The EU Public Procurement Reform: A Danish View

In February 2014 the EU adopted new public procurement legislation: updated Utilities and Public Services Directives and a new Concessions Directive.  EU member states now have until 17 April 2016 to transpose the new rules into national law.  A regulation, also part of the legislative package on public procurement, is still under negotiation.
 
EU Public Procurement Legislation
 
On an overall level public procurement rules govern public authorities’ procurement of goods, works and services.  The rules establish criteria for awarding contracts in order to ensure best value for the public authorities’ (ultimately the taxpayers') money, and that the public purchases are made in a transparent manner in order to ensure fair competition.
 
The EU rules on public procurement require that public purchasers apply the EU principles on non-discrimination, transparency and proportionality and comply with the rules on free movement.
The EU rules are procedural rules and, hence, regulate how – and not what – the public sector shall procure.  Below, some of the new features of the rules are briefly outlined.  Further down, the implementation into Danish national law is explained.
 
An EU Commission impact assessment has concluded that current procurement rules may not always allow public authorities to make the best use of their resources and might also be unduly burdensome.
 
To remedy these problems, the award criteria in the new EU rules will be based on the principle of the “most economically advantageous tender” (also known as the “MEAT”-criteria).  The MEAT-criteria aim to ensure quality and best value for money by putting more emphasis on environmental considerations, social aspects and/or innovative characteristics, the experience of the staff performing the contract or offers of after-sales service and technical assistance, while still taking into account the price or life cycle costs of the work, good or service procured.
 
Furthermore, the new EU rules seek to open procurement contracts up to more innovative solutions to ensure that money spent on procurement stimulates development.  The new rules also clearly define a number of critical issues which should lead to the exclusion of certain bidders from the tendering procedure, such as conflicts of interest or significant underperformance under a prior public contract.
 
Moreover, abnormally low tenders will be investigated and violations of social and labour law or environmental law could lead to the exclusion of a bidder.  The new directives will also introduce tougher rules on subcontracting.
 
Implementation: the Danish Stand on Public Procurement
 
In Denmark the public sector procures goods, works and services for approximately EUR 40 billion per year.  This encompasses a broad range of purchases, e.g. office supplies and food products, but also services such as operation of nursing homes and cleaning of public schools as well as infrastructure and other construction projects.  The sheer scale and scope of public procurement in Denmark brings significance to the applicable procedures.  Currently, the national regulation on public procurement in Denmark consists of the Danish Public Tender Act and the Danish Enforcement Act.
 
In June 2013 the Danish government appointed a Procurement Committee with the purpose of drafting a proposal for a bill implementing the new EU directive.  In December 2014 the Committee published its 850 pages long report on Danish Public Procurement Legislation including a bill for a Danish Public Procurement Act.  The bill was then submitted to public consultation until 8 January
2015 and it is expected to be introduced to the Danish Parliament within the forthcoming months.
 
As the EU directive frames the bill for a Danish Public Procurement Act, this new bill brings about changes to the present state of the law on public procurement.  Generally, the Procurement Committee sought to clarify and simplify the area of law, create larger flexibility and diminish the transaction costs associated with the tendering process.
 
Clarity is to be obtained by specific initiatives, e.g. (i) merging the rules necessary to implement the
EU directive with the national regulation on procurement below the EU thresholds into one bill for a Danish Public Procurement Act, (ii) furnishing the bill for a Danish Public Procurement Act with an opening section introducing the purpose of the rules, thus setting a frame for the actual application, and (iii) codifying existing relevant case law.  Moreover, in order to simply the rules, a former distinction between “A” and “B” services is abandoned in favour of a new distinction between services in general on one hand and social and other specific services on the other hand.  Likewise, the duty of advertisement in smaller procurement processes (meaning processes above approximately EUR 67,000 but below the EU thresholds in Article 4 of the directive) without cross-border interest is abandoned, and instead only a duty to secure procurement on market terms apply to those processes.
 
