DRAFT COUNCIL RESOLUTION ON THE DEVELOPMENT OF SUBCONTRACTING IN THE COMMUNITY
Date: 1989-08-07
Institutions: European Commission
Subjects: EU programme, action programme, business policy, subcontracting

COMMISSION  OF  THE  EUROPEAN  COMMUNITIES 

C0MC89) 402 final 

Brussels, 7 August 1989 

^EVELOPJIEN^^ 

IN THE COMMUNITY 

COMMUNICATION  FROM THE COMMISSION 

and 

Draft 

COUNCIL  RESOLUTION 

Çjarn  y oi  J* 

COMMUNICATION PROM THE COMMISSION ON THE DEVELOPMENT OP 
SUBCONTRACTING IN THE COMMUNITY 

INTRODUCTION 

I  -  SUBCONTRACTING - A BUSINESS STRATEGY 

FOR 1992 

P 

1 

P  2 

A - Economie importance of subcontracting 

p  2 

B - Subcontracting and the single market 

1. Structural changes in subcontracting 
2. New requirements for subcontractors 

C - The role of the European Community 

II -  CREATION OF THE RIGHT ENVIRONMENT 

FOR SUBCONTRACTING IN THE INTERNAL 
MARKET 

A - Subcontracting and Community rules 

of competition 

-.. _ B - Completing the single market and 

measures on the business environment 
for SMEs 

C - Standards and certifications 

D - Payment periods 

E - Liability 

III - BETTER INFORMATION AND COMMUNICATION 

FLOWS BETWEEN MAIN CONTRACTORS AND 
SUBCONTRACTORS 

A - Multilingual sector glossaries 

B - Tools to assist in the search for 

partners 

C - Electronic data transmission 

D - A European Information Centre on 

subcontracting 

p  3 

p  3 
p  4 
p  5 

p  5 

p  5 

p  6 

p  6 

p  7 

p  8 

p  g 

p  9 

p  9 
p  9 

IV -  PROMOTING SUBCONTRACTING AND PARTNERSHIP 

RELATIONS 

A - Educating partners on the 

partnership approach 

p  11 

p  11 

B - Enhancing the status of subcontractors 

p  11 

1. Practical guide to legal aspects 
of industrial subcontracting 

P  H 
2. Subcontracting and public procurement  p  12 
3. Promoting cross-border cooperation 

between subcontractors 

P  12 

C - Support for subcontractors in 

modernizing and adapting their technology  p  13 

D - Making European subcontracting 

attractive to foreign investors and 
promoting it outside the Community 

CONCLUSION 

p  13 

F-^1*-"' 

INTRODUCTION 

The  recourse  to  subcontracting  is  increasingly  becoming  a 
strategic choice for businesses which are confronted to the need 
of improving their competitiveness.  The completion of the single 
market  in 1992 will most probably emphasize even more the scale 
of this evolution, more particularly with regard to cross-border 
Moreover  the  relationships  between  main 
subcontracting. 
contractors  and  subcontractors  are now radically  different  from 
what  they  were  in  the  past  when  subcontracting  was  mainly  a 
short-term phenomenon. 
Most Community subcontracting businesses work mainly for local or 
regional  markets  and  have  only  a  limited  knowledge  of  market 
opportunities in other Member States. When a subcontractor shows 
initiative  and  explores  the  possibility  of  entering  the  larger 
Community  markets,  he  is  often  discouraged  by  his  lack  of 
knowledge  of  the  different  laws  and  different  national 
certification  and  registration,  commercial  and  public  contract 
procedures. 

The  Commission  considers  that  the  competitiveness  of  Community 
businesses in key sectors such as aerospace, motor manufacturing, 
electronics,  transport  equipment  and  energy  production  systems 
will  be  determined  partly  by  the  technological  capacity  and 
competitiveness of European subcontractors, the majority of which 
are small  or medium-sized  businesses. The measures taken by the 
Commission  to  encourage  subcontracting  SMEs  are  therefore  an 
important  aspect  of  its  policy  to  improve  the  business 
environment and promote the development of businesses.(1) 
On  the  basis  of  the  mandate  given  to  the  Business  Cooperation 
Centre  (2  )  and  the  Community  action  programme  for  small  and 
medium-sized enterprises  (3 ), a number of initiatives have been 
prepared  and the Commission  considers that the time has come to 
present these to the Council and the Parliament  for them to draw 
the  appropriate  conclusions  with  regard  to  future  action  and 
propose that, where appropriate, the initiatives be a with those 
planned at national or regional level. 
Any  current  or  future  action  should  form  part  of  a  consistent 
whole  clearly  setting  out  the  extent  and  limits  of  Community 
policy  in this matter,  respecting  the principle  of subsidiarity 
and  reflecting  the  Commission's  role  as  coordinator  and 
instigator. The general lines of the policy are: 

to create an environment suited to subcontracting; 
to improve the flow of information and communication 
between main contractors and subcontractors 
to promote subcontracting and partnership relations. 

