Documents considered by the Committee on Wednesday 16 March 2016 Contents

1Third country access to the EU’s public procurement market

Summary and Committee’s conclusions

Committee’s assessment

Legally and politically important

Committee’s decision

Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Innovation and Skills Committee

Document details

Amended proposal for a Regulation on the access of third-countries to the EU public procurement market and on the procedure for negotiations on EU access to third country markets

Legal base

Article 207 TFEU; ordinary legislative procedure; QMV

Department

Business, Innovation and Skills

Document Number

(37500), 5752/16, COM(16) 34

1.1Public procurement accounts for approximately 14% of the EU’s GDP and accounts for public expenditure of some €1.8 trillion (£1.37 trillion) per year. Within the EU, public procurement is regulated by three Directives adopted in 2014,1 covering respectively Public Sector, Utilities and Concession Contracts2 (the Procurement Directives). In 2011, the House issued a Reasoned Opinion3 in relation to the then proposed Public Sector and Utilities Directives. In the UK, the Public Sector Directive has already been transposed for England, Wales and Northern Ireland4 (the Public Contracts Regulations 2015) and, we understand, the Government is aiming to transpose the other two Directives by the implementation deadline (18 April 2016). The Directives have been and are being implemented separately in Scotland.

1.2Outside the EU, with the exception of some limited provisions restricting access in the utilities sector, the access of third country goods, services and suppliers to the EU public procurement market is unlimited. Some €352 billion (£269 billion) of EU public procurement is open to bidders from member countries of the World Trade Organisation (WTO) Government Procurement Agreement (GPA). However, many third countries are reluctant to open their procurement markets to international competition or beyond existing commitments and some adopted protectionist measures in the wake of the economic crisis.

1.3The Commission believes this creates an unlevel playing field which this proposed Regulation5 seeks to address by regulating third country access to the EU’s public procurement market for contracts covered by the Procurement Directives. It provides for a price adjustment measure (PAM) to be applied to tenders from firms from third countries where there is no reciprocal access, subject to various decision processes. It also includes mechanisms to encourage the EU’s trading partners to start market access negotiations and to increase the EU’s leverage in those negotiations. The main elements of the proposal are summarised in “the current document” section below.

1.4It amends a previous proposal by the Commission in 2012. This original text was blocked by a majority of Member States, including the UK, the latter being concerned that it would have harmed value for money, provoked retaliatory action by third countries and could be seen as protectionist. The Commission considers that amendments to the original proposal in this new text address these concerns.

1.5The Government cautiously welcomes some elements of the amended proposal: deletion of market closing provisions and the exemption for SMEs. But it remains particularly circumspect about possible burdens associated with the proposed price adjustment measures (PAMs), which could run counter to the reforms made in the Procurement Directives.

1.6We note the improvements to the amended proposal which the Minister highlights. However, we would like to be kept informed of any progress in reducing potential burdens related to the proposed price adjustment measures. We are concerned that otherwise reforms in the 2014 Procurement Directives, in relation to which the House previously issued a Reasoned Opinion, could be undermined. We look forward to receiving the Government’s impact assessment to enable us to scrutinise this aspect of the amended proposal.

1.7We therefore retain the document under scrutiny and draw it to the attention of the Business, Innovation and Skills Committee.

Full details of the documents

Amended proposal for a Regulation of the European Parliament and the Council on the access of third-country goods and services to the Union’s internal market in public procurement and procedures supporting negotiations on access of Union goods and services to the public procurement markets of third countries: (37500), 5752/16, COM(16) 34.

The current document

1.8The Commission says that the amendments made to the original proposal seek to address its “potentially” negative aspects, including the possibility to close the EU procurement market completely to a trading partner, administrative burdens and the risk of fragmentation of the internal market. There is more focus on the Commission’s role to investigate procurement barriers in third countries and to achieve their removal through engagement with third countries.

The main amendments

1.9The original Commission proposal included core market closure provisions which have been deleted in the amended proposal, as follows:

Market closure by contracting authorities

1.10The original proposal would have allowed contracting authorities and entities, on a discretionary basis, to exclude public procurement tenders with more than 50% third country content. This would only have applied only to contracts valued at €5 million (£3.82 million) or more and would have been subject to Commission approval. Approval would have been given where a lack of substantial reciprocity existed in market opening between the EU and the relevant third country.

Market closure by the Commission

1.11The original proposal would also have afforded the Commission a general power to impose temporary market closure measures to increase the leverage of the EU in international negotiations on market access. It included discretion to limit the measures to certain contracting authorities or entities, to certain defined goods or services, or by threshold. The Government’s view on the deletion of these provisions is set out at paragraphs 1.22–1.23.

Abnormally low tenders

1.12The original Commission proposal included a provision on abnormally low tenders, which has also been deleted in the amended proposal. Where a contracting authority or entity intended to accept such a tender with more than 50% third country content, it would have been required to inform all the other tenderers in writing including the reasons for the low price or costs charged. The Government’s view on the deletion of this provision is set out at paragraph 1.24.

The main provisions in the proposal

1.13The proposal covers the following four main areas:

Price adjustment measures (PAMs)

1.14There is a new power (see Articles 8 — 13) for the Commission to impose PAMs, aimed at increasing EU leverage in international negotiations on market access. Such PAMs would then be applied by contracting authorities and entities (specified in accordance with Article 9):

1.15The exercise of this power by the Commission is subject to a process which contains a number of steps. The first is the initiation of an investigation by the Commission under its own initiative, or at the request of a Member State or of an interested party, into alleged restrictive or discriminatory procurement measures or practices in use by a third country. If the investigation confirms such measures or practices are in use, the next step will be for the Commission to invite the third country to take part in consultations to ensure that EU suppliers can participate in public procurement contract opportunities and be treated equally with suppliers from that third country.

