Committee Reports > List of Committees > Joint > 1988 > Committee on the Secondary Legislation of the European Communities (5th Committee) > Report No. 07 - Public Works and Public Supply Contracts

REPORT

A. INTRODUCTION

Background

1.At its meeting at the Hague in June, 1986 the European Council indicated that it “considered that public contracts are an essential feature of the internal market and their liberalisation is therefore a precondition for the completion of that market”. Public authorities in awarding contracts for the execution of works and the supply of goods are, of course, bound by the relevant provisions of the Treaty of Rome and certain barriers to Community wide competition for such contracts may amount to infringements of the Treaty provisions relating to discrimination on the grounds of nationality (Article 7), free movement of goods (Article 30), freedom of establishment (Article 52) and freedom to provide services (Articles 59 and 60). The obligations arising directly from the Treaty are negative in character and they were supplemented by Council Directive 71/305/EEC (as amended by Council Directive 78/669/EEC) and Council Directive 77/62/EEC (as amended by Council Directive 80/767/EEC to meet GATT commitments) imposing positive obligations on Member States relating to public works and public supply contracts respectively. These Directives were intended to harmonise national procedures for public procurement but they have not been successful in their object of opening public procurement to Community-wide competition to any marked degree. In this report the Joint Committee analyses a measure already taken by the Council and other measures proposed by the Commission to open up public procurement to intra-Community competition as part of the completion of the internal market by the end of 1992.

2.On 22nd March, 1988 the Council, acting on a Commission proposal, adopted Council Directive 88/295/EEC amending Council Directive 77/62/EEC and amending certain provisions of Council Directive 80/767/EEC relating to public supply contracts. Two other Commission proposals are awaiting decisions by the Council. One of these proposes to amend Council Directive 71/305/EEC, as amended, regarding the award of public works contracts; the latest version of this proposal which incorporates amendments to reflect the opinion given by the European Parliament in May, 1988 was submitted to the Council on 6th July, 1988. The other proposes the adoption of a new compliance Directive which would apply to the award of both public works and public supply contracts. The Joint Committee has completed its consideration of these proposals and of Council Directive 88/295/EEC and in this report submits its observations thereon to the Houses of the Oireachtas.

Acknowledgements

3.A detailed examination of the Commission’s proposals was carried out for the Joint Committee by a Sub-Committee under the Chairmanship of Senator Mary Robinson. The Joint Committee wishes to acknowledge its indebtedness to Senator Robinson and her colleagues and to express its appreciation of the exacting work which they carried out on its behalf.

4.To assist it in its consideration of these matters the Joint Committee received a comprehensive memorandum from the Department of Finance. Mr. George Hennessy of the Construction Industry Federation (CIF), Mr. Frank O’Donoghue and Mr. Tom Costello, Department of Finance and Mr. Jim Berrigan, Office of Public Works attended a meeting of Senator Robinson’s Sub-Committee and gave the Sub-Committee considerable assistance in its deliberations. The Joint Committee is deeply appreciative of the help it received and wishes to express its gratitude to those concerned.

B. PUBLIC WORKS CONTRACTS

1971 Directive, as amended

5.The 1971 Directive applies to public, regional and local authorities and also, as far as Ireland is concerned by virtue of the Act of Accession, with other public authorities whose public works contracts are controlled by the State, in respect of written contracts for carrying out works of construction, building, installation and civil engineering as well as other works such as decoration, finishing and the like. The provisions of the Directive apply only to contracts over a stated value, which in 1978 was fixed at 1,000,000 European units of account (since 1981 1,000,000 ECU (1), approx. IR£780,000). Moreover, the Directive does not apply to public bodies administering transport services nor to contracts relating to the production of, distribution of, transmission of, or transportation services for water and energy. Neither does it apply to certain contracts governed by international agreements. Again apart from its provisions relating to technical specifications the Directive does not have to be applied in the absence of tenders or in the case of irregular or unacceptable tenders or to works involving particular technical or artistic technique, research and development, urgent works and additional or repeat works or where prior overall pricing is not practicable or where secrecy or security requirements impinge on the works.