A wider degree of flexibility is to be obtained by broadening the access to apply the special procurement procedures allowing for negotiation and competition influenced dialogue.  Moreover, an opportunity to apply the new procurement process regarding so called innovation partnerships is made possible.  Innovation partnerships enable collaborative development of products, works and/or services to meet the needs of the public authority.
 
In order to obtain reduced transactions costs for the private and public parties involved in a tender process, a common EU procurement document serving as a declaration for the individual bidder serves to ease, firstly, the bidder’s obligation to fulfil the documentation condition and, secondly, the public authority’s obligation to consider the documentation.  As a starting point, only the chosen tenderer shall submit full documentation.  The template for the declaration is yet to be developed by the EU.
 
The bill provides for a number of additional changes which shall not be addressed here given the limited scope of this article.
 
Concerns and Issues to Consider
 
During the public hearing of the bill a number of stakeholders have expressed concerns. 
 
The majority of the Danish municipalities and large trade organisations support the bill with only minor concerns.  However, a number of non-governmental organisations involved in development, human rights law or environmental law fret about the lack of representatives invited to participate in the Procurement Committee.
 
Another issue pointed out is that no relevant sustainability expertise was involved in the preparatory work although one of the purposes of the EU Directive is to gain a more sustainable procurement procedure.  Moreover, the same NGOs oppose the lack of consideration given to the UN’s Guiding Principles on Business and Human Rights.
 
An additional concern directly addressing the Danish implementation regards the form of the implementation: A bill consisting of no less than 198 sections.  Together with the bill, public authorities and private bidders must concurrently consider the 94 articles of the EU directive itself.  This considerable extent of regulation demands – at least for an initial term following enforcement of the Danish Public Procurement Act– a time consuming effort in order to gain understanding of the entire content and the application of the rules.
 
Moreover, the bill does not either limit the number of tenders invited under a tender call or set out a way to easily reduce the number of tenders.  This has raised concerns about transactions costs related to the administration of this early step of the procurement process.
 
The bill for a Danish Public Procurement Act is expected to be introduced to the Danish parliament ultimo February 2015.  During its reading in the parliament, the bill may be subject to changes, and it remains to be seen to what extent the parliament will include the criticism from the NGOs.  Accordingly, the expected time for the parliaments presumed passing of the bill is yet unknown, however 1 October 2015 is the excepted date of enforcement.
 
Jesper Avnborg Lentz is a partner within the firm’s real estate and construction law department.  Jesper holds a law degree from the University of Copenhagen (2004) and an LL.M. in International Finance (merit) from King's College London.  He was admitted to the Danish Bar in 2007 and is also qualified as a Solicitor of the Supreme Court of England and Wales.
 
Jesper works within all areas of real estate and construction law, and is thoroughly experienced with business property transactions, construction projects, construction contract claims, commercial lease law, and litigation and arbitration relating to real estate.  He has also been working extensively with real estate taxation.
 
E-mail: jln@gorrissenfederspiel.com
Phone: +45 33 41 42 39
 
Petrea Brinkmann Hvet Hvas is an assistant attorney within the firm’s real estate and construction law department.  Petrea holds a law degree from Aarhus University and works within a broad range of real estate and construction law.
 
E-mail: pbh@gorrissenfederspiel.com
Phone: +45 86 20 74 39
 
For many years Gorrissen Federspiel has been positioned as one of the leading corporate law firms in Denmark, with strong and long standing international relations, and has recently been awarded Chambers Europe Award for Excellence 2014.  This position is a result of consistent dedication to quality and understanding of our clients' needs.  Our aim is to provide advice at the highest professional and ethical level, tailored to the client's individual situation and requirements.  We are accessible whenever our clients need our assistance.  Our practice areas cover all branches of Danish and EU commercial law.  We maintain close relations with leading lawyers worldwide and, at short notice, are able to provide our clients with the professional assistance wherever they need it.  We are a fully integrated law firm that works internationally.  We have offices in Copenhagen and Aarhus.
 
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