Startup Strategy - Building a German GovTech-Valley or remaining in the paper-based Stone Age?

1. Federal Government published Startup-Strategy

On 27 July 2022 the Federal Cabinet approved the first comprehensive startup strategy. Federal Minister for Economic Affairs and Climate Action, Robert Habeck, stated in a joint press release: “It is essential to drive forward economic policy projects for the future, especially in difficult times like these. The Federal Government’s startup strategy therefore sends a very important signal. Startups are young innovative companies that want to grow. They generate new ideas and drive innovation. Startups push us toward the future. By creating better conditions for startups in both Germany and Europe, we are also boosting our strength as a business location.” Federal Minister of Finance, Christian Lindner, said: “I want to make Germany a Republic of Startups.” According to the joint press release many measures are already in preparation and will be implemented quickly.

2. What are the key objectives & measures due to public procurement?

Among others, to mobilise startup competencies for public contracts has been named as key objective. While the public sector awards contracts with a total volume worth well over 100 billion euros annually, estimates put the potential for innovative IT products and IT services at more than 10 % thereof. Thus, the State is of considerable importance for startups as potential client. However, to date, only 31 % of startups have made an effort to receive public contracts.

In order to give startups much more consideration in public procurement, the Federal Government wants to simplify, professionalise and digitise the procurement procedures. In this way, the State will be able to ensure greater efficiency in public administration and promote important projects, such as the transition of the energy and transport sector as well as the digital transformation in the healthcare sector.

In particular, the Federal Government has announced the following measures:

• The set up of an e-marketplace to improve the market overview and give startups the opportunity to present their innovations on the platform digitally.
• To improve the opportunities for startups to obtain digital information about attractive public tenders, a central notification service will be put in place which will provide access to notice data with respect to all the procurement procedures in Germany.
• The legally binding nature of innovative aspects will be strengthened in the procurement procedure. IT development projects will usually be commissioned as open source and the corresponding software will be made public.
• Focus will be placed on instruments of innovative public procurement and on the interests of small and medium-sized enterprises. The Federal Government intends to intensify the promotion of open-solution tenders with functional performance specifications that contain the objective and the scope of delivery, but do not yet include the technical solution.

3. Conclusion – will Germany successfully master the transformation to GovTech?

There are reasonable doubts whether the measures outlined above will be sufficient and expedient. Should IT development projects usually be commissioned as open source, the business models of the awarded startups are likely to fail immediately. This is because the source codes of most innovative solutions developed by IT startups are their unique selling proposition and therefore their most important business secret. In addition, cloud computing will dominate in all business areas. But especially in cloud computing, the disclosure of source code is totally unusual. Moreover, the intention of the Federal Government to switch to open source projects lacks seriousness as studies show that the German administration is heavily dependent on a few software providers especially on Microsoft (e.g. Outlook, Exchange and Windows Server).

However, the German success or failure to master the transformation to GovTech must be assessed by the progress of Germany’s two most important IT projects (e.g. the healthcare-Telematikinfrastructure, sec. 306 ff. SGB V & the digitalisation of administrative services - OZG). Therefore, the Federal Government should first and foremost simplify the complex national regulatory frameworks (e.g. sec. 306 ff. SGB V) which do not reflect the requirements of practical application. In comparison to these the EU-public procurement framework is well structured and therefore does not set an obstacle. Digital transformation requires abstract general regulations instead of broad catalogues of laws.