Opinion of the Committee of the Regions on the 'Communication from the Commission: Public Procurement in the European Union` (98/C 373/02)

THE COMMITTEE OF THE REGIONS,

having regard to the Communication from the Commission on public procurement in the European Union (COM(98) 143 final);

having regard to its decision of 13 May 1998, under the fourth paragraph of Article 198c of the Treaty establishing the European Community, to issue an opinion on the subject and to entrust Commission 6 (Employment, Economic Policy, Single Market, Industry, SMEs) with the task of preparing it;

having regard to the draft opinion (CdR 108/98 rev.) adopted by Commission 6 on 3 June 1998 (Rapporteurs: Mrs Lund and Mrs Birath-Lindvall),

adopted the following opinion at its 25th plenary session of 16 and 17 September 1998 (meeting of 17 September).

1. Introduction

1.1. As a follow-up to the wide-ranging debate on the future of the EU's rules on procurement launched by the Commission's Green Paper on Public Procurement in the European Union: Exploring the Way Forward (), the Commission published its communication on public procurement on 11 March 1998.

1.2. On 16 June 1997 the COR submitted its own contribution to the debate on the Green Paper (). The COR opinion pointed out that the public procurement directives have important implications for local and regional authorities as responsibility for a large proportion of public procurement lies with them. The COR was openly critical of the unnecessary amount of red tape involved in the public procurement directives. The thrust of its opinion was that the rules on procurement should be simplified as speedily as possible so as to reflect the demands of the current public-private sector interplay. In addition, several Member States have more restrictive public procurement arrangements which go beyond what is laid down in the actual directives, thereby creating a situation of unequal competition.

1.3. A wide range of players - and the European Parliament in particular - were similarly critical of the public procurement directives. The clear message from the players closely involved in the day-to-day application of procurement rules was that there is a need for simplification, greater flexibility and easy access to information in the area of public procurement.

2. General comments

2.1. The overall approach

2.1.1. The COR therefore welcomes the fact that the Commission communication focuses on simplification and greater flexibility. In the COR's view, the communication demonstrates the Commission's desire to take on board the proposals for simplification and greater flexibility made by the COR in response to the Green Paper.

2.1.2. The Commission communication proposes presenting a legislative package in 1998 which primarily seeks to streamline existing rules. The COR is pleased to see that, in line with its wishes, the Commission has abandoned the basic view that stability in the area of procurement should take precedence over the objective of making the necessary adjustments to the relevant directives.

2.1.3. The COR is therefore in overall agreement with the Commission's main conclusion from the public procurement debate: the need for simplification and greater flexibility.

2.2. Simplification and greater flexibility

2.2.1. It is clear from the communication that henceforth the Commission wishes to work on the principle that greater flexibility should be accompanied by more effective control and complaint procedures at national level. The COR would endorse this linkage of simplification and more stringent national controls provided that it leads to greater flexibility in practice. The COR is also working on the assumption that many countries have already established effective control and complaint procedures. The COR would also urge the Commission to apply an additional principle: namely that EU procurement should always bring with it real benefits for both purchasers and companies supplying the public sector. EU-wide procurement should be an active instrument for ensuring that the market for public services produces high-quality supplies at the most favourable prices. In practice, this overriding principle should ensure that the cost of procurement to contracting entities and tenderers does not undermine the economic benefit arising from increased competition.

2.2.2. Consolidation of procurement directives

2.2.2.1. As suggested by the COR and others, the Commission communication proposes consolidating the 'traditional` procurement directives (on public supplies, public works and public services) into a single procurement directive. The purpose of this is to streamline administrative procedures and achieve greater clarity in the application of procurement rules for contracting entities and suppliers.

2.2.2.2. The COR is able to give its full support to this proposal in that it will be easier for local and regional authorities to follow a single set of rules, rather than three, as is currently the case. The COR feels that this consolidation should take place as soon as possible and that the codified version should be followed up with additional interpretative documents.

2.2.2.3. The Committee of the Regions welcomes the proposals aimed at improving the functioning of the directives; it would at the same time urge the Member States to step up the implementation of the directives.

2.2.3. Proposals for the introduction of a new procurement procedure - competitive negotiated dialogue

2.2.3.1. As a practical proposal to meet the need for simplification, the Commission has suggested introducing a new standard procedure, the 'competitive dialogue`. Here the Commission's objective is to achieve smoother and more flexible interaction between the public and private sectors than is possible under the usual open and restricted procedures. The Commission proposes that this new procurement procedure should replace the existing negotiated procedure with prior publication of a notice. At present there is very limited access to this method.

