CELEX: 51989PC0402
Language: en
Date: 1989-08-07
Title: DRAFT COUNCIL RESOLUTION ON THE DEVELOPMENT OF SUBCONTRACTING IN THE COMMUNITY

COMMISSION OF THE EUROPEAN COMMUNITIES
                                          C0MC89) 402 final
                                          Brussels, 7 August 1989
              ^EVELOPJIEN^^
                     IN THE COMMUNITY
          COMMUNICATION FROM THE COMMISSION
                          and
                         Draft
                  COUNCIL RESOLUTION
 ---pagebreak---                                                    Çjarn y o i J*
     COMMUNICATION PROM THE COMMISSION ON THE DEVELOPMENT OP
                  SUBCONTRACTING IN THE COMMUNITY
                                                         1
INTRODUCTION                                       P
I    -  SUBCONTRACTING - A BUSINESS STRATEGY
        FOR 1992                                   P    2
   A - Economie importance of subcontracting       p     2
    B - Subcontracting and the single market       p     3
        1. Structural changes in subcontracting    p     3
        2. New requirements for subcontractors      p    4
    C - The role of the European Community          p     5
 II -   CREATION OF THE RIGHT ENVIRONMENT
        FOR SUBCONTRACTING IN THE INTERNAL
        MARKET                                      p     5
    A - Subcontracting and Community rules
        of competition                              p     5
-.. _ B - Completing the single market and
        measures on the business environment
         for SMEs                                   p     6
    C - Standards and certifications                p     6
    D - Payment periods                             p     7
    E - Liability                                   p     8
 III - BETTER INFORMATION AND COMMUNICATION
        FLOWS BETWEEN MAIN CONTRACTORS AND
        SUBCONTRACTORS                             p    g
   A - Multilingual sector glossaries              p    9
   B - Tools to assist in the search for
       partners                                    p    9
   C - Electronic data transmission               p     9
   D - A European Information Centre on
       subcontracting
 ---pagebreak---  IV -   PROMOTING SUBCONTRACTING AND PARTNERSHIP
        RELATIONS                                 p   11
   A - Educating partners on the
       partnership approach                       p  11
   B - Enhancing the status of subcontractors     p  11
       1. Practical guide to legal aspects
           of industrial subcontracting          P     H
       2. Subcontracting and public procurement  p   12
       3. Promoting cross-border cooperation
           between subcontractors                P   12
  C - Support for subcontractors in
       modernizing and adapting their technology p   13
  D - Making European subcontracting
       attractive to foreign investors and
      promoting it outside the Community         p   13
CONCLUSION                                       F-^1*-"'
 ---pagebreak---                            INTRODUCTION
The recourse to subcontracting is increasingly becoming a
strategic choice for businesses which are confronted to the need
of improving their competitiveness. The completion of the single
market in 1992 will most probably emphasize even more the scale
of this evolution, more particularly with regard to cross-border
subcontracting.     Moreover the relationships between main
contractors and subcontractors are now radically different from
what they were in the past when subcontracting was mainly a
short-term phenomenon.
Most Community subcontracting businesses work mainly for local or
regional markets and have only a limited knowledge of market
opportunities in other Member States. When a subcontractor shows
initiative and explores the possibility of entering the larger
Community markets, he is often discouraged by his lack of
knowledge of the different laws and different national
certification and registration, commercial and public contract
procedures.
The Commission considers that the competitiveness of Community
businesses in key sectors such as aerospace, motor manufacturing,
electronics, transport equipment and energy production systems
will be determined partly by the technological capacity and
competitiveness of European subcontractors, the majority of which
are small or medium-sized businesses. The measures taken by the
Commission to encourage subcontracting SMEs are therefore an
important aspect of its policy to improve the business
environment and promote the development of businesses.(1)
On the basis of the mandate given to the Business Cooperation
Centre (2 ) and the Community action programme for small and
medium-sized enterprises (3 ), a number of initiatives have been
prepared and the Commission considers that the time has come to
present these to the Council and the Parliament for them to draw
the appropriate conclusions with regard to future action and
propose that, where appropriate, the initiatives be a with those
planned at national or regional level.