1 Com  (89) 102 final 
2 Sec  (76) 4397 final 
3 Com  (86) 445 final 

i 

I. SUBCONTRACTING  -  A BUSINESS STRATEGY FOR 1992 

So  far  there  is  no  universally  accepted  definition  of 
subcontracting. France  is the only country, which adopted  a law 
on subcontracting  in 1975 and a standard  for the definition  of 
industrial subcontracting in 1987. 
In  most  of  Community  countries  it  is not  identified  formally, 
either  from  a  legal  or  accounting  point  of  view,  nor  is  it 
referred to in a specific case law , that could help clarify its 
field of application or define its specific character. 
Although  subcontracting  is  sometimes  carried  out  by  big 
companies, in particular in the field of motor manufacturing for 
first tier subcontractors, in most cases subcontractors are small 
or medium-sized enterprises. 
Subcontracting  exists  in  a  variety  of  sectors.  It  occurs  in 
public  works  and  the  building  industry  where  it  traditionally 
takes  the  form  of  a  relationship  between  three  partners  (the 
contracting 
the 
subcontractor). In a more strictly industrial situation there are 
only  two  partners  involved  (the  main  contractor  and  the 
subcontractor). This form is encountered  in motor manufacturing, 
aerospace and the textile industry. 
There  are  also  different  ways  in  which  subcontracting  is 
practised.  Japan  for  instance,  has  a  pyramidal  type  of 
organisation  with  different  layers  of  subcontractors, while  in 
Europe  main contractors were, until now, in direct contact with 
a very large number of subcontractors. 
Nevertheless, if subcontracting  can be considered  as a specific 
type of relationship between enterprises, it may be assumed that 
a  subcontracting  relationship  exists  wherever  a  business 
(frequently  small  and  referred  to  in  what  follows  as  the 
"subcontractor")  acts  for  the  account  of  another  undertaking 
(frequently  large and  referred  to  in what  follows as the "main 
contractor")  in  the  process  of  working  and  making  a  specific 
product  to  plans  and  technical  specifications  supplied  by  the 
main contractor, who has final economic responsibility. 

authority, 

contractor 

main 

the 

and 

A.  Economic importance of subcontracting 

An  immediate  consequence  of  the  difficulties  of  defining 
subcontracting  is the absence  of  statistics  and  the problem  of 
obtaining quantifiable data on which to base a reliable economic 
assessment. 

France is the only country which since the early 1970s has been 
measuring  the  amount  of  work  contracted  out  through  annual 
business  surveys  carried  out  by  INSEE. According  to  statistics 
published  by  the  INSEE,  the  aerospace,  shipping  and  motor 
manufacturing  industries  are  the  largest  main  contractors  but 
subcontracting  is  also  increasing  in  electrical  and  electronic 
manufacturing  and  in  the  textiles  and  clothing  industry  in 
particular. 

Six  out  of  every  ten  industrial  undertakings with more than 20 
employees  subcontract  work  occasionally  or  regularly.  But the 
weight of large undertakings  (with over 500 employees) is the key 
factor since they account  for two thirds of all  subcontracting. 
The vast  majority  of  subcontractors  are  SMEs  and,  according  to 
certain local surveys, half of these are also main contractors. 
An  empirical  assessment  suggests  that  the  European  industrial 
subcontracting market is worth ECU 100 000 million. 
Whereas  only  a  few years  ago, the  share  of  external  source of 
supplies  was  estimated,  in  Europe,  at  some  40%  (purchases  and 
subcontracting) it now accounts for some 60% (over 80% in Japan). 

B.  Subcontracting and the single market 

The  completion  of  the  internal  market  will  bring  on  a 
liberalization  of  intra-comrounity exchanges  and will  enable the 
more  systematic  recourse  to  cross-border  subcontracting.  For 
example,  the  opening  of  public  markets  will  provide  increased 
market 
and 
intra-coramunity 
subcontractors. 
competition, the internal market will urge businesses to increase 
their competitiveness and specialization. 

opportunities 

contractors 

reinforcing 

However, 

main 

both 

for 

by 

Thus,  the  internal  market  will  emphasize  a  certain  number  of 
structural  changes  in the  subcontracting  relation,  generated by 
the  increased  externalization  of  the  production.  They  bring  a 
profound modification  in traditional attitudes and consequential 
in subcontractors' demands and new requirements. 

1. Structural changes in subcontracting 

These structural changes are three-fold: 

- an increasing demand for subcontracting 
- a greater specialization of subcontractors 
- a modification in the relation between main contractor and 

subcontractor 

In  order  to  maintain  their  flexibility  and  their  ability  to 
adapt, an increasing number of large companies are putting out an 
increasing proportion of their production to subcontractors.  The 
possibility of getting supplies from alternative and competitive 
sources  enables  them  to  contain  their  costs  and  become  more 
competitive. In addition to this quantitive change in the demand 
for  subcontracting,  there  is  a  qualitative  one. 
The  main 
contractor intends to pass on more and more complex operations to 
his  subcontractor  and  expects  him  to  master  a  process  or  a 
technology that he himself does not possess  (or that he considers 
not  profitable  to  acquire)  as well  as  the  realization  of  sub 
assembly or whole-function operations. 

