Describes how major projects are secured and financed. Explains activities of the multilateral development banks in and other aid-funded projects.
Selling to the Government
Government procurement in Europe is governed by international obligations under the WTO Government Procurement Agreement (GPA) and EU-wide legislation under the EU Public Procurement Directives. U.S.-based companies can bid on public tenders covered by the GPA, while European subsidiaries of United States companies may bid on all public procurement contracts covered by EU directives, as implemented through national legislation.
All public procurement procedures in the European Union are carried out on the basis of national rules. For higher value contracts, these rules are based on general EU public procurement rules. The value limits, or thresholds, for EU rules are used depend on the subject of the purchase and who is making the purchase. These thresholds are revised regularly, and the amounts adjusted slightly. The limits are 140,000 euro for most types of services and supplies purchased by central government authorities, and 5,382,000 euro for construction contracts. For lower value tenders, only national public procurement rules apply, but the general European Union principals of transparency and equal treatment should be respected.
The four relevant EU directives on public procurement are:
- Directive 2014/24/EU on the coordination of procedures for the award of public works contracts, public supply contracts, and public service contracts applies to the general sector.
- Directive 2014/25/EU coordinates the procurement procedures of entities operating in the water, energy, transport, and postal services sectors.
- Directive 2009/81/EC on defense and sensitive security procurement. This directive sets European Union rules for the procurement of arms, munitions, and war material (plus related works and services) for defense purposes, but also for the procurement of sensitive supplies, works and services for non-military security purposes.
- Directive 2014/23/EU on the award of concession contracts. A concession contract (either for the delivery of works or services) is conducted between a public authority and a private enterprise that gives the right to the company to build infrastructure and operate businesses that would normally fall within the jurisdiction of the public authority (e.g., highways).
In addition, the European Union has “remedies” directives imposing common standards for all Member States to abide by in case bidders identify discriminatory public procurement practices.
Electronic invoicing (e-invoicing) was introduced in 2018, based on the requirement set forth in Directive 2014/55/EU. The Directive makes the receipt and processing of electronic invoices in public procurement obligatory. Standards for e-invoicing are being developed by the European Committee for Standardization (CEN).
There are restrictions for United States suppliers in the utilities sector across the European Union, both in the EU Utilities Directive and in coverage of the GPA. Article 85 of Directive 2014/25 allows European Union contracting authorities to either reject non-EU bids where the proportion of goods originating in non-European Union countries exceeds fifty percent or give preference to the EU bid if prices are equivalent (within a three percent margin). Moreover, the Directive allows EU contracting authorities to retain the right to suspend or restrict the award of service contract to undertakings in third countries where no reciprocal access is granted.
There are also restrictions in the coverage of the GPA that apply specifically to U.S.-based companies. United States companies are not allowed to bid on works and services contracts procured by sub-central public contracting authorities in the water, airport services, urban transport and railways, and dredging services and procurement related to shipbuilding sector and sub-sectors.
The European Union has shifted the region’s economic policy vis-à-vis the People’s Republic of China to give the Commission greater authority to address negative impacts resulting from that government’s practice of subsidizing investments made by state-owned enterprises. The activity could take the form of an acquisition or other investment that displaces an established European business or industry. To ensure established enterprises and industries retain a fair opportunity to compete, the European Commission proposed that the European Parliament and the Council of the European Union to adopt a regulation on foreign subsidies that distort the internal market. This regulation, if adopted, will give the Commission the power to investigate investments and other activity when there is evidence that they have had a distortive effect on free-market competition in the region. Furthermore, the proposed legislation will empower the Commission to take remedial action against an offending entity. These actions include prohibiting the entity from participating in tendering for public procurement contracts or blocking the investment. The U.S. Government is carefully monitoring these negotiations because the proposed legislation applies to all state-owned enterprises globally.
