European Procurement
Encyclopedia
Government procurement in the European Union is the awarding of contracts for public works
Public works
Public works are a broad category of projects, financed and constructed by the government, for recreational, employment, and health and safety uses in the greater community...

 and for the purchase of good
Good (economics and accounting)
In economics, a good is something that is intended to satisfy some wants or needs of a consumer and thus has economic utility. It is normally used in the plural form—goods—to denote tangible commodities such as products and materials....

s and services by the public authorities of the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

 (EU) and its member states
Member State of the European Union
A member state of the European Union is a state that is party to treaties of the European Union and has thereby undertaken the privileges and obligations that EU membership entails. Unlike membership of an international organisation, being an EU member state places a country under binding laws in...

. Government procurement
Government procurement
Government procurement, also called public tendering or public procurement, is the procurement of goods and services on behalf of a public authority, such as a government agency...

 represents 13.5% of EU GDP as of 2007, and has been the subject of increasing European regulation since the 1970s because of its importance in the European single market.

Because the implementation of EU government law by national governments is far from uniform and sometimes weak – in 2002, for instance, only 16% of governmental calls to tender were published – government procurement has been called "the weakest link in the common market".

Primary legislation

The basis of European procurement regulation are the provisions of the Treaties of the European Union that prohibit barriers to intra-Union trade, provide the freedom to provide services and the right to establishment (three of the "Four Freedoms
Four Freedoms (European Union)
The European Union's Internal Market seeks to guarantee the free movement of goods, capital, services, and people – the EU's four freedoms – within the EU's 27 member states.The Internal Market is intended to be conducive to increased competition, increased specialisation, larger...

"), prohibit discrimination
Discrimination
Discrimination is the prejudicial treatment of an individual based on their membership in a certain group or category. It involves the actual behaviors towards groups such as excluding or restricting members of one group from opportunities that are available to another group. The term began to be...

 on the basis of national origin and regulate public undertakings and public monopolies. But these rules, being prohibitive in character, proved insufficient to eliminate the protection afforded by Member States to domestic enterprises by preferential procurement practices. For this, positive regulation through secondary legislation which harmonized the procurement laws of Member States appeared to be needed.

First generation of secondary legislation: Supply and Works Directives

The European Communities
European Communities
The European Communities were three international organisations that were governed by the same set of institutions...

 (EC) Council of Ministers
Council of the European Union
The Council of the European Union is the institution in the legislature of the European Union representing the executives of member states, the other legislative body being the European Parliament. The Council is composed of twenty-seven national ministers...

 adopted General Programmes in 1962 that envisaged the abolition of national quotas and restrictions in public procurement. Directive 66/683 prohibited rules requiring the use of national products or prohibiting the use of foreign products in public procurement, and Directive 70/32 applied the same rule to public supply contracts.

The procedures for awarding public supply contracts were co-ordinated with Directive 77/62, which introduced three fundamental principles: contracts had to be advertised community-wide, discriminatory technical specifications were prohibited and tendering and award procedures had to be based on objective criteria. However, it did not apply to public utilities, or to products originating outside the EC until its amendment by Directive 80/767 following Community approval of the 1979 General Agreement on Tariffs and Trade
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...

 (GATT) Agreement on Government Procurement
Agreement on Government Procurement
The Agreement on Government Procurement is legally binding and plurilateral agreement in the World Trade Organization focusing on the subject of government and local government agencies procurement. The procurement in the Agreement includes goods, ranging from commodities to high technology...

.

Similar principles of transparency and non-discrimination were applied to the awarding of public works
Public works
Public works are a broad category of projects, financed and constructed by the government, for recreational, employment, and health and safety uses in the greater community...

 contracts with Directive 71/305, which however did not replace national tendering procedures and practices with a set of common rules.

Second generation of secondary legislation: Utilities Directive

The European Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....