The  form  of subcontracting  known as  'capability subcontracting' 
and  which  was  used  in the  past  to  counter  the  fluctuations  of 
main contractors' production capacities  is increasingly changing 
into  specialist  subcontracting.  Therefore,  in  order  to  remain 
competitive,  subcontractors  have  to  specialize  in  a  specific 
field. 
These  new  demands  also  bring  a  change  in  the  relation  between 
main contractors and subcontractors. 
By acquiring a product  (that he no longer produces) as well as a 
know-how  (that  he  does  not  possess),  the  main  contractor  has 
every interest in establishing more stable and balanced relations 
with his subcontractors, and  in certain cases  involving them in 
his research and development works. It is in this sense that one 
can speak of partnership. 
At  the  same  time, main  contractors  commit  themselves  to  reduce 
the  number  of  direct  subcontractors  with  which  they  will  have 
this  type  of  relation  and  on  to  which  they  will  pass  on  the 
responsibility of whole assemblies. 
We  are  thus  in  presence  of  a  phenomenon  of  "cascading 
subcontracting" whereby  first  level  subcontractors will  turn to 
other subcontractors of the second or third level to manufacture 
the various components.  Finally,  in order to preserve, as much 
for  themselves  as  for  their  subcontractors  a  threshold  of 
dependency  low enough not to threaten their mutual  existence in 
case  of  difficulty,  main  contractors  encourage  their 
subcontractors to diversify their customers, and develop products 
of their own. 
This new conception of the organization  of production,  in which 
improving 
subcontracting 
competitiveness,  also  covers  the  respect  of  the  legislation  on 
working conditions and already approved conventions. 

positive 

plays 

role 

in 

a 

2.  New requirements for subcontractors 

The demands  for specialization  and  for diversification  entail a 
profound  change  in  the  role  of  the  subcontractor. 
Mainly 
constituted  by  small  businesses  that  are  bound  to  a  single  or 
more  main  contractors  geographically  close  and  for  which  they 
have until  now,  realized  capacity  functions,  subcontractors  are 
in  most  cases,  ill-prepared  for  these  new  imperatives  of 
competitivity. 
They  are  thus  facing  new  requirements  that 
express  themselves  in terms  of the  improvement  of the business 
environment, of information and of strategy adaptability. 
A more widespread use of European norms, a greater transparency 
of certification procedures, a clarification of the situation of 
subcontracting  with  regard  to  public  procurements  will  all 
contribute to  improve the environment  of subcontracting  and are 
the conditions ensuring a more systematic and fairer recourse to 
cross-border  subcontracting.  On the other hand,  information on 
the capacities of subcontracting as well as market opportunities 
offered  as much  in  the  framework  of  public  procurements  as in 
that  of  important  European  projects,  must  be  available  at 
Community  level,  more  particularly  to  enable  subcontractors  to 
diversify  their customers. In addition, a good  knowledge  of new 
technologies,  of  innovation,  normalization  and  of the evolution 
of the markets are necessary for them to specialize. 
If  an  information  which  is  easily  available,  simple  and  up to 
date  is  a  vital  condition  in  preparing  subcontractors  for  a 

Community wide market, then they also have to define the notion 
of  a  more  global  strategy. 
In  view  of  this,  any  measure 
promoting  innovation,  marketing  and  management,  are  most 
important. 
In order to make the necessary investments related to innovation 
and specialization, subcontractors need to establish more stable 
and balanced relations as well as a more regular and anticipated 
dialogue with their main contractors. 
Finally,  the  elaboration  of  partnership  and  cooperation 
strategies with  other  subcontractors  will  enable  them  to reach 
the critical size on the Community market, to have access to new 
markets and to specialize in very sharp and competitive fields. 

C.  The role of the European Community 

The  institutional  framework  for  subcontracting  varies  from 
country  to  country  mainly  because  of  variations  in  industrial 
structure, the extent to which subcontracting  has developed and 
the role traditionally  played  by representative  economic bodies 
and the public authorities. 
With regard to the above mentioned requirements of subcontracting 
businesses, the role of the Community authorities  is on the one 
hand to ensure that a legal and financial environment  favouring 
subcontracting  -  particularly  cross-border  subcontracting  -  is 
created.  On the  other hand,  it must help  improve the  flow of 
information  and  communication  between  the main  contractors  and 
subcontractors  in  different  European  regions  as  well  as  the 
promotion  of  subcontracting  and  partnership  relations  so  that 
they  are  in a better position  to  exploit  the potential  of the 
internal market. 

The measures  taken  by  the  Commission will  therefore  complement 
national actions and consist of a series of initiatives which aim 
to  create  conditions  which  will  foster  the  development  of 
harmonious  relations  in subcontracting  and promote their cross-
border dimension. 

