Government procurement in the European Union

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Government procurement in the European Union is the awarding of contracts for public works and for the purchase of goods and services by the public authorities of the European Union (EU) and its member states. Government procurement represents 13.5% of EU GDP as of 2007,[1] and has been the subject of increasing European regulation since the 1970s because of its importance in the European single market.

Because the implementation of EU government law by national governments is far from uniform and sometimes weak – in 2002, for instance, only 16% of governmental calls to tender were published – government procurement has been called "the weakest link in the common market".[2]

Legislative history[edit]

Primary legislation[edit]

The basis of European procurement regulation are the provisions of the Treaties of the European Union that prohibit barriers to intra-Union trade, provide the freedom to provide services and the right to establishment (three of the "Four Freedoms"), prohibit discrimination on the basis of national origin and regulate public undertakings and public monopolies.[3] But these rules, being prohibitive in character, proved insufficient to eliminate the protection afforded by Member States to domestic enterprises by preferential procurement practices.[3] For this, positive regulation through secondary legislation which harmonized the procurement laws of Member States appeared to be needed.[4]

First generation of secondary legislation: Supply and Works Directives[edit]

The European Communities (EC) Council of Ministers adopted General Programmes in 1962 that envisaged the abolition of national quotas and restrictions in public procurement.[5] Directive 66/683 prohibited rules requiring the use of national products or prohibiting the use of foreign products in public procurement, and Directive 70/32 applied the same rule to public supply contracts.[6]

The procedures for awarding public supply contracts were co-ordinated with Directive 77/62, which introduced three fundamental principles: contracts had to be advertised community-wide, discriminatory technical specifications were prohibited and tendering and award procedures had to be based on objective criteria. However, it did not apply to public utilities, or to products originating outside the EC until its amendment by Directive 80/767 following Community approval of the 1979 General Agreement on Tariffs and Trade (GATT) Agreement on Government Procurement.[7]

Similar principles of transparency and non-discrimination were applied to the awarding of public works contracts with Directive 71/305, which however did not replace national tendering procedures and practices with a set of common rules.[8]

Second generation of secondary legislation: Utilities Directive[edit]

The European Commission's 1985 White Paper for the Completion of the Internal Market identified Member States' public procurement policy and practice as a significant non-tariff barrier to the free circulation of goods and provision of services in Europe[9] because it tended to favour national providers, thereby sheltering markets from competition and distorting trade patterns.[10] The paper and the Single European Act of 1986 which it led to are the conceptual foundation of current EU procurement law.[11]

On this basis, Directive 88/295 amended all previous public supplies directives. Open tendering procedures were now the norm and negotiated procedures were allowed only in exceptional circumstances. Purchasing authorities now had to publish advance notices of their annual procurement programmes as well as details of each award decision. National technical standards now had to be mutually recognised, and the exempted sectors were more clearly defined.[12]

Directive 89/440 likewise amended the previous public works directives. Their scope of application was widened, now also covering concession contracts and certain state-subsidized works, and consortial participation in contracts was allowed.[13]

The most important change was the adoption of the first Utilities Directive, Directive 90/351. Public utilities – the energy, telecommunications, transport and water sectors – had so far escaped European procurement law harmonisation because of the strongly divergent national legal régimes governing them, and possibly also because their large purchasing volume constituted an instrument of national industrial policy that governments were reluctant to give up.[14] The removal of market access barriers in this sector was largely enabled by the concurrent liberalisation of the European telecommunications industry and by the envisaged global liberalisation of public procurement in the Uruguay Round of GATT negotiations.[15] The first Utilities Directive generally followed the approach of the Supply and Works directives, but provided for the exemption of several sectors such as broadcasting, or for utilities operating under competitive conditions.[16]

Moreover, with the first Remedies Directives, 89/665 (relating to public works and supply contracts) and 92/13 (relating to public utilities), Member States were required to ensure rapid and effective judicial review of decisions by contracting authorities. The directives also introduced the "attestation procedure" as a way for contracting authorities to certify the compliance of their purchase procedures and practices with procurement law.[17]

Third generation of secondary legislation: Services Directive and consolidation[edit]

Following the official completion of the single market project in 1992, the attention of the European institutions shifted towards the service sector, in view of its ever-increasing macroeconomic importance. The Services Directive, 92/50, attempted to contribute to the liberalisation of public sector services by introducing a régime similar to that governing the procurement of goods, works and by public utilities. It also introduced a new award procedure, the design contest.[18] But its scope excluded several specific services, as well as service concessions, maybe due to certain national constitutional restrictions against the outsourcing of public services.[19] It also distinguished between "priority" services, to which the whole range of procurement disciplines applied, and "non-priority" services, whose procurement was subject only to basic non-discrimination and publicity rules.[20]

In 1993, the older Supplies, Works and Utilities directives were re-adopted in a consolidated form as Directives 93/36, 93/37 and 93/38. This was to make the legal framework more homogeneous, but the changes to the Works Directive included significant clarifications and a special, mitigated régime for the award of concession contracts.[21]

Fourth generation of secondary legislation: further consolidation[edit]

In 2004, procurement legislation was again consolidated following the principles of simplification and modernisation. The new legal framework is based on a clear-cut dichotomy between utilities and the rest of the public sector. While the procurement of the former remains governed by a new Utilities Directive, Directive 2004/17 "coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors", the other three directives were amalgamated into a single "Public Sector Directive", Directive 2004/18 "on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts", which now governs procurement by public authorities other than utilities.[22] The 2004 directives, apart from simplifying and clarifying the existing law, introduce a new procurement procedures, the competitive dialogue, and allow the procurement of framework agreements. They had to be transposed into national law by 31 January 2006.

