In a genuine single market, the public sector must also be open to intra-European trade and competition. Indeed, the requirements of the official authorities for works and supplies of all sorts for the central civil service, regional and local authorities and for public undertakings (companies) and bodies accounts for 15% of the economic activity in the European Union. At the end of the 1980s only 2% of the needs of the official authorities were covered by businesses from a Member State other than that of the official authorities concerned, notwithstanding the price, quality and service advantages that they could offer.
In some sectors, such as the aeronautical, energy, transport and telecommunications, procurement by public bodies constituted the largest, if not the sole, part of the market, virtually excluding it from the common market. Thus, the protected high technology industries, of particular interest to the public sector, were treated unfavourably in comparison to traditional industries, as the latter had benefited from the liberalisation of trade. These protected industries were a paradise for inefficient suppliers of goods and services who had connections with the civil administration, but public administrations were thus jeopardising their own efficiency. Moreover, the isolation of the markets of high technology industries held back their development, as those industries were the very ones most in need of a large market and the economies of scale that it could offer. It was evident that a common interest existed to open up public procurement to all European businesses, but the vested interests in each Member State slowed down the adoption of the necessary common measures.
In the context of the single market the award of contracts concluded in the Member States on behalf of the State, regional or local authorities and other bodies governed by public law entities is subject to the respect of the principles of the Treaty and in particular to the principles of freedom of movement of goods, of freedom of establishment and of freedom to provide services and to the principles deriving therefrom, such as the principles of equal treatment, of non-discrimination, of mutual recognition, of proportionality and of transparency. The application of these principles to public procurement was established in the early 1970s [Directive 71/304 repealed by Directive 2007/24]. Nevertheless, the opening up of the public sector to European competition was achieved only in the 1990s through Directives 92/50 relating to the coordination of procedures for the award of public service contracts, 93/36 coordinating procedures for the award of public supply contracts and 93/37 concerning the coordination of procedures for the award of public works contracts.
These Directives were replaced in 2004 by a single Directive on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts, which have a value exclusive of VAT equal to or greater than certain thresholds (generally, EUR 162,000 for public supply and service contracts and EUR 6,242,000 for public works contracts) [Directive 2004/18]. Directive 2004/18 draws up provisions of European coordination of national procedures for the award of such contracts so as to guarantee the opening-up of public procurement to competition. To ensure development of effective competition in the field of public contracts, contract notices drawn up by the contracting authorities of Member States must be advertised throughout the European Union. Verification of the suitability of tenderers, in open procedures, and of candidates, in restricted and negotiated procedures with publication of a contract notice must be carried out in transparent conditions. For this purpose, non-discriminatory criteria must be indicated which the contracting authorities may use when selecting competitors and the means which economic operators may use to prove they have satisfied those criteria. Contracts must be awarded on the basis of objective criteria which ensure compliance with the principles of transparency, non-discrimination and equal treatment and which guarantee that tenders are assessed in conditions of effective competition. Consequently, the directive allows the application of two award criteria only: "the lowest price" and "the most economically advantageous tender". In order to guarantee equal treatment, the criteria for the award of the contract should enable tenders to be compared and assessed objectively.
Similar principles and rules apply to the procurement procedures of entities operating in the water, energy, transport and postal services sectors (public utility sectors), which were originally covered by Directive 93/38 and now by Directive 2004/17. Specific rules guaranteeing the opening up to competition of public procurement contracts above a certain value (EUR 499,000 in the case of supply and service contracts and EUR 6,242,000 in the case of works contracts), awarded by entities operating in these sectors, were necessary because of: (a) the variety of ways in which national authorities can influence the behaviour of these entities, including participation in their capital and representation in the entities' administrative, managerial or supervisory bodies; and (b) the closed nature of the markets in which they operate, due to the existence of special or exclusive rights granted by the Member States concerning the supply to, provision or operation of networks for providing the service concerned. The contracting entities in these sectors, which, by virtue of the existence of exclusive government-regulated networks or concession rights, could formerly not resist political pressure to "buy national", are now obliged to call for tenders throughout the European Union. Since particular competition rules apply to telecommunications, shipping and air transport [see sections 17.3.6, 20.3.4 and 20.3.5], the public procurement contracts in these sectors are not included in the scope of Directive 2004/17.