's 1985 White Paper
White paper
A white paper is an authoritative report or guide that helps solve a problem. White papers are used to educate readers and help people make decisions, and are often requested and used in politics, policy, business, and technical fields. In commercial use, the term has also come to refer to...

 for the Completion of the Internal Market
identified Member States' public procurement policy and practice as a significant non-tariff barrier to the free circulation of goods and provision of services in Europe because it tended to favour national providers, thereby sheltering markets from competition and distorting trade patterns. The paper and the Single European Act
Single European Act
The Single European Act was the first major revision of the 1957 Treaty of Rome. The Act set the European Community an objective of establishing a Single Market by 31 December 1992, and codified European Political Cooperation, the forerunner of the European Union's Common Foreign and Security Policy...

 of 1986 which it led to are the conceptual foundation of current EU procurement law.

On this basis, Directive 88/295 amended all previous public supplies directives. Open tendering procedures were now the norm and negotiated procedures were allowed only in exceptional circumstances. Purchasing authorities now had to publish advance notices of their annual procurement programmes as well as details of each award decision. National technical standards now had to be mutually recognized, and the exempted sectors were more clearly defined.

Directive 89/440 likewise amended the previous public works directives. Their scope of application was widened, now also covering concession contracts
Concession (contract)
A concession is a business operated under a contract or license associated with a degree of exclusivity in business within a certain geographical area. For example, sports arenas or public parks may have concession stands. Many department stores contain numerous concessions operated by other...

 and certain state-subsidized works, and consortial
Consortium
A consortium is an association of two or more individuals, companies, organizations or governments with the objective of participating in a common activity or pooling their resources for achieving a common goal....

 participation in contracts was allowed.

The most important change was the adoption of the first Utilities Directive, Directive 90/351. Public utilities – the energy, telecommunications, transport and water sectors – had so far escaped European procurement law harmonization because of the strongly divergent national legal régimes governing them, and possibly also because their large purchasing volume constituted an instrument of national industrial policy
Industrial policy
The Industrial Policy plan of a nation, sometimes shortened IP, "denotes a nation's declared, official, total strategic effort to influence sectoral development and, thus, national industry portfolio." These interventionist measures comprise "policies that stimulate specific activities and promote...

 that governments were reluctant to give up. The removal of market access barriers in this sector was largely enabled by the concurrent liberalization of the European telecommunications industry and by the envisaged global liberalization of public procurement in the Uruguay Round
Uruguay Round
The Uruguay Round was the 8th round of Multilateral trade negotiations conducted within the framework of the General Agreement on Tariffs and Trade , spanning from 1986-1994 and embracing 123 countries as “contracting parties”. The Round transformed the GATT into the World Trade Organization...

 of GATT negotiations. The first Utilities Directive generally followed the approach of the Supply and Works directives, but provided for the exemption of several sectors such as broadcasting
Broadcasting
Broadcasting is the distribution of audio and video content to a dispersed audience via any audio visual medium. Receiving parties may include the general public or a relatively large subset of thereof...

, or for utilities operating under competitive conditions.

Moreover, with the first Remedies Directives, 89/995 (relating to public works and supply contracts) and 92/13 (relating to public utilities), Member States were required to ensure rapid and effective judicial review
Judicial review
Judicial review is the doctrine under which legislative and executive actions are subject to review by the judiciary. Specific courts with judicial review power must annul the acts of the state when it finds them incompatible with a higher authority...

 of decisions by contracting authorities. The directives also introduced the "attestation procedure" as a way for contracting authorities to certify the compliance of their purchase procedures and practices with procurement law.

Third generation of secondary legislation: Services Directive and consolidation

Following the official completion of the single market project in 1992, the attention of the European institutions shifted towards the service sector, in view of its ever-increasing macroeconomic importance. The Services Directive, 92/50, attempted to contribute to the liberalization of public sector services by introducing a régime similar to that governing the procurement of goods, works and by public utilities. It also introduced a new award procedure, the design contest. But its scope excluded several specific services, as well as service concessions, maybe due to certain national constitutional restrictions against the outsourcing
Outsourcing
Outsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...

 of public services.It also distinguished between "priority" services, to which the whole range of procurement disciplines applied, and "non-priority" services, whose procurement was subject only to basic non-discrimination and publicity rules.

In 1993, the older Supplies, Works and Utilities directives were re-adopted in a consolidated form as Directives 93/36, 93/37 and 93/38. This was to make the legal framework more homogeneous, but the changes to the Works Directive included significant clarifications and a special, mitigated régime for the award of concession contracts.