Any current or future action should form part of a consistent
whole clearly setting out the extent and limits of Community
policy in this matter, respecting the principle of subsidiarity
and reflecting the Commission's role as coordinator and
instigator. The general lines of the policy are:
       to create an environment suited to subcontracting;
       to improve the flow of information and communication
       between main contractors and subcontractors
       to promote subcontracting and partnership relations.
1 Com (89) 102 final
2 Sec (76) 4397 final
3 Com (86) 445 final
                                                                  i
 ---pagebreak--- I. SUBCONTRACTING   -  A BUSINESS STRATEGY FOR 1992
So far there is no universally accepted definition of
subcontracting. France is the only country, which adopted a law
on subcontracting in 1975 and a standard for the definition of
industrial subcontracting in 1987.
In most of Community countries it is not identified formally,
either from a legal or accounting point of view, nor is it
referred to in a specific case law , that could help clarify its
field of application or define its specific character.
Although subcontracting is sometimes carried out by big
companies, in particular in the field of motor manufacturing for
first tier subcontractors, in most cases subcontractors are small
or medium-sized enterprises.
Subcontracting exists in a variety of sectors.        It occurs in
public works and the building industry where it traditionally
takes the form of a relationship between three partners (the
contracting    authority,    the   main    contractor    and   the
subcontractor). In a more strictly industrial situation there are
only two partners involved (the main contractor and the
subcontractor). This form is encountered in motor manufacturing,
aerospace and the textile industry.
There are also different ways in which subcontracting is
practised. Japan for instance, has a pyramidal type of
organisation with different layers of subcontractors, while in
Europe main contractors were, until now, in direct contact with
a very large number of subcontractors.
Nevertheless, if subcontracting can be considered as a specific
type of relationship between enterprises, it may be assumed that
a subcontracting relationship exists wherever a business
(frequently small and referred to in what follows as the
"subcontractor") acts for the account of another undertaking
(frequently large and referred to in what follows as the "main
contractor") in the process of working and making a specific
product to plans and technical specifications supplied by the
main contractor, who has final economic responsibility.
A.   Economic importance of subcontracting
An immediate consequence of the difficulties of defining
subcontracting is the absence of statistics and the problem of
obtaining quantifiable data on which to base a reliable economic
assessment.
France is the only country which since the early 1970s has been
measuring the amount of work contracted out through annual
business surveys carried out by INSEE. According to statistics
published by the INSEE, the aerospace, shipping and motor
manufacturing industries are the largest main contractors but
subcontracting is also increasing in electrical and electronic
manufacturing and in the textiles and clothing industry in
particular.
 ---pagebreak--- Six out of every ten industrial undertakings with more than 20
employees subcontract work occasionally or regularly. But the
weight of large undertakings (with over 500 employees) is the key
factor since they account for two thirds of all subcontracting.
The vast majority of subcontractors are SMEs and, according to
certain local surveys, half of these are also main contractors.
An empirical assessment suggests that the European industrial
subcontracting market is worth ECU 100 000 million.
Whereas only a few years ago, the share of external source of
supplies was estimated, in Europe, at some 40% (purchases and
subcontracting) it now accounts for some 60% (over 80% in Japan).
B.   Subcontracting and the single market
The completion of the internal market will bring on a
liberalization of intra-comrounity exchanges and will enable the
more systematic recourse to cross-border subcontracting.        For
example, the opening of public markets will provide increased
market    opportunities    for    both   main    contractors    and
subcontractors.    However,    by    reinforcing   intra-coramunity
competition, the internal market will urge businesses to increase
their competitiveness and specialization.
Thus, the internal market will emphasize a certain number of
structural changes in the subcontracting relation, generated by
the increased externalization of the production. They bring a
profound modification in traditional attitudes and consequential
in subcontractors' demands and new requirements.
1. Structural changes in subcontracting
These structural changes are three-fold:
- an increasing demand for subcontracting
- a greater specialization of subcontractors
- a modification in the relation between main contractor and
  subcontractor
In order to maintain their flexibility and their ability to
adapt, an increasing number of large companies are putting out an
increasing proportion of their production to subcontractors. The
possibility of getting supplies from alternative and competitive
sources enables them to contain their costs and become more
competitive. In addition to this quantitive change in the demand
for subcontracting, there is a qualitative one.           The main
contractor intends to pass on more and more complex operations to
his subcontractor and expects him to master a process or a
technology that he himself does not possess (or that he considers
not profitable to acquire) as well as the realization of sub-
assembly or whole-function operations.
