Opinion of the European Economic and Social Committee on the Proposal for a Directive of the European Parliament and of the Council amending Council Directives 89/665/EEC and 92/13/EEC with regard to improving the effectiveness of review procedures concerning the award of public contracts COM(2006) 195 final/2 — 2006/0066 (COD)
Date: 2007-01-18
Institutions: European Economic and Social Committee
Subjects: action brought before an administrative court, approximation of laws, award of contract, infringement of EU law, public contract

C 93/16

EN

Official Journal of the European Union

27.4.2007

Opinion of the European Economic and Social Committee on the Proposal for a Directive of the
European Parliament and of the Council amending Council Directives 89/665/EEC and 92/13/EEC
with regard to improving the effectiveness of review procedures concerning the award of public
contracts

COM(2006) 195 final/2 — 2006/0066 (COD)

(2007/C 93/04)

On 29 June 2006 the Council decided to consult the European Economic and Social Committee, under
Article 95 of the Treaty establishing the European Community, on the abovementioned proposal.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the
Committee's work on the subject, adopted its opinion on 14 November 2006. The rapporteur was Mr van
Iersel.

At its 432nd plenary session, held on 17 and 18 January 2007 (meeting of 18 January), the European
Economic and Social Committee adopted the following opinion by 140 votes to 14 with 10 abstentions.

Contents

1.

2.

3.

4.

4.1.

4.2.

4.3.

4.4.

4.5.

4.6.

5.

6.

Introduction

Consultation and content

General comments

Specific issues

Drafting

Standstill periods

Annulment of contracts

Attestation

Conciliation and settlement of disputes

Standstill

Fees

Glossary

1. Introduction

1.1
In 1991 and 1993 two directives came into force
regarding the application of review procedures for the Classical
and Utilities Directives respectively. They were introduced to
provide an element of enforcement and remedy which had been
missing from the earlier Classical directives (1).

1.2
As the Public Procurement Directives are intended to
fair and transparent climate for companies
create an open,
across the EU to compete on an equal basis, these Remedies
Directives provide procedures
companies wishing to
complain about the tendering and award of public contracts in
which they are interested.

for

1.3

The Remedies Directives have two linked purposes:

— to provide a means to coerce Awarding Authorities to

comply with the Directives; and

— to provide a means whereby a tenderer who believes that an
Awarding Authority has breached the Directives can take
action to protect his interests.

(1) See Glossary footnote 9.

1.4
All action by an aggrieved tenderer against an Awarding
Authority has to be taken through national courts, tribunals or
similar bodies which are established within that Member State;
the Commission only takes action against a Member State, not
against an Awarding Authority, and then only when there is
evidence that a Member State is not regulating its Awarding
Authorities properly.

It is noteworthy that the Court of Justice had already
1.5
specified in 1999 that the provisions of both Remedies Direc-
tives should seek to reinforce existing arrangements for ensuring
effective application of the Public Procurement Directives,
in
particular at a stage where infringements can still be rectified (2).

1.6
Effective Remedies Directives are an integral part of
public purchasing law, and the amendments provided by the
New Directive should ensure a more effective functioning of the
Public Purchasing Directives.

1.7
In June 2006 the Commission proposed the New Direc-
tive which amends above mentioned Remedies directives and
improve them and make them more
which,
effective.

it is hoped, will

1.8
The main proposals in the New Directive are the intro-
duction of a 10-day standstill period between the decision to
award a contract and finalisation of the award so that anyone
who believes they have been badly treated can protest, and the
repeal of the attestation and conciliation procedures.

2. Consultations and content

In March 2003 the Commission started consultations on
2.1
the validity of the Remedies Directives. Two questionnaires were
carried out. The Member States were consulted in the frame-
work of the Advisory Committee for Public Procurement. In
addition to that consultation enquiries were carried out among
Awarding Authorities and through Interactive Policy Making on
the internet among lawyers, business associations and NGOs
and enterprises.

(2) Impact assessment report — Remedies in the field of public procure-
ment, SEC(2006) 557, of 4 May 2006, page 5: Alcatel judgement, Case
C-81/98, paragraph 33.

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The New Directive is based on a thorough impact assess-
2.2
ment. This assessment mentions two main problems: the lack of
effective remedies against the practice of illegal direct awards of
public contracts, and the ‘race to signature’ of public contracts
by Awarding Authorities which actually deprives economic
operators of the possibility to put Remedies actions effectively
in place before the contract has been started (3).

