National public procurement practices under the ECA spotlight

In its tenth Special Report of 2015, released on 16 September, the European Court of Auditors turns the spotlight on public procurement at the national level. The Court’s findings are rather telling in several ways and deserve discussion on our Eufinacco blog.

Some might raise doubts as to whether public procurement procedures at large belong within the ECA’s audit powers. Indeed, article 287 TFEU requires a link to the EU budget in order for the ECA to be able to wield its powers and help ensure financial accountability. How then do national public procurement practices link to EU expenditure? In short, a large share of cohesion funds is implemented through public procurement. Auditing cohesion policy, for example, involves carefully assessing the way in which Member States legislate and behave when purchasing products, services and public works.

ECA’s freedom to launch audits

The fact that national public procurement policies are not split – between those implemented on a purely internal basis and those aimed at managing EU funds – leads to the situation whereby the ECA remains free to launch a comprehensive audit of national management practices, even where a strict link to EU budget implementation is missing. This ECA trend to pay increasing attention to national matters has been witnessed in other fields of shared competence with the EU (e.g. tax policy) and has occasionally created dissension with certain Member States.

Under the 2007-2013 Multiannual Financial Framework, €349 billion were allocated to cohesion policy and channelled through the Cohesion Fund (CF), the European Regional Development Fund (ERDF) and the European Social Fund (ESF). The Commission’s DG GROW (former MARKT) calculates the share of GDP spent following public procurement to be approximately 18%, with no doubts as to its impact on the functioning of EU internal market.

Half of projects involve tenders

However, it is difficult to give exact figures as to the share of public procurement in EU budget implementation, due to the vertical and horizontal complexities of multilevel governance in financial management, as well as to the lack of full transparency in all public authorities involved in the management cycle. The ECA’s report avoids giving estimates, although it states that “half of all projects in relation to these funds audited by the Court over the 2009-2013 period involved one or several tenders”, particularly in the case of the CF and the ERDF. A sufficient link therefore exists between the EU cohesion budget and national public procurement policies.

Cohesion funds are managed under shared management, meaning essentially that the bulk of management tasks lie in the hands of national authorities. This does not represent an exception to the immutable rule (set in stone in Article 317 TFEU) by which the Commission alone is politically accountable for the management of EU budget, before the European Parliament and the Council. Individual Member States are not held to political account for irregularities committed when spending EU funds. However, they are bound by management provisions enshrined in the regulations applicable to European Funds (mostly the Financial Regulation and Regulation 1303/2013).

Three NEW directives

Additionally, due to its impact on the internal market, Member States must transpose correctly and comply with the directives on public procurement (currently applicable to the water, energy, transport and postal sectors or the other sectors). These directives were revamped in 2014 and a new, more simplified, system will enter into force on 18 April 2016: three new directives (on concessions and public procurement in general or sectors of general interest) will put pressure on Member States to provide the best value for money for public purchases while respecting the principles of transparency and competition.

ECA’s Special Report 10/2015 comes at a very timely moment. Drawing on the financial impact of public procurement on the EU budget, the Court exposes the shortcomings of the current system just as the Member States find themselves in the process of transposing the new directives. I will focus now on suggested areas for improvement and leave for another post my reflections on the nature and level of irregularities detected by the ECA, although you can click here if you rave for details.

The recommendations proposed by the Court can be summed up as the following:

1.- Need for the systematic analysis of irregularities in public procurement. The ECA recommends that databases are established at both the Commission and national levels. European and national databases should be interoperable and comprehensive, and foster meaningful analysis of “the frequency, seriousness and causes of public procurement errors in the area of cohesion policy”.

2.- Need for the better coordination of Commissions services. Currently, no less than three Commission services deal with normative or managerial dimensions of public procurement: DG GROW monitors compliance with EU rules on public procurement; besides, two other DGs monitor budget implementation (including national public procurement practices) regarding the ERDF (DG REGIO) and the ESF (DG EMPL). It appears from the Special Report that the coordination among those three bodies is far from satisfactory. The Court suggests creating a task-force capable of instil leadership and avoid horizontal inconsistencies at the EU level.

3.- Need for bolder resort to coercive measures before recurring irregularities. The ECA calls the Commission to apply punitive measures on authorities which show clear lack of diligence in redressing detected irregularities. To a large extent, the current legal framework already offers ways to coerce States turning a deaf ear to unfavourable audit results. Potential sanctions in this field are threefold:

  • first, the Commission may suspend payments to States affected by higher level of non-compliance with ex ante conditionalities who have not implemented a sufficiently ambitious action plan to redress them before 2016;
  • second, the Commission may dictate financial corrections against Member States affected by a higher rate of irregularities in the implementation of cohesion funds (i.e. refusing to condone irregular payments already made by national bodies);
  • and third, the Commission may refer Member States to the European Court of Justice for failure to fulfil their obligations under EU law on public procurement. In the latter case, it is worth warning that poor or late transposition of EU directives is often subject to fines (either lump sums or daily penalty fines).

Certainly, the legal design of those coercive mechanisms is not always fitting; however, their performance will obviously be worse if the Commission displays hesitation in resorting to them.

By @ml_san_barr


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