GUIDE TO THE COMMUNITY RULES ON OPEN GOVERNMENT PROCUREMENT (Provisional edition pending adoption of the new Council Directives) (87/C 358/01)

INTRODUCTION

The EC governments meeting in the European Council have recognized that the opening up of government procurement is a key component of the internal market programme aimed at turning the Community into a single large market by 1992.

The liberalization has rightly been accorded a high priority, for the economic and political case for throwing government contracts open to EC-wide competition is compelling. Yet this huge sector of the economy - estimated at an average of 9 % of national GDP if only contracts placed by central and local government are considered, and as much as 15 % of GDP if nationalized industries are included - has traditionally been dominated by 'buy-national' policies, sustained by short-term thinking and regional and social considerations.

Despite the liberalization objectives laid down in the Treaties and later in the general programmes for the abolition of restrictions on the right of non-nationals to set up in business in another Member State and to provide cross-frontier services, governments have continued to use public purchasing as an instrument of their economic policies and have kept much of their procurement closed to foreign competition. The economic cost of nationalistic government procurement policies is enormous, being estimated on average at around half of the entire Community budget. In the current economic climate, the Community cannot afford the luxury of such waste and to deny itself any longer the many benefits that will accrue from a genuine liberalization of this sector throughout the EC.

What are these benefits?

- First, the introduction of EC-wide competitive tendering for government procurement and construction contracts will greatly increase the opportunities of industry - manufacturers and construction contractors - to expand both on the Community and the home market. Expansion will enable economies of scale to be realized, thus reducing costs, while the spur of competition will stimulate efficiency. A considerable part of the resultant savings is likely to be put back into developing the businesses concerned through modernization of plant and infrastructure and research and development, leading to the creation of new jobs.

- Secondly, governments and the users of the services they provide will benefit from a wider choice of goods and services both in terms of quality and price. Substantial savings in government budgets will be possible and the general public's wants will be satisfield at lower cost.

As well as the direct benefits of allowing supply and demand to operate in these markets, the liberalization of public procurement will also have a profound effect on the structure of EC industry. At present, much of our industry, both in manufacturing and services, is handicapped by the smallness of its markets, which prevents firms becoming truly competitive at world level and facing the challenges posed by our major trading partners. In very many cases, the more or less systematic preference given in government purchasing and contracting to particular domestic firms has not paid off and has not produced anything like the benefits of which a continental-scale market similar to those of our trading partners such as the US is capable.

Another potential spin-off of the denationalization of procurement, besides the impetus it will give to the restructuring and modernization of our industry, is the leverage it will provide for pushing through Community policies on standards and mutual recognition of qualifications via the obligation on authorities to refer to European standards or harmonization documents in quoting their technical specifications.

In this way, it will contribute to breaking down technical barriers to trade in industrial products, which is one of the main objectives of the internal market programme.

In view of the importance of the liberalization of public procurement for achieving a genuine common market by 1992, the Commission, as promised in the internal market White Paper and recommended by the European Council, has looked into ways of radically improving the anachronistic situation in this sector, while at the same time contributing to other Community policies such as regional and social policy, the policy of encouraging small firms and promoting research and development, and competition policy.

The specific action on procurement is likely to be assisted by the new possibilities for cooperation between Community firms in this sector brought about by the changes in company law and taxation foreshadowed in the White Paper.

As far as the specific action on procurement is concerned, in late 1986 the Commission sent the Council proposals to amend the present legislation, the 1971 'Works' Directive on public-sector construction contracts and the 1977 'Supplies' Directive on government purchasing.

These first Directives were intended to harmonize tendering and award procedures and to provide common rules on technical specifications and the advertising of contracts. Yet despite some progress they have not matched up to expectations, because of improper transposition into national law in some cases and widespread abuse of exception clauses.

In the light of experience the Commission has therefore proposed amendments to the legislation which should greatly improve the level of compliance and enforcement and help ensure that government purchasing and the placing of government construction contracts is more open and affords equal opportunities to firms from other Member States.

It has also decided to set up an Advisory Committee on the Opening-up of Public Procurement to serve as a medium of constant and close communication between itself and business interests involved in government contracts.

In addition, the Commission has put forward a proposal to enable it to intervene directly in tendering or award procedures to prevent breaches of the Community rules and to afford suppliers and contractors rapid relief against illegal behaviour by authorities while the award procedure is still pending.

Proposals are also being prepared to extend the legislation to the sectors hitherto excluded, namely public energy, water, transport and telecommunications services. This extension will have a significant economic impact because it is mainly in these sectors that public purchasing is on a sufficiently large scale for liberalization to give a major boost to the international competitiveness of suppliers.

In telecommunications, the Community has since 1983 been pursuing a global policy, which has already seen the adoption by the Council of a Directive (86/361/EEC) on the mutual recognition by national type-approval authorities of the results of tests for conformity with common technical specifications for terminal equipment carried out by nationally approved testing laboratories, and of a Decision (87/95/EEC) requiring public authorities to refer to harmonized standards in their equipment tenders. In 1984 the Council also issued a recommendation providing for an experimental phase of opening up telecommunications procurement to suppliers in other countries. In a recent Green Paper on telecommunications the Commission has proposed pressing ahead with this liberalization process by gradually increasing the proportion of equipment purchases covered by the recommendation and if necessary converting the recommendation into a Directive. It has also proposed including in the 1986 Directive provision for mutual recognition of type-approval procedures for terminal equipment.

Finally, moves are planned in the near future to open up public procurement of services to EC-wide competition to a greater extent than is provided for in the present 'Works' and 'Supplies' Directives.

While this legislation is in the pipeline, it is important to make sure that the present Directives are correctly interpreted and properly applied. The Commission therefore intends to greatly tighten up its enforcement of the Community rules on open public-sector procurement. But to improve enforcement the Commission believes it is essential to increase public awareness: hence this Guide explaining the rules and how they are interpreted. The Guide will not answer every question or dispel every doubt that can arise in such a vast and complex subject as public purchasing and contracting. But it should be a useful aid to understanding the reasons behind the Community legislation and avoiding misinterpretation by national authorities.

This first edition of the Guide will be regularly updated and improved to take account of new legislation and users' comments, which the Commission welcomes.

TABLE OF CONTENTS

Page

Summary . 9

PART I: GENERAL RULES OF THE TREATIES AS THEY APPLY TO GOVERN-

MENT PROCUREMENT AND CONSTRUCTION

I. Prohibition of measures having an effect equivalent to quantitative restrictions in intra-Community trade

1. In the EEC Treaty . 9

2. In the European Coal and Steel Community Treaty . 11

3. In the Euratom Treaty . 11

II. Right of establishment

1. In the EEC Treaty . 11

2. In the European Coal and Steel Community Treaty . 12

3. In the Euratom Treaty . 12

III. Freedom to provide services

1. In the EEC Treaty . 13

2. In the European Coal and Steel Community Treaty . 14

3. In the Euratom Treaty . 14

PART II: SPECIFIC COMMUNITY LEGISLATION ON GOVERNMENT PROCURE-

MENT AND CONSTRUCTION

I. Objectives and scope of the 'Supplies' and 'Works' Directives

1. Objectives . 15

2. Legal effect of the Directives . 15

3. Arrangement of material . 16

II. Government procurement: the 'Supplies' Directive 77/62/EEC, as amended by Directive 80/767/EEC

1. Scope of the Directive: 'public supply contracts' . 16

- Meaning of 'supplier' . 16

- Meaning of 'contracting authority' . 16

- Form of contracts . 16

- Borderline with 'Works' contracts . 16

2. Exclusions . 17

- Value threshold . 17

- Calculation of contract value . 17

- Public utilities . 18

- Exclusions . 18

- Defence procurement . 19

3. Advertising rules . 19

- Layout of tender notices . 19

- Content of tender notices . 19

- National advertising of tenders . 20

- Specification of time limits . 20

- EC-wide advertising . 20

- Other sources of information on tenders . 21

4. Rules on technical specifications . 21

5. Tendering procedures . 21

- Exceptions . 22

- Time limits . 22

- Invitations to tender . 23

- Transmission of applications and invitations to tender . 23

Page

6. Method of calculating time limits . 23

7. Criteria for disqualifying or eliminating applicants and bidders . 23

- Grounds for disqualification . 24

- Registration . 24

- Evidence of financial and technical capacity . 24

- Financial capacity . 24

- Technical capacity . 25

- Additional information . 25

8. Award criteria . 25

- Abnormally low tenders . 26

- Exception . 26

III. Government construction contracts: the 'Works' Directive 71/305/EEC

1. Scope of the Directive: 'public works contracts' . 26

- Meaning of 'contractor' . 27

- Meaning of 'authority awarding contracts' . 27

- Form of contracts . 27

2. Exclusions . 27

- Value threshold . 27

- Calculation of contract value . 27

- Public utilities . 28

- Contracts awarded under international agreements or under the specific procedure of an international organization . 28

- Contracts in which the consideration consists in a franchise to operate the completed works ('concession contracts') . 28