II  CREATING  THE  RIGHT  ENVIRONMENT  FOR  SUBCONTRACTING  IN  THE 

INTERNAL MARKET 

A 

Subcontracting and community rules on competition 

In 1978 the Commission assessed subcontracting agreements in the 
light of Article 85 of the Treaty of Rome (4). 
The  resulting  communication  clarified  under  what  conditions 
contracts  of  this  type  were  not  caught  by  that  Article,  and 
removed  certain doubts about the compatibility  of this  form of 
division  of  labour  with  Community  competition  rules. 
The 
Commission  thereby  supplemented,  in  respect  of  subcontracting, 
its earlier communications on cooperation and agreements of minor 
importance, and helped  to establish more balanced  relationships 
between  enterprises,  thus  expanding  the  scope  for  fruitful 
cooperation. 

4 OJ CI  3/1/79 

S 

B 

Completing  the  single  market  and  measures  on  the  business 
environment for SMEs 

The work launched by the Commission pursuant to the White Paper 
on  the  completion  of  the  internal  market  will  facilitate 
subcontracting  in  general  and  cross-border  subcontracting  in 
particular.  The initiatives proposed in the Council decision  of 
July 1989 relating to the improvement of the business environment 
and  the  promotion  of  the  development  of  enterprises,  in 
particular SMEs, also contribute towards this objective. 

Also,  as  there  is  subcontracting  in  many  sectors  of  economic 
activity,  most  Community  policies,  whether  on  regional 
development,  social  matters,  innovation  or technology  transfer, 
affect  subcontracting. 
For  instance,  some  of  the  measures 
introduced  under the SPRINT programme  help promote  cross-border 
cooperation 
and 
subcontracting 
enterprises. In the same way, in the framework of Community  R &D 
activities  concerning  industry,  such  as  the  BRITE-EURAM 
programme, research proposals regarding the interface and common 
problems between main and subcontractors are considered. 

intermediaries 

between 

C 

Standards and certification 

Commission  policy  following  the Council's adoption  of Directive 
83/189/EEC  and  the  resolution  of  7 May  1985  by  the  Council  is 
contributing  significantly  towards  the  reduction  of  technical 
barriers  to  trade  and  the  clarification  of  the  conditions, 
particularly on safety, health etc...with which European products 
have to comply. 

The substitution of harmonized  standards for in-house purchasing 
specifications  or  rules  is  of  fundamental  importance  for 
subcontractors  in  as  much  as  they  enable  a  more  balanced  and 
transparent technical dialogue between main and subcontractors as 
well as a reduction of costs of toolings,  certification controls 
and audits. In addition, harmonized standards are drawn up on the 
basis  of  the  fundamental  principles  of  standardization: 
participation  by  all  the  parties  concerned  through  the 
intermediary  of  standardization  bodies  and  with  full 
transparency, public enquiries, etc. 

The Commission intends to pursue its policy of promoting European 
standards, particularly through harmonization directives and the 
"public contracts" directives. 

A 

Sufficient  information  on  standards  is  also  particularly 
necessary  to  subcontractors  who  want  to  take  on  cross-border 
subcontract work.  A feasibility study is being made in order to 
improve  the  transmission  and  transparency  of  information  on 
standards and standard projects. 

The now generally  accepted  role of quality  in economic progress 
and commercial  success inevitably results in more narrowly drawn 
specifications  and  in  companies  requiring  their  suppliers  to 
conform more strictly. 

Suppliers  therefore  have  to  undergo  proliferating  and  complex 
type  approval  procedures  which  give  rise  to  disproportionate 
costs on the supplier's side and therefore constrain  any effort 
to expand into cross-border contracting. 

The  Commission's  action  which  aims  at  mutual  recognition  of 
certification and testing procedures, is three-fold: 

establishing  common  transparency  criteria  for  use  in 
assessing  the  competence  and  operation  of  certification 
bodies and test laboratories and in approving them; 

the adoption of a Council Decision incorporating a number of 
modules on different aspects of certification procedure for 
use in Community legislation; 

setting  up  a  European  structure  to  organize  mutual 
certification  and  testing  recognition  on  the  basis  of the 
common transparency criteria. 

A policy  statement  and  a proposal  for a Decision  have recently 
been addressed by the Commission to the Council (5). 

The Commission will also analyse the cost - in terms of finance, 
equipment and human resources - to European subcontractors of the 
multiplicity of certification procedures and will take action to 
ensure that businesses and certification bodies are aware of the 
problem. 

D.  Payment periods 

"Another  major  problem  for  subcontractors  is  that  of  payment 
periods.  There  are  still  enormous  differences  on  this  point. 
For instance Italian subcontractors have to accept periods of up 
to  120  days  whilst  German  firms  generally  pay  their 
subcontractors within 30 days. 

Eight of the twelve countries have laws on terms of payment and 
in at least seven of them contractual practice on this point is 
the source of particularly difficult problems for subcontractors. 

5 Com  (89) 209 final 

so 

8 

The cost  of the  inter-company  credit generated  as much by late 
payment  as by  the difference between the periods of payment to 
suppliers  of raw materials and payment by the main contractor, 
may  be  estimated  at between  2 and  3% of a company's turnover. 
Practices of this type can undermine the very existence of some 
SMEs. 

