Special Report No 2/2007 concerning the Institutions’ expenditure on buildings together with the Institutions’ replies
Date: 2007-03-21
Institutions: European Court of Auditors
Subjects: Council of the European Union, Court of Justice of the European Union, EU expenditure, European Commission, European Economic and Social Committee, European Parliament, audit, financing, interinstitutional cooperation (EU), real property

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IV

(Notices)

NOTICES FROM EUROPEAN UNION INSTITUTIONS AND BODIES

COURT OF AUDITORS

SPECIAL REPORT No 2/2007

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

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

(2007/C 148/01)

TABLE OF CONTENTS

Paragraph

Page

ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit scope and objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OBSERVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Building policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Selection and location of buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financing and costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tendering procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Determination of contractual conditions, purchase prices and rents . . . . . . . . . . . .

Means of financing building projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interinstitutional cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I-X

1-3

1

2-3

4-49

4-19

9-12

13-15

16-19

20-38

21-23

24-31

32-38

39-49

50-58

51-55

3

3

4

5

5

5

5

5

6

6

7

7

7

8

9

10

12

12

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Paragraph

Page

Financing and costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56-57

Interinstitutional cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58

Annex I: Budget execution 2003-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annex II: List of the buildings considered in this report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The European Parliament’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Council’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Court of Justice’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The European Economic and Social Committe’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12

13

14

15

16

17

18

25

26

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CPQBF

DG
DG ADMIN
DG EAC
DG ECFIN
DG RTD
EIB
EU
EURIBOR
IT
SA
VAT

ABBREVIATIONS

Interinstitutional Committee for the Preparation of Budgetary and Financial Questions (Comité de
Préparation pour les Questions Budgétaires et Financières)
Directorate-General
Directorate-General for Personnel and Administration
Directorate-General for Education and Culture
Directorate-General for Economic and Financial Affairs
Directorate-General for Research
European Investment Bank
European Union
Euro Interbank Offer Rate
Information Technology
Société Anonyme
Value Added Tax

GLOSSARY (1)

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

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

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

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

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

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

OIB: Office for Infrastructure and Logistics in Brussels.

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

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

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

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

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

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

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

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

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EXECUTIVE SUMMARY

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

II.

The audit aimed to answer three questions:

— Does the planning ensure the provision of appropriate accommodation?

— Are financing and costs managed economically?

— Do the Institutions make best use of interinstitutional cooperation, including joint evaluation of their

building policy?

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

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

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

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

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

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

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

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

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INTRODUCTION

Audit field

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

Audit scope and objectives

The objective of the audit was to examine to what extent
2.
the European Union Institutions have been efficient and effective
in managing expenditure on buildings. This has been approached
by assessing three issues:

— Does the planning ensure the provision of appropriate

accommodation?

— Are financing and costs managed economically?

— Do the Institutions make best use of interinstitutional coop-
eration, including joint evaluation of their building policy?

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

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

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

OBSERVATIONS

Planning

4.
Planning should ensure that buildings are provided in the
right place at the right time at minimum cost while taking full
account of political and budgetary constraints. The Court assessed
the Institutions planning by examining three issues:

— Was planning based on an approved building policy and was
there a coherent approach to purchase or rental of buildings?

— Did the selection and location of buildings lead to an opti-

mum provision of office space?

— Was there sufficient and appropriate management informa-

tion for a correct appraisal of needs?

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

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

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

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

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

8.
Moreover, building projects, particularly construction and
decision-making procedures require significant lead time. Some
efforts have been made by the Institutions to address these issues:

— even though the Institutions prepared their accommodation
planning for the 2004 enlargement independently, they pro-
duced coordinated estimates of administrative expenditure
and the increase in staff numbers;

— since 2003 the Commission has prepared ‘Multi Annual
Policy Frameworks’, aimed at forecasting the building needs
for Brussels over 10 years, which could be used as a basis for
coordinated long-term programming.

Building policy

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

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

(5) See

for

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

(6) Rapport du groupe technique interinstitutionnel ‘Programmes immo-

Box 1

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

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

Box 2

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

Selection and location of buildings

13.
All the Institutions prefer to house their related services
as close together as possible, mainly in large buildings, so as to
create economies of scale (e.g. services, communication, mainte-
nance) whereas different services could be housed in alternative
locations. Therefore, most projects are carried out at or near the
site of the Institutions’ main buildings. This approach had prac-
tical advantages but also financial disadvantages: the Institutions
the market
had

few alternatives

choose

from,

to

(8) Special Report on accommodation policies of the Institutions of the
European Communities, section 7.5. Annual Report concerning the
financial year 1987, paragraph 10.51 (OJ C 316, 12.12.1988).
(9) Commission building policy 1996-2005. SEC(96) 1095 final of

biliers et conditions de financement’, February 1996.

18 June 1996, p. 10.

(7) Source: Comparaison des coûts entre les Institutions dans le domaine

(10) Simulation of an acquisitive emphyteusis for 27 years (with 2 %

immobilier, CPQBF Juin 2005.

annual increase and an interest rate of 5 %).

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could easily anticipate the Institutions’ decisions and the available
sites became more expensive because of the strong demand for
buildings in the area. As a result, in Brussels, almost all the Insti-
tutions’ office space is located in what has become known as the
European Quarter, where they occupy around 50 % of the total
office space (11).

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

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

Management information

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

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

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

(12) The Remard (8 256 m2), Wiertz 50 (2 837 m2) Montoyer 63

(9 681 m2) and Montoyer 75 (9 935 m2) buildings.

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

19.
The standard most frequently used by the Institutions in
the assessment of office space needs and the allocation of space is
a guideline of 35 m2 of space per person, which does not take
into account the characteristics of the buildings (actual office
space available, size of the offices or common spaces). Aware of
these weaknesses in management information, the Institutions
have taken some initiatives:

— The Commission is in the process of finalising the drafting of
a ‘Housing Conditions Manual’ intended to define more ratio-
nal criteria for allocating space among its Directorates-
General and services and has finalised an inventory of their
building space in 2006.

— The Institutions in Brussels decided, in March 2006, to set up
a working group whose first task would be to agree on a
common approach to, and definition of, the various types of
surfaces and costs.

Financing and costs

20.
Buildings should be rented or purchased based on needs
while ensuring minimum cost to the EU taxpayer. The Court
examined three issues:

— Were tendering procedures used as appropriate and were

they effective?

— Were the contractual conditions, including purchase price, of

buildings properly established?

— Was the building financing approach taken economical con-

sidering the budgetary constraints?

Tendering procedures

21.
According to Article 89(2) of the Financial Regulation,
‘all procurement contracts shall be put to tender on the broadest
possible base, except when use is made of the negotiated proce-
dure’. The negotiated procedure may be used, after prospecting
the local market, to acquire or rent existing buildings (‘building
contracts’) (14). In respect of the projects examined, the negotiated

(13) Source: Comparaison des coûts entre les Institutions dans le domaine

immobilier, CPQBF Juin 2005.

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

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procedure was also used for contracts concerning the construc-
tion or renovation of a building, or substantial fitting-out work,
which are ‘works contracts’ not covered by the above mentioned
exception applying to ‘building contracts’. Open and competitive
award methods help public administrations to attract a broader
range of potential bidders and to receive better value offers (15).

