Procurement habits die hard

Date: 22/02/1996

By Fiona McHugh

MENTION the words “public procurement” in certain quarters and you could be in for a nasty surprise.

For the normally measured tones of polished businessmen can - and do - reach feverish heights as soon as these words are uttered.

Eight directives laying down, inter alia, rules and procedures for the handing out of large public works or utilities contracts have been penned by the European Commission over the past eight years and approved by member states. Their purpose is to harmonise tendering and award procedures, and to provide common rules on technical specifications and the advertising of contracts.

By establishing a single set of laws, the Commission hoped to make it easier for, say, Spanish construction companies to win building contracts in Italy and for Italian computer companies to sell terminals to Spanish civil servants.

But despite its noble intentions, four years down the single market road businesses from around the EU complain that discriminatory patronage of local firms is rife and doing business with foreign governments is still very difficult.

Recent research compiled by management consultancy KPMG shows that, since 1992, only

2-4&percent; of public contracts in the EU have been awarded to firms from outside the member states concerned. It suggests, on the other hand, that some 75&percent; of the deals have been won by national “champions” for whom the tenders are tailor-made.

One of the main reasons why the directives have failed to match up to business expectations is, quite simply, the failure of member states to put them on to national statute books.

Several years after the expiry of the deadline for transposition, the Commission is still waiting, in 18 cases, for EU public procurement rules to be written into national law. Belgium, Germany, Greece, France, Ireland and Italy, for example, have still not managed to put the directive on public supply contracts, adopted by the Council of Ministers in 1993, on to their statute books.

Member states have an equally poor record when it comes to transposing laws governing water, energy, transport and telecommunications contracts.

And even when they are implemented at national level, the enforcement of procurement rules is often patchy.

There is also a feeling among the business community that local authorities use technical and safety standards to shut out competition from abroad.

“We are often forced to change our production method several times to suit the many different technical specifications of Europe's governments,” said Richard Royall of consumer electronics company Rank Xerox. “It is impossible to speak of a single market while these differences exist.”

His view is echoed by British Gas. “Even when the letter of the law is obeyed, there are countless informal ways of discriminating and, believe me, they are used liberally by local and national authorities,” said a spokesman. “In order to have free movement of goods, we absolutely need to have harmonised standards as well as harmonised laws.”

This uneven application of directives, together with huge gaps in technical requirements asked of European companies, has given rise to resentment in some quarters, and has hampered cross-border trade.

Businesses in countries such as Denmark, Luxembourg and the Netherlands, where the directives in question have been transposed in full, grumble that they must compete fairly with foreign rivals at home, but suffer discrimination in countries such as Germany and France, where the European rules are not fully adhered to.

“There are some countries which look for ways to get around the rules and some, like the Netherlands, which look for ways of sticking to them,” explains one Dutch businessman. “Of course we do not mind playing by the rules, so long as there is a level playing field.”

The Commission admits that a number of problems remain, but argues that these will be overcome by cracking down on the rule-breakers.

Stressing the central importance of open and competitive procurement practices, Internal Market Commissioner Mario Monti has declared his determination to “ensure that the rules are applied in practice”.

Indeed, the Commission has taken a tough line in recent times, starting a total of 31 proceedings against national governments for failing, either in part or in full, to transpose European laws.

A further spate of legal cases has also demonstrated the Commission's willingness to pursue those who grant public contracts unfairly. France, for instance, faces court action for unfairly awarding a contract for the construction and operation of a football stadium outside Paris ahead of the 1998 World Cup.

Austria is also likely to find itself in the dock at the European Court of Justice for its failure to publicise a tender for the construction of an administrative and cultural centre at Sankt Pölten.

But the Commission's battle against discrimination is less 'Ramboesque' on other fronts.

A communication analysing the state of play in public procurement, and suggesting ways of combating discrimination, was due to be issued by the Commission early this year, but has now been put on ice pending more concrete data.

In that communication, the Commission was expected to question - if not call for the abolition of - its hands-off policy vis-à-vis the defence industry, which allows governments to decide who gets which defence contract without following standard EU procedures.

But for those whose hopes of creating a level playing field were pinned on the communication, disappointment is in store. The document is now unlikely to emerge before the end of the year, if then.

“If it comes out, it will be more limited and restrained,” said one Commission official.

The Commission is, however, due to step up its information campaign aimed at making civil servants aware of the content of public procurement directives, as well as at educating companies about business opportunities available abroad.

Monti says problems have arisen “partly because procurement is an area where old habits die hard”, adding: “Procurement entities have often preferred suppliers of long standing and governments are often used to using procurement to favour local industry. At the same time, companies are often wary of trying to bid for contracts in another country or are simply not aware of the opportunities.”

The Commission has already launched two pilot projects to help disseminate information about contract opportunities via the Internet.

Looking further afield, Trade Commissioner Sir Leon Brittan, in another show of strength, has announced that he will try to muscle open non-EU markets - pledging that the United States' “Buy America” legislation, which shuts European companies out of certain public procurement contracts, will be one of the key targets of his campaign.

Brittan says America's protectionist policy is preventing European firms from bidding for contracts to build airports and subway transport systems in the United States, to take just one example.

European businessmen, however, are more concerned with work in Europe, and while they acknowledge that this is a politically sensitive issue, they insist they cannot afford to wait too long for a single market in the public arena.

Their impatience is hardly surprising. At stake is 750-billion-ecu worth of business, which accounts for 12&percent; of total EU gross domestic product.