EC Public Sector Directive versus Utilities Directive - Essay Example

EC Public Sector Directive versus Utilities Directive Introduction: In 2004, the European Commission adopted two new Directives – Directive 2004/18 the new public sector Directive and Directive 2004/17, the new Utilities Directive. The major feature of these Directives is that they provide for the use of electronic techniques in procurement. This also allows entities to hold data in electronic form. The Utilities Directive applies to undertakings in the “water, energy, transport and telecommunications sectors”1 but it may not apply to certain undertakings, such as the air transport sector for example2 where there is scope for increased competition among such undertakings in the provision of such services to the public. The Public Sector Directive on the other hand, applies to “public service contracts” and those pertaining to contracts on behalf of “State, regional or local authorities and other bodies governed by public law entities.”3 Use of negotiated procedures: There are several ways in which the two Directives are similar in terms of the revised requirements and procedures that have been spelt out under the Directives. Simplified contract notices are required under both and have been laid out under Annex VII A of the Public Sector Directive and Annex XIIID of the Utilities Directive4. In the case of the Public Sector Directive, there is a simplified contract notice which is to be used in a dynamic purchasing system. One of the requirements is that the subject of the contract is to be set out, including the quantity of the contract and the time for which it is to be awarded. As pointed out by Dittmer5 where negotiated contracts are concerned, it is the Utilities Directive that must be considered to be the pioneering Directive as compared to the Public Sector Directive, since it is based upon a previous Directive that included the possibility of using a negotiated procedure with a prior call for competition. This was made possible through the use of framework purchasing agreements, whereby the parties draw up the terms and conditions on which purchases will be made, but the precise quantity of the goods to be delivered is left flexible.6 The rationale provided for the use of such framework contracts in purchasing agreements is that the parties can negotiate terms and conditions before placing specific orders. But with the existence of a framework contract, the parties can avoid the time, expense and delays involved in entering into negotiations more frequently. The framework agreement thus serves as a negotiated procedure which may be used not only by a single buyer for multiple purchases, but also by multiple purchasers7. The new Utilities Directive merely carries over with additional modifications, the facility for negotiated procedures which are already contained in the previous Utilities Directive. The Public Sector Directive however does not contain express provisions to deal with framework agreements, which suggests that they may be allowable under the provisions of the Public Sector Directive. Arrowsmith argues although that there is some flexibility provided under the Public Sector Directive for multi supplier contracts, the negotiated procedures are available only in exceptional cases under the Directive8. The process of awarding contracts under the Public Sector Directive must be through an open or restricted procedure and the extent to which framework agreements apply will depend upon the limitations set by these procedures. This has been the subject of contention in earlier cases, such as the Walloon Buses case9 because the extent of flexibility that may be allowed also needs to apply equally to all tenderers and in this case, it was alleged that one tenderer had been allowed a flexibility that was denied to others. The Council and Commission, in clarifying the interpretation of this Public Sector Directive have stated that “ all negotiations with candidates or tenderers on fundamental aspects of contracts, variations in which are likely to distort competition, and in particular on prices, shall be ruled out.”10 Hence, the Public Sector Directive aims to eliminate any kind of preferential award of contracts. Steinecke states that the negotiated procedure is the only procedure under the public procurement regime which allows for negotiations to take place, but the drawback is that these negotiations remain unregulated11. He argues in favor of introducing regulation in this area, especially by drawing upon the example of American regulations. One aspect in which the Directives are similar is that both of them allow for the facility of dynamic purchasing systems, which are wholly electronic and allow for input of all tenders for a contract, regardless of merit.12 This is dissimilar to the negotiated contract system, although it does allow for a limit to be placed on the total number of tenders acceptable for a particular contract. Use of qualification systems: Qualification lists refer to “lists of suppliers registered with a purchaser who are interested in carrying out certain kinds of contracts.”13 These are of two types – mandatory, where only registered suppliers are eligible for contracts and option, where suppliers are not required to be registered. Qualification lists are useful in ensuring that the awarding of different contracts can be completed through a single transaction. While both the Directive allow for the use of optional qualification lists, the Utilities Directive allows for the use of mandatory lists and spells out regulations for their use, but the Public Sector Directive is notably silent on mandatory lists, which appears to indicate that their use may not be permitted under this particular Directive14. Mandatory lists are restricted lists and suppliers are required to register themselves before they will be eligible to bid on contracts. Mandatory lists therefore allow suppliers to restrict the participation of suppliers and are not required to advertise contracts to other parties15. These mandatory lists are specifically allowed and regulated under the Utilities Directive. Suppliers are required to meet certain criteria