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Memorandum

Modernising EU public procurement rules

Memorandum

25 September 2012, Brussels

Prof Christopher H. Bovis University of Hull Modernisation is crucial. It is fewer than six years since the revised Publ ic Procurement Directives came into force. Some o f the ma in i ssues wh ich dominate the current public procurement reform agenda are: the ability of public authorities to p rocu re t h rough i n -house solutions, the treatment of sub-dimensional procurement, the applicability of the procurement rules to non-priority service contracts, and the discussion on how the legislator should look at serv ice concess ions which currently are not covered by the public procurement rules. The Modernisation agenda is crucial, especially the treatment of services of general economic

i n t e res t unde r t he pub l i c procurement Directives. Another key issue is the balance and inherent flexibility of the public procurement Directives which allow for a combined regulation of economic policies with other policies of the Single Market. But the most important point pertinent to the current reform agenda of the public procurement Directives is the compatibility of public procurement with industrial policy and the EU Strategic Plan for Growth, the EU 2020 Strategy. _____________________________

Memorandum Modernising EU public procurement rules

Dr Virginia Acha Director International Affairs - Global Policy, Pfizer The quest ion about how the p rocu remen t i s r e v i ewed i s fundamental. When it comes to medicine, the treatment is more than the dose, the supply is more than the box and the value is greater than the price. What is particular for medicines that we need to think of in this debate? Looking at the current financial status, medicines are a stable part of the health care budget. It is also important to make changes carefully and first, fully analyse the consequences – how they will influence the people in need of the medicine. Te n d e r i n g i s a g r o w i n g p r o c u r e m e n t m e t h o d f o r medicines and we have seen a


growth from 21% to 24% in only two years. But we need to take some special features of medicine into account when the rules for p r o c u r e m e n t a r e s e t .

Dr Acha underlines that not all medicines are interchangeable, pa r t i cu l a r l y no t b i o l og i ca l medicines. Patients respond differently; the doctors need to have a full-sized cabinet to give the right treatment to the right pat ient , part icu lar ly so for biologicals which are extremely complex. Even if medicines are exactly the same in structure (small molecule generic versions), you may find differences and those differences wil l affect p a t i e n t s d i f f e r e n t l y . A key message is to compare “like with like” - to have specified criteria and more than one source of supply. It is still a challenge to find the right definition and fair criteria. The question about how the procurement is reviewed is fundamental. When it comes to medicine, the treatment is more than the dose, the supply is more than the box and the value is greater than the price.

Criteria should include the full value of the medicine and the s e r v i c e s t o h e a l t h c a r e practitioners, healthcare systems and to patients and their carers. Cr i t e r i a , mechan i sms and outcomes should be developed with physicians, patients and suppliers and it is important to allow a sufficiently broad choice of medicine to meet the needs of the patients. There is one more aspect when it comes to medicine – without a legislative framework that protects investments no one will develop new medicine, particularly if tendering is applied to patent-protected medic ines with in groups that include generics. Pfize r be l i e ves i n g rea t e r competition and that procurement is an important tool to achieve this. Dr Acha was clear when it came to requested improvements. She would also like to see public procurement mechanisms that a l l ow fo r nego t i a t i on and engagement to deliver tailored proposals that deliver value in healthcare. _____________________________


Joerg Jenewein Director, EU Government Affairs, Merck Serono

I n gene ra l , t ende r s a r e an inappropriate tool to purchase non-identical medicines.

Tenders have been widely used for many years in the hospital sector. Some countries (e.g. Aust r ia , Cyprus, Denmark, Hungary, Iceland, Ireland, Sweden and the United Kingdom) have more than 25% of their annual total sales in hospitals going through tenders. Until recently, tenders of medic ines have general ly been confined to identical, off-patented medicines (i.e. generics). Lately, payer-driven tenders are often multiproduct and use the price as key or unique selection

a financial department will most l i k e l y n o t t a k e t h i s i n t o consideration. Tenders rarely look beyond price, meaning that elements such as therapeutic o u t c o m e s , c o m p l i a n c e t o treatment, dosage regimens, devices, value for the healthcare providers, are not appropriately considered.

