A Coherent European Procurement Law and Policy for the Space Sector

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1 A Coherent European Procurement Law and Policy for the Space Sector Towards a Third Way With contributions by Martin Faix, MJI Univerzita Karlova v Praze Rik Hansen Katholieke Universiteit Leuven Dr. Oliver Heinrich Attorney at law, BHO Legal Prof. Dr. Stephan Hobe, LL.M. Universitat zu Koln Prof. JUDr. Mahulena Hofmannova, CS Univerzita Karlova v Praze Julia Holdorf Universitat zu Koln Irina Kerner Universitat zu Koln Jan Helge Mey, LL.M. Universitat zu K6!n Milan A. Plucken Universitat zu Koln Heike Schwier Universitat zu Koln Dr. Steven Sterkx Katholieke Universiteit Leuven Prof. Dr. Jan Wouters, LL.M Katholieke Universiteit Leuven edited by Stephan Hobe, Mahulena Hofmannova, and Jan Wouters LIT

2 xi CONTENTS Preface vj Executive Summary vii Contents x Contents xi Bibliography xxiii Table of Cases j<7v Abbreviations xli x Part A. ESA-EU Cooperation in Space - A New Chapter of the European Space Administration 1 Chapter I. The Pre-Framework Agreement Development 1 1. The Years of Total Separation 1 2. The Rapprochement and the Common Initiatives of the 1990s Galileo and GMES 6 3. The Way towards a Framework Agreement 12 The Report of the Joint Task Force 13 The Commissioned Studies on ESA-EU Cooperation Models 14 The Setup of the Galileo Joint Undertaking 16 d. The Green and White Papers of the Commission 19 e. The Signing of the Framework Agreement 21 Chapter II. The Framework Agreement and the Procurement Issues in the European Space Policy (ESP) Procurement Issues in the Drafting Process of the Framework Agreement and Their Relation to Governance The Framework Agreement's Attitude to Procurement Drafting and Implementing the European Space Policy 26 Chapter III. ESA-EU Procurement Policy Discussions - State of Play and Change(s) of Attitude Policy Discussions by the Vantage Point of the EU Council Presidencies: The Footprint of the German and French EU Council Presidencies and the Czech Follow-Up Development of the Attitude to the Procurement Issue in the European Space Policy Documents and the Implementation of the ESA-EU Flagship Projects Mastering the Economic Crisis: The EU Attitude to Space 2009/ Chapter IV. Determining the Scope of the Study Defining "Space" in Space Procurement Focusing on "Procurement" of ESA-EU Joint Projects Putting "Space" and "Procurement" Together: A Toolbox 39 Part B. Current Procurement Law 42 Chapter I. ESA Procurement Rules Introduction 42 Historic Origins 43 Considerations Impacting ESA Procurement 44 i. The Specificity of ESA as an Objective-driven Intergovernmental

3 Organisation 45 ii. Considerations of International Cooperation 45 (1) Political Considerations: Balancing the ESA's Intergovernmental Setup 46 (2) The Relationship between ESA Procurement Rules and International Law 47 iii. Factors Relating to the Nature of the Space Industry and the Space Market 49 iv. Other Policy Objectives: Involvement of SMEs 49 Conclusion Current ESA Procurement Rules 51 Legal Basis 52 i. ESA Convention 52 ii. Implementing Measures 54 (1) ESA Procurement Regulations 54 (2) General Clauses and Conditions for ESA Contracts 57 (3) Best Practices for the Selection of Subcontractors 58 The Procurement Cycle 59 i. Initiation 59 ii. Choice of Procurement method 60 (1) Competitive Tendering 60 (2) Non-Competitive Tendering 61 iii. Preparation and Distribution of ITT 64 iv. Eligibility, Preparation and Submission of Tender 66 v. Evaluation of Tenders and Award of Contract 67 vi. Debriefing of Unsuccessful Tenderers and Review Procedures 69 Geographic Return 70 i. Calculation 71 ii. Targets 73 iii. Preventive and Corrective Measures 74 (1) Fair Return or Fair Contribution? 74 (2) Proactive Monitoring of Industrial Return 74 (3) Inclusion of Corrective Measures from the Outset 75 (4) Phased Procurement Approach in Long Duration Programmes 75 (5) Corrective Measures after Interim Review 75 (6) Flexibility in the Science Programme 75 (7) Placing Contracts by Direct Negotiation 76 (8) Subsequent Adjustment of Contributions 76 iv. Conclusion 76 d. Evolution of ESA Procurement Rules 76 i. Optimisation 77 ii. Rapprochement 77 e. Conclusion Interim Conclusion 78 Chapter II. EU Procurement Rules Introduction 80 Historical Overview 80 Overview on Current Procurement Framework 83 Current EU Procurements 84

