Opinion of the Committee of the Regions on the 'Evaluation of procedures for the award of public service contracts` (96/C 126/02)

THE COMMITTEE OF THE REGIONS,

Whereas since coming into force on 1 July 1993, Directive 92/50/EEC on the coordination of procedures for the award of public service contracts (referred to below as the Public Services Directive) has governed public procurement of services within the EU and in those countries which have acceded to the EEA Agreement, (viz. Norway, Iceland and Liechtenstein);

Whereas the aim of the Public Services Directive is to promote liberalization of public procurement in conjunction with the establishment of the EU Single Market;

Whereas similar directives already exist for public supply and public works contracts; whereas public procurement accounts for around 15 % (ECU 530 000 million) of Community GDP (excluding Finland, Sweden and Austria); whereas public services are responsible for a significant proportion of this total;

Whereas 'public utilities` authorities and undertakings (water, energy, transport and telecommunications), which are covered by a specific directive are an important exception;

Whereas the Public Services Directive divides services into categories A and B; whereas the entire provisions apply only to category A services; whereas in the case of category B services, public authorities are merely required to follow certain rules on notification with a view to publication in the Official Journal of the EU;

Whereas Category A covers procurement of services in the following areas: computers, accounting, land transport, financial (insurance, banking and investment), cleaning and refuse disposal; whereas Category B includes legal, hotel and restaurant, supporting and auxiliary transport services, personnel supply, health and social services, cultural and other services;

Whereas the Directive only applies to services with a minimum 'threshold value` of ECU 200 000;

Whereas the Directive requires the Commission to review the results of its application before 1 July 1996,

Adopted the following opinion at its Plenary Session on 15 and 16 November 1995 (meeting of 15 November 1995).

Introduction

The present COR Opinion examines this topic from a local and regional standpoint with a view to making the revised Public Services Directive as effective and useful as possible in the context of the municipalities' and regions' contribution to the completion of the Single Market. Its main aim, in this connection, is to ensure the clarity and effectiveness of the legislation.

The Committee of the Regions thinks that the review of EU legislation on the award of public contracts should not be confined to the Public Services Directive but that the other procurement procedure Directives - together with the 'appeals and complaints` Directive - must be examined more closely from the standpoint of their local and regional impact.

General comments

1. Before examining the various problems associated with the Directive, its contribution to the completion of the Single Market should be considered. It would appear that, either for logistical reasons or because of cultural and linguistic differences, many services cannot reasonably be supplied from other Member States (except through mergers, takeovers or the establishment of subsidiaries or branches in different Member States; this is not exactly conducive to the completion of the Single Market).

2. A cost-benefit analysis is the decisive factor. It seems likely that the current Directive will not or cannot have more than a marginal effect on the Single Market. All the available evidence confirms this. Such a marginal impact cannot justify the costs of implementing the Directive.

3. Article 43 requires the Commission to examine, in particular, the prospects for full application of the Directive to the so-called B services and the impact of the 'in-house` performance of services on the actual liberalization of the market.

The basic consideration here is that services which a municipality or region can provide for itself using its own infrastructure or an internal department must be permanently excluded from the scope of the Directive. After all, whether a public authority wishes to provide a service itself or contract it out to a third party is a matter of internal organization, policy and political judgement.

Contracts which an authority wishes to award to one of its own departments must also be excluded from the Directive. The basic principle of 'economic consistency` must apply equally to public procurement.

4. Special consideration must be given to the privatization of public services and application of the Public Services' Directive must not interfere with this process. If a particular public service is privatized, the undertaking responsible for its provision is not normally able to compete immediately as an independent enterprise. In practice, a transitional period of approximately seven years is required before this situation is reached. The inclusion of a corresponding exemption clause in the Directive could greatly assist this move towards independence or privatization, which is now widely viewed as desirable.

5. The Commission expects that the 1996 review will involve no more than a few minor amendments to bring the Directive into line with the GATT Agreement, which must be implemented with effect from 1 January 1996. Partly for the reasons outlined above, the Committee of the Regions sees an urgent need for a more thorough evaluation.

6. An important factor in the application of the Directive is the threshold value above which contracts must be put out to tender.

