EN Official Journal of the European Union C 148/1

SPECIAL REPORT No 2/2007

concerning the Institutions’ expenditure on buildings together with the Institutions’ replies

(pursuant to Article 248(4), second subparagraph, EC)

(2007/C 148/01)

TABLE OF CONTENTS

ABBREVIATIONS

GLOSSARY

I-X EXECUTIVE SUMMARY

1-3 INTRODUCTION

1 Audit field

2-3 Audit scope and objectives

4-49 OBSERVATIONS

4-19 Planning

9-12 Building policy

13-15 Selection and location of buildings

16-19 Management information

20-38 Financing and costs

21-23 Tendering procedures

24-31 Determination of contractual conditions, purchase prices and rents

32-38 Means of financing building projects

39-49 Interinstitutional cooperation

50-58 CONCLUSIONS AND RECOMMENDATIONS

51-55 Planning

56-57 Financing and costs

58 Interinstitutional cooperation

Annex I: Budget execution 2003-2005

Annex II: List of the buildings considered in this report

The European Parliament’s replies

The Council’s replies

The Commission's replies

The Court of Justice's replies

The European Economic and Social Committe's replies

ABBREVIATIONS

CPQBF Interinstitutional Committee for the Preparation of Budgetary and Financial Questions (Comité de Préparation pour les Questions Budgétaires et Financières) DG Directorate-General DG ADMIN Directorate-General for Personnel and Administration DG EAC Directorate-General for Education and Culture DG ECFIN Directorate-General for Economic and Financial Affairs DG RTD Directorate-General for Research EIB European Investment Bank EU European Union EURIBOR Euro Interbank Offer Rate IT Information Technology SA Société Anonyme VAT Value Added Tax

GLOSSARY (1)

Emphyteusis: A right to enjoy a land or a building in exchange of a rent and for a fix amount of time (under Belgian law, no less than 27 year and maximum of 99 years). The owner has virtually no obligation to repair or maintain the building. It can be complemented with a purchase option (acquisitive emphyteusis) which, when exercised, will give full property.

Fitting-out works: Works on an otherwise finished building, to make it compliant to the rules and needs of the Institutions.

Headquarters agreements: Agreements setting out the respective roles and responsibilities of the Institutions and the host Member States.

Hidden defect: A (usually major) defect that appears after the final acceptance of the building. If it appears within 10 years of the acceptance, a special guarantee (aptly named the 10-year guarantee) covers the repairs.

Institutions: The Institutions considered in this report are the Institutions within the meaning of Article 1 of the Financial Regulation. The Institutions concerned were the Commission, the Parliament, the Council, the Court of Justice, the European Economic and Social Committee and the Committee of the Regions.

JMO2, Cube, CCAB, SDME, MO75, VM-2, Beaulieu x, Genève y, Covent Garden, Colonel Bourg, SPA2, Infopoint, Dailly: Internal codes for Commission buildings.

OIB: Office for Infrastructure and Logistics in Brussels.

OIL: Office for Infrastructure and Logistics in Luxembourg.

An administrative division of the Commission in charge of buildings, supplies and other social services. These offices, created in 2003 and attached to DG ADMIN, have an operational scope and specific rules.

PPI: Protocol on the Privileges and Immunities of the European Community, signed in 1965, as an annex of the EC treaty, signed by all Member States. It grants certain privileges to the EC for official purposes, amongst which a tax exemption status.

Property tax: A tax levied by the Brussels Region on real-estate property. It is levied on the owner of the right in rem (i.e. full owner, usufruitier, emphytéote).

Purchase option: A right given by the residual owner to the Commission for a fix price. When exercised, the Commission becomes full owner. Some purchase options can be exercised at any time, others only after 27 years.

Registration tax: A tax levied by the Federal Government on the registration of notarized contracts once they are registered at the property register. It is levied on the owner of the right in rem (i.e. full owner, usufruitier, emphytéote).

Rights in rem: Right (sale, usufruct, emphyteusis) over an immovable thing (building or land). Note that a lease is not considered a right in rem but a service. Many real estate taxes (property tax, regional taxes) levy the tax on the owner of the right in rem instead of the lessee.

Usufruct: Right to use a building (in this case) without modifying its substance and enjoy its ‘fruits’ (i.e. rent it). The user (usufruitier) has more rights than a lessee and concomitantly more obligations when it comes to repair works.

EXECUTIVE SUMMARY

I. Expenditure on purchasing and renting buildings is one of the main components of the administrative expenditure of the European Union Institutions. In 2005 the total surface area occupied by the Institutions in Brussels, Luxembourg and Strasbourg amounted to around 2 million m2. The annual occupation cost of this surface area was estimated at 345 million euro.

II. The audit aimed to answer three questions: — Does the planning ensure the provision of appropriate accommodation? — Are financing and costs managed economically? — Do the Institutions make best use of interinstitutional cooperation, including joint evaluation of their building policy?

III. The audit showed that given the political and budgetary constraints they face the EU Institutions have managed to house their staff in appropriate conditions and have in the last few years improved the management of building expenditure. However, the Institutions’ management still suffers from a number of weaknesses in the areas examined.

IV. The Court noted that due to political and practical constraints, the Institutions had difficulty in defining long-term policy and planning. The difficulties associated with long-term planning explain why definitive accommodation arrangements are provided late and often necessitate intermediate arrangements and costly short-term solutions. The Court found that long-term planning could be improved.

V. The Institutions have prioritised purchasing rather than renting buildings, but have not coordinated their plans or applied them consistently. Despite the Court’s previous recommendations they have rented buildings on a long-term basis without an option to purchase, which makes a subsequent acquisition more expensive.

VI. The Institutions have continued concentrating almost all their buildings in the European Quarter in Brussels. Concentration creates economies of scale (e.g. services, communication, maintenance) but has contributed to an increase in the prices due to the higher demand for buildings and a reduction in the accommodation available in this area.

VII. The Court’s assessment of the Institutions management of their financing and costs showed that their extensive use of the negotiated procedure — rather than competitive tendering — did not ensure that the best prices were obtained.

VIII. Due to constraints in the legal framework preventing borrowing, the Institutions used several alternative financing methods for their property acquisitions. These were more costly and less transparent than the direct borrowing of funds.

IX. With the exception of some specific cases, interinstitutional cooperation has been of limited effectiveness. The potential advantage offered by the creation of the Offices for Infrastructure and Logistics in Brussels and Luxembourg was limited. There were a low number of ‘Service level agreements’ with other Institutions and experiences and best practices were rarely shared between the OIB and OIL or with the other Institutions. The Institutions have not evaluated their building policies either jointly or individually.

X. Based on its audit, the Court makes a number of recommendations on the Institutions’ building policies: the establishment of a common building policy, better interinstitutional cooperation including increased coordination of planning, reassessment of the concentration of offices within specific areas, using tenders in the broadest way, and improving the operation of OIB and OIL.

INTRODUCTION

Audit field

1. Budget expenditure on purchasing and renting buildings represents around 8 % of the administrative expenditure of the EU Institutions. During the period 2003-2005 this expenditure increased from 397 to 532 million euro per annum (see Annex I). From 1978 to 2005 the total surface area of the buildings occupied by the Institutions in Brussels, Luxembourg and Strasbourg rose by 260 % to around 2 million m2. The space used by the Institutions can be categorised into two main types: specialist space (e.g. meeting-type) including formal debating chambers (which therefore need to be purpose built and are of uncertain marketable value), and standard office accommodation for administrative staff (which can be rented or purchased on the open market). Between 1978 and 2005 the number of officials and other staff increased by 240 % to a total of 36 131 persons. In 2005 the Institutions estimated the average annual cost of the space occupied by them at 173 euro per m2 and the yearly cost of office space at 6 040 euro per person. The annual cost of the total surface area occupied by the Institutions was estimated at 345 million euro and office space at 1 535 000 m2 (i.e. excluding space not used for offices, like conference rooms) (2). On 31 December 2005 the written-down value of the buildings owned by the Institutions was 3 886 million euro, i.e. an increase of 791 million over a five year period (3).

Audit scope and objectives

2. The objective of the audit was to examine to what extent the European Union Institutions have been efficient and effective in managing expenditure on buildings. This has been approached by assessing three issues: — Does the planning ensure the provision of appropriate accommodation? — Are financing and costs managed economically? — Do the Institutions make best use of interinstitutional cooperation, including joint evaluation of their building policy?

3. The audit focused on the Institutions’ building expenditure at their main working locations (Brussels, Luxembourg and Strasbourg) during the period 2003-2005. Therefore, expenditure on delegations, offices and research centres outside these locations was not examined during this audit. The Institutions concerned were the Commission, the Parliament, the Council, the Court of Justice, the European Economic and Social Committee and the Committee of the Regions. The audit did not cover the Court of Auditors, the Ombudsman and the European Data Protection Supervisor because of the small volume of their expenditure on buildings in the period examined.

OBSERVATIONS

Planning

4. Planning should ensure that buildings are provided in the right place at the right time at minimum cost while taking full account of political and budgetary constraints. The Court assessed the Institutions planning by examining three issues: — Was planning based on an approved building policy and was there a coherent approach to purchase or rental of buildings? — Did the selection and location of buildings lead to an optimum provision of office space? — Was there sufficient and appropriate management information for a correct appraisal of needs?

5. Planning requires three conditions. Firstly, an approved building policy comprising basic concepts and standards, as well as a well defined approach for the acquisistion of buildings. Secondly criteria for the selection and locations of buildings. And thirdly, reliable and appropriate information on current and future needs. Planning for the EU institutions’ buildings needs to take into account political and budgetary realities. In particular, large increases in staff (and therefore building provision) are associated with enlargement. Due to the political nature of enlargement such decisions cannot be formally planned until accession has been approved, often leaving little time before enlargement takes place. In budgetary terms the Institutions are not authorised to borrow and buildings are financed through annual budgets. Planning needs to deal effectively with these constraints.