3. Advertising rules . 29

- Content of tender notices . 29

- Specification of time limits . 29

- Layout of tender notices . 30

- National advertising of tenders . 30

- EC-wide advertising . 30

- Other sources of information on tenders . 30

4. Rules on technical specifications . 31

- Meaning of 'technical specifications' . 31

- Prohibition of discriminatory specifications . 31

- Standards . 31

- Costing of tenders . 31

5. Tendering procedures . 31

- Exceptions . 31

- Time limits . 32

- Invitations to tender . 33

- Transmission of applications and invitations to tender . 33

6. Method of calculating time limits . 33

7. Criteria for disqualifying or eliminating applicants . 33

- Grounds for disqualification . 33

- Registration . 34

- Evidence of financial and technical capacity . 34

- Financial capacity . 34

- Technical capacity . 35

- Additional information . 35

- Official lists of approved contractors . 35

Page

8. Award criteria . 36

- Abnormally low tenders . 36

- Exception . 37

IV. Public works contracts in which the consideration consists in a franchise to operate the completed works ('concession contracts') and subcontracting under such contracts

1. Principal contracts . 37

2. Subcontracts . 38

V. Telecommunications

1. General policy . 38

2. Council Directive 86/361/EEC . 39

3. Recommendation 84/550/EEC . 39

PART III: SANCTIONS AND MEANS OF REDRESS IF THE COMMUNITY RULES ARE BROKEN . 40

PART IV: COMPETITIVE TENDERING FOR EC-FUNDED PROJECTS . 41

Annex III: Proposals for further liberalization of government procurement and construction by 1992 . 42

Annex III: Tables I to XI . 44

Annex III: The prohibition of 'measures having equivalent effect' to quantitative restrictions on trade in Article 30 of the EEC Treaty . 80

SUMMARY

This Guide is divided into four parts:

- Part I summarizes Community law on the prohibition of measures having an effect equivalent to quantitative restrictions in intra-Community trade and of restrictions on the right of EC nationals to set up in business and to provide services in any Member State (the 'right of establishment' and 'freedom to provide services').

These are general rules, and consequently they must be observed even in the award of public procurement and construction contracts not subject to the specific rules for EC-wide competitive tendering for such contracts introduced by the Directives.

- Part II provides a detailed analysis of the 'Supplies' and 'Works' Directives and the special provisions for construction contracts involving the grant of a franchise to operate the completed works and for telecommunications procurement.

- Part III outlines the sanctions the Commission can impose for breach of the Community competitive tendering rules in public-sector procurement and construction and gives advice about filing complains with the Commission and action in national courts.

- In Part IV, finally, attention is drawn to the requirement for compliance with the competitive tendering rules by promoters of projects receiving EC funding.

Annex I gives a preview of the further liberalization of public-sector procurement planned by 1992 and of the proposals the Commission is making to the Council for this purpose.

Annex II contains the various lists referred to in the Guide.

Annex III explains in more detail the prohibition of measures having equivalent effect to quantitative restrictions.

PART I

GENERAL RULES OF THE TREATIES AS THEY APPLY TO GOVERNMENT

PROCUREMENT AND CONSTRUCTION

I. Prohibition of measures having an effect equivalent to quantitative restrictions in intra-Community trade

1. In the EEC Treaty

Free trade in goods is one of the cornerstones of the common market.

A basic principle of free trade is the absence of quantitative restrictions (quotas) on imports or exports or of any measures having equivalent effect. In the EEC Treaty these are prohibited by Articles 30 et seq.

Articles 30 et seq. apply both to goods originating in the Member States and to goods previously imported from non-EC countries.

A measure having an effect (;) equivalent to a quantitative restriction means any measure, be it a law or regulation, an administrative practice, or an act of, or attributable to, a public authority, that is capable of hindering, directly or indirectly, actually or potentially, intra-Community trade.

Such measures may discriminate between domestic and imported or exported products or they may apply to domestic and imported products alike.

A requirement for import or export licences is an example of a measure falling within the first category. There are a number of statutory exceptions to the prohibition of measures in this category, however, which are listed in Article 36.

(;) The concept of measures having equivalent effect to quantitative restrictions is explained more fully in Annex III to the Guide.

This allows Member States to maintain in force or introduce prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security, the protection of health and life of humans, animals or plants, the protection of national treasures possessing artistic, historic or archaeological value, or the protection of industrial and commercial property, provided that the prohibitions or restrictions do not constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.

The second category, measures that are equally applicable to domestic and imported products, mainly comprises regulations prescribing technical requirements, quality standards, or testing and type-approval procedures that have to be satisfied by any product, domestic or imported of a certain kind that is put on sale on the domestic market. The majority of such regulations are introduced for consumer protection, environmental or health and safety reasons. However, such regulations are contrary to Article 30 if their trade-restricting effect is disproportionate to the essential requirement of public interest which they are intended to safeguard. The general rule applicable to regulations on technical requirements is that of mutual recognition by Member States of each other's quality standards, composition rules, national testing and certification procedures, etc.

In future Community harmonization will normally only relate to features affecting essential requirements, where these can be established.

With the drive to create a unified market by 1992, it is important that no new barriers to trade in the Community should be introduced in the name of essential technical requirements.

The new Article 100A inserted into the Treaty by the Single European Act should considerably facilitate this task. It provides for the Commission's proposals for harmonization of health and safety, environmental protection and consumer protection legislation to be based on high standards (so that it will only in exceptional circumstances be possible to restrict products meeting the Community standards on the grounds of essential technical requirements not met by the products) and lays down a more flexible, and hence faster, procedure for adopting such proposals.

If, after the adoption of Community standards, a Member State wishes to insist on its own standards, on the grounds of major requirements covered by the Article 36 safeguard clause or relating to protection of the environment or working environment, it will have to justify such exceptional measures to the Commission or the European Court.

The ban on measures having an effect equivalent to quantitative restrictions on trade in goods has a particular

relevance for government procurement. How the rule applies in this area was explained by the Commission in a Directive (70/32/EEC) of 17 December 1969 (;).

It should be made clear that the Directive was issued to secure the abolition of such measures in the government procurement field that were in operation when the Treaty came into force. Since the end of the transitional period, the ban on such measures in public-sector purchasing has been directly applicable. For present purposes, therefore, the 1969 Directive only has the value of interpretative guidance.

The Directive applies to products supplied to the State, regional or local authorities and any other body governed by public law. The products covered are stated to include those supplied for carrying out or completing construction works, whether pursuant to the contract for the construction works or separately. To this extent, the prohibition of measures having an effect equivalent to quantitative restrictions on trade is seen to cover also public-sector construction contracts.

The Directive gives clear and practical guidance on the types of barriers in this sector that can be equivalent to quantitative restrictions.

Two main categories of measures are identified at a general level:

(a) those which totally or partially preclude the supply of imported products or make their supply more difficult or costly than that of domestic products; in other words, measures which, for example, explicitly or implicitly prevent the supply of foreign products, limit the quantities or qualities of them used, or make their acceptance subject to quality or technical requirements not demanded of domestic products;

(b) those which favour the supply of domestic products by reserving all or part of a given order or market to products of domestic origin or grant domestic products or particular domestic suppliers preferential treatment, other than aid falling within Article 92 of the Treaty, subject to conditions or otherwise.

The Directive also gives examples of provisions that can have an effect equivalent to quantitative restrictions:

- Provisions that discriminate against imported products in the requirements for the lodging of security or deposits or

(;) OJ N° L 13, 19. 1. 1970, p. 1.

require the suppliers of imported products only to open a postal or bank account. Such provisions make the supply of imported products more difficult or costly than that of domestic products.

- Provisions making the supply of imported products conditional on the granting of reciprocity by the exporting Member State. These can include rules whereby imported products are only licensed for sale or granted the same favourable terms as domestic products if the importing Member State's products are accorded similar treatment in the exporting Member State.

- Technical requirements which, though equally applicable to domestic and imported products, have restrictive effects on trade.

Such requirements can relate to the quality, composition, mechanical, physical or chemical properties, or certification or testing of the products to be purchased by the procurement authority and may be based on general regulations or contract specifications. They come within the definition of measures having an effect equivalent to quantitative restrictions whenever they make the supply of imported products more difficult or costly than that of domestic products without this being justified by a legitimate requirement.

2. In the European Coal and Steel Community Treaty

Article 4 of the ECSC Treaty lists among the measures which the signatories recognize as incompatible with a common market for coal and steel and consequently undertake to abolish and prohibit in the Community 'quantitative restrictions on the movement of products'.

The second paragraph of Article 86 provides that 'Member States undertake to refrain from any measures incompatible with the common market referred to in Articles 1 and 4'.

Together, these provisions prohibit quantitative restrictions and measures having equivalent effect in trade in coal and steel products, in the same way as Articles 30 et seq. of the EEC Treaty.

They apply both to products originating in the Community and products originating in non-member countries in free circulation in the Community, as defined in the Common Customs Tariff.

3. In the Euratom Treaty

Article 93 of the Euratom Treaty similarly prohibits quantitative restrictions in intra-Community trade in nuclear materials of the types listed in Lists A1 and A2 of Annex IV to the Treaty and of those listed in List B of Annex IV that are subject to a common customs tariff and accompanied by a certificate issued by the Commission stating that they are intended to be used for nuclear purposes.

Like the corresponding provisions of the EEC Treaty, Article 93 is directly applicable.

II. Right of establishment

1. In the EEC Treaty

The economic and social integration of the Community requires not only free trade in goods but also free movement of persons. The Treaty therefore provides for the right of Community nationals to take up residence and employment and to set up in business in another Member State than their own, and to provide services in another Member State than their own without actually setting up there. The right of individuals and companies to set up in business in another Member State, the 'right of establishment', is regulated by Articles 52 et seq.