6.Contracts which are covered by the Directive may be subject either to open procedures where any contractor may tender, or to restricted procedures where only invited contractors may tender. The Directive provides for the technical specifications to appear in the contractual or other documents, common advertising rules including publication of a notice in the Official Journal, common rules for participation in tendering, the criteria by reference to which a contractor may be excluded from participation and the criteria on the basis of which the award of contracts may be made.

Amendments proposed

7.Under the Commission’s proposals the rules applicable to public works contracts would also apply to concessionary contracts for which the consideration consists wholly or partly of the right to exploit the construction. The definition of bodies governed by public law whose contracts would be subject to the Directive in like manner as the contracts of State, regional and local authorities is to be extended and contracts by associations of contracting authorities are to be brought within the regime. Moreover those authorities will be required to comply with the Directive when they contribute in excess of 50 per cent of the cost of works carried out by other entities. A new threshold for determining the contracts which come within the 1971 Directive is to be set at 5,000,000 ECU (IR£3.8 mn. approx.). Public contracts in the air, land and sea transport, drinking water and energy sectors will continue to be exempt and will be the subject of a separate Directive.

8.The open and restricted procedures are being continued and normally contracting authorities will have the option of choosing either. Exceptionally contracts may be awarded under negotiated procedures whereby the contracting authorities consult contractors of their own choice and negotiate the terms of contracts with them. A negotiated procedure with the prior publication of a tender notice and involving the selection of candidates according to qualitative public criteria will be allowed where irregular or unacceptable tenders are received, where work is to be carried out purely for research, experiment, study or development purposes or, exceptionally, where the nature of the works or the risks attached do not permit prior overall pricing. A negotiated procedure without prior publication of a tender notice will be permitted in the absence of tenders, for technical or artistic reasons, for security reasons, in the case of extreme urgency and in the case of certain additional and similar works.

9.Contractors whose applications or tenders are rejected will be entitled to learn the reasons for the decision and to obtain the name of a successful tenderer. Public authorities will be required to compile a report on each contract awarded and to make it available to the Commission on request. When a contract is to be awarded which exceeds the prescribed threshold the authority shall publish a notice to that effect. Notices indicating whether the open, restricted or negotiated procedure is to be adopted and notices relating to concessionary contracts will have to be published in the Official Journal. The proposed amending Directive also contains provisions relating to technical specifications, time limits to be observed by contracting authorities, submission of variants and abnormally low tenders.

PUBLIC SUPPLY CONTRACTS

Council Directive 88/295/EEC

10.Under the new definition adopted by this Directive public supply contracts are written contracts concluded for a money consideration for the purchase, lease, rental or hire-purchase, with or without an option to buy, of products between a supplier and state, regional and local authorities and, in the case of Ireland, other public authorities whose contracts are subject to state control. Under new thresholds of value contracts come within the amended provisions (except for specified products) if the value is not less than 200,000 ECU (approx. IR£155,000) or 130,000 ECU (approx. IR£108,000) in the case of contracts within Directive 80/767/EEC and certain contracts in the field of defence.

11.Contracts are to be awarded applying (a) open procedures whereby all interested suppliers may tender, (b) restricted procedures whereby invited suppliers only tender and (c) negotiated procedures whereby terms are negotiated with chosen suppliers. The open procedure is to be the norm and the restricted procedure may be used only where there is a need to maintain a balance between the contract value and procedural costs or if the specific nature of the product so warrants. The negotiated procedure may be used in the case of irregular or unacceptable tenders though, unless certain conditions are satisfied, a tender notice will be required. That procedure may be used without prior publication of a tender notice in the absence of tenders, in cases of extreme urgency, in the case of products manufactured for research and development, for additional deliveries, and where technical or artistic considerations apply or it is necessary to protect exclusive rights of a supplier. Where either a restricted or negotiated procedure is used a written report must be drawn up by the contracting authority which must be made available to the Commission on request. After the beginning of each fiscal year contracting authorities will have to make known by notice their procurement requirements for the year by product area where the value equals or exceeds 750,000 ECU and also to give notice of procedures to be adopted and contracts awarded. These notices will be published in the Official Journal. The amending Directive also contains provisions relating to technical specifications, time limes and criteria for selection.

