EU public-procurement restrictions finally set to move forward as governments agree

EU public-procurement markets should be restricted for businesses from countries whose own markets are not open to European companies, national governments are expected to say tomorrow, ending a near decade-long stalemate on the legislative file.

In a draft position paper seen by MLex, EU governments propose powers for the European Commission to probe restrictions on its own initiative or following a complaint from an EU government or other interested party. If the regulator finds distortions, it could impose price penalties or exclusions from EU tenders for up to five years.

The EU has been trying since 2012 to establish rules for a "level playing field" with countries which enjoy easy access to the bloc’s 2.4 trillion-euro ($2.9 trillion) public market, but deny European companies access to their own government contracts.

National governments have been split on the issue along traditional liberal versus protectionist lines. If they agree on a common position tomorrow, the file can advance to inter-institutional negotiations with the commission and European Parliament - which agreed on its own stance in 2014. Talks could start in September, MLex understands.

The draft position was agreed last week among national trade experts, and must now be endorsed by their ambassadors to the EU at the meeting tomorrow.

Review powers

The proposal would allow the commission to investigate restrictive public-procurement measures in a foreign country, if it assesses that the potential impact of the measures outweighs any harm to “the EU’s broader interests” that might be done by starting the investigation.

Before taking any retaliatory action, the commission would invite a country under investigation to “enter into consultations with a view to eliminating any restrictive measures or practices.”

If the probe confirms the existence of restrictive measures and the consultations don’t “lead to satisfactory corrective action(s),” the commission would be allowed to impose retaliatory measures. These could include a price penalty, an exclusion from EU tenders, or a mix of both.

The price penalty would be up to 40 percent of the offered amount, depending on the bidder’s home country and on the sector of the tender. It could also include criteria other than price and it would apply only for evaluation purposes: if a penalized bid won the tender, the contracting authority would pay only the base price.

The commission will be allowed to exclude bidders from targeted countries from participating in certain tenders. But this would be possible “only when the [non-EU] country measure or practice is sufficiently severe and the potential negative impact . . . due to the limited availability of alternative sources is comparatively small,” the draft says.

The retaliatory measures would apply for five years, with the possibility of being extended for a further five years. The commission will be able to withdraw the retaliatory measures or suspend them “if the [non-EU] country takes satisfactory corrective actions or undertakes commitments to end the measure or practice in question.”

To avoid circumvention, the successful bidders won’t be allowed to subcontract more than 50 percent of the total value of the contract to companies from a country targeted by the EU retaliatory measures. This limit would also apply to goods or services supplied by the successful bidder from a targeted country. A company which doesn’t abide by these rules could face a “proportionate charge” of between 10 percent and 30 percent of the total value of the contract, according to the draft.

Exceptions

More free-trading EU governments, which have been concerned over the potential negative consequences of tightening the rules, won several exceptions.

Countries that have an agreement with the EU on preferential public-procurement access or are parties to the Agreement on Government Procurement at the World Trade Organization will be exempt. The retaliatory measures would not apply to bids worth less than 5 million euros for goods and services, or 15 million euros for works and concessions.

Moreover, EU countries won’t be obliged to use the mechanism if it would “lead to a disproportionate increase in the price or costs of the contract that would render its execution economically unviable.”

Countries would also be able to dodge the new rules for public interest reasons or when only bidders from targeted country participate in a tender, or “only such tenders meet the tender requirements.” Each EU country will also be able to submit a list of “sub-central” contracting authorities or entities to be exempted from the public-procurement review mechanism.

The commission will be obliged to review the application of the new rules no later than six years after the date of their entry into force, according to the draft.