Under these provisions, Member States are obliged to allow individuals and companies from other Member States to establish and carry on a business or self-employed activities in their territory under the conditions laid down for their own nationals, subject to the Treaty's provisions on capital movements (;). The principle of equality of treatment with the Member States' own nationals applies, with one exception, to all forms of business and self-employment, including those involving the setting up of agencies, branches or subsidiaries and the formation and management of companies or firms.

The exception, in the first paragraph of Article 55, is for 'activities connected, even occasionally, with the exercise of official authority'. However, this exception is construed strictly. In Reyners v. Belgium the Court of Justice held that having regard to the fundamental character of freedom of establishment and the rule on national treatment in the system of the Treaty, the exceptions allowed by the first paragraph of Article 55 could not be given a scope that would exceed the objective for which this exemption clause was inserted. The purpose of Article 55 being to enable Member

(;) In Chapter 4 of Part Two, Title III, of the Treaty.

States to exclude non-nationals from taking up functions involving the exercise of official authority which were connected with one of the activities of self-employed persons provided for in Article 52, this need was fully satisfied when the exclusion of non-nationals was limited to those of the activities referred to in Article 52 which in themselves involved a direct and specific connection to the exercise of official authority (;).

The right of establishment is enjoyed both by individuals and by companies or firms having their registered office, central administration or principal place of business within the Community. 'Companies or firms' are defined as 'companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit-making.'

The Treaty provided for the restrictions on establishment that were in operation when the Treaty came into force to be abolished during the transitional period and forbade the Member States to introduce new restrictions.

The prohibition of such restrictions applies both to direct and indirect discrimination.

Direct discrimination is involved where aliens have to comply with special rules or requirements not applicable to nationals. In 1962 the Council published a general programme for the abolition of restrictions on freedom of establishment that were in operation when the Treaty came into force, which gives a non-exhaustive list of such directly discriminatory provisions ($). This lists the following requirements or restrictions: official authorization, prior residence, special taxes or requirements for provision of security, restrictions on access to credit, exclusion from training or social security provision, prohibition from entering into or bidding for contracts, from being awarded official licences or franchises or from purchasing goods, borrowing, receiving State aid, suing or being sued, or joining trade or professional associations.'

Indirect discrimination is disguised behind provisions applicable to nationals and aliens alike which nevertheless do not ensure equal treatment. The general programme defined such indirect discrimination as: 'any requirement imposed, pursuant to any provision laid down by law, regulation or administrative action or in consequence of any administrative practice, in respect of the taking up or pursuit of an activity as a self-employed person where, although applicable irrespective of nationality, their effect is exclusively or principally to hinder the taking up or pursuit of such activity by foreign nationals'.

The inclusion of indirect discrimination in the prohibition was confirmed by the European Court of Justice in Thieffry

(¹) Case 2/74 (1974) ECR 631-5 (paragraphs 43, 44 and 54).

($) OJ No 2, 15. 1. 1962, p. 36/62 (English Special Edition, Second Series, January 1974, IX. Resolutions of the Council and of the Representatives of the Member States, p. 7).

v. Conseil de l'ordre des avocats à la Cour de Paris. There the Court held that it was necessary to eliminate not only overt discrimination, but also any form of disguised discrimination, such as was found in requirements which, although applicable irrespective of nationality, had the effect of exclusively or principally hindering the taking up or pursuit of such activity by foreign nationals (=).

The special treatment of aliens on grounds of public policy, public security or public health is excepted from the freedom of establishment rules, just as restrictions on trade may be.

The Court of Justice has established that since the end of the transitional period the rule that Member States must accord national treatment to other Member States' nationals wishing to set up in business in their territory has been directly applicable. This means that Member States cannot maintain or introduce restrictions on establishment in a particular sector on the ground that there has not been any Community-wide harmonization of the relevant provisions.

However, restrictions based on genuine differences in the qualifications the host Member State and the alien's Member State require for certain occupations do not infringe the principle of national treatment and are legitimate. To help remove such barriers, the Treaty provided for the issue of Directives for the mutual recognition of qualifications. It is usually also necessary to accompany mutual recognition Directives with Directives to coordinate national rules on access to and practice of the occupation.

2. In the European Coal and Steel Community Treaty

The ECSC Treaty has no provisions on the right of establishment. Articles 52 et seq. of the EEC Treaty are consequently applicable to the fields covered by the ECSC Treaty, as they do not conflict with provisions of that Treaty.

3. In the Euratom Treaty

Article 97 of the Euratom Treaty provides that no restrictions based on nationality may the applied to natural or legal persons, whether public or private, under the jurisdiction of a Member State, where they desire to participate in the construction of nuclear installations of a scientific of industrial nature in the Community.

This provision guarantees inter alia the right to set up and carry on a business in connection with the construction of such installations and is directly applicable. In so far as Articles 52 et seq. of the EEC Treaty do not conflict with provisions of the Euratom Treaty, they too are applicable in the nuclear field.

(=) Case 71/76 (1977) ECR 765 and 777 (paragraph 13).

III. Freedom to provide services

1. In the EEC Treaty

The EEC Treaty also guarantees the right of nationals of one Member State to provide services in another Member State without actually setting up in business there. The freedom of services enshrined in Articles 59 et seq. is, like the right of establishment, governed by the principle of national treatment: 'The person providing a service may, in order to do so, temporarily pursue his activity in the State where the service is provided, under the same conditions as are imposed by that State on its own nationals' (;).

As in the case of restrictions on establishment the Treaty required restrictions on freedom to provide services existing when the Treaty came into force to be abolished during the transitional period and forbade the introduction of new restrictions.

The basic difference between the right of establishment and free provision of services is that the former involves a permanent business establishment in the host country, whilst the latter involves only temporary residence in the other Member State where the service is provided.

The freedom to provide services covers the performance of services normally performed for gain in a Member State other than that of the provider of the services, where the services are not otherwise governed by the Treaty's provisions on freedom of movement for goods, capital and persons (in which case those special provisions are applicable). Services are stated to include activities of an industrial and commercial character and activities of craftsmen and the professions.

Transport services are excluded from the general freedom of services and governed exclusively by the rules on transport ($). There is also a special rule for banking and insurance services. These are to be liberalized in step with the progressive liberalization of capital movements.

The exceptions made in the establishment rules for activities connected with the exercise of official authority and for restrictions on grounds of public policy, public security and public health also apply to the provision of services.

Under the principle of national treatment all laws, regulations, administrative provisions and practices capable of restricting or impeding access to or the practice of

(;) Third paragraph of Article 60.

($) Part Two, Title IV, of the Treaty.

self-employed occupations in the services sector by other Member States' nationals or subjecting other Member States' nationals to different treatment from the Member State's

own nationals are prohibited. Differences of treatment need not be based on rules that overtly discriminate between nationals and aliens but on rules applicable to both.

As in the case of restrictions on establishment, reference to the Council's general programme for the removal of restrictions on cross-frontier provision of services in effect when the Treaty came into force (=) is instructive. This gives the following examples of the types of restrictions prohibited:

(a) Rules or practices applicable or applied solely to aliens which directly restrict their ability to provide services, such as those which prohibit aliens from providing the service, require aliens wishing to provide the service to have a special permit or to fulfil additional requirements, increase the cost of the service provided by aliens by levying special taxes on them or requiring them to lodge a deposit or provide security in the host country, or restrict aliens' access to supplies or distribution channels or increase the cost of such supplies or the use of distribution channels to aliens.

(b) Rules or practices applicable or applied solely to aliens which indirectly restrict their ability to provide services by denying, restricting, or imposing special conditions on, rights normally exercised when services are provided, such as the capacity to enter into contracts such as contracts for work or service contracts, and to exercise the rights under such contracts, the right to bid for or participate as a main or subcontractor in contracts placed by government or other public authorities, the right to borrow or take up credit, eligibility for direct or indirect government aid, the right to sue or be sued and to obtain judicial or administrative review.

(c) Rules and practices which, though applicable irrespective of nationality, hinder particularly or exclusively aliens in providing services.

As in the case of the right of establishment, restrictions on the provision of services by aliens may be justified by differences in the qualifications the host Member State and the alien's Member State require for the occupation. To remove such barriers, Directives have been or are being issued on the

(=) OJ No 2, 15. 1. 1962, p. 32/62 (English Special Edition, Second Series, January 1974, IX. Resolutions of the Council and of the Representatives of the Member States, p. 3.).

mutual recognition of qualifications. Where the differences in training in the Member States require, the Directives also harmonize national training standards.

In 1971 the Council issued a Directive (71/304/EEC) specifically concerned with restrictions on freedom to provide services in connection with public-sector construction contracts and with the award of such contracts to contractors acting through agents or branches (;).

As in the case of the Commission Directive (70/32/EEC) on the abolition of restrictions on government procurement of goods, however, the Directive only applied to restrictions in effect when the Treaty came into force. For present purposes, with Articles 59 and 60 being directly applicable ($), the Directive is only of value as a source of interpretative guidance and for its definition of public works in Article 2, which is referred to in the currently applicable legislation governing the award of public-sector construction contracts (Council Directive 71/305/EEC of 26 July 1971), which will be discussed below.