4 xiii d. Procurement to Satisfy Public Demand and Procurement as Industrial Policy e. European Budget 'Debate' and Correcting Mechanisms 2. General Procurement Rules Secondary Law: Financial Regulation and Implementing Rules i. Scope ii. Award Principles and Policies iii. Subject-Matter Definition iv. Publication v. Numerus Clausus of Procurement Procedures (1) Open Procedure (2) Restricted Procedure (3) Contests (4) Negotiated Procedure (5) Competitive Dialogue vi. Substantive Criteria (1) Participation (2) Exclusion Criteria and Administrative Penalties (3) Selection Criteria (4) Award Criteria vii. Review and Remedy Primary Law i. Applicability ii. Fundamental Freedoms (1) Free Movement of Goods (2) Right of Establishment and Freedom to Provide Services iii. Charter of Fundamental Rights iv. Supplementary Rights and Principles (1) Equal Treatment and Non-Discrimination (2) Transparency (3) Legal Certainty (4) Proportionality (5) Mutual Recognition v. Flanking Regulations vi. Related Policy Objectives vii. Treaty Amendments International Treaties i. The European Free Trade Association and the European Area ii. WTO Government Procurement Agreement iii. Bilateral Agreements as Supplements to the WTO GPA 3. Space Procurement Rules Research and Development - FP7 GNSS Regulation - Galileo Deployment Phase GMES Regulation d. European Defence Agency e. European Union Satellite Centre a Tool of no Economic

5 4. Interim Conclusion 140 Chapter III. Difficulties of New Member States Relating to the Transition to EU and ESA Procurement Rules Introduction 142 The Transformation Scenario and the Scope of this Chapter 142 Legal Reform as a Part of the General Transformation Process 145 Legal Reform as a Part of the EU Accession Process and the Implementation of the Acquis Transition to EU Procurement Rules 148 Introduction 148 The Czech Republic 150 i. EU Accession Experience of the Czech Republic 150 ii. Transformation and Development of the Czech Procurement Law 152 (1) Early Stages ( ) 152 (2) Act No. 199/1994 Coll., on Awarding Public Contracts 153 (3) Act No. 40/2004 Coll., on Public Procurement 154 (4) Act No. 137/2006 Coll., on Public Procurement 157 (5) Current Situation 158 (6) Act No. 139/2006 Coll., on Concession Contracts and Concession Procedure, as Amended 159 (7) Conclusions 159 Hungary 161 d. Poland 165 e. Common Strengths and Difficulties Identified 169 i. Common Strengths 169 ii. Common Difficulties 170 (1) Ethics and Transparency in Public Procurement Systems of the New Member States 170 (2) Formalism in Public Procurement Systems of the New Member States 172 (3) Frequent Changes of the Legal Framework 174 f. Conclusions Transition to ESA Procurement Rules 177 Introduction 177 The Development of Cooperation between the CEE Countries and the ESA 177 Post-Accession Experience of the Czech Republic 180 d. Conclusions Transition to the EU and the ESA Procurement Rules - A Comparison 184 Part C. Market Analysis and Stakeholder Consultation 186 Chapter I. Market Analysis Introduction Member State Positions 186 France 187 i. Administration: CNES 187 ii. Industry 188 Germany 189 i. Administration: DLR 189 ii. Industry 189

6 xv Italy 190 i. Administration: AS I 191 ii. Industry 191 d. United Kingdom 191 i. Administration: BNSC / UK Space Agency 192 ii. Industry 192 e. Spain 193 i. Administration: CDTI 194 ii. Industry 194 f. Belgium 195 i. Administration: BELSPO 195 ii. Industry 195 g. Czech Republic 196 i. Administration: CSO 196 ii. Industry Economic Specificities of the Space Market 197 Specificities 197 i. High Technology Content - Nature of Space Technology 197 ii. High Cost of Access to Space 199 iii. (Missed) economies of scale /small size of the European market 199 iv. Strategic nature of space assets 201 Market segmentation 202 i. Upstream 202 (1) Satellite Applications Programmes 202 (2) Science Programmes 203 (3) Launchers 203 (4) Ground Segments 204 ii. Downstream Interim Conclusion 205 Chapter II. Stakeholder Consultation Introduction Methodology 206 Selection of Stakeholders 206 Method of contacting / questioning 208 Reply rate 209 d. Method of reporting Question topics Results 212 The Structure of the European Space Industry / European Space Market 212 i. There is no Single Set of Specificities of the Space Market 212 ii. The European Space Market is Top-Heavy 213 iii. Telecommunications are the Predominant Commercial Space Market 213 iv. Profits in the Upstream Space Sector are Limited 213 v. In the Manufacturing Sector, Consolidation Has Reached Its Limit at Prime Level 213 ESA procurement at present 214 i. High-Technology Content 214