Finally, in 2007, the Remedies Directives were also updated by Directive 2007/66 "amending Directive 89/665 and 92/13 with regard to improving the effectiveness of review procedures concerning the award of public contracts".

Aims and principles[edit]

The European Commission estimates that the elimination of trade barriers resulting from discriminatory and preferential procurement practices may bring about savings to the European economy of about 0.5% of EU GDP,[23] which would be about USD 92 billion in 2008. These savings are thought to be the result of three effects: The trade effect represents the actual and potential savings as a result of lower purchase prices than can be had from a broader pool of suppliers. The competition effect represents the improvement, as a result of increased competition, in the efficiency and performance of previously sheltered national firms, and manifests as price convergence. Finally, the restructuring effect represents the long-term structural adjustment of the industries servicing the public sector in reaction to the trade and competition effects.[24]

To effect this, the Public Procurement Directives seek to base procurement on the following principles.[25]

Transparency[edit]

Transparency in European government procurement is achieved through the publication, in the Official Journal, of three types of notices:

  • Periodic Indicative Notices (PIN) indicate the annual estimated procurement volume for every contracting authority
  • Invitations to tender are the formal invitations to suppliers to tender offers that start the process of awarding a contract.
  • Contract Award Notices (CAN) notify the public about the award of a contract to a successful tenderer, including the price and the reason for the selection.

Transparency increases price competition among suppliers, resulting in lower purchase prices, because publications make more suppliers aware of business opportunities, and they also know that their competitors will too have seen the publications. CANs also send important price signals to the market. But the increased competition may drive down prices down to a level where poor quality or predatory pricing become a concern. It also wastes effort on the part of the many unsuccessful tenderers and of the authority who has to evaluate many tenders.[26]

De minimis thresholds[edit]

In part because of the above-mentioned problem, the Directives apply only to contracts whose value (VAT excluded) exceeds certain thresholds. Other contracts, whose value is considered de minimis, are not required to be awarded under the Directives' procedures (though the basic rules of the European Treaties, such as non-discrimination, still apply).[27]

The thresholds are (as last amended by Regulation 1177/2009 of 30 November 2009):[28]

  • €125,000 for public sector supply and service contracts as well as design contests of central government authorities: (Directive 2004/18/EC[29] article 7(a), article 67(1)(a))
  • €193,000 for public sector supply and service contracts as well as design contests of other authorities (Directive 2004/18/EC article 7(b), article 67(1)(b))
  • €193,000 for service contracts that are more than 50% state-subsidized: (Directive 2004/18/EC article 8(b))
  • € 387,000 for utility supply and service contracts, including service design contests (Directive 2004/17/EC[30] article 16(a), article 61)
  • €4,845,000 for public sector and utility works contracts, as well as for contracts that are more than 50% state-subsidized and involve civil engineering activities or hospital, sports, recreation or education facility construction (Directive 2004/17/EC article 16(b); Directive 2004/18/EC article 7(c), article 8(a))
  • €4,845,000 for public works concession contracts (Directive 2004/18/EC article 56, 63(1))

The de minimis principle allows authorities to avoid an expensive and lengthy tendering and award procedure for low-value contracts where the costs of the procedure would exceed the public welfare benefits of the increased transparency and competition associated with the procedure. A 1995 Commission study shows that this "sub-dimensional" public purchasing, which remains unaffected by the procedural disciplines of the Directives, appears to be at least three times the size of "dimensional" (i.e., above-threshold) purchasing.[31]

But the de minimis principle also provides an incentive for authorities to divide contracts into separate lots for the purpose of avoiding bothersome procedures. Although the Directives prohibit doing this, such avoidance of procurement law is difficult to detect and enforce (as of 2007 no case relating to it had ever been before the ECJ), and it is thought to be mainly responsible for the observed low percentage of all public contracts that are published in the Official Journal.[32]

Procedures[edit]

There are several different procedures available for public authorities. These include the Open, Restricted, Negotiated and Competitive Dialogue procedures. Each of these procedures sets its own limitations on the procuring authority, which must be considered when choosing the appropriate procedure.