The Directive required Member States to abolish restrictions of the types referred to in Title III of the Council's general programmes on the abolition of restrictions on establishment and provision of services which affected the right of non-nationals to bid for, have awarded to them, perform or participate in the performance of public works contracts on behalf of the State, regional or local authorities or other public bodies.

The restrictions to be abolished may be imposed by the State itself or by any public authority, as with the Directive on the abolition of restrictions on government procurement of goods.

The services covered by the Directive are those listed in Major Group 40 'Construction', of the nomenclature of industries in the European Communities (NICE), which is reproduced in an appendix to the Directive.

A list of typical restrictions, prohibited by Articles 59 et seq.,

on the right of non-nationals to provide services in connection with public-sector construction contracts is given

(;) OJ N° L 185, 16. 8. 1971, p. 1 (English Special Edition, 1971 (II), p. 678).

($) Case 33/74 Van Binsbergen v. Bestuur van de Bedrijfsvereniging voor de Metaalnijverheid (1974) ECR 1299.

in Directive 71/304/EEC (=). Three broad categories are distinguished:

(a) Restrictions that prevent aliens from providing services under the same conditions and with the same rights as nationals, and in particular laws, regulations and administrative provisions or practices that impose or permit discriminatory treatment of aliens by natural or legal persons who have been awarded a contract for the execution or management of works or a franchise for the operation of public services when they in their turn award contracts in respect of such works or services.

(b) Restrictions based on administrative practices that result in discriminatory treatment of aliens by comparison with nationals.

(c) Restrictions based on provisions which, though applicable irrespective of nationality, nonetheless particularly or exclusively hinder nationals of other Member States in practising particular occupations; discriminatory technical specifications not warranted by the subject matter of the contract are specifically referred to.

The Directive also refers to restrictions on credit, on government financial assistance or subsidies available for public works projects, and on supplies over which the State has control.

2. In the European Coal and Steel Community Treaty

Like the right of establishment, freedom of services is not regulated by the ECSC Treaty. Consequently, Articles 59 et seq. of the EEC Treaty are also applicable to the coal and steel industries, as the articles do not conflict with specific provisions of the ECSC Treaty.

3. In the Euratom Treaty

Article 97 of the Euratom Treaty banning discrimination based on nationality in connection with the construction of nuclear installations also applies to the provision of services in connection with such projects. In addition, Articles 59 et seq. of the EEC Treaty are applicable, in so far as they do not conflict with specific provisions of the Euratom Treaty.

(=) Article 3(1) of Directive 71/304/EEC.

PART II SPECIFIC COMMUNITY LEGISLATION ON GOVERNMENT PROCUREMENT AND CONSTRUCTION

I. Objectives and scope of the 'Supplies' and 'Works' Directives

1. Objectives

The creation of a common market for public-sector procurement and construction contracts was unlikely to come about entirely as a result of the obligations Member States had undertaken in the Treaties to remove restrictions on foreign goods, services and businesses, discussed above. It was still likely to be frustrated by differences in national regulations. Community legislation was necessary to make sure that government contracts were open to all nationalities on equal terms and to make tendering procedures more transparent so that compliance with the principles laid down in the Treaties could be monitored and enforced.

Therefore, to back up the prohibition of import restrictions resulting from discriminatory public purchasing and to make it easier for resident and non-resident foreign firms to compete for public-sector construction contracts and associated contracts for services, the Council issued two Directives to coordinate government procurement procedures: Directive 77/62/EEC of 21 December 1976 (;) on procurement of supplies and equipment (the 'Supplies' Directive) and Directive 71/305/EEC ($) on public works contracts (the 'Works' Directive).

The coordination was undertaken in separate pieces of legislation because of the different characteristics of the two types of contract. It is based on three main principles:

- Community-wide advertising of contracts so that firms in all Member-States have an opportunity of bidding for them.

- The banning of technical specifications liable to discriminate against potential foreign bidders.

- Application of objective criteria in tendering and award procedures.

The latter principle is ensured by the following requirements:

- Contracts are to be put out to open (open to all potential suppliers or contractors) or restricted (open only to selected potential suppliers or contractors) tender, at the choice of the authority placing the contract. Authorities may dispense with tendering only in specified exceptional circumstances.

(;) OJ N° L 13, 15. 1. 1977, p. 1.

($) OJ N° L 185, 16. 8. 1971, p. 5.

- Suppliers may only be excluded from bidding (in restricted tenders) or from final selection on certain specified qualitative criteria (=).

- Contracts may be awarded only on economic or technical criteria, namely either the lowest price or the economically most advantageous tender overall.

The Directives apply to all public-sector procurement and construction contracts subject to the EEC, ECSC and Euratom Treaties, except in certain excluded sectors.

The 'Supplies' Directive (77/62/EEC) was amended in 1980 to take account of the international agreement on government procurement negotiated in the Tokyo Round of trade liberalization talks in GATT, which committed the Community to granting suppliers and products from non-EC signatories of the GATT Agreement somewhat better access to certain types of EC Government procurement (notably purchasing by central government agencies and some defence procurement) than EC suppliers had under the 1977 Directive.

The amending Directive (80/767/EEC of 22 July 1980) (%) extended these terms to EC suppliers.

The basic provisions on public-sector procurement are still contained in the 1977 Directive, however.

2. Legal effect of the Directives

Article 189 of the EEC Treaty provides that Directives are binding on Member States as to the result to be achieved, but leave to the national authorities the choice of forms and methods.

Member States are obliged to transpose the provisions of Directives into their national laws.

(=) See Article 1 (c) of each of the Directives.

(%) OJ N° L 215, 18. 8. 1980, p. 1.

However, failure to do so does not make the Directives inapplicable.

According to the Court of Justice's case law on direct effect, once the time limit for transposing a Directive into national law has passed any provisions of the Directive that are capable of directly affecting the legal relationship between the Member State to which the Directive was addressed and private individuals can be enforced by such individuals in the courts of the Member State, and the Member State cannot avoid such enforcement on the ground that the formalities for incorporating the Directive into its national law have not been completed or that contrary provisions still exist in its national law.

To determine whether provisions are capable of having direct effect in this way, the Court has ruled that in each particular case the nature, background and wording of the provisions must be considered.

This is generally the case where the provision imposes a clear, precise and unconditional obligation not leaving the Member State any discretion.

3. Arrangement of material

As noted above, the Community rules on public-sector procurement and construction contracts (the 'Supplies' and 'Works' Directives) are similar in content and in the interpretation to be given to their individual provisions. For the convenience of users, who might be interested only in one or the other type of business, however, the Guide will deal with the two directives in separate chapters. Each chapter will explain the provisions of the Directive and give other relevant information and interpretative guidance.

The choice of this arrangement inevitable involves a certain amount of repetition in the two chapters.

II. Government procurement: the 'Supplies' Directive 77/62/EEC, as amended by Directive 80/767/EEC

1. Scope of the Directive: 'public supply contracts'

The Directive is stated to apply to 'public supply contracts'. These are defined in Article 1 as contracts for pecuniary consideration concluded in writing between a supplier and a contracting authority (purchasing or procurement agency) for the supply of products. The contract may, in addition, cover siting and installation work.

Meaning of 'supplier'

Suppliers may be companies, firms or individuals or groups (consortia) of such. Groups may not be required to assume

any particular legal form in order to bid for a contract but may be required to do so by the contracting authority if they are awarded the contract and if a change to this form is necessary for satisfactory performance of the contract (;).

Meaning of 'contracting authority'

The 'contracting authorities' whose purchasing is covered by the Directive are the State, regional or local authorities and 'legal persons governed by public law or, in Member States where the latter are unknown, bodies corresponding thereto', listed in Annex I to the Directive($).

Form of contracts

The Directive applies to any contract in writing on the supply of goods for pecuniary consideration to the contracting authority, including rental and leasing as well as sale.

Open or standing contracts between a purchasing entity and a supplier in which the purchasing entity undertakes to obtain at least part of its requirements over a certain period of time from the supplier and which stipulate many of the terms and conditions of sale though not the actual quantities or prices, are similar to contracts for a specific purchase. Such contracts come within the provisions of the Directive, and thus must be advertised, if the total value of the purchases over the past year exceeded the threshold and this situation is not expected to change significantly (=).

Borderline with 'Works' contracts

Supply contracts, according to the definition quoted above, may include siting and installation work, i.e. services necessary to make the products supplied operational.

A problem of distinguishing such contracts from public works contracts may arise in borderline cases, such as where construction materials are supplied for a construction project and the supplier is also responsible for installing or incorporating them on site.

This question is decided, in line with the definition of

(;) Article 18.

($) See list in Table I of Annex II to the Guide.

(=) This solution was adopted at the 12th meeting of the Advisory Committee for Public Contracts on 17/18 May 1978.

procurement in the GATT code (Article 1(1)(a)) (;) by the relative values of the goods and services elements in the contract.

If the value of the goods to be supplied exceeds that of the services to be performed, then it is a supply contract. If, on the other hand, the services included in the contract are construction or civil engineering works of the types listed in Directive 71/304/EEC ($) and their value exceeds that of the goods, it is a public works contract.

2. Exclusions

Procurement falling below certain value thresholds, by certain public utilities and in certain other specified circumstances is excluded from the scope of the legislation. In case of doubt as to whether or not a contract is covered, it is strongly recommended that advice be sought from the Commission.