The Commission considers that the problem of payment deadlines is 
a key  factor  in the viability  of SMEs and that the differences 
between the laws and practices of the Community countries could 
hamper  intra-Community  trade.  It will  therefore be  conducting 
in-depth  discussions  on  the  question  with  the  national 
authorities and trade circles of the Member States. 

E.  Liability 

The entry into force of Directive 85/374/EEC on the approximation 
of  the  laws,  regulations  and  administrative  provisions  of  the 
Member  States  concerning  liability  for  defective  products 
directly  concerns  subcontracting  in so far as  it lays down the 
principle of the manufacturer's no-fault liability  in the event 
of damage caused by a defect in his product, the word 'producer' 
being defined in Article 3(1) as "the manufacturer of a finished 
product, the producer of any raw material or the manufacturer of 
a component part ...". 

The latter is not liable where "...the defect is attributable to 
the design of the product in which the component has been fitted 
or  to  the  instructions  given  by  the  manufacturer  of  the 
product..." (Article 7(f)). 
As the burden of proof lies with the producer, the wording of the 
contract setting out the main contractor's specifications and the 
controls required  is particularly  important, since the contract 
may  be  taken  to  represent  the  "instructions  given  by  the 
manufacturer". 

Furthermore, Article  5 of the Directive provides  for the joint 
and several liability of the producers where more than one person 
is liable  for the damage.  The subcontractor's  liability could 
therefore be invoked in this respect. 

In view of the specific nature of subcontracting, the Commission 
will  charge  a  group  of  experts  to  examine  the  implications  on 
subcontracting businesses of this directive. 

III. BETTER  INFORMATION  AND  COMMUNICATION  FLOWS  BETWEEN  MAIN 
CONTRACTORS AND SUBCONTRACTORS 

Under the action programme  for SMEs,the Commission has taken a 
series  of  measures  aimed  at  improving  information  and 
communication  between  main  contractors  and  subcontractors  at 
Community level. 

S* 

A.  Multilingual sector glossaries 

As the products of subcontracting are not standard products, they 
One  of  the 
are  not  listed  in  conventional  nomenclatures. 
Commission's  first  tasks was  therefore  to  draw  up  multilingual 
sector glossaries to facilitate contacts between main contractors 
and  subcontractors  in  different  countries.  The  glossaries  are 
also used  in setting up data banks and subcontracting exchanges, 
which  can  be  linked  up  across  borders  by  means  of  compatible 
electronic data transmission systems. 

The Business Cooperation Centre has continued with the task begun 
in 1976 and, by the end of 1989, six further volumes will have 
been added to the range.  This means that most sectors in which 
work  is  contracted  out  (metal,  plastics  and  rubber,  textiles, 
wood,  electronics,  industrial  services,  ceramics  and  general 
services for businesses) will be covered. 

B.  Tools to assist in the search for partners 

The systems available to the Business Cooperation  Centre  in the 
search for partners, whether traditional advertising of business 
cooperation  or  the  new  computerized  BC-NET  system,  are  useful 
means  of  improving  communication  between  main  contractors  and 
subcontractors and facilitating the search for partners in other 
Community countries. 

The  Commission  is  currently  evaluating  and  improving  these 
systems  so  that  they  can  be  put  to  good  use  specifically  in 
subcontracting. 

C.  Electronic data transmission 

Electronic  data  transmission  is  spreading  rapidly  in  Community 
trade and represents a particular challenge for SMEs. 

In this connection the TEDIS programme,  introduced under Council 
Decision  87/499/EEC,  aims  to  encourage  the  a  development  of 
electronic data transmission systems. 
Some pilot projects devoted to small and medium-sized businesses 
are  already  up  and  running  under  the  programme.  It  would  seem 
desirable to continue with this measure in order to obtain guide 
lines on how to educate the subcontractors. 

D.  A European Information Centre on Subcontracting 

The completion  of the single market  in 1992 and the new demands 
on subcontractors that this will bring in terms of technological 
adjustment,  diversification  of  their  outlets  and  increasing 
bring  an 
complexity  in  legal  and  technological  standards 
increased  need  for  information  of businesses, more particularly 
for information of cross-border nature. The Commission has asked 
for  a  feasibility  study  on  a  European  Information  Centre  on 
Subcontracting.  This  study  has  highlighted  the  needs  of 
businesses for information as well as the conditions of viability 
for such a Centre. In order to check the guide-lines set out in 
the  study,  the  Commission  consulted  those  parties  mainly 