6. The selection and construction of buildings entirely fulfilling an Institution's accommodation needs demand appropriate and coordinated implementation of long-term plans (4). However, long-term planning and budgetary forecasts are particularly difficult because appropriations and authorised staff are decided on during the budgetary procedure on a yearly basis and key political decisions with major implications for office space, such as future enlargements, are not precisely foreseeable.

7. This partly explains why the Institutions had not satisfied the definitive needs resulting from the 2004 enlargement by September 2006. In the meantime, the Institutions concluded short-term rent agreements to cover their accommodation needs until the finalisation of their main projects. For accommodation in Brussels, the Council and the Parliament signed contracts in March 2003 and October 2004 for new buildings. These buildings (Lex for the Council and D4-D5 for the Parliament) are expected to be completed in December 2006 and January 2008. Buildings delivered during 2004 — such as the Belliard 99-101 complex (Committees) and the Berlaymont (Commission)-covered pre-enlargement needs.

8. Moreover, building projects, particularly construction and decision-making procedures require significant lead time. Some efforts have been made by the Institutions to address these issues: — even though the Institutions prepared their accommodation planning for the 2004 enlargement independently, they produced coordinated estimates of administrative expenditure and the increase in staff numbers; — since 2003 the Commission has prepared ‘Multi Annual Policy Frameworks’, aimed at forecasting the building needs for Brussels over 10 years, which could be used as a basis for coordinated long-term programming.

Building policy

9. Notwithstanding the efforts made, the Institutions have not set up a common Community's building policy and each has defined its own policy independently (5). Nevertheless, two principles are common to all the Institutions: priority to the purchase of buildings in the long-term and preference to bringing services operating in similar fields together.

10. Since 1996 all the Institutions have given priority to the purchase of buildings over long-term renting. Studies made by the Institutions based on their experience showed that purchasing office space is 40 to 50 % cheaper than renting (6). In addition, the acquisition of buildings allows the Institutions to take full advantage of the tax exemptions granted by the Protocol on the Privileges and Immunities of the European Communities (PPI) of 8 April 1965. On 1 January 2005, the Institutions were renting 38 % of the total surface they occupied (7).

11. The Institutions application of the policy of prioritizing the purchase of buildings has recently resulted in certain buildings being purchased after having been rented for many years. Despite the Court’s recommendations going back to 1979 (8), the Institutions have signed up for rental contracts which do not provide for a reduced rent after the depreciation of the investment, or do not include an option to purchase at a price which takes the rent already paid into account. Therefore, the Institutions had no means of negotiating a purchase price at lower than market value. However, thanks to a political agreement with the owner (the Luxembourg's government), the Parliament was able to reduce the price of the KAD building to some extent.

Box 1In September 2006 the Parliament decided to acquire the buildings it occupies in Strasbourg (IPE 1, 2 and 3) for 143 125 million euro. In establishing the purchase price no account was taken of the rent previously paid.

12. It is the Commission's policy to purchase major buildings or complexes and to limit renting to smaller and less strategically important buildings (9). However, for some large buildings (see an example in box 2), the owners did not agree to long-term rental agreements which included an option to purchase.

Box 2In May 2004, the Commission signed a usufruct contract for the Mondrian building for 15 years, renewable up to a maximum of 30 years. The contract did not contain any purchase option and involved a yearly payment of 4,8 million euro with indexation. The market value of Mondrian was estimated by the Commission's experts at around 61,7 million euro. Had the Commission been in the position to negotiate the purchase of a similar building of this value using, for example, the formula of an ‘acquisitive emphyteusis’ (a kind of long-term lease with purchase option widely used by the Institutions), the annual instalments could have been set at less than 3,25 million euro (10).

Selection and location of buildings

13. All the Institutions prefer to house their related services as close together as possible, mainly in large buildings, so as to create economies of scale (e.g. services, communication, maintenance) whereas different services could be housed in alternative locations. Therefore, most projects are carried out at or near the site of the Institutions’ main buildings. This approach had practical advantages but also financial disadvantages: the Institutions had few alternatives to choose from, the market could easily anticipate the Institutions’ decisions and the available sites became more expensive because of the strong demand for buildings in the area. As a result, in Brussels, almost all the Institutions’ office space is located in what has become known as the European Quarter, where they occupy around 50 % of the total office space (11).

14. In 1996, the Commission recognised that concentration in the European Quarter in Brussels was pushing up market prices and decided that cheaper locations should be sought. In 2003 the Commission made an analysis of the need to keep its DGs and Services in this Quarter. The conclusion was that it was not imperative to locate certain DGs and Services of the Commission — employing around 40 % of the personnel — in the European Quarter. However, the Commission, like the other Institutions, continued to place most of its offices in this Quarter. Nevertheless, in 2006, the Commission reduced the percentage of its office space there from 90 % to 82 %.

15. Close cooperation with the national authorities was also an objective of the Institutions’ building policy. There are different situations in Brussels and Luxembourg. In Brussels, the most recent contracts have been negotiated by the Institutions individually with private developers. In Luxembourg, all the Institutions except the Commission obtained support from the national authorities, such as the provision of land free of charge, for their main buildings on the Kirchberg. The Commission in Luxembourg has not yet defined its building policy and has not clarified where and when a definitive site for its main building will be established, Discussions with the Luxemburgish authorities are ongoing.

Management information

16. Complete and detailed information on staff to be accommodated and surface areas required is an essential base for planning.

17. To forecast budgetary needs and plan the provision of accommodation, the Institutions need to know how many people are currently housed and consequently the office space available. In the absence of more formal building records the Commission used the e-mail and telephone address register to estimate the actual occupation of the buildings because this database is considered the most reliable source. To estimate the accommodation needs in the short-term is also a difficult exercise and can result in over or underestimations. For example, the recruitment procedures of new agents due to the 2004 enlargement have taken more time than initially foreseen. On the one hand, the Commission in Luxembourg had overestimated its needs, which led to the premature renting of the HITEC building (which was empty for around one year at a rental of 1,14 million euro). On the other hand, the Parliament, due to the combined effects of a certain understatement of its needs in 2001 and of new requirements arising in the following years, had to urgently rent around 30 000 m2 (12) in 2004 and 2005.

18. Effective economic planning calls for comparisons between alternative solutions. A comparison of building costs borne by the Institutions has shown that the Institutions use different criteria to calculate office space and costs making it difficult to use common indicators for benchmarking and internal use (13). As the data on surfaces and costs are not homogeneous, the rental costs per square metre are difficult to compare between the Institutions or with market values.

19. The standard most frequently used by the Institutions in the assessment of office space needs and the allocation of space is a guideline of 35 m2 of space per person, which does not take into account the characteristics of the buildings (actual office space available, size of the offices or common spaces). Aware of these weaknesses in management information, the Institutions have taken some initiatives: — The Commission is in the process of finalising the drafting of a ‘Housing Conditions Manual’ intended to define more rational criteria for allocating space among its Directorates-General and services and has finalised an inventory of their building space in 2006. — The Institutions in Brussels decided, in March 2006, to set up a working group whose first task would be to agree on a common approach to, and definition of, the various types of surfaces and costs.

Financing and costs

20. Buildings should be rented or purchased based on needs while ensuring minimum cost to the EU taxpayer. The Court examined three issues: — Were tendering procedures used as appropriate and were they effective? — Were the contractual conditions, including purchase price, of buildings properly established? — Was the building financing approach taken economical considering the budgetary constraints?

Tendering procedures

21. According to Article 89(2) of the Financial Regulation, ‘all procurement contracts shall be put to tender on the broadest possible base, except when use is made of the negotiated procedure’. The negotiated procedure may be used, after prospecting the local market, to acquire or rent existing buildings (‘building contracts’) (14). In respect of the projects examined, the negotiated procedure was also used for contracts concerning the construction or renovation of a building, or substantial fitting-out work, which are ‘works contracts’ not covered by the above mentioned exception applying to ‘building contracts’. Open and competitive award methods help public administrations to attract a broader range of potential bidders and to receive better value offers (15).

22. Only in very few cases have the Institutions advertised their building projects in the Official Journal, which would allow the greatest number of potential bidders to show their interest (16). The only project where works have been put to open tender is the extension of the Court of Justice, carried out in agreement with the Luxembourg government which is the contracting authority and follows its national law.

23. The Institutions have made a wide use of the negotiated procedure (without advertising) rather than competitive tendering which is the procedure normally foreseen by the Financial Regulation and the Directives on public procurement. The result is that the prices they pay for the construction of buildings and for works relating to buildings they occupy have not been determined under conditions of open competition.

Determination of contractual conditions, purchase prices and rents

24. In the absence of competitive tendering procedures, the key factor for determining purchase prices and rents is negotiation with the developers. For buildings constructed to meet the specific needs of the Institutions, prices or long-term rents should not exceed the construction costs (including a reasonable profit for private developers) (17).

25. The Court of Justice, the Parliament and the Council negotiated their main contracts (extension of the Palais, D4-D5 and Lex) on the basis of construction costs.

26. For the extension of the Court of Justice's main building, currently under construction, the purchase price of the building will be the actual construction cost. According to the framework contract, an independent expert will audit the accounts and expenditure in order to determine the price of the building. More than two years after the works had started the expert has not yet been appointed. This increases the risk that early problems and cost overruns are not identified. This risk is intensified by the fact that the initial framework contract only set out general principles without determining precise procedures concerning control, deadlines, penalties and budgetary limits (18).