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

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

Determination of contractual conditions, purchase prices
and rents

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

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

26.
For the extension of the Court of Justice’s main building,
currently under construction, the purchase price of the building
will be the actual construction cost. According to the framework
contract, an independent expert will audit the accounts and
expenditure in order to determine the price of the building. More
than two years after the works had started the expert has not yet
been appointed. This increases the risk that early problems and
cost overruns are not identified. This risk is intensified by the fact

(15) Commission interpretative communication on the Community law
applicable to contract awards not or not fully subject to the provi-
sions of the Public Procurement Directives (OJ C 179, 1.8.2006, p. 2).
(16) Prior information notices were published during the prospection of
the market for only four projects (three cases at the Council and one
at the Parliament).

(17) Annual Report

financial year 1987, para-
graphs 10.51-55; Special Report on accommodation policies of the
Institutions of the European Communities, section 7.5.

concerning the

that the initial framework contract only set out general principles
without determining precise procedures concerning control,
deadlines, penalties and budgetary limits (18).

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

Box 3

For the SPA3 building the market value of the building, adjusted to
take account of certain tax exemptions, was estimated by a consult-
ant. However, the calculation did not include a reduction for the
VAT exemption granted to the Commission. Furthermore, the cal-
culation was based on an immediate rental return, increasing the
value compared with normal practice which assumes an initial
vacant period.

In order to benefit from the fiscal advantages allowed by the PPI, the
Mondrian building was rented through a usufruct contract. The usu-
fruct ‘rent’ was fixed at a value corresponding to market rents, mean-
ing that the benefit of the VAT exemption was not reflected in the
rental price and the Commission has to bear the additional mainte-
nance and minor refurbishments costs (normally the responsibility of
the owner). Furthermore, this contract should have resulted in a
lower rental cost because of the long-term (15 years) as well as the
Commission’s solvency.

Both of these issues resulted in the Commission paying more than
necessary.

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

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

(19) In Brussels, VAT on construction is 21 %; property tax is around

10-15 %; and registration tax for acquisitions is 12,5 %.

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

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Box 4

Box 5

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

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

For Euroforum the Commission was in a difficult position because,
according to the contract, 95 % of the performance guarantee
(2 500 000 euro) was to be released just after the occupation of the
building, leaving just 125 000 euro to cover possible defects in a
building valued at over 100 million euro. For D4-D5 the Parlia-
ment followed another approach, which appears more rational. The
contract lays down that sufficient performance guarantees will be
provided -taking into account the defects identified- when the build-
ing is occupied.

The initial contract of 26 March 2003 for the Lex building (Coun-
cil) did not foresee any bank guarantees to ensure its full perfor-
mance. The final contract, signed on 20 December 2006, provided
for an appropriate bank guarantee.

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

Means of financing building projects

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

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

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

(22) Article 102 of the Financial Regulation.
(23) Production of mandatory insurance policies covering the construc-
tor’s legal responsibilities, as laid down in national law, is essential for
the 10-year period (garantie décennale) during which the construc-
tor is responsible. The institutions have often accepted in the con-
tract to take on from the developer the rights deriving from the
10-year guarantee in order to facilitate the developer’s assignment of
its right to the payments due by the institutions to banks. However,
in several cases insurance policies have not been requested from the
developers (e.g. the Commission only demanded it for Euroforum
and the Committees have not requested it for any of their buildings).
The institutions will have reduced means to obtain satisfaction if
problems appear. In such cases claims must be addressed to sub-
contractors. The obligation to produce certificates on the quality of
works, issued by agreed technical control companies, was laid down
in most contracts. This good practice introduces an additional assur-
ance on the correct performance of works.

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

34.
The methods used by the Institutions were more costly
and less transparent than the explicit borrowing of funds. The
most recent major projects generally involve a long-term pur-
chase with implicit borrowing. The contract price implicitly or
explicitly includes the financial costs. The interest paid by devel-
opers for financing the construction of buildings is charged to the

(24) According to Article 14 of the Financial Regulation, the Communi-

ties and the bodies set up by them may not raise loans.

(25) Final Accounts of the European Communities 2005. Table: Finance

Leases and Similar Rights, p. 35.

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Institutions and is always higher (26) than the rates the Institutions
would have obtained directly through tendering procedures or by
the intermediation of the host country or the European Invest-
ment Bank (EIB).

December 2005 its recommendation that differentiated appro-
priations — which would allow greater flexibility — should be
used for transactions relating to purchase or construction of
buildings (27).

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

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

Box 6

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

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

Interinstitutional cooperation

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

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

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

38.
During the last two decades, the Court has pointed out
on several occasions that a purely annual approach to accommo-
dation costs in practice hampers the definition and implementa-
tion of an appropriate investment policy. The Court reiterated in

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

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

(28) See replies of the Commission to paragraph 7.66 of the Annual
Report concerning the financial year 2000 (OJ C 359, 15.12.2001).
(29) See Report to the budgetary authority on benefits from interinstitu-

tional cooperation of October 2005.

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Box 7

Part of the extension of the Court of Justice’s main building in Lux-
embourg -planned for completion in 2008 — is being built on land
previously occupied by the Commission’s ‘Cube’ building. The ‘Cube’
housed the Commission’s Computer Centre. While the Commission
in 1999 was aware of the need to vacate the Cube building, it was
not in a position to find a replacement until 2004, thereby contrib-
uting to a delay in the Court of Justice’s project.

Although the Belliard 99-101 complex was vacated in 1998, until
2004 an annual rent of around 6 million euro was paid by the
Institutions for an empty building (first by the Parliament, later by
the Committees, which were required by the Parliament to take over
its contract (30) ).

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

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

The implementation of building policies covers areas
44.
where the Institutions require assistance of a similar nature (tech-
nical support in architecture; engineering; health, safety and ergo-
nomics; environmental management and security; planning and
building regulations; law relating to property; financial planning).

(30) See Annual Report concerning the financial year 2000, para-

graph 7.68.

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

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

The majority of the Institutions employ staff or hire expertise spe-
cifically for some or all of these fields. Therefore, operational
cooperation would allow sharing and better use of expertise as
well as economies of scale in purchasing services. However, until
now no such cooperation has been established.

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

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

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

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

(33) Annual Report concerning the financial year 1999, paragraph 6.30

(OJ C 342, 1.12.2000).

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

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

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

CONCLUSIONS AND RECOMMENDATIONS

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

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

Planning

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

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

52.
The above constraints explain why definitive accommo-
dation arrangements are provided late and often necessitate inter-
mediate arrangements and costly short-term solutions. The Court
found that long-term planning could be improved (see para-
graphs 7 and 8).

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

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

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

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

Financing and costs

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

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

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

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

rents. In the past the Institutions have given insufficient consid-
eration to environmental aspects but recent initiatives shows that
more attention is given to this area. The Institutions have not
evaluated their building policies either jointly or individually (see
paragraphs 39 to 49).