The present low threshold makes it necessary to notify public procurement contracts that are of no commercial interest. This value also means that very small contracting authorities are frequently subject to the provisions of the Directive; this occurs in particular where the separate years of a multi-annual contract have to be combined or the contract values of joint service providers have to be aggregated. The administrative burden of such procurement procedures is extremely high in relation to the likely return.

7. The European Commission has not begun to review the application of the Directive since many Member States (approximately half) have not yet transposed it into their domestic law and the Commission does not wish to introduce new rules until this has happened. The Committee of the Regions believes that this situation need not hold up the start of the review. The Directive undoubtedly has a direct impact. The review can also take account of the failure of certain Member States to transpose the Directive into their national laws.

Experience of local and regional authorities in the EU

The Single Market and the Public Services Directive

8. In those Member States which comply with its provisions, the current Directive has had an impact on local and regional authority tendering for services.

Notwithstanding the comments made in point 12, no really major problems have arisen in connection with the distinction drawn between included and exempted services in most Member States. Similarly, the provisions regarding procedures and publication have by and large operated satisfactorily, albeit with a lot of red tape.

9. The public authorities have frequently had difficulty in meeting the requirement to provide specifications which cannot be altered during the tendering process except at the time information is supplied. In the context of optimizing contract formulation (the service requested), the compulsory procurement procedure and the lack of adequate standards (product definitions and designations) impede cooperation between the potential client and potential contractor.

The standardization rules pose particular problems for service sectors subject to rapid change, such as those using information technology. There are also difficulties with regard to the definition of precise quality requirements in many service sectors, especially in the case of nonmaterial services and contracts in the health field.

10. The Directive has undoubtedly helped to foster greater competition at national level and promoted openness on the public service procurement market. Nevertheless, it is not primarily for the EU to foster competition on national markets.

Discrepancies in implementation and interpretation within the EU

11. Looking at the way national authorities deal with identical issues, it is clear that in areas such as inter-municipal undertakings, remits, etc., administrative practice in the Community differs substantially.

The question of whether this situation distorts the terms of competition at national level must be examined in a comparative study.

12. Efforts must be made to define those services covered by and those exempted from the Directive more clearly than in the past. The problem is partly due to the fact that the designation of a service in Annex 1A is often wider than the description given in the CPC category classification after the name of the service. The Committee of the Regions believes that the CPC classification which appears after the description of a service in Annex 1A must be regarded as definitive for its content. Otherwise, the inclusion of the CPC classification in the Annex would be pointless; a situation in which the same activity, for example 'painting`, can be described both as an 'activity` and a 'service` is completely unacceptable. Presumably this was not the legislator's intention.

Use of the CPC nomenclature itself creates problems which must be overcome. In the first place, the nomenclature is only available in English and the definition of content makes category classification extremely difficult.

As far as the public services Directive is concerned, use of the nomenclature, which is intended to provide the broadest possible description and survey of all potential services for statistical purposes, implies a virtually limitless expansion of the items to be listed in the contract notice.

In defining different types of service, all inventories refer to 'other services` and this precludes a precise category classification of the services in question.

13. Questions are raised by the Directive's failure to define the expression 'subdivision of a service into several lots`. For example, must a contracting authority lump all the computer facilities to be hired from all the more or less independently operating services together and invite tenders for the whole lot.

This approach would encounter insuperable organizational, legal and content problems. Project procurement by individual organizational units must be possible. This point must be considered further in the review.

Few cross-border contracts

14. Experience in implementation has shown that very few contracts go to service providers in other Member States and that the Directive has a very limited impact on cross-border trade. Thus, as has already been pointed out, the Directive has not had major implications for the Single Market. However, the survey may be misleading in that foreign firms set up branch offices or subsidiaries in the Member States concerned for tendering purposes.

Threshold values considered too low

15. The Committee believes that, in the case of small contracts around the present threshold value of ECU 200 000, the necessary procedures and detailed specifications entail a disproportionate amount of administrative effort. Where contracts are awarded in line with the rules, the extent to which possible savings outweigh the administrative costs incurred must be investigated. The question of whether raising the threshold values will ensure cross-border interest should also be examined. If, moreover, those small contracts hold little attraction for foreign suppliers, consideration should be given to raising the threshold values to a level at which EU local and regional authorities are not saddled with unnecessary administrative costs and the requirements of the Single Market continue to be satisfied.