27. The Commission and the Committees did not negotiate purchase prices and long-term rents on the basis of construction costs but on the basis of market conditions, as the Institutions had to compete with other acquirers. It is standard industry practice to value buildings based on a capitalisation of actual or expected rental value. This value has to be adapted to take into account all the advantages arising from the Institution's tax exemptions (19) according to the PPI. Boxes 3 and 4 show concrete examples of how the value of some buildings was established.

Box 3For the SPA3 building the market value of the building, adjusted to take account of certain tax exemptions, was estimated by a consultant. However, the calculation did not include a reduction for the VAT exemption granted to the Commission. Furthermore, the calculation was based on an immediate rental return, increasing the value compared with normal practice which assumes an initial vacant period.In order to benefit from the fiscal advantages allowed by the PPI, the Mondrian building was rented through a usufruct contract. The usufruct ‘rent’ was fixed at a value corresponding to market rents, meaning that the benefit of the VAT exemption was not reflected in the rental price and the Commission has to bear the additional maintenance and minor refurbishments costs (normally the responsibility of the owner). Furthermore, this contract should have resulted in a lower rental cost because of the long-term (15 years) as well as the Commission's solvency.Both of these issues resulted in the Commission paying more than necessary.

28. For 18 long-term (27 years) leasehold contracts with an option to buy, drawn up in the form of an ‘acquisitive emphyteusis’ by the Commission in Brussels during the period 1997-2001, the purchase price was not indicated in the contracts. The contracts only fixed the amount of the first instalment and included automatic indexation clauses similar to those used in rent contracts. The Commission discontinued this practice for future contracts, and followed its Internal Audit Service's conclusion that this practice was not appropriate. However, this finding was not shared with other institutions and the Committees have continued basing their purchases on indexed rents and not on the value of the buildings (20).

Box 4In the case of Belliard 99-101, the contract signed in December 2000 (acquisitive emphyteusis over 27 years) does not indicate a purchase price. The contract only sets a first annual instalment of 8,28 million euro to be paid from the year of the delivery of the building. This amount has been calculated with reference to open market rents and is subject to indexation according to the inflation rate. This method of fixing a price is not the most appropriate for a long lease. The open market value of the building, if estimated according to the method used by the Commission's consultants (see box 3), would have been approximately 127 million euro. The first annual instalment corresponding to this amount would have been 6,83 million euro.

29. In some cases the prices resulted from political agreements. In a Memorandum of Understanding signed on 8 July 1997 by the European Commission, the Belgian State and S.A. Berlaymont 2000 the Commission expressed its intention to re-occupy the Berlaymont. However, this agreement did not set the price, the deadlines or the responsibilities for the refurbishment of the Berlaymont. Following a new agreement of July 2001, the Commission accepted, in October 2002, the Belgian authorities’ offer, although it was higher than the estimated market price (21).

30. Appropriate guarantees should be requested from contractors in order to ensure the full performance of the contracts until final acceptance, and the payment of penalties if deadlines are not respected (22). However, the Institutions have not defined a clear policy in this field and the level of the guarantees was not always sufficient. Good practices, like requiring certificates on the quality of works issued by agreed technical control companies, and mandatory insurance policies covering the constructor's legal responsibilities, have not been applied consistently (23).

Box 5For Euroforum the Commission was in a difficult position because, according to the contract, 95 % of the performance guarantee (2 500 000 euro) was to be released just after the occupation of the building, leaving just 125 000 euro to cover possible defects in a building valued at over 100 million euro. For D4-D5 the Parliament followed another approach, which appears more rational. The contract lays down that sufficient performance guarantees will be provided -taking into account the defects identified- when the building is occupied.The initial contract of 26 March 2003 for the Lex building (Council) did not foresee any bank guarantees to ensure its full performance. The final contract, signed on 20 December 2006, provided for an appropriate bank guarantee.

31. The contracts provide for periods (e.g. 15 days for SPA3, 25 for Euroforum and 30 for Berlaymont) in which the Institutions, before moving into the building, can perform controls to verify that the work carried out complies with the agreed conditions and that the installations function properly. However, these periods are too short to properly carry out all the checks and tests necessary for complex projects.

Means of financing building projects

32. Article 282 of the Treaty allows the European Community to acquire or dispose of movable and immovable property. To this end, the Community is represented by the Commission. However, the actual legal framework (24) does not allow the Community to raise loans. Consequently the Institutions have had to use several alternative financing methods for their property acquisitions. The liabilities corresponding to finance leases for the acquisition by the Community of land and buildings had reached 1 803 million euro on 31 December 2005 (25).

33. The direct contracting of the construction of a building by an Institution is the cheapest option, but also a complex, lengthy and technically demanding task. In addition, construction projects are difficult to undertake within the constraints of the legal and budgetary framework. Faced with these constraints the Institutions have resorted to private developers and in some cases to the national authorities for constructing their buildings.

34. The methods used by the Institutions were more costly and less transparent than the explicit borrowing of funds. The most recent major projects generally involve a long-term purchase with implicit borrowing. The contract price implicitly or explicitly includes the financial costs. The interest paid by developers for financing the construction of buildings is charged to the Institutions and is always higher (26) than the rates the Institutions would have obtained directly through tendering procedures or by the intermediation of the host country or the European Investment Bank (EIB).

35. For the financing of in its extension project the Court of Justice uses a complex mechanism, involving the Luxembourg government, a private bank, an instrumental company and the EIB. The instrumental company obtained a favourable financial arrangement (Euribor +0,01) for 49 % of the project from the EIB. However, this mechanism has also risks because the Court of Justice was not involved in the tender and the detailed negotiation of the contract -whose clauses and options it did not agree in advance- and is not signatory to the financing contracts even though it will have to bear the financial costs (e.g. interest rates, management charges). The Court of Justice's departments examined the procedure followed by the government for awarding the contract concerning the financing of the project and pointed out that there had been a lack of appropriate competition. Although the EIB provides good financial conditions, no other Institution or its building partners have resorted to it for financing building projects.

36. The Commission initiated a practice aimed at reducing financing costs in 2002. For some transactions the contracts provided that before the deed was signed a tendering procedure on the financial markets would determine the interest rate. This practice was followed by the Council for the LEX contract, but not by the Commission in the following case.

Box 6The implicit interest rate contracted by the Commission in January 2003 to finance the acquisition over 30 years of the Euroforum building was 5,65 %. To finance the SPA3 the Commission called for tenders and in February 2003 obtained an interest rate of 5,01 %. If a similar call for tenders had been made for Euroforum, approximately 7,7 million euro could have been saved on the interest.

37. When the Institutions have remaining appropriations at the end of the year -due to under-spending in other administrative areas — the funds are often used to make unscheduled payments on building projects (see Annex I). This has resulted in the final expenditure being much higher than initially budgeted. For example, in 2005 the Parliament and the Council each used 89 million euro of additional appropriations obtained from transfers.

38. During the last two decades, the Court has pointed out on several occasions that a purely annual approach to accommodation costs in practice hampers the definition and implementation of an appropriate investment policy. The Court reiterated in December 2005 its recommendation that differentiated appropriations — which would allow greater flexibility — should be used for transactions relating to purchase or construction of buildings (27).

Interinstitutional cooperation

39. The need for obtaining and managing buildings is similar for all the EU Institutions. Effective cooperation should improve delivery and may reduce costs by pooling expertise and purchasing power. The Court assessed whether the Institutions have identified relevant areas for cooperation, including joint evaluations of their building policy and if this cooperation has been effective.

40. As a response to the Court’s repeated recommendations for increased interinstitutional cooperation, the Secretaries-General of the Institutions set up a working group on building policy, and, in June 2001, endorsed the group's proposals for improving interinstitutional cooperation (28). The concrete proposals covered enhanced exchanges of information, the development of a common strategy for relations with the public authorities of the host Member States including the conclusion of ‘headquarters agreements’ which set out the respective roles and responsibilities of the Institutions and the host Member States, the provision of mutual assistance and an environmental impact assessment of the buildings which should lead to interinstitutional initiatives with regard to the fitting-out and management of buildings.

41. Interinstitutional working groups on building matters have been set up and meet regularly in Brussels and Luxembourg, although, they have not resulted in worthwhile common initiatives or significant savings (29). However, in some specific cases office space has been sub-rented by one Institution to another. Co-operation between the Commission and the Parliament concerning shared Representation Offices in the Member States and between the Commission and the Council regarding Infopoint in Brussels and offices leased in New York and Geneva has been fruitful. The two Committees have established joint services which manage areas of common interest. This interinstitutional cooperation has allowed joint programming of the building policy and a common assessment of needs at the Committees. Nevertheless, in other areas of common interest interinstitutional cooperation did not take place. The Court’s audit showed that no evaluation of the Institutions’ building policies had been carried out by the Institutions either jointly or individually.

Box 7Part of the extension of the Court of Justice's main building in Luxembourg -planned for completion in 2008 — is being built on land previously occupied by the Commission's ‘Cube’ building. The ‘Cube’ housed the Commission's Computer Centre. While the Commission in 1999 was aware of the need to vacate the Cube building, it was not in a position to find a replacement until 2004, thereby contributing to a delay in the Court of Justice's project.Although the Belliard 99-101 complex was vacated in 1998, until 2004 an annual rent of around 6 million euro was paid by the Institutions for an empty building (first by the Parliament, later by the Committees, which were required by the Parliament to take over its contract (30)).

42. In the Court’s view the Institutions and in particular the Commission, should establish ‘headquarters agreements’ with the authorities of the host countries. However, such agreements, have not been concluded for any of the Institutions’ main sites. Individual Institutions have continued to negotiate their building projects with the host countries separately, and have obtained different conditions.