The impact assessment contains a number of excellent
2.3
analyses of the opinions of stakeholders. The impact assessment
itself is an illustrative example of an open and transparent way
of communicating in a very complex area.

2.4
Quite interestingly the outcome shows that there are
substantial differences between the Member States in handling
complaints which can make for confusion in the minds of
tenderers:

— Awarding Authorities — among them in particular regional
and local authorities — were reluctant to respond to the
enquiries;

the tendering
Amongst other aspects,
process will be left with only one ‘preferred bidder’ in its final
stages could be seen to open the way to abuse and the standstill
is obviously necessary to avoid such a situation.

the probability that

3. General comments

The impact assessment proves very useful

3.1
in making
clear that Member States and the Awarding Authorities do, in
many cases, often take a different line over the need to open
public markets.

The Commission offers five potential solutions to tackle
3.2
the issue of complaints:
‘do-nothing’, a communication or a
directive on a standstill period, and a communication or a direc-
tive on an Independent Body (4).

3.3

The EESC agrees with the Commission that:

— individual economic operators were not yet accustomed to

participating and to reviewing procedures in this area;

— do-nothing is not a viable solution, as shortcomings and
substantial differences between Member States will persist;

— quite substantial reactions came from law firms, business

associations and NGOs.

The overall conclusion among the respondents is that
2.5
illegal awards have to be fought and that competition, particu-
larly cross-border, must be fostered.

Business is usually very reluctant to challenge Awarding
2.6
Authorities, whereas experience shows that some Member States
are as yet rather hesitant over adopting legislation that promotes
transparency and opening of markets. This underlines the need
for action at EU level. Other Member States, however, have
invested considerable effort in implementing the Directives.

The proposed amendments provide two important new

2.7
safeguards for tenderers:

— notification of the intention to award a contract must be
given at least ten days before the intended award date — the
‘standstill period’; and

— if a tenderer

lodges a protest,

the procedure must be
suspended for a period, in principle while the problem is
resolved.

2.8
There is, however, provision — for example, in cases of
urgency — for contracts to be awarded without going through
the normal tendering process. There is also provision for the
standstill period to be ignored in cases where it is obviously
irrelevant. The Competitive Dialogue procedure, however, must
always have a standstill because of the way in which it operates.

— neither will communications be an attractive approach, as
these are insufficiently compelling:
long lasting traditions,
mutual relationships and dependencies in the Member States
will continue to prevail.

3.4
Consequently, to put pressure on the public sector and to
increase professionalism on both sides, the choice is between
the establishment of an Independent Body or a standstill period
between the decision to award a contract and the actual award
itself.

Independent Bodies exist in some Member States (5). It
3.4.1
is noteworthy that the majority of private stakeholders are in
favour of this approach although it would mean a rise in costs
and administrative procedures. Some Member States recom-
mend the appointment of experts to such bodies.

3.4.2
By contrast the large majority of Member States are in
favour of a limited standstill period which directly affects public
purchasers and complaining companies, halting the procedure
for the duration of the standstill.

The EESC agrees with the Commission's proposal on the
3.5
It accepts that such an
introduction of a standstill period.
if well implemented, should concei-
arrangement at EU level,
vably promote on the one hand effectiveness, clarity and legal
certainty, and, on the other a more open and transparent public
procurement regime leading to increased competition. Standstill
should not necessarily, however, be seen as an exclusive alterna-
tive to Independent Bodies, which Member States are, of course,
at liberty to establish.

(4) See the Glossary for a definition of an Independent Body and the

distinction from a Review Body as used in this paper.

(3) Impact assessment report — Remedies in the field of public procure-

(5) For example, the Competition Authority in Denmark and the Swedish

ment, SEC(2006) 557, of 4 May 2006.

central government Agency for Public Procurement.

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4. Specific issues

4.1 Drafting

4.1.1
The numbering of the New Directive is confusing as
the section on Utilities is Article 2 notwithstanding that a large
part of the Classical section on the previous pages and of the
Utilities on the following pages is numbered Articles 2a through
2f. It would be easier if the Classical and Utilities sections were
headed as Chapters. Once the amendments provided in the New
Directive have been implemented it will, of course, cease to be
of interest but, in the meantime, ease of comprehension would
be a help.

4.1.2
of the two Directives could have been made available.

It would also have been helpful if consolidated versions

4.1.3
doubtless be corrected in later versions.

There are also a few typographical errors which will

4.2 Standstill periods

4.2.1
accepted.

