EU Modernisation Programme: Latest Developments in Public Procurement

1. EU MODERNISATION AGENDA : LATEST POSITION – MAIN DEVELOPMENTS • Bangor University • Procurement Week 2012 • Institute for Competition and Procurement Studies • School of Law, Bangor University • Evolving Private and Public Procurement: • Global and National Benefits Patrick McGovern Partner 30 March 2012

2. Background –EU Modernisation Programme • Green Paper on Modernisation of EU Public Procurement policy – towards a more efficient European Procurement Market, Brussels COM(2011) 15/4, January 2011 • Consultation period to April 2011 • Commission collation of main submissions, 30 June 2011 • Reform Package / Legislative Proposals published by Commission 20 December 2011

3. Background –EU Modernisation Programme • Contents of Package • Proposal for new Directive on Public Procurement (Public Sector), COM (2011) 896 final • Proposal by Commission for new Directive in Water, Energy, Transport and Postal Services (Utilities sectors), COM (2011) 895 final • Proposal for new Directive on Award of Concession Contracts, COM (2011) 897 final • Together with Explanatory Memorandum and Commission Staff Working Documents – over 500 pages

4. Background –EU Modernisation Programme • Complete new (consolidated with significant amendments) draft Directives covering Public Sector and Utilities Sector • Complete new (first time) draft Directive on Concession Contracts

5. Background –EU Modernisation Programme • Timing/Implementation • If adopted, new Directives would replace entirely existing Directives 2004/18/EC (Public Sector) and 2004/17/EC (Utilities Sector) entirely • These detailed proposals must yet undergo further deliberation including legislative process • Extensive lobbying taking place and • Detailed Working Groups in Brussels under aegis of Commission considering “clusters” of topics within draft Directives

6. Background – EU Modernisation Programme • Commission canvasses possible adoption by end December 2012 • If so, implementation into national law by June 2014 on foot of transposition by Member States into national legislation

7. Objectives • January 2011 Green Paper : • Procurement part of Europe 2020 strategy for smart, sustainable and inclusive growth • One of the market-based instruments to achieve Europe 2020 objectives by facilitating business to innovate and encourage Green Procurement, resource-efficient and low-carbon economy • Main Objectives • increase efficiency of public expenditure • better SME access (particularly important for Welsh and Irish enterprises) • societal goals – social, “third pillar”, environmental • clarification including codification of certain judicial developments such as “material” change • cleaning up – combatting corruption, favourtism, conflicts of interest • Governance / NRA type monitoring

8. Principal Measures • Focus here on Public Sector unless otherwise stated • Efficiency • Abolition of distinction between Part A (“priority”) services (entailing observance of fuller formalities including publication of contract notice or tender notice in OJEU, time limits, prescribed procedures) and Part B (“non priority”) services (in which main formalities to be observed are publication of award notice and non-deviation from European standards) • In essence, Part B would be abolished and Part A formalities would effectively be applied to all services contracts • Most limits in scope (including financial thresholds) and named exceptions (such as purchase of land) would be maintained

9. Efficiency - More Negotiation • Increased use of negotiation during tender processes • At present only four limited circumstances in which use of Negotiated Procedure permitted under Public Sector Directive with prior publication of contract notice: • tenders submitted in response to Open or Restricted Procedure or Competitive Dialogue are irregular or unacceptable because they do not comply with rules of tendering under Regulations or Directive, • when, in an exceptional case, the nature of the works to be carried out or the products or service to be supplied or the risks involved in carrying out the works or supplying with products or service do not permit prior overall pricing, • in the case of a service, particularly financial services, or an intellectual service (such as design of works) so far as nature of service to be supplied such that specifications cannot be established with sufficient precision to permit award of contract according to Open or Restricted Procedure • in relation to works solely for purposes of research testing or development and not with aim of ensuring profitability or recovering costs

10. Efficiency - More Negotiation • Use of Negotiation would be expanded with simplified procedures following publication by public authority of general notice for planned procurement for coming year and with scope for this replacing publication of individual contract or tender notices • Moreover, “where negotiations are needed to establish the legal or financial make up of the project” then use of competitive Negotiated Procedure would also be permitted • Still would not be general carte blanche for public bodies to use Negotiated Procedure • Permitted grounds for recourse to Competitive Dialogue and competitive Negotiated Procedure would be the same

11. Efficiency - More Negotiation • However, Commission conscious of what it sees as risks involved in Negotiation Procedure – CAs must specify at time of prior publication subject matter of contract, award criteria and minimum requirements to be met and these may not be changed in course of negotiations • Any change of technical specifications which are open to Negotiation must be communicated to all enterprises participating in the negotiations so that they could submit adapted tenders • Before negotiations concluded everybody must be given possibility of submitting final tender

12. Reduction in Documentation Requirements • Better SME Access • To be achieved by compulsory acceptance of self declarations by way of preliminary evidence whereby bidders declare on oath that they fulfil criteria which are preconditions for tendering • Example: evidence to prove what would have been stated in self-declaration pertaining to a range of matters including non-conviction for mandatory exclusionary grounds (fraud, corruption, etc) • Bidder declares that meets selection criteria including as to economic and financial standing and that will be able to provide such evidence when required for competition • In general, financial dimensions to be satisfied by submission of relevant financial statements or appropriate statements from banks or evidence of relevant indemnity insurance