7 xvi CONTENTS ii. Small Size of the European Market 214 iii. Strategic Considerations 215 iv. General Evaluation of the ESA 215 v. Personal Experiences with ESA Procurement in Practice 216 vi. Potential to Improve 216 vii. The Relationship between the ESA Procurement System and Its Industrial Policy 217 Evolution of ESA Procurement 219 d. EU Procurement 220 i. EU Industrial Policy Objectives 220 ii. Traces of Geographic Distribution in EU Policies 221 iii. Appropriateness of EU Funding Instruments 221 e. Procurement in EU-ESA Cooperative Programmes 221 i. General Evaluation 221 ii. Evaluation of Procurement Tools Used in the GNSS Regulation 222 f. Instruments proposed 223 Part D. The Way Forward - The Third Way? 224 Chapter I. Context of the Third Way Policy Objectives 224 Attractiveness for Member States to Invest in Space 224 Efficient Use of Resources 225 Global Competitiveness of the European Space Industry /Economy 226 d. European Autonomy / Non-Dependence 226 e. Balanced Involvement of Capacities in Europe Market Conditions 228 Economic Specificities 228 Market Sectors 230 The European Space Market Structure 230 d. Conclusions for the Third Way Legal Framework 231 Chapter II. Analogies, Procurement in Practice and Extra-Procurement Instruments Analogies 233 EUMETSAT 233 i. Financing 234 ii. Procurement 235 iii. Results 236 ITER-Fusion for Energy (F4E) 237 i. EFDA 237 ii. Institutions 237 iii. Financing 238 iv. F4E Procurement 239 v. ITER Procurement 242 vi. Results 243 European Security and Defence Procurement 243 i. Development of cooperation in the defence sector 243 ii. Defence Procurement Rules for Member States 245 (1) Communication on Article 296 TEC 246 (2) Defence and Security Procurement Directive 247

8 xvii (3) Directive 2009/43/EC on Intra-EU Transfers of Defence Products 252 (4) Codes of Conduct 252 iii. EDA Ad-hoc Programmes 253 d. Aircraft Manufacturing 255 i. Aircraft market (especially for large civil aircraft) 255 ii. Key players 256 iii. Reasons for government influence and support 258 iv. State Support and WTO Claims 260 v. KC-X Tanker: EADS v Boeing 263 (1) No general nationality requirement 265 (2) Other restrictions Cross-Cutting Analysis - Procurement in Practice 268 Practical Difficulties in Defining the Procurement Object 268 i. Current ESA Procurement Rules 269 ii. New ESA Procurement Rules 270 iii. EU Procurement Rules 272 Practical Difficulties of Real Competition 272 i. Current ESA Procurement Rules 274 ii. EU Procurement Rules 276 Pre-involved Contractors as Bidders 278 i. Current and New ESA Procurement Rules 278 d. Project Consultants for the Preparation of Procurement documents as Bidders 280 i. Current and New ESA Procurement Rules 280 ii. EU Procurement Rules 281 e. Requirement of Flexibility for Procurement in the Space Sector 281 i. Preliminary Authorisations to Proceed (PATP) and Limitations of Liability (LOL) 282 (1) Current and New ESA Procurement Rules 283 (2) EU Procurement rules 283 ii. Contract Change Notice (CCN) 283 (1) Current and New ESA Procurement Rules 284 (2) EU Procurement Rules 284 iii. Negotiation and Re-negotiations 285 (1) Current ESA Procurement Rules 286 (2) New ESA Procurement Rules 287 (3) EU Procurement Rules 288 iv. Use of Options and Framework Agreements 288 (1) Current ESA Procurement Rules 291 (2) New ESA Procurement Rules 291 (3) EU Procurement Rules 292 v. Admitting Alternative Solutions and Variants 293 (1) Current and New ESA Procurement Rules 294 (2) EU Procurement Rules 295 vi. Use of Supplier Lists and Prequalification Procedures 295 (1) Current ESA Procurement Rules 298 (2) New ESA Procurement Rules 299