before they will be eligible to be registered on the mandatory lists. But even those suppliers who meet all criteria may not necessarily be included in the list, the purchaser will have the right to select a limited list of those suppliers who best meet the criteria. The advantages of using such lists are the savings in transaction costs, both for suppliers and purchasers, especially by avoiding the need to place additional advertisements. The mandatory lists have also been controversial in the context of procurement contracts for the same reason as negotiated framework agreements. The reason is that they may exclude certain suppliers and therefore may not allow for equality in awarding of contracts16. They have been excluded altogether within the framework of the Public Sector Directive, which strongly suggests that their use may not be permitted. This is borne out for example, by the decision in the case of Transpouroute v Minister of Public Works.17 In this case, the European Court of Justice considered whether the provisions of the Directive had been infringed by the requirement for a contractor to hold an establishment permit to testify to his good standing. The Luxembourg Government argued that it was permissible to use mandatory official lists for selection of contractors. But the Court specified that nothing in the Directive allowed for the maintenance of mandatory lists for contractors in other States. In the case of Commission v Spain18 the Court held that the use of mandatory lists under the Public Sector Directive actually violated its provisions. The significance of this decision is that the Court appeared to imply that the prohibition under the Public Works Directive for mandatory lists applies to their use for all grounds of exclusion including technical capacity, economic and financial standing as well as miscellaneous grounds such as solvency and conviction for a criminal offence19. Despite this salient difference between the two Directives however, the evaluation of contractors that is allowed through both kinds of lists allows authorities to bar certain contractors whose capabilities may not be adequate to execute the contract20. The question of personal bias of the contract decision makers also arises in procurement contracts, but this issue is not covered under the EC Directives21. Preiss suggests that it would be desirable to have clear, uniform rules at the EC level in order to establish procedural standards to ensure that decision makers are impartial in making their decisions. Implementation of social and environmental objectives through procurement: Unlike ordinary contracts, public procurement contracts comprise large projects which are significant in the context of economic and technological development; as a result they are politically sensitive.22 There are many social and environmental objectives that are sought to be achieved through public procurement; which are in the nature of secondary policies associated with the acquisition of goods and services under the procurement contract. One way this may be achieved for example, is by purchasing only from those suppliers who pursue environment friendly procedures in manufacture and supply of goods and services, as laid out under the European Eco-Label. Procurement contracts may require technical specifications that allow for the needs of disabled users and may be required to conform to the requirement for no discrimination. Earlier, the guiding principle behind the award of procurement contracts was financial criteria, in that contracts were awarded to those suppliers who were able to provide the best quality at the lowest prices. However, this has changed in recent times so that award criteria are spelt out such that social and environmental objectives can also be attained. Conditions may be included along with public procurement contracts, such as requirements to recruit long term job seekers or include training for unemployed or young people.23 In the case of Beentjees24 for example, the Court held that a requirement in the procurement contract that mandated the employment of long term unemployed persons did not produce a discriminatory effect in terms of tenders from other member states. This must be contrasted with subsequent case law such as Commission v Italy of 199225 and Commission v Italy of 199426 (60) and Commission v Spain of 199327, where similar criteria in the procurement contracts were found to be discriminatory. As Arnould points out28, a contract may be awarded to an entity that hires disabled people, which is a secondary objective that does not have anything to do with the primary content of the contract or major economic considerations inherent in a contract, but may play a role in the decision to award the contract. In relation to the propagation of women’s issues, Tobler offers the view that Article 30 allows for the award of contracts based on criteria other than economic contracts, but on the question of social clauses such as women’s issues being included in public procurement, there is less clarity.29 The procedure for award of procurement contracts should also not normally depend upon the policy objectives of the awarding body, but in actual practice, contracts may be awarded to suppliers who promote social and environmental causes, such as for example, awarding contracts to architects involved in social housing schemes. Services which are socially or culturally sensitive, such as health, social services and sporting activities, are listed in the Annextures to these Directives and excluded from the full application of the Directives. This allows a greater level of flexibility to purchasers in accommodating social and environmental provisions within the scope of criteria spelt out in awarding procurement contracts. Use of electronic auctions in procurement procedures: One of the significant aspects of introduction of these two Directives is the facilitation of use of electronic means in procurement, through reverse auctions. Arrowsmith explains that a reverse auction is a procurement procedure whereby those who submit a tender can receive information on other tenders that are being submitted and amend their own tenders