Financing of Projects
EU financial assistance programs provide a wide array of grants, loans, loan guarantees and co-financing for feasibility studies and projects in a number of key sectors (e.g., environmental, transportation, energy, telecommunications, tourism, public health). A number of centralized financing programs also generating procurement and other opportunities directly with EU institutions.
The European Union supports economic development projects within Member States, as well as EU-wide “economic integration” projects that cross both internal and external EU borders. In addition, the European Union helps candidate and neighbor countries. For example, the European Union provides project financing through grants from the EU budget and loans from the European Investment Bank. Grants from the EU Structural and Investment Funds program are distributed through the Member States’ national and regional authorities. Projects in non-European Union countries are managed through the Directorate-Generals of International Cooperation and Development and European Civil Protection and Humanitarian Aid Operation.
EU Structural and Investment Funds
EU Structural Funds and Investment Funds (ESIF), including the European Regional Development and the European Social Fund, were created in 1975 with the aim to mitigate economic and social differences between the regions of the European Union. New budgets are approved every seven years for all Member States. Budgets and the allocation of funding between the EU priorities (social, economic, or environmental) are based on the conclusions of Partnership Agreements, which are negotiated between the European Commission and Member State national authorities. From 2014 to 2020, the European Union earmarked 352 billion euros for regional development and cohesion policy projects.
From the 2021 to 2027 programming period, the European Commission foresees a simplification of these funds and is expected to focus on the following objectives:
- Smart Europe (e.g., innovation, digitalization, and support for SMEs)
- Green Europe (e.g., carbon free economy, implementation of the Paris Agreement, and renewables)
- Connected Europe (e.g., strategic transport and digital networks)
- Social Europe (e.g., social rights, quality employment, education, and social inclusion)
- Citizens’ Europe (e.g., support to locally led development strategies and urban development).
In a response to the coronavirus pandemic, a crisis repair initiative was launched under the name Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU). The REACT-EU fund includes €55 billion of additional funds that will be made available via ESIF funds.
For projects financed through ESIF, Member State regional managing authorities are the key decision-makers. They assess the needs of their country, investigate projects, evaluate bids, and award contracts. To become familiar with available financial support programs in the Member States, would-be contractors should develop a sound understanding of the country’s cohesion policy indicators.
Tenders issued by Member States’ public contracting authorities for projects supported by EU grants are subject to EU public procurement legislation. All ESIF projects are co-financed by national authorities, and many may also qualify for a loan from the European Investment Bank in addition to private sector contributions.
The Cohesion Fund
The Cohesion Fund is another instrument of the European Union’s regional policy, which supports investments in the field of environment and trans-European networks in the area if transport infrastructure. For the 2021-2027 programmatic period, the Cohesion Fund applies to Bulgaria, Czechia, Estonia, Greece, Croatia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Portugal, Romania, Slovakia, and Slovenia. In addition, 37% of the overall financial allocation of the Cohesion Fund are expected to contribute to climate objectives.
In addition, the European Regional Development Fund finances programs under shared responsibility between the European Commission and national and regional authorities in Member States. The Member States’ administrations choose which projects to finance, and they take responsibility for day-to-day management.
Other EU Grants for Member States
Other sets of sector-specific grants, such as Horizon Europe, aid Member States in the fields of science, technology, communications, energy, security, environmental protection, education, training, and research. Tenders related to these grants are posted on the websites of the European Commission and the relevant Member State authorities. Participation is usually restricted to EU-based firms or tied to EU content.
Horizon Europe is the new Framework Program, which will run from 2021 until 2027, with a total budget of 75.9 billion euro. The Horizon Europe program aims to implement mission-driven research focusing on adaptation to climate change, including social transformation; cancer; climate-neutral and smart cities; healthy oceans, seas, coasts, and inland waters; soil health and good. It is expected that these missions will be addressed within the Global Challenges and European Industrial Competitiveness pillar.