Interinstitutional cooperation

58.
The creation of the OIB and OIL has not given the
expected results in the field of inter-institutional co-operation.
There were a low number of ‘Service level agreements’ and expe-
riences and best practices were rarely shared between the Institu-
tions. Nevertheless, the Court has identified some specific cases of
inter-institutional co-operation and recent good initiatives for
improving it. Overall ‘headquarters agreements’ with the host
Member States have not yet been concluded, leading Institutions
to negotiate on an ad hoc basis with differing conditions and

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

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

For the Court of Auditors
Hubert WEBER
President

ANNEX I

BUDGET EXECUTION 2003-2005

Description

Budget
Appropria-
tions

Transfers

Final
Appropria-
tions

Outturn

Budget
Appropria-
tions

Transfers

Final
Appropria-
tions

Outturn

Budget
Appropria-
tions

Transfers

Final
Appropria-
tions

Outturn

2003

2004

2005

COMMISSION

Rent and annual lease payments

154 490 904

4 215 000 158 705 904 158 705 600 165 406 000

9 909 960 155 496 040 155 201 012 206 771 000

8 207 883 198 563 117 198 260 217

Acquisition of immovable property

0

0

0

0

n.a

n.a

154 490 904

4 215 000 158 705 904 158 705 600 165 406 000

9 909 960 155 496 040 155 201 012 206 771 000

8 207 883 198 563 117 198 260 217

EUROPEAN PARLIAMENT

Rent and annual lease payments

56 219 900 – 13 142 943

43 076 957

43 076 839

67 391 000

142 734 931 210 125 931 209 987 082

34 761 956

45 979 590

80 741 546

80 734 779

Acquisition of immovable property

5 600 000 134 686 103 140 286 103 140 286 103

2 327 500

– 23 000

2 304 500

2 304 085

0

98 059 966

98 059 966

97 876 424

Provisional appropriation to cover the
institution’s property investments

COUNCIL

58 152 272 – 58 152 272

0

44 942 471 – 44 942 471

0

54 793 389 – 54 793 389

0

119 972 172

63 390 888 183 363 060 183 362 942 114 660 971

97 769 460 212 430 431 212 291 167

89 555 345

89 246 167 178 801 512 178 611 203

Rent and annual lease payments

9 100 000

– 495 000

8 605 000

8 594 092

14 634 000

– 1 554 000

13 080 000

13 073 791

17 200 000

– 1 238 000

15 962 000

15 958 948

Acquisition of immovable property

0

15 909 000

15 909 000

15 909 000

13 500 000

44 949 000

58 449 000

58 449 000

14 420 000

89 950 000 104 370 000 104 370 000

9 100 000

15 414 000

24 514 000

24 503 092

28 134 000

43 395 000

71 529 000

71 522 791

31 620 000

88 712 000 120 332 000 120 328 948

COURT OF JUSTICE

Rent and annual lease payments

9 436 500

561 925

9 998 425

9 998 425

33 867 000

9 622 300

43 489 300

43 327 934

9 669 000

639 447

10 308 447

10 298 891

Acquisition of immovable property

0

0

0

0

0

0

0

0

0

0

0

0

9 436 500

561 925

9 998 425

9 998 425

33 867 000

9 622 300

43 489 300

43 327 934

9 669 000

639 447

10 308 447

10 298 891

EUROPEAN ECONOMIC AND SOCIAL
COMMITTEE

Rent and annual lease payments

10 378 510

1 620 957

11 999 467

11 936 819

11 160 000

3 235 409

14 395 409

14 141 891

8 791 580

5 727 300

14 518 880

14 508 882

Acquisition of immovable property

0

0

0

0

0

0

0

0

0

0

0

0

10 378 510

1 620 957

11 999 467

11 936 819

11 160 000

3 235 409

14 395 409

14 141 891

8 791 580

5 727 300

14 518 880

14 508 882

COMMITTE OF THE REGIONS

Rent and annual lease payments

5 464 490

518 364

5 982 854

5 957 904

6 625 340

2 229 224

8 854 564

8 660 069

5 987 619

2 140 600

8 128 219

8 116 253

Acquisition of immovable property

0

0

0

0

0

0

0

0

0

0

0

0

5 464 490

518 364

5 982 854

5 957 904

6 625 340

2 229 224

8 854 564

8 660 069

5 987 619

2 140 600

8 128 219

8 116 253

COURT OF AUDITORS

Rent and annual lease payments

2 713 000

142 000

2 855 000

2 854 996

2 427 000

– 290 000

2 137 000

1 920 241

2 571 000

– 227 500

2 343 500

2 221 446

Acquisition of immovable property

0

0

0

0

500 000

150 000

650 000

650 000

0

0

0

0

2 713 000

142 000

2 855 000

2 854 996

2 927 000

– 140 000

2 787 000

2 570 241

2 571 000

– 227 500

2 343 500

2 221 446

Total 311 555 576

85 863 134 397 418 710 397 319 778 362 780 311

166 021 353 508 981 744 507 715 105 354 965 544

194 445 897 532 995 675 532 345 840

C
1
4
8
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1
4

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N

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f
i
c
i
a
l

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o
u
r
n
a
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o
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t
h
e

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r
o
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e
a
n
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n
o
n

i

.

.

2
7
2
0
0
7

2.7.2007

EN

Official Journal of the European Union

C 148/15

ANNEX II

LIST OF THE BUILDINGS CONSIDERED IN THIS REPORT

Commission Brussels

Berlaymont
SPA3
Mondrian

Commission Luxembourg

Euroforum
Hitec

Parliament Brussels

D4-D5
Atrium II
Remard
Wiertz 50
Montoyer 63

Parliament Luxembourg

Towers A and B
Goldbell
KAD

Parliament Strasbourg

IPE1, 2 and 3

Committees Brussels

Belliard 99-101
Trèves 74
Belliard 93
Belliard 68

Council Brussels

Lex
Woluwe-Heights
Rolin

Court of Justice Luxembourg

Extension of the Palais
Geos
Tbis
Allegro

C 148/16

EN

Official Journal of the European Union

2.7.2007

THE EUROPEAN PARLIAMENT’S REPLIES

The price paid by the European Parliament when
11. Box 1.
purchasing the IPE 0, 1, 2 and 3 Buildings was the result of com-
plex negotiations involving several parties, in particular the City
of Strasbourg and the French State as the host country. All the rel-
evant factors were taken into account in determining that price:
the legal constraints stemming from the funding model chosen
for the construction of the buildings, the price of the land, the
involvement of private investors in the negotiations as owners of
the buildings, the measures taken to establish the value of the
buildings, the budgetary constraints faced by the City of Stras-
bourg and the involvement of the French State. Although the
leases signed in 1979 contained no clause stipulating that the rent
paid by Parliament would be taken into account in the event of
the purchase of the buildings — an eventuality not envisaged at
the time — the amount of rent paid was one of the parameters in
the negotiations on the final purchase price for the buildings.

17.
The need for new premises was estimated in 2001 after
an analysis of available data and it was integrated into the long-
term planning. The estimates and the planning were then con-
tinually updated between 2001 and 2005 in order to take into
account the changes in the known needs for office space result-
ing from a number of reasons:

a)

b)

c)

decisions on the creation of posts are annual, not
multiannual;

specific needs flowing from the increase in the number of
official languages, Member States and staff (numbers were
estimated more precisely following detailed assessment);

the increase in Parliament’s powers following the Nice Treaty.
The General Secretariat underwent significant reorganisation
with a view to enhancing support to Members (Raising the
Game policy). Despite increased productivity, the total num-
ber of staff rose and the distribution of staff between Luxem-
burg and Brussels was altered;

Moreover, the 2001 scenario envisaged the handover of the D4
and D5 Buildings in 2004/2005. It was then revised for a num-
ber of reasons: the need to comply fully with European legisla-
in
tion on public procurement;

the difficulties

inherent

negotiating such a complex contract; the time needed to ensure
that such a huge complex would be integrated into the surround-
ing area in such a way as to take account of neighbourhood
concerns.

