# EUR-Lex - 52013SC0040 - EN

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# 52013SC0040

**COMMISSION STAFF WORKING DOCUMENT 3rd Biennal Report on Social Services of General Interest Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Towards Social Investment for Growth and Cohesion – including implementing the European Social Fund 2014-2020 /* SWD/2013/040 final */**

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Contents

1..... Introduction.. 2

2..... The new
State Aid Package for Services of General Economic Interest  7

2.1.    The Communication: clarifying
the basic concepts to make it easier to apply State aid rules  9

2.2.    The Decision: aid for social
services does not need to be notified. 11

2.3.    The Framework – when aid has
to be notified. 15

2.4.    The SGEI de minimis Regulation:
making it simpler to finance small amounts. 16

3..... Modernising
Public Procurement Rules. 19

3.1.    The rules currently in force:
a light regime for social services. 19

3.2.    The 2011 Commission proposal:
simpler, clearer and more adapted public procurement rules. 21

4..... The 2013
Guide. 27

5..... Conclusions. 32

1. 
Introduction

Investing in high-quality, affordable and
efficient social services is needed today more than ever. This report, which is
part of the Social investment Package, will help public authorities and
stakeholders to understand and implement the revised EU rules on social
services and thus to invest in the sector in a safer way, in compliance with the
EU legal framework.

At the same time, by applying EU rules on
State aid and public procurement in a correct way, as shown in the report,
public authorities will be able to reap the benefits in terms of transparency,
efficiency and responsiveness to social purposes that these rules offer: they
will thus maximise the return of the resources that they are investing in
social services.

Social services of
general interest at the heart of the EU policies

In 2006, for
the first time, the European Commission described in a Communication[1]
what constitute Social Services of General Interest (SSGI). It identified two
broad types of services, namely:

statutory and
  complementary social security schemes covering the main risks of life; and
 services provided directly to the person,
  such as social assistance services, employment and training services,
  childcare, social housing or long-term care for the elderly and for people
  with disabilities.

In 2007,[2]
the Commission refined its analysis of SSGI and highlighted a certain
number of objectives that social services pursue — such as responding to vital
human needs, contributing to non-discrimination and creating equal
opportunities. The Commission also highlighted the principles of organisation which
are common to these services — such as solidarity, proximity, comprehensiveness,
personalisation and an asymmetric relationship between user and provider.

Both documents show that social services
play a prevention and social cohesion role in European societies. They not
only help people to live in dignity and enjoy their fundamental rights, but
also to fulfil their potential and to take part in society.

In recent years, moreover, the social
services sector has shown its potential for creating jobs. The Commission
highlighted this in its first and second Biennial Reports on social services
of general interest published in July 2008[3] and October 2010[4] and in the Employment
Package adopted in April 2012.[5]
More recently, the EU Employment and Social Situation Quarterly Review of
December 2012[6]
has indicated that the share of employment in the ‘white jobs’ sector[7] grew from 8,4% to 10,1%
between 1995 and 2011 and that this was among the very few sectors
recording a net job creation between 2008 and 2011, when employment
dramatically declined in the EU.[8]

Social services are therefore essential for
fostering inclusive growth: economically, expenditure on these services enhances
human capital and thus is a form of investment, a social investment with
mid- to long-term return to individuals, society and the economy as a whole.

This is why the Annual Growth Survey 2013,[9] when calling for additional
efforts to promote social inclusion and to tackle poverty, asks the Member
States to ensure ‘broad access to affordable and high-quality
services such as social and health services, childcare, housing and energy
supply’.

The contribution social services can make to
the Europe 2020 Strategy[10]
has also been expressed in Country Specific Recommendations adopted as part of the
2011 and 2012 ‘European Semesters’. These recommendations were
addressed to 18 Member States and covered a variety of social services
(childcare, long-term care, family support services, public employment
services, training and life-long learning). They encouraged the Member States
to increase the provision of these services, to make them more effective and
more efficient, to improve their quality and to ensure they are widely
available and affordable.

Moreover, ‘enhancing access to
affordable, sustainable and high-quality services, including healthcare and
social services of general interest’ is one of the ‘key actions’ for the
European Social Fund (ESF) — according to the Common Strategic Framework
drawn up by the Commission[11]
to help Member States plan for the next structural fund programming
period.

In recent years the Commission has also been
working to improve the quality of social services — for example by financing
local authorities’ and stakeholders’ initiatives[12] and by playing an active part in
the work of the Social Protection Committee (SPC), which led to the adoption in
October 2010 of the voluntary European Quality Framework for Social
Services.[13]

The
on-going debate on the application of EU rules to SSGI

The political recognition of the social
services’ role in the European social model, the encouragement for Member
States to deliver high-quality, affordable and effective social services and,
more specifically, the promotion of social services’ quality do not exhaust the
debate about social services at EU level. Another issue has dominated the scene
for at least the last decade: the application of EU rules on State aid,
internal market and public procurement to social services.

This issue has been so controversial as to
be considered a ‘persistent irritant in the European public debate’,
as Mario Monti put it in his report on the Single Market in May 2010.[14] Indeed, in recent years, several
public authorities and civil society organisations representing service users
and providers have claimed that the EU rules create unnecessary difficulties. They
claim these rules make it harder to organise and finance the services; that
they lead to the liberalisation, privatisation and deregulation of the sector, and
to the provision of poor-quality services.

For instance, in 2010, the Informal Network
of Social Service Providers (INSSP) published a report of a seminar about the
impact of EU legislation on social services which states that the EU rules ‘in
many cases impact in a negative manner on the sector of social NGOs, part of
the social economy, and specifically on the quality of social services’.
INSSP admits however that the negative effects ‘are not only due to the EU
rules but also linked to the way national and local authorities implement these
rules. Some authorities misunderstand the rules or implement them in a way that
is more restrictive than necessary ...’.[15]

The Commission has argued against these
views, explaining that EU rules already take into account the specific
characteristics of social services and that, if the public authorities apply
them correctly, these rules can help them organise and finance high-quality
cost-effective social services in a transparent manner. Member States have an
ample choice of modes of organisations of the services in line with their
traditions and cultural backgrounds.[16]

The Commission has also published two sets
of ‘frequently-asked questions’ (FAQs) offering guidance on State aid and
public procurement.[17] It has set up an interactive
information service (IIS),[18] answering questions from
citizens, public authorities, service users, service providers and other
stakeholders. In December 2010, the FAQ documents were updated and put
together as a Guide to the application of the European Union rules on state
aid, public procurement and the internal market to services of general economic
interest, and in particular to social services of general interest.[19]

To promote dialogue with all the
stakeholders and to help them understand the EU rules, the Commission
(together with the rotating Presidencies of the Council) organised
three SSGI Forums. These were held in Lisbon in September 2007, in Paris
in October 2008 and in Brussels in October 2010. The
Commission has also regularly discussed this issue with the Member States,
in particular within the SPC.[20]

In the same logic, in 2006,[21] the Commission undertook to
establish ‘a monitoring and dialogue procedure in the form of biennial
reports’ in order to ‘improve the reciprocal knowledge of
operators and the European Commission of questions concerning the application
of Community rules to the development of social services and to deepen the
exchange of information between the operators and the European
institutions’

The
contents of the third Biennial Report

This third Biennial Report gives an
account of the two most significant developments of the last two years at EU
level affecting SSGI. First, on 20 December 2011 the Commission published
a comprehensive package which includes new State aid rules applying to services
of general economic interest (SGEI — see Chapter 2 of this report) and proposals
for new Directives on public procurement and concessions (see Chapter
3). The package was introduced by the Commission Communication ‘A Quality
Framework for Services of General Interest in Europe’,[22] which sets out in a
comprehensive manner the Commission’s approach to services of general interest
(SGI).

The new set of rules both on State aid and
public procurement[23]
represents real progress, as it brings the clarification and simplification
that Member States and civil society organisations have been wishing for.
Moreover, these new rules are more flexible, predictable and proportionate.
Being simpler to comply with, the new rules will make life much easier for
public authorities in the Member States and, at the same time, benefit citizens
by making the organisation and financing of social services more efficient and
effective.

Second, following the adoption of the new
State aid rules, the Commission updated in February 2013 the 2010
Guide on EU rules applying to SGEI and in particular to SSGI.[24]

The 2013 Guide,[25] like its predecessor and the FAQs[26], is a Staff Working
Document prepared by the Commission’s services to help public authorities
better understand and apply EU rules. Like the 2010 Guide, it covers the three
main sets of EU rules applying to SGEI: State aid, public procurement and
internal market rules. It takes the form of very concrete questions, inspired
by the questions that the Commission officials receive through the Interactive
Information Service[27]
and through their regular contacts with public authorities, service users and
providers and other civil society representatives and stakeholders, and simple,
yet comprehensive, answers. These answers, while they do not bind the European
Commission as an institution, express the position of the services responsible
for monitoring the application of EU rules and having a thorough knowledge of
such rules.