External Assistance Grants
The Directorate-General for International Cooperation and Development is responsible for implementing EU development policies through programs and projects across the world. Its website offers extensive information on the range of grant programs, the kind of projects that are eligible, as well as manuals to help interested parties understand the relevant contract law. However, participation in these calls for tender is reserved for enterprises located in Member States or in the beneficiary countries and requires that the products used to respond to these projects are manufactured in the European Union or in the aid recipient country. U.S. consultants employed by a European firm are allowed to participate. European subsidiaries of U.S. firms are eligible to participate in these calls for tender.
In addition, the Instrument for Pre-accession Assistance II (IPA II) is an EU program for pre-accession countries that provides support for political and economic reforms, preparing the beneficiaries for the rights and obligations that come with EU membership and that are linked to the adoption of the acquis communautaire (i.e., the body of European Union law that must be adopted by candidate countries as a precondition to accession). These programs are intended to help build up the administrative and institutional capacities of these countries and to finance investments designed to aid them in complying with EU law. The successor program, IPA III, will build on IPA II, but will aim to accelerate project implementation by reducing the time gap between project selection, which will be based on technical maturity besides alignment to the country-specific recommendations of the enlargement package, and effective contracting. In addition, the final selection of actions will also consider the assessment of the performance of the beneficiaries in the enlargement agenda, and their commitment to and progress in implementing reforms, with particular attention to fundamental areas like the rule of law.
The Connecting Europe Facility (CEF) is an EU financing mechanism that uses the EC budget as well as the Cohesion Funds to finance projects in transport, energy, and digital. Along with EFSI, CEF is expected to play a role in bridging the investment gap in Europe, which is one of the Commission’s top priorities. In all three main categories, the focus is on creating better conditions for growth and jobs. For the 2021-2027 period, the budget amounts to 25.8 billion euro for transport, 5.8 billion euro for energy, and €2.1 billion euro for digital. Annual and multi-annual work programs specify the priorities and the total amount of financial support allocated for these priorities in a given year, and there are certain regulations limiting eligibility for support. Only actions contributing to projects of common interest in accordance with Regulations 1315/2013, 347/2013, and a Regulation on guidelines for trans-European networks in the area of telecommunications infrastructure, as well as program support actions, are eligible for support.
Loans from the European Investment Bank
Headquartered in Luxembourg, the European Investment Bank (EIB) is the financing arm of the European Union. Since its creation in 1958, the EIB has been a key player in building Europe. As a non-profit banking institution, the EIB assesses, reviews, and monitors projects, and offers cost-competitive, long-term lending. Best known for its project financial and economic analysis, the EIB makes loans to both private and public borrowers for projects supporting four key areas: innovation and skills, access to finance for smaller businesses, climate and environment, and infrastructure. The EIB opens credit lines for financial institutions that then lend funds to creditors.
While the EIB mostly funds projects within the European Union, it lends outside the European Union as well. In 2020, the EIB loaned 66 billion euros for projects. The EIB also plays a key role in supporting European Union enlargement with loans used to finance improvements in infrastructure, research, and industrial manufacturing to help those countries prepare for eventual European Union membership. The EIB presents attractive financing options for projects that contribute to those objectives, as EIB lending rates are lower than most other commercial rates.
Projects financed by the EIB must contribute to the socio-economic objectives set out by the European Union, such as fostering the development of less favored regions, improving European transport and environment infrastructure, supporting the activities of SMEs, assisting urban renewal and the development of a low-carbon economy, and generally promoting growth and competitiveness in the European Union.
Multilateral Development Banks
The U.S. Commercial Service maintains Commercial Liaison Offices at the World Bank and the European Bank for Reconstruction and Development. These institutions lend billions of dollars in developing countries on projects aimed at accelerating economic growth and social development by reducing poverty and inequality, improving health and education, and advancing infrastructure development. The Commercial Liaison Offices help U.S. businesses learn how to get involved in bank-funded projects, and advocate on behalf of U.S. bidders. Learn more by contacting the Commercial Liaison Offices to the European Bank for Reconstruction and Development and the World Bank.