryThe relationship between procurementauthorities and the industrial reality willbe addressed. This includes the indus-trial policy dimension, IntellectualProperty Rights, and the effect of theevolving industrial landscape on theprocurement process and rules.

Procurement techniques, approaches andtoolsThe various workshops will addressprocurement phasing/cycles and compe-tition, such as frame contracting, spiraldevelopment and smart procurement.The use of lists and pre-qualification ofbidders will also be discussed, as well asthe form of dialogue between procure-ment authorities and (potential) biddersduring the tendering process. Theincreasing role of e-procurement willalso be addressed.

The audit processThis topic deals with the operationalaspects of the audit process. The

procurement entities. The key commondenominators are the high technologyinvolved and the lengthy durations ofthe programmes.

It is predominantly the space anddefence sector that is confronted bythese specialised procurement andauditing factors, which cannot becontrolled by market conditions to agreat extent.

The process of studying, reviewingand/or implementing the various newconcepts for procurement and auditingcannot be handled by ESA in isolation. Itneeds to be done in concert with ourcounterparts in industry, and to accom-modate the experiences and developmentsunder way in similar public procurementbodies, notably those in defence.

As a consequence, ESA will host aninternational symposium from 14 Mayto 16 May 2007 at ESTEC. The organis-ing committee is finalising a programmethat ensures overall coverage of themain topics, with various plenary andparallel sessions. Committee represent-atives are from the space and defencesector, involved in both awardingcontracts and receiving them.

presentations will focus on the involve-ment of public audit authorities in theagreement and acceptance of industriallabour, facilities and overhead ratesbaselined for industrial offers.

Important aspects of agreeing theindustrial rates is the handling of therecovery of self-financed research anddevelopment costs and the role of theinstitutional procurement authorities.

The costs of maintaining industrialcapabilities during periods of over-capacity is a recurring issue for the space and defence institutionalprocurement authorities. The role of theprocurement authorities, the planningprocess and the responsibilities ofindustry will be addressed duringpresentations and/or workshops. Thiswill thus also touch upon the practicalimplications of the changing industrialbusiness bases.

Long-term strategic partnershipsbetween procurement authorities andindustry, via multi-year rate agreements,is one of the options being applied.

Audit interfacesFor international procurement organisa-tions, the approach to cooperation withother international or national auditauthorities is an essential factor. Thesymposium will reflect on the differentinternational methodologies andapproaches to auditing in the space anddefence sectors.

Another important issue will be thebasic question of the right approach toauditing competitive and non-competitiveprocurements.

Different public procurement audit

authorities have different approaches forinsourcing or outsourcing of the auditactivities. Presentations will be made onthe advantages and disadvantages of thedifferent approaches, as well aspresenting the rationales for thedecisions made.

Finally, the role of the procurementauditor within the overall procurementprocess will be highlighted.

ConclusionThe procurement and auditing processneeds to adapt to the changing industriallandscape, the contractual models, newtools and the roles and responsibilities ofthe contractual partners.

This process of change is under waywithin ESA, with the approval of theCouncil and the Industrial PolicyCommittee. Extensive consultation hasbegun with the different players, and it is envisaged that the organisation ofthe international symposium willcontribute new ideas, suggestions andexperiences. e

The symposium alternates plenarysessions with keynote addresses andsplinter/parallel sessions.

The topicsBringing the key actors and decision-makers together in this symposium fromboth sides of the procurement fence willallow for a stimulating and interestingforum. The very essence of procurementis based upon an established partnershipof agreed objectives, principles andoutputs. Against this background, themain objective of the symposium is todetermine whether the lessons learnedfrom past high-technology/long-duration procurements, as seen fromboth sides, can lead to new ways ofdoing business together.

Contractual options in high-technology/long-duration procurementsThe symposium addresses the impact ofthe prevailing legal framework, thevarious types of contract models,contractual tools such as incentive/penalty schemes, variable profit schemes,risk-sharing, price types, earned valueschemes, and the elements linked to

Resources Management

esa bulletin 129 - february 2007esa bulletin 129 - february 2007 www.esa.intwww.esa.int 6766

Procurement

For further information on thesymposium, please seehttp://www.congrex.nl/07a01/

or contact:

Eric MorelHead of ESA Procurement DepartmentTel: +33 1 5369 7340Email: Eric.Morel@esa.int

Pieter van BeekhuizenHead of ESA Procurement AuditingDivisionTel: +31 71 565 3005Email: Pieter.van.Beekhuizen@esa.int

Stefano FiorilliHead of Space InfrastructureProcurement DivisionTel: +31 71 565 5054Email: Stefano.Fiorilli@esa.int

Pierre ReynaudHead of Procurement Management &Regulations DivisionTel: +33 1 5369 7161Email: Pierre.Reynaud@esa.int

fiorilli 2/9/07 9:25 AM Page 66