Transcript Diapositiva 1 - Bangor University

Some Thoughts on Public Procurement
and Competition, with a View on the
Proposed Directives
Dr Albert Sánchez Graells
Lecturer in Law
Procurement Week -Public Procurement Law
Bangor, 30 March 2012
Agenda
• Present a general framework on the interactions between public
procurement and competition law
• Identify the advantages of more competition-oriented
procurement in terms of market integration and growth
• [Lament] the insufficiency of competition law to control publiclygenerated distortions of competition in procurement markets
• Stress the (growing) relevance of competition considerations in
the design, execution and oversight of procurement activities
• Discuss the “further push” for pro-competitive public
procurement in the proposal for new EU Directives
• Final thoughts
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Warning
• The approach to the interaction between competition law and
public procurement is relatively new (and a minority view)
• Even procurement lawyers that recognise the relevance of
competition think of it only WITHIN a given tender procedure
– “The more, the merrier” type of reasoning
• However, in my view, it is necessary to THINK BIG and to
understand the competition issues from a market perspective;
ie OUTSIDE any given tender procedure
– Only competitive markets allow for efficient, innovative procurement
3
Analytical Framework—Why is Procurement a
Source of Concern from a Competition Perspective
• The market activities of public
buyers generate three types
of potential distortions of
competition
– Waterbed Effects
– Incentives for Collusion
– Other Effects (mainly
related to exchanges of
information, which reinforce
potential distortions)
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Analytical Framework—Why is Procurement a
Source of Concern from a Competition Perspective
• In short, restrictions or distortions of competition due to public
procurement rules and/or practice result in losses of welfare
• Such losses of welfare are particularly relevant for
– Businesses
– Public buyers (lower efficiency)
– Citizens / taxpayers
• Moreover, it limits the contribution of public procurement to
economic growth, which is an issue of major relevance, as
recently stressed in the Europe 2020 Growth Strategy
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Procurement, Competition and Growth
• High relevance of market integration goals in all ‘generations’ of
procurement Directives
• The (main) “ultimate goal” of PP rules are to contribute to
growth through intense cross-border competition for contracts
– Stronger stress in the 1992 strategy for the completion of the internal market
– Again, strong stress as part of the Europe 2020 Growth Strategy
“[p]ublic procurement policy must ensure the most efficient use of public
funds and procurement markets must be kept open EU-wide”
[Europe 2020 Strategy]
“this simplification must be carried out in a way that does not close
procurement to cross-border competition” [Single Market Act]
6
Procurement, Competition and Growth
• The effect of the PP Directives on cross-border trade trend has
been positive: ≈ 0% (1990) -> 8.5% (1999) -> 13.4% (2006-09)
• However, the European Commission is convinced that there is
scope for significant improvement per comparison with private
sector procurement
– A cautionary note on such comparisons
7
Procurement, Competition and Growth
• The push for further integration & growth has been imported
into the revision of PP Directives, which focuses more broadly on
promoting strong competition (not solely cross-border)
– “it is vital to generate the strongest possible competition for public contracts
awarded in the internal market” [Green Paper modernisation, COM(2011)15]
– Art 15 proposed new general Directive and art 29 proposed new excluded
sectors Directive “consolidate” the principle/goal of undistorted competition
• However, it is also clear that the benefits of the increases of
(cross-border) competition come at a cost (increased red tape,
translations, advertising, etc) and the question is whether the
benefits exceed the costs and, in the end, if growth is promoted
8
Economic Evidence regarding the Impact of PP
Rules on the Working of the Internal Market (+)
• Hard to accept any economic evidence ‘as is’, given the difficulty
of the intended measurement and diversity of methodologies
– Qualitative studies tend to be ‘optimistic’: compliance with the Directives
generates a rough 30% decrease in prices compared to other procurement
(Report on the functioning of public procurement markets in the EU, 2004)
– Quantitative studies tend to be ‘conservative’ (and almost arcane): savings
due to the use of open procedures or the associated increase in the number
of bidders remain in the environment of 5% of the procurement value
(Estimating the Benefits from the Procurement Directive, 2011)
• In any case, achieving savings in line with even the most
conservative estimates would have a positive long-run
macroeconomic effects (which seems highly relevant these days)
– Of between 0.5 and 1% of GDP (Vogel, 2009)
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An Estimate of the Costs of Red Tape and
Compliance with PP Directives (-)
• Recent PwC, London Economics & Ecorys Study (2011)
1.
2.
3.