The 2013 update does not only reflect the
changes on State aid rules but also takes into consideration the work done by
the SPC informal working group on the application of EU rules to
SSGI,[28]
which was mandated by the Council to conduct an analysis of the new
guide prepared by the Commission services on State aid, internal market and
public procurement rules.[29]

This updated guide (see Chapter 4) is a
further step in providing clarity and guidance to public authorities and service
providers, helping them implement the new rules in a correct way and thus
making it easier, more cost-effective and safer to invest in social services.

******

The first two Biennial Reports[30] had a
section presenting data on employment trends in the sector and on social
services expenditure. These data are now presented in the EU Employment
and Social Situation Quarterly Review of December 2012.[31]

2. 
The new State Aid Package for Services of General Economic
Interest[32]

As stated by Commission Vice-President
Joaquím Almunia, on the day of its adoption, the SGEI package ‘provides
Member States with a simpler, clearer and more flexible framework for
supporting the delivery of high-quality public services to citizens which have
become even more necessary in these crisis times’.

Often known as the ‘Almunia package’,
it consists of four instruments. They apply whenever public authorities in the
Member States (be they national, regional or local authorities)
finance SGEI. They therefore apply to social services of an economic
nature.

The contents of the Almunia
package

– the Communication[33]
clarifies the basic concepts of State aid which are relevant for SGEI;

– the revised Decision[34]
defines the conditions under which financing for a SGEI (the ‘public service
compensation’) is compatible with the internal market and does not need to be
notified to the Commission;

– the revised Framework[35]
sets out the rules the Commission will use when assessing SGEI compensation
that is not exempted from notification by the Decision. All such compensation has
to be notified to the Commission that will then decide on its compatibility
with the internal market;

– the SGEI de minimis Regulation[36] provides that SGEI
compensation which amounts to less than € 500 000 per undertaking[37]
over three fiscal years does not fall under State aid scrutiny.

The Almunia package is the updated version
of a package adopted by the Commission in 2005 in the aftermath of the
Altmark judgment.

The Altmark judgment

In the Altmark judgment[38]
the Court of Justice held that the public service compensation granted by
public authorities to the providers of services of general interest does not
constitute State aid if four cumulative criteria are met:

– first, the service provider must actually have public service
obligations to discharge, and the obligations must be clearly defined;

– second, the parameters on the basis of which the compensation is
calculated must be established in advance in an objective and transparent
manner;

– third, the compensation cannot exceed what is necessary to cover all
or part of the costs incurred in the discharge of the public service
obligations, taking into account the relevant receipts and a reasonable profit;

– finally, where the service provider is not chosen pursuant to a
public procurement procedure which would allow for the selection of the bidder
capable of providing those services at the least cost to the community, the
level of compensation needed must be determined on the basis of an analysis of
the costs which a typical service provider, if well run and adequately
equipped, would have incurred.

In other words, the Court ruled that financing an
SGEI is not State aid if it is meant to fund a well-identified task (the first
criterion), if the financing conditions have been defined in a clear and
transparent way, ensuring that it does not exceed the costs of the SGEI (the
second and third criteria), and if the service is provided in a cost-efficient
manner (the fourth criterion).

If these four criteria are not met, the
financing of a social service of economic nature (e.g. a grant given by a local
authority to an NGO providing long-term care to the elderly) constitutes State
aid. Such State aid could be illegal and the NGO that received the grant would
have to repay it to the public authority.

Following the Altmark judgment, the
Commission, aware that in many instances the financing of SGEI in the Member
States might not have met the four Altmark criteria and might thus
constitute State aid, decided to provide legal certainty and to clarify the conditions
under which State aid for the provision of SGEI would be compatible with the
internal market. It therefore published in 2005 a first package, known
as the ‘Monti-Kroes’ or ‘Altmark’ package, consisting of a Decision[39] and a Framework.[40]

The experience gained with the application
of the 2005 package led to its revision in 2011, following a wide-ranging
consultation of stakeholders.[41]

The four instruments of the new package are explained in greater detail below. They are particularly
relevant for social services as these services are highly dependent on
public financing.[42]
Social service providers regularly receive grants and other forms of financing that
might not fulfil the four Altmark criteria and could thus constitute potentially
illegal State aid.

Complying with the State aid package is
therefore a must to ensure the legality of such public financing and thus
secure the investment needed for social services.

2.1. 
The Communication: clarifying the basic concepts
to make it easier to apply State aid rules

The Communication is a novel feature of the
2011 package as for the first time a document in the package clarifies the
basic concepts, a need expressed on various occasions by the public authorities
in the Member States and by the service providers.

On the basis of the rulings of the Court
and of the Commission’s decision practice, the Communication explains some
general concepts, such as ‘undertaking’ and ‘economic activity’, ‘State resources’
and ‘effect on trade’ relevant for the application of State Aid rules.

The Communication underlines that, just
because a service is financed in a particular way, or the service provider is a
non-profit organisation, this does not mean that the financing of the service
by a public authority falls outside State aid control: State aid rules
apply to the financing of social services of an economic nature even if the body
providing the service has a non-profit status.

When clarifying the distinction between economic
and non-economic activities, the Commission presents an overview of Court
rulings on social security schemes. It refers to the criteria used by the Court
to determine whether a social security scheme is solidarity-based and therefore
does not involve an economic activity and does not fall within the scope of
State aid rules. The Court considers, for example, whether membership of the
scheme is compulsory or voluntary, whether it has a social purpose, whether the
benefits depend on the contributions made or are proportionate to the earnings
of the person insured, and whether there is State supervision of the scheme.

The Commission also provides guidance on
meeting the four Altmark criteria —which, if complied with, means that
the financing of a social service does not count as State aid.

In relation to the first Altmark criterion (the existence of a
service of general economic interest), the Communication explains that:

– SGEI are services with special characteristics that distinguish them
from other economic activities;

– Member States have a wide margin of discretion in defining an SGEI
and the Commission only checks for manifest error;

– a public service obligation cannot be imposed for an activity which
already is or can be satisfactorily provided by the market ‘under conditions,
such as price, objective quality characteristics, continuity and access to the
service, consistent with the public interest, as defined by the State’;

– 
a SGEI must be addressed to citizens or be
in the interest of society as a whole.

The third element of clarification in the
above list is very useful for social services. Take, for instance, services
that are provided satisfactorily under normal market conditions to address a
demand from the general public. Normally, there would be no room for a public
service obligation. However, if the same type of service is provided for vulnerable
or disadvantaged people, the public authorities may have specific requirements
regarding its price, quality, continuity and accessibility that differ from the
conditions under which the service is provided by the market. Such requirements
would, in particular, aim at making sure the service responds to the needs of
the vulnerable or disadvantaged people and that they can afford it. Therefore,
as the requirements of the public authority are not met by the market, the
public authority may consider the provision of the service to these people as
being of ‘general interest’.[43]

A typical
case

Home
cleaning services are normally provided by the market to the general public. At
the same time, they can be part of the delivery of social policies, such as
long-term care programmes, aiming to ensure that the elderly or people with
disabilities continue living within their communities and not in institutions.
In these circumstances, home cleaning services for the elderly or for people
with disabilities could acquire a ‘general interest’ character that they do not
have when they are provided to the rest of the population. A public authority
could therefore define such home cleaning services as SGEI and could organise
and finance their provision so as to ensure that these users have access to
these services (for example, by providing them free of charge or at a price
lower than the market price).

The Communication provides guidance on ‘the’
essential tool for the definition of a SGEI — the act of entrustment
that defines the obligations of the service provider. It reminds the reader that
this act may take a variety of forms, depending on the legislation in force in the
Member State concerned, and that it must include a certain number of elements
(clear identification of the obligations of the service provider; parameters
for calculating, controlling and reviewing the compensation; arrangements for
recovering any overcompensation).

The Communication also provides
clarification on the compensation parameters, which have to be
established in advance in an objective and transparent manner. No specific
formula is required, but it must be clear from the outset how the compensation
will be calculated.

In order to avoid overcompensation,
the amount of the public service compensation must be limited to what is
necessary to cover the costs incurred in discharging the public service
obligation, taking into account receipts and a reasonable profit. The
reasonable profit should be taken to mean the rate of return on capital
required by a typical company considering whether or not to provide the
service, taking into account the risk level.

The Communication also deals with the interplay
between State aid and public procurement rules when it comes to meeting the
fourth Altmark criterion. This section offers guidance on the degree to which
the use of the different public procurement procedures and the different award
criteria foreseen in the Public Procurement Directives can ensure that the
service is provided ‘at the least cost to the community’ and therefore satisfy
the first leg of the fourth Altmark criterion.