Value threshold

The threshold value from which a procurement contract becomes subject to the legislation is, in general, 200 000 ECU (European currency units) before VAT. All procurement contracts with an estimated value before VAT of 200 000 ECU or over are subject to the provisions of Directive 77/62/EEC.

Contracts awarded by the entities listed in Annex I to Directive 80/767/EEC (=) and, to the extent that rectifications, modifications or amendments have been made, their successor entities however, come within the scope of the legislation from a different threshold, which is determined by the GATT code and is adjusted each year in line with exchange rate variations. The special GATT threshold only applies to contracts for sale, and not to rental or leasing contracts (which are not covered by Directive 77/62/EEC).

Also, the authorities listed in Annex I to the 1980 Directive that operate in the field of defence are only subject to it when they purchase the products listed in Annex II to Directive 80/767/EEC(%).

(;) OJ N° L 71, 17. 3. 1980, p. 44.

($) See List in Table V of Annex II to the Guide.

(=) See List in Table II of Annex II to the Guide.

(%) See List in Table III of Annex II to the Guide.

The adjusted special threshold is published towards the end of each year in the 'C' (Information and Notices) series of the Official Journal of the European Communities (& ).

The value thresholds in ECU for 1986 and 1987 are as follows (NB: all amounts before VAT):

>TABLE>

The national currency equivalents of the ECU thresholds are calculated at a fixed exchange rate, which is adjusted by the Commission at the end of October every two years to the average of the daily values of the currency against the ECU over the preceding 12 months and published in the 'C' (Information and Notices) series of the Official Journal of the European Communities in November, with effect from the following 1 January (6).

The national currency equivalents of the thresholds applicable in 1987 are as follows:

>TABLE>

Calculation of contract value

The way in which the value of procurement contracts is calculated may obviously affect whether or not they exceed the threshold. To ensure that identical calculation methods are used throughout the Community and to prevent evasion of the procurement rules by artificially low valuations, the Directive lays down the following rules:

(5) For 1986 (OJ N° C 307, 28. 11. 1985, p. 2).

For 1987 (OJ N° C 300, 25. 11. 1986, p. 2).

(6) The 1986/87 rates were published in OJ N° C 307, 28. 11. 1985, p. 2.

- Where contracts cover regular supplies or are renewed within a given period, the total value of the supplies over the 12 months following the first supply or over the term of the contract, if more than 12 months, is to be taken.

- Where supplies of a certain type are purchased simultaneously in separate lots, the total estimated value of the lots is to be taken.

- It is prohibited to split up a purchase with the intention of evading the rules of the Directive.

In the case of rental and leasing contracts, the Commission has decided that the value over the following periods should be taken (1):

(a) In the case of fixed-term contracts, the total contract value during the year following its entry into force, or where its term exceeds 12 months, its total value.

(b) In the case of contracts concluded for an indefinite period, the monthly instalment under the contract multiplied by 48.

(c) If there is any doubt, the second basis of calculation is to be used, namely 48 months.

Public utilities

The contracting authorities to which the Community provisions on public supplies contracts apply have already been examined.

Directive 77/62/EEC excludes from its scope contracts awarded by 'bodies which administer transport services, . . . production, distribution and transmission or transport services for water or energy and telecommunications services' (Article 2(2).

The Commission emphasizes that, qua exceptions from the rules of the Directive, these exclusions must be construed strictly.

In the transport sector the exception covers organizations actually undertaking the carriage of passengers or goods, but not, for example, those running ports or airports, which are covered by the Directive.

In the water and energy sectors, only services whose specific function is the production, transport or distribution of water

(1) This formula was approved by the Advisory Committee for Public Contracts at its 22nd meeting on 22 November 1982 and officially communicated to the Member States by letter on 19 January 1983.

or energy are excepted. Thus, for example, a public hospital purchasing its own electricity generator or water-collection equipment would be covered by the Directive.

As far as water services are concerned, the exception only applies to services undertaking the collection, supply and distribution of drinking water, i.e. generally water that has been purified, for residential or industrial use. River management, irrigation, drainage and sewerage services are covered by the Directive.

Thus, it is the specific function of the service or organization that must be considered in determining whether the rules of the Directive apply.

Where an organization provides several services at once, for example a local authority combining the functions of sewage treatment and drinking-water supply, only contracts relating to the latter services are excepted.

In telecommunications, the Commission only regards as operators of telecommunications services excluded from the Directive those organizations whose main function is to provide a public telecommunication network (2). Hence, an organization setting up a telecommunications system to give early warning of earthquakes, volcanic activity, etc., would be covered by the Directive.

Of course, the Directive only applies to organizations awarding such contracts if they fall within the Directive's definition of contracting authority.

Exclusions

The Directive does not apply to public contracts awarded subject to different procedural rules under an international agreement between a Member State and one or more non-member countries and concerning supplies for the implementation or exploitation of a joint project (3) or under an international agreement on the stationing of troops.

(2) This interpretation was communicated to the Member States by letter of 30 June 1980 after the Advisory Committee for Public Contracts had been consulted on the matter at its 17th meeting of 22 May 1980.

(3) All such agreements must be communicated to the Commission.

Also excluded are contracts awarded under the particular mandatory procedure of an international organization (Article 3).

Defence procurement

The Community rules on government procurement have often not been properly applied to procurement by defence agencies. The Commission would stress that most procurement by such agencies is subject to the rules.

The only defence procurement contracts not subject to the rules are those concerning products for specifically military purposes, i.e. arms, munitions and war material, which are covered by Article 223 of the EEC Treaty. A list of these products was published in a Council Decision of 15 April 1958.

Products which, though on this list, are not for specifically military purposes, and products not on the list are subject to the Community procurement rules in Directive 77/62/EEC, as amended by Directive 80/767/EEC.

3. Advertising rules

All open and restricted tenders for contracts subject to the provisions of the Directives must be advertised in the Supplement ('S' series) to the Official Journal of the European Communities, so that firms in all the Member States know of the contracts and have the necessary information to judge whether the contracts interest them.

However, tenders for contracts with a value ranging between the GATT threshold and the general 200 000 ECU threshold that are to be awarded by the entities listed in Annex I to Directive 80/767/EEC need not be advertised in the Official Journal if the GATT Agreement requires them to be advertised in another official (national) publication.

Nevertheless, although not under any obligation to do so, most Member States advertise such tenders in the Official Journal.

Layout of tender notices

In the notices advertising tenders, certain specified items of information must be included and must be presented in

accordance with the models in Annex III to Directive 77/62/EEC (1). The standard content and layout saves time and ensures that all tenders give the same amount of information.

Content of tender notices

The information that is mandatory in tender notices is listed in Articles 13, 14, 15 (d) and 25 (2) of the Directive.

In open tenders the notice must state at least the following:

(a)

the date on which the notice was sent for publication to the Office for Official Publications of the European Communities;

(b)

the tendering procedure;

(c)

the place of delivery, the nature and quantity of the goods to be supplied, and, if the contract is divided into several lots, whether suppliers may tender for some and/or all of the goods required;

(d)

any delivery date;

(e)

the address, telephone number and, where applicable, the telegraphic address and telex number of the authority placing the contract;

(f)

the address from which the tender documents may be obtained and the final date for requesting the documents; also the amount and terms of payment of any sum payable for the documents;

(g)

the closing date for receipt of tenders, the address to which they must be sent and the language or languages in which they must be submitted;

(h)

the persons authorized to be present at the opening of tenders and the date, time and place of opening;

(i)

information about deposits and any other guarantees, whatever their form, that may be required by the contracting authority;

(j)

the main terms of financing and payment and/or references to the legislation in which these are laid down;

(k)

the legal form which a consortium of suppliers may be required to take if awarded the contract;

(l)

the evidence and formalities required by the contracting authority to show that the supplier meets the minimum financial and technical standards (2);

(1) See Table VIII in Annex II to the Guide.

(2) Evidence of the absence of any of the grounds of disqualification, and financial and technical capacity, as specified in Articles 20, 22 and 23 of the Directive (see following Section 5).

(m)

the length of time during which tenders must remain open for acceptance;

(n)

the criteria, other than lowest price, on which the contract is to be awarded, if not stated in the tender documents.

In restricted tenders, the notice must state at least the following:

(a)

the date on which the notice was sent for publication to the Office for Offical Publications of the European Communities;

(b)

the tendering procedure;

(c)

the place of delivery, the nature and quantity of the goods to be supplied, and, if the contract is divided into several lots, whether suppliers may tender for some and/or all of the goods required;

(d)

any delivery date;

(e)

the address, telephone number and, where applicable, the telegraphic address and telex number of the authority placing the contract;

(f)

the legal form which a consortium of suppliers may be required to take if awarded the contract;

(g)

the closing date for receipt of applications to tender, the address to which they must be sent and the language or languages in which they must be submitted;

(h)

the final date on which invitations to tender will be issued by the contracting authority;

(i)

the information required, in the form of verifiable statements, in the application to tender in order to disclose any grounds for disqualification, and the evidence and formalities required by the contracting authority to show that the supplier meets the minimum financial and technical standards (1);

(j)

the criteria on which the contract is to be awarded, if these are not to be stated in the invitation to tender.