If purchasers insist on using tenders as a purchasing tool it should be ensured that these t e n d e r s a re a p p ro p r i a t e l y organised and executed. Tenders need to take into consideration the complexities, differences and varying value propositions of biopharmaceuticals. Tender rules also need to be fair, transparent and sophisticated in order to ensure an appropriate, balanced outcome for payers/providers, physicians and patients states Mr Jenewein.

criterion and are based on the under l y ing conv ic t ion tha t tendered products are equivalent from a therapeutic point of view, irrespective of the concrete differences of the tendered products. Biotech differs from chemical drugs in molecular p r o p e r t i e s a n d c o m p l e x manufacturing.

In general, tenders are an inappropriate tool to purchase non-identical medicines. Biotech drugs, compared to chemical drugs, are produced by living cells; when you change a living cell, each change will create a different molecule and it causes a different effect in different persons. There are not two identical products and similar products might affect two patients with similar problems differently. Mr Jenewein also stated that multi-product tenders remove any incentive for suppliers to innovate and invest to develop medicines or new formulations which may be more effective, safer, and more convenient or more adapted to some patient populations. New products might require one injection per week instead of three injections per day, a tender run by


Charles-Edouard Escurat Director of Resource and Expertise Center, RESAH-Idf (Procurement Network of Paris Region Healthcare sector) With more flexibility the hospitals also wi l l be able to at t ract more investments from the industry. B u y e r s a l r e a d y p u r c h a s e commodities, drugs and several other products today, without public procurement. An improved dialogue will promote negotiation.

They would like to reserve the use of the tendering procedures for medicines that are genuinely identical, bio-equivalent, multi-sourced and off-patent. “Negotiated procedure applied to biological medicines would allow for a fu l l assessment and recognition of the medicines’ health and economic value. Public procurement should be a tool to support patient access to the medicines that are best for them - including innovative biologicals.”

In detail Merck would like to see a wider choice of procedures. Mandatory transposition of all procedures ("shall" instead of "may") and flexibility for sub-central contracting authorities (Art 23 – Art 30). For innovative Biologicals, use of the negotiated procedure Art 30.

When it comes to contract award criteria of which they are in favour, they conclude that they would like t o h a v e : M E A T ( m o s t economica l ly advantageous t e n d e r ) a n d “ l i f e c y c l e assessment” including criteria such as ease of use, adherence/comp l i ance , p rov id i ng f o r


implementation guidelines for (bio)pharmaceuticals, division into lots/framework agreements, multiple winners where possible (to ensure right medication to the right patient), sound procedures and confidentiality is vital (Art 18). _____________________________

Pierre Delsaux Deputy Director General DG MARKT, European Commission It is a bold directive presented in a time of crises and changes. Why have we proposed this? It is a bold directive presented in a time of crises and changes. All member states seek a way to be more efficient and reducing cost by 10% would save a lot of tax money. The world has changed, the environmental and social dimensions have become more important. The Commission is looking into the possibility to take new criteria into account and we also need to move fast with this directive.

Mr Escurat stated that the buyers of today have the knowledge to negotiate. Under the threshold for public procurement the buyers already negotiate which Mr Escurat believes should be taken into consideration in the directive.

He stated that it is important to promote innovation and research. This will foster growth and job creation. A working directive is also essential for the future. With more flexibility the hospitals also will be able to attract more investments from the industry.

Mr Escurat concluded that it is also important to increase the SMEs’ access to procurement through fewer administrative burdens. The EU passport is a good example. This will allow more SMEs to participate to a wider extent. From a buyer perspective this will also increase the security since the passport comes with conditions to receive it. The passport shows that holder of the pass has paid their tax and social fees. Finally Mr Escurat stated that the social criteria are a good thing for hospitals as well and that they welcome the development of today’s debate. _____________________________