JL 

10 

concerned  (businesses, intermediaries, local and national public 
authorities,  etc...).  There  have  already  been  consultations 
through  the  work  of  the  committee  of  government  experts  on 
subcontracting. 
An  operational  proposal  for  the  Centre  is  currently  being 
circulated  to as many potentially  interested  bodies as possible 
(chambers  of  commerce,  development  agencies,  etc...).  Depending 
on their reactions, the Commission will then take things a stage 
further with  a view  to  launching  the project.  If approved,  the 
Centre could be operational some time during 1990. 
This European Information Centre on Subcontracting  should not be 
an arm of the Commission but an independent body providing, the 
extension  and  interface,  at  Community  level,  of  the  local, 
regional and national bodies that represent, assist and advise on 
subcontracting  matters.  It  should  have  a  simple  structure  and 
should soon become self-financing. 
On  an  indicative  basis,  the  following  functions 
fulfilled by the Centre: 

could  be 

to  improve  the  flow  of  information  between  main 
contractors  and  subcontractors  at  European  and 
international level; 

to provide up-to-date and easily accessible information 
on  the  legal,  economic,  institutional  and  technical 
subcontracting  environment  in  the  twelve  Community 
countries and others (United States, Canada,  Japan); 

to  give  subcontractors  immediate  access  to  the  data 
banks  covering  standards  (ICONE)  and  certification 
systems (PROMOLOG-CERTIFICAT); 

provide 

on 
to 
subcontracting  opportunities  in public procurement and 
large-scale European contracts; 

information 

regular 

advance 

to  promote  the  setting  up  of  consortia,  European 
economic  interest  groupings  and  other  cooperative 
ventures to submit joint tenders for contracts, or to 
join commercial  and  administrative  forces  in order to 
prospect new markets, particularly export markets; 

to  establish  a  central  reference  base  for  checking 
cross-border subcontracting capability; 

to  provide  a  forum  for  exchanging  experience  and 
holding meetings on subcontracting; 

to promote the search and studies on subcontracting. 

^ 

IV.  PROMOTING SUBCONTRACTING AND PARTNERSHIP RELATIONS 

11 

In order  to  accompany  the  structural  changes  in  subcontracting 
within  the  Community, the Commission  is developing  a  series of 
actions aimed at reinforcing the capability of subcontracting and 
promoting 
and 
relations 
subcontractors.(6 ) 

partnership 

between 

main 

A.  Educating partners on the partnership approach 

A series of pilot projects could be planned  in conjunction with 
subcontracting  intermediaries  and  purchasers' associations with 
the aims of making undertakings aware of the need to  integrate 
the  concept  of  partnership  into their  forward  plans  and  their 
negotiations,  and  of  improving  the  exchange  of  experience  at 
Community level. 

The aim of these projects would be, inter alia, to promote the 
use of European and national standards in specifications, to plan 
orders  further  ahead,  to  deal  with  the  problem  of  payment 
deadlines, to promote  cooperation  in matters  of value  analysis 
between  main  contractors  and  subcontractors  and  to  provide 
technical assistance for subcontractors. 

It  would  also  encourage  such  relationships  if  success  stories 
about partnership operations were collected and disseminated all 
over the Community. 

B 

Enhancing the status of subcontractors 

1.  Practical 

guide 

to 

legal 

aspects 

of 

industrial 

subcontracting 

In view of the completion of the single market  in 1992 and the 
increase in cross-border ventures, the Commission has started to 
draw  up  a  practical  guide  to  legal  aspects  of  industrial 
subcontracting. 

This will  comprise  a section  on the need  to draw up a written 
contract and the various clauses that should be included, and a 
second part comparing the legal systems governing subcontracting 
in  the  twelve  Member  States,  and  will  therefore  serve  as  a 
practical  handbook  to  subcontractors wanting  to go  into cross-
border ventures. 

6 the concept of partnership refers to the setting up of economic 
cooperation links between businesses as for instance, in the 
framework of the Europartenariat programme. 

J** 

12 

2 

Subcontracting and public procurement 

The  use  of  subcontracting  in  public  contracts  is  increasing. 
Together with the practice of order batching, this represents one 
means of access for SMEs to large contracts.  Improved access for 
SMEs  is  one  approach  adopted  by  the  Commission  in  its 
Communication  on  the  regional  and  social  aspects  of  public 
procurement  for  the  adjustment  of  "regional  preferences"  to 
Community  legislation  regarding  free  competition  for  these 
procurements (7 ). 
The  Commission  considers  that,  for  subcontracting  in  public 
procurement, action is required on two fronts: 

better information must be made available on subcontracting 
opportunities; 

the legal status of subcontractors must be clearly defined 

Regarding subcontracting opportunities in particular, the recent 
Council Directive amending Directive 71/305/EEC ("public works") 
provides  that  awarding  authorities  may  include  in  the  tender 
notice  information  on  the  main  contractor's  intentions  with 
regard to subcontracting. 

Since at that stage the main contractors may already be committed 
to using certain subcontractors, the awarding authorities should 
be prepared to make lists of possible main contractors available 
to firms interested in subcontracting. 

This  information  should  be  distributed  early  enough  to  enable 
subcontractors  to  contact  potential  tenders  before  the  latter 
submit their tenders. The network of Euro Info Centres hooked up 
to the TED data bank disseminates tender notices and helps SMEs 
to tender for contracts in which they are interested. 