National advertising of tenders

So that suppliers throughout the Community can compete for tenders on equal terms, the Directive prescribes that the advertising of tenders in the official gazettes or press of the country of the procurement entity may not contain information other than that published in the Official Journal

(1) As specified in Articles 20, 22 and 23 of the Directive (see also below).

and that tenders may not be advertised nationally before the date of dispatch of the tender notice for EC-wide publication.

It should be stressed that date of dispatch means what it says: the date on which the tender notice is actually sent to the Official Publications Office, and not the date shown on the documentation sent for publication, which may be much earlier. To ensure that this rule is observed, the Directive requires procurement authorities to be able to supply evidence of the date of dispatch.

Specification of time limits

Another point that needs emphasizing in connection with tender notices is the specification of closing dates and other time limits. These should be indicated clearly in the notice. It should not be made more difficult for suppliers from other countries to find out when the time limit is than for domestic suppliers.

Thus, the Commission does not accept references to the date of publication of the notice in national or regional official gazettes, access to which is much more difficult for foreign firms.

Time limits must be expressed either as a certain number of days from the date of publication of the notice in the Supplement to the Official Journal or as a specific date. The minimum time limits to be allowed in notices are given below (Section 5).

EC-wide advertising

In practice, the responsibility for EC-wide advertising of tenders is shared between the procurement authorities and the Official Publications Office. The procurement entity must supply a notice in the standard form and as far as possible using modern transmission methods to facilitate rapid publication. Notices should be sent to:

Supplement to the Official Journal of the European Communities,

Office for Offical Publications of the European Communities,

2 rue Mercier,

L-2985 Luxembourg.

Tel. (352) 499 28 23 32.

Telex 1324 PUBOF LU or 2731 PUBOF LU.

Facsimile (352) 49 00 03 or (352) 49 57 19.

The Publications Office has notices translated into the other EC languages and undertakes to publish them within the following periods:

- nine days from dispatch of the notice for tenders subject to Directive 77/62/EEC,

- 12 days from dispatch of the notice for tenders subject to Directive 80/767/EEC,

- five days in accelerated procedures (restricted tenders only).

The Supplement to the Official Journal is obtainable in all Member States from the addresses listed in Table VI (1).

Other sources of information on tenders

All government tenders (procurement, construction and services) published in the Supplement to the Official Journal are also on the TED (Tenders Electronic Daily) computerized system, which is accessible through various host organizations.

For further information, contact:

Office for Official Publications of the European Comunities,

Sales Department,

L-2985 Luxembourg.

Tel. (352) 49 92 82 563.

Telex 1324 PUBOF LU.

Facsimile (352) 49 00 03.

Since October 1987 suppliers have also been able to obtain details of tenders from their local Euro-Info Centre, which stocks the Official Journal and is linked to the TED system (2). For further information contact:

Commission of the European Communities,

Smalls Firms Task Force,

200 rue de la Loi,

B-1049-Brussels.

Tel. (02) 236 16 76.

Telex 61655 BURAP B.

Facsimile 236 12 41.

4. Rules on technical specifications

Procurement entities are required to state in the general documentation on the tender, such as the tender notice and tender documents, and in the actual contract documents the technical specifications to be met by the product or products concerned.

Technical specifications are defined in Annex II to Directive 77/62/EEC as all the technical requirements, relating, for

(1) See Annex II to the Guide.

(2) See list of the Euro-Info Centres currently operating or planned in Table VII of Annex II to the Guide.

example, to quality or performance, which objectively describe the product.

They include all the relevant mechanical, physical and chemical properties, classifications and standards, and testing, inspection and acceptance requirements for the products required or their constituent parts or materials.

The Directive's provisions on the standards that may be referred to as a means of defining technical specifications - i.e. in order of precedence, EC standards (in particular CEN and Cenelec, international standards, national standards and any other - must now be interpreted in the light of the European Court of Justice's case law on measures having an effect equivalent to quantitative restrictions. That is to say, if there are no EC standards, procurement authorities must consider products from other Member States manufactured to a different design but having equivalent performance on equal terms with products meeting national or other preferred standards.

As a general rule, any technical specification that has the effect of favouring or eliminating particular firms or products is prohibited. It is up to the procurement authority to show that such discriminatory specifications are justified.

When projects are put out to competitive tender or when bidders are invited to submit alternatives to the procurement authority's project, a supplier's tender may not be rejected solely on the ground that it has been prepared using different calculation methods from those normally used in the country of the procurement authority. However, tenderers must in that case include with their tenders all the evidence necessary for checking the project and supply the procurement authority with any clarifications it considers necessary.

5. Tendering procedures

Purchasing authorities have a choice between open tenders, whereby any interested supplier may immediately bid for the contract, or restricted tenders, whereby a selection is made from the suppliers who reply to the tender notice and the selected suppliers only are invited to bid.

An accelerated form of restricted tender with shorter than normal time limits is permitted in cases of urgency when observance of the normal time limits is impracticable. Procurement entities must be able to prove the need for urgency.

Exceptions

The requirement for contracts to be put out to competitive tender is waived in, and only in, the circumstances specified in Article 6 of Directive 77/62/EEC. In those circumstances the purchaser can negotiate directly with a given supplier or suppliers without prior advertisement. It is up to the purchasing entity to prove that the circumstances obtain. They are:

(a)

where no suitable supplier was found in a previous open or restricted tender because no or only irregular bids were received or because the bids submitted were unacceptable under national provisions that are consistent with the Community rules on public-sector procurement, provided that the original terms for the contract - for example, as regards financing, delivery dates and in particular the technical specifications of the products - are not substantially altered (otherwise, the whole procedure must be recommenced with a re-advertisement of the tender);

(b)

where, for technical or artistic reasons or because of the existence of exclusive rights, there is only one supplier in the Community able to supply the product;

(c)

where the product is manufactured purely for the purposes of research, experiment, study or development;

(d)

in cases of extreme urgency resulting from unforeseen circumstances not attributable to the action of the procurement authority, where the time limits laid down in tendering procedures cannot be observed;

(e)

for additional deliveries by the original supplier required either as part replacement of regular supplies or equipment, or to extend existing supplies or equipment, where a change of supplier would compel the contracting authority to purchase equipment having different technical characteristics which would result in incompatibility or disproportionate technical difficulties of operation or maintenance;

(f)

for goods quoted and purchased on a commodity market in the Community (not applicable to purchases covered by Directive 80/767/EEC);

(g)

where supplies are classified as secret or where their delivery must be accompanied by special security measures under the law of the Member State of the purchasing authority, or where the protection of the basic interest of that State's security so requires.

In the abovementioned exceptional circumstances, the award of contracts is exempt from the competitive tendering rules but is subject to the rules on technical specifications.

Time limits

To ensure that all potentially interested suppliers in the Community have a chance of bidding or applying to bid before the closing date, the two Directives prescribe minimum time limits for the receipt of bids and applications to tender and maximum time limits for procurement authorities to provide documentation and information. The time limits vary depending on whether the contract is covered by Directive 77/62/EEC or 80/767/EEC.

Open tenders

(a) Closing date for receipt of tenders: at least:

- Directive 77/62/EEC: 36 days,

- Directive 80/767/EEC: 42 days,

from dispatch of the tender notice for publication in the Official Journal;

(b) time limit for sending tender documents and supporting documentation (if requested within the time limit): no more than four working days from receipt of the request;

(c) time limit for sending additional information concerning the tender documents (if requested within the time limit): no more than six days before the closing date for receipt of tenders.

Restricted tenders

(a) Closing date for receipt of applications to tender: at least:

- Directive 77/62/EEC: 21 days (in accelerated procedures, 12 days),

- Directive 80/767/EEC: 42 days (in accelerated procedures, 12 days),

from dispatch of the tender notice for publication in the Official Journal;

(b) time limit for sending additional information concerning the tender documents (if requested within the time limit): no more than six days (in accelerated procedures, four days) before the closing date for receipt of tenders;

(c) closing date for receipt of tenders: at least:

- Directive 77/62/EEC: 21 days (in accelerated procedures, 10 days),

- Directive 80/767/EEC: 30 days (in accelerated procedures, 10 days),

from the dispatch of the written invitations to tender.

Both in open and restricted tenders, the closing date for receipt of tenders must be appropriately extended if tenders

can only be prepared after a visit to the site or after on-the-spot inspection of documentation supporting the tender documents.

Invitations to tender

Invitations to tender issued to the suppliers selected from those who replied to a restricted tender notice must be sent to all the selected suppliers simultaneously and must be accompanied by the tender documents and any supporting documentation.

Invitations to tender must contain at least the following:

(a)

the address from which other relevant documentation may be obtained and the closing date for requesting the documentation, also the amount and terms of payment of any sum payable for the documentation;

(b)

the closing date for receipt of tenders, the address to which they must be sent and the language or languages in which they must be submitted;

(c)

the persons authorized to be present at the opening of tenders and the date, time and place of opening;

(d)

information about deposits and any other guarantees, whatever their form, that may be required by the contracting authority;

(e)

the main terms of financing and payment and/or references to legislation in which these are laid down;

(f)

the length of time during which tenders must remain open for acceptance;

(g)

a reference to the tender notice published in the Official Journal;

(h)

any documents to be produced by the supplier to confirm the verifiable statements about his current standing and past record required under the terms of the tender notice in order to disclose any grounds for disqualification, or to supplement the evidence supplied under the terms of the tender notice that the supplier meets the minimum financial and technical standards;

(i)

the criteria on which the contract is to be awarded, if these were not stated in the tender notice.