43. The Institutions did not carry out the interinstitutional environmental impact assessment of the buildings, although this had been recommended by the Secretaries-General. Nevertheless, the Commission has put in place some initiatives in the framework of the Community Eco-Management and Audit Scheme (31) which other Institutions are now starting to follow, and carried out environmental audits of some of its own buildings. Energy consumption and performance have been matters of concern to the Institutions when planning their buildings. However, the building projects examined had not been subject to technical, environmental and economic feasibility studies concerning alternative systems and techniques for improving the energy performance of the buildings as the directive on the energy performance of buildings (32) requires. Nor had they been subject to a cost-benefit analysis of different options for heating, ventilation and air conditioning, taking into account estimated long-term maintenance costs and energy consumption. Nevertheless, the Commission included the need to carry out such cost-benefit analysis in its procedures in 2004 and is now starting to develop a methodology for evaluating the total costs incurred over the life of a building (‘life cycle cost’). This is a subject which would merit an interinstitutional approach.

44. The implementation of building policies covers areas where the Institutions require assistance of a similar nature (technical support in architecture; engineering; health, safety and ergonomics; environmental management and security; planning and building regulations; law relating to property; financial planning). The majority of the Institutions employ staff or hire expertise specifically for some or all of these fields. Therefore, operational cooperation would allow sharing and better use of expertise as well as economies of scale in purchasing services. However, until now no such cooperation has been established.

45. As the Court has recommended in the past, the Institutions should have complete administrative, technical and financial control over their building projects. They should either make use of highly qualified consultants or develop appropriate expertise within an interinstitutional framework (33). Interinstitutional cooperation could have helped to improve areas like the supervision of works and control of their quality. Lessons could have been learnt from the type of reservations included in the reports of acceptance of the buildings, the defects identified by the Institutions after the occupation of the buildings and the results of the different approaches applied by the Institutions. One approach is based on a close supervision of the execution of the projects either by the Institution's own services or external consultants. The combined use of internal and external expertise by the Parliament and the Court of Justice has proved to be a good practice. Another approach, followed mainly by the Commission, is focused on the control of the final results according to the agreed standards and specifications.

46. The legal services and consultants of the Institutions have produced several detailed reports for specific contracts and buildings, examining the advantages and disadvantages of different formulas for the acquisition of buildings, and have identified specific risks, which should have been discussed conjointly by all the Institutions. Standard wording for the most used contracts has not been discussed by all the Institutions together. As each Institution prepares its own contracts separately, previous experiences and legal expertise have not been shared. The Parliament took into account weaknesses detected in previous projects and drafted detailed provisions in the field of supervision of the works and guarantees which could have been useful to other institutions.

47. The creation by the Commission in 2002 of two offices ‘for infrastructure and logistics’ in Brussels and Luxembourg (OIB and OIL respectively), which aimed to provide support for Commission departments and potentially for other Community Institutions, has not achieved the expected results as regards improvement of inter-institutional cooperation. Only OIL has signed ‘service level agreements’ (Court of Auditors and Translation Centre).

48. In addition, the Court observed that the expertise and best practices of the OIB/OIL (e.g. in the fields of procedures, software for managing office space or analysis of the risks linked to the long-term leases) were only shared between them, or with other Institutions, in certain specific cases.

49. Each Institution occasionally rents buildings to cover temporary accommodation needs until the finalisation of their main projects. At the same time other Institutions often keep a ‘reserve’ of office space to cope with unforeseen events, removals and periodical refurbishment of buildings, meaning they temporally have office space in excess of their needs. Several interinstitutional initiatives aimed at sharing office space have recently failed because buildings acceptable for one Institution did not meet the standards of another one (34).

CONCLUSIONS AND RECOMMENDATIONS

50. Although the Institutions face a number of political and budgetary constraints, they have managed to house their staff in appropriate conditions. In the last few years the Institutions have improved the management of their building policies but it still suffers from a number of weaknesses in relation to planning, financing and cost and interinstitutional cooperation.

Planning

51. The Institutions have not set up a common Community's building policy but have defined their own policy independently. The planning needed to reconcile many different constraints such as the public nature of the EU, the distribution of the staff between Brussels, Luxembourg and Strasbourg, the size of departments and Institutions, the absence of differentiated appropriations, the different types of buildings and the need to deal with third party owners and property investors. The Institutions also have had to contend with the problem of not being able to foresee definitive enlargement decisions (see paragraphs 4 to 6 and 9).

Recommendation: A coordinated multi-annual building policy framework should be defined. The budgetary authorities should be adequately and regularly informed of the global budgetary implications of building policy for each Institution.

52. The above constraints explain why definitive accommodation arrangements are provided late and often necessitate intermediate arrangements and costly short-term solutions. The Court found that long-term planning could be improved (see paragraphs 7 and 8).

53. The Institutions have prioritised purchasing rather than renting buildings. They have not applied this policy consistently and have rented buildings on a long-term basis without an option to purchase despite the Court’s previous recommendations. These procedures make the subsequent acquisition more expensive (see paragraphs 9 to 12).

Recommendation: The Institutions should continue to coordinate timetables and means to estimate their needs, to avoid as much as possible short-term renting of buildings. The EU Institutions should always seek long-term rental contracts which include an option to purchase.

54. The Institutions have continued concentrating almost all their buildings in the European Quarter in Brussels even though the Commission had a policy to seek accommodation in other areas of the city. Concentration creates economies of scale but has contributed to an increase in the prices due to the higher demand for buildings and a reduction in the accommodation available in this area (see paragraphs 13 to 15).

Recommendation: Recent initiatives aimed at diversifying office space in Brussels should be further pursued.

55. The information available for decision-making and managing office space (e.g. data on office areas and costs of the buildings and staff needing accommodation) is imprecise, making it difficult to assess needs and plan for the future (see paragraphs 16 to 19).

Recommendation: The Institutions should develop appropriate methods to appraise their current and short-term needs. Management information should be improved through the definition of common and clear indicators. The initiatives already taken by the Institutions individually and by the interinstitutional working groups should be supported, consolidated and extended.

Financing and costs

56. The prices the Institutions pay for construction and works relating to their buildings have not all been determined under conditions of open competition. For almost all the projects examined, the contracts were concluded by private treaty. Insufficient use of tendering procedures means that there is no assurance that buildings have been obtained at minimum cost (see paragraphs 21 to 23). The Court has found cases where the negotiated procedures did not lead to the best price (see paragraphs 24 to 29).

Recommendation: All contracts related to construction of buildings and fitting out works should be put to tender on the broadest possible base. If, by way of exception, the negotiated procedure is used, prices should be based on construction costs, including reasonable margins for the economic operators. For renting and purchasing existing buildings, the market should be prospected in the broadest possible way. The Institutions should ensure that they take full advantage of the tax exemptions under the PPI.

57. Within the current legal framework, the Institutions are not allowed to raise loans. Faced with this constraint they have used several complex methods of financing property acquisitions which lead to additional costs when compared to direct borrowing, and are less transparent (see paragraphs 32 to 38).

Recommendation: Improved budgetary planning and more flexibility through the use of differentiated appropriations would facilitate a more rational use of the budget appropriations and better management of the Institutions’ debts and long-term commitments.

Interinstitutional cooperation

58. The creation of the OIB and OIL has not given the expected results in the field of inter-institutional co-operation. There were a low number of ‘Service level agreements’ and experiences and best practices were rarely shared between the Institutions. Nevertheless, the Court has identified some specific cases of inter-institutional co-operation and recent good initiatives for improving it. Overall ‘headquarters agreements’ with the host Member States have not yet been concluded, leading Institutions to negotiate on an ad hoc basis with differing conditions and rents. In the past the Institutions have given insufficient consideration to environmental aspects but recent initiatives shows that more attention is given to this area. The Institutions have not evaluated their building policies either jointly or individually (see paragraphs 39 to 49).

Recommendation: Good practices and initiatives taken on their own by one or another Institution should be extended to all the Institutions in particular in technical matters like contracts or supervision of projects, and fields like the environment. The results of the Institutions’ building policies should be evaluated jointly and new ways for improving interinstitutional cooperation should be explored. The Institutions should continue setting up working groups concerning subjects which merit interinstitutional attention such as the development of the ‘life cycle cost’ methodology. Close cooperation with the authorities of the host countries should be an essential objective of the Institutions’ building strategy.

This Report was adopted by the Court of Auditors in Luxembourg at its meeting of 21 March 2007. For the Court of Auditors Hubert WEBER President

(1) The explanations concern the situation in Belgium, and the definitions are somewhat simpler than the legal definitions.

(2) The annual cost was based on the annual payments due for long leases and rents and the application of a depreciation rate of 4 % to the value of the buildings owned. This office space was available to 44 006 persons (staff and other people, like experts or external employees needing accommodation). Source: Comparaison des coûts entre les Institutions dans le domaine immobilier. Interinstitutional Committee for the Preparation of Budgetary and Financial Questions (CPQBF) June 2005.

(3) Final annual accounts of the European Communities. Volume I. More detailed information on expenditure on buildings and their value is presented yearly in an annex to the general budget of the European Union (Table D Buildings of the European Union).

(4) The Court has already reported on this issue in its Special Report on accommodation policies of the Institutions of the European Communities, paragraph 7.2.2 (OJ C 221, 3.9.1979).

(5) See for example: Commission building policy 1996-2005, SEC(96) 1095 final of 18 June 1996 updated for Brussels in December 2003, COM(2003) 755 final of 10 December 2003.

(6) Rapport du groupe technique interinstitutionnel ‘Programmes immobiliers et conditions de financement’, February 1996.

(7) Source: Comparaison des coûts entre les Institutions dans le domaine immobilier, CPQBF Juin 2005.

(8) Special Report on accommodation policies of the Institutions of the European Communities, section 7.5. Annual Report concerning the financial year 1987, paragraph 10.51 (OJ C 316, 12.12.1988).

(9) Commission building policy 1996-2005. SEC(96) 1095 final of 18 June 1996, p. 10.