A  clear  and  balanced  legal  framework  would  also  enable 
subcontractors to tender with greater confidence and security for 
public contracts in other Community countries. 
The Commission will put forward proposals along these lines in a 
communication  and  recommendation  on SME participation  in public 
contracts. 

3 

Promoting cross-border cooperation between subcontractors 

activities 

The Commission is also encouraging the development of activities 
specifically  involving regions in different Community countries. 
The 
subcontracting 
intermediaries  and  are  aimed  at  bringing  together  firms  whose 
activities complement each other and which can therefore combine 
to tender for large contracts.  The EEIG is a suitable instrument 
for the purpose  since  it enables several SME  subcontractors to 
combine on a project. 

are  being  promoted 

by 

7 Sec (89) 400 final 

> 

13 

C.  Support for subcontractors in modernizing and adapting their 

technology 

Three businesses  in France, Belgium and the United  Kingdom have 
been  involved  in  a  pilot  project  to  train  the  managers  and 
employees  of  SME  subcontractors  in  just-in-time  methods.  The 
assessment report highlights the fact that this management method 
leads to clear  improvements  in the way  a business operates and 
that the approach depends on a number of factors arising out of 
the  very  nature  of  subcontracting  businesses,  particularly  the 
lack  of  personnel  and  main  contractors'  failure  to  plan  their 
orders. 

As regards training  subcontractors  to produce high quality, the 
Commission  is currently  completing  a cross-border  pilot project 
introducing quality assurance and control systems into small and 
medium-sized  subcontracting  businesses. There  are also  a number 
of  current  projects  in  Member  States  initiated  by  main 
contractors, intermediaries, public authorities or subcontractors 
themselves.  There are plans for a survey of these projects. 

D.  Making European subcontracting attractive to foreign 
investors and promoting it outside the Community 

To  obtain  a  clearer  idea  of  the  detailed  organization  of 
subcontracting  in Japan, the Commission  arranged  for a group of 
specialists to study subcontracting in Japan in 1988. 
Thirty-eight  representatives  of  subcontracting  intermediaries 
Their  remit  was  to 
took  part  in  the  fact-finding  mission. 
disseminate  the  information  they  gathered  to  the  undertakings 
they represent. 

One of the first lessons the members of the study group learned 
was that European undertakings have to step up their efforts to 
make up the ground they have lost with regard to productivity and 
product  quality. 
This  is  particularly  important  in  view  of 
Japanese  investment  in  Europe,  which  represents  a  not 
insignificant potential subcontracting market. 

In Spring 1990 the Commission will be organizing one-day meetings 
on  the  response  of  European  subcontractors  to  Japanese 
investment.  A  preparatory  study  will  be  carried  out  on  the 
strategy  used  by  Japanese  investors  and  the  effects  of  their 
Investments on local businesses. 

Also,  as  part  of  the  programme  to  create  a  better  business 
environment  and  encourage  the  development  of  enterprises, 
particularly SMEs, the Commission  intends making arrangements to 
promote  exports  by  SMEs.  There  will  be  a  special  section  on 
subcontracting.  The  success  of  such  a  programme  will  partly 
depend  on  the  action  taken  at  Community  level  to  improve  the 
competitiveness  of  subcontractors.  A more detailed  examination 
will be made in the light of the results of the general programme 
on subcontracting.  The potential for such experts should not be 
overlooked  in  the  context  of  the  present  trade  liberalization 
negotiations. /*' 

A 

14 

CONCLUSION 

Subcontracting  is  increasingly  emerging  in  answer  to  the 
challenge of technology and international competition. 

The  1992  deadline  is  throwing  new  light  on  the  challenge  the 
subcontractors  are  facing.  If  we  create  an  environment  which 
favours  the  development  of more  harmonious  and  better  balanced 
relations  this  will  help  businesses  meet  the  objectives  of 
quality and competitiveness. 

The  Council  is  called  upon  to  adopt  the  draft  resolution 
accompanying this communication. 

St 

IS 

DRAFT 

COUNCIL RESOLUTION ON THE DEVELOPMENT OF 

SUBCONTRACTING IN THE COMMUNITY 

THE COUNCIL OF THE EUROPEAN COMMUNITIES, 

Having  regard  to the Treaty  establishing  the European Economic 
Community, 

Having regard to the proposal from the Commission, 

Whereas  the  Council  adopted  on  3  November  1986  a  resolution 
concerning  the  action  programme  for  small  and  medium-sized 
enterprises,  and  in  July  1989  a  decision  relating  to  the 
improvement of the business environment and the promotion of the 
development  of  enterprises,  in particular  of  small  and medium-
sized enterprises in the Community; 

Whereas, following communications on an enterprise policy for the 
Community  and  on  strengthening  cooperation  between  European 
firms:  a  response  to  the  1992  internal  market  deadline,  the 
Commission  has  sent  to  the  Council  a  communication  on  the 
development of subcontracting in the Community; 

Whereas  subcontracting  is  becoming  a  strategic  choice  for 
enterprises as part of their policy to use external resources; 