2.2.3.2. The COR would support the Commission's proposal to introduce this new procedure provided that it does actually lead to more flexibility and is in no way inferior to the current negotiated procedure. In this respect the COR feels it is necessary to highlight the problems experienced by local and regional authorities under the present procurement directives.

2.2.3.3. The overriding problem for local and regional authorities is that, in practice, it is very difficult to conduct a satisfactory EU procurement procedure, particularly in fields where the pace of product and market development is very fast and services very complex. This is the case with, for instance, procurement in the health sector (pharmaceutical technology, operating and X-ray equipment etc.), as well as with IT systems. There are essentially four types of problem:

1) Before publishing an EU-wide invitation to tender, the public authority is required to give a precise description of its requirements in the tender specifications. In order to do this, the authority must be able to enter into a flexible interchange with suppliers in order to obtain up-to-date details of the market solutions available.

2) During the tendering process itself, further clarification is often required, either of the authority's specifications or of the bids submitted by suppliers.

3) While the contract is being prepared, it may prove necessary in the course of cooperation between contracting authority and supplier to modify certain parts of the overall contract.

4) During implementation of the contract, minor technical adjustments may be needed.

2.2.3.4. It is the experience of many local and regional authorities that, in these four areas, the existing rules on procurement constitute an entirely unnecessary obstacle to the flexible interplay which ensures that citizens get the best services for the least money.

2.2.3.5. A report by the Swedish Nämnd för Offentlig Upphandling () [National Board of Public Procurements Complaints] shows amongst other things that the overall economic impact of public procurement legislation in terms of savings for public authorities is small. In the COR's view, the results of this study demonstrate that detailed and inflexible procurement legislation may result in less favourable economic results than would have been the case with flexible procurement rules.

2.2.3.6. The direct consequence for local and regional authorities is often that they are obliged to buy in the services of expensive outside consultants to handle the procurement procedure. This results in citizens paying more overall for services.

2.2.3.7. The indirect consequence is that the obstacles impeding a forward-looking dialogue between contracting authority and supplier are not conducive to optimum product development and innovation among suppliers. The COR feels that, in the longer term, this could have implications for growth and employment.

2.2.3.8. The COR therefore urges the Commission to ensure that the proposed new procurement procedure - competitive dialogue - allows for a high degree of flexibility so as to facilitate a wide-ranging dialogue with suppliers before, during and after commissioning.

2.2.3.9. The COR would also urge the Commission to reject the notion that matters of price and content can be dealt with separately in the procurement process. At the moment, it is not always possible to make technical adjustments to a contract if this will affect the price. An EU procurement procedure should be seen as a single process in which price and content are inextricably linked.

2.2.3.10. In the COR's view, it is crucial that competitive dialogue be brought into line with the standard open and restricted procedures.

2.2.4. Clarification of 'grey areas` of the procurement directives

2.2.4.1. The Commission proposes that a number of areas covered by the procurement directives should be clarified so as to rule out ambiguity in the day-to-day application of the rules. The COR welcomes this initiative, as directives which are unclear give rise to continual problems of interpretation and hence high administrative costs.

2.2.4.2. One example of an area where clarification is needed is the provision for dialogue between public authorities and suppliers before an invitation to tender is issued (technical dialogue). In practice, the authority needs to gather information and knowhow from firms on current market solutions. At present this dialogue is severely hampered by the way the directive is customarily interpreted. Much greater flexibility is needed for both authority and supplier.

2.2.4.3. The COR feels that it is crucial when clarifying the procurement directives that the Commission tackles the job with an eye for simplification and greater flexibility. It is the COR's view that, in the interests of simplification, these clarifications should be made as far as possible by means of additional interpretative documents, and where this is not possible, then by amending the directives.

2.2.4.4. The COR believes there is a need to clarify the conditions under which private consultants may be brought into EU procurement procedures. The COR feels that steps should be taken to ensure a high degree of independence between private consultants and suppliers. This is especially true for sectors in which there are close historical and cultural ties between consultants and suppliers.

2.2.5. Reducing the administrative burden - increasing the ability to tender

2.2.5.1. In the COR's view, the current threshold values for the purchase of goods and services place an entirely unnecessary administrative strain on both purchasers and suppliers. The debate following the Green Paper has shown that a large number of players share this view.