D. COORDINATION OF NATIONAL MEASURES ON PROCEDURES

Proposed Compliance Directive

12.This proposal of the Commission is aimed at more effective enforcement of the Community rules on the award of public contracts. It would oblige Member States to adopt effective administrative and/or judicial remedies for setting aside decisions of contracting authorities which breach Community law and for indemnifying an injured contractor. The competent body or court would be empowered to intervene in the procedure of the contracting authorities as early as possible and to order, subject to penalty payments, the removal of specifications which do not conform with Community rules and to set aside decisions unlawfully taken and award an injured undertaking damages for “the costs of unnecessary studies, foregone profits or lost opportunities”. Member States will be obliged to allow the Commission to intervene in whatever national administrative or judicial process is adopted and the Commission is seeking a right in urgent cases to suspend a contract award procedure for three months.

13.The proposed Directive sets out the circumstances in which a contract award procedure could be suspended. These are

(a)failure to publish in Official Journal,

(b)adoption of an exceptional award procedure without justification,

(c)incompatability with Community law of tender notice or other documents and

(d)exclusion of a contractor in breach of Community rules.

E. VIEWS OF JOINT COMMITTEE

Implementation

14.Generally Directives do not have legal effect within the national legal systems unless implemented by legislation which in this country may take the form either of an Act of the Oireachtas or of a statutory instrument usually one made under the European Communities Act, 1972. The earlier Directives relating to public procurement were, however, implemented in this country by administrative action. The method adopted was to issue circulars to contracting authorities giving instructions on how Community obligations should be met. The Joint Committee understands that Council Directive 88/295/EEC and the proposed Works Directive if adopted will be implemented in similar fashion. The Joint Committee would doubt the correctness of this procedure in so far as setting down rules for dealing with tenders is legislative in character. In addition, circulars are less accessible to the public and interested parties. It is, therefore, desirable that the rules be set out in regulations under the European Communities Act, 1972. However if the proposed compliance Directive is adopted the Committee is of the opinion that its implementation will require the enactment of legislation, either primary or secondary.

Completion of the Internal Market

15.The free movement of goods and freedom to provide services are two of the four basic freedoms which the EEC Treaty purported to establish. The stated object of completing the Internal Market by the end of 1992, which has been endorsed by the enactment of the Single European Act, necessarily involves the elimination of any remaining restrictions on the basic freedoms. All the evidence available points to the failure of earlier measures to open public procurement to Community-wide competition to any marked degree. The Department of Finance informed the Joint Committee that the earlier measures “have many loopholes and some Member States have managed to discriminate against foreign tenderers without overtly flouting the Directive”. This contention is amply supported by the conclusions of the Commission [see COM (86) 375 final, June 19, 1986]. In the result the earlier measures failed to secure the penetration envisaged. For example the Commission has revealed [COM (94) 717 final] that in 1982 central government purchases falling within the public supply Directive accounted for only 7 per cent of a total expenditure of 0.5% of GDP and that open and restricted procedures were applied in only 20 per cent of Government contracts.