9 xvin CONTENTS (3) EU Procurement Rules 300 vii. Contract Duration and Prolongations 300 (1) Current and New ESA Procurement Rules 301 (2) EU Procurement Rules 301 viii. Requirements for Quick Support and Life-time Support 302 (1) Current and New ESA Procurement Rules 302 (2) EU Procurement Rules 303 f. Requirements concerning legal remedies 304 i. Current ESA Procurement Rules 305 ii. New ESA Procurement Rules 305 iii. EU Procurement Rules 307 g. Evaluation of Findings and Conclusion Extra-Procurement Instruments 312 European Funds for a "Balanced Development" 312 i. Cohesion Funds 313 (1) Objectives 313 (2) Financial Contribution - Ceilings, Types 313 (3) Monitoring and Evaluation as Procedural Tools 314 ii. Structural Funds 315 European Investment Bank Group 317 Research and Development 320 i. EU Research and Development: Framework Programmes 320 (1) Mixed Funding Sources and Co-financing 327 (2) Intellectual Property Rights 328 ii. ESA Research and Development 330 (1) The European Space Technology Strategy and Harmonisation Process 330 (2) ARTES 331 d. Extra Procurement Instruments and Mechanisms or Programmes Addressed to SMEs 333 i. Competitiveness and Innovation Framework Programme 334 ii. SineQuaNet, LET SME, C1-C4 Clauses, Transfer of Technology and Innovation 335 e. Joint Programming 337 f. Pre-commercial Procurement 338 i. Nature 338 ii. Conditions for Use 339 iii. Relevance for Space Procurement 340 g. European Lead Market Initiative 341 Chapter III. Tools for Space Procurement Definition of Programme and Procurement Object d. Legal Assessment 346 i. ESA 346 ii. EU Participation Rules: Restrictions, Preferences Based on Nationality

10 xix d. Legal Assessment 351 i. ESA 351 ii. EU Work Packages: Splitting, Sizing d. Legal Assessment 358 i. ESA 358 ii. EU Restricting the Individual Bidding Possibilities d. Legal Assessment 360 i. ESA 360 ii. EU Balancing the Advantage of Pre-Involved Contractors d. Legal Assessment 368 i. ESA 368 ii. EU Multiple Sourcing d. Legal Assessment 371 i. ESA 371 ii. EU Sole Sourcing via Joint Ventures d. Legal Assessment 375 i. ESA 375 ii. EU Sole Sourcing via IPR Regime d. Legal Assessment 377 i. ESA 377 ii. EU 378

11 9. Sub-contracting d. Legal Assessment 380 i. ESA 380 ii. EU n-state Criterion d. Legal Assessment 385 i. ESA 385 ii. EU Know-How Transfer d. Legal Assessment 388 i. ESA 388 ii. EU Best Value for Money as Award Criterion I d. Legal Assessment 390 i. ESA 390 ii. EU Best Value for Money as Award Criterion II d. Legal Assessment 392 i. ESA 392 ii. EU Concentration Correcting Mechanism d. Legal Assessment 395 i. ESA 395 ii. EU Nationality as Award Criterion d. Legal Assessment 399 i. ESA 399 ii. EU 400

12 16. d. i. ii 17. d. i. ii 18. d. i. ii 19. d. i. ii 20. d. i. ii 21. d. i. ii 22. CONTENTS Varying Degrees of Advantage given to SMEs or Research Institutions Legal Assessment ESA EU Abnormally Low Tenders Legal Assessment ESA EU Weighting of Votes based on Financial Contribution Legal Assessment ESA EU Prior Market and Capacity Analysis and Prequalification Procedures Legal Assessment ESA EU Contact Between Bidders as well as Between Bidders and Contracting Authority Legal Assessment ESA EU Flexibility in Procurement Procedure Legal Assessment ESA EU Commencement of Work Prior to Signature of Contract xxi

13 xxn CONTENTS d. Legal Assessment 426 i. ESA 426 ii. EU Framework Agreements and Options in Contracts d. Legal Assessment 429 i. ESA 429 ii. EU Contract Duration d. Legal Assessment 431 i. ESA 431 ii. EU Re-negotiation and Contract Changes d. Legal Assessment 433 i. ESA 433 ii. EU Legal Remedies d. Legal Assessment 436 i. ESA 436 ii. EU Monitoring and Statistics d. Legal Assessment 438 i. ESA 438 ii. EU 439 Chapter IV. The Third Way: A Toolbox 441 Index 448

Commentaries on Selected Model Investment Treaties. Edited by CHESTER BROWN

Commentaries on Selected Model Investment Treaties Edited by CHESTER BROWN Notes on Contributors Table of Cases Table of Instruments xxix xxxv 1. INTRODUCTION: THE DEVELOPMENT AND IMPORTANCE OF THE MODEL