 ---pagebreak--- The form of subcontracting known as 'capability subcontracting'
and which was used in the past to counter the fluctuations of
main contractors' production capacities is increasingly changing
into specialist subcontracting.     Therefore, in order to remain
competitive, subcontractors have to specialize in a specific
field.
These new demands also bring a change in the relation between
main contractors and subcontractors.
By acquiring a product (that he no longer produces) as well as a
know-how (that he does not possess), the main contractor has
every interest in establishing more stable and balanced relations
with his subcontractors, and in certain cases involving them in
his research and development works. It is in this sense that one
can speak of partnership.
At the same time, main contractors commit themselves to reduce
the number of direct subcontractors with which they will have
this type of relation and on to which they will pass on the
responsibility of whole assemblies.
We are thus in presence of a phenomenon of "cascading
subcontracting" whereby first level subcontractors will turn to
other subcontractors of the second or third level to manufacture
the various components. Finally, in order to preserve, as much
for themselves as for their subcontractors a threshold of
dependency low enough not to threaten their mutual existence in
case   of    difficulty,   main    contractors   encourage   their
subcontractors to diversify their customers, and develop products
of their own.
This new conception of the organization of production, in which
subcontracting    plays    a    positive    role    in   improving
competitiveness, also covers the respect of the legislation on
working conditions and already approved conventions.
2.   New requirements for subcontractors
The demands for specialization and for diversification entail a
profound change in the role of the subcontractor.           Mainly
constituted by small businesses that are bound to a single or
more main contractors geographically close and for which they
have until now, realized capacity functions, subcontractors are
in most cases, ill-prepared for these new imperatives of
competitivity.     They are thus facing new requirements that
express themselves in terms of the improvement of the business
environment, of information and of strategy adaptability.
A more widespread use of European norms, a greater transparency
of certification procedures, a clarification of the situation of
subcontracting with regard to public procurements will all
contribute to improve the environment of subcontracting and are
the conditions ensuring a more systematic and fairer recourse to
cross-border subcontracting. On the other hand, information on
the capacities of subcontracting as well as market opportunities
offered as much in the framework of public procurements as in
that of important European projects, must be available at
Community level, more particularly to enable subcontractors to
diversify their customers. In addition, a good knowledge of new
technologies, of innovation, normalization and of the evolution
of the markets are necessary for them to specialize.
If an information which is easily available, simple and up to
date is a vital condition in preparing subcontractors for a
 ---pagebreak--- Community wide market, then they also have to define the notion
of a more global strategy.       In view of this, any measure
promoting innovation, marketing and management, are most
important.
In order to make the necessary investments related to innovation
and specialization, subcontractors need to establish more stable
and balanced relations as well as a more regular and anticipated
dialogue with their main contractors.
Finally, the elaboration of partnership and cooperation
strategies with other subcontractors will enable them to reach
the critical size on the Community market, to have access to new
markets and to specialize in very sharp and competitive fields.
C.   The role of the European Community
The institutional framework for subcontracting varies from
country to country mainly because of variations in industrial
structure, the extent to which subcontracting has developed and
the role traditionally played by representative economic bodies
and the public authorities.
With regard to the above mentioned requirements of subcontracting
businesses, the role of the Community authorities is on the one
hand to ensure that a legal and financial environment favouring
subcontracting - particularly cross-border subcontracting - is
created. On the other hand, it must help improve the flow of
information and communication between the main contractors and
subcontractors in different European regions as well as the
promotion of subcontracting and partnership relations so that
they are in a better position to exploit the potential of the
internal market.
The measures taken by the Commission will    therefore complement
national actions and consist of a series of initiatives which aim
to create conditions which will foster       the development of
harmonious relations in subcontracting and  promote their cross-
border dimension.
II   CREATING THE RIGHT ENVIRONMENT FOR SUBCONTRACTING IN THE
     INTERNAL MARKET
A    Subcontracting and community rules on competition
In 1978 the Commission assessed subcontracting agreements in the
light of Article 85 of the Treaty of Rome (4).