1.16If the third country declines to take part in the consultation, or if a consultation does not produce a satisfactory outcome within fifteen months, the next step will be for the Commission should it so choose to adopt a PAM (as explained in paragraph 1.14). There are also provisions from the withdrawal or suspension of PAMs should the third country concerned take the necessary remedial or corrective action (Article 10).

1.17Tenders submitted by SMEs are exempt (see Article 5), as are those where the goods and services originate in least-developed and certain developing countries (Article 4). There is provision for PAMs to be limited by defined categories of contracting authorities, entities or suppliers, by defined categories of goods or services, or by thresholds (Article 8(2).

Exceptions

1.18The Commission’s amended proposal allows contracting authorities and entities to not apply a PAM where there are no goods or services available in the EU which meet the requirements, or where the measure would cause a disproportionate increase in the price or costs of the contract (Article 12).

1.19Use of an exception is to be notified to the Commission by the contracting authority or entity concerned and justified. There is provision for the Commission to ask the contracting authority or entity for additional information on the use of an exception.

Remedies

1.20The amended proposal provides legal remedies for failure to apply a PAM (see Article 13). Should a contract be awarded to a supplier in violation of such a measure, the proposal requires that contract to be declared ineffective under the Remedies Directives.6 This would involve cancellation of the contract by a Court plus a civil financial penalty being imposed on the contracting authority or entity that placed the contract.

Reciprocity in utilities contracts

1.21The Commission proposes to delete the third country market access provisions of the current Utilities Contracts Directive. These provisions, which repeat those contained in the previous Utilities Contracts Directive, have rarely been used according to the Commission. They allow tenders for utility contracts that comprise more than 50% third country content to be rejected. They allow for tenders from EU suppliers to be given preference over those from third country suppliers where the price difference does not exceed 3%. And they also allow for a consultation and market closure process similar in principle to that set out in the Commission’s original proposal.

The Government’s view

1.22In an Explanatory Memorandum of 17 February, the Minister for Trade and Investment (Lord Maude of Horsham) says that:

“The deletion of the market closing provisions is a welcome step forward, addressing our main objection in principle to the original proposal made in March 2012. Any closure, or threat of closure, of the EU public procurement market could have led to retaliatory, protectionist measures, harming the pursuit of value for money and growth. The exclusion of third country suppliers could have caused long term harm to the internal market by limiting its contestability and the competitive pressures on EU suppliers.”

1.23He adds that such market closing provisions could have “prevented the best commercial deal being achieved in some case”. He explains: “Best value is achieved by keeping our markets open and competitive” and that any retaliatory measures could have harmed “the prospects for boosting EU (and UK) trade, which is necessary for growth.”

1.24On the deletion of provisions on abnormally low tenders, the Minister welcomes this change which could have resulted in tenderers challenging the award decision. He explains however that:

“Agreed provisions for dealing with abnormally low tenders are included in the new EU procurement Directives for Public Sector Contracts and Utilities Contracts. The contracting authority or entity must reject the tender where it is abnormally low because the tenderer is not complying with applicable social and labour law obligations on an EU or national level. Such tenders may also be rejected where the abnormally low price results from State aid that is not compatible with EU internal market rules”.

1.25The Minister welcomes the new exemption for SMEs:

“This means that the procurement reforms introduced in UK legislation via Part 4 of the Public Contracts Regulations 2015 will not be hindered. These reforms aim to make public procurement more accessible to businesses, especially small businesses.”

1.26Turning to the proposed price adjustment measures, the Minister explains:

“Price adjustment measures are provided for in other EU legislation, in the Enforcement of International Trade Rules Regulation, for example, so their availability as a tool for use in certain circumstances is not unique to this amended proposal. The Government intends to explore this proposition further as the process moves forward. Although the amended proposal reduces the burdens that the original proposal would have imposed, some burdens remain and this runs counter to the reforms made to the EU procurement rules in 2014. Those reforms simplified and modernised the rules to make the procurement process faster, less costly and less bureaucratic, enabling greater efficiency and improved value for money. The Government will seek to ensure that value for money in public procurement is not harmed by this amended proposal and that there will be adequate safeguards to protect UK interests.”

1.27In terms of financial implications for the UK, the Minister says that the Government is preparing an impact assessment which will be provided in due course.

1.28On next steps the Minister explains:

“The timetable is uncertain although the Commission, having deleted the problematic market closing provisions, will no doubt wish to make progress as soon as possible. There will be an exchange of views under the current Netherlands Presidency of the Council, but there is no clarity on the priority that they will wish to attach to the proposal.”

Previous Committee Reports

None, but see (33797): 8257/12: Second Report HC 86–ii (2012–13), chapter 5 (16 May 2012); Seventh Report HC 86–vii (2012–13), chapter 9 (4 July 2012).

1 Directive 2014/23/EU on the award of concession contracts, Directive 2014/24/EU on public procurement and Directive 2014/25/EU on water, energy, transport and postal services sectors.

2 A concession contracts involve giving exploitation rights as part of a supplier’s reward for delivering a public service of building e.g. toll bridge or public authority car parks.

4 The formation of public procurement policy and implementation of relevant legislation is a devolved matter in Scotland, Northern Ireland and Wales.

5 Also known as the proposal on an “International Procurement instrument” — IPI.

6 The Remedies Directive for public sector contracts (89/655/EEC) was re-implemented Northern Ireland, England and Wales by the Public Contracts Regulations 2015 (Si No 102) and The Remedies Directive for utilities (93/13/EEC) by the Utilities Contracts (Amendment) Regulations 2009 (SI No 3100).




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Prepared 22 March 2016