(An interesting reminder): “costs are not fully attributable to the
procurement directives [for] purchasers would regardless have to procure
their goods and services and costs would be incurred with or without”
“the cost of public procurement in Europe is estimated at about 1.4 percent
of purchasing volume” of which “businesses account for 75 percent”
Does not seem excessive (overall), but suggests that improvement efforts
should focus on the “business-side”
“[t]here is practically no relationship between contract value and
procurement costs except in the very high value range” and “in contracts
with a value close to the threshold [… of] (125,000 euro) total procurement
costs for business and government amount to about 30% of contract value”
OK, BUT this may be misleading if data is further analysed
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An Estimate of the Costs of Red Tape and
Compliance with PP Directives (-)
• It must be stressed that the
proportion of cost-to-value
decreases quite rapidly:
– Contracts around 200,000 Euro
(most of those captured by PP
Directives) have costs between
11-20% of contract value
– And, for a median value contract
(390,000 Euro), costs are
between 6-9% of contract value
11
An Estimate of the Costs of Red Tape and
Compliance with PP Directives (-)
• Moreover, it changes significantly by type of procurement and
procedure [the more “expensive” being very low-value works
contracts (which are rarely covered)
12
An Estimate of the Costs of Red Tape and
Compliance with PP Directives (-)
• Therefore, in my view, a more “realistic” report of the cost-tovalue estimates would indicate that
1.
2.
the aggregate estimate of cost-to-value proportion reaches a maximum of
20% for services and supplies contracts, and a maximum of 4% for works
contracts
These figures seem far less alarming than those stressed by the study, while
still requiring regulatory attention and justifying certain reforms
13
So, what’s the (seemingly likely) net effect?
• The Commission rightly points out that the Directives
“resulted in a net increase in benefits - the total cost of the
procurement process […] for those procedures covered by the EU
Directives has been estimated at €5.6 billion per year or 1.3% of
the total value of contracts published. This is more than offset by
the estimated savings, which are around 5% of the total i.e. €20
billion in 2009, without making any allowance for improvements
in quality and wider environmental or social benefits. However
there is some evidence that the current procedures are not as
efficient as they could be” [Impact Assessment, SEC(2011) 1585]
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Then, how do we increase procurement
efficiency to further boost growth?
• In my view, the (obvious) answer is to act in two directions
– Foster competition in procurement markets
– Reduce red tape and simplify
• However, the (less obvious ) answer affects which tools should
we use—or, even before that, which tools do we have in the
shed
– Analysis of EU competition law rules
– Analysis of EU public procurement rules
15
Competition first?
• Relationship between competition law and public procurement
law as two pillars of EU Economic Law directly relevant for the
creation and working of the internal market
• Limited development of competition law related to public
restrictions of competition
• Limited attention to (effective) competition considerations in
public procurement arena
16
Competition first?
• There is scope and justification for a stronger interaction of both
sets of economic regulation as regards public restrictions of
competition
• Focus: Special mention to the origin of potential public
distortions of competition in the procurement setting (public
procurement law and administrative discretion exercised by the
public buyer)
17
Limitations for the Enforcement of EU
Competition Law against the Public Buyer
• Theoretically, competition law should be applicable to the
market behavior of the public buyer
• Rules can be grouped in those addressed to Member States (*)
and those applying to undertakings and—at least intuitively—
one would think that some of them would do the job
• However, as we shall see, all EU rules are significantly
constrained by their interpretation in the case law of the ECJ
18
Limitations for the Enforcement of EU
Competition Law against the Public Buyer
• Rules controlling the granting of State Aid [art. 107(1) TFEU]
– Judgment of the CFI of 28 January 1999, in case T-14/96 – BAI v
Commission, ¶¶ 71–76
– Significantly limited by the interpretation of ‘undue economic
advantage’, which has resulted in a (hardly) rebuttable
presumption of inexistence of illegal State aid if the public
contract is awarded in compliance with the EU rules on public
procurement (circular test)
– [On a positive note, this may change in the future, depending on the outcome
of the revision of the current Directives (*)]
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Limitations for the Enforcement of EU Competition
Law against the Public Buyer
• Rules controlling the granting of special or exclusive rights [art.
106(1) & (2) TFEU]
– There are significant difficulties for the control of public
procurement on the basis of art. 106 TFEU
– Limited by the interpretation of the requirement of competitive
impact [Judgment of the ECJ of 25 October 2001, in case C475/99 – Ambulanz Glöckner, ¶ 24]
20
Limitations for the Enforcement of EU Competition
Law against the Public Buyer
• ‘Core’ competition rules [art. 101 & 102 TFEU]
– Even if the conduct of procurement activities seems to qualify as
an economic activity, the case law of the ECJ has (almost)
completely excluded the application of art. 101 & 102 TFEU to
the public buyer (not considered an ‘undertaking’)
– Judgment of the ECJ of 11 July 2006, in case C-205/03 P – FENIN
v Commission, ¶ 26
– Judgment of the ECJ of 26 March 2009, in case C-113/07 P –
Selex v Commission, ¶¶ 102 & 114
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Competition Law Does Not Seem To Work—
What Now? Should We Panic Yet?
