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Public procurement in the utilities sector: water, energy, transport and postal services

Public procurement in the utilities sector: water, energy, transport and postal services
Published on: 18/04/2016
Utilities (water, energy, transport and postal services) are essential services that play a vital role in economic and social development.

The introduction of rules coordinating procedures for the award of contracts in these sectors is due to:

  • the different circumstances under which entities operate in Member States
  • the closed nature of the markets in which they operate. This can be due to natural monopolies or exclusive rights granted by Member States concerning the supply to, provision or operation of networks for specific services.

As in the past, the utilities sectors will be covered by separate and more flexible public procurement rules, which will apply not only to traditional public purchasers (the state, municipalities, regions, etc.), but also to public or private companies. In particular, one of the new public procurement directives determines which specific utilities markets in certain countries can award contracts directly and without a call for tender. It  provides for a lighter public procurement regime for companies engaged in commercial or industrial activity in the utilities sector.

Which sectors are affected by the rules?

Public procurement rules have to be applied in water, energy, transport and postal services. They do not have to be applied in oil and natural gas exploration, and financial, logistic, electronic and philatelic services related to postal services, because these sectors operate in a competitive environment.

If there is competition, particular utilities sectors can be exempted

For a utilities sector in a given Member State to be exempt from procurement rules, the legal/regulatory environment must permit access and competition in the sector concerned and utility companies must operate under competitive pressure. The provision under the current Directive 2004/17/EC will be maintained, further to which a Member State may ask the European Commission to exempt a particular sector from public procurement rules where access to the sector is free and fully exposed to competition. The deadlines for this procedure have been rendered more flexible and they have been prolonged where the request for an exemption is not accompanied by a recent position on the competitive situation in the sector concerned, adopted by an independent national authority.

A new Implementing Decision adopted under the EU Procurement Directive for Utilities (Directive 2014/25/EU) on 12 October 2016 defines how Member States or utilities should make their request for exemption if they want to be allowed not to follow EU Public Procurement rules. This decision includes what information must be supplied, how transparency should be ensured through notices in the Official Journal about requests throughout the procedure, etc.

More information 

The concept of 'exclusive and special rights' is specified

Unlike Public Procurement Directive 2014/24/EU, in the utilities sectors, public undertakings (on which public purchasers have a dominant influence) have to follow EU public procurement procedures for the award of contracts, as well as private entitieswhich operate in one of the sectors concerned under exclusive or special right. However, when the exclusive or special rights have been granted on the basis of a transparent procedure (for competition or licensing on request) based on objective criteria, the private operator concerned is exempted from applying EU rules when awarding contracts. In addition, EU legislation/procedures meeting these conditions of transparency and objectivity are listed explicitly.

What is different for utilities compared to general public procurement rules?

Revision of the rules for the utilities sectors is generally modelled on that of public procurement, but modified to safeguard the option of more flexible practices appropriate to entities engaged in commercial or industrial activity. In particular:

  • the threshold for application of the new simplified arrangements for social, cultural and health services and some other services is € 1 000 000. This is higher than the € 750 000 threshold for public authorities
  • purchasers remain free to either choose  to award several contracts to various small businesses or to award a single contract to one large company(the Directive does not incline towards one option or the other)
  • the rules on conflicts of interest will only apply to public purchasers, not to public undertakings or private entities. Only public purchasers will be obliged to exclude companies from procurement procedures in certain cases (final convictions for serious crimes such as money laundering or organised criminality). Companies have the possibility (on a voluntary basis) to apply the same rules for the exclusion of companies as under the general public procurement rules.

Purchases of supplies, services and work

Utilities will need to apply public procurement procedures to the purchases of supplies, services and work when such purchases are made to provide a relevant service, for example for contracts on

  • energy infrastructure maintenance or the building of a power plant;
  • purchases of cars for staff maintaining the water distribution network;
  • purchase of buses or computers for the offices of a transport service manager.

An overview of the activities can be found in Articles 7 to 14 – Annex I of Directive 2014/25/EU.

Framework agreements

These are general agreements that cover a series of orders or individual services in varying degrees of detail (e.g. an agreement for maintenance services allowing the utilities to call on these services whenever needed at the already established conditions). The new rules aim to increase transparency in the procedures for the conclusion of such agreements:

  • with a few exceptions, the maximum duration of a framework agreement will be 8 years;
  • the criteria for awarding contracts on the basis of a framework agreement must be objective and transparent.

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List of formal exemptions granted

Find out more on the public procurement reform: Slashing administrative burden, improving access for SMEs, preventing corruption and allowing social and environmental considerations