The lack of any study designed to improve the energy
43.
performance of the buildings can be explained by the projects
analysed by the Court (Annex II to the observations): they con-
cern buildings which are rented by Parliament (Remard, Wiertz
50, Montoyer 63, Towers A and B, Goldbell), or which were
originally rented by Parliament and only purchased at a later date
(KAD, IPE 0, 1, 2 and 3) or, finally, which were the result of a
public consultation process and are covered by purchase con-
tracts or long leases (D4-D5 and Atrium). Parliament was not
involved in the definition of the preliminary designs for the
Atrium Building, but secured the incorporation of solar energy
and energy recovery systems into the design for the D4-D5
Buildings.

Other projects were also the subject of detailed environmental
impact assessments, the most recent being the KAD Building
extension in Luxembourg. However, as long ago as 1992 Parlia-
ment called for the scope for using environment-friendly air-
conditioning equipment in the LOW Building to be explored.

51 and 58.
The Court is recommending closer interinstitu-
tional cooperation, in particular in the area of long-term planning
with a view to meeting the institutions’ long-term needs and the
in general terms,
definition of a joint buildings policy, and,
exchanges of information concerning the practices employed by
each institution in the buildings sphere.

Parliament shares these concerns. In that connection it should be
pointed out that, in its resolution of 26 September 2006 on the
discharge for implementation of the 2004 budget, Parliament
instructed its Administration ‘to draw up a report examining whether
it might be feasible to establish a European Buildings Authority charged
with responsibility for the construction and maintenance of the build-
ings of the EU institutions and bodies’. That report is to be submit-
ted to Parliament’s Committee on Budgetary Control by 1 Octo-
ber 2007 at the latest.

58.

See reply under point 51 above.

2.7.2007

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THE COUNCIL’S REPLIES

The interest rates for the fitting out of Rolin
Footnote 25.
and Woluwe Heights should be compared to a short term financ-
ing with possibility of premature pay off. In both cases, the Coun-
cil used this possibility and the total costs of the fitting out of
these buildings was reimbursed in the year of the delivery of the
works or in the year after. In light of these facts, the interest rates
charged should not be referred to as high.

43.
The General Secretariat of the Council suggests that the
Court of Auditors, describing assessments of environmental
impact of buildings, takes note of the actions undertaken by the
GSC in this area. The actions included notably:

a)

b)

The Justus Lipsius building was the subject of an exhaustive
energy consumption audit carried out in 2006 under the
supervision of the ‘Institut Bruxellois de la Gestion de
l’Environnement’. As an example it should be noted that this
building has at present the largest photovoltaic electricity
production plant of the Brussels Region.

Lex building has been the subject of an in-depth study to
improve its sustainable development performance. Several
features have resulted in a large reduction of the CO2 pro-
duction generated by this building (cogeneration, heat
pumps, automatic extinction of lights, etc.).

C 148/18

EN

Official Journal of the European Union

2.7.2007

THE COMMISSION’S REPLIES

EXECUTIVE SUMMARY

I.-III.
The Commission is in the process of adapting its build-
ing policy in Brussels and Luxemburg, and the new communica-
tion on this subject will be adopted before the 2007 summer
break.

The Commission is of the opinion that some structural changes
are needed for the future with a view to improving, in a sustain-
able manner, the efficiency and effectiveness of its buildings
policy and the quality of life for its staff and local residents. In the
review of its building policy, which will contain a strategy of
housing staff in fewer, but larger buildings, the Commission will
take different aspects into account: value for money, the evolu-
tion of the average market price/m2 for office buildings, the
vacancy rates for office buildings, the evolution in terms of the
surface occupied, where and how, the future needs.

The Commission will analyse the outcome of the intensification
of its acquisition policy and the consequences it needs to draw
from it: the Commission now needs to define a policy for the
maintenance and renovation of buildings to preserve the level of
its assets; and, in cases where property arrives at the end of its life-
cycle, a strategy to encompass the demolition and re-construction
of buildings.

Also, over the last years there has been an increased focus on
security and safety which has had a knock-on effect on the Com-
mission’s wish to develop the mixed usage of its buildings.

Finally, the Commission will assess its co-operation with the local
authorities.

IV.
The Commission has defined such a long-term frame-
work for building policy, the Multi-Annual Policy Framework
(MAPF), which is a rolling plan, discussed yearly with a 5-10 years
perspective.

In Brussels, long-term contracts are signed if the purpose is to
acquire the building under the deferred payments scheme.
Shorter-term contracts of around 15 years are signed to take
buildings in usufruct; this formula is economically sound. In Lux-
embourg, short-term contracts are currently only used awaiting
the JMO2 construction. Otherwise, long-term contracts with pur-
chase options are used.

VI.
The Commission favours a continued application and fur-
ther development of its policy of diversification, which must be
seen in the framework of a very-long-term strategy, taking into
account such factors as prospective needs, mobility and the input
of the host country.

VII.
The Commission services are currently preparing a com-
munication on building policy, which will contain a new proce-
dure for identifying suitable buildings to be rented or purchased,
including a full consultation of the market. The Commission is
nevertheless capable of conducting and achieving negotiations
respecting or even below average market prices, and it certainly
does well, also when compared to other private and institutional
players present in the same locations.

VIII.
Over and above the stability gained through its acquisi-
tion policy, the Commission has also put in place a new way of
funding acquisitions. Deferred payment purchasing is both legally
and financially simpler to implement than the previous leasehold
contracts (emphytéose).

IX.
The Commission is fully committed to inter-institutional
co-operation in all fields (environmental and energy issues, plan-
ning, methodology for the estimation of needs, best practices, to
name a few).

As indicated at paragraphs 50 to 58, the Commission
X.
intends to follow up the Court’s recommendations in the new
buildings policy to be adopted by the College later this year.

OBSERVATIONS

The Commission is ready to examine to what extent this frame-
work can be the basis for an inter-institutional framework, in
addition to its participation to the two inter-institutional work-
ing groups in Brussels and Luxembourg (1).

6.
The Commission issued two communications (2) on the
staff needs resulting from the EU-10 and EU-2 enlargements.
These communications served as a basis for the annual requests
and thus also for the office space forecasts.

V.
The Commission gives absolute priority to purchasing or
long-term rentals and has concluded short-term contracts in
exceptional cases only. The policy of concluding long-term
acquisition-oriented contracts must be embedded in a clear policy
as to the urban poles where the Commission’s presence is to be
developed.

(1) Brussels: ILISWG (Inter-institutional Infrastructure, Logistics and Inter-
nal Services Working Group); Luxembourg: GIITL (Groupe interinsti-
tutionnel technique — Luxembourg)

8.

First indent — See the reply to paragraph 6.

8.
Second indent — DG ADMIN, in close co-operation with
the Offices for Infrastructure and Logistics, is currently preparing
a long-term strategy for satisfying its building needs (until 2025)
in both Brussels and Luxembourg, including the reflection on
alternatives sites or complementary solutions to the existing poles
for the Commission in Brussels.

(2) COM(2002) 311 for 3 900 posts and COM(2005) 573.

2.7.2007

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Official Journal of the European Union

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The Commission will continue to strive for the institutions
9.
to define and implement their building policy together or, at least,
in an integrated manner. This co-operation is, however, not
always possible, since each institution has its own specific needs
and priorities, but some progress has been made.

The Commission took the building in usufruct nonetheless,
because it was, at that time, the only building in the area match-
ing the Commission’s needs in terms of size, quality and location,
it being very close to the SDME where other parts of the same
Directorate-General were housed.

In Brussels, all institutions are part of a working group (ILISWG
— Inter-institutional Logistics and Internal Services Working
Group), whose mandate also covers the exchange of information
on the evolution of the real estate market and the needs of the
institutions.