The concept of standstill periods is generally well

4.2.2
The possibility — favoured by some respondents to the
Commission's consultation — of the establishment of Indepen-
dent Bodies to act as referees was rejected in favour of standstill,
largely at the urging of Member States. The concept has been
discussed since the early days of the directives but, superficially
it suffers the same defects as did the
attractive though it is,
conciliation procedure, itself a similar concept. There remains,
however, a persisting problem which is discussed infra under
‘Conciliation and settlement of disputes’.

In the second case there is concern that, bearing in
4.3.4
mind that a challenge to an award may in some instances be
launched up to six months after commencement of the contract,
an innocent economic operator may suffer serious damage.
Because the contracting authority will have been found to be
acting ultra vires the economic operator may have no means of
claiming damages against it (6). Although such an outcome may
be unlikely to recur, the EESC believes it appropriate to warn of
the danger.

4.3.5
It may be argued that a tenderer should satisfy itself
that the Awarding Authority has observed the standstill and has
published the necessary notices regarding the intention to award
the contract and furthermore that, should the tenderer still not
be satisfied,
it should seek formal confirmation from the
purchaser. The New Directive provides (Article 2 f 2) that the
only grounds for annulling a contract once it has been awarded
are that an Awarding Authority has failed to give proper notice
of its intention to award a contract or has failed to apply a
standstill period. Those limited conditions, particularly in large
and important contracts, would seem to be easily capable of
verification. But the thresholds for Supply and Service contracts
cannot be described as ‘large and important’, even to SMEs,
although the consequences of unrecoverable damages in the
event of annulment most certainly are. Offloading to the
tenderer the risk of error, and the serious consequences thereof,
does seem to the EESC to be unbalanced and should be recon-
sidered; caveat vendor with its potentially draconian consequences
is not an appropriate mechanism to prevent illegality on the
part of Awarding Authorities. Whilst the consequences in Hazell
vs Hammersmith and Fulham might not be possible in other
circumstances or in other countries, legislation either at Com-
munity level or at national
is desirable to the point of
level
being essential if tenderers are not to be put at unmanageable
risk in annulment of contracts.

4.2.3 With the exception of periods of five days (which are
working days) all other periods,
including references to three
days, are calendar. That obviously raises problems. The matter is
expanded upon infra under ‘Standstill’.

4.4 Attestation

4.3 Annulment of contracts

Although the objective of

4.3.1
the directive is to catch
problems before the contract is actually awarded, provision is
made for the annulment of contracts which slip through and
are thus awarded illegally.

4.3.2
Two circumstances may exist: firstly where the parties
are in collusion and both are well aware of the consequences of
the contract being found to be illegal, and secondly where the
economic operator is innocent and unaware that the contract
risks being annulled.

4.3.3
any losses which the economic operator may suffer.

In the first case, there is little need to have concern for

4.4.1
The New Directive proposes that the attestation proce-
dure should be deleted because it has been little used. Attesta-
tion was included in the Utilities Remedies Directive as a form
of audit similar to that in quality assurance or to some aspects
of modern financial audit. At the time it was suggested that a
Utility which obtained a clean attestation report might be able
to derogate from some or all of the detailed provisions of the
directive as long as it abided by the principles, but this sugges-
tion was not acceptable to the Commission.

(6) See Hazell vs Hammersmith and Fulham Councils UK House of Lords 1992
in which the local authorities had entered into interest rate swaps in
order to reduce their costs or to generate profits for themselves. In the
event, interest rates moved against the local authorities and the banks
called for the difference. The local authorities, unable to pay, then
claimed that such contracts were outwith their powers and were thus
void. The court found in favour of the local authorities and the partici-
pating banks, who had entered into the contracts in good faith, stood a
substantial loss.

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There was thus little incentive to use attestation and its
4.4.2
lack of use is little surprise. It has also been subject to criticism
on the basis that it only demonstrates compliance at a particular
point in time, giving no assurance that compliance will continue
on the morrow. That is to misunderstand the process, whose
equivalent processes work effectively in quality and modern
financial audit. The essence is to ensure that a system of proce-
dures is in place which,
lead to satisfactory
compliance with the directive, and that the contracting entity
did in fact comply with its own procedures. Most substantial
organisations operate on the basis of internal procedures and, in
the absence of fraud or drastic corporate breakdown, follow
those procedures reliably. Certification provided by attestation
that
the procedures are satisfactory in principle and being
followed in practice gives reasonable assurance that the organi-
sation is compliant; it would, of course, need to be revalidated
at intervals.

if followed, will

Effective

4.4.3
a mechanism
attestation could provide
whereby individual Utilities could obtain all or most of the
benefits offered by Article 30 (7) of the Utilities Directive in
circumstances where the general criteria of that Article were not
met.

