Select Committee on European Communities Minutes of Evidence


Examination of witnesses (Questions 100 - 119)

WEDNESDAY 20 MAY 1998

MRS HELEN HOLM

  100.  It sounds like an enormous committee.

  A.  No, it is not. It is quite manageable. It is an informal group. It is a group where we exchange project ideas, where we exchange information, where we seek other donors, to assist in a project. Many of the programmes—at least those that are investment related—require major funding. It is quite seldom that there is only one international financing institution involved. It can be four or five different external donors. This is the more established, informal way of working, through the PPC. Then we have other informal contacts and direct linkages. As I see it, in preparation of the management committee meetings and approving new project proposals, it is quite important that the representative from the Member States coordinates these interventions so that they see that, for example, they distribute new project proposals to the national donor organisation. Then they will have the opportunity to see that they are doing quite similar here and this is something they should bring up at the management committee meeting in that case.

Baroness Wilcox

  101.  This is one of the questions I expect that you have your answer written down to so I am going to ask the first question and then a supplementary, if that is okay. Could you outline for us the selection process for the TACIS projects?

  A.  Yes. Once a project has been approved by the management committee, it is immediately published on the Internet as well as in the official journal. Then the companies that are interested in implementing these projects are supposed to submit letters of interest. Nowadays we have a deadline I think of 60 days for submission of these letters of interest, everything to speed up the process for TACIS. Then, the responsible task managers put together a proposal for a short list. We are now talking about restricted tenders. There are three different types of tender procedures. There are direct agreements, which are under 200,000 ECU. Then, TACIS itself chooses directly which company to award the contract to.

  102.  Would that be a company in the country that you are going to be working in or would that be a company from anywhere?

  A.  That would be an EU company. The second type is the restricted tender which is everything between 200,000 ECU and up to ten million ECU. This is the major part of all the TACIS contracts. The third type is the open tenders. This is for contracts above ten million ECU, not so common. For the restricted tenders, we receive all these letters of interest. We put together a proposal for a short list of companies that we want to invite to bid on the specific project. We are required to have a minimum of seven companies. This list is then approved by the deputy director general. Then, the companies in question receive a big tender package with lots of information on budgetary requirements and how to put together the proposal. It can be quite complicated if you are doing it for the first time. After 60 days, we have a deadline for the submission of the proposals which is usually quite voluminous. We appoint an evaluation committee which is comprised of the chairman and a secretary, two to three Commission officials and two external experts. The external expert should be an expert in the particular field that this project addresses. It can be a waste management expert or something. The fifth representative is from the recipient country. This evaluation committee goes through the technical proposal first. There is an evaluation grid that we fill in. The evaluation grid addresses issues like the team composition, the qualification of the team itself, the experience of the firm, have they worked in the NIS before or have they worked in central and eastern Europe. Also, for example, it is integration of local expertise which we try to emphasise and the company's overall understanding of the project as it is defined in the terms of reference. If the evaluation committee approves of the project, which means that they pass a specific threshold, we proceed and open the financial proposals. We never see any kind of financial information prior to this. In general, in the end, I would say we usually have five bids for each project. It is very seldom that all the companies invited to bid actually submit a proposal. Out of all those that we invite bid, maybe there are only two or three where we open the financial proposal in the end. Once we have opened the financial proposal, the criterion is either the total amount of the bid or it is the daily rate for the EU experts. The most commonly used criterion is the total bid. It is quite simple. Then, the evaluation committee makes a recommendation which is then approved by DG1A before proceeding and signing the contract.

  103.  That is a very full and extremely helpful answer, if you do not mind my saying so. I have learnt a lot through that. Some of the other evidence that we have had would lead me to the next question. Based upon the fact that what you have outlined is a complicated proposal, it means that it takes time and expertise, I would think, to even get to the final five or six, so I suspect that you are tending to see the same consortia group over and over again, because they know how to apply. The question that I will ask now is how does DG1A achieve a balance between the use of large consultancies and harnessing the talents of the smaller, perhaps more innovative firms and institutions? The concern is that, if the only way the smaller groups can get in is to be part of a large group under maybe one of the big accountancy companies in this country, for example, maybe some of the smaller groups might not ever get to the bid state. That would start to limit things down to a very few groups who will constantly apply and be in the final choosing selection. It is a complicated question but maybe we could have a little bit of your own view on that?

  A.  It is partly correct that for environment there are a number of larger environmental consultancy firms that we see submitting a letter of invitation over and over again. We try to see if there are new companies that we can put on the short list but the criterion is always that we have to judge them as having the competence to actually implement the project. Otherwise, we cannot put them on the short list. If you look at the disbursement rate for TACIS projects, the payment of invoices and so forth, for large projects, say, four million ECU or something, many smaller firms cannot handle the turnover which it requires them to have. However, smaller firms are often used for these direct agreements, under 200,000 ECU which, for many of the smaller firms, is a fair amount and quite a large sized project. It can be difficult for new companies to enter into the whole cycle of TACIS.

  104.  It seems to me very important then that you get a minimum of seven bids because I can see a situation whereby you are going to finish up working with just three large companies and that would be terrible.

  A.  Yes. We have an informal rule that, if one consultancy company wins a bid over a certain amount, if they are to receive one more contract, we have to justify this specifically.