accordingly if they so wish30. Through the use of an electronic auction, there may often be substantial savings accruing to purchasers in obtaining the best terms for public sector contracts. There are three basic models of auction. The first is an open one, where all aspects of the tender and major criteria that are to be compared are submitted through the auction. The second model involves criteria relevant during the auction process as well as criteria applicable prior to the auction process, such as quality. Model 3 also applies this principle, however it differs from Model 2 in that the bidders are unaware of how they rank up with other bidders in terms of the pre auction criteria; they are only aware of how their tender compares with others on the criteria during the auction process. Another advantage offered by electronic auctions in addition to cost savings is the transparency of the process as compared to the traditional process of receiving tenders. Neither of the new Directives prevents electronic auctions, although it could be argued that under the restricted provisions of the Public Sector Directive, an electronic reverse auction which permits the refining and amendment of tenders could arise in contravention of the requirements of the Directive. However as Arrowsmith31 points out, such restrictions in amending contracts are only intended to ensure equality and provide transparency in contracts. The process of permitting amendment of electronic tenders also allows for transparency and thus the goals of the Directive may not be contravened. In the application of the three different models to the auction process, it may be noted that under models 1 and 2, the winner of the auction process will generally be apparent because of the transparency afforded online, But where model 3 is concerned, it may be difficult for an entity submitting a tender to know whether a tender is successful due to other pre auction factors where comparability with other tenderers cannot be established.32 As a result, procurement contracts via the auction route may be more relevant in the context of auction models 1 and 2, but not so in the case of model 3, where criteria for the award may not be clear to the participating entites. The regulation of contracts awarded in connection with goods or services to be sold or resold by the regulated entity in the marketplace The objective behind the passage of the two Directives is to simplify and modernize and them up on par with the requirements of modern EU legislation, with competitive dialogue being established as the award procedure.33 The Utilities Directive is less limited as compared to the Public Sector Directive in terms of parties to a contract. The Utilities Directive also covers public undertakings as well as any private undertaking over which contracting authorities exercise an influence by virtue of ownership or financial participation34. The Public Sector Directive is however, restricted to public entities and does not cover entities other than public contracting authorities and public undertakings. Where public procurement contracts are concerned, it was pointed out in the case of Beentjees that “the examination of the suitability of contractors to carry out the contracts to be awarded and the awarding of the contracts are two different operations in the procedure for the award of a public works contract.”35 Contractors who have suffered bankruptcy or a criminal conviction may be automatically excluded from consideration, both under the Public Sector Directive and the Utilities Directive36. One of the differences in the two Directives in terms of regulation of contracts advertised under restricted procedures is that the Public Sector Directive exclusion to occur at the selection stage, while in the case of the Utilities Directive, the contractor’s criminal association/background may have been considered at the stage of registration on the qualification list37. Mardas and Triantafyllou point out that while certain contractors who have suffered bankruptcy or been convicted by judgment, etc may be automatically excluded from selection, the difficulties arise in selections based on assessment of the contractor’s financial and technical capacity. The Directives provide for the submission of references by contractors in order to establish their capability requirements38 and for contracting authorities “to determine the level of financial and economic standing and technical knowledge and ability required in order to participate in a given contract.”39 Using these selection criteria expressed in absolute values may however lead to exclusion of competitors, therefore if the numerical expression of the selection criteria are only of an indicative value, a more equitable selection of contractors may be achieved.40 Conclusions: One of the significant aspects in which the two Directives differ is the parties that come under its umbrella – the Public Sector Directive restricts itself to public entities only, while the Utilities Directive allows procurement for private entities as well. The purpose of allowing private entities to participate in the procurement process does not in itself constitute favorable treatment for one or more entities41, rather such an entity which has been granted an advantage over other competitors is expected to comply more rigorously with the requirements of the Directive. The Utilities Directive differs from the Public Sector Directive in two significant aspects (a) it allows scope for negotiated contracts as represented through framework agreements and (b) it allows for the use of mandatory lists. Where both these aspects are concerned, it may be noted that there are both advantages and disadvantages. The clear advantage is in the reduction of costs. The use of framework contracts allows a purchaser to reduce transaction costs by providing the facility of awarding several contracts through a single transaction. The use of mandatory lists also provides for a savings in costs by allowing purchasers to eschew advertising costs and to choose from a pool of suppliers who are a part of a registered list that has been developed on the basis of certain criteria. This also allows