4.4.4
In the absence of an incentive to use the procedure it is
obviously of little use. However, if it were to be amended to
include a tangible incentive, its retention in such a form should
be envisaged.

4.5 Conciliation and settlement of disputes

The conciliation procedure has not been popular
4.5.4
it cannot produce enforceable decisions
because, apparently,
and,
if unsuccessful, eats up the time within which a formal
complaint can be launched. But enforceable decisions — absent
agreement by the parties as in arbitration — must inevitably
require litigation. This paradox may create problems in dispute
resolution.

Further examination of alternative dispute resolution
4.5.5
mechanisms in use in other countries or in other contexts
might well yield a useful tool which would overcome the objec-
tions to the conciliation procedure whilst retaining low cost,
thereby contributing to improvement in compliance with the
directives.

4.6 Standstill

4.6.1
require further consideration.

The standstill periods provided in the draft directive

4.6.2
Firstly, most of them (except the five-day periods) are
defined as calendar days and are fairly short (three, seven or ten
days). In some Member States and at certain times of the year,
ten calendar days can be as short as three working days and
three calendar days can include no working days at all. This can
plainly be unsatisfactory. In 2006 there are at least 42 weekdays
(out of 260 in the whole year) which are public holidays some-
where in the EEA. There is one ten-day period with only two
working days and there are three periods with only three
working days.

The EESC notes that

4.5.1
there is a generally accepted
opinion that the deletion of the little-used procedure is appro-
priate.

A balance has

to be struck between allowing
4.6.2.1
economic operators a reasonable time in which to lodge a
protest and not introducing an unnecessary delay into all the
contracts with which there is no problem.

4.5.2
There is, however, quite a widely-held view, which the
EESC endorses and has argued for extensively in a number of
opinions, that some form of alternative dispute resolution is
desirable. The existing mechanisms available differ widely
between the various Member States, ranging from relatively
informal bodies with easy access and low cost, to recourse to
litigation with all the cost and diversion of resources which that
Independent Bodies are evidently effective in those
entails.
Member States which have adopted them but the practice is not
universal (see also 3.4.1 supra and its footnote).

4.5.3
A universal solution to the problem is not obvious,
given the differing cultural and legal backgrounds in the various
Member States.

4.6.2.2
Ideally, the standstill should be defined as working
days but this raises the problem of different public holidays in
different Member States.

4.6.3
Secondly, in the case of a tender which has been prop-
erly conducted, the tenderers will be expecting the notice which
in any case, be sent to each of them personally; they
will,
should thus have little difficulty in responding promptly should
they have reason so to do.

In the case of a directly-awarded contract or one
4.6.4
awarded on an ‘in-house’ basis to an entity which is not in-
house, the problem of awareness is more acute.

(7) Article 30 (1) states ‘Contracts intended to enable an activity mentioned
in Articles 3 to 7 [the definition of a Utility] to be carried out shall not
be subject to this Directive if, in the Member State in which it is
performed, the activity is directly exposed to competition on markets
to which access is not restricted.’ The rest of Article 30 sets out in more
detail the criteria and the procedure to be followed in seeking exemp-
tion.

4.6.5
Potential tenderers may have no knowledge that the
contract is even in contemplation and will be dependant on
seeing the public notice to alert them to its existence. Even if
the ten calendar days only include one week-end and thus
amount to eight working days, there will be very little time to
take action from a standing start.

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Since it is the general consensus that directly awarded
4.6.6
contracts constitute the majority of abuses, more consideration
needs to be given to the duration of the standstill period as well
as to a mechanism which ensures that
interested potential
tenderers can become aware of the proposed contract as early
as possible. A reasonable increase in the standstill period for
this type of contract — not applicable to those which have been
offered properly for competitive tender — would be helpful.

4.6.7
The Remedies Directive applies, of course, only to
contracts above the thresholds, but contracts slightly below the
threshold — and thus outwith the Directives — upon occasion
‘creep’ until the value is above the threshold, sometimes quite
substantially. This is an all too common area of abuse.

A requirement to publish all contracts including those
4.6.8
well below the thresholds and those placed with in-house enti-
ties would be disproportionate. Attention is drawn in this
context to the fact that in-house services are not covered by the
Directive on the awarding of contracts. In this context, too, the
fundamental question arises as to why the standstill period is to
be applied in this case.