2.2.5.2. Experience shows that firms have only a limited interest in bidding for small contracts abroad. The Commission's own studies indicate that only around 1 % of all contracts go to firms abroad. A study among Danish local authorities shows that foreign firms apply to have their tender considered in only 3 % of service procurements. Against this background, small contracts are even more likely to be mainly of regional, and in some cases, national, interest.

2.2.5.3. The COR believes that the lack of interest shown by firms in bidding for small contracts abroad, combined with the high administrative costs which are well documented, clearly demonstrates the need to raise the threshold values. It would therefore once again urge the Commission to propose an increase in the threshold values in the goods and services directive.

2.2.5.4. The COR reiterates its requests for a global appraisal of the administrative implications of the procurement directives, and of the implications stemming from the implementation of the directives by the Member States.

3. Specific comments

3.1. Green procurement and tendering rules

3.1.1. The Commission communication proposes clarifying the options for imposing environmental requirements in public procurement. The COR notes with pleasure that the Commission wishes to work harder for green procurement and would point out that many local and regional authorities are actively engaged in fostering a green procurement policy. The COR emphasizes, however, that environmental requirements cannot be put on a par with the principle of cost effectiveness.

3.1.2. The COR considers it crucial in public procurement to be able, in addition to laying down certain conditions with regard to a product's properties (e.g. the PVC content of plastic), to impose objective requirements concerning the overall environmental impact of a product and of a company, including the production process.

3.1.3. The COR is aware that the international GPA agreement () makes this possible (cf. GPA agreement Article VI). The Commission is therefore urged to look into how far the GPA agreement could serve as a basis for imposing such objective environmental requirements in the case of EU procurement. If this cannot be done, the Commission is asked to propose amendments to the procurement directives to allow public authorities to take account of the environment in a responsible manner when purchasing.

3.1.4. The COR feels it is important for the Commission to integrate action in the field of procurement with environmental initiatives, especially the European Eco-label and the European eco-management and audit scheme for businesses, EMAS.

3.2. Inter-municipal undertakings

3.2.1. In response to the Green Paper, the COR called on the Commission to make clear that transferring tasks e.g. from one local authority to an inter-municipal undertaking (e.g. refuse company) is regarded as an in-house contract and therefore falls outside the scope of the procurement directives. The Commission communication does not address this issue specifically. The same goes for local authorities and inter-municipal undertakings which enter into inter-municipal agreements to have certain tasks of one local authority carried out by other local or regional authorities.

3.2.2. The COR therefore once again calls upon the Commission to make clear that the political choices made by local and regional authorities with regard to how they wish to organize themselves, including agreements between public authorities but not with private entities are not affected by the procurement directives. The COR feels it is important to emphasize that that the Council of Europe convention on local and regional self-government unambiguously establishes the right to enter into inter-municipal collaboration for the purpose of carrying out tasks of common interest.

3.3. Electronic procurement

3.3.1. The COR welcomes the steps taken by the Commission to further the development of an effective framework for electronic procurement. The Commission's electronic pilot project, SIMAP (Systeme dans l'Information de Marché Public) (), has already produced good results, and the COR hopes that within a short space of time this project can lead to real administrative savings and greater transparency with regard to public procurement.

3.3.2. The COR would urge the Commission to ensure that, where appropriate, all parts of the procurement process can be handled electronically: sending out notices to tender, seeking new invitations to tender, sending and receiving specifications and bids and ultimately electronic exchange of agreements and payment for services rendered. In this connection, the Committee would point out that the system must include efficient security mechanisms, so that contractors do not need to worry about commercially sensitive information falling into the wrong hands.

3.3.3. The COR would, however, point out that there are considerable disparities between Member States in terms of information technology, and this is particularly true of local and regional authorities. It is therefore vital that those authorities and firms that do not have access to such electronic facilities do not end up in a worse position as a result of the Commission's proposals in this regard.

3.3.4. It is also the COR's view that the objectives in this field can only be achieved if the introduction of electronic procurement is followed up with targeted training for public authorities and businesses. The COR is happy to contribute to the Commission's work by drawing up practical proposals to boost training.

3.3.5. Lastly, the COR takes the view that a prerequisite for more widespread use of electronic procurement is an effective CPV nomenclature (). The existing CPV nomenclature gives rise to a number of problems as its structure is not standardized and it is imprecise in many areas. The COR would therefore urge the Commission to improve the CPV nomenclature so that it becomes an effective instrument in electronic procurement too.