In Luxembourg, all institutions co-operate through a committee
of the Heads of Administration and an inter-institutional build-
ings working party.

10.
The policy of purchasing buildings rather than renting
them is relatively new and some of the 38 % of the surfaces are
still rented as a consequence of long-term obligations contracted
in the past.

At the same time, purchasing a building is not always the best
solution (e.g. for the building hosting the Information Commu-
nication Technologies infrastructure, as this kind of building is
technologically rapidly obsolete) and renting may then be a bet-
ter solution. In exceptional cases, purchasing may even not be
possible (see the reply to paragraph 27, Box 3).

Finally, the PPI offers exemptions also in other cases than full
ownership, viz. when a building is taken in usufruct.

The Commission has purchased one building (its confer-

11.
ence centre at CCAB) which had been rented previously.

In the case of rentals, even if the building is (financially) depreci-
ated, the owner has the legal obligation to maintain it in a good
state of use, at his own expense and throughout the rental period.
Therefore, the margin to negotiate rent reduction during the life
of the contract is very much reduced. Moreover, when long-term
contracts are concluded, the rent level already includes a reduc-
tion vis-à-vis short-term rentals. Finally, rent levels are driven by
market conditions, and therefore, even when the contract pro-
vides for a revision of the rent, the rent paid should be assessed
vis-à-vis current rent levels and not only with reference to
depreciation.

However, the Commission renegotiates rents whenever possible.
For instance, in 2005, the contract for the SC15 was renegotiated
and extended before it came to an end. This renegotiation reduced
the rent by about 40 %.

However, it is difficult to strictly compare the terms of a usufruct
to those of an emphyteusis.

13.-14.
The Commission has repeatedly and officially stated
that it favours a combination of central and peripheral presence
of its services. The purpose of this policy is to decrease the pres-
sure on the European Quarter.

Under the existing policy, the Commission has diversified its
buildings. In Brussels, where it has 82,5 % of its office space, 82 %
of it is in the European Quarter and 18 % elsewhere, counting the
Madou building outside the European Quarter, it being very much
in its outer periphery. In Luxembourg, where it has 17,5 % of its
office space, 72 % of it is on the Kirchberg and 28 % elsewhere.

Even though the Commission’s building strategy in the European
Quarter is rather predictable, it is often in a favourable negotiat-
ing position for surfaces for which there are few candidates.

The Commission has not only further developed the Beaulieu and
Genève areas of Brussels, but is also considering other options in
the light of the definition of the new policy.

After defining a policy on the location of agencies, the Commis-
sion has rented a building for the executive agency of DG EAC.
This building is located in Evere, well outside the European Quar-
ter. Moreover the Commission has recently rented a building
located near the North Railway Station. (the Covent Garden of
14 000 m2) for the evaluation activity of the 7th Framework Pro-
gramme for Research.

The Commission remains committed to enhanced

15.
co-operation with the host country.

In Belgium, in 2003, OIB’s Director was appointed as the Com-
mission representative to discuss the development of the Euro-
pean Quarter with the relevant authorities, and he also partici-
pates in the meetings of the ‘Fonds Quartier européen’. Since
2005 an interinstitutional ad hoc Task Force EU-Belgium meets
every two months with representatives of the federal, regional
and local level to deal with matters related to building policy.

In Luxembourg, the Commission is currently (February 2007)
negotiating an agreement with the Luxembourg State for its main
building. This agreement will provide for a plot to be made avail-
able free of charge for the construction of the JMO2. As and when
the agreement will have been signed, the Commission will define
its building policy for Luxembourg.

12.
Box 2 — The owner of the Mondrian building is a Ger-
man fund whose main interest is to generate a stable and long-
term cash flow. Therefore, despite the Commission having tried,
it was not interested in selling the building.

17.
One of the principles of the new building policy is to
house the Commission services in a smaller number of larger
buildings, which would mitigate the effects of the annual, piece-
meal increases to the staff quota of the DGs and of internal
reorganisations.

C 148/20

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Official Journal of the European Union

2.7.2007

The Commission services involved (DGs ADMIN, OIB and OIL)
are in the process of defining a procedure based on COMREF (a
personnel-related database) to assess the number of people to be
housed within its premises.

The fact that HITEC (5 000 m2) stood empty for almost a year
was a consequence of a delay in the selection process for enlarge-
ment translators rather than the Commission overestimating its
needs.

18.
The remit of the inter-institutional working groups, both
in Brussels and in Luxembourg, covers the definition of common
indicators and criteria, and the Commission representatives
actively contribute in this effort.

The norm of 35 m2 is used for purposes of global build-

19.
ing planning.

First indent — The part of the ‘Housing Conditions Manual’ deal-
ing with space allocation criteria for the DGs, was approved by
the Management Board of OIB on January 16, 2007.

Once the opinion of the Luxembourg Committee for Safety and
Hygiene at Work will be available (expected in the spring of
2007), the Management Board of OIL will also approve this
document.

It will then become applicable to both OIB and OIL.

Second indent — A similar approach will be followed in
Luxembourg.

The renting of a building is determined by market con-
24.
ditions related to supply and demand, linked in particular to its
location and its corresponding value, as expressed by the price of
the land. As the Court correctly states, the definition of a ‘reason-
able profit for the developers’ only applies in the case of a build-
ing erected for specific needs.

In the case of a building constructed on land owned by one of the
institutions, the price paid should indeed closely correspond to
the costs (including a reasonable profit) incurred by the builder.
The price should be the result of different calls for tenders for the
works, supplies and services necessary to construct the building.

27.
In 2003, the Commission has chosen the approach of
purchasing or renting, rather than having built to purpose: as a
consequence the Commission chose to pay under market condi-
tions, rather than cover construction costs. The actual price finally
depends on objective factors (location, size, quality, market con-
ditions) as well as on subjective factors, such as the priorities of
seller and buyer and financial constraints to which both are sub-
mitted. Occasionally, the Commission can use its negotiating
position, e.g. for large buildings such as Madou, in the sense that
the Commission is then one of the few actors able to rent or buy
the entire building.

Box 3 — As regards SPA3, the evaluation by the consultant is just
one, indicative element of the negotiation file. The final price is
what it is: the result of a negotiation. And even if there were some
errors in the expert evaluation, they influenced the evaluation
both ways and the difference with the price paid was 4 %, which
is deemed to fall within an acceptable range.

21.-23.
The Commission considers that the fitting-out works
are part of the negotiated procedure used to find a building, that
is fully compliant with the ‘Manuel des normes applicables à
l’immeuble type’ (MIT).

If the works were to be carried out by another contractor under
the responsibility of the Commission, this could result in the
Commission paying rent for a non-compliant building, during the
entire renovation period. Furthermore, if the contractor failed to
carry out those works properly and on time, it could cause greater
damage to the financial interests of the EU.

As mentioned in the reply to paragraph 12 Box 2, the negotia-
tion position of the Commission was limited as the Mondrian was
the only acceptable building that could meet DG RTD’s needs, i.e.
to be grouped in two large buildings. In effect, this DG was pre-
viously spread over five buildings. Moreover, with the size of this
building (about 20 000 m2) came operational economies (main-
tenance, security), and given its quality, the Commission esti-
mated that it had obtained a good deal. This building allowed the
Commission to reach goals set in the 2003 Communication on
Buildings Policy (COM(2003) 755): group the services in fewer
and larger buildings, and provide staff with a high quality work
environment.

In the case of the full construction of a building when it owns the
land or when it renovates a building it owns — both may happen
relatively soon, in Luxembourg for JMO2 and in Brussels for
Cornet-Leman- the Commission will launch a call for tenders for
works.

