This content is from: Local Insights

Belgium

Since the implementation of Council Directive 92/50/EEC of June 18 1992 relating to the coordination of procedures for the award of public service contracts (the Directive), the public procurement rules also apply to financial services with the exception of central bank and financial services that relate to the issuance, sale, purchase or transfer of securities and other financial instruments.

While the Commission has always supported the principle that the term 'financial services' is to include all services usually performed by financial institutions, unless expressly excluded, the Directive has unfortunately not succeeded until now in enacting a fully coherent common policy on procurement rules for financial services. The main reason for this is that the definition of the financial services excluded from the scope of the Directive was not sufficiently conclusive, which has left room for interpretation and resulted in different national legislative provisions as to the applicability of the Directive. For example, unlike Belgium, the German government has stated that local authorities are not obliged to tender for loans in accordance with public procurement rules.

To avoid further incoherence among the public procurement rules of member states, it will be necessary to refine further the definition of financial services. In 1998, the Commission endorsed this principle and proposed a more exhaustive overview of the included and excluded financial services. However, in its proposal for a new Coordination Directive (the Proposal), the Commission did not provide for any further clarifications. Nevertheless, several discussions have been held in the meantime between the Commission, member states and the European Parliament to determine which financial services should and should not be excluded from public procurement legislation. As public authorities and market practitioners have repeatedly referred to the practical difficulties of complying with public procurement rules for financing agreements, the European Parliament proposed, in a response to the Proposal, to provide expressly that all transactions enabling the contracting authorities to raise money or capital be excluded from the Directive. The European Parliament referred to the high degree of transparency that exists in the money markets and the rapid and continuous change of interest rate conditions that make an efficient adherence to public procurement procedures impracticable.

In a first reaction, the Commission argued that loans for construction works, like public buildings, should not be excluded from the Directive, since such loans are not intended to cover general public debt, but to finance special public investments which should remain subject to public procurement. In the same line of thinking, Belgium has disagreed to a general exemption for transactions in relation to borrowing money or raising capital since it is concerned that this would lead to the exclusion of borrowing raised for specific projects.

In anticipation of the final outcome of the discussions, financial service providers, tendering to provide finance arrangements to public authorities, cannot be certain whether their services fall under the public procurement rules or not. The answer to this question remains dependent on the interpretation by each member state of the notion of excluded services and therefore careful analysis in each country remains necessary.

The Law of December 24 1993 implemented the Directive into Belgian law. The Law applies public procurement rules to all banking and investment services provided to public authorities. Instruments of monetary policy, exchange rate, public debt, reserve management and other services involving transactions in securities and other financial instruments are excluded from public procurement requirements. In accordance with the Office of the Belgian prime minister, the following financial services must be tendered publicly:

  1. all loans and general finance in relation to the acquisition of real estate;
  2. loans for extraordinary expenditures, especially in relation to construction works;
  3. credit lines and overdraft facilities for ordinary expenditures; and
  4. deposits other than saving deposits, cash deposits and deposits of transferable securities.

Although debt restructuring was not included, the Flemish government has always requested from the local authorities, which it supervises, that the public procurement provisions are equally applied to such arrangements. However, similar requirements do not seem to exist for the Walloon and Brussels regions.

The application of the Directive is further complicated by the fact that its provisions are not always suitable for financial services. For example, the provisions that relate to the thresholds above which public procurement becomes mandatory cannot be easily applied in relation to financial services.

For financial, banking and investment services, the Directive provides the following threshold amounts:

  1. approximately €165,000 ($161,000) for services rendered to central authorities; and
  2. approximately €250,000 for services rendered to non-central authorities.

Market practitioners have always argued that these thresholds are too low and, as a result, that the expenses incurred by providers in their bids for transactions of this size are too high in comparison with expected revenues. The European Parliament has picked up these concerns and stated that the administrative costs incurred by tendering local authorities are indeed disproportionately high, particularly in the case of projects that fall just above the current thresholds. A further increase of thresholds is expected to be approved.

In addition, the methodology used for the calculation of the threshold amounts is not really suitable to determine the contract value of financial services. To determine the value of a service contract, the Directive prescribes that the total remuneration to be paid to the financial service provider should be included in the calculations. As a result, all fees, commissions and interest, as well as any other type of remuneration paid to the financial service providers, must be included to estimate the contract value. However, these estimations are not always easily determined, especially considering that some factors may be fluctuating during the term of the service. While the same floating rate loan may fall below the thresholds in the case of decreasing interest rates, and thus being excluded, it may become subject to public procurement requirements following an increase in interest rates. Similar issues arise in cases of fixed interest rate loans that provide for the periodical review of the fixed rate. Notwithstanding the difficulties which may arise in this context, the Proposal does not envisage a review of the calculation methods.

As long as the European regulator does not provide the member states with a more descriptive definition of the financial services that are to be included in and excluded from the Directive and public procurement requirements, financial service providers will remain largely subject to the views of the member states and their interpretation of the Directive. Consequently certain financial services which are subject to public procurement rules in one member state, remain exempt in others. In addition, several of the procurement rules are not really suitable for financial services and additional reviews would be well received. Nevertheless, while some progress is being made on elaborating and clarifying the definitions used in the Directive, no efforts are being made to refine the provisions to take into account the special nature of financial services.

Tim Vermeir and Marc Vermylen

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