(10) Simulation of an acquisitive emphyteusis for 27 years (with 2 % annual increase and an interest rate of 5 %).

(11) Sources: Workshop ‘Understanding the Brussels Office Market’, February 2005, and ‘Programmes pluriannuels de politique immobilière de la Commission à Bruxelles’, OIB.

(12) The Remard (8 256 m2), Wiertz 50 (2 837 m2) Montoyer 63 (9 681 m2) and Montoyer 75 (9 935 m2) buildings.

(13) Source: Comparaison des coûts entre les Institutions dans le domaine immobilier, CPQBF Juin 2005.

(14) Articles 116(1) and 126.1(h) of the implementing rules.

(15) Commission interpretative communication on the Community law applicable to contract awards not or not fully subject to the provisions of the Public Procurement Directives (OJ C 179, 1.8.2006, p. 2).

(16) Prior information notices were published during the prospection of the market for only four projects (three cases at the Council and one at the Parliament).

(17) Annual Report concerning the financial year 1987, paragraphs 10.51-55; Special Report on accommodation policies of the Institutions of the European Communities, section 7.5.

(18) Article 4(3) of the framework contract stipulates that the State is to obtain the Court’s agreement at each of the phases of the implementation of the project, but it does not specify precisely how and on the basis of which documents the Court is to give its agreement or, more importantly, what happens if there is no agreement. See also Special Report No 5/2000 on the Court of Justice's expenditure on buildings, in particular paragraph 16 (OJ C 109, 14.4.2000).

(19) In Brussels, VAT on construction is 21 %; property tax is around 10-15 %; and registration tax for acquisitions is 12,5 %.

(20) Trèves 74, Belliard 93, Belliard 68.

(21) A valuation report carried out by a consultant based on market conditions showed that the gross open market value of the Berlaymont would be around 451 million euro. Taking into account the Commission's tax exemptions, the value would be around 379 million euro. The price was fixed at 553 million euro including fitting out works (Conference Centre, Press Centre, Commissioners’ rooms, multimedia equipment) for 35 million euro.

(22) Article 102 of the Financial Regulation.

(23) Production of mandatory insurance policies covering the constructor's legal responsibilities, as laid down in national law, is essential for the 10-year period (garantie décennale) during which the constructor is responsible. The institutions have often accepted in the contract to take on from the developer the rights deriving from the 10-year guarantee in order to facilitate the developer's assignment of its right to the payments due by the institutions to banks. However, in several cases insurance policies have not been requested from the developers (e.g. the Commission only demanded it for Euroforum and the Committees have not requested it for any of their buildings). The institutions will have reduced means to obtain satisfaction if problems appear. In such cases claims must be addressed to sub-contractors. The obligation to produce certificates on the quality of works, issued by agreed technical control companies, was laid down in most contracts. This good practice introduces an additional assurance on the correct performance of works.

(24) According to Article 14 of the Financial Regulation, the Communities and the bodies set up by them may not raise loans.

(25) Final Accounts of the European Communities 2005. Table: Finance Leases and Similar Rights, p. 35.

(26) E.g. For the Lex building the final cost of the investment will be determined with reference to the interest rate of Euribor +1,125. In the case of D4-D5 the agreed interest rate was Euribor +0,650 (later reduced to Euribor + 0,375). For the financing of the specific fitting-out works of the buildings rented by the Council (Rolin and Woluwe-Heights), which was a short term financing with possibility of premature pay off, high interest rates (7 % – 6 %) were agreed with the developer.

(27) Opinion No 10/2005 on the draft Council Regulation amending Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities, paragraph 21 (OJ C 13, 18.1.2006, p. 1). See also: Annual report concerning the financial year 1987, paragraph 10.77; Special Report No 5/2000 on the Court of Justice's expenditure on buildings; Opinion No 4/97 on the proposal for a Council Regulation (Euratom, ECSC, EC) amending the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities, paragraph. 2.13 (OJ C 57, 23.2.1998).

(28) See replies of the Commission to paragraph 7.66 of the Annual Report concerning the financial year 2000 (OJ C 359, 15.12.2001).

(29) See Report to the budgetary authority on benefits from interinstitutional cooperation of October 2005.

(30) See Annual Report concerning the financial year 2000, paragraph 7.68.

(31) Regulation (EC) No 761/2001 of the European Parliament and of the Commission of 19 March 2001 (OJ L 114, 24.4.2001, p. 1) and Commission Recommendation of 10 July 2003 (OJ L 184, 23.7.2003, p. 19) concerning the Community Eco-Management and Audit Scheme.

(32) Directive 2002/91/EC of the European Parliament and the Council of 16 December 2002 on the energy performance of buildings (OJ L 1, 4.1.2003, p. 65).

(33) Annual Report concerning the financial year 1999, paragraph 6.30 (OJ C 342, 1.12.2000).

(34) E.g. Goldbell and J. Monnet buildings in Luxembourg.

ANNEX I BUDGET EXECUTION 2003-2005 Description 2003 2004 2005 Budget Appropriations Transfers Final Appropriations Outturn Budget Appropriations Transfers Final Appropriations Outturn Budget Appropriations Transfers Final Appropriations Outturn COMMISSION Rent and annual lease payments 154 490 904 4 215 000 158 705 904 158 705 600 165 406 000 9 909 960 155 496 040 155 201 012 206 771 000 8 207 883 198 563 117 198 260 217 Acquisition of immovable property 0 0 0 0 n.a n.a 154 490 904 4 215 000 158 705 904 158 705 600 165 406 000 9 909 960 155 496 040 155 201 012 206 771 000 8 207 883 198 563 117 198 260 217 EUROPEAN PARLIAMENT Rent and annual lease payments 56 219 900 –13 142 943 43 076 957 43 076 839 67 391 000 142 734 931 210 125 931 209 987 082 34 761 956 45 979 590 80 741 546 80 734 779 Acquisition of immovable property 5 600 000 134 686 103 140 286 103 140 286 103 2 327 500 –23 000 2 304 500 2 304 085 0 98 059 966 98 059 966 97 876 424 Provisional appropriation to cover the institution's property investments 58 152 272 –58 152 272 0 44 942 471 –44 942 471 0 54 793 389 –54 793 389 0 119 972 172 63 390 888 183 363 060 183 362 942 114 660 971 97 769 460 212 430 431 212 291 167 89 555 345 89 246 167 178 801 512 178 611 203 COUNCIL Rent and annual lease payments 9 100 000 – 495 000 8 605 000 8 594 092 14 634 000 –1 554 000 13 080 000 13 073 791 17 200 000 –1 238 000 15 962 000 15 958 948 Acquisition of immovable property 0 15 909 000 15 909 000 15 909 000 13 500 000 44 949 000 58 449 000 58 449 000 14 420 000 89 950 000 104 370 000 104 370 000 9 100 000 15 414 000 24 514 000 24 503 092 28 134 000 43 395 000 71 529 000 71 522 791 31 620 000 88 712 000 120 332 000 120 328 948 COURT OF JUSTICE Rent and annual lease payments 9 436 500 561 925 9 998 425 9 998 425 33 867 000 9 622 300 43 489 300 43 327 934 9 669 000 639 447 10 308 447 10 298 891 Acquisition of immovable property 0 0 0 0 0 0 0 0 0 0 0 0 9 436 500 561 925 9 998 425 9 998 425 33 867 000 9 622 300 43 489 300 43 327 934 9 669 000 639 447 10 308 447 10 298 891 EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Rent and annual lease payments 10 378 510 1 620 957 11 999 467 11 936 819 11 160 000 3 235 409 14 395 409 14 141 891 8 791 580 5 727 300 14 518 880 14 508 882 Acquisition of immovable property 0 0 0 0 0 0 0 0 0 0 0 0 10 378 510 1 620 957 11 999 467 11 936 819 11 160 000 3 235 409 14 395 409 14 141 891 8 791 580 5 727 300 14 518 880 14 508 882 COMMITTE OF THE REGIONS Rent and annual lease payments 5 464 490 518 364 5 982 854 5 957 904 6 625 340 2 229 224 8 854 564 8 660 069 5 987 619 2 140 600 8 128 219 8 116 253 Acquisition of immovable property 0 0 0 0 0 0 0 0 0 0 0 0 5 464 490 518 364 5 982 854 5 957 904 6 625 340 2 229 224 8 854 564 8 660 069 5 987 619 2 140 600 8 128 219 8 116 253 COURT OF AUDITORS Rent and annual lease payments 2 713 000 142 000 2 855 000 2 854 996 2 427 000 – 290 000 2 137 000 1 920 241 2 571 000 – 227 500 2 343 500 2 221 446 Acquisition of immovable property 0 0 0 0 500 000 150 000 650 000 650 000 0 0 0 0 2 713 000 142 000 2 855 000 2 854 996 2 927 000 – 140 000 2 787 000 2 570 241 2 571 000 – 227 500 2 343 500 2 221 446 Total 311 555 576 85 863 134 397 418 710 397 319 778 362 780 311 166 021 353 508 981 744 507 715 105 354 965 544 194 445 897 532 995 675 532 345 840

ANNEX II LIST OF THE BUILDINGS CONSIDERED IN THIS REPORT Commission Brussels Berlaymont SPA3 Mondrian Commission Luxembourg Euroforum Hitec Parliament Brussels D4-D5 Atrium II Remard Wiertz 50 Montoyer 63 Parliament Luxembourg Towers A and B Goldbell KAD Parliament Strasbourg IPE1, 2 and 3 Committees Brussels Belliard 99-101 Trèves 74 Belliard 93 Belliard 68 Council Brussels Lex Woluwe-Heights Rolin Court of Justice Luxembourg Extension of the Palais Geos Tbis Allegro

