Session “International standards for planning and conducting procurement process”

Contracting entities and contracts covered – coverage issues according to international standards

Johannes S. Schnitzer EBRD-Consultant, WOLF THEISS

Kiev, 1-2 March 2012

11/3/2012

Agenda

Which Entity is Covered?

Which Contract is Covered?

Exceptions and limits

Financial Thresholds and Valuation of Contracts

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Public C

ontract

market

Open procedureRestricted / negotiateded procedure (with

prior publication)

Procurement Planning

Steps

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Covered Entity? (1)

EU Public Procurement Directives (EU-PPD)

Contracting Authority (CA)

The state

Local and Regional Authorities;

“Bodies governed by public law”

Utilities

Bodies engaged in the sectors of water; transport; energy; and postal services

CA

“Public undertakings”

Private companies operating on the basis of a “special or exclusive right”

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Covered Entity (2)

WTO Government Procurement Agreement (GPA)

Positive, negative, discpriptional approach Central-Government Entities (Annex 1) Sub-Central Government Entities (Annex 2) Other Entities (Annex 3) (General Notes)

UNCITRAL Model Law on Public Procurement (UNCITRAL-LAW)

„Any governmental, department, agency, organ or other unit, or any subdivision or multiplicity thereof, that engages in procurement, except…“

„Any department, agency, organ or other unit, or any subdivision or multiplicity thereof, or the [Government] that engages in procurement, except…;“

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Covered Entity (2)

Examples

(German) Public Broadcasting Company (ECJ, C-337/06)

(Austrian) Funeral Company (ECJ, C-373/00)

(Austrian) Printing Company providing support services for government services (ECJ, C-44/96)

(Italian) Trade promoting company (ECJ, C-233/99 and C-260/99)

(English) University (ECJ, C-380/98)

(Spanish) Prison company (construction and operation) (ECJ, C-283/00)

German statutory sickness insurance fund (ECJ, C-300/07)

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Covered Contract (1)

wrong classification: risk of legal challenge !

Public contracts in writing for pecuniary interest which are (1)

Work contracts

E.g.: Construction of a hospital; renovation of a office building; design and construction of a sport stadium; construction of a waste-water disposal plant, etc

Annex 1 to EU-PPD (NACE code) http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:134:0114:0240:EN:PDF

Supply contracts

E.g.: Purchase of software; purchase of office equipment; supply of energy; purchase of pharmaceuticals; lease of cars

CPV-Codes http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:074:0001:0375:EN:PDF

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Covered Contract (2)

Public contracts in writing for pecuniary interest which are (2)

Service contracts

E.g.: Architect and engineering services; cleaning services; marketing and PR services; legal services

Annex 2a and 2b to EU-PPD http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:134:0114:0240:EN:PDF

UNCITRAL-LAW

Applies to all public procurement acquisition of goods, conduction or services by a procuring entity

GPA

Applies to any procurement by any contractual means

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Covered Contract (3)

Mixed Contracts (1)

Contain work, supplies and/or services in a single contract

E.g. Purchase of vehicles and their maintenance

Classification of either works, supply or service contract !

Boundary between supplies and services:

Main-Value test: which value is higher (supplies or services) ?

Boundary between works and services

Main-object test: what is the principal object of the contract ?

Boundary between works and supply

Predominant-purpose test

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Covered Contract (4)

Mixed Contracts (2)

Boundary between works and supply contract

Tunnel radio system – case law Austria

The renewal of a tunnel radio system is – despite the scope of supply – classified as a works contract

Works serve the functionality of the building

Equipment for waste-water treatment plant– case law Austria

Equipment (electrical distributor, electrical installation, process control system) and installation of equipment classified as works contract

fixed connection with the plant

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Covered Contract (5)

Mixed Contracts (3)

Boundary between works and service contract

Fire alarm system – case law Austria

Service contract contractor was not only responsible for the renewal of the fire alarm system but also for the maintenance for an unlimited period (value of service part prevailed)

landfill remediation – case law Austria

Service contract transport, waste disposal, waste recycling was main objective of the contract (not excavation works, digging activities, etc)

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Covered Contract (6)

Mixed Contracts (4)

Boundary between supplies and service contract

Data processing system – ECJ case law

Supply contract if value of supplies is higher than value of „immaterial services“

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Covered Contract (7)

Mixed Contracts (5)

Boundary between priority and non-priority services

Differentiation via main value test!