• In short, no EU competition rule covers (satisfactorily) the
potential generation of competitive distortions by the public
buyer
• However, the situation may be overcome if we find a way to
“import” competition considerations into procurement rules
• Public procurement rules might be better prepared to tackle
potential competition distortions generated by the public buyer
than competition law (!)
• The basis for the development of a competition-oriented public
procurement system is found in the competition principle
embedded in the EU rules
22
The Principle of Competition Embedded in the
Current EU Public Procurement Directives
• In my view, the principle of competition has always been at the
basis of EU public procurement rules
– There are numerous indications in the recitals of Directives
2004/17 and 2004/18 (and prior rules)
– In general, there is a tendency to impose self-restraint in the use
of new techniques and instruments (such as framework
agreements, dynamic purchasing systems, etc.) if they can
hinder, limit or distort competition
23
The Principle of Competition Embedded in the
Current EU Public Procurement Directives
• The principle of competition has been expressly identified by the
European Court of Justice
– Judgment of the ECJ of 27 November 2001, in joined cases C285/99 and C-286/99 – Lombardini and Mantovani, ¶ 76
• But, more frequently, it can be found in AG Opinions (remains
implied in the case law)
– Opinion of AG Stix-Hackl delivered on 1 July 2004, in case C247/02 – Sintesi, ¶¶ 34–40
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The Principle of Competition Embedded in the
Current EU Public Procurement Directives
• In my view, according to the principle of competition
– Public procurement rules have to be interpreted and applied in a
pro-competitive way, so that they do not hinder, limit, or distort
competition; and
– Contracting entities must refrain from implementing any
procurement practices that prevent, restrict or distort
competition
• It is a broad principle that specifies the mandates of the general
EU Law principle of competition in the procurement setting
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The Principle of Competition Embedded in the
Current EU Public Procurement Directives
• The role of the general principle of competition is to serve as the
link between competition and public procurement law—or the
gateway through which to “import” competition considerations
into the EU public procurement Directives
– Allows a (re)interpretation of public procurement rules from the
perspective of their impact on the competitive dynamics of the
markets concerned
26
The Principle of Competition Embedded in the
Current EU Public Procurement Directives
• Technically, the main legal implications deriving from the
principle of competition are
– Its role as a rule of self-construction for EU rules
– Its binding character in the transposition of EU rules into
domestic law by Member States
– Its particular relevance for the consistent interpretation and
enforcement of EU and domestic rules by national courts and
authorities
– Its applicability even outside the scope of the EU Directives on
public procurement
– Residual role (in dubio, pro concurrentia)
27
A Look Forward—The Consolidation of the
Principle of Competition in the New Directives
• This seems to be significantly in line the general trend underlying
the current revision of the EU procurement Directives
• Article 15 of the proposed new Directive on Procurement,
entitled “Principles of procurement” consolidates the relevance
of undistorted competition (or competitive neutrality) by clearly
emphasizing that: “The design of the procurement shall not be
made with the objective […] of artificially narrowing
competition”
• The “codification” of this principle (or goal) forces a reorientation
of the interpretation of the rules applicable to procurement
(both under EU, but also under national law) (?)
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Analysis of Competition Impact of Procurement
Rules Must Go from Design to Completion
• Competition can be distorted at any point in the procurement
process. Therefore, it is important to keep competition impacts
in mind throughout the process (even after award)
• No time for a detailed analysis of all procurement rules, but
some comments on areas for concern
–
–
–
–
–
–
Design of the process / choice of procedure [link to State aid control]
Technical specifications + Certification & Labels
Selection / Award criteria
Modification, cancellation and retendering
Bid protests
Monitoring potential anticompetitive behaviour (bid rigging)
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Wrap Up – Take Home Message
• The proper working of the procurement system depends heavily
on the competitive tensions (both in the market and within a
given tender)
• Public procurement rules and (administrative) practices can
generate distortions of competition that require close scrutiny
• While we wait for change in competition law against distortions
generated by the public buyer (which may never arrive), the
proposal for a new Directive gives a very significant push towards
the consolidation of competition analysis in the procurement
setting—art 15 prop Dir is the cornerstone of the new system
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• Comments welcome: [email protected]
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