THE EUROPEAN PARLIAMENT'S REPLIES 11. Box 1. The price paid by the European Parliament when purchasing the IPE 0, 1, 2 and 3 Buildings was the result of complex negotiations involving several parties, in particular the City of Strasbourg and the French State as the host country. All the relevant factors were taken into account in determining that price: the legal constraints stemming from the funding model chosen for the construction of the buildings, the price of the land, the involvement of private investors in the negotiations as owners of the buildings, the measures taken to establish the value of the buildings, the budgetary constraints faced by the City of Strasbourg and the involvement of the French State. Although the leases signed in 1979 contained no clause stipulating that the rent paid by Parliament would be taken into account in the event of the purchase of the buildings — an eventuality not envisaged at the time — the amount of rent paid was one of the parameters in the negotiations on the final purchase price for the buildings. 17. The need for new premises was estimated in 2001 after an analysis of available data and it was integrated into the long-term planning. The estimates and the planning were then continually updated between 2001 and 2005 in order to take into account the changes in the known needs for office space resulting from a number of reasons: a) decisions on the creation of posts are annual, not multiannual; b) specific needs flowing from the increase in the number of official languages, Member States and staff (numbers were estimated more precisely following detailed assessment); c) the increase in Parliament's powers following the Nice Treaty. The General Secretariat underwent significant reorganisation with a view to enhancing support to Members (Raising the Game policy). Despite increased productivity, the total number of staff rose and the distribution of staff between Luxemburg and Brussels was altered; Moreover, the 2001 scenario envisaged the handover of the D4 and D5 Buildings in 2004/2005. It was then revised for a number of reasons: the need to comply fully with European legislation on public procurement; the difficulties inherent in negotiating such a complex contract; the time needed to ensure that such a huge complex would be integrated into the surrounding area in such a way as to take account of neighbourhood concerns. 43. The lack of any study designed to improve the energy performance of the buildings can be explained by the projects analysed by the Court (Annex II to the observations): they concern buildings which are rented by Parliament (Remard, Wiertz 50, Montoyer 63, Towers A and B, Goldbell), or which were originally rented by Parliament and only purchased at a later date (KAD, IPE 0, 1, 2 and 3) or, finally, which were the result of a public consultation process and are covered by purchase contracts or long leases (D4-D5 and Atrium). Parliament was not involved in the definition of the preliminary designs for the Atrium Building, but secured the incorporation of solar energy and energy recovery systems into the design for the D4-D5 Buildings. Other projects were also the subject of detailed environmental impact assessments, the most recent being the KAD Building extension in Luxembourg. However, as long ago as 1992 Parliament called for the scope for using environment-friendly air-conditioning equipment in the LOW Building to be explored. 51 and 58. The Court is recommending closer interinstitutional cooperation, in particular in the area of long-term planning with a view to meeting the institutions' long-term needs and the definition of a joint buildings policy, and, in general terms, exchanges of information concerning the practices employed by each institution in the buildings sphere. Parliament shares these concerns. In that connection it should be pointed out that, in its resolution of 26 September 2006 on the discharge for implementation of the 2004 budget, Parliament instructed its Administration ‘to draw up a report examining whether it might be feasible to establish a European Buildings Authority charged with responsibility for the construction and maintenance of the buildings of the EU institutions and bodies’. That report is to be submitted to Parliament's Committee on Budgetary Control by 1 October 2007 at the latest. 58. See reply under point 51 above.

THE COUNCIL'S REPLIES Footnote 25. The interest rates for the fitting out of Rolin and Woluwe Heights should be compared to a short term financing with possibility of premature pay off. In both cases, the Council used this possibility and the total costs of the fitting out of these buildings was reimbursed in the year of the delivery of the works or in the year after. In light of these facts, the interest rates charged should not be referred to as high. 43. The General Secretariat of the Council suggests that the Court of Auditors, describing assessments of environmental impact of buildings, takes note of the actions undertaken by the GSC in this area. The actions included notably: a) The Justus Lipsius building was the subject of an exhaustive energy consumption audit carried out in 2006 under the supervision of the ‘Institut Bruxellois de la Gestion de l'Environnement’. As an example it should be noted that this building has at present the largest photovoltaic electricity production plant of the Brussels Region. b) Lex building has been the subject of an in-depth study to improve its sustainable development performance. Several features have resulted in a large reduction of the CO2 production generated by this building (cogeneration, heat pumps, automatic extinction of lights, etc.).