The guidance
can be summarised as follows:

· 
the open procedure is sufficient to
ensure compliance with the first leg of the fourth Altmark criterion;

· 
the restricted procedure is in
principle sufficient to do so;

· 
the negotiated procedure with prior
publication and the competitive dialogue are sufficient only in rather
exceptional cases;

· 
the negotiated procedure without publication
is not sufficient.

As regards award criteria, the ‘lowest
price’ criterion is generally sufficient. The criterion of the ‘most
economically advantageous tender’ (MEAT - which can include criteria
relating to the quality of the service as well as environmental and social
criteria) is sufficient provided that the award criteria are closely related to
the subject-matter of the service provided.

A typical
case

A local
authority which uses an open call for tender to select a provider of training
services for the long-term unemployed can safely presume that the compensation
it gives to this provider complies with the 4th Altmark criterion.

The Communication also provides guidance for
situations where the provider is not selected through a public procurement
procedure and therefore a comparison with a typical well-run provider is
necessary to ensure the cost-effectiveness check that the fourth Altmark
criterion requires.

2.2. 
The Decision: aid for social services does not
need to be notified

The Decision sets out the conditions under
which public service compensation (i.e. the financing of a service of general
interest by a public authority) that constitutes State aid is compatible with
the internal market and does not need to be notified to the Commission.

This is the component of the 2011 package
which brings the most significant simplification for the providers of social
services. Under the 2005 Decision, the only services exempted from prior notification
regardless of the level of financing were social housing and hospitals.[44] The 2011 Decision in Article
2(1)(c) extends the scope of this exemption to all services ‘meeting
social needs as regards health and long term care, childcare, access to and
reintegration into the labour market, social housing and the care and social
inclusion of vulnerable groups’.[45]

For the remaining SGEI, the notification
threshold of the Decision has been lowered from € 30 million to € 15
million of annual compensation per SGEI and the threshold for the turnover of
the service provider has been eliminated.

This alleviates the administrative
burden for the public authorities in the Member States: when they finance social services, they no longer have to go through
the process of notifying the financing measures to the Commission. This is
also good news for the social service providers as they too are spared the
burden of following the notification process.

The exemption of notification for SSGI
reflects the diversified and proportionate approach followed by the Commission
in its reform of State aid rules:[46]
the degree of the Commission’s State aid scrutiny depends on the nature
and scope of the service provided. In other words, the Commission recognises
that the risks for competition are much greater for large-scale activities with
a clear EU-wide dimension than for social services often organised at
local level.

To achieve as much legal certainty as
possible for public authorities and service providers, the exemption applies to
an exhaustive list of social services. However, this list (see above) is very
broad and explicitly covers the most important areas of social services such as
health and long term care, childcare, services for the access to and
reintegration into the labour market and social housing. Moreover, the terms ‘care
and social inclusion of vulnerable groups’ have a very broad meaning and allow
the Member States the necessary flexibility to include different types of
services intended for the social groups who most need them, in accordance with
the variety of needs and preferences of users that may result from different geographical,
social or cultural situations among the Member States.[47]

The term ‘care and social
inclusion of vulnerable groups’ could encompass, for example:[48]

-           social integration
services for people with disabilities;

-           shelters and other
services for the homeless;

-           centres assisting women
or children who are victims of violence;

-           services to support
over-indebted persons;

-           social assistance to
migrants;

-           parenting support
services for disadvantaged families;

-           social
services for the LGBT[49]
community.

While the public authorities do not have to
notify their financing of social services, they must nevertheless establish a
clear and precise act of entrustment and ensure that the service provider does
not receive any overcompensation. Indeed, the 2011 Decision confirms the two
main conditions for compatibility set out in the 2005 Decision: entrustment
and absence of overcompensation, verified by regular checks.

The duration of the entrustment period
(the period during which the service is entrusted to a given provider by a decision
of the public authority) has been limited to a maximum of 10 years, unless
the provision of the service of general interest requires significant investment
which needs to be amortised over a longer period. This may be the case for
instance in the social housing sector.[50]
This condition, which was not laid down in the 2005 Decision, is justified because
the extent to which a particular compensation measure affects trade depends not
only on the sector concerned and the average amount of compensation per year
but also on the overall duration of the entrustment.

For instance, a fifteen-year entrustment with
an annual public service compensation of € 1 million is likely to
affect competition and trade more than several consecutive shorter entrustments
with the same annual compensation amount. This is because short consecutive entrustments
give the public authority repeated opportunities to switch provider, in a
context of competing service offerings.

The 2011 Decision introduces another
novelty in relation to the act of entrustment: it must contain a reference
to the Decision itself. This has been added to enhance transparency and
compliance with the rules.

As in the 2005 Decision, the amount of compensation
must not exceed the net costs, including a reasonable profit. Above this limit,
the provider receives an ‘overcompensation’ which cannot be justified by the
need to provide the SGEI.

The Decision proposes two methodologies
to calculate the net cost: (i) as the difference between the costs incurred
in providing the SGEI[51]
and the revenue earned from it (i.e. the methodology based on cost
allocation), or (ii) as the difference between the net cost for the providers
of operating with the public service obligation and the net cost or profit of
the same provider operating without the public service obligation (i.e. the net
avoided cost methodology).

To calculate the reasonable profit,
the Decision refers to the rate of return on capital that would be required by a
provider considering whether or not to provide the service, taking into account
the degree of risk. The Decision then provides a safe harbour: profit below the
swap rate plus a liquidity premium of 100 basis points is considered to be
reasonable in any event. Moreover, to discourage the use of ex post full
compensation schemes, the 2011 Decision lays down that this safe harbour becomes
a profit cap if the provision of the SGEI is not connected with a substantial
commercial or contractual risk, in particular when the net cost incurred in
providing the SGEI is essentially compensated ex post in full.

The change of indicator for the reasonable
profit compared to the 2005 Decision reflects the shift from an accounting
approach to an economic approach. It also matches the way public authorities go
about deciding what budget to allocate to an SGEI. However, where it is not
feasible to use the rate of return on capital, other profit indicators are
allowed.

Finally, for controlling the
overcompensation, the Decision takes a multi-annual rather than an annual
approach, with checks carried out every three years. This had been a
recommendation of the 3rd SSGI Forum.[52]

A typical
case

A public
authority wishes to pay an NGO € 45 million per year for a period of seven
years to provide services for the homeless. Under the Decision, it can safely do
so if it imposes on the NGO a clear legal obligation to provide specific
services for the homeless. The document stating this obligation does not need
to be called ‘act of entrustment’ but it has to include a reference to the
Decision and has to clearly state the tasks the NGO has to perform, the
parameters used to calculate the amount of compensation involved, the systems
that will be put in place afterwards to control the compensation and ensure
that there is no overcompensation and the arrangements set out to recover any
overcompensation that might occur. Assuming the NGO has no revenue for providing
the service, which is totally free for the beneficiaries, the amount of compensation
can be calculated quite simply as the sum of the costs that the NGO will incur in
providing the services requested by the regional authority.

A
notification to the Commission is not needed insofar as this financing is in
line with the 2011 Decision. Before the 2011 Decision, the Member
State would have had to notify this financing to the Commission, as it
exceeds the € 30 million threshold laid down in the 2005
Decision.

2.3. 
The Framework – when aid has to be notified

The Framework sets out the rules that the
Commission will follow to assess aid to SGEI that is not exempted from
notification by the Decision and that therefore the Commission has to analyse to
decide on its compatibility with the internal market.

The compatibility conditions set by the Framework
are more stringent than those laid down in the Decision as the Framework
covers aid which a priori has a bigger impact on competition and trade. This
is because the amount of aid is higher than € 15 million and it does
not concern hospitals or social services. This again illustrates the
diversified and proportionate approach the Commission adopted in the 2011
package.

The table below highlights the main changes
introduced in the 2011 Framework as compared to the 2005 Framework.
Moreover the compatibility conditions underlined in the table below are
required only in the 2011 Framework and not in the 2011 Decision: this is
because of the higher degree of scrutiny in the Framework as compared to
the Decision.