Possible consequences for SMEs in the EU

16. Low threshold values can have a number of consequences for business. From industry's viewpoint, the current very low threshold values hold out only theoretical prospects of freer trade and increased competition. There is a risk that many small businesses will lose out on contracts and get bogged down by additional unproductive paperwork if they are forced to tender for far more contracts in order to secure the same volume of orders as at present. This trend is totally at variance with EU action in recent years to give a specific boost to SMEs in the Community. Higher threshold values will improve transparency and therefore encourage more firms to participate in public tenders.

Points to be covered in the forthcoming review

17. The extent to which the unrestricted application of the public services Directive might conflict with investment designed to generate employment should be examined. The scope for introducing back-up, supportive and stimulative measures to promote employment must be carefully considered, although nothing must be done to impede completion of the Single Market.

18. The Directive must take specific account of privatization policy. It must not impede privatization and/or efforts to achieve independence.

19. In the case of certain services (high-grade research and consultation), a completely public procedure creates many problems since the large number of competitors means that tendering costs are not counterbalanced by the chances of success. This will ultimately lead good tenderers to withdraw from the procedure with a resultant loss of quality.

20. The time-scale for determining the value of long-term contracts should be reconsidered. In the interests of a fair balance between administrative costs and (possible) savings, this period should, preferably, be fixed at twelve months.

21. Threshold values should be increased to balance out costs and benefits for both firms and public authorities.

22. If threshold values are not increased, the possibility of providing for cooperation between the contracting authority and the potential service provider(s) in the course of the procurement procedure should be examined.

23. The conditions under which and the manner in which public-/private-sector cooperation can take place under the Directive must be specifically investigated.

24. The Directive should be streamlined and information and advice on the implementation of these complex provisions need to be improved; in this connection, a central concern must be to render the Directive more accessible to contracting authorities and service providers by simplifying rules, reducing the number of regulations where possible and providing targeted information for the authorities and (categories of) service providers.

In particular, streamlining must make the decentralized award of public contracts possible and facilitate the application of simplified tendering procedures.

25. The usefulness of the rules requiring contracting authorities to provide indicative notices of the award of contracts should be appraised and the rules possibly scrapped.

26. Possibilities for streamlining the CPA nomenclature should be explored.

27. The Committee of the Regions should be involved in assessing the Public Services Directive's impact in the individual Member States, in order to ensure that the consequences at local and regional levels are also taken into account and that any further amendments which may be necessary are identified.

28. It should be spelt out that procurement by local and regional authorities from inter-municipal/inter-regional undertakings falls outside the Directive's scope and must continue to be regarded as 'in-house` production. Organizational cooperation between local and regional authorities must also be excluded from the Directive's scope.

29. Consideration should be given to setting up a voluntary EU-wide database on procurement tenders below the threshold value, as a potentially useful back-up to existing EU tendering procedures, especially if threshold values are raised; this should be supplemented by information on potential service providers (firms index) so that the relationship between supply and demand can be explored outside of formal award procedures.

30. Guidelines should be framed to ensure full exploitation of information technology facilities to permit electronic calls for and submissions of tenders though this must not increase the density of legislation.

31. The contracting authority's confidence in the honesty or character of the service provider is often a decisive factor in the award of contracts, particularly where financial or legal services are concerned. It is not advisable to award such contracts to the lowest bidder. It is therefore important in amending the Public Services Directive, to re-examine the possibility of deleting certain services from Annex 1A. There must be no transfer of services from Annex 1B to Annex 1A.

32. In cases where contracting authorities apply for funding, it is virtually impossible for the procedural deadlines laid down in the public services Directive to be observed. A rapid and flexible market response is essential in the context of such applications. This makes it necessary to examine whether financial services can be excluded from Annex 1A of the Directive.

33. The stringent requirements laid down in the Directive with regard to the admissibility of a negotiated procedure are too restrictive. For example, the Commission will authorize a negotiated procedure on the grounds of a need for rapid action only in extreme cases.

Done at Brussels, 15 November 1995.

The Chairman of the Committee of the Regions

Jacques BLANC