For some buildings projects with a purely technical purpose (cen-
tral kitchens, archive space, Data Centre, conference building,
logistics building) an open consultation of the market took place.

The new building policy will foresee an extended consultation of
the real-estate market fostering competition and respecting
transparency.

29.
The Memorandum of Understanding between Belgium
and the Commission set the general principles of the Berlaymont’s
refurbishment. A second, more detailed document was signed by
the Commission, Belgium and S.A. Berlaymont 2000 on July 17,
2001 to precisely define price, timing and quality standards.

If the price had been negotiated on the basis of the construction
and refurbishments costs,
it would have been much higher.
According to S.A. Berlaymont 2000, the total cost of the build-
ing is around EUR 670 million excluding EUR 125 million for
removing the asbestos. The instalments for the emphyteusis, on
the contrary, were set on the basis of a value of EUR 553 million.

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The Commission request a set of mandatory certificates
30.
and insurance policies when it starts the examination of a build-
ing. Since 2004, a 10-year guarantee insurance policy is system-
atically foreseen for the buildings purchased by the Commission
(Berlaymont, Madou and Beaulieu 25).

Major defects block the provisional acceptance of the building
and the corresponding payments. Minor defects, to be repaired
between the provisional and the final acceptance, are covered by
a percentage of the financial guarantee provided by the contrac-
tor (generally around 5 % of the performance guarantee).

When, after the final acceptance, a major defect appears, the
statutory 10-year guarantee or the appropriate equipment guar-
antee is activated.

Box 5 — As regards the Euroforum, the procedures proper to the
Luxembourg site for the acceptance of works and for the release
guarantees were followed.

A first guarantee, related to timely delivery (in this case
EUR 500 000) was released three months after the occupation of
the building and only after Euroforum S.A. paid a penalty of
EUR 93 000 for the late delivery of the building.

95 % of a second guarantee, a performance guarantee for the
works and installations (in this case EUR 2 500 000) was released
17 months after acceptance (1) and occupation of the building,
upon repair, by Euroforum S.A., of all major defects.

Finally, a guarantee for the remaining 5 % (EUR 125 000) was
kept for the repairs of some minor defects. While this amount
was deemed sufficient, and the approach therefore acceptable, the
Commission is willing to adopt
the
Parliament.

the good practice of

In addition to the above guarantees, a mandatory insurance policy
imposed by the contract of the Euroforum building, covers the
constructor’s responsibility for the 2-year and the 10-year period
after delivery.

31.
The length of this period is a compromise between the
completeness of the checks and the institution’s wish to occupy
the building, and depends on the complexity of the projects and
on the available resources.

The Commission deems a period of a few weeks sufficient to
identify the major defects, the remaining smaller defects being
covered by the financial guarantee and the major, but hidden
defects being covered by the 10-year guarantee.

In all cases, all vital controls concerning security and health and
safety are completed and verified by certified companies before
occupation of a building.

Until now, the Commission has never built for itself for
33.
the very reasons mentioned by the Court and, of course, also
because no land was made available.

For two upcoming projects (JMO2 in Luxembourg and the
Cornet-Leman nursery in Brussels), the Commission, conscious of
the financial advantage, will cooperate with the national authori-
ties for their construction or renovation.

The Commission is of the opinion that, even if the new
34.
financial construction did cost some basis points, the margins
obtained are nonetheless very competitive, when compared to
other constructions.

Because of

the revised practice (deferred payment
36.
scheme), in 2006 the financing rate for the Madou building was
set with a negative margin of – 0,01 %. This margin is set against
the fixed swap rate curve.

For the acquisition of the Beaulieu 25 building, the margin against
the fixed swap rate curve was + 0,008 % in 2006.

Box 6 — The analysis of this case must be placed in its historical
context.

A global agreement had been reached after protracted negotia-
tions in 2001/2002, and had been submitted to the ACPC (2) on
August 28, 2002. The ACPC gave a favourable opinion on
December 4, 2002.

These conditions were indeed favourable to the Commission, eco-
nomically and functionally speaking (with a considerable
regrouping of the services). Reopening the negotiations after six
months would have been difficult for the Commission, as it was
under pressure to abandon the CUBE building (see reply to para-
graph 41 Box 7), since the fitting-out works were estimated to last
well over 12 months.

In fact, since then and whenever the building project lends itself
to it, the Commission negotiates the technical and functional
aspects separately from its financing. For this financing, the Com-
mission consults the financial markets for the best result possible.

37.
When such appropriations became available, the Com-
mission has indeed used them to make scheduled and unsched-
uled payments.

When they were unscheduled, these payments allowed the Com-
mission either to renegotiate emphyteusis contracts or accelerate
repayments of works contracts, and only after careful analysis of
the balance between savings and penalties; or to acquire a build-
ing, achieving future savings for the EU budget.

The Commission applies the provisions of the Financial

38.
Regulation.

A certain amount of coordination,

41.
in particular to
address short-term needs, is already in place. In Brussels, the
Commission made special arrangements with the Committee of
the Regions (VM-2), the European Parliament (MO75) and the
Council (Infopoint and the Dailly nursery). In Luxembourg, simi-
lar arrangements were made between the Commission and the
other institutions.

(1) The Luxembourg legislation foresees only one acceptance, which takes
place when the tenant considers that no major defects remain, allow-
ing for the so-called ‘normal use’ of the building.

(2) Advisory Committee on Procurement and Contracts (better known as

CCAM).

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The new building policy will be the result of careful reflection and
will take into account, where appropriate, the Court’s audit obser-
vations the ongoing IAS audit and staff surveys.

On this basis the Commission considers that its own qualified
internal staff, together with the external contracts mentioned
above, covers all the fields (legal, financial and technical) neces-
sary to have a good view on its buildings projects.

Box 7 — The Commission considers that the CUBE building is a
case where the interests of the two institutions involved diverged.
The positive note is however the fact that, following this experi-
ence, the EU institutions in Luxembourg have strengthened their
co-operation with a view to improving the harmonisation of their
building policy.

46.
In October 2006, the Commission made a presentation
to other institutions (European Parliament, Council, the two
Committees) regarding the legal aspects of its building contracts
and particularly the idea to write a manual that would be
addressed to the real-estate actors. This manual will describe the
main conditions for contracting with the Commission.

42.
The issue of an overall site agreement is a complex and
delicate one because the subject range is so wide, and the Com-
mission acknowledges that such agreements have not been signed
with the Belgian or with the Luxembourg authorities. In their
absence, the PPI has filled the gaps in most areas, and co-operation
arrangements have been set up in specific fields, e.g. in security,
obviously linked to buildings.

Were the Commission to launch construction projects of a simi-
lar nature to those of Council, Court of Justice or Court of Audi-
tors, it would certainly take their experience into account.

Embedding inter-institutional co-operation into appro-
47.
priate structures is only possible if there is a firm commitment
from all the Institutions.

43.
OIB has started to implement a ‘Life Cycle Cost’ method-
ology in order to assess the total cost incurred over the life of a
building,
including energy and environmental aspects. This
approach has as a main objective to assess, monitor and manage
all the costs related to a building’s occupation. This methodology
is planned to be defined in 2007 and was presented in draft form
to other institutions (European Parliament, Council, and the Com-
mittees) in September 2006.

Since 2006, the Commission asks the owner to provide a report
on the building’s energy performance (this report has been pro-
vided for the Beaulieu 25 and SPA2).

