ANNEX. Resolution of