Brussels eases grip on local public services

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This article is part of our special report SME’s Access to Finance.

Public services provision in Europe is set to be radically liberalised from bureaucracy but will at the same time come under more scrutiny from the EU executive following two proposals tabled by the European Commission yesterday (20 December).

Rules governing larger public procurement contracts will be simplified and give local authorities more leeway to negotiate with contractors, although this will be done under strict conditions and oversight.

Meanwhile, competition rules will be reformed to allow local authorities to subsidise services – such as water, telecoms and transport – more easily where these play a social role in the community.

Smaller companies set to gain from the new rules

The public procurement changes, announced by Internal Market Commissioner Michel Barnier, simplify the process of contracting by drastically cutting back on the compulsory paperwork involved.

The measures are specifically designed to help smaller companies: local authorities will not be able to lock them out of contract competition on account of their size – a frequent complaint – and they must be paid more quickly for their services under the rule change.

The changes are also designed to encourage local authorities to be more environmentally conscious and innovative in providing services. They will be encouraged to clearly indicate ‘green’ service providers, and enter longer-term relationships with companies to help develop innovative products.

Commission smells a rat in rubbish deals

To meet concerns that such a freed-up system might encourage corrupt practices, however, the Commission has included new oversight mechanisms.

Member states will be required to designate a national independent oversight body to watch over the procurement process, and local authorities will have to report to this body explaining the terms of their deals.

Significantly, where longer-term contracts are struck – so-called ‘concessions’ – these must satisfy efficiency targets. The move would give Brussels the power of supervision over some of the least efficient European services providers, such as waste collectors in southern Italy, where the targets are not reached.

Meanwhile changes to EU state aid rules for the provision of key services such as water, energy, health, telecoms and transport were announced simultaneously by Competition Commissioner Joaquín Almunia.

These will enable local authorities to subsidise all contracts with a social dimension including health, childcare, social housing and the care of vulnerable groups.   

Under the current rules, local authorities only have such freedom when contracting for social housing.

They will also be able to bypass EU competition rules in respect of all contracts for less than €500,000 over three years. The current limit is €200,000.

As with public procurement, however, the payoff for the freedom is greater scrutiny. A new framework to be introduced will require such contracts to be subject to open and transparent public tender.

Positions

“I made clear in my political guidelines in 2009 that Services of General Interest play a key role in ensuring social cohesion and can also be a driver for new sources of growth," said Commission President José Manuel Barroso on the new state aid measures. "This quality framework adopted today is a confirmation of the European Commission's determination to support innovative, high quality public services, which are even more essential in the current difficult economic situation.”

Danuta Hübner (European People's Party, Poland), chair of the European Parliament's committee on regional development, hailed the Commission's move. "The measures announced by Commissioner Almunia are very good news," she told EURACTIV. "They can help to reduce the burden on public budgets in times of budget consolidation, they can help to tap private sector potential to generate growth and jobs, and consumers will benefit through the improved quality and timeliness of services," she added.

“Today’s package of proposals shows that the European Commission has understood by and large what small companies need to access public contracts," said Andrea Benassi, ?secretary-general of the European Association of Craft, Small and Medium-sized Enterprises, or UEAPME. "In particular, the rules on administrative simplification and the division of tenders into lots have the potential to further boost SMEs’ participation in public procurement. However, the increased use of the ‘negotiation’ procedure and the shorter deadlines are a concern for SMEs.”

“Whilst Europe’s civil servants are demonstrating this week, one might have expected a strong political sign from the European executive, and not just a reiteration of text previously issued by different Commissioners since the beginning of their term,” castigated the president of the Parliament’s intergroup for public services, French socialist MEP Françoise Castex.

In relation to the state aid change, Castex added: “If this represents a positive development for social services, the new rules do nothing to alleviate administrative legal burdens that continue to dog local authorities with judicial insecurity.”

In a statement issued after the Commission’s announcements, BusinessEurope expressed support for improving the efficiency of public procurement procedures in Europe, addressed by the package of measures.

But the statement claimed that European companies are of the opinion that a major revision of the current legislative framework is unnecessary. Philippe de Buck, director general of BusinessEurope, said: “As the financial leeway of states and regions decreases and public deficits rise, good public procurement is essential. Efforts should concentrate on better enforcement of public procurement rules given that legal certainty for business is crucial.”

Janet Meissner Pritchard, senior lawyer with environmental NGO ClientEarth, said in a press release "Existing legislation skews procurement decisions towards the cheapest possible options at the point of sale. The revision has not satisfactorily addressed this issue and so leaves the door open to short-term thinking."

"Member States should be encouraged to make choices that are good value in the long-term and compatible with wider policies," she added.

Background

Public procurement is one of the major items of expenditure for contracting authorities in Europe and an important element of the single market. In 2009, the value of calls for tender advertised in the whole internal market represented approximately €420 billion.

In its communication of 13 April 2011, on ‘The Single Market Act: Twelve levers to boost growth and confidence’, the Commission included among its 12 key priority actions to be adopted by the EU institutions before the end of 2012 the modernisation of the public procurement legislative framework.

State aid for utilities with public services obligations – including the provision of water, energy, health, telecoms and transport – is currently dealt with on an ad-hoc basis known as the 2005 Altmark package of legislation.

In March 2011, the Commission launched a broad debate on these rules, which are due to expire at the end of 2011.

In September 2011, the Commission consulted stakeholders on the proposals for new rules (see responses here).

Timeline

  • 2012: The Commission's proposals for revised directives on public procurement and state aid now pass to the Council (member states) and the European Parliament for negotiation and adoption.
  • Spring 2012: A new proposal for a de minimis Regulation on state aid for services of general interest is expected to be adopted  after a final round of consultation.
  • End of 2012: If they are adopted by the end of 2012 as provided for in the Single Market Act, the directives on public procurement will have to be introduced in member states within two years.

     

Further Reading

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