Concession is an important ingredient and will be even more important in the future. Some member states have a regime with a level playing field in regard to concessions. The European Parliament has been working with the directive with the aim to simplify, which the European Commission generally supports. The most criticized part of the proposal concerns reciprocity. The proposal has been accused of being protectionist, but it is not a “fortress Europe”; we will not close our market, rather we are looking at the possibility to open up to third countries’ markets, but we need tools to force China, Japan and even the US to also open up. It is only a means of pressure to make sure that they also open up their market. What would the Commission like to achieve? First, simplification. It is important for companies and particularly SMEs and we would like to decrease the papers and c e r t i fi c a t e s n e e d e d f o r submissions (call of tenders). The

Commission proposes that only winners need to send those. The protection of the environment is fundamental in all areas that make the life cycle cost important. Innovation is also crucial and member states should encourage cooperation to find new solutions. The proposal has also been c r i t i c i z e d f o r e l e c t r o n i c procurement. The Commission would like it to be a reality in Europe by 2016 (e-procurement is already possible today). Portugal is the most advanced country today. SMEs are participating since it is easier and less expensive. E-procurement would give us the possibility to save about €100 billion per year.


Regarding reforms on public procurement, member states have made a lot of progress. The advances in the European Parliament are also good, but the number of amendments could delay the process. _____________________________

small home market. For Volvo Buses only 3% of the vehicles produced are sold in the home marke t , wh ich makes the poss ib i l i t y t o expo r t ve r y important. Free trade is essential for Sweden but there is a high degree of politics involved when it comes to buying buses. For a country with its own production of buses, the politician buying foreign buses will probably face difficulty gaining support from the voters. Mr Gustafsson stated that from Volvo’s point of view, MEAT award criteria are extremely important, as well as social goals. The 2020 strategy is also something they strongly support. But Volvo has problem with lowest bidder principle since the lifetime is not always taken into consideration. F rom Vo l vo ’s pe rspec t i ve , innovation and partnership are an important part of the future. Simplicity is fundamental; buyers invest every 6-8 years and it is difficult be an expert in all areas of public procurement. The life cycle cost concept is an advantage for Volvo as well as the g r e e n v e h i c l e d i r e c t i v e .

Ulf Gustafsson Senior Manager Public Affairs, Volvo Bus Corporation Public procurement rules should enable free trade, which is a prerequis i te, especia l l y for a company with a small home market. Tw o t h i r d s o f Vo l v o B u s Corporation’s sales in Europe are s o l d u n d e r t h e p u b l i c procurement rules. These are rules that should enable free trade, which is a prerequisite, especially for a company with a


Unfortunately, the green vehicle directive has been implemented differently which has created specific measurements in different cities and there is a risk that it becomes very expensive with too many di fferent ta i lor made solutions. Mr Gustafsson mentioned that one of the main concern is that a lot of contracts are being appealed: 30-40% of contracts in some countries are going to court. It is usually when someone adds something else than lowest prices that the buyer ends up with an appeal, which underlines the importance of we l l -defined criteria. _____________________________

Sally Collier Deputy Chief Procurement Officer, Efficiency and Reform Group, Cabinet Office, UK We believe in the economic benefits of open global markets, and are strongly opposed to any measures to restrict EU market access by third country suppliers Ms Collier began by explaining that in the UK they are driving a major programme of reform to change the way they do business and deliver public services. The UK has taken direct action to secure operational efficiency savings and reduce the budget deficit. To do this they have taken a number of key actions, including c o n d u c t i n g a g g r e g a t e d procurement for commodity goods and services to maximise the government’s purchasing


power, implemented spending controls, massively reduced s p e n d i n g o n a d v e r t i s i n g , consultancy and marketing and ICT. Th is ru th less approach to eradicating wasteful spending toge the r w i th o the r w ide r m e a s u r e s a c r o s s c e n t r a l government departments has delivered savings - over £5.5 billion GBP for the taxpayer for the year 2011 - even higher than predicted (announced 9th August 2012).$ Many things in the proposed p rocu remen t d i rec t i ve a re welcome: more flexibility, greater f r e e d o m t o n e g o t i a t e , e -procurement, and clarification on e n v i r o n m e n t a l a n d s o c i a l dimensions. The UK approach to the reform of the procurement rules is that the UK believes the

modernisation of the procurement rules is a once-in-a-decade o p p o r t u n i t y t o s i m p l i f y procedures, reduce bureaucracy, and increase cross-border competition. Congratulations to the Commiss ion fo r rap id pursuance of the renegotiation.

