As the new EU International Procurement Instrument sails through approval in Council, European Parliament rapporteur on the file Daniel Caspary explains how he sees the new legislation.
Almost exactly ten years after the European Commission presented its first proposal on the International Procurement Instrument on 21 March 2012, white smoke emerged from the trilogue between Parliament and Council on 14 March 2022: habemus IPI!
International trade is in rough waters.
In this context, the IPI is a valuable and timely addition to the EU’s trade toolbox in times in which the term ‘international trade’ is not interpreted as a fast-track for liberalisation and openness, but is increasingly framed in a narrow and defensive way.
The IPI will allow the EU to tackle a longstanding imbalance: while the public procurement markets of the Union are largely open to third-country bidders, European bidders oftentimes find themselves locked out of the public procurement markets in third countries.
With the newly created IPI, the EU now has the means to establish a level-playing field.
Any trade instrument is only as effective and efficient as it is capable of solving its underlying problems. This approach has guided the work of the European Parliament under the lead of the EPP Group.
Four key elements deserve special attention:
What procurement project the IPI applies to
The IPI applies above certain thresholds.
A two-tier logic applies: for public procurement procedures covering works and concessions, a threshold of 15 million EUR applies, whereas the threshold for goods and services is locked in at 5 million EUR.
The negotiating efforts of the EPP group and parliament during the trilogue centred on securing an optimal balance between maximising the coverage of the IPI instrument while limiting its bureaucratic burden for contracting authorities and contract entities to the necessary minimum.
These efforts were successful. More than 70% of the total public procurement value in the EU will be covered by the IPI, which at the same time subjects ca. 17% of all procurement contracts to the IPI. Efficiency is thereby guaranteed.
No single trade instrument is universally applicable. Exceptions must be possible to avoid unintended consequences and tailor instruments to their specific needs.
There are two scenarios in which an exception from the requirement to apply the IPI can be invoked.
The first scenario is when only bids from IPI-affected third countries have been submitted in a public procurement procedure. After all, the IPI aims at opening up third country procurement markets. It does not intend to render the completion of public procurement procedures impossible.
The second is when an overarching public interest relating to public health or the protection of the environment is at stake.
In this context, the procurement of FFP2-masks at the beginning of the Covid-19 pandemic comes to mind. The overwhelming share of facial masks was produced in China. Had the IPI been applicable in this case, the urgently needed equipment could not have been procured.
The EPP group and parliament successfully fought for the deletion of an exception based on a ‘disproportionate increase in price’ of public procurement procedures, which would have made the IPI a toothless paper tiger.
Exceptions under the IPI will be specific, narrowly defined and stand firmly on the ground of real-life requirements.
Building on the logic of exceptions, the EPP group and parliament successfully raised the requirements for invoking exemptions and established a realistic view of the interplay between legislative requirements and bureaucratic capabilities.
EU member states will be able to present lists of contracting authorities to be exempted from the requirement to apply the IPI under the conditions that their total procurement volume amounts to a maximum of 20% of the entire procurement volume in a member state over a three-year period. An average IPI-coverage of 80% is thereby guaranteed.
Moreover, none of the contract authorities and contracting entities to be exempted may be within administrative units of more than 50,000 citizens. Thereby, loopholes for capitals cities and large metropolitan areas, where prestigious public contracts for bridges, subway tunnels and ports are carried out by third country bidders, are avoided.
At the same time, exemptions for very small contracting authorities prevent an overburdening of small administrative units.
In case a third country continues to keep its public procurement markets closed to EU bidders despite intense consultation efforts by the European Commission, the IPI foresees two types of measures: a price adjustment measure or score adjustment measure, and the exclusion of bids from public procurement procedures.
The parliament and the EPP group convinced the council to put both measures on equal footing, thereby avoiding the interpretation that any measure shall be a pre-destined course for action.
Under the price or score adjustment procedure, a percentage-based surcharge applies to bids from third countries in the comparison phase. In case a public contract is awarded on the basis of price and additional qualitative criteria, such as energy efficiency requirements in the procurement of refrigerators for school canteens, the applicable score adjustment measure is set at up to 50%.
In case a public contract is awarded on a price-only basis, the applicable price adjustment measure is set at 100%.
The original intention of both the EPP group and the parliament to raise the surcharge percentages considerably in comparison to the preferences of Member States – originally set at a maximum of 40% – was fully maintained.
Reality test lies ahead
While the waiting game on the establishment of the IPI might be over, another waiting game begins. After the institutional groundwork is complete, the IPI will now have to stand the reality test. The instrument’s efficiency, effectiveness and success will become visible with every single case of application.
The European Parliament and the EPP Group are convinced that the chances for EU bidders to participate in public procurement procedures in third countries promise to stand significantly better than before.