The resulting communication clarified under what conditions
contracts of this type were not caught by that Article, and
removed certain doubts about the compatibility of this form of
division of labour with Community competition rules.          The
Commission thereby supplemented, in respect of subcontracting,
its earlier communications on cooperation and agreements of minor
importance, and helped to establish more balanced relationships
between enterprises, thus expanding the scope for fruitful
cooperation.
4 OJ CI  3/1/79
                                                                  S
 ---pagebreak--- B    Completing the single market and measures on the business
     environment for SMEs
The work launched by the Commission pursuant to the White Paper
on the completion of the internal market will facilitate
subcontracting in general and cross-border subcontracting in
particular. The initiatives proposed in the Council decision of
July 1989 relating to the improvement of the business environment
and the promotion of the development of enterprises, in
particular SMEs, also contribute towards this objective.
Also, as there is subcontracting in many sectors of economic
activity,   most    Community    policies, whether     on   regional
development, social matters, innovation or technology transfer,
affect subcontracting.       For instance, some of the measures
introduced under the SPRINT programme help promote cross-border
cooperation     between     subcontracting     intermediaries    and
enterprises. In the same way, in the framework of Community R & D
activities concerning      industry, such as the BRITE-EURAM
programme, research proposals regarding the interface and common
problems between main and subcontractors are considered.
C     Standards and certification
Commission policy following the Council's adoption of Directive
83/189/EEC and the resolution of 7 May 1985 by the Council is
contributing significantly towards the reduction of technical
barriers to trade and the clarification of the conditions,
particularly on safety, health etc...with which European products
have to comply.
The substitution of harmonized standards for in-house purchasing
specifications or rules is of fundamental importance for
subcontractors in as much as they enable a more balanced and
transparent technical dialogue between main and subcontractors as
well as a reduction of costs of toolings, certification controls
and audits. In addition, harmonized standards are drawn up on the
basis of the fundamental principles of standardization:
participation by all the parties concerned through the
intermediary    of    standardization    bodies    and   with   full
transparency, public enquiries, etc.
The Commission intends to pursue its policy of promoting European
standards, particularly through harmonization directives and the
"public contracts" directives.
                                                                     A
 ---pagebreak--- Sufficient information on standards is also particularly
necessary to subcontractors who want to take on cross-border
subcontract work. A feasibility study is being made in order to
 improve the transmission and transparency of information on
 standards and standard projects.
 The now generally accepted role of quality in economic progress
 and commercial success inevitably results in more narrowly drawn
 specifications and in companies requiring their suppliers to
 conform more strictly.
 Suppliers therefore have to undergo proliferating and complex
 type approval procedures which give rise to disproportionate
 costs on the supplier's side and therefore constrain any effort
 to expand into cross-border contracting.
 The Commission's action which aims at mutual recognition of
 certification and testing procedures, is three-fold:
      establishing common transparency criteria for use in
      assessing the competence and operation of certification
      bodies and test laboratories and in approving them;
      the adoption of a Council Decision incorporating a number of
      modules on different aspects of certification procedure for
      use in Community legislation;
      setting up a European structure to organize mutual
      certification and testing recognition on the basis of the
      common transparency criteria.
 A policy statement and a proposal for a Decision have recently
 been addressed by the Commission to the Council (5).
 The Commission will also analyse the cost - in terms of finance,
 equipment and human resources - to European subcontractors of the
 multiplicity of certification procedures and will take action to
 ensure that businesses and certification bodies are aware of the
 problem.
 D.   Payment periods
"Another major problem for subcontractors is that of payment
 periods.   There are still enormous differences on this point.
 For instance Italian subcontractors have to accept periods of up
 to   120 days whilst German        firms generally pay their
 subcontractors within 30 days.
 Eight of the twelve countries have laws on terms of payment and
 in at least seven of them contractual practice on this point is
 the source of particularly difficult problems for subcontractors.
 5 Com (89) 209 final
                                                                  so
 ---pagebreak---                                  8
The cost of the inter-company credit generated as much by late
payment as by the difference between the periods of payment to
suppliers of raw materials and payment by the main contractor,
may be estimated at between 2 and 3% of a company's turnover.
Practices of this type can undermine the very existence of some
SMEs.