Transmission of applications and invitations to tender

Applications and invitations to tender under restricted tender subject to the ordinary time limits may be sent by letter,

telegram, telex or facsimile. In the last three cases, however, they must be confirmed by letter.

In restricted tenders subject to the accelerated procedure, applications and invitations to tender must be sent by the most rapid means; only applications to tender must be confirmed by letter.

6. Method of calculating time limits

All time limits laid down in the Directives must be calculated by the method provided for in Council Regulation (EEC, Euratom) N° 1182/71 of 3 June 1971 determining the rules applicable to periods, dates and time limits (1).

Under these rules, periods expressed as a certain number of days from a certain event:

(a) run from the day following the day on which the event takes place;

(b) begin at 00h00 on the first day, as defined in (a), and end at 24h00 on the last day of the period;

(c) end, where the last day of the period falls on a public holiday, Saturday or Sunday and the period is not expressed in hours, at 24h00 on the following working day.

Periods expressed as ending at a certain time on a certain date, which are common for certain acts to be performed by suppliers, end at the time and date stated.

Periods include public holidays and weekends unless these are expressly excluded or the periods are expressed as a certain number of working days. Public holidays are all days designated as such in the Member State in which the relevant act has to be performed.

For further details, reference should be made to the text of the Regulation.

7. Criteria for disqualifying or eliminating applicants and bidders

If procurement agencies could disqualify or eliminate applicants to bid or bidders on arbitrary grounds, this could defeat the purpose of opening up public-sector procurement to Community-wide competition.

For this reason, the Directive specificies the only qualitative criteria on which applicants to bid or bidders may be

(1) See text in Table XI of Annex II to the Guide.

disqualified or eliminated and the evidence suppliers may be required to produce to show that they meet the criteria.

Grounds for disqualification

Article 20 of the Directive first lists all the circumstances relating to the suppliers which can be taken by the procurement authority as a ground for disqualifying the supplier from selection to bid or from consideration of his bid.

Any supplier may be immediately disqualified who:

(a)

is bankrupt or being wound up, has ceased or suspended trading, or is operating under court protection pending a settlement with creditors, or is in an analogous situation arising from national proceedings of a similar nature;

(b)

is the subject of proceedings for bankruptcy, winding-up or court protection pending a settlement with creditors, or national proceedings of a similar nature;

(c)

has been convicted of an offence concerning his professional conduct by a judgment which has the force of res judicata;

(d)

can be shown by the contracting authority to have been guilty of grave professional misconduct;

(e)

has not fulfilled obligations relating to payment of social security contributions under the statutory provisions of his country of residence or of the country of the contracting authority;

(f)

has not fulfilled obligations relating to payment of taxes under the statutory provisions of his country of residence or the country of the contracting authority;

(g)

has been guilty of serious misrepresentation in supplying information about his current standing or past record or his financial or technical capacity.

In cases (d) and (g) the burden of proof is on the procurement authority. In the other cases it is for the applicant or bidder, if asked to do so in the tender notice, to show that he is not in any of the specified situations.

However, the evidence the procurement authority may require for this purpose is specified in the Article. It must accept as satisfactory evidence:

- for cases (a), (b) and (c), the judicial record on the supplier or an equivalent document issued by a judicial or administrative authority in the supplier's country of origin or residence showing that none of these cases applies,

- for cases (e) and (f), a certificate issued by the competent authority in the Member State concerned.

If such documents or certificates are not issued by the country in question or if they do not cover all the cases referred to in (a), (b) and (c), the supplier may instead produce an affidavit sworn before a judicial or administrative authority, notary or any other competent authority in the Member State concerned.

Instead of an affidavit, a solemn declaration may be provided.

Affidavits and solemn declarations must be authenticated by the competent authority or notary.

Registration

To prove their general commercial standing and fitness, suppliers may be required under Article 21 of the Directive to show that they are on an official register of business in their Member State of residence as required under that State's law. This of course means that a procurement authority may not make it a condition of acceptance of a supplier that he be on an official register in the authority's country.

Evidence of financial and technical capacity

Under Article 17 of the Directive, suppliers not disqualified on any of the grounds of general unsuitability specified in Article 20 may only be eliminated from the suppliers from whom those invited to bid are selected or whose bids are considered on one of two sets of criteria, namely financial and technical capacity.

Financial capacity

Under Article 22, evidence of the supplier's financial capacity may be provided, as a rule, by any of the following:

(a) appropriate statements from bankers;

(b) the company's balance sheets or extracts from them;

(c) a statement of the firm's total turnover, and its turnover from the products concerned by the tender, for the past three years.

However, a purchasing entity may require evidence other than the three items mentioned above, if such other evidence is objectively necessary to show that the supplier has the requisite financial capacity to perform the contract.

All evidence required of financial capacity must be stated in the tender notice under both open and restricted tenders and in the invitation to tender under restricted tenders.

If, for any valid reason, the supplier is unable to provide the evidence required in the tender notice or invitation to tender, the purchasing authority must allow the supplier to prove his financial capacity by any other document the authority considers appropriate.

Technical capacity

Article 23 contains an exhaustive list of the types of evidence that purchasing entities may require of supplier's technical capacity.

Depending on the nature, quantity and purpose of the products required, they may ask for:

(a)

a list of the supplier's main deliveries of the products over the past three years, stating their value, date, and the purchaser, whether public or private, and providing confirmation of the purchase by the public or private purchaser concerned or, in the case of a private purchaser, alternatively a statement to that effect by the supplier;

(b)

a description of the supplier's technical plant, quality control procedures and research and design facilities;

(c)

particulars of the technical resources (staff and facilities) the supplier can call upon, particularly for quality control, whether or not they belong to the firm;

(d)

samples, descriptions and/or photographs of the products, which the procurement entity may require to be authenticated;

(e)

certificates issued by an officially-recognized quality control or certification body stating that a clearly-identified product conforms to certain specifications or standards;

(f)

where the products required are complex or are required for a special purpose, an inspection by the national authorities of the procurement entity, or by the competent official body of the supplier's country of residence if it agrees to carry out the inspection on their behalf, of the supplier's production and, if necessary, design and research facilities and his quality control procedures.

The references required to prove technical capacities must appear in the contract notice both in the open and restricted procedures.

On the other hand under the abovementioned Article 23 the extent of the information required by the contracting authorities 'must be confined to the subject of the contract', that is, this information may only be required to the extent that it is necessary to assess whether the technical capacities of the suppliers are appropriate for the desired supplies.

Purchasing authorities must also take into account suppliers' legitimate interest in protecting their trade secrets.

Additional information

Suppliers may be asked to amplify or elucidate the evidence of general suitability and financial and technical capacity they have submitted to the procurement authority. However, any further information requested must be strictly confined to the matters listed in Articles 20 to 23.

8. Award criteria

The only criteria on which purchasing entities may award contracts are the lowest price and the economically most advantageous tender overall (Article 25 of the Directive).

The lowest price criterion does not raise problems of interpretation, for the prices quoted in the bids are simply compared and the contract awarded to the lowest bidder.

Some explanation is required of the second criterion, however. The question is what features of bids may be taken into consideration in determining which, on balance, is the best offer. The Directive states that purchasing entities may base themselves on 'various criteria according to the contract in question, e.g. price, delivery date, running costs, cost-effectiveness, quality, aesthetic and functional characteristics, technical merit, after-sales services and technical assistance'.

The list is not exhaustive, but it is clear from the examples given that only objective criteria may be used which are strictly relevant to the particular procurement decision and uniformly applicable to all bidders. Variation in the criteria is permitted to take account of the inherent characteristics of the goods to be purchased and the use for which the purchaser requires them.

All the criteria the purchasing authority intends to apply in determining the economically most advantageous offer must be stated in the tender notice or the tender documents. N° criterion not mentioned in the notice or tender documents may be used.

The Directive also provides that where possible the criteria should be listed in descending order of importance. Suppliers should not be left in the dark about how bids are going to be assessed.

Abnormally low tenders

If a bid appears to be abnormally low given the contract specifications, the procurement authority is entitled to check the costing of the bid before awarding the contract to the bidder. However, for this purpose it is obliged to give the bidder an opportunity of justifying the bid and if it considers any of his explanations unsatisfactory must tell him so. Otherwise, no bid may be rejected on this ground.

The right of procurement agencies to reject the bidder's explanation of his bid as unsatisfactory does not entitle them to presume this and to reject the bid without asking for explanations. The object of the provision, namely to protect bidders against arbitrary rejection of their bids by procurement authorities, would be defeated if the need to seek explanations from the tenderer of a suspiciously low bid were left to the discretion of the procurement authority (1).

(1) So held by the European Court of Justice in relation to the corresponding provision (Article 29(5) of the 'Works' Directive (Case 76/81 Transporoute v. Luxembourg Minister of Works (1982) ECR 417 at 428-9 (paragraph 17)).

As the procedure for checking bids that appear to be abnormally low is an essential safeguard for bidders and is therefore mandatory, there must be some means of monitoring its use. Consequently, the Commission considers that the communications the procurement authority has with the supplier for this purpose should be in writing (i.e. by exchanges of correspondence) or, if oral, recorded in writing (i.e. by keeping minutes of telephone conversations, meetings, etc., with copies naturally sent to the supplier). Monitoring of compliance with the procedure is only possible if there are written records.