In particular, the UK welcomes the p o s i t i v e d i r e c t i o n o f t h e negotiations on the governance provisions (removal of proposed national oversight bodies to deliver various advisory and training services), which now look more manageable.

The main concern for the UK is that the proposed abolition of the simpler Part B Services regime is the opposite of simplification as adding rules is likely to add cost/complexi ty without a c lear business case.

They urge all parties to support them in the proposal for a t empo ra r y e xc l u s i on f rom competition to allow new public service mutuals to become established, before they are s u b j e c t e d t o E U - w i d e competition. This is ultimately good for competition, as it opens up public service markets in the long-term, and is good for growth.


We believe in the economic benefits of open global markets, and are strongly opposed to any measures to restrict EU market access by third country suppliers.$ Also to support better value for the UK taxpayer and to stimulate growth the UK wants to move away f rom a t ransact iona l approach to procurement to a more strategic engagement with s u p p l i e r s s o t h a t p u b l i c procurement is meeting the UK’s needs in the long term and is more accessible to all types of businesses, particularly SMEs. The UK programme to achieve 25% of central government business awarded to SMEs is bearing fruit and spend is rising in a climate where overall spend is declining. Some of the actions t a k e n t o s t i m u l a t e S M E involvement include a single opportunities portal, reducing bar r ie rs such as the pre-qualification questionnaire (where it has been abolished for low v a l u e p r o c u r e m e n t a n d significantly simplified it for above OJEU tenders), and providing suppliers with a simple route for feedback telling us where poor practice exists. _____________________________

Benjamin von Engelhardt Second Secretary for Cohesion Policy, Public Procurement, Competition Policy, Permanent Representation of Germany to the EU T h e p r o p o s e d t e x t o n t h e Modernisation of Public Procurement is a good starting point for the Legislative Procedure currently undergo ing in the European Parliament and the Council. The Council is in mid-negotiation a n d c o n c l u d e s t h a t t h e P a r l i a m e n t ’s a b o u t 1 6 0 0 amendments only to the classical directive show that everybody takes it seriously. As to the concession directive, Mr von Engelhardt stated that Germany basically welcomed the


E u r o p e a n C o m m i s s i o n ’s intentions to improve market access and create greater legal certa inty for the award of concession contracts. Germany would only support the legislation on the award of concession contracts if it was restricted to basic rules ensuring transparency, competition and legal certainty (the “light touch approach”). Regarding the Classical Directive, Germany welcomes the Proposals of the Commission as a good basis for discussion. However, there are several issues where improvement is possible. Good implementation of the directives is essential. However, there is no need for a national oversight body. The principle of subsidiarity has to be taken into account, due to the differences among the members. Instead of creating additional statistical reporting obligations the existing European electronic d a t a b a s e T E D s h o u l d b e strengthened. MEAT should be the main award criteria, with low cost as the decisive and sole c r i t e r i o n o n l y f o r h i g h l y standardised products. The current system of priority and non-priority services should be


maintained. There is also a risk that the new directive could be used for protectionist purposes, which has to be avoided. The proposed regulation on the access to third countries risks not only being a wrong signal to international trade and the internal market, but also an administrative bu rden fo r p rocu re rs and companies. In order to exclude a tender from a third country as foreseen by the draft regulation, it must for example be established that the tender originates from a third country, which implies applying the rules of origin. These complicated rules are normally applied by customs experts and would now have to be applied by procurement officers in about 30 000 procurement authorities in Germany alone. _______________________________________

allow the best value for money proposals and the second is that they believe that fair competition on EU-wide basis is necessary. But there is st i l l room for i m p r o v e m e n t s . S U E Z ENVIRONNEMENT would like to see that the new directive limits the exceptions, increases the possibility for best value for money, increases legal certainty to reduce costs of litigation and fosters competition. The many exemptions in the draft risk to affect the openness in the market (article 11) as it provides for exemption from competition rules for public entities that can also act, in parallel, on the open market. SUEZ ENVIRONNEMENT believes that the recent case-law behind these exemptions (i.e. what constitutes the “similar” control of a contracting authority over a public entity) is still controversial and goes far above what is necessary. It risks opening up for unfair competition between public and private sector. All the amendments from the members o f the European Parliament show that this topic is