44.
When the Commission intends to launch a call for ten-
ders related to building-related services (e.g. insurance, mainte-
nance, training courses in building techniques, cleaning), it con-
sults other institutions in order for them to have the possibility
to join.

In addition to the elements presented in the replies to para-
graphs 41 to 46, the Commission made special arrangements
with the Committee of the Regions (VM2), the European Parlia-
ment (MO75) and the Council (Infopoint and the Dailly nursery)
in Brussels. Significant steps have been taken by OIL and the
groundwork for more actions and results has been laid.

48.
The two Commission offices do work together very
closely and share their experiences on numerous subjects: tech-
nical standards for data centres, housing conditions manual, bud-
getary procedure, ‘housing building’ approach for ICT, training,
specific calls for tenders, etc.

As said elsewhere, they also plan to standardise the office space
management software.

Exchanges with other institutions do exist, but they are rather
informal and need to be structured.

In Luxembourg, a very close collaboration has been established
between the Commission, the Translation Centre and the Court
of Auditors.

CONCLUSIONS AND RECOMMENDATIONS

But the Commission agrees that there is scope for enhanced
co-operation.

Since the second half of 2006, the Commission always
45.
resorts to a comprehensive ‘due diligence’ with an external law
firm for the buildings it negotiates. This due diligence covers all
the legal aspects, contracts with architects and insurance compa-
nies, official measures of the building, environmental and town-
planning permits, tax matters.

50.
The Commission has comments and commitments cor-
responding to each of the specific recommendations and these are
given below, but the general introductory comment to the Com-
mission’s reply (see points I to X) has set out the basic constraints
to which the Commission is subject in the four areas mentioned
by the Court.

51.

The Commission agrees with the recommendation.

The definition of a coordinated multi-annual framework passes
through the definition of such a framework in each institution.

Regarding the valuation of buildings, the Commission has a con-
tract with a specialist in this field, and for technical aspects with
an engineering company.

The Commission has defined such a framework, the MAPF (Multi-
Annual Policy Framework), which is a rolling plan discussed
yearly in the Management Boards of OIB and OIL.

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C 148/23

The Commission is also ready to examine to what extent this
framework can be the basis for an inter-institutional framework.

The Preliminary Draft Budget gives information on new buildings
(in surface terms) expected for the year to come, and an estimate
of the global budgetary impact of building policy is included in
annual report on Heading V.

Finally, such multi-annual frameworks must remain coherent
with the basic building policy, which is under review.

52.-53.
recommendation.

The Commission accepts both parts of

the

As regards inter-institutional co-operation, it already takes place,
both in Brussels and in Luxembourg (1).

The Commission gives absolute priority to long-term rentals or
purchasing and has concluded short-term contracts in excep-
tional cases only (2). But it is clear that the policy of concluding
long-term acquisition-oriented contracts is most effective when
embedded in a clear policy based on a number of elements
including long-term planning, needs analysis and indications as to
the actual location of the few, large buildings involved, i.e. as to
the urban poles where the Commission’s presence is to be
developed.

54.
In line with the reply to Recommendation under para-
graph 53, the Commission wants to make the following points:

— diversification must be seen in the framework of a new, very-
long-term strategy, which takes into account such factors as
prospective needs, mobility and the input of the host country;

(1) In Brussels, the ILISWG (Inter-institutional Infrastructure, Logistics
and Internal Services Working Group) and in Luxembourg, the
‘Groupe inter-institutionnel technique — Luxembourg’, (GIITL) a
working group set up by the Heads of Administration in Luxembourg,
are the fora for inter-institutional discussion on building and real
estate issues. They meet regularly to discuss, and since recently more
intensively, the building projects, contractual arrangements and the
legal mechanisms to be used in specific circumstances, the life cycle
cost methodology (which includes the cost of renovation of the build-
ings after 15 to 20 years), the energy issue, the approach to taxes and
to the relations with the host country.

(2) In Brussels, long-term contracts are signed if the purpose is to acquire
the building under the deferred payments scheme. Shorter-term
(though not really short-term) contracts of around 15 years are signed
to take buildings in usufruct. This formula is most often applied to
new buildings, since it combines the exemption of taxes under the PPI
with a minimal cost to the budget, since the maintenance costs, which
are to be borne by the occupant, remain low during the first 15 years
of a building’s life cycle. The choice between both formulae is dictated
by the offer on the market and by the needs, e.g. when buildings are
sought to house executive agencies, whose existence is unsure on a
scale of decades.
In Luxembourg, short-term contracts are currently only used await-
ing the JMO2 construction. Otherwise, long-term contracts with pur-
chase options are used.

— the Commission, sharing the analysis of the Court, has
started the exploration of alternative and complementary
sites in Brussels, in view of the definition of the strategy just
mentioned;

— the Commission is however of the opinion that this diversi-
fication is not only governed by economic considerations,
but is also constrained by a number of parameters, of which
two important ones are environmental (home-to-office and
building-to-building traffic) and operational (travelling time
to meetings) in nature;

— and finally, with the development of the Beaulieu and Genève
sites and with the recent acquisition of the Madou and rent-
ing of the Covent Garden and Colonel Bourg buildings, the
Commission has effectively continued diversifying office
space over Brussels.

55.
The Commission fully supports this recommendation
and will continue to act accordingly in the ILISWG for Brussels
and in the GIITL for Luxembourg, and needs assessment and indi-
cators will be systematically on their agendas.

Recognising the importance of reliable management information,
OIB and OIL have decided to use the same software for manag-
ing buildings, floors and surfaces, once the harmonised ‘Housing
manual’ will have been completed, which is about to be the case.
This issue could be systematically discussed in the inter-
institutional working parties.

A certain amount of coordination, in particular to address short-
term needs, is already in place, as shown in observation 47 and
the reply thereto.

With respect to the market consultation procedures, the

56.
Commission wants to make its approach clear.

For future construction or renovation projects (JMO2 in Luxem-
bourg and Cornet-Leman in Brussels), the tendering procedures
will be used in compliance with the Directive.

For renting or purchasing existing buildings, where the Directive
itself states not to be applicable, the Commission will consult the
market in the broadest possible way through a new procedure,
specifically designed for the purpose. The Commission will devi-
ate from this principle in exceptional circumstances only.

For fitting-out works in existing buildings, the situation is very
different, as argued in the reply to observation 21. By taking a
building, completely fitted-out to our specifications under the
responsibility of the owner (and therefore not subject to public
procurement procedures),
the Commission avoids spending
money on rent while the building is being fitted-out, and it also
avoids taking the responsibility for these works.

The Commission accepts the recommendation that prices could
be based on construction costs, including reasonable margins for
the economic operators, but underlines that the price attributed
to the land can be a complicating factor.

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As regards the PPI, the Commission agrees with the Court. The
Commission will reinforce the steps it has already taken in this
respect in the context of its revised buildings policy. [See reply to
paragraph 42]. As indicated above, the exemptions granted by the
PPI are at the base of the 15-year usufruct contracts the Commis-
sion has signed for some of its buildings in Brussels.

The Commission applies the provisions of the Financial

57.
Regulation.

This commitment will be confirmed again in the new building
policy, to be adopted by the College before the 2007 summer
break.

As regards the co-operation with Belgium, the Commission has
extended this co-operation by setting up a Task Force (with sub-
groups if necessary), where Vice-President Kallas’ office meets sev-
eral times a year with the representatives of the Brussels Region.

58.
The Commission is fully committed to inter-institutional
co-operation in all fields, and has proven so in several instances
(environmental and energy issues, planning, methodology for the
estimation of needs, best practices, to name a few).

