Experiences with procurement policy in the EU

1. Experiences with procurement policy in the EU Procurement Seminar Delhi, 11-12 May 2006 Georg Roebling DG TRADE European Commission

2. Overview • Introduction • Objectives • Principles • EU procurement framework • International dimension • Current topics • Conclusions Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

3. Introduction - 1 • EU – internal market of 25 Member States, 21 official languages • Accession of Romania, Bulgaria in 2007-08 • At the heart of European integration since 1957: Internal Market  in procurement: markets were fragmented  ensure that any company in the EU can effectively compete for any public contract. Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

4. Introduction - 2 Federalism vs. Uniformity • Striking a reasonable balance: - EU Framework laws (“Directives”) = need transposition in all EU MS to fit into national/regional/local legal systems - Only above the thresholds • 1 procurement market • KEY: Central electronic gateway – TED Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

5. Introduction - 3 Some figures • Volume of EU-25 procurement market: 1,600 billion Euros (16% GDP) • >200,000 procuring entities • 33% cross border procurement • In terms of success rate, domestic and firms from other EU MS compete on a par • Cost Savings: 30% (substantially more?) Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

6. Objectives – 1 Economic / Fiscal • Companies can tap into larger market, reap economies of scale and can specialise  efficiency gains to be passed on to public (if competitive tendering environment!) • Enormous savings potential from transparent, open and competitive tendering  more resources available for education, health, infrastructure… • Access to finance, expertise, technologies and managerial know how of private sector, incl. public-private partnerships (PPPs) Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

7. Objectives – 2 Competitiveness • Public service gets access to best products • Businesses: learn to compete to become competitive  which in turn drives innovation and efficiency and thus generates welfare gains for society • Protect efficient markets  Anti-cartel (bid-rigging)  inflated prices Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

8. Objectives - 3 Non-discrimination • Base for EU action • Market, not State, should pick the winner: no cosy relationship with favourite suppliers Accountability • Anti-corruption – opaque practices more difficult in transparent, competitive environment Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

9. Principles - 1 Transparency • Throughout the tendering procedure, i.e. from tender notice via qualification and award criteria to information on award decision • Effective review mechanisms, including interim measures and compensation • Getting the incentives right for stakeholders Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

10. Principles - 2 Open and competitive tendering • Non-discrimination – actionable fundamental right • Structuring the process to facilitate market entry – no unnecessary barriers to entry ¿¿ heavy-handed (pre-) qualification procedures ¿¿ Focusing too early on selected bidders ¿¿ Uncertainty as to the rules of the game • Excessive red tape tends to facilitate collusive practices (bid rigging) Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

11. EU procurement framework - 1 Rules • 2 substantive Directives, on classic and ‘special’ sectors (= utilities), revised in 2004, implementation by Member States: Jan 2006 • 2 Remedies Directives (1989 / 1992), currently being reviewed Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

12. EU procurement framework - 2 Entities • Public authorities at EU, national, regional and local level, incl. utilities • Public undertakings, incl. utilities • Undertakings over which public authorities still exercise decisive influence Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

13. EU procurement framework – 3 Thresholds • Goods and Services: SDR 130,000 – central entitiesSDR 200,000 – sub central entitiesSDR 400,000 - utilities • Public Works ContractsSDR 5 million Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

14. EU procurement framework – 4 Types of contracts • Public supply / services / works contracts • Works Concessions • Framework Agreements (periodical supplies) • Dynamic Purchasing Systems (completely electronic process; open to any supplier meeting the selection criteria) • Electronic auctions Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

15. EU procurement framework - 5 Procurement methods (procedures) • Open tendering, Restricted tendering – all suppliers invited to express interest • Negotiated procedure (usually with prior contract notice) only in well-defined exceptional circumstances • New: Competitive Dialogue for part. complex contracts – conduct transparent dialogue Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

16. EU procurement framework – 6 Qualification and specification issues • “permanent lists of qualified suppliers” – no encouraging experiences - increasingly abandoned – too high administrative costs, out of date, not specific enough; potential barrier to entry esp. for SMEs • Tender specifications on international standards, performance-related criteria;  use “or equivalent” (pro innovation) Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

17. EU procurement framework – 7 Review Mechanisms • Empowerment of suppliers to look after their own rights – “private agents in the public interest to foster compliance with rules” • Key: info on award results – platform for action • Including interim measures and right to compensation if supplier’s rights infringed Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

18. EU procurement framework – 8 Review Mechanisms - continued • No reason for alarm – surprising (or not…?) absence of much propensity to litigate in procurement • BUT: mere threat of action already induces compliance (“risk of sanctions sharpens the mind”) • In parallel: complaints to European Commission which can take Member States to the European Court of Justice for violations of EU rules Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

19. International dimension - 1 • EU is Member of the GPA • Coverage in the GPA is subject to (bilateral) negotiations; in practice, coverage varies depending on market access offered • Generally, EU has wide-ranging coverage commitments Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

20. International dimension - 2 • Now standard policy to include comprehensive procurement chapter in FTAs • Increased recognition of links between trade and development • Bilateral procurement deals allow for more flexibility, i.e. less stringent procedural rules • Bilateral procurement deal can be “GPA-plus” if reciprocal level of ambition • Model character of EU-Chile FTA Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

21. International dimension – 3 • EU is prepared to consider extensive requests from Developing Countries for differential treatment if • well-justified • objective • digressive and • verifiable Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

22. Current topics - 1 Electronic procurement • Potentially large savings, esp. on transaction costs, but technically complex – no new barriers to entry! • In 2004 in EU, still 90% of tender notices received on paper Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

23. Current topics - 2 Public Private Partnerships (PPPs) • Key tool to attract private sector finance and expertise, esp. for infrastructure projects (transport, public health, public safety, waste management, water distribution) • Complex technical, legal and financial arrangements sometimes call for negotiation to identify and develop best solutions Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

24. Current topics - 3 Public Private Partnerships (PPPs) • Can be concessions (risk/benefit of exploitation), can be institutionalised PPPs (i.e. public service undertaking jointly held by a private and a public partner) • Flexibility vs. procedural straightjacket (to ensure transparency and non-discrimination) Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement

25. Conclusions • Benefits of transparent, open and competitive tendering • Costs of introducing such a system (administrative, political) • Not incompatible with social policy objectives • Getting the balance right - using the tools offered by procurement policy carefully and skilfully Georg Roebling, DG Trade Delhi Seminar on Gov. Procurement