The Commission considers that the problem of payment deadlines is
a key factor in the viability of SMEs and that the differences
between the laws and practices of the Community countries could
hamper intra-Community trade. It will therefore be conducting
in-depth discussions on the question with the national
authorities and trade circles of the Member States.
E.   Liability
The entry into force of Directive 85/374/EEC on the approximation
of the laws, regulations and administrative provisions of the
Member States concerning liability for defective products
directly concerns subcontracting in so far as it lays down the
principle of the manufacturer's no-fault liability in the event
of damage caused by a defect in his product, the word 'producer'
being defined in Article 3(1) as "the manufacturer of a finished
product, the producer of any raw material or the manufacturer of
a component part ...".
The latter is not liable where "...the defect is attributable to
the design of the product in which the component has been fitted
or to the instructions given by the manufacturer of the
product..." (Article 7(f)).
As the burden of proof lies with the producer, the wording of the
contract setting out the main contractor's specifications and the
controls required is particularly important, since the contract
may be taken to represent the "instructions given by the
manufacturer".
Furthermore, Article 5 of the Directive provides for the joint
and several liability of the producers where more than one person
is liable for the damage. The subcontractor's liability could
therefore be invoked in this respect.
In view of the specific nature of subcontracting, the Commission
will charge a group of experts to examine the implications on
subcontracting businesses of this directive.
III. BETTER INFORMATION AND COMMUNICATION     FLOWS BETWEEN MAIN
CONTRACTORS AND SUBCONTRACTORS
Under the action programme for SMEs,the Commission has taken a
series of measures aimed at improving            information and
communication between main contractors and subcontractors at
Community level.
                                                                S*
 ---pagebreak--- A.   Multilingual sector glossaries
As the products of subcontracting are not standard products, they
are not listed in conventional nomenclatures.         One of the
Commission's first tasks was therefore to draw up multilingual
sector glossaries to facilitate contacts between main contractors
and subcontractors in different countries. The glossaries are
also used in setting up data banks and subcontracting exchanges,
which can be linked up across borders by means of compatible
electronic data transmission systems.
The Business Cooperation Centre has continued with the task begun
in 1976 and, by the end of 1989, six further volumes will have
been added to the range. This means that most sectors in which
work is contracted out (metal, plastics and rubber, textiles,
wood, electronics, industrial services, ceramics and general
services for businesses) will be covered.
B.   Tools to assist in the search for partners
The systems available to the Business Cooperation Centre in the
search for partners, whether traditional advertising of business
cooperation or the new computerized BC-NET system, are useful
means of improving communication between main contractors and
subcontractors and facilitating the search for partners in other
Community countries.
The Commission is currently evaluating and improving these
systems so that they can be put to good use specifically in
subcontracting.
C.   Electronic data transmission
Electronic data transmission is spreading rapidly in Community
trade and represents a particular challenge for SMEs.
In this connection the TEDIS programme, introduced under Council
Decision 87/499/EEC, aims to encourage the a development of
electronic data transmission systems.
Some pilot projects devoted to small and medium-sized businesses
are already up and running under the programme. It would seem
desirable to continue with this measure in order to obtain guide-
lines on how to educate the subcontractors.
D.   A European Information Centre on Subcontracting
The completion of the single market in 1992 and the new demands
on subcontractors that this will bring in terms of technological
adjustment, diversification of their outlets and increasing
complexity in legal and technological standards          bring an
increased need for information of businesses, more particularly
for information of cross-border nature. The Commission has asked
for a feasibility study on a European Information Centre on
Subcontracting. This study has highlighted the needs of
businesses for information as well as the conditions of viability
for such a Centre. In order to check the guide-lines set out in
the study, the Commission consulted those parties mainly
                                                                  JL
 ---pagebreak---                                  10
concerned (businesses, intermediaries, local and national public
authorities, etc...). There have already been consultations
through the work of the committee of government experts on
subcontracting.
An operational proposal for the Centre is currently being
circulated to as many potentially interested bodies as possible
(chambers of commerce, development agencies, etc...). Depending
on their reactions, the Commission will then take things a stage
further with a view to launching the project. If approved, the
Centre could be operational some time during 1990.
This European Information Centre on Subcontracting should not be
an arm of the Commission but an independent body providing, the
extension and interface, at Community level, of the local,
regional and national bodies that represent, assist and advise on
subcontracting matters. It should have a simple structure and
should soon become self-financing.