A directive on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities or entities in the fields of defence and security [see section 8.2.3] aims to reduce the regulatory fragmentation and increase competition and transparency in these fields, while taking into account the specific features of this market [Directive 2009/81]. Under the harmonised rules applicable to the procurement of arms, munitions and war material, the restrictions to access to public tenders are limited to certain exceptional cases, such as those affecting national security, thus enabling European companies, including small and medium-sized enterprises, to tender for contracts throughout the EU. The directive applies to supply and service contracts with a value estimated to be no less than EUR 412.000 and to work contracts with a value of at least EUR 5.150.000.
In view of the rapid expansion of electronic purchasing systems, Directives 2004/17 and 2004/18 lay down specific rules for setting up and operating such systems in order to ensure the fair treatment of any economic operator who wishes to take part therein. Electronic auctions can deal only with contracts for works, supplies or services for which the specifications can be determined with precision. Directives 2004/17 and 2004/18 clarify also how the contracting authorities may contribute to the protection of the environment and the promotion of sustainable development. In appropriate cases, in which the nature of the works and/or services justifies applying environmental management measures or schemes during the performance of a public contract, the application of such measures or schemes may be required by the contracting authorities.
In order to monitor compliance with European legislation, the Commission instituted an information system for public procurement (SIMAP) and a system for checking that the execution of projects or programmes financed from the Structural Funds and the other European financial instruments is carried out in compliance with the European rules on public procurement [COM/98/143]. It also strengthened its measures against infringements of the rules governing public procurement on the basis of the proceedings for failure to act, as provided for in Article 226 (TEC) [see section 4.1.2]. A common procurement vocabulary (CPV) is meant to simplify and modernise the process of publishing contract notices [Regulation 2195/2002]. The Advisory Committee on the opening-up of public procurement monitors the functioning of the European Directives, ensures that they are applied uniformly in the Member States and examines complaints from businesses claiming injury at the hands of an irregular procedure for awarding a contract [Decision 87/305]. A public procurement observatory is responsible for monitoring the liberalisation of this sector within the European Union and the effects of the process on third countries.
A Council Directive concerns the application of review procedures to the award of public supply, works and services contracts [Directive 89/665]. It provides that contractors and suppliers shall have effective remedies whereby alleged infringements by a contracting authority of European law in the field of public procurement can be sanctioned at any stage whatsoever in the procedure for the award of a contract. It defines a conciliation procedure to which parties can have recourse to find an amicable settlement to any disputes regarding the application of rules governing public contracts and introduces a mechanism for the rapid correction of clear and evident offences. Legal recourse in the public utility sectors is provided by a special Directive, which seeks to ensure that effective and rapid means of recourse exist both at national and European level as regards procedures for the award of contracts in the sectors of water, energy, transport and telecommunications [Directive 92/13].
The European legislation on liberalisation of public procurement incorporates certain provisions of the Government Procurement Agreement concluded in 1994 in the context of the World Trade Organisation [see section 23.4] so as to prevent different rules applying at European and international levels and to exclude reverse discrimination against European enterprises, i.e. more favourable treatment being given to third-country tenderers [1994 Agreement Annex 4, Decision 94/800 and Directive 98/4]. The European Union opens up its public contracts to third states that take similar action. Thus the EC/EU and the USA reached, an Agreement, in 1995, on government procurement. This Agreement gives effect in the area of government procurement to the commitments made in the Uruguay Round of multilateral negotiations and to the results of the bilateral negotiations conducted in this area between the EU and the United States [Decision 95/215, see section 25.7]. Nevertheless, there exist some restrictions of access to certain public contracts from tenderers from the US [Regulation 1836/95].