Hans-Eckart Niethammer Legal Director, SITA Northern Europe Waste Services The European framework should foster competition rules - meaning that exemptions should be limited - and encourage value for money offers. Hence, price should never be the single decisive criteria. SUEZ ENVIRONNEMENT is following the public procurement debate with great interest. There are several positive aspects in the new proposals, among them e-procurement and negotiation p r o c e d u r e a s w e l l a s environmental criteria. Mr Niethammer stated that SUEZ ENVIRONNEMENT would like to stress two basic principals: the first is that the legislation has to

important. Some of them even give more space to cooperate on horizontal level through more exemptions. But there are also many amendments in the other direction. This shows the battle between private and public sector within the European Parliament.

In Germany and the Netherlands there are tendencies towards public authorities trying to avoid procurement by giving business to the public cooperation. In-house entities hold private interests. It is against the rules, but occurs nonetheless.

Mr Niethammer stated that SUEZ ENVIRONNEMENT also would like to stress that divisions into lots should not become mandatory (art 44); in general it is a good idea and SITA supports SMEs, but it should be clarified that there a re a l s o e x a m p l e s w h e re contracts can not be divided into lots. Another area where changes should be made are the proposed rules to identify abnormally low tenders, which are so strict that they never will be able to be identified. In addition, it will also be important to allow the principle of value for money – price should never be the single decisive criteria. _____________________________

Nils Lundkvist Manager Technical Strategy, Waste Management, City of Stockholm, Traffic administration, Waste department It is possible to achieve positive results through public procurement and that it will gain local, regional and international contactors. Mr Lundkvist focused on the practical part of waste and public procurement and “how it works in Stockholm”. S t o c k h o l m f a c e s s e v e r a l c h a l l e n g e s , a m o n g t h e m sustainable waste management, awareness, choice of technology, fi n a n c i n g , o p e r a t i o n a n d environmental demands. But the perspective should be that we talk about a sustainable city – not only


waste management. The waste department provides a service to the citizens. S t o c k h o l m h a s p r o c u r e d contractors to collect waste during 40 years. There have been questions about if there really is a market and the conclusions is that yes, there is. Stockholm is divided into 12 lots to allow smaller contractors to participate in public procurement. Local, regional and international companies have contracts and are serving the citizens of Stockholm. Environmental demands are already to be found among the criteria that Stockholm uses. Today, 100% of the trucks run on non - f oss i l f ue l s . I n t o t a l , Stockholm has five contractors collecting household waste, one contractor for food waste and 17 contractors for bulky waste. Stockholm’s conclusion is that it is possible to achieve positive r e s u l t s t h r o u g h p u b l i c procurement and that it will gain local, regional and international contactors. _____________________________

Peter Curran Partner and head of procurement, Arthur Cox, Belfast

I t is necessary to keep the procurement as simple as possible a n d c o o p e r a t e a n d s h a r e competence. " There are several difficulties for authorities when it comes to procurement of waste. Looking at the number of complaints and litigations, waste has a prominent position. Waste is also surrounded by a different litigation culture.

Why is it so difficult? What differentiates waste management from other sectors?

The market is often structured to reduce the number of lots and we will get fewer contracts that are


more valuable. This also implies that stakes are high in the competition of contracts (losing one contract could result in being put out of the market). The market itself is also small where the competitors know each other (both strengths and weaknesses).

In addition to this, the authorities work in a different environment where contractors are as informed or often more informed on new case laws within the EU. It is n e c e s s a r y t o k e e p t h e procurement as s imple as possible and cooperate and share competence.


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