On an indicative basis, the following functions          could be
fulfilled by the Centre:
          to improve the flow of information between main
          contractors   and   subcontractors   at   European and
          international level;
          to provide up-to-date and easily accessible information
          on the legal, economic, institutional and technical
          subcontracting environment in the twelve Community
          countries and others (United States, Canada, Japan);
          to give subcontractors immediate access to the data
          banks covering standards (ICONE) and certification
          systems (PROMOLOG-CERTIFICAT);
          to    provide    regular    advance    information   on
          subcontracting opportunities in public procurement and
          large-scale European contracts;
          to promote the setting up of consortia, European
          economic interest groupings and other cooperative
          ventures to submit joint tenders for contracts, or to
          join commercial and administrative forces in order to
          prospect new markets, particularly export markets;
          to establish a central reference base for checking
          cross-border subcontracting capability;
          to provide a forum for exchanging        experience and
          holding meetings on subcontracting;
          to promote the search and studies on subcontracting.
                                                                 ^
 ---pagebreak---                                    11
IV.   PROMOTING SUBCONTRACTING AND PARTNERSHIP RELATIONS
In order to accompany the structural changes in subcontracting
within the Community, the Commission is developing a series of
actions aimed at reinforcing the capability of subcontracting and
promoting      partnership     relations   between     main    and
subcontractors.(6 )
A.    Educating partners on the partnership approach
A series of pilot projects could be planned in conjunction with
subcontracting intermediaries and purchasers' associations with
the aims of making undertakings aware of the need to integrate
the concept of partnership into their forward plans and their
negotiations, and of improving the exchange of experience at
 Community level.
 The aim of these projects would be, inter alia, to promote the
 use of European and national standards in specifications, to plan
 orders further ahead, to deal with the problem of payment
 deadlines, to promote cooperation in matters of value analysis
 between main contractors and subcontractors and to provide
 technical assistance for subcontractors.
 It would also encourage such relationships if success stories
 about partnership operations were collected and disseminated all
 over the Community.
 B     Enhancing the status of subcontractors
 1.    Practical    guide   to    legal  aspects    of   industrial
       subcontracting
 In view of the completion of the single market in 1992 and the
 increase in cross-border ventures, the Commission has started to
 draw up a practical guide to legal aspects of industrial
 subcontracting.
 This will comprise a section on the need to draw up a written
 contract and the various clauses that should be included, and a
 second part comparing the legal systems governing subcontracting
 in the twelve Member States, and will therefore serve as a
practical handbook to subcontractors wanting to go into cross-
border ventures.
6 the concept of partnership refers to the setting up of economic
cooperation links between businesses as for instance, in the
framework of the Europartenariat programme.
                                                                 J**
 ---pagebreak---                                    12
 2     Subcontracting and public procurement
 The use of subcontracting in public contracts is increasing.
 Together with the practice of order batching, this represents one
 means of access for SMEs to large contracts. Improved access for
 SMEs is one approach adopted by the Commission in its
 Communication on the regional and social aspects of public
 procurement for the adjustment of "regional preferences" to
 Community legislation regarding free competition for these
procurements (7 ) .
The Commission considers that, for subcontracting in public
procurement, action is required on two fronts:
      better information must be made available on subcontracting
      opportunities;
      the legal status of subcontractors must be clearly defined
Regarding subcontracting opportunities in particular, the recent
Council Directive amending Directive 71/305/EEC ("public works")
provides that awarding authorities may include in the tender
notice information on the main contractor's intentions with
regard to subcontracting.
Since at that stage the main contractors may already be committed
to using certain subcontractors, the awarding authorities should
be prepared to make lists of possible main contractors available
to firms interested in subcontracting.
This information should be distributed early enough to enable
subcontractors to contact potential tenders before the latter
submit their tenders. The network of Euro Info Centres hooked up
to the TED data bank disseminates tender notices and helps SMEs
to tender for contracts in which they are interested.
A clear and balanced legal framework would also enable
subcontractors to tender with greater confidence and security for
public contracts in other Community countries.
The Commission will put forward proposals along these lines in a
communication and recommendation on SME participation in public
contracts.