Framework 2005 || Framework 2011

Compatibility conditions: · Genuine SGEI · Entrustment act · Overcompensation test (annual check) || Compatibility conditions: · Genuine SGEI · Entrustment act · Duration of the entrustment period · Public consultation · Compliance with the Transparency Directive · Compliance with EU public procurement rules · Absence of discrimination · Overcompensation test based on ex ante multi-annual approach, efficiency incentives and the ‘net avoided cost methodology’ · Strengthened transparency · Possibly additional requirements for particularly distortive aid

Given the focus on social services, this
report will not provide a detailed description of these changes or of the more
stringent compatibility conditions set out in the Framework: in line with its
proportionate and diversified approach, the Commission decided that some of the
provisions of the Framework should not apply to public service compensations that
would normally be covered by the Decision but which failed to fulfil all the
conditions of the Decision.[53]

In such cases of simplified assessment the following
compatibility conditions do not apply:

· 
the public consultation on the public service
needs;

· 
the compliance with Union public procurement
rules;

· 
the absence of discrimination;

· 
the compulsory use of the net avoided cost
methodology;

· 
the inclusion of efficiency incentives in the
compensation mechanism;

· 
the additional requirements for particularly distortive
aid.

2.4. 
The SGEI de minimis Regulation: making it
simpler to finance small amounts

Adopted in April 2012, the SGEI de
minimis Regulation is a novelty introduced by the Almunia package.
Under this new Regulation, which complements the general de minimis
Regulation,[54]
public service compensation amounting to less than € 500 000 per undertaking[55] over three fiscal years is
deemed not to constitute State aid. This threshold is higher than the one in
the general de minimis Regulation,[56]
based on the consideration that an SGEI provider incurs costs which are
directly associated with its public service obligation under the entrustment
act. The aid element in the compensation is therefore presumably much lower
than the amount actually granted, and the Commission assumes that a € 500 000
compensation does not affect trade in the internal market.

This new SGEI de minimis Regulation makes
it considerably easier for local public authorities to comply with State aid
rules when financing small social services.

The act of entrustment under the de
minimis Regulation is simpler than under the 2011 Decision and
Framework.[57]
It does not have to contain all the information set out in the Decision
and in the Framework: it just has to entrust the provider with a specific task
and make clear that the financing is granted for this task.

Unless the Member State concerned has
established a register of de minimis aid, the public authority has to
inform the service provider in writing of the de minimis character of
the aid, obtaining its confirmation that it is not getting any other financing
that would make the total amount exceed the de minimis threshold.

A typical case

A municipality wishes to pay an NGO to provide parenting support
services. The cost of these services over a period of three years is less than € 500 000.
All the local council has to do is clearly identify this service as a service
of general economic interest and make sure that the beneficiary does not get
any other financing covered by the SGEI de minimis Regulation.

If it does
so, its financing will comply with EU State aid rules.

**********

Is one of the following three situations applicable? · non-economic activity  · no effects on trade · the four (cumulative) criteria of the Altmark judgment are met: 1. entrustment act 2. parameters for calculating compensation – objective and transparent 3. no overcompensation 4. open / restricted public procurement procedure, OR compensation based on costs of a well-run undertaking

The graph below summarises the steps to be followed in
the analysis of public financing to SSGI. It shows the conditions under
which it is possible to finance social services in compliance with EU State aid
rules.

Yes

Thanks to the differentiated and
proportionate approach followed in the reform of State aid rules, the
procedures for financing social services have been further simplified and
clarified.

The Commission has taken in due
consideration the fact that, in the present economic conditions, social
services are particularly needed and require financial support from public
authorities. At the current stage of development of the internal market, such
financial support, even for large amounts, does not necessarily produce a great
risk of distortion of competition.

Public authorities will thus fully reap the
benefits that EU State aid rules can offer for the organisation and financing
of high-quality, cost-effective social services: ensuring that public money is
well used to fulfil clearly identified social policy objectives and is not
diverted to cross-subsidise other activities.

The State aid rules analysed in this
chapter deal with the definition of the level of financing that a social
services provider will receive from the public authority responsible for
organising that service. The service in question could be long-term care for
the elderly, or for people with disabilities. It might be childcare, or social
housing, or training people to help get them back to work.

However, when organising and financing
social services, public authorities must not only identify the amount of the
financing, but also address another type of questions: Who will provide the
service: the public authority itself or an external provider? If an external
provider, how will it be selected? It is in this context that public
procurement rules may come into play.

All too often, public authorities assume
that by complying with State aid rules they have ensured the legality of their
financing arrangements, even without applying public procurement rules. In fact,
the correct application of State aid rules does not exclude as such the need to
comply with public procurement rules.

3. 
Modernising Public Procurement Rules
3.1. 
The rules currently in force: a light regime for
social services

Public authorities in the Member States
have to apply EU public procurement rules to social services when they decide
to outsource their provision to an external provider against remuneration (i.e.
in return for being paid). However, it remains entirely up to them to decide
whether to outsource the service or to provide it themselves, either directly
or via an ‘in-house’ service provider.[58]

A typical
case

A municipality
is not obliged by EU rules to outsource the provision of childcare in its
territory to private companies. It can have its own publicly-owned childcare
centres and staff them with its own employees.

It can also
create and finance an ‘in-house’ structure which will organise and manage the
childcare centres.

Moreover, public authorities can outsource and
finance the provision of social services in ways that do not entail signing a
public contract: they can, in an open, transparent and non-discriminatory way, grant
licences or authorisations to all service providers that meet the
conditions for service provision it lays down beforehand.[59]

It is also possible that a public authority
is merely financing an initiative – for instance by an NGO - to provide
a social service to the community.[60]

The EU public procurement rules therefore apply
only when a public authority has decided to outsource the provision of a
service to an external provider – whether profit or non-profit – that the
public authority pays for providing the service.[61]

The rules at present in force[62] already take into account the
specific characteristics of the social services’ sector: a public authority
that decides to outsource a social service against remuneration and intends to
conclude a public service contract has to comply only with a very
limited number of rules laid down in Directive 2004/18/EC[63]
and therefore enjoys considerable latitude in terms of choice of procedures
compared to other sectors.

Public
authorities nevertheless have to comply with the Treaty principles of
transparency, equal treatment and non-discrimination, mutual recognition and
proportionality.[64] This means, in particular,
that the authority must:

· 
adequately advertise its intention to outsource the provision of the social service and
to conclude a public service contract with an external provider; and

· 
deal in a non-discriminatory and impartial
way with all the providers that have shown an interest
in such a contract.[65]

If it wants to outsource the provision of
social services by granting a concession,[66] it will have to comply with
the Treaty principles of transparency, equal treatment and non-discrimination, mutual
recognition and proportionality.[67]

Public authorities can also, at various stages
of the public procurement procedures, introduce requirements concerning the
quality, continuity and comprehensiveness of the service in question.[68]

This shows that public procurement rules
currently in force not only guarantee transparency in selecting the service
provider and cost-effectiveness for the benefit of the service users and the
tax payer, but also that they do so while ensuring the quality of the social
services concerned.

A typical case

A regional
authority intends to outsource the delivery of its long-term care services for
the elderly. It intends to do so by signing a public service contract with an
external provider, who it will pay for doing the work. The regional authority
therefore has to draw up the ‘technical specifications’, clearly stating the
object of the contract (i.e. the exact nature of the services to be provided,
the level of quality that must be ensured and the level of qualification that
the staff providing the service must have).

The
regional authority can either define its requirements in a very detailed way
or, if it wishes to avoid standardisation and promote innovative solutions, it
can define performance or functional requirements that allow it to clearly
identify its objective but leave a certain amount of flexibility as to how that
objective is to be achieved. It can thus open up scope for innovative
solutions.

The
regional authority has to define the criteria it intends to use when choosing
the provider. It does not necessarily have to accept the cheapest offer but can
set ‘award criteria’ which combine the price with other criteria,[69]
such as supplementary quality levels on top of the requirements laid down in
the section of the technical specification describing the object of the
contract. These supplementary quality requirements will help it select the
winner from among all the candidates.

The
duration of the contract, that can be longer than one year so as to ensure
continuity, must also be stated.

Then, the regional
authority has to make known its intentions to conclude a contract for the
provision of long-term care services for the elderly, and has to publicise the
document which spells out those intentions. It can do so, for instance, via the
press or on its own website. The level of publicity will depend on the size of
the contract.

Once it
receives offers from potential providers, the regional authority can negotiate
with them to further refine its requirements and to find out more about their
offers.[70]
In these negotiations, however, the regional authority will have to treat all
the candidates in a fair and non-discriminatory way, without giving any
advantage to one of them.

Once the regional
authority has chosen one provider on the basis of the criteria set out in
advance, it will then have to publish the information that the contract has
been concluded with that provider.

The regional
authority can also select more than one provider, so as to give the people
living in that region the chance to choose the provider that suits them best.

3.2. 
The 2011 Commission proposal: simpler, clearer
and more adapted public procurement rules.

The current EU legislation on public
procurement, which is already very flexible, could be further improved thanks to
the reform of public procurement rules that the Commission launched in December
2011.