Whereas, the completion of the single market in 1992, by offering 
to  businesses  wider  market  opportunities,  will  enable  a  more 
systematic  recourse  to  cross-border  subcontracting  and,  by 
reinforcing 
emphasize 
structural changes in the subcontracting relation; 

intra-community 

competition, 

will 

Whereas the  improvement  of  the  subcontracting  environment  is a 
necessary condition for its cross-border development; 

Whereas  appropriate  and  pertinent  information  and  ease  of 
communication are particularly  important for establishing cross-
border subcontracting relationships; 

Whereas  the  adjustment  to  new  demands  for  competitiveness, 
specialization  and  diversification  represents  a  challenge  for 
subcontractors  and  that  establishing  more  balanced  and  stable 
relationships  in subcontracting calls for special efforts on the 
part of main contractors and subcontractors alike, 

j* 

16 

Notes  with  interest  the  Commission's  action  so  far,  and  in 
particular its promotion of cross-border subcontracting; 

Calls upon the Commission to continue to instigate, initiate and 
coordinate  measures  aimed  at  creating  a  propitious  environment 
for subcontracting; 

Encourages  initiatives  to  improve  the  flow  of  information  and 
communication  between  main  contractors  and  subcontractors,  in 
particular  the  continuation  of  work  on  multilingual  sectoral 
terminologies and the improvement of the systems to assist in the 
search for partners; 

Welcomes  the  initiative  concerning  the  creation  of  a  European 
Information Centre on Subcontracting  and requests the Commission 
to  continue  its works,  in  close  collaboration  with  concerned 
professional organizations; 

Stresses  the  importance  of  promoting  more  balanced  and  stable 
relationships between main contractors and subcontractors and of 
promoting European subcontracting to foreign investors; 

Considers that an improved  legal framework for subcontracting is 
desirable,  particularly  in  public  procurement,  and  that  the 
problem of payment periods should be carefully examined; 

Wishes  to be kept  informed  of the progress of the  Commission's 
work on the development of subcontracting in the Community. 

J*> 

MfWB¥ 

SUMMARY OF ACTIONS BROUGHT FORWARD BY 
THE COMMISSION OF THE EUROPEAN COMMUNITIES FOR THE 
DEVELOPMENT OF SUBCONTRACTING IN THE COMMUNITY 

PROJECTS COMPLETED 

Conference on "Subcontracting in Europe" - May 1988. 

Pilot project on the introduction of Just-in-Time in 
subcontracting SMEs. 

Fact-finding mission on subcontracting in Japan -
November/December 1988.. 

Terminologies in the metal and plastic and rubber sectors. 

Practical guide to legal aspects of industrial subcontracting 
in the Community.  Publication of the first volume relative to 
the subcontract. 

Feasibility study on the creation of a European Information 
Centre on subcontracting. 

PROJECTS IN PROCESS 

Publication of a study on subcontracting and the integration 
of production processes in European industry. 

Practical guide to legal aspects of industrial subcontracting 
in the Community.  Publication of the second volume relative 
to the legal situation of subcontracting in the twelve Member 
States. 

Consultation of subcontracting intermediary bodies for the 
definition of a European Information Centre on subcontracting. 

Pilot project on the introduction of quality insurance and 
quality control schemes in subcontracting SMEs. 

Publication of terminologies relative to the following 
sectors: 
- electronic/electrotechnic 
- textiles 
- wood 
- industrial services 
- ceramics 
- general services to enterprises. 

4o 

FUTURE PROJECTS 

Assessment and improvement of instruments for the search for 
business partners' instruments, in order that they can be put 
to good use in subcontracting. 

Update of terminologies of the "metal and plastic and rubber" 
sectors.  Computerization of existing volumes. 

Study of the cost of the numerous procedures of certification 
for the subcontracting SMEs. 

Constitution of a group of experts in charge of examining the 
effects of the application of the directive 85/374 (product 
liability) on subcontracting enterprises. 

Examination of the effects of the variety of legislations and 
methods for terms of payments for subcontractors in the 
Community. 

Follow-up of work relative to the creation of a European 
Information Centre on subcontracting.  Support of the 
launching of the project. 

Conference on the response of European subcontractors to 
Japanese investment in Europe. 

Propositions relative to the definition of a clear and 
balanced legal framework for subcontracting in public 
procurements. 

Initiatives for the education of partners on the partnership 
approach and cooperation between subcontractors. 

FINANCING 

All these projects are included in the framework of the 
decision of the Council of July 1989 relative to the 
improvement of the environment and to the promotion of the 
development of enterprises, in particular SMEs, in the 
Community, and will be therefore financed by the line 7770 of 
the budget, measures for the stimulation of enterprises 
(SMEs).  In consequence, it entails no additional expense with 
respect to those already decided. 

M 

ISSN 0254-1475 

COM(89) 402 final 

DOCUMENTS 

EN 

13 

Catalogue number : CB-CO-89-350-EN-C 

ISBN 92-77-52421-9 

Office for Official Publications of the European Communities 
L-2985 Luxembourg 

JU,