purchasers the flexibility they need in allocation of contracts, allowing them to make their own choices in terms of deciding which suppliers are to be selected to be on the mandatory lists. The clear disadvantage with the use of mandatory lists and framework agreements is that it does not allow for true equality to be served in the awarding of contracts. This has been the basis on which controversies have arisen, where conflicts have been taken to the Courts, as detailed earlier. The development of mandatory lists may result in preferential treatment being given to certain suppliers over others, although other suppliers may also meet the necessary criteria to be included in the list. In the case of framework contracts, where flexibility is introduced, there is a danger of such flexibility applying only to some suppliers while excluding others. To some extent however, it may be argued that the restrictions that currently exist in the Public Sector Directive may be justified. Public sector contracts are often large contracts where the best skills and abilities may need to be tapped. While it may be helpful to identify a list of qualified suppliers, a mandatory list would unnecessarily restrict the choices available to purchasers and similarly restrict opportunities available to new suppliers who might be equally skilled. In the case of the Utilities Directive however, the industries served are water, telecommunications and similar industries, where the levels of competition among suppliers may in the first instance be low, because there are fewer suppliers available for the provision of such services. This is also part of the reason why the sphere of air transport services and shipping are considered to be inappropriate for inclusion within this Directive, because of the extent of competition that exists in these sectors. For this reason, such sectors may be better served under the Public Works Directive where there is a greater facility afforded for competition and where lists are open ended in terms of suppliers, thereby providing equality of opportunity for all suppliers to bid on such contracts. Another notable aspect on which the two Directives differ is that the Utilities Directive includes a new definition of special exclusive rights in procurement contracts.42 Kotnosis questions the intended meaning and precise scope of the concept of special exclusive rights as spelt out under this Directive, especially because its wording in the French and English texts of the Directive are different. The English text appears to imply that an interested party that fulfils these special exclusive rights has the right to enjoy them, while the French text suggests that such a party must be given the opportunity to benefit from them. This issue is important because it concerns the regulation of private entities operating in utility sectors and the possession of such rights exempts the entities from regulation. One of the most important aspects about these new Directives is that transparency has been addressed through the electronic nature of the provisions. Both these Directives have improved transparency also by requiring contracting parties to send notices to the office of the European Communities – the EUR-OP.43 Moreover, firms that have been found guilty of corruption are required to be excluded from the award of contracts.44 Therefore on an overall basis, it appears that the changes that have been introduced through the Directives, notably in introducing electronic means in procurement, are beneficial in reducing corruption and may be justified. Bibliography * Arnould, Joel, 2004. “Secondary policies in public procurements: the innovations of the new Directive”, Public Procurement Law Review * Arrowsmith, Sue, 2006. “Dynamic Purchasing systems under the new EC procurement Directives – a not so dynamic concept?, Public Procurement Law Review * Arrowsmith, Sue, 2005. “Electronic reverse auctions under the new EC Procurement Directives”, Public Procurement Law Review * Arrowsmith, Sue, 1999. ““Framework purchasing and qualification lists under the European Procurement Directives: Part II”, Public Procurement Law Review * Bovis, Christopher H, 2005. “The new public procurement regime of the European Union: a critical analysis of policy, law and jurisprudence”, European Law Review. * Dittmer, Martin Andre, “The new Utilities Directive”, Available on URL: www.gfklaw.dk/Admin/Public/DWSDownload.aspx?File=files%2Ffiler%2Fpdf%2Fthe_new_utilities_directive.pdf; accessed May 14, 2008.* Kotnosis, Totis, 2007. “The definition of special or exclusive rights in the Utilities Directive: Leased lines or crossed wires?” Public Procurement Law Review * Mardas, Dmitri, and Triantafyllou, Dimitri, 1995. “Criteria for qualitative selection in public procurement: a legal and economic analysis”, Public Procurement law Review * Piscelli, Elisabetta, 2000. “The scope for excluding providers who have committed criminal offenses under the EU procurement Directives”, Public Procurement Law Review * Priess, Hans-Joachim, 2002. “Distortions of competition in tender proceedings: how to deal with conflicts of interest and the involvement of project consultants”, Public Procurement Law Review * Steinecki, Michael, 2001. “Public procurement and the negotiated procedure – a lesson from US law?” European Competition law Review * Tobler, Christa, 2000. “Encore: Women’s clauses in public procurement under Community law”, European law Review * Westphal, Thomas, 1998. “European tenders on the Internet: the policy context”, Public Procurement Law Review * Williams, Sope, 2006. “The mandatory exclusion for corruption in the new EC procurement Directives”, European Law Review Cases cited: * Commission v Italy of 1992, Case 360/89, ECR I-3401 * Commission v Italy of 1994, Case 272/91, ECR I-1409 * Commission v Spain of 1993, Case C-71/92, ECR I-5923 * Gebroeders Bentjees v Netherlands (1988) ECR 4635 * Joined cases 27-29/86, CEI and Bellini (1987) ECR * The Queen v Secretary of State for Trade and industry, ex parte British telecommunications plc, Case no: C-302/94 * Transpouroute v Minister of Public Works (1982) ECR 417 * Walloon Buses Case C 87/94 (1996) ECR 1-2043 Read More