Overcoming the distinction between priority
and non-priority services in Directive 2004/18/EC, the Commission
proposal for a new Public Procurement Directive[71] sets out a specific,
lighter and simpler regime for social services, more suited to their
specific characteristics and to the need to ensure quality. The proposed Directive
justifies this approach by pointing out in recital (11) that social services
contracts have a limited cross-border dimension and that the particular context
in which these services are organised ‘varies widely amongst Member States,
due to different cultural traditions’.[72]
The Commission argues that the Member States should enjoy a wide margin of discretion
in the organisation of the choice of the service providers, given the
importance of the cultural context and the sensitivity of social services.

The main
components of the proposed regime are the following:

· a threshold of € 500 000, higher than for other
goods or services, below which EU public procurement rules will not apply.[73] Contracts below this threshold
are presumed not to be of interest for providers based in other Member States
unless there are concrete indications of the contrary.[74] This implies that, below this
threshold, in the absence of cross-border interest, the Directive would not
apply. Nor would the Treaty principles, such as the transparency
requirement and the obligation to treat economic operators equally without
discrimination. This clarification on cross-border interest for social services
contracts had been sought i.a. by the Council in 2010.[75]         
This specific threshold reflects a proportionate approach as it excludes the
application of EU public procurement rules to the outsourcing of social
services of a very low economic value. It thus simplifies life for
public authorities that organise small social services.

· flexibility in the Member States’ choice of procedures as long as the Treaty
principles of transparency and non-discrimination are complied with. Member States remain free to determine the procedural rules
applicable, while respecting the basic principles of transparency and equal
treatment.[76]            
       
The new proposal spells out the obligations to ensure transparency: public
authorities must publish a contract notice and a contract award
notice. In other words, a public authority that intends to outsource a social
service must, by means of a contract notice, adequately publicise its intention
so that potential providers from other Member States can express their interest
in this contract. In addition, the public authority must publish the notice of
the award decision, once it is taken, to ensure that any aggrieved party can
challenge this decision in the appropriate courts. As for the principle of
equal treatment, the public authority must treat in a non-discriminatory
manner all potential providers that have shown interest in the contract.

The new
proposal enhances legal certainty as the obligations of the public authorities are
now clearer.

· increased attention to the specific characteristics of social
services.[77] As spelled out in Article 76, Member States are invited to define
procedures which are suited to the specificities of social services and which ensure
their quality, continuity, and accessibility. To facilitate the task of the
public authorities in defining what a good-quality social service is, recital
(11) adds a reference to the quality criteria set out in the voluntary European
Quality Framework for Social Services adopted by the SPC in 2010.[78]

· the right for Member States to prohibit their public authorities from
awarding social services solely on the basis of the price and to maintain only
the possibility of awarding such services on the basis of criteria combining quality
and price.[79]
Using the MEAT award criterion[80]
- which at present is just an option - might become therefore compulsory in the
Member States that choose to do so. This change in the rules follows the
recommendation to promote the MEAT expressed i.a. at the 3rd
SSGI Forum,[81]
by the Council[82]
and by the Informal Network of Social Service Providers.[83] 
This – and the previous change - is meant to address an often heard
criticism that public procurement procedures for social services lead to cheap
and poor-quality services.

Recital (11) also reminds the reader that
the Public Procurement Directive does not make it an obligation to outsource
social services, that alternatives to public procurement procedures
are possible[84]
and that public procurement rules do not apply to ‘mere financing’.[85]

Annex XVI of the proposal lists in a rather comprehensive way the services to
which this specific, light regime would apply if they are outsourced by public
authorities in the Member States:

· 
health and social services;

· 
administrative educational, healthcare and
cultural services;

· 
compulsory social security services;

· 
benefit services;

· 
other community, social and personal services;

· 
services furnished by trade unions;

· 
religious services.[86]

Further clarification comes also from the
codification of the rulings of the European Court of Justice concerning
the exceptions to the application of public procurement rules for ‘in-house
provision’[87]
and for certain other forms of cooperation among public authorities aimed at
carrying out tasks in the public interest.[88]
This codification[89]
does not specifically concern social services but is particularly interesting
for them: indeed, in the social services sector, local public authorities might
wish to cooperate in providing social services to achieve certain economies of
scale or to complement each other’s offers. The codification will enhance legal
certainty and facilitate such cooperation. This is again a positive answer to the
invitation addressed by Mario Monti ‘to address the perceived areas of
friction with the policy autonomy of national and local authorities’.[90]

The legislative proposal on public procurement also provides for an
increased number of possibilities to take account of social considerations
in procurement procedures. Although this does not apply only to procurement
of social services but also of other services as well as of goods and works, these
features of the proposal are also worth pointing out in this report.

· 
First, the Commission proposes that, among the criteria
for the award of a contract, public authorities should be able to
specify characteristics relating to the working conditions of persons
participating directly in the process of production or supply of the good or
service involved.[91]
The working conditions may concern the protection of health and favouring
the social integration of disadvantaged persons or members of vulnerable groups.[92] Such award criteria should be
applied in accordance with Directive 96/71/EC on the posting of workers.[93]

· 
Second, it has also extended the possibilities
of reserving public contracts for certain types of actor in the social economy,
those committed to the social and professional integration of people with
disabilities and of disadvantaged workers, such as the long-term unemployed.[94]

The aim is to ensure that when public
authorities buy the goods and services they need, they can use procurement
strategically to promote employment and social inclusion. This approach is
therefore fully in line with Article 9 of the TFEU, which calls on
the Union, when defining and implementing its policies and activities, to
‘take into account requirements linked to the promotion of a high level of
employment, the guarantee of adequate social protection and the fight against
exclusion’. This is also consistent with the Europe 2020 Strategy and the
attention it pays to inclusive growth. Since public authorities spend around
18% of the EU’s GDP on buying goods, works or services, they should be able not
only to obtain them in a transparent and efficient way, but also to use that
significant amount of funds as leverage for inclusive growth.

This goes hand in hand with the increased
possibility of supporting other common societal goals such as the protection of
the environment, higher resource and energy efficiency, combating climate
change as well as promoting innovation.

On 20 December 2011 the Commission also
adopted a proposal for a Directive of the European Parliament and of
the Council on the award of concession contracts[95] which follows by and large, as
far as social services are concerned, the same diversified and proportionate
approach as the proposal on public procurement. As social services are often
outsourced through concessions, the proposal is very pertinent and has the
merit of clarifying for the first time the rules which apply in this field.

The co-decision procedure for the adoption
of the Directives on public procurement and concessions progressed well in
2012: on 10 December 2012 the Council adopted a ‘general approach’ on the
concerned proposals. The European Parliament’s Committee for the Internal
Market and Consumer Protection (IMCO) adopted its report on the Directive
on public procurement on 18 December 2012; the report on the Directive on
concessions was adopted on 24 January 2013. Both the Council and the IMCO
Committee of the Parliament accept the proposed extension of the provisions on
reserved contracts and the new proposed lighter regime for social services, but
with an increase of the corresponding threshold from € 500 000
to € 750 000.

4. 
The 2013 Guide

Following the adoption of the SGEI package,
the Commission published on 15 February 2013 an updated version of its Guide
to the application of the European Union rules on state aid, public procurement
and internal market to services of general interest (SGEI), and in particular
to social services of general interests (SSGI).

The update of the Guide[96] does not introduce major changes
to its structure. However, to make it easier to read and to refer to the
answers, the numbering of the questions is now continuous from 1 to 237 instead
of being split per chapter and section. The Guide gives more straightforward
answers to a certain number of questions. It also provides an increased number
of examples based on the Commission decision practice and case law.

While the chapter which has been more heavily redrafted is the one
on State aid, a few modifications have also been made to Chapter 2 on ‘Concepts
of SGEI’. In particular:

· 
Q&A 11 on the possibility of classifying a
service as a SGEI even when other operators are providing it in the market has
been redrafted to take into account the guidance on this issue provided in the Commission
Communication on the application of State aid rules which is part of the
package;[97]

· 
the issue of provision at market conditions in
the near future has been addressed in Q&A 12.

These Q&As on the classification of
SGEI address in particular questions on this issue posed by Member States’
experts in the SPC informal working group.

Chapter 3 on State aid, now called ‘The new
State Aid SGEI package’ and structured according to the different documents
included in the package, starts with a number of Q&As (14 to 19)
which broadly present the package documents. Moreover, to guide public
authorities in their analysis, a graph has been added,[98]  presenting the different
questions a public authority must ask to determine which instrument of the SGEI
package it should apply to public service compensation. A simplified version of
that scheme, specific to social services, is included at the end
of Chapter 2 of this report.[99]

Two new Q&As that are particularly
relevant for service providers have also been added: Q&A 22 clarifies
the fact that the package does not impose obligations on service providers and Q&A 21
explains that the SGEI provider can ask the entrusting authority on what legal
basis a financing has been granted. Both Q&As will help therefore service
providers understand better the implications of the State aid package on them
and are particularly useful as the providers ultimately bear the risk of having
to reimburse compensation granted in violation of the State aid rules.