3     Promoting cross-border cooperation between subcontractors
The Commission is also encouraging the development of activities
specifically involving regions in different Community countries.
The    activities    are   being    promoted   by   subcontracting
intermediaries and are aimed at bringing together firms whose
activities complement each other and which can therefore combine
to tender for large contracts. The EEIG is a suitable instrument
for the purpose since it enables several SME subcontractors to
combine on a project.
7 Sec (89) 400 final
                                                                 >
 ---pagebreak---                                  13
C.   Support for subcontractors in modernizing and adapting their
     technology
Three businesses in France, Belgium and the United Kingdom have
been involved in a pilot project to train the managers and
employees of SME subcontractors in just-in-time methods.      The
assessment report highlights the fact that this management method
leads to clear improvements in the way a business operates and
that the approach depends on a number of factors arising out of
the very nature of subcontracting businesses, particularly the
lack of personnel and main contractors' failure to plan their
orders.
As regards training subcontractors to produce high quality, the
Commission is currently completing a cross-border pilot project
introducing quality assurance and control systems into small and
medium-sized subcontracting businesses. There are also a number
of current projects in Member States initiated by main
contractors, intermediaries, public authorities or subcontractors
themselves. There are plans for a survey of these projects.
D.   Making European subcontracting attractive to foreign
     investors and promoting it outside the Community
To obtain a clearer idea of the detailed organization of
subcontracting in Japan, the Commission arranged for a group of
specialists to study subcontracting in Japan in 1988.
Thirty-eight representatives of subcontracting intermediaries
took part in the fact-finding mission.       Their remit was to
disseminate the information they gathered to the undertakings
they represent.
One of the first lessons the members of the study group learned
was that European undertakings have to step up their efforts to
make up the ground they have lost with regard to productivity and
product quality.     This is particularly important in view of
Japanese   investment    in Europe, which     represents   a not
insignificant potential subcontracting market.
In Spring 1990 the Commission will be organizing one-day meetings
on the response of European subcontractors to Japanese
investment.    A preparatory study will be carried out on the
strategy used by Japanese investors and the effects of their
Investments on local businesses.
Also, as part of the programme to create a better business
environment and encourage the development of enterprises,
particularly SMEs, the Commission intends making arrangements to
promote exports by SMEs. There will be a special section on
subcontracting.    The success of such a programme will partly
depend on the action taken at Community level to improve the
competitiveness of subcontractors. A more detailed examination
will be made in the light of the results of the general programme
on subcontracting. The potential for such experts should not be
overlooked in the context of the present trade liberalization
negotiations. /*'
                                                                 A
 ---pagebreak---                                  14
CONCLUSION
Subcontracting is increasingly emerging in answer         to  the
challenge of technology and international competition.
The 1992 deadline is throwing new light on the challenge the
subcontractors are facing.    If we create an environment which
favours the development of more harmonious and better balanced
relations this will help businesses meet the objectives of
quality and competitiveness.
The Council is called upon to       adopt  the  draft  resolution
accompanying this communication.
                                                                St
 ---pagebreak---                                   IS
                               DRAFT
            COUNCIL RESOLUTION ON THE DEVELOPMENT OF
                 SUBCONTRACTING IN THE COMMUNITY
THE COUNCIL OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European Economic
Community,
Having regard to the proposal from the Commission,
Whereas the Council adopted on 3 November 1986 a resolution
concerning the action programme for small and medium-sized
enterprises, and in July 1989 a decision relating to the
improvement of the business environment and the promotion of the
development of enterprises, in particular of small and medium-
sized enterprises in the Community;
Whereas, following communications on an enterprise policy for the
Community and on strengthening cooperation between European
firms: a response to the 1992 internal market deadline, the
Commission has sent to the Council a communication on the
development of subcontracting in the Community;
Whereas subcontracting is becoming a strategic choice for
enterprises as part of their policy to use external resources;
Whereas, the completion of the single market in 1992, by offering
to businesses wider market opportunities, will enable a more
systematic recourse to cross-border subcontracting and, by
reinforcing    intra-community     competition,  will   emphasize
structural changes in the subcontracting relation;
Whereas the improvement of the subcontracting environment is a
necessary condition for its cross-border development;
Whereas appropriate and pertinent information and ease of
communication are particularly important for establishing cross-
border subcontracting relationships;
Whereas the adjustment to new demands for competitiveness,
specialization and diversification represents a challenge for
subcontractors and that establishing more balanced and stable
relationships in subcontracting calls for special efforts on the
part of main contractors and subcontractors alike,
                                                                j*
 ---pagebreak---                                  16
Notes with interest the Commission's action so far, and in
particular its promotion of cross-border subcontracting;
Calls upon the Commission to continue to instigate, initiate and
coordinate measures aimed at creating a propitious environment
for subcontracting;
Encourages initiatives to improve the flow of information and
communication between main contractors and subcontractors, in
particular the continuation of work on multilingual sectoral
terminologies and the improvement of the systems to assist in the
search for partners;
Welcomes the initiative concerning the creation of a European
Information Centre on Subcontracting and requests the Commission
to continue its works, in close collaboration with      concerned
professional organizations;
Stresses the importance of promoting more balanced and stable
relationships between main contractors and subcontractors and of
promoting European subcontracting to foreign investors;
Considers that an improved legal framework for subcontracting is
desirable, particularly in public procurement, and that the
problem of payment periods should be carefully examined;
Wishes to be kept informed of the progress of the Commission's
work on the development of subcontracting in the Community.