4.6.9
In order to provide an easy and timely means of
alerting potentially interested economic operators to the immi-
nent award of a contract above the thresholds (or, possibly,
above a lower value of, say, 80 % of the thresholds) a special
web site hosted or sponsored by the Commission and used
exclusively for
If such a
website were to be established, its use should be compulsory.

this purpose might be beneficial.

4.6.10
Furthermore, the development of an automatic search
tool for use on such a site to alert tenderers to published notices
likely to be of interest to them would make a great difference to
the effectiveness of the notices. Trawling the website each night
and flagging up an alert for anything which it recognised as of
interest, it would improve the likelihood that tenderers would
become aware in a timely manner of
impending contract
awards which they wanted to challenge.

In countries where the Review Body has no power to
5.2
dismiss frivolous complaints, a fee might be justified but it
would have to be set at an appropriate level so as not to deter
genuine complainants and thereby act as a defensive measure
for contracting authorities which have abused the Directives.

5.3 Whilst not strictly part of consideration of
the New
Directive, it has come to the EESC's notice that some Awarding
Authorities have adopted the practice of requiring a fee from
tenderers who wish to submit a bid. The EESC is strongly
opposed to such a measure which is not only prejudicial to
SMEs but is also too easy to use as a means of covert discrimi-
nation contrary to the spirit — and, possibly, to the letter — of
the Directives.

6. Glossary

Classical Directive

Directive 2004/18/EC on the coordination
of procedures for
the award of public
works contracts, public supply contracts
and public services contracts. Applies to
(central,
all public authorities
regional,
those which are
municipal etc) except
subject
(see
below).

to the Utilities Directive

Utilities Directive

Directive 2004/17/EC coordinating the
procurement procedures of entities oper-
ating in the water, energy, transport and
postal sectors. Applies to all entities oper-
ating in these sectors regardless of their
ownership, be it public or private.

Public Procurement Procurement by public authorities (subject
to the Classical Directive) and public utili-
ties (subject to the Utilities Directive).

5. Fees

Remedies Directives

5.1
It has been suggested that a fee should be payable by a
tenderer wishing to launch a bid challenge in order to discou-
rage vexatious or tactical challenges. The EESC is not in favour
of such a measure because, on the one hand, the effort neces-
sary to mount a challenge is already expensive enough and, on
the other hand, the Review Body (8) to whom the protest is
addressed is well able to dismiss frivolous applications.

(8) See the Glossary for a definition of Review Body and the distinction

from an Independent Body as used in this paper.

In 1991 and 1993 two directives now
being amended came into force regarding
the application of review procedures for
the Classical (9) and Utilities Directives (10)
respectively. They were
introduced to
provide an element of enforcement and
remedy which had been missing from the
earlier Classical directives. (11)

(9) 92/50/EEC of 18 June 1992 (services), 93/36/EEC (supplies) and

93/37/EEC (works) both of 14 June 1993.

(10) 93/38/EEC of 14 June 1993.
(11) 71/305/EEC of 26 July 1971 (works) and 77/62/EEC of 21 December

1976 (supplies). There was no services directive at that time.

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New Directive

Directive(s)

Amendment to Remedies Directives that is
the subject of this Opinion.

Any or all, as the context may admit, of
the directives defined above.

Awarding Authority A contracting authority (Classical sector)
or a contracting entity (Utilities sector)
which is involved in the processes contem-
plated by the Directives.

Independent Body

Review Body

body which would
An independent
receive complaints, as outlined in para-
graph 2(3)
in the explanatory memor-
andum on page 5 of the New Directive.

A judicial or quasi-judicial body ‘indepen-
dent of the contracting authority’ which is
appointed to hear complaints and which
has the power to adjudicate thereon.

Brussels, 18 January 2007.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS

APPENDIX

to the Opinion of the European Economic and Social Committee

The following Section Opinion text was rejected in favour of an amendment adopted by the assembly but obtained at
least one-quarter of the votes cast:

‘1.2.1 The principles of economy and efficiency are without doubt important criteria in respect of such a transparent climate of
competition with regard to procurement transactions. We must, however, not lose sight of the fact that public investment
does, at the same time, represent an instrument of economic policy and, with an eye to the Lisbon objectives, employ-
ment-policy aspects and social and environmental aspects should also be taken into account when taking decisions.
Importance should consequently also be attached to this principle in the review procedures with regard to the award of
public contracts.’

Outcome:

78 votes for deleting the paragraph, 67 against and 10 abstentions.