THE COMMISSION'S REPLIES EXECUTIVE SUMMARY I.-III. The Commission is in the process of adapting its building policy in Brussels and Luxemburg, and the new communication on this subject will be adopted before the 2007 summer break. The Commission is of the opinion that some structural changes are needed for the future with a view to improving, in a sustainable manner, the efficiency and effectiveness of its buildings policy and the quality of life for its staff and local residents. In the review of its building policy, which will contain a strategy of housing staff in fewer, but larger buildings, the Commission will take different aspects into account: value for money, the evolution of the average market price/m2 for office buildings, the vacancy rates for office buildings, the evolution in terms of the surface occupied, where and how, the future needs. The Commission will analyse the outcome of the intensification of its acquisition policy and the consequences it needs to draw from it: the Commission now needs to define a policy for the maintenance and renovation of buildings to preserve the level of its assets; and, in cases where property arrives at the end of its life-cycle, a strategy to encompass the demolition and re-construction of buildings. Also, over the last years there has been an increased focus on security and safety which has had a knock-on effect on the Commission's wish to develop the mixed usage of its buildings. Finally, the Commission will assess its co-operation with the local authorities. IV. The Commission has defined such a long-term framework for building policy, the Multi-Annual Policy Framework (MAPF), which is a rolling plan, discussed yearly with a 5-10 years perspective. The Commission is ready to examine to what extent this framework can be the basis for an inter-institutional framework, in addition to its participation to the two inter-institutional working groups in Brussels and Luxembourg (1). V. The Commission gives absolute priority to purchasing or long-term rentals and has concluded short-term contracts in exceptional cases only. The policy of concluding long-term acquisition-oriented contracts must be embedded in a clear policy as to the urban poles where the Commission's presence is to be developed. In Brussels, long-term contracts are signed if the purpose is to acquire the building under the deferred payments scheme. Shorter-term contracts of around 15 years are signed to take buildings in usufruct; this formula is economically sound. In Luxembourg, short-term contracts are currently only used awaiting the JMO2 construction. Otherwise, long-term contracts with purchase options are used. VI. The Commission favours a continued application and further development of its policy of diversification, which must be seen in the framework of a very-long-term strategy, taking into account such factors as prospective needs, mobility and the input of the host country. VII. The Commission services are currently preparing a communication on building policy, which will contain a new procedure for identifying suitable buildings to be rented or purchased, including a full consultation of the market. The Commission is nevertheless capable of conducting and achieving negotiations respecting or even below average market prices, and it certainly does well, also when compared to other private and institutional players present in the same locations. VIII. Over and above the stability gained through its acquisition policy, the Commission has also put in place a new way of funding acquisitions. Deferred payment purchasing is both legally and financially simpler to implement than the previous leasehold contracts (emphytéose). IX. The Commission is fully committed to inter-institutional co-operation in all fields (environmental and energy issues, planning, methodology for the estimation of needs, best practices, to name a few). X. As indicated at paragraphs 50 to 58, the Commission intends to follow up the Court’s recommendations in the new buildings policy to be adopted by the College later this year. OBSERVATIONS 6. The Commission issued two communications (2) on the staff needs resulting from the EU-10 and EU-2 enlargements. These communications served as a basis for the annual requests and thus also for the office space forecasts. 8. First indent — See the reply to paragraph 6. 8. Second indent — DG ADMIN, in close co-operation with the Offices for Infrastructure and Logistics, is currently preparing a long-term strategy for satisfying its building needs (until 2025) in both Brussels and Luxembourg, including the reflection on alternatives sites or complementary solutions to the existing poles for the Commission in Brussels. 9. The Commission will continue to strive for the institutions to define and implement their building policy together or, at least, in an integrated manner. This co-operation is, however, not always possible, since each institution has its own specific needs and priorities, but some progress has been made. In Brussels, all institutions are part of a working group (ILISWG — Inter-institutional Logistics and Internal Services Working Group), whose mandate also covers the exchange of information on the evolution of the real estate market and the needs of the institutions. In Luxembourg, all institutions co-operate through a committee of the Heads of Administration and an inter-institutional buildings working party. 10. The policy of purchasing buildings rather than renting them is relatively new and some of the 38 % of the surfaces are still rented as a consequence of long-term obligations contracted in the past. At the same time, purchasing a building is not always the best solution (e.g. for the building hosting the Information Communication Technologies infrastructure, as this kind of building is technologically rapidly obsolete) and renting may then be a better solution. In exceptional cases, purchasing may even not be possible (see the reply to paragraph 27, Box 3). Finally, the PPI offers exemptions also in other cases than full ownership, viz. when a building is taken in usufruct. 11. The Commission has purchased one building (its conference centre at CCAB) which had been rented previously. In the case of rentals, even if the building is (financially) depreciated, the owner has the legal obligation to maintain it in a good state of use, at his own expense and throughout the rental period. Therefore, the margin to negotiate rent reduction during the life of the contract is very much reduced. Moreover, when long-term contracts are concluded, the rent level already includes a reduction vis-à-vis short-term rentals. Finally, rent levels are driven by market conditions, and therefore, even when the contract provides for a revision of the rent, the rent paid should be assessed vis-à-vis current rent levels and not only with reference to depreciation. However, the Commission renegotiates rents whenever possible. For instance, in 2005, the contract for the SC15 was renegotiated and extended before it came to an end. This renegotiation reduced the rent by about 40 %. 12. Box 2 — The owner of the Mondrian building is a German fund whose main interest is to generate a stable and long-term cash flow. Therefore, despite the Commission having tried, it was not interested in selling the building. The Commission took the building in usufruct nonetheless, because it was, at that time, the only building in the area matching the Commission's needs in terms of size, quality and location, it being very close to the SDME where other parts of the same Directorate-General were housed. However, it is difficult to strictly compare the terms of a usufruct to those of an emphyteusis. 13.-14. The Commission has repeatedly and officially stated that it favours a combination of central and peripheral presence of its services. The purpose of this policy is to decrease the pressure on the European Quarter. Under the existing policy, the Commission has diversified its buildings. In Brussels, where it has 82,5 % of its office space, 82 % of it is in the European Quarter and 18 % elsewhere, counting the Madou building outside the European Quarter, it being very much in its outer periphery. In Luxembourg, where it has 17,5 % of its office space, 72 % of it is on the Kirchberg and 28 % elsewhere. Even though the Commission's building strategy in the European Quarter is rather predictable, it is often in a favourable negotiating position for surfaces for which there are few candidates. The Commission has not only further developed the Beaulieu and Genève areas of Brussels, but is also considering other options in the light of the definition of the new policy. After defining a policy on the location of agencies, the Commission has rented a building for the executive agency of DG EAC. This building is located in Evere, well outside the European Quarter. Moreover the Commission has recently rented a building located near the North Railway Station. (the Covent Garden of 14 000 m2) for the evaluation activity of the 7th Framework Programme for Research. 15. The Commission remains committed to enhanced co-operation with the host country. In Belgium, in 2003, OIB’s Director was appointed as the Commission representative to discuss the development of the European Quarter with the relevant authorities, and he also participates in the meetings of the ‘Fonds Quartier européen’. Since 2005 an interinstitutional ad hoc Task Force EU-Belgium meets every two months with representatives of the federal, regional and local level to deal with matters related to building policy. In Luxembourg, the Commission is currently (February 2007) negotiating an agreement with the Luxembourg State for its main building. This agreement will provide for a plot to be made available free of charge for the construction of the JMO2. As and when the agreement will have been signed, the Commission will define its building policy for Luxembourg. 17. One of the principles of the new building policy is to house the Commission services in a smaller number of larger buildings, which would mitigate the effects of the annual, piecemeal increases to the staff quota of the DGs and of internal reorganisations. The Commission services involved (DGs ADMIN, OIB and OIL) are in the process of defining a procedure based on COMREF (a personnel-related database) to assess the number of people to be housed within its premises. The fact that HITEC (5 000 m2) stood empty for almost a year was a consequence of a delay in the selection process for enlargement translators rather than the Commission overestimating its needs. 18. The remit of the inter-institutional working groups, both in Brussels and in Luxembourg, covers the definition of common indicators and criteria, and the Commission representatives actively contribute in this effort. 19. The norm of 35 m2 is used for purposes of global building planning. First indent — The part of the ‘Housing Conditions Manual’ dealing with space allocation criteria for the DGs, was approved by the Management Board of OIB on January 16, 2007. Once the opinion of the Luxembourg Committee for Safety and Hygiene at Work will be available (expected in the spring of 2007), the Management Board of OIL will also approve this document. It will then become applicable to both OIB and OIL. Second indent — A similar approach will be followed in Luxembourg. 21.-23. The Commission considers that the fitting-out works are part of the negotiated procedure used to find a building, that is fully compliant with the ‘Manuel des normes applicables à l’immeuble type’ (MIT). If the works were to be carried out by another contractor under the responsibility of the Commission, this could result in the Commission paying rent for a non-compliant building, during the entire renovation period. Furthermore, if the contractor failed to carry out those works properly and on time, it could cause greater damage to the financial interests of the EU. In the case of the full construction of a building when it owns the land or when it renovates a building it owns — both may happen relatively soon, in Luxembourg for JMO2 and in Brussels for Cornet-Leman- the Commission will launch a call for tenders for works. For some buildings projects with a purely technical purpose (central kitchens, archive space, Data Centre, conference building, logistics building) an open consultation of the market took place. The new building policy will foresee an extended consultation of the real-estate market fostering competition and respecting transparency. 24. The renting of a building is determined by market conditions related to supply and demand, linked in particular to its location and its corresponding value, as expressed by the price of the land. As the Court correctly states, the definition of a ‘reasonable profit for the developers’ only applies in the case of a building erected for specific needs. In the case of a building constructed on land owned by one of the institutions, the price paid should indeed closely correspond to the costs (including a reasonable profit) incurred by the builder. The price should be the result of different calls for tenders for the works, supplies and services necessary to construct the building. 27. In 2003, the Commission has chosen the approach of purchasing or renting, rather than having built to purpose: as a consequence the Commission chose to pay under market conditions, rather than cover construction costs. The actual price finally depends on objective factors (location, size, quality, market conditions) as well as on subjective factors, such as the priorities of seller and buyer and financial constraints to which both are submitted. Occasionally, the Commission can use its negotiating position, e.g. for large buildings such as Madou, in the sense that the Commission is then one of the few actors able to rent or buy the entire building. Box 3 — As regards SPA3, the evaluation by the consultant is just one, indicative element of the negotiation file. The final price is what it is: the result of a negotiation. And even if there were some errors in the expert evaluation, they influenced the evaluation both ways and the difference with the price paid was 4 %, which is deemed to fall within an acceptable range. As mentioned in the reply to paragraph 12 Box 2, the negotiation position of the Commission was limited as the Mondrian was the only acceptable building that could meet DG RTD’s needs, i.e. to be grouped in two large buildings. In effect, this DG was previously spread over five buildings. Moreover, with the size of this building (about 20 000 m2) came operational economies (maintenance, security), and given its quality, the Commission estimated that it had obtained a good deal. This building allowed the Commission to reach goals set in the 2003 Communication on Buildings Policy (COM(2003) 755): group the services in fewer and larger buildings, and provide staff with a high quality work environment. 29. The Memorandum of Understanding between Belgium and the Commission set the general principles of the Berlaymont’s refurbishment. A second, more detailed document was signed by the Commission, Belgium and S.A. Berlaymont 2000 on July 17, 2001 to precisely define price, timing and quality standards. If the price had been negotiated on the basis of the construction and refurbishments costs, it would have been much higher. According to S.A. Berlaymont 2000, the total cost of the building is around EUR 670 million excluding EUR 125 million for removing the asbestos. The instalments for the emphyteusis, on the contrary, were set on the basis of a value of EUR 553 million. 30. The Commission request a set of mandatory certificates and insurance policies when it starts the examination of a building. Since 2004, a 10-year guarantee insurance policy is systematically foreseen for the buildings purchased by the Commission (Berlaymont, Madou and Beaulieu 25). Major defects block the provisional acceptance of the building and the corresponding payments. Minor defects, to be repaired between the provisional and the final acceptance, are covered by a percentage of the financial guarantee provided by the contractor (generally around 5 % of the performance guarantee). When, after the final acceptance, a major defect appears, the statutory 10-year guarantee or the appropriate equipment guarantee is activated. Box 5 — As regards the Euroforum, the procedures proper to the Luxembourg site for the acceptance of works and for the release guarantees were followed. A first guarantee, related to timely delivery (in this case EUR 500 000) was released three months after the occupation of the building and only after Euroforum S.A. paid a penalty of EUR 93 000 for the late delivery of the building. 