It is also important to note that in evaluating whether or not a bid is abnormally low, purchasing entities must base themselves on the conditions in the bidder's country, having regard, of course, to any extra costs involved in supplying to another Community country. In particular, they may not discriminate against foreign bidders by referring only to conditions on their domestic market.

At all events, it is not permitted to reject as abnormally low a bid that has been properly costed according to conditions on the market of the supplier's country and meets the contract specifications.

Exception

The only exception from the rule that contracts must be awarded either to the lowest bidder or to the bid offering overall the economically most advantageous terms is where legislation in force when Directive 77/62/EEC was adopted provides for certain bidders to be given preference. However, this legislation must be compatible with the Treaty.

Preferences introduced for regional policy reasons have long posed a problem for the Community government procurement rules. The Commission will shortly redefine its position on this question in the light of the Single European Act.

III. Government construction contracts: the 'Works' Directive 71/305/EEC

1. Scope of the Directive: 'public works contracts'

The Directive is stated to apply to 'public works contracts'. These are defined in Article 1 as contracts for pecuniary consideration concluded in writing between a contractor and an authority awarding contracts and concerning one of the

activities in the construction sector listed in Major Group 40 of the 'nomenclature of industries in the European Communities', reproduced in the Annex to Directive 71/304/EEC (1).

Meaning of 'contractor'

Contractors may be companies, firms or individuals or groups (consortia) of such. Groups may not be required to assume any particular legal form in order to bid for a contract, but may be required to do so if they are awarded the contract.

Meaning of 'authority awarding contracts'

The 'authorities' whose construction contracts are covered by the Directive are the State, regional or local authorities and 'legal persons governed by public law (or, in Member States where this concept is unknown, equivalent bodies)' (2) listed in Annex I to the Directive (3).

Form of contracts

The Directive requires merely that the contract be for pecuniary consideration and be drawn up in writing. Nothing is said as to its content.

There being no express restriction on the terms of the contract, the Directive covers the widest possible range of contracts a public authority can make with a private contractor for construction works. Thus, it includes, for example, contracts covering the planning and/or financing of a project as well as its execution.

How the project is financed is also irrelevant for the purposes of the Directive. It may be financed from the principal's own resources or borrowing by the principal, or the financing may be left to the contractor.

(1) See list in Table IV of Annex II to the Guide. In 1970 the NICE classification was revised and incorporated into the broader NACE (general industrial classification of economic activities within the European Communities) classification. In the NACE classification, Major Group 40 'Construction' of the NICE classification became Class 50 'Building and civil engineering'.

(2) Words in brackets inserted by the Treaty of Accession of Denmark, the United Kingdom and Ireland.

(3) See list in Table V of Annex II to the Guide.

2. Exclusions

Contracts falling below a certain value threshold, awarded by certain public utilities or in certain other specified circumstances, or involving certain specified forms of consideration, are excluded from the scope of the Directive.

These are dealt with in detail below. In case of doubt as to whether or not a contract is covered, advice should always be sought from the Commission

Value threshold

The threshold value from which a public works contract becomes subject to the Directive (78/669/EEC) of 2 August 1978 (1) amending the basic Directive to take account of the introduction of the European unit of account, which later became the ECU, is 1 000 000 ECU (European currency units) before VAT. All public works contracts with an estimated value of 1 000 000 ECU or over are subject to the provisions of the Directive, unless they fall within one of the excluded categories.

The national currency equivalents of the ECU threshold are calculated at a fixed exchange rate, which is adjusted by the Commission at the end of October every two years to the average of the daily values of the currency against the ECU over the preceding 12 months and published in the 'C' (Information and Notices) series of the Official Journal of the European Communtiesin November, with effect from the following 1 January. The national currency equivalents of the threshold applicable in 1986/87 (2) are as follows:

>TABLE>

Calculation of contract value

The Directive lays down rules for calculating the value of contracts. First of all, the value taken must include, as well as

(1) OJ N° L 225, 16. 8. 1978, p. 41.

(2) The 1986/87 rates were published in OJ N° C 207, 28. 11. 1985, p. 2.

the value of the work contracted for, also the value of the supplies needed to carry out the work even if these are provided to the contractor by the principal.

The estimated value of work which the authority intends to have carried out later by the contractor awarded the current contract and which consist in a repetition of the work to be carried out under the current contract must also be included in the contract value (Article 9 (g)).

It is prohibited to split up contracts with the intention of evading the rules of the Directive (Article 7).

In practice, the Commission considers that no question of splitting to evade the rules can arise if the contract value is calculated to include all the work necessary to make the project operational, i.e. finished and ready for the use intended by the authority. This does not prevent award of the contract in lots, provided this is mentioned in the tender notice.

Public utilities

The Directive excludes from its scope contracts awarded by 'bodies . . . governed by public law . . . which administer transport services' or by the 'production, distribution, transmission or transportation services for water and energy' (Article 3 (4) and (5).

The Commission emphasizes that, qua exceptions, these provisions must be construed strictly.

In the transport sector, the exception covers organizations actually undertaking the carriage of passengers or goods, i.e. common carriers. Authorities operating facilities such as ports or airports are subject to the Directive.

In the water and energy sectors, only services whose specific function is the production, transport or distribution of water or energy are excepted. Thus, for example, an army barracks planning to build its own power plant or water pumping station would be covered. As far as water services are concerned, the exception only applies to services undertaking the collection, supply and distribution of drinking water, i.e. generally water that has been purified, for residential or industrial use. River management, irrigation, drainage and sewerage services are covered by the Directive. Thus, it is the

specific function of the service or organization that must be considered in determining whether the rules of the Directive apply.

Where an organization provides several services at once, for example a local authority combining the functions of sewage treatment and drinking water supply, only contracts relating to the latter service are excepted.

Of course, the Directive only applies to organizations awarding such contracts if they fall within the Directive's definition of 'authority awarding contracts'.

Contracts awarded under international agreements or under the specific procedure of an international organization

The Directive does not apply to contracts awarded by a Member State:

(a) under an international agreement with a non-EC country which contains different provisions for the award of contracts;

(b) to firms in non-EC countries under an international agreement which excludes EC firms;

(c) under the specific procedure of an international organization (Article 4).

Contracts in which the consideration consists in a franchise to operate the completed works ('concession contracts')

Nor do the provisions of the Directive apply to contracts which have all the features of a public works contract as described above but under which the consideration for the works consists in a franchise ('concession') to operate the completed works or in a franchise plus payment (1).

The Directive, however, requires that it should be stipulated in the terms of such contracts that the organization awarded the franchise ('concessionaire') must not discriminate on grounds of nationality when it itself awards contracts to third parties.

If the 'concessionaire' is itself a public authority covered by the Directive, the work it contracts out to third parties in connection with the project is subject to the full provisions of the Directive, with the exceptions noted above (Article 3 (1), (2) and (3)).

(1) In 1971 a declaration on the procedures to be followed in relation to such contracts was adopted by representatives of the Governments of the Member States meeting within the Council (OJ N° C 82, 16. 8. 1971, p. 13 - English Special Edition, Second Series, January 1974, IX. Resolutions of the Council and of the Representatives of the Member States, p. 55). Such contracts and subcontracting under them are dealt with in detail in Chapter IV.

3. Advertising rules

To open up public-sector construction contracts to effective competition from firms in other Member States of the Community, authorities are required to advertise the contracts in the Supplement to the Official Journal giving the basic information contractors need to be able to bid for contracts concluded in the Community.

Content of tender notices

In the notices advertising tenders for construction contracts, certain specified items of information must be included. These mandatory items are listed in Articles 16, 17, 18 (d) and 29 (2) of the Directive.

In open tenders (i.e. those whereby any interested contractor may immediately bid for the contract, as opposed to restricted tenders whereby a selection is made from the contractors who reply to the tender notice and the selected contractors only are invited to bid), the tender notice must state at least the following:

(a)

the date on which the tender notice was sent for publication to the Office for Official Publications of the European Communities;

(b)

the tendering procedure;

(c)

the site; the nature and extent of the work and the general nature of the project; if the contract is divided into several lots: the approximate size of the various lots and the possibility of tendering for one, for several, or for all of the lots; if the contract involves design as well as construction work, sufficient information about the project to enable contractors to understand the requirements and prepare a tender accordingly;

(d)

any time limit for the completion of the works;

(e)

the address of the body awarding the contract;

(f)

the address from which the tender documents and additional documentation may be obtained and the final date for requesting the documentation, also the amount and terms of payment of any sum payable for the documentation;

(g)

the closing date for receipt of tenders, the address to which they must be sent and the language or languages in which they must be submitted;

(h)

the persons authorized to be present at the opening of tenders and the date, time and place of opening;

(i)

information about deposits and any other guarantees, whatever their form, that may be required by the authorities awarding the contract;

(j)

the main terms of financing and payment and/or references to the legislation in which these are laid down;

(k)

the legal form which a consortium of contractors will be required to take if awarded the contract;

(l)

the minimum financial and technical standards which the authority awarding the contract requires contractors to meet; these requirements may not be other than those specified in Articles 25 and 26;

(m)

the length of time during which tenders must remain open for acceptance;

(n)

the criteria on which the contract is to be awarded, including criteria other than lowest price if not stated in the