THE REFORM TO EU UTILITIES

PROCUREMENT: SMART,

SUSTAINABLE AND

INCLUSIVE?

Dr Eleanor Aspey, University of Manchester

Overview

Recent reform to EU procurement regime

Aims of reform

Europe 2020 strategy – smart, sustainable and inclusive

Focus on utilities procurement regime

Four key areas of reform discussed:

Innovation partnerships

Technical specifications

Contractual conditions

Contract award criteria

Europe 2020

“Smart” growth –

developing innovation

“Sustainable” growth –

developing a greener

economy

“Inclusive” growth –

improving employment

and developing social

cohesion

Reform to EU Procurement Regime

Reform announced by European Commission in 2011

Three main aims:

Simplify rules and increase flexibility

Encourage access to procurement by SMEs

Facilitate a “qualitative improvement” in procurement by encouraging greater consideration of green and social issues

Reform to EU Procurement Regime

Three new procurement directives adopted in

February 2014

Directive 2014/23/EU – concessions procurement

Directive 2014/24/EU – public sector procurement

Directive 2014/25/EU – utilities sector procurement

Must be implemented into national law by 2016

EU Utilities Procurement

EU currently regulates utilities procurement through free movement provisions of the Treaty on the Functioning of the European Union (TFEU) and Directive 2004/17/EC

Covers:

◦ Public Authorities

◦ Public Undertakings

◦ Private bodies with “special or exclusive rights”

Covers utilities performing activities in the energy, water, transport and postal services sectors

Innovation Partnerships

Under the current law, no specific

rules relating to developing

innovative products or services.

Art. 40(3)(b) Directive 2004/17 –

contract purely for R&D can be

awarded without a prior call for

competition BUT can only be used

where contract is not for profit.

Normal competitive procedure therefore needed where procuring entity

hopes to purchase the innovative product/service at the end of the

process.

Innovation Partnerships

Art. 49 Directive 2014/25 sets out new innovation partnership procedure

Long term partnership covering both research and purchase in one contract.

Relatively unstructured but must contain successive stages (Art. 49(2))

Very vague on purchase requirements – value of product should not be “disproportionate in relation to the investment for their development” (Art. 49(7)).

Technical Specifications

Should set out the “required characteristics of a

product or service” and (for works), allow the

relevant product “to be described in a manner such

that it fulfils the use for which it is intended” (Art. 1,

Annex XXI, Directive 2004/17; Art. 1, Annex VIII,

Directive 2014/25)

Focus on two areas:

Production methods

Product labels

Production Methods

Under current law, European

Commission suggested that

production methods could only be

considered where they had a

practical impact on the

characteristics of a product, whether

visible or invisible.

Argument was illogical since European Commission also accepted that

requiring electricity from sustainable source would be allowable but this

has no impact on product characteristics (Kunzlik 2009)

Production Methods

Art.60(1) Directive 2014/25:

“[Technical specifications] may also refer to the specific

process or method or production or provision of the

requested works, supplies or services or to a specific

process for another stage of its life cycle even where

such factors do not form part of their material

substance, provided that they are linked to the subject-

matter of the contract and proportionate to its value

and its objectives.”

Labelling Requirements

Under current law, can refer to specifications of certain eco-labels(Art.34(6) Directive 2004/17)

Must also accept other “appropriate means of proof” (Art. 34(6))

Also applies to social labels – Case C-368/10, European Commission v Netherlands

Labelling Requirements

Art. 61, Directive 2014/25 allows procuring entities to “require a specific label as means of proof that the works, supplies or services correspond to the required characteristics”.

Now only required to accept equivalent proof where a supplier can show “demonstrably no possibility of obtaining the specific label ... within the time limits” (Art. 61(1)).

BUT label can only be required where “the label requirements only concern criteria which are linked to the subject matter of the contract” (Art.61(1)(a))

Contractual Conditions

Current law set out in Art. 38 Directive 2004/17 –

procuring entities may set out “special conditions

relating to the performance of the contract”.

Difficult to reconcile performance requirement with

Art. 54 Directive 2004/17, which allows utilities to

exclude firms from bidding under any “objective

rules and criteria”.

Contractual Conditions

Art. 87 Directive 2014/25 allows contractual

conditions to be set “provided that they are linked

to the subject-matter of the contract”.

Subject-matter includes anything which “relate[s] to

the works, supplies or services to be provided under

that contract in any respect and at any stage of

their life-cycle” (Art. 82(3)).

Award Criteria

Under current law, utilities may award on either of

two grounds (Art. 55, Directive 2004/17):

Lowest price

Most economically advantageous tender (MEAT)

After reform, MEAT is only allowable award basis

(Art. 82(1) Directive 2014/25)

Award Criteria

Life-cycle costing system introduced in Art. 83

Can consider environmental externalities so long as

their monetary value can be determined and

verified in accordance with requirements set out in

Art. 83(2) – based on non-discrimination,

transparency and accessibility.

May use a system for repeated application (Art.

83(2)(a))

Conclusion

Smart growth primarily developed through new

innovation partnership

Clearer inclusion of green and social issues in

directive might boost use of such techniques

Lack of clarity in many places

New introductions could have high administrative

burden reducing use in practice