3.4. Exclusion of certain supply sectors

3.4.1. The Commission proposes that entities within the supply sector that are operating under real competitive conditions should not come within the scope of the Utilities Directive (93/38/EEC) (). This is particularly relevant in the telecommunications sector, where the liberalization process has led to former monopolies now functioning under conditions of real competition.

3.4.2. The COR agrees with this proposal and feels that steps should be taken to ensure that when a Member State decides that a sector is to be opened up to true competition (i.e. liberalized), that sector will automatically be excluded from the public procurement directives except where the public interest, which justifies the sector's status as a public service, requires a degree of monitoring involving compliance with Community rules on public procurement.

3.5. Increased use of framework contracts

3.5.1. The Commission proposes amending the rules on public procurement so as explicitly to permit the use of (flexible) framework contracts. It is a recognized fact that this is not expressed in so many words in the supplies and services directives. The COR would point out that a large proportion of the procurement currently undertaken by local and regional authorities makes use of EU procurement framework contracts. They are widely recognized as offering a flexible form of purchasing which facilitates on-going monitoring of product developments and price changes.

3.5.2. The COR endorses the Commission's view that as a matter of principle there should be greater scope for making use of framework contracts.

3.6. Regulation of concessions ()

3.6.1. The Commission proposes increased regulation of concessions in the service sector. In the COR's view, the Commission has not produced evidence to support the claim that there is now a greater need for regulation than when the services directive first came into being. The COR is therefore unable to support the Commission's proposal.

3.6.2. The COR also feels that it would be appropriate to await the judgement of the Court of Justice in the Arnhem case (C-360/96) () as the Advocate General's ruling in the case goes a good way towards providing an interpretation of what is meant by concession in the service sector.

3.7. Community-level checks and independent control and complaint authorities

3.7.1. In its response to the Green Paper, the COR was sceptical (on grounds of the subsidiarity principle) about the Commission having increased powers equivalent to those applicable in the area of competition law (fines, compensation, etc.). At the same time the COR was in favour of applying the procedure for infringements of the Treaty, because of the greater pressure to comply and the obvious deterrent effect in Member States which do not respect the public procurement directives or have not even transposed them into national law.

3.7.2. The COR feels that the way to greater transparency and to securing legal guarantees for firms and purchasers lies in setting up national control and complaint authorities. Developing such authorities at national level will also guarantee fair treatment of complaints while helping to raise awareness about public procurement nationally. The COR would therefore support the Commission in putting further pressure on those Member States which, in the process of implementing the monitoring directives, have not yet set up independent control and complaint authorities at national level.

3.7.3. The experience of countries with such authorities is broadly positive. Both businesses and contracting entities have greater peace of mind when specific complaints are assessed by an independent body.

3.7.4. For purposes of simplifying public procurement and guaranteeing equal terms of competition, care should also be taken to ensure that national authorities do not apply rules which are more restrictive than those provided for in the Community directives.

3.7.5. Lastly, the COR feels that, in order to fight organized crime effectively, promote the continuation and growth of an honest labour market and maintain work of a high standard, it is important to emphasize that the rules on procurement should not require that contracts are awarded to the lowest bidder but also allow them to be awarded according to a properly defined 'weighted average`; or similar criterion.

3.8. SME policy and tendering rules

3.8.1. The COR welcomes the proposals of the Commission for special measures in favour of SME, which will increase their ability to tender.

3.8.2. For the COR, it is particularly important that future initiatives prioritize training and information. Local and regional authorities throughout Europe can attest to the fact that many businesses are not sufficiently well equipped to bid for public contracts. This often results in purchasing authorities being forced to reject bids because, for example, they do not meet the conditions of tender. Many local and regional authorities also find that it is always the same, usually big, national firms that bid for contracts again and again.

3.8.3. Local and regional authorities have a responsibility to foster a favourable business climate for companies, besides training and equipping them to face increased competition in tendering. An example from the municipality of Naestved in Denmark has shown that targeted action to train companies has led to both greater interest in public contracts and to a marked improvement in the quality of bids which the local authority receives when putting out an EU-wide invitation to tender. The COR calls on the Commission to give far greater assistance to local and regional authorities through exchanges of experience and help with setting up such training schemes.