13. Reduction in Documentation Requirements • Would be prohibition on requiring bidders to resubmit documents which were previously submitted in previous four years in an earlier competition and which are still valid (this akin to what in Republic of Ireland has been required in objectives in Administrative Circular 10/10 of Department of Finance (August 2010) and there are other features similar to aspects of that Circular – specifically framed to assist SMEs) • Yearly turnover may not exceed 3 times estimated contract value – enforces proportionality • Encourage CAs to split into lots – must explain when not doing so • Member States may provide for direct payments to subcontractors – quicker payment for subcontractors and recourse if main contractor defaults

14. Deadlines/Financial Thresholds • Efficiency • Shortening of deadlines • List of selection criteria made exhaustive • Financial thresholds maintained • Commission not convinced that increasing threshold would further simplify procurement policy • EU must respect international obligations including under WTO Agreement on Government Purchasing • Prohibition on requiring bidders to resubmit documents which were previously submitted in previous four years in an earlier competition and which are still valid (this akin to what in Republic of Ireland has been required in objectives in Administrative Circular 10/10 of Department of Finance (August 2010) and there are other features similar to aspects of that Circular – specifically framed to assist SMEs)

15. Social Service • Social, Health, Education Contracts • Special regime put in place • At present Part B • Commission says limited cross-border interest at present for social, health and education services • Higher threshold (€500,000) – above this Member States may determine procedural rules but respect basic EU principles including transparency and equality • Must publish contract notice and contract award notice • Member States must ensure CAs take into account quality and continuity criteria necessary for such services • Member States may prohibit price as sole award criterion – effectively enforcing MEAT

16. Innovation Partnerships • Completely new provisions • CA may cooperate with an enterprise (selected objectively under competitive tender procedure) to develop innovate product, work or service

17. Clarification • Legislative Clarification • “Material” change • Legislative elaboration and clarification of Pressetext rules on modifications of already concluded contract • Where objective variation provisions in contract, such provisions can be used to amend existing contracts provided overall nature of contract not affected by change • Subject as above, new draft Directive provides that where value of modification can be expressed in monetary terms, CAs permitted to make modifications which would be less than 5% (up or down) of value of initial contract and such modifications deemed not “substantial”

18. Clarification • Experience • Proposals deal with difficult Lianakis* case and ECJ appears to prohibit use of experience as award criterion • CAs may now take into account “the organisation, qualification and experience of the staff assigned to perform in the contract” as part of award criteria • Effectively may now refer to experience of proposed bidder team as distinct from bidder as an entity (which remains a qualification criterion) • * Case C-532/06 Emm G Lianakis v Dimos Alexandroupolis [2008] ECRI-251

19. Social, Third Pillar and Environmental • Further support for Europe 20/20 strategy • Introduction of “life cycle cost” concept • Encourages CAs to consider full life cycle of products in purchasing decisions • “Life cycle” cost to include internal costs and monetised external environmental costs • Member States and CAs free to decide whether to integrate life cycle costing in Procurement procedures • CAs may take into account criteria linked to production process of goods or services to be purchased (e.g. carbon emissions)

20. Social, Third Pillar and Environmental • Provision for “eco labels” – CAs may require these certifying environmental, social or other characteristics provided linked to subject matter of contract and equivalent labels accepted • On social inclusion, provision broadening current contracts reservation in favour of sheltered workshops but reduction in minimum required percentage of disabled/disadvantaged workers from 50% to 30%

21. Social, Third Pillar and Environmental • Social • CA may exclude candidate at shortlisting stage if aware of breaches of EU social, environmental or labour laws or certain international agreements/commitments in social/environmental sphere • Tender may also be excluded (not awarded) if tenderer breaches any of those • CA must exclude abnormally low tender if abnormal because of above • In general, “lowest cost” replaces “lowest price” as available award criterion – account may be taken of costs incurred during life cycle of goods, services or works – e.g. “decommissioning” costs of capital equipment

22. Conflicts of Interest • Conflicts of Interest • Very wide – where relevant persons or categories of persons have direct or indirect “private interest” • “Interest” extends to family, economic, political or other shared interests with bidders • Categories of persons extend to staff of CA, service providers involved in conduct of procurement and members of decision making bodies of CA who could influence outcome even if not directly involved • Those affected required to disclose any such conflict as soon as possible • Candidates must declare any links with chairperson or decision making bodies

23. Conflicts of Interest • Where conflict CA must take appropriate measures (e.g. swapping out relevant staff members) or excluding a tenderer • Inform national monitoring body • Document measures

24. Governance / NRA TypeMonitoring • Akin to “national regulatory authority” under other Directives such as electricity, gas, electronic communications, civil aviation • Member States may designate national independent oversight / monitoring body in charge of monitoring, implementation and control of Public Procurement • Such body to provide support to public authorities and businesses by structures or mechanisms offering legal and economic advice, guidance, training and assistance • Provision for coordination of such cooperation and sharing of information and best practices through Internal Market Information System

25. PATRICK MCGOVERN PARTNER T: + 353 1 618 0545 F: + 353 1 618 0768 E: PATRICK.MCGOVERN@ARTHURCOX.COM http://www.arthurcox.com/procurementlawupdate