95 % of a second guarantee, a performance guarantee for the works and installations (in this case EUR 2 500 000) was released 17 months after acceptance (3) and occupation of the building, upon repair, by Euroforum S.A., of all major defects. Finally, a guarantee for the remaining 5 % (EUR 125 000) was kept for the repairs of some minor defects. While this amount was deemed sufficient, and the approach therefore acceptable, the Commission is willing to adopt the good practice of the Parliament. In addition to the above guarantees, a mandatory insurance policy imposed by the contract of the Euroforum building, covers the constructor's responsibility for the 2-year and the 10-year period after delivery. 31. The length of this period is a compromise between the completeness of the checks and the institution's wish to occupy the building, and depends on the complexity of the projects and on the available resources. The Commission deems a period of a few weeks sufficient to identify the major defects, the remaining smaller defects being covered by the financial guarantee and the major, but hidden defects being covered by the 10-year guarantee. In all cases, all vital controls concerning security and health and safety are completed and verified by certified companies before occupation of a building. 33. Until now, the Commission has never built for itself for the very reasons mentioned by the Court and, of course, also because no land was made available. For two upcoming projects (JMO2 in Luxembourg and the Cornet-Leman nursery in Brussels), the Commission, conscious of the financial advantage, will cooperate with the national authorities for their construction or renovation. 34. The Commission is of the opinion that, even if the new financial construction did cost some basis points, the margins obtained are nonetheless very competitive, when compared to other constructions. 36. Because of the revised practice (deferred payment scheme), in 2006 the financing rate for the Madou building was set with a negative margin of –0,01 %. This margin is set against the fixed swap rate curve. For the acquisition of the Beaulieu 25 building, the margin against the fixed swap rate curve was +0,008 % in 2006. Box 6 — The analysis of this case must be placed in its historical context. A global agreement had been reached after protracted negotiations in 2001/2002, and had been submitted to the ACPC (4) on August 28, 2002. The ACPC gave a favourable opinion on December 4, 2002. These conditions were indeed favourable to the Commission, economically and functionally speaking (with a considerable regrouping of the services). Reopening the negotiations after six months would have been difficult for the Commission, as it was under pressure to abandon the CUBE building (see reply to paragraph 41 Box 7), since the fitting-out works were estimated to last well over 12 months. In fact, since then and whenever the building project lends itself to it, the Commission negotiates the technical and functional aspects separately from its financing. For this financing, the Commission consults the financial markets for the best result possible. 37. When such appropriations became available, the Commission has indeed used them to make scheduled and unscheduled payments. When they were unscheduled, these payments allowed the Commission either to renegotiate emphyteusis contracts or accelerate repayments of works contracts, and only after careful analysis of the balance between savings and penalties; or to acquire a building, achieving future savings for the EU budget. 38. The Commission applies the provisions of the Financial Regulation. 41. A certain amount of coordination, in particular to address short-term needs, is already in place. In Brussels, the Commission made special arrangements with the Committee of the Regions (VM-2), the European Parliament (MO75) and the Council (Infopoint and the Dailly nursery). In Luxembourg, similar arrangements were made between the Commission and the other institutions. The new building policy will be the result of careful reflection and will take into account, where appropriate, the Court’s audit observations the ongoing IAS audit and staff surveys. Box 7 — The Commission considers that the CUBE building is a case where the interests of the two institutions involved diverged. The positive note is however the fact that, following this experience, the EU institutions in Luxembourg have strengthened their co-operation with a view to improving the harmonisation of their building policy. 42. The issue of an overall site agreement is a complex and delicate one because the subject range is so wide, and the Commission acknowledges that such agreements have not been signed with the Belgian or with the Luxembourg authorities. In their absence, the PPI has filled the gaps in most areas, and co-operation arrangements have been set up in specific fields, e.g. in security, obviously linked to buildings. 43. OIB has started to implement a ‘Life Cycle Cost’ methodology in order to assess the total cost incurred over the life of a building, including energy and environmental aspects. This approach has as a main objective to assess, monitor and manage all the costs related to a building's occupation. This methodology is planned to be defined in 2007 and was presented in draft form to other institutions (European Parliament, Council, and the Committees) in September 2006. Since 2006, the Commission asks the owner to provide a report on the building's energy performance (this report has been provided for the Beaulieu 25 and SPA2). 44. When the Commission intends to launch a call for tenders related to building-related services (e.g. insurance, maintenance, training courses in building techniques, cleaning), it consults other institutions in order for them to have the possibility to join. In Luxembourg, a very close collaboration has been established between the Commission, the Translation Centre and the Court of Auditors. But the Commission agrees that there is scope for enhanced co-operation. 45. Since the second half of 2006, the Commission always resorts to a comprehensive ‘due diligence’ with an external law firm for the buildings it negotiates. This due diligence covers all the legal aspects, contracts with architects and insurance companies, official measures of the building, environmental and town-planning permits, tax matters. Regarding the valuation of buildings, the Commission has a contract with a specialist in this field, and for technical aspects with an engineering company. On this basis the Commission considers that its own qualified internal staff, together with the external contracts mentioned above, covers all the fields (legal, financial and technical) necessary to have a good view on its buildings projects. 46. In October 2006, the Commission made a presentation to other institutions (European Parliament, Council, the two Committees) regarding the legal aspects of its building contracts and particularly the idea to write a manual that would be addressed to the real-estate actors. This manual will describe the main conditions for contracting with the Commission. Were the Commission to launch construction projects of a similar nature to those of Council, Court of Justice or Court of Auditors, it would certainly take their experience into account. 47. Embedding inter-institutional co-operation into appropriate structures is only possible if there is a firm commitment from all the Institutions. In addition to the elements presented in the replies to paragraphs 41 to 46, the Commission made special arrangements with the Committee of the Regions (VM2), the European Parliament (MO75) and the Council (Infopoint and the Dailly nursery) in Brussels. Significant steps have been taken by OIL and the groundwork for more actions and results has been laid. 48. The two Commission offices do work together very closely and share their experiences on numerous subjects: technical standards for data centres, housing conditions manual, budgetary procedure, ‘housing building’ approach for ICT, training, specific calls for tenders, etc. As said elsewhere, they also plan to standardise the office space management software. Exchanges with other institutions do exist, but they are rather informal and need to be structured. CONCLUSIONS AND RECOMMENDATIONS 50. The Commission has comments and commitments corresponding to each of the specific recommendations and these are given below, but the general introductory comment to the Commission's reply (see points I to X) has set out the basic constraints to which the Commission is subject in the four areas mentioned by the Court. 51. The Commission agrees with the recommendation. The definition of a coordinated multi-annual framework passes through the definition of such a framework in each institution. The Commission has defined such a framework, the MAPF (Multi-Annual Policy Framework), which is a rolling plan discussed yearly in the Management Boards of OIB and OIL. The Commission is also ready to examine to what extent this framework can be the basis for an inter-institutional framework. The Preliminary Draft Budget gives information on new buildings (in surface terms) expected for the year to come, and an estimate of the global budgetary impact of building policy is included in annual report on Heading V. Finally, such multi-annual frameworks must remain coherent with the basic building policy, which is under review. 52.-53. The Commission accepts both parts of the recommendation. As regards inter-institutional co-operation, it already takes place, both in Brussels and in Luxembourg (5). The Commission gives absolute priority to long-term rentals or purchasing and has concluded short-term contracts in exceptional cases only (6). But it is clear that the policy of concluding long-term acquisition-oriented contracts is most effective when embedded in a clear policy based on a number of elements including long-term planning, needs analysis and indications as to the actual location of the few, large buildings involved, i.e. as to the urban poles where the Commission's presence is to be developed. 54. In line with the reply to Recommendation under paragraph 53, the Commission wants to make the following points: — diversification must be seen in the framework of a new, very-long-term strategy, which takes into account such factors as prospective needs, mobility and the input of the host country; — the Commission, sharing the analysis of the Court, has started the exploration of alternative and complementary sites in Brussels, in view of the definition of the strategy just mentioned; — the Commission is however of the opinion that this diversification is not only governed by economic considerations, but is also constrained by a number of parameters, of which two important ones are environmental (home-to-office and building-to-building traffic) and operational (travelling time to meetings) in nature; — and finally, with the development of the Beaulieu and Genève sites and with the recent acquisition of the Madou and renting of the Covent Garden and Colonel Bourg buildings, the Commission has effectively continued diversifying office space over Brussels. 55. The Commission fully supports this recommendation and will continue to act accordingly in the ILISWG for Brussels and in the GIITL for Luxembourg, and needs assessment and indicators will be systematically on their agendas. Recognising the importance of reliable management information, OIB and OIL have decided to use the same software for managing buildings, floors and surfaces, once the harmonised ‘Housing manual’ will have been completed, which is about to be the case. This issue could be systematically discussed in the inter-institutional working parties. A certain amount of coordination, in particular to address short-term needs, is already in place, as shown in observation 47 and the reply thereto. 56. With respect to the market consultation procedures, the Commission wants to make its approach clear. For future construction or renovation projects (JMO2 in Luxembourg and Cornet-Leman in Brussels), the tendering procedures will be used in compliance with the Directive. For renting or purchasing existing buildings, where the Directive itself states not to be applicable, the Commission will consult the market in the broadest possible way through a new procedure, specifically designed for the purpose. The Commission will deviate from this principle in exceptional circumstances only. For fitting-out works in existing buildings, the situation is very different, as argued in the reply to observation 21. By taking a building, completely fitted-out to our specifications under the responsibility of the owner (and therefore not subject to public procurement procedures), the Commission avoids spending money on rent while the building is being fitted-out, and it also avoids taking the responsibility for these works. The Commission accepts the recommendation that prices could be based on construction costs, including reasonable margins for the economic operators, but underlines that the price attributed to the land can be a complicating factor. As regards the PPI, the Commission agrees with the Court. The Commission will reinforce the steps it has already taken in this respect in the context of its revised buildings policy. [See reply to paragraph 42]. As indicated above, the exemptions granted by the PPI are at the base of the 15-year usufruct contracts the Commission has signed for some of its buildings in Brussels. 57. The Commission applies the provisions of the Financial Regulation. 58. The Commission is fully committed to inter-institutional co-operation in all fields, and has proven so in several instances (environmental and energy issues, planning, methodology for the estimation of needs, best practices, to name a few). This commitment will be confirmed again in the new building policy, to be adopted by the College before the 2007 summer break. As regards the co-operation with Belgium, the Commission has extended this co-operation by setting up a Task Force (with subgroups if necessary), where Vice-President Kallas’ office meets several times a year with the representatives of the Brussels Region. As regards the co-operation with the Grand Duchy of Luxembourg, the Heads of Administration in Luxembourg similarly meet with the Chairman of the ‘Fonds Urbain et d’Aménagement du Kirchberg’ on a regular basis. (1) Brussels: ILISWG (Inter-institutional Infrastructure, Logistics and Internal Services Working Group); Luxembourg: GIITL (Groupe interinstitutionnel technique — Luxembourg) (2) COM(2002) 311 for3 900 posts and COM(2005) 573. (3) The Luxembourg legislation foresees only one acceptance, which takes place when the tenant considers that no major defects remain, allowing for the so-called ‘normal use’ of the building. (4) Advisory Committee on Procurement and Contracts (better known as CCAM). (5) In Brussels, the ILISWG (Inter-institutional Infrastructure, Logistics and Internal Services Working Group) and in Luxembourg, the ‘Groupe inter-institutionnel technique — Luxembourg’, (GIITL) a working group set up by the Heads of Administration in Luxembourg, are the fora for inter-institutional discussion on building and real estate issues. They meet regularly to discuss, and since recently more intensively, the building projects, contractual arrangements and the legal mechanisms to be used in specific circumstances, the life cycle cost methodology (which includes the cost of renovation of the buildings after 15 to 20 years), the energy issue, the approach to taxes and to the relations with the host country. (6) In Brussels, long-term contracts are signed if the purpose is to acquire the building under the deferred payments scheme. Shorter-term (though not really short-term) contracts of around 15 years are signed to take buildings in usufruct. This formula is most often applied to new buildings