Fourth generation of secondary legislation: further consolidation

In 2004, procurement legislation was again consolidated following the principles of simplification and modernisation. The new legal framework is based on a clear-cut dichotomy between utilities and the rest of the public sector. While the procurement of the former remains governed by a new Utilities Directive, Directive 2004/17 "coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors", the other three directives were amalgamated into a single "Public Sector Directive", Directive 2004/18 "on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts", which now governs procurement by public authorities other than utilities. The 2004 directives, apart from simplifying and clarifying the existing law, introduce a new procurement procedures, the competitive dialogue, and allow the procurement of framework agreements. They had to be transposed into national law by 31 January 2006.

Finally, in 2007, the Remedies Directives were also updated by Directive 2007/66 "amending Directive 89/665 and 92/13 with regard to improving the effectiveness of review procedures concerning the award of public contracts".

Aims and principles

The European Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....

 estimates that the elimination of trade barriers resulting from discriminatory and preferential procurement practices may bring about savings to the European economy of about 0.5% of EU GDP, which would be about USD 92 billion in 2008. These savings are thought to be the result of three effects: The trade effect represents the actual and potential savings as a result of lower purchase prices than can be had from a broader pool of suppliers. The competition effect represents the improvement, as a result of increased competition, in the efficiency and performance of previously sheltered national firms, and manifests as price convergence. Finally, the restructuring effect represents the long-term structural adjustment of the industries servicing the public sector in reaction to the trade and competition effects.

To effect this, the Public Procurement Directives seek to base procurement on the following principles.

Transparency

Transparency in European government procurement is achieved through the publication, in the Official Journal
Official Journal of the European Union
The Official Journal of the European Union is the official gazette of record for the European Union . It is published every working day in all of the official languages of the member states. Only legal acts published in the Official Journal are binding.It was first published on 30 December 1952 as...

, of three types of notices:
  • Periodic Indicative Notices (PIN) indicate the annual estimated procurement volume for every contracting authority

  • Invitations to tender are the formal invitations to suppliers to tender offers that start the process of awarding a contract.

  • Contract Award Notices (CAN) notify the public about the award of a contract to a successful tenderer, including the price and the reason for the selection.


Transparency increases price competition among suppliers, resulting in lower purchase prices, because publications make more suppliers aware of business opportunities, and they also know that their competitors will too have seen the publications. CANs also send important price signals to the market. But the increased competition may drive down prices down to a level where poor quality or predatory pricing
Predatory pricing
In business and economics, predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors. If competitors or potential competitors cannot sustain equal or lower prices...

 become a concern. It also wastes effort on the part of the many unsuccessful tenderers and of the authority who has to evaluate many tenders.

De minimis thresholds

In part because of the above-mentioned problem, the Directives apply only to contracts whose value (VAT
Vat
Vat or VAT may refer to:* A type of container such as a barrel, storage tank, or tub, often constructed of welded sheet stainless steel, and used for holding, storing, and processing liquids such as milk, wine, and beer...

 excluded) exceeds certain thresholds. Other contracts, whose value is considered de minimis
De minimis
De minimis is a Latin expression meaning about minimal things, normally in the locutions de minimis non curat praetor or de minimis non curat lex .In risk assessment it refers to a level of risk that is too small to be concerned with...

, are not required to be awarded under the Directives' procedures (though the basic rules of the European Treaties, such as non-discrimination, still apply).

The thresholds are (as last amended by Regulation 1177/2009 of 30 November 2009):
  • Euro
    The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...