As regards the co-operation with the Grand Duchy of Luxem-
bourg, the Heads of Administration in Luxembourg similarly
meet with the Chairman of the ‘Fonds Urbain et d’Aménagement
du Kirchberg’ on a regular basis.

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THE COURT OF JUSTICE’S REPLIES

The Court of Justice welcomes the positive
15, 22 and 45.
remarks made by the Court of Auditors relating to the interest in
obtaining from the Luxembourg authorities the provision of sites
free of charge for the buildings, to opening construction works to
competition, and to arranging to use expertise so as to have
administrative, financial and technical control over the construc-
tion work.

26.
As indicated by the Court of Auditors, the framework
contract between the Court of Justice and the Luxembourg
authorities provides for the appointment of an independent
expert responsible for determining the sale price of the building.
The Luxembourg State launched a call for tenders for the purpose
of selecting that expert. The procedure was declared unsuccessful
as no tender was submitted. A new tendering procedure has been
launched so that such an expert can be appointed in the very near
future. According to the latest information from the Luxembourg
authorities, the independent expert will be able to be appointed
within the next few days. The delay in the appointment will not
prevent the expert from fulfilling his duties in accordance with
Article 6.2 of the framework contract and from determining the
sale price of the building pursuant to Article 6.3 of that contract.
Already all invoices issued by the companies working on the
building site are verified by the external consultant chosen by the
Court of Justice to assist it in the monitoring and control of the
building project. As soon as the independent expert has been
appointed, invoices will be sent to him so that he can determine
the final sale price of the building.

The Court of Auditors also maintains that the framework contract
only sets out general principles without determining precise pro-
cedures concerning control, performance deadlines, penalties for
delay or budgetary limits. This analysis warrants
some
qualification:

— control procedures are explicitly laid down in Articles 4.2,
4.3, 4.4.3 and 4.5.2 of the framework contract: the State
must inform the Court of Justice and secure its agreement at
each stage of performance of the construction project,
including the award of contracts. Those clauses implement
the principle defined in the statement of reasons, to which
the preamble to the framework contract expressly refers, that
the Court of Justice is to have the power, with the assistance
of the Luxembourg State, to determine the mechanism and
conditions for financing the construction project while
ensuring that the financial interests of the Communities are
protected;

— when the overall contracts are awarded, the prices and peri-
ods for performance are to be laid down in contracts agreed
with the successful tenderers;

— even though the framework contract does not impose pen-
alties
for delay directly on the Luxembourg State,
Articles 4.4.1(h), 4.6.2 and 4.8 stipulate that the contracts
with the successful tenderers must be coupled with guaran-
tees of proper performance and penalty clauses, including
penalties for delay. Those provisions require the State to
apply them strictly (Article 4.5.6) and the corresponding
amounts are to be deducted from the sale price (Article 4.7);

— the Court of Justice maintains control over the overall bud-
get: not only is the State required to seek the Court of Jus-
tice’s agreement on the proposals to award the contract relat-
ing to financing and contracts for general contractors which
include binding obligations (Article 4.3), but it must also
inform the Court of any overspend and submit proposals to
bring it back within budget (Article 4.4.4);

— finally, the administration of the Court of Justice and the Lux-
embourg administration for Public Buildings have supple-
mented those contractual provisions by making practical
rules to ensure that deadlines and budgetary limits are
observed. There is certainly as much benefit to be derived
from good practice, in particular in the field of construction,
as from detailed contractual provisions, enforcement of
which within a reasonable period and for a reasonable price
is often difficult.

35.
The Court of Justice welcomes the comment of the Court
of Auditors that the financial arrangement used, while complex,
is favourable owing to the recourse to the European Investment
Bank. For the financing of the future upgrading and renovation
works to be performed in annexes A, B and C, the Court of Jus-
tice will ensure that it is involved in the tendering procedure for
the financing of those works, in order to take into account the
observations of the Court of Auditors.

Annex I.
The Court of Justice notes that, unlike budgetary
documents, the table in annex I does not distinguish between
appropriations for pure rental and those for the financing of the
lease-purchase payment made for the purpose of acquiring the
buildings. That distinction appears in the Court’s budget, which
contains two different budgetary items. The respective allocations
for those two items illustrate the buildings policy pursued by the
Court for a number of years, which, through lease-purchase, seeks
to become the owner of the buildings which it is required to
occupy long term.

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THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE’S REPLIES

28. Box 4.

1.
When the European Parliament vacated the ‘Jacques
Delors’ building (Belliard 99-101) in 1998, it still had a lease con-
tract for this building until 2007. The EP, acting also as the Bud-
getary Authority, decided to request the Committees to take over
the EP’s contract. The Committees had no choice but to comply
with this request, since the EP had put half of the Committees’
annual budget for rent in reserve, the corresponding amount
being released only after the Committees would have signed a
new lease agreement for taking over the existing contract of the
EP. Initially, the Committees did not request this operation, since
the facilities at their disposal at the time were satisfying their
needs (the only exception being the plenary sessions of the Com-
mittee of the Regions — five per year — which were held in the
EP premises). Since the EP’s contract expired only in 2007, it is
clear that the owners were in a strong negotiating position (they
would receive, until 2007, an annual indexed amount of around
EUR 6.7 million, even if the building was not used).

2.
This unusual and quite difficult situation was underlined
by the Court of Auditors in its annual report on the 2000 bud-
get, paragraph 7.68 [on the Belliard 99-101 building]:

‘the Committeesfound themselves in a difficult position as a result of an
obligation placed on them by Parliament, i.e. that of taking over this
building, for which the Parliament had signed a lease running until
2007’.

Furthermore, in that same report, the Court also stated that:

of 2000. The prices finally agreed are more in line with those offered on
the Brussels market for this type of building’.

The Committees share this analysis and are convinced that no
better price could have been negotiated for the ‘Belliard 99-101’
building. Negotiations were indeed very tough and the price
obtained was in line with market conditions. The project, as a
whole, was successful in terms of quality of the result and respect
of the deadlines.

The EP was kept closely informed on the evolution of the
3.
negotiation process. Indeed, the Committees signed the contract
after approval from the Budgetary Authority, in full compliance
with the Financial Regulations.

With respect to the financial analysis in the Court’s special
4.
report, it is based on a rental value of the fully renovated building
of EUR 8,28 million (the amount of the annual emphyteusis).
This corresponds to ± EUR 221/m2. However, in the report
‘Office Market trends’ (December 2004, Catella), page 14, the
prime rent for the ‘Léopold’ area was situated rather around
EUR 240/m2 at the time the contract was signed (December
2000). Therefore, the Committees believe that the calculated
‘value’ of the building, according to the method referred to in the
Court’s report (application of a theoretical yield of 6,5 %, based
on an annual indexed rent) should not be EUR 127 million, but
EUR 138 million. The corresponding annual instalment, calcu-
lated according to the Court’s method, would then amount to
EUR 7,42 million (instead of EUR 6,83 million). Furthermore,
this calculated annual instalment is heavily dependent on the
expected inflation over 27 years. As an example, a reduction in
inflation of only 0,5 % (which reduces the future annual pay-
ments, as these are indexed) would result in an increase of the cor-
responding annual instalment of ± EUR 400 000.

‘Nevertheless, they [the Committees] succeeded in reintroducing an ele-
ment of negotiation by deciding to refer to the market in the summer

41. Box 7.
Box 4.

Please refer to the Committee’s comments on