3.8.4. The Commission notes that experience of direct participation in cross-border contracts of SME are disappointing. Replies to the green paper show that SMEs are confronted with many obstacles, such as lack of information about potential contracts. The COR would also point out that the existing highly bureaucratic public procurement rules represent a considerable obstacle for SMEs. The problem today is that the many procedural requirements involved in an EU tender mean that the administrative costs of drawing up bids for public contracts are too high for SMEs. Small companies do not have the same administrative capacity as large ones to handle the complicated tendering process. Effectively, the rules on public procurement give companies with large-scale internal resources a relative competitive advantage.

3.8.5. Against this background the COR would also urge the Commission to pursue the drive for simplification presented in the communication.

3.8.6. The COR asks the Commission to ensure that everything possible is done to give the widest dissemination of public procurement opportunities to SMEs.

3.9. Representation of local and regional authorities

3.9.1. Though local and regional authorities play a key role in applying the rules of public procurement, these same authorities have only limited representation within the bodies that advise the Commission on an ongoing basis.

3.9.2. The COR finds it most unfortunate that the Commission's advisory committee, for example, does not include a single representative with practical experience from the local and regional authorities, which in many Member States, are responsible for over two-thirds of total procurement and therefore have practical experience of conducting a great many procurement operations.

3.9.3. The COR therefore urges the Commission to consider how the Commission's ongoing work in this area can draw directly on the experience of local and regional authorities.

3.9.4. The COR supports the proposal that existing EU aid to the central and eastern European countries should encompass training in EU public procurement rules and technical support in this connection. Such aid is essential in preparing these countries for accession to the Union.

4. Conclusions

4.1. Local and regional authorities are responsible for a very large proportion of public procurement in Europe. The public procurement directives have a major impact on the interaction between local and regional authorities and private companies, and hence on the services which those authorities provide for their citizens.

4.2. The COR welcomes the fact that, as the COR and others wished, the Commission has given priority to the need for simplification and greater flexibility. The COR hopes that what the proposed global legislative package will mean in practice is lower administrative costs for both public authorities and businesses. EU procurement procedures should continue to be an effective instrument to obtain the best supplies at the lowest cost.

4.3. In the interests of simplification, the COR supports the proposal to consolidate the traditional procurement directives in a single directive and to introduce a new procurement procedure - competitive dialogue - which can ensure the necessary degree of flexibility in the interplay between the public and private sectors.

4.4. The COR endorses the Commission's efforts to create a 'green` public procurement policy. The COR therefore calls upon the Commission to pave the way to making all environmental criteria an integral part of public procurement, either by means of a special interpretative document or by amending the public procurement directives. The COR emphasizes, however, that environmental requirements cannot be put on a par with the principle of cost-effectiveness.

4.5. The COR wants the Commission to ensure that SMEs can take full advantage of public procurement opportunities through encouraging improved training and ensuring the widest dissemination of those opportunities. The COR would point out that the Commission in particular, as well as the Member States and local and regional authorities, have a responsibility to set up targeted training initiatives in the field of public procurement.

4.6. The COR takes the view that, if the Commission's proposed initiatives are to be put into practice, it is essential that the experience of local and regional authorities is actively brought to bear in subsequent work on the rules for public procurement. The COR therefore urges the Commission to look into how the continuing dialogue can be enhanced by drawing on this experience.

Brussels, 17 September 1998.

The President of the Committee of the Regions

Manfred DAMMEYER

() COM(96) 583 final.

() CdR 81/97 fin - OJ C 244, 11.8.1997, p. 28.

() 'Effekter av lagen om offentlig uphandling` (Impact of the Law on Public Procurement), Nämnden för Offentlig Upphandling, January 1998.

() The General Procurement Agreement is the international procurement agreement under the WTO which, inter alia, enables European companies to bid for public contracts in e.g. the USA.

() The Commission has set up a pilot project which is intended to form the basis of a global electronic procurement system.

() The Common Procurement Vocabulary is a global system for identifying individual groups of goods and services.

() The Utilities Directive covers procurement procedures within the following sectors: gas, electricity, water and heating supply, as well as public transport networks and telecommunications.

() Concession is the term used to refer to the arrangement whereby a public authority, against payment, gives a firm the right to operate a public transport network, for example.

() The Court of Justice is currently dealing with a case against a Dutch inter-municipal refuse company in Arnhem which is expected to raise the issue of concessions.