16.Bearing in mind that Government and public sector procurement in the Community is in the order of 400,000,000,000 ECU annually the Joint Committee is satisfied that the opening of public procurement to genuine Community-wide competition is essential in the interest of the completion of the Internal Market. Member States are already bound by the amendments to the public supply Directive effected by the adoption of Council Directive 88/295/EEC. The Joint Committee is fully satisfied that the case for strengthening the public works Directive is unanswerable. Moreover it accepts that in light of past experience the Commission is fully justified in proposing the adoption of a compliance Directive. Indeed the Committee believes that the efficacy of other measures taken may well depend on the implementation of effective rules for securing compliance with them.

17.In these circumstances the Joint Committee was pleased to find that on balance the opening of public procurement to Community-wide competition should prove beneficial to this country. Ireland already operates open tendering procedures for a greater proportion of its contracts than most other Member States and the Department of Industry and Commerce considers that the balance of opportunities created by the new public supply Directive is in Ireland’s favour relative to our European partners. The Construction Industry Federation is in favour of the Commission’s proposals relating to public works and in light of the experience of its members considers that a Directive to ensure compliance with those proposals is essential. The Committee is of opinion that in the main the proposals for amendment of the public works Directive and for the adoption of a compliance Directive should be supported but it wishes to offer some observations on matters of detail in relation to these proposals.

Public Works Proposals

18.Mr. Hennessy of the CIF told Senator Robinson’s Sub-Committee that a member of the Federation wishing to tender for a contract in Belgium was met by a demand for a performance bond which was excessively onerous and out of line with normal requirements. The Committee is concerned that the Commission’s proposals as they stand may not prevent a national authority laying down bonding requirements which might be more easily met by a local contractor than by a foreign tenderer. It recommends that the Department of Finance raise this issue at Council Working Party level and that if it is found that a foreign tenderer can be discriminated against by local bonding requirements then the Committee recommends that the Directive be amended to ensure that this does not happen.

Proposed Compliance Directive

19.If the proposed Directive to coordinate national measures is implemented it would appear in the light of the provisions of the Constitution that the function of setting aside decisions and indemnifying tenderers would have to be allocated to a Court in this country. What seems to be involved here essentially is the creation of a statutory duty to tenderers the breach of which would render the contracting authority liable to pay damages.

20.In so far as the proposed Directive would allow the Commission or a tenderer to intervene before a contract is awarded it is considered that it might not be out of line with existing judicial remedies. It is conceivable that at present an Irish Court might grant an injunction preventing a public authority from concluding a public contract if it were established that the action was in breach of a Treaty provision having direct effect or perhaps in breach of a provision of an existing Directive if such were found to have direct effect. Setting aside a contract that has been executed would, however, present difficulties particularly if the contract has been partly performed. Moreover apart altogether from potential costs involved it is not clear what “injury” suffered by an unsuccessful tenderer would attract the award of damages. Would such a tenderer have to prove (i) that he would have been successful had the correct procedure been followed or (ii) that he was induced to tender when there was no possibility of his succeeding or (iii) merely that he had submitted a tender and thereby had incurred costs ?

21.Mr. Hennessy suggested to Senator Robinson’s Sub-Committee that the existence of a right to damages would be sufficient to keep public authorities in line even if it was never invoked. However, apart from the expense and the legal problems involved, the Joint Committee doubts whether there is any real need to give an unsuccessful tenderer a right to damages. If the contract procedure allowed for a provisional award and a period for challenging the award it ought to be possible to ensure that Community rules are observed before a contract is executed. Such a procedure need not involve undue delay for the authority concerned in this country. The contract could go ahead unless the Court granted an interlocutory injunction restraining the authority. The Joint Committee recommends that the proposal be re-examined in light of these observations.

Other Proposals

22.The Joint Committee has been informed by the Department of Finance that proposals are being prepared in the Commission relating to public procurement in the energy, water, transport and telecommunications sectors. Liberalisation in those areas could have considerable economic impact having regard to the large scale of public purchasing involved but the Joint Committee proposes to reserve comment until the Commission’s proposals have been finalised and published.

SEPTEMBER, 1988.

(1) Council Regulation 3308/80, OJL345, 20.12.1980, p1.