The concepts of ‘economic’ and ‘non-economic
activity’ have also been further clarified in line with the guidance provided
in the SGEI Communication. In particular, the Guide now provides two new
examples of non-economic activities: the provision of childcare in Norway
according to a 2008 judgment of the EFTA Court and the organisation of public
hospitals in Spain in line with a 2003 ECJ ruling.[100] Moreover the Guide
explains that the examples of non-economic activities provided in the Communication
are not exhaustive[101]
and recalls that the classification of economic and non-economic activities can
change over time,[102]
thus addressing concerns expressed on many occasions by Member States
experts, notably in the SPC working group, by service providers and by other
stakeholders.

In line with the Communication, the Guide
has also been enriched with additional examples on local SGEIs which do not
seem to affect trade between Member States.[103]
One in particular refers to the provision of long-term mental health care.

The status of the service providers, which
is the object of frequent debate in the social services field, has been
addressed in the new Q&A 32: responding to whether public authorities can
give preference to some types of service providers, the Guide recalls
that State aid rules do not prevent Member States to do so and refers to
Q&As 209 and 227 as regards public procurement and internal market
rules.

Complementing the guidance provided by the SGEI Communication on the
fulfilment of the fourth Altmark criterion, the Guide:

· 
reminds public authorities that fulfilling the
fourth Altmark criterion by organising a tender does not lead per se to
the fulfilment of the other three criteria. Nevertheless the contract signed
following the tender procedure and the tender documents can contain all
necessary specifications that would ensure compliance with the other three
Altmark criteria (see Q&A 62);

· 
explains why the provision of a SGEI should be
compensated according to the ‘least cost for the community’ criterion and
clarifies what this criterion implies: as already mentioned above,[104] the criterion of the ‘least
cost for the community’ is broader than the lowest price and can be complied
with by using the ‘most economically advantageous offer’ criterion, as long as the
award criteria are closely related to the subject-matter of the service
provided. This will allow to use in the award phase a variety of elements
referring to the quality of the services as well as other social and
environmental criteria (see Q&A 63);

· 
explains what is meant in the Communication by
open, restricted and negotiated procedures (see Q&As 65, 66 and 67);

· 
clarifies what is meant with ‘generally accepted
market remuneration’ which is the best benchmark to assess the compensation
that an efficient undertaking requires, in the second alternative of the fourth
Altmark criterion (see Q&A 71).

The Guide also recalls that compensation
that does not comply with the fourth Altmark criterion and thus constitutes
State aid can still be compatible with the internal market in line with
the Decision or the Framework.[105]

A typical case

A
municipality applies a negotiated procedure with prior publication to select
the provider of family assistance services as it believes this procedure is
particularly suitable for this very complex choice. As seen in section 3.1
above, this will be in line with EU public procurement rules. As the negotiated
procedure with prior publication is in principle not sufficient to comply with
the fourth Altmark criterion,[106]
the financing provided by the municipality to the selected service provider may
qualify as State aid. However, the financing can be granted in compliance with
the SGEI Decision presented in section 2.2 above and thus be compatible with
the internal market.

New Q&As on the act of entrustment have also been added to the
Guide. They address the following points:

· 
the authorities entitled to entrust the
provision of a service (Q&A 49);

· 
whether the provider can itself define the contents
of the act of entrustment (Q&A 50);

· 
whether a public authority can entrust the
provision of a service to the same provider at the end of an entrustment period
(Q&A 57);

· 
whether an act of entrustment is also necessary
under the SGEI de minimis Regulation (Q&A 76).

· 
whether, under the SGEI Decision, the duration
of an entrustment can exceed 10 years (Q&A 101) and whether it is still
possible to authorise a provider for an unlimited period (Q&A 102);

· 
why there is a new requirement in the Decision to
add a reference to the Decision in the entrustment act (Q&A 115).

A key Q&A in the section on the Altmark
decision is the one which explains in details the differences between the 2005
and the 2011 Decisions (Q&A 111).

Moreover, in that section, the Guide addresses one issue which is
very relevant for social services: the boundaries of the exemption of
notification from which these services benefit. In particular:

· 
it explains that the list of social services
exempted by the Decision, i.e. services ‘meeting social needs as regards
health and long term care, childcare, access to and reintegration into the
labour market, social housing and the care and social inclusion of vulnerable
groups’, is exhaustive to ensure legal certainty, yet broad enough to encompass
the most important areas of social services. By including services relating to ‘the
care and social inclusion of vulnerable groups’ it gives the public authorities
the necessary flexibility to grant support to a wide variety of social services
in accordance with the specific needs of their community (see Q&As 93
and 94);[107]

· 
it clarifies the meaning of the terms ‘childcare’
(Q&A 96), ‘meeting social needs’ (Q&A 97), ‘social inclusion of
vulnerable groups’ (Q&A 98), ‘access to and reintegration into the
labour market’ (Q&A 99);

· 
it confirms that aid to social and work
integration enterprises can be covered by the Decision (Q&A 100).

The Commission services have also updated
the Q&As on the compensation that can be granted in line with the Decision[108] as well as those on the entry
into force of the Decision and on the transition period.[109]

As explained supra,[110]
the section of the Guide which focuses on the Framework is not particularly
interesting for the social services area. The section on the SGEI de minimis
Regulation, in contrast, is very useful for the provision of social
services and in particular the following Q&As are worth mentioning:

· 
Q&A 74 explains the difference between the
SGEI de minimis Regulation and the general de minimis Regulation;

· 
Q&A 7            5 recalls the methods to
ensure that the € 500 000 ceiling is respected;

· 
Q&A 77 explains the advantage of using the
SGEI de minimis Regulation compared to the Decision: a lighter act of
entrustment and no need to check for overcompensation;

· 
Q&A 78 reminds that it is possible to
cumulate aid granted under the two de minimis Regulations up to the
ceiling of € 500 000: in other words, if a provider has received € 200 000
over three years under the general de minimis Regulation, it can receive
in the same period up to € 300 000 under the SGEI de minimis Regulation;

· 
Q&A 79 clarifies that a service provider
cannot receive compensation under the SGEI Decision and compensation under
the SGEI de minimis Regulation for the provision of the same service. If
it provides two different services, it can receive compensation under the
Decision for the provision of one service and under the SGEI de minimis
Regulation for another (Q&A 80).

· 
Q&A 81 explains that cumulation between compensation
received under the Decision or the Framework and compensation received
under the SGEI de minimis Regulation is also possible if these compensations
concern different periods of time.

Addressing concerns expressed in the SPC
working group and in debates at the European Parliament[111], the Commission services have
also updated the questions concerning the application of State aid rules to
financing granted by public authorities using resources from the European
Social Fund, the European Regional Development Fund and the European
Agricultural Fund for Rural Development.[112]

Finally, in the Chapter on State aid, the Guide provides guidance on
the interaction between State aid and public procurement rules, anticipating
issues that are further developed in Chapter 5 of the Guide. In particular:

· 
Q&A 113 recalls that the SGEI Decision does
not require the selection of the least expensive provider;

· 
Q&A 114 and 188 respectively recall that the
compliance with the Decision in particular and with the SGEI package in general
does not mean that the applicable public procurement rules would not have to be
complied with.

What is now needed is to ensure that the
Guide is distributed widely to the public authorities in the Member States.
Within the SPC working group, Member States' experts have reported that many
public authorities, especially at regional and local level, and service providers
were not aware of the 2010 Guide. The Commission services will therefore
continue to promote the Guide in collaboration with the Member States and
with civil society organisations.

5. 
Conclusions

The reforms of the EU rules applying to
SSGI – both the State aid package already applicable and the public procurement
proposals to be adopted by the legislator - bring the answers and the solutions
that Member States and stakeholders were looking for:

· 
with the State aid package the Commission has
followed Mario Monti’s invitation to ‘examine [...] all possibilities to
further increase the flexibilities of the rules applicable to financial
compensation, including through an increase of thresholds and/or through
expanding the list of activities for which compensation does not have to be
notified irrespective of the amounts involved’;[113]

· 
the proposed public procurement regime for
social services follows the same logic of simplification and of a diversified
and proportionate approach: it is clearer and simpler than the one currently
provided for the ‘Annex II B’ non-priority services and is much lighter than
the standard regime for other goods and services set out in the proposal
currently under discussion. It also takes better account of the specific
characteristics of social services thanks to the attention it pays to quality,
continuity and comprehensiveness and to the flexibility it provides on
procedures.

The improvement of the rules has been a
result of the thorough consultations that the Commission has undertook
both on State aid and on public procurement and of the on-going dialogue on
SSGI with Member States (notably within the SPC) and with stakeholders.