Chairman

  105.  We have heard some criticisms from some of the small organisations working with you, firstly, that you do not allow enough for management costs; the cost of actually managing a project is not somehow allowed for in the way that you cost things. This is obviously a problem for small firms. As you say, big firms can absorb the costs of running a project because they have flexibility but, for small firms, paying for an extra member of staff to manage a project is very difficult for them. Is that a fair criticism? They may have to hire somebody to run a project and that is somehow not allowed for in the rules.

  A.  In my opinion, this is not a fair criticism because the amount of the total project budget that goes to management is, in many cases, quite substantial. It depends also on the type of project. For example, I work with multicountry projects which means that, under one project, the contractor is obliged to work in all of the 13 NIS countries. The management cost of such a project is obviously much higher than if you work in one specific country. We take this into account when we evaluate bids.

  106.  The other criticism that we have heard from small organisations is the difficulty in getting money up front. Again, to set up a project and to submit bids and so on is entailing them in costs and man hours before they even know whether they are going to get it. Even when they know they are going to get the project, when they embark on it, they are still not getting the money. How long does it take, from approval of a project, to get the money flowing?

  A.  For all projects, there is an advance payment. I cannot say exactly but in general I think it is 35 per cent of the total sum of the project. This is how they are supposed to start up the project.

  107.  Is there a delay in paying that at all or not?

  A.  In general, I would not say for the advance payment because they are not supposed to forward any invoices. There are no costs for TACIS to approve.

  108.  As soon as you have approved a project, you provide them with 35 per cent?

  A.  Yes. This will happen, but I cannot say exactly the number of days.

  109.  Within weeks rather than months?

  A.  Yes. For payment of subsequent invoices, the procedure has been improved very much in the last year. It is not taking as long as it used to.

Lord Hughes of Woodside

  110.  We have been led to understand that the Commission imposes a ceiling on the value of contracts awarded to firms, universities etc., from the particular EU Member State and for TACIS and other programme work in any one year. This ceiling is somehow or other determined by their government's contribution to the overall TACIS and other programme budgets. Is that so?

  A.  No, it is not. When putting together the short lists, we try to achieve some kind of geographical distribution as to which country the companies come from. It would be difficult to approve of a short list where you had seven UK companies. It could happen on certain short lists, depending on the project. Maybe for some projects, some of the consultancy firms are more concentrated in some countries. Then the short list could comprise two or three companies from one and the same country. This is doable, but we have to justify it specifically, as to why we feel that there is a necessity to have so many on the short list.

  111.  There is an attempt to share the work out on a geographical basis?

  A.  The first attempt is that the companies on the short list must be competent. Then, the second is also, yes, to have some kind of geographical distribution in order for all the Member States to have the possibility at least to bid on the project. Now, it is quite clear that some of the Member States have the major amount of the contracts, whereas some other Member States have practically no contracts at all. Especially for the newer Member States—Sweden, Austria, Finland—they have had some difficulties getting into the whole system and cycle.

Lord Mackie of Benshie

  112.  Do you notice that, if you give a lot of work to British firms, the contribution from Britain rises the year after?

  A.  I could not answer that.

Lord Hughes of Woodside

  113.  If it was not too difficult, I wonder if you could let us have an analysis of which countries have which contracts by value. We can then scrutinise it and, if necessary, follow it up.

  A.  There is a compilation of such information quite easily accessible. Some of the Member States have the major part of the contracts and the UK is one of those countries.

Chairman

  114.  When we looked at PHARE, I think it was the Dutch who allegedly cornered the marked for this sort of thing.

  A.  The Dutch are also strong; Germany is strong. Now, I look at environment type projects.

  115.  What is the situation about American firms who have one foot in Europe? Are they allowed to bid for contracts? If an American firm had an office in Europe or half its staff were European?

  A.  It would have to be registered as a European company.

  116.  But it could be a subsidiary of an American firm?

  A.  Yes, but it must have an official European status registered. Otherwise, we could not approve it. It happens rarely that we approve of expatriate experts that do not come from the European Union. We always have to justify this specifically. It can only be a minor part of the total input of experts in that specific project. It has to be a person where you cannot really find the competence and knowledge anywhere. Obviously, this does not happen very often.

Countess of Mar

  117.  We are led to understand that the fundamental thinking of TACIS is that it is supposed to have a people to people approach. There has been some criticism of the working in that you tend to use professional consultancy firms. Do you see this criticism as being fair and are you taking any steps to alleviate the situation?

  A.  The major part of TACIS projects involves these larger consultancy firms. We also have something we call the small project programmes, which are operated in a different manner. Under that, we have something called the Lien programme which is targeted towards NGOs. The ones who implement these projects are actually the NGOs. There is a city twinning programme involving municipalities.

Chairman

  118.  We heard from some of them last week. We were very impressed by what they were doing.

  A.  The Lien programme is working on the development of NGOs.

Countess of Mar

  119.  Do you provide any assistance to NGOs for preparing tenders? Do you have an advice package?

  A.  We have an advice package which is given to all bidders. The small project programme is operated in a different way. I am not dealing with this myself but I think it is contracts between 20,000 and a maximum of 200,000 ECU. For the small project programme, you apply and there is a specific application form so it is not this whole procedure with the restricted tender, the submitting of the technical proposal and so on. It is a more simple procedure with applications.


 
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