Principal purpose of the service package is irrelevant

Value is decisive (ECJ, C-76/97 Tögel; ECJ, C-411/00 Felix Swoboda)

Prevailing of the priority part means the entire order is treated as a priority service

Prevailing of the non-priority part on the contrary means the entire order is treated as a priority service

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Covered Contract (8)

Mixed Contracts (6)

Further Examples – case law Austria

Design, financing, construction and operation of a lorry toll

main purpose of the contract was not the construction of the toll system but rather its operation

supply of goods was also not subject matter of contract since the service provider (responsible for the operation of the system) had to use the technical equipment in order to operate the system

= service contract since contract‘s main purpose is toll collection

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Exemptions (1)

Contracts for defense purposes and contracts affected by security considerations

GPA excludes defense procurement

EU Defense Procurement Directive

Certain International Contracts Joint projects with, for instance, United Nations

International agreements on the stationing of troops

Broadcasting services E.g. purchase of advertisements by BBC

Central bank services

Contracts for the acquisition of land

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Exemptions (2)

Service Concessions

= service contract under which provider is remunerated by exploiting the service provided

provider has the right to exploit for payment of its own service

provider assumes the economic risk arising from the provision and management of the service

E.g. private firm operates a transport service and obtains payment by passengers

ECJ, C-324/98 Teleaustria

transparency obligation: “degree of advertising sufficient to enable the service concession to be opened up to competition”

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Exemptions (2)

In-House Procurement (1)

Contracts performed with contracting authority's own internal resources are excluded

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private sector

Public contracting entity

Provider

marketstate

In-House Procurement (1)

Contracts performed with contracting authority's own internal resources are excluded

CONTROL

ESSENTIAL ACTIVITIES

Exemptions (3)

In-House Procurement (2)

Two criteria (“Teckal conditions”)

1. the procuring entity exercises over that person a control similar to that which its exercises over its own departments; and

No control if

Any of suppliers capital is owned by private entities (ECJ, C-26/03 Stadt Halle)

Some or all of its capital will be sold to private entities in short time (ECJ, C-29/04 Stadt Mödling)

Supplier enjoys management independence (ECG, C-458/03 Paking Prixen)

2. that person “carries out the essential part oft its activities with the procuring entity ”

In-house-company is mainly active for procuring entity (ECJ, C-295/05 Asemfo)

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Exemptions (4)

In-House Procurement (3)

ECJ, C-573 Sea Srl

Italian local authorities awarded waste disposal contracts to the company “Setco” (which they jointly owned)

the public shareholders collectively exercised decisive influence over Setco’s strategic objectives and decisions

Award to Setco with waste disposal services was exempted from public procurement law

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Other limits

Only one possible provider

if only one firm is authorized by law to provide a particular service

ECJ, C-220/06: the provision of certain postal services (by the Spanish government) was entrusted exclusively to one company

competition law (nowadays) might prohibit that states my reserve certain rights to one provider

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Financial Thresholds and Valuation of Contracts (1)

Applicability of rules only to contracts above certain financial values (thresholds)

EU-PPD seek to identify contracts for which there is likely to be cross-boarder competition

GPA depends on each GPA-party and “Annex-entity” (e.g. Armenia see below)

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Above Threshold „classical“ CA Zentral CA Utilities

EUR 200.000 130.000 400.000

Country Annex 1 Annex 2 Annex 3

Goods Services Works Goods Services Works Goods Services Works

SDZ 130,000 130,000 5 m 200,000 200,000 5 m 400,000 400,000 5 m

Financial Thresholds and Valuation of Contracts (2) Estimated value net

total amount payable

E.g. past experience

External expert opinion (if necessary)

Time at which CA commences the procedure

normally, time at which contract notice is send off

Obligation to take account of the highest possible value including options (EU-PPD)

all forms of remuneration, including, inter alia, feeds, commissions, etc (GPA)

Aggregation rules

prohibition of “contract splitting” to avoid thresholds

EU’s aggregation rules are are quite complex not replicated under GPA and UNCITRAL-Law

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Contact

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Johannes S. Schnitzer, Dr. iur, LL.M.Tel: + 43 / 1 / 51510 – 2350

Fax: +43 / 1 / 51510 – 665355

E-Mail: johannes.schnitzer@wolftheiss.com

WOLF THEISS Attorneys-at-LawSchubertring 61010 ViennaAustria