The simplification and clarification of the
State aid rules should be an incentive for public authorities to apply these
rules to the social services sector, without the obstacles created by the complexities
and burdens of a notification procedure and the fears of possible misunderstanding.

Similarly, the lighter and more adapted
public procurement regime should facilitate the acceptance of public
procurement rules by those who perceive these rules as burdensome and not suited
to social services. At the same time, the reforms at EU level might offer the opportunity
to scrutinise national procurement legislation which did not fully avail of the
potential for flexibility and quality assurance that EU rules offer in the
social services field. When transposing the Public Procurement Directives,
Member States may choose to follow the most innovative options that these
Directives offer – such as the prohibition of the lowest price award criterion
or the introduction of specific and adapted procedures for social services.

It is now the task of the public
authorities to fully apprehend these rules and use them to design high-quality
and cost-effective social services meeting the needs of their citizens.

To help with the implementation of the
rules, the updated Guide already provides answers to concrete questions relating
to the new State aid package. While the 2013 update reflects the changes brought
to State aid rules by the SGEI package, another update shall follow once the
directives on public procurement and on concessions have been adopted by
the EU legislator. This is in line with the wish expressed by public authorities
and stakeholders for the Guide to be regularly updated to take into account
changes in legislation and new case law.

Others questions can be dealt with within
the Interactive Information System.[114]
Member States, service providers’ and users’ organisations as well as other stakeholders,
at EU and at Member States’ level, can also help raise awareness on the
rules through information and training initiatives. The Commission
services will support and encourage these efforts through their regular
dialogue with public authorities and stakeholders and through specific seminars
and meetings at European and local level.

The long process of dialogue and exchange in
which the Commission and all stakeholders in the area of SSGI have been engaged
since 2006 is bearing fruit just as high-quality and efficient social services
are needed more than ever.

A better understanding and a correct
application of the EU rules on State aid and public procurement will help
public authorities to make better use of the resources to be invested in social
services: it will secure the legality of financing, as far as EU rules are
concerned, and will increase the effectiveness, transparency and efficiency of
public spending. In other words, thanks to the EU rules, investing in social services
will deliver a greater return for people living in Europe.

[1]       Implementing the Community Lisbon programme: Social
services of general interest in the European Union, COM(2006) 177 of 26 April 2006.

[2]       See the Commission Communication Services of general
interest, including social services of general interest: a new European
commitment, COM(2007) 725 final of 20 November 2007.

[3]       SEC(2008) 2179 of 2 July 2008.

[4]       SEC(2010) 1284 of 22 October 2010.

[5]       See in particular the Communication Towards a job-rich
recovery, COM(2012) 173 final of 18 April 2012, p.6.

[6]       See: http://ec.europa.eu/social/main.jsp?langId=en&catId=89&newsId=1776&furtherNews=yes

[7]       The ‘white jobs’ sector combines health and social services.

[8]       According to the EU Employment and Social Situation Quarterly
Review of December 2012, while 4.4 million jobs were lost in the age group
15-64 between 2008 and 2011, more than 1.4 million jobs were created in the health
and social service sector. The growth was continuous from 2008 to 2011.

[9]       COM(2012) 750 final of 28 November 2011.

[10]     See the Commission Communication Europe 2020 — A
strategy for smart, sustainable and inclusive growth, COM(2010) 2020 of 3
March 2010.

[11]     SWD(2012) final of 14 March 2012.

[12]     These initiatives are set out in Chapter 2, section 2.4, of the
Second Biennial Report, quoted in footnote 4 above.

[13]     SPC/2010/10/8 final, 6.10.2010. The voluntary European
Quality Framework for Social Services was set out in the Second Biennial
Report quoted in footnote 4 above.

[14]     A new strategy for the single market at the service of
Europe’s economy and society - report to the President of the
European Commission José Manuel Barroso, by Mario Monti, 9 May 2010.

[15]     For an overview of the doubts and misunderstandings about the
application of EU rules to SSGI, see section 4.3 of the first Biennial
Report, quoted in footnote 3 above.

[16]     For an overview of the Commission’s policy approach to this
issue see Chapter 3, section 3.1, of the Second Biennial Report, quoted
in footnote 4 above.

[17]     SEC(2007) 1514 and SEC(2007) 1516 of 20 November 2007. The FAQs
were presented in section 4.4 of the first Biennial Report quoted in
footnote 3 above

[18]     This service is accessible on the following webpage:           
http://ec.europa.eu/services_general_interest/registration/form_en.htm.

[19]     SEC(2010) 1545 final of 7 December 2010. The 2010 Guide was
presented in section 3.6 of the Second Biennial Report,
quoted in footnote 4 above. See
also the Commission press release on the 2010 Guide (IP/11/106 issued
on 28 January 2011).

[20]     See section 3.4 of the Second Biennial Report quoted in
footnote 4 above.

[21]     See the Commission Communication Implementing the Community
Lisbon programme: Social services of general interest in the European Union
quoted in footnote 1 above.

[22]     COM(2011) 900 of 20 December 2011.

[23]     The proposals of the Commission for a directive on public
procurement (COM(2011) 896 final of 20.12.20011) and on concessions (COM(2011)
897 final of 20.12.20011) are still under negotiation. See:                http://ec.europa.eu/internal_market/publicprocurement/modernising_rules/reform_proposals_en.htm.

[24]     Quoted in footnote 19 above.

[25]     SWD(2013) 53.

[26]     Quoted in footnote 17 above.

[27]     See footnote 18
above.

[28]     The analysis of the SPC informal working group was carried out
through a questionnaire circulated in 2012 to the Member States via
the SPC. The result of the analysis will be published in the report of the informal
working group to the SPC, due in September 2013.

[29]     See Council Conclusions Social Services of General interest:
at the heart of the European Social Model, 8 December 2010, 17566/10 SOC
828.

[30]     Quoted on footnotes 3 and 4 above.

[31]     See footnote 6
above.

[32]     On the new package see: Nicola Pesaresi, Adinda Sinnaeve,
Valérie Guigue-Koeppen, Joachim Wiemann, Madalina Radulescu, The New
State Aid Rules for Services of General Economic Interest, and, by the same
authors, The New State Aid Rules for Services of General Economic Interest
(SGEI): the Commission Decision and Framework of 20 December 2011 and The
SGEI Communication, published in Competition Policy Newsletter 2012/1  (http://ec.europa.eu/competition/publications/cpn/cpn_2012_1_en.html).              
These articles have been a source of inspiration for the redaction of this
chapter of the 3rd Biennial Report.

[33]     Communication from the Commission on the application of the
European Union State aid rules to compensation granted for the provision of
services of general economic interest, OJ C 8, 11.01.2012, p. 4.

[34]     Commission Decision of 20 December on the application of
Article 106(2) of the Treaty on the Functioning of the European Union to
State aid in the form of public service compensation granted to certain
undertakings entrusted with the operation of services of general economic interest,
OJ L 7, 11.01.2012, p. 3.

[35]     European Union framework for State aid in the form of public
service compensation (2011), OJ C 8, 11.01.2012, p. 15.

[36]     Commission Regulation on the application of Articles 107 and
108 of the Treaty on the Functioning of the European Union to de minimis aid
granted to undertakings providing services of general economic interest, OJ L
114, 26.4.2012, p. 8.

[37]     ‘Undertaking’ refers to the economic unit. Therefore
different legal entities forming part of a group would constitute one
undertaking.

[38]     Case C-280/00 Altmark [2003] ECR I-7747.

[39]     Commission Decision of 28 November 2005 on the application of
Article 86(2) of the EC Treaty to State aid in the form of public service
compensation granted to certain undertakings entrusted with the operation of
services of general economic interest, OJ L 312, 29.11.2005, p. 67.

[40]     Community Framework for State aid in the form of public service
compensation, OJ C 397, 29.11.2005.

[41]     On the review process that led to the adoption of the SGEI package
currently in force, see: http://ec.europa.eu/competition/state_aid/legislation/sgei_archive_en.html.

[42]     On the weight of public expenditure in financing social services
see section 2.2.1 of the first Biennial Report quoted in footnote 3.

[43]     It is worth recalling that not all SSGI are addressed to
vulnerable or disadvantaged people.

[44]     For all other services, including social services other than
social housing, the 2005 Decision set a public service compensation threshold
of € 30 million per year. This threshold was complemented by a threshold
of € 100 million for the service provider’s average annual turnover before
tax. Public financing which exceeded € 30 million per year, or which was
granted to a provider having a turnover higher than € 100 million, had to
be notified to the Commission. Such a large amount was considered likely to
affect trade and competition to such an extent that a specific analysis by the
Commission services was deemed to be necessary.