The procedure is intended to be fully transparent with the intention of creating a free and competitive Europe-wide market. The rules state that for projects above a certain financial threshold[33] (about €100K) a contract notice must be published in Supplement S of the Official Journal of the European Union OJEU previously known as [OJEC S-Series]. Nowadays the information is available immediately on the web from Tenders Electronic Daily.[34]

The buyer can advertise the contract more widely, but cannot do so before it has dispatched a notice for publication in the OJEU, and is forbidden from including information that isn't given there.

After the prescribed date, the bids are opened and assessed, and either the "lowest cost" or "most economically advantageous tender" is chosen. The contract award must also be reported in the OJEU.

The system is under constant revision to avoid misuse. Rejected bidders are granted up to ten days to challenge a decision, and the European Commission routinely acts to police infringements.[35]

Special forms of procurement[edit]

Framework agreements[edit]

The 2004 Public Sector Directive codified rules for the procurement of goods and services through framework agreements. These are not in themselves procurement contracts, but they set out the terms of such contract with suppliers in advance over a set time.

Public-private partnerships[edit]

Public-private partnerships are not subject to special rules in EU procurement law, but must follow the rules and principles resulting from the European Treaties, including those embodied in secondary legislation.[36] In 2000, the European Commission published an "interpretative communication on concessions under Community law",[37] and in 2004 it published a "Green Paper on public-private partnerships and Community law on public contracts and concessions",[38] which takes stock of existing practices from the perspective of European law and is intended to launch a debate on whether a specific legal framework should be drawn up at the European level. Competitive dialogue was created with the aim of making the award of public-private partnerships easier,[39] since before its creation a Contracting Authority faced the choice of the restricted procedure, which is often too inflexible for such contracts, or the negotiated procedure, which is intended to be an exceptional procedure with specific legal justifications. Its use so far in the EU, has, however, been uneven. Up to June 2009, more than 80% of the award procedures using competitive dialogue have been launched in two EU Member States i.e. France and the United Kingdom.[40]

Bibliography[edit]

  • Bovis, Christopher H. (2007). EU Public Procurement Law. Elgar European Law Series. Edward Elgar Publishing. ISBN 978-1-84720-947-4. 
  • Burnett, Michael (with Oder, Martin) "Competitive Dialogue – A practical guide", European Institute of Public Administration, 2010
  • Sanchez Graells, Albert "Public Procurement and the EU Competition Rules", Hart Publishing, 2011

See also[edit]

References[edit]

  1. ^ Bovis (2007), viii.
  2. ^ Bovis (2007), 61.
  3. ^ a b Bovis (2007), 10.
  4. ^ Bovis (2007), 11.
  5. ^ J.O. 1962 36/32; Bovis (2007), 17.
  6. ^ Bovis (2007), 18.
  7. ^ Bovis (2007), 19–20.
  8. ^ Bovis (2007), 21.
  9. ^ Bovis (2007), 2–3.
  10. ^ Bovis (2007), 5.
  11. ^ Bovis (2007), 4.
  12. ^ Bovis (2007), 23.
  13. ^ Bovis (2007), 23–25.
  14. ^ Bovis (2007), 26–27.
  15. ^ Bovis (2007), 28–29.
  16. ^ Bovis (2007), 30–33.
  17. ^ Bovis (2007), 39.
  18. ^ Bovis (2007), 40–42.
  19. ^ Bovis (2007), 43.
  20. ^ Bovis (2007), 44.
  21. ^ Bovis (2007), 45.
  22. ^ Bovis (2007), 49–50.
  23. ^ Bovis (2007), 13.
  24. ^ Bovis (2007), 13–14.
  25. ^ Bovis (2007), 65–66.
  26. ^ Bovis (2007), 67–68.
  27. ^ Bovis (2007), 70.
  28. ^ Commission Regulation (EC) No 1177/2009 of 30 November 2009 amending Directives 2004/17/EC, 2004/18/EC and 2009/81/EC of the European Parliament and of the Council in respect of their application thresholds for the procedures for the award of contracts
  29. ^ Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts
  30. ^ Directive 2004/17/EC of the European Parliament and of the Council of 31 March 2004 coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors
  31. ^ Bovis (2007), 70, citing Commission document CC 9364, 1995.
  32. ^ Bovis (2007), 71–72.
  33. ^ tendersdirect.co.uk – thresholds
  34. ^ ted.europa.eu – Tenders Electronic Daily
  35. ^ European Commission > Internal Market > Public Procurement > Infringements
  36. ^ Bovis (2007), 52.
  37. ^ Commission interpretative communication on concessions under Community law
  38. ^ Green Paper on public-private partnerships and Community law on public contracts and concessions, see also the Summaries of EU legislation > Internal market > Businesses in the internal market > Public procurement > Green Paper on public-private partnerships
  39. ^ Barlow, J. Roehrich, J.K. and Wright, S. (2010).De facto privatisation or a renewed role for the EU? Paying for Europe's healthcare infrastructure in a recession. Journal of the Royal Society of Medicine. 103:51–55.
  40. ^ Burnett and Oder (2010), 34.

External links[edit]