                                                                 J*>
 ---pagebreak---                              MfWB¥
             SUMMARY OF ACTIONS BROUGHT FORWARD BY
      THE COMMISSION OF THE EUROPEAN COMMUNITIES FOR THE
        DEVELOPMENT OF SUBCONTRACTING IN THE COMMUNITY
PROJECTS COMPLETED
Conference on "Subcontracting in Europe" - May 1988.
Pilot project on the introduction of Just-in-Time in
subcontracting SMEs.
Fact-finding mission on subcontracting in Japan -
November/December 1988..
Terminologies in the metal and plastic and rubber sectors.
Practical guide to legal aspects of industrial subcontracting
in the Community. Publication of the first volume relative to
the subcontract.
Feasibility study on the creation of a European Information
Centre on subcontracting.
PROJECTS IN PROCESS
Publication of a study on subcontracting and the integration
of production processes in European industry.
Practical guide to legal aspects of industrial subcontracting
in the Community. Publication of the second volume relative
to the legal situation of subcontracting in the twelve Member
States.
Consultation of subcontracting intermediary bodies for the
definition of a European Information Centre on subcontracting.
Pilot project on the introduction of quality insurance and
quality control schemes in subcontracting SMEs.
Publication of terminologies relative to the following
sectors:
- electronic/electrotechnic
- textiles
- wood
- industrial services
- ceramics
- general services to enterprises.
                                                             4o
 ---pagebreak--- FUTURE PROJECTS
Assessment and improvement of instruments for the search for
business partners' instruments, in order that they can be put
to good use in subcontracting.
Update of terminologies of the "metal and plastic and rubber"
sectors. Computerization of existing volumes.
Study of the cost of the numerous procedures of certification
for the subcontracting SMEs.
Constitution of a group of experts in charge of examining the
effects of the application of the directive 85/374 (product
liability) on subcontracting enterprises.
Examination of the effects of the variety of legislations and
methods for terms of payments for subcontractors in the
Community.
Follow-up of work relative to the creation of a European
Information Centre on subcontracting. Support of the
launching of the project.
Conference on the response of European subcontractors to
Japanese investment in Europe.
Propositions relative to the definition of a clear and
balanced legal framework for subcontracting in public
procurements.
Initiatives for the education of partners on the partnership
approach and cooperation between subcontractors.
FINANCING
All these projects are included in the framework of the
decision of the Council of July 1989 relative to the
improvement of the environment and to the promotion of the
development of enterprises, in particular SMEs, in the
Community, and will be therefore financed by the line 7770 of
the budget, measures for the stimulation of enterprises
(SMEs). In consequence, it entails no additional expense with
respect to those already decided.
                                                             M
 ---pagebreak---  ---pagebreak---                                                                      ISSN 0254-1475
                                                               COM(89) 402 final
                                                      DOCUMENTS
EN                                                                              13
                                 Catalogue number : CB-CO-89-350-EN-C
                                                             ISBN 92-77-52421-9
Office for Official Publications of the European Communities
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