[45]     The 3rd SSGI Forum had recommended enlarging the
number of SSGI benefiting from the exemption of notification (See Summary
Report of the 3rd Forum on Social services of General Interest (SSGI),
coordinated by Manuel Paolillo and Stéphane Rodrigues, p. 191).

[46]     See the Commission Communication Reform of the EU State aid
rules on Services of General Economic Interest, COM(2011) 146 final of 23
March 2011.

[47]     See Protocol No 26 to the Treaty on European Union and to the
Treaty on the Functioning of the European Union.

[48]     Insofar as these can be considered as economic activities.

[49]     Lesbian, Gay, Bisexual, Transgender.

[50]     See recital 12 of the Decision.

[51]     If a service provider is providing not only an SGEI but also a
purely commercial service, the costs incurred include an appropriate
contribution to the costs common to the provision of both services.

[52]     See Summary Report of the 3rd Forum on Social
services of General Interest (SSGI), quoted in footnote 45 above, p. 192.

[53]     See paragraph 61 of the Framework.

[54]     Commission Regulation (EC) No 1998/2006 of 15 December 2006 on
the application of Articles 87 and 88 of the Treaty to de minimis
aid, OJ L 379, 28.12.2006, p. 5.

[55]     See clarification on ‘undertaking’ in footnote 37 above

[56]     € 200 000 over three fiscal years.

[57]     See recital (6) of the Regulation.

[58]     With the term ‘in-house provision’, the Court refers to a
situation where a public authority, or various public authorities jointly,
provide a service themselves, albeit acting through a legally distinct entity
which       
        (i) the public authority/ies controls/control in a way similar to
its/their own departments, and          (ii) carries/y the essential
part of its activities with the controlling public authority/ies.
In this case, the public authority/ies and the legally distinct entity are
regarded as one and public procurement rules do not apply to their relation.
See Q&A 199 of the 2013 Guide for further details on the concept of
‘in-house provider’.

[59]     For further details on this alternative approach, see Q&A 216
of the 2013 Guide.

[60]     On the notion of ‘mere financing’ see Q&A 218 of the 2013
Guide.

[61]     Q&A 218 of the 2013 Guide describes the criteria which can
help to establish whether the relation between the public authority and the service
provider implies an obligation to provide a service against remuneration and
therefore triggers the application of EU public procurement rules.

[62]     See 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,
OJ L 134, 30.4.2004, p. 114.

[63]     See Article 21 of the Directive 2004/18/EC which sets
out that only the provisions of two articles of that Directive apply to non-priority
(Annex II B) services, such as social services. These provisions require
that technical specifications must be laid down at the start of the
procurement process and that the results of the award procedure must be
published. It is also worth recalling that the Directive applies only if
the contract at stake exceeds the threshold for its application,
i.e. € 200 000.

[64]     The Treaty principles already apply even if the Directive
threshold is not exceeded as long as the contract has a cross-border interest
(On the notion of cross-border interest, see Q&A 201 of
the 2013 Guide).

[65]     For more details on the obligations deriving from the
principles of transparency and non-discrimination, see Q&A 202 of the 2013
Guide.

[66]     On the distinction between a public service contract and a
concession see Q&A 200 of the 2013 Guide.

[67]     See footnote 65 above.

[68]     See Q&A 204 of the 2013 Guide.

[69]     The Most Economically Advantageous Tender (MEAT) criterion
already mentioned in section 2.1 above.

[70]     National public procurement might however not allow for a
negotiated procedure and impose instead an open procedure.

[71]     Quoted in footnote 23 above.

[72]     See the following extracts of Recital (11): ‘Other
categories of services continue by their very nature to have a limited
cross-border dimension, namely what are known as services to the person,
such as certain social, health and educational services. These services are
provided within a particular context that varies widely amongst Member
States, due to different cultural traditions. A specific regime should
therefore be established for public contracts for these services, [...] Contracts
for services to the person above this threshold should be subject to Union-wide
transparency. Given the importance of the cultural context and the
sensitivity of these services, Member States should be given wide
discretion to organise the choice of the service providers in the way they
consider most appropriate. The rules of this directive take account of that
imperative, imposing only observance of basic principles of transparency and
equal treatment and making sure that contracting authorities are able to apply
specific quality criteria for the choice of service providers [...]’.

[73]     See Article 4(d) of the Directive which reads as follows: ‘This
Directive shall apply to procurements with a value exclusive of value-added tax
(VAT) estimated to be equal to or greater than the following thresholds: [...]
(d) EUR 500 000 for public contracts for social and other specific
services listed in Annex XVI’.

[74]     See Recital (11): ‘Services to the person with values below
this threshold will typically not be of interest to providers from other
Member States, unless there are concrete indications to the contrary, such
as Union financing for transborder projects’.

[75]     See Council Conclusions of 8 December 2010 quoted in footnote 29
above.

[76]     See Article 76.1 (‘Member States shall put in place
appropriate procedures for the award of contracts subject to this Chapter,
ensuring full compliance with the principles of transparency and equal
treatment of economic operators [...].’) and Article 75 (‘1.
Contracting authorities intending to award a public contract for the services
referred to in Article 74 shall make known their intention by means of a
contract notice. 2. Contracting authorities that have awarded a public
contract for the services referred to in Article 74 shall make known the
results of the procurement procedure by means of a contract award notice.
[...].’)

[77]     See Article 76 (‘1. Member States shall put in place
appropriate procedures for the award of contracts subject to this Chapter [...] allowing
contracting authorities to take into account the specificities of the services
in question. 2. Member States shall ensure that contracting authorities may
take into account the need to ensure quality, continuity, accessibility,
availability and comprehensiveness of the services, the specific needs of
different categories of users, the involvement and empowerment of users and
innovation [...]’).

[78]     The relevant extracts of Recital (ii) read as follows: ‘The
rules of this directive take account of that imperative, imposing only
observance of basic principles of transparency and equal treatment and making
sure that contracting authorities are able to apply specific quality criteria
for the choice of service providers, such as the criteria set out in the
voluntary European Quality Framework for Social Services of the European Union’s
Social Protection Committee’. The voluntary European Quality Framework
for Social Services adopted by the SPC is quoted in footnote 13 above.

[79]     See Article 76 in fine: ‘Member States may also
provide that the choice of the service provider shall not be made solely on
the basis of the price for the provision of the service’.

[80]     See section 2.1 above.

[81]     See Summary Report of the 3rd Forum on Social
services of General Interest (SSGI), quoted in footnote 45 above, p.
194.

[82]     See Council Conclusions quoted in footnote 29 above.

[83]     See Report quoted in the Introduction.

[84]     The Council had recommended this clarification. See Council Conclusions
quoted in footnote 29 above.

[85]     See the following extracts of Recital (11): ‘Member States
and/or public authorities remain free to provide these services themselves
or to organise social services in a way that does not entail the conclusion
of public contracts, for example through the mere financing of such
services or by granting licences or authorisations to all economic
operators meeting the conditions established beforehand by the contracting
authority, without any limits or quotas, provided such a system ensures
sufficient advertising and complies with the principles of transparency and
non-discrimination’.

[86]     All these services are currently covered by Annex II B of the
Directive 2004/18/EC.

[87]     On the meaning of ‘in house provision’, see footnote 58 above.

[88]     See the judgment in Case C-480/06 Commission v Germany [2009]
ECR I-4747, often known as Hambourg case.

[89]     See Article 11 of the proposal.

[90]     See report quoted in footnote 14 above.

[91]     See Article 66 and recital (41) of the proposal.

[92]     See recital (41) of the proposal.

[93]     OJ L 18, 21.1.1997, p.1.

[94]     See Article 17 of the proposal.

[95]     Quoted in footnote 23 above.

[96]     Quoted in footnote 25 above.

[97]     See section 2.1 above and in particular page 10.

[98]     See Q&A 20 of the Guide.

[99]     See page 17 above.

[100]    See box in Q&A 27.

[101]    See Q&A 29.

[102]    See Q&A 30.

[103]    See box in Q&A 38.

[104]    See section 2.1
and, in particular, page 11.

[105]    See Q&A 67 in fine.

[106]    See page 11 above.

[107]    On this point, see also section 2.2 above.

[108]    See, in particular, Q&As 123, 131 to 136, 140, 141
and 143.

[109]    See Q&As 151 to 153.

[110]    See section 2.3 of this report.

[111]    See in particular the debate at the Intergroupe on Public
services on 19 September 2012 on which a press release is published in
http://www.francoisecastex.org/2012/09/financer-les-sieg-par-les-fonds-structurels-une-clarification-simpose.html.

[112]    See Q&As 189 to 196.

[113]    See report quoted in footnote 14 above.

[114]    See footnote 18 above.