     125 000 for public sector supply and service contracts as well as design contests of central government authorities: (Directive 2004/18/EC article 7(a), article 67(1)(a))

  • € 193 000 for public sector supply and service contracts as well as design contests of other authorities (Directive 2004/18/EC article 7(b), article 67(1)(b))

  • € 193 000 for service contracts that are more than 50% state-subsidized: (Directive 2004/18/EC article 8(b))

  • € 387 000 for utility supply and service contracts, including service design contests (Directive 2004/17/EC article 16(a), article 61)

  • € 4 845 000 for public sector and utility works contracts, as well as for contracts that are more than 50% state-subsidized and involve civil engineering activities or hospital, sports, recreation or education facility construction (Directive 2004/17/EC article 16(b); Directive 2004/18/EC article 7(c), article 8(a))

  • € 4 845 000 for public works concession contracts (Directive 2004/18/EC article 56, 63(1))


The de minimis principle allows authorities to avoid an expensive and lengthy tendering and award procedure for low-value contracts where the costs of the procedure would exceed the public welfare benefits of the increased transparency and competition associated with the procedure. A 1995 Commission study shows that this "sub-dimensional" public purchasing, which remains unaffected by the procedural disciplines of the Directives, appears to be at least three times the size of "dimensional" (i.e., above-threshold) purchasing.

But the de minimis principle also provides an incentive for authorities to divide contracts into separate lots for the purpose of avoiding bothersome procedures. Although the Directives prohibit doing this, such avoidance of procurement law is difficult to detect and enforce (as of 2007 no case relating to it had ever been before the ECJ
European Court of Justice
The Court can sit in plenary session, as a Grand Chamber of 13 judges, or in chambers of three or five judges. Plenary sitting are now very rare, and the court mostly sits in chambers of three or five judges...

), and it is thought to be mainly responsible for the observed low percentage of all public contracts that are published in the Official Journal.

Procedures

There are several different procedures available for public authorities. These include the Open, Restricted, Negotiated and Competitive Dialogue procedures. Each of these procedures sets its own limitations on the procuring authority, which must be considered when choosing the appropriate procedure.

The procedure is intended to be fully transparent with the intention of creating a free and competitive Europe-wide market. The rules state that for projects above a certain financial threshold (about £100K) a contract notice must be published in Supplement S of the Official Journal of the European Union OJEU previously known as [OJEC S-Series]. Nowadays the information is available immediately on the web from Tenders Electronic Daily.

The buyer can advertise the contract more widely, but cannot do so before it has dispatched a notice for publication in the OJEU, and is forbidden from including information that isn't given there.

After the prescribed date, the bids are opened and assessed, and either the "lowest cost" or "most economically advantageous tender" is chosen. The contract award
Contract awarding
Contract awarding is the method used during a procurement in order to evaluate the proposals taking part and award the relevant contract. Usually at this stage the eligibility of the proposals has been concluded...

 must also be reported in the OJEU.

The system is under constant revision to avoid misuse. Rejected bidders are granted up to ten days to challenge a decision, and the European Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....

 routinely acts to police infringements.

Framework agreements

The 2004 Public Sector Directive codified rules for the procurement of goods and services through framework agreements. These are not in themselves procurement contracts, but they set out the terms of such contract with suppliers in advance over a set time.

Public-private partnerships

Public-private partnerships are not subject to special rules in EU procurement law, but must follow the rules and principles resulting from the European Treaties, including those embodied in secondary legislation. In 2000, the European Commission published an "interpretative communication on concessions under Community law", and in 2004 it published a "Green Paper
Green paper
In the Commonwealth, the Republic of Ireland and the United States a green paper is a tentative government report of a proposal without any commitment to action; the first step in changing the law...

 on public-private partnerships and Community law on public contracts and concessions", which takes stock of existing practices from the perspective of European law and is intended to launch a debate on whether a specific legal framework should be drawn up at the European level.
Competitive dialogue was created with the aim of making the award of public-private partnerships easier, since before its creation a Contracting Authority faced the choice of the restricted procedure, which is often too inflexible for such contracts, or the negotiated procedure, which is intended to be an exceptional procedure with specific legal justifications. Its use so far in the EU, has, however, been uneven. Up to June 2009, more than 80% of the award procedures using competitive dialogue have been launched in two EU Member States i.e. France and the United Kingdom.

External links

Other important EU procurement websites include:
  • Online version of the Supplement to the Official Journal of the European Union
    Official Journal of the European Union
    The Official Journal of the European Union is the official gazette of record for the European Union . It is published every working day in all of the official languages of the member states. Only legal acts published in the Official Journal are binding.It was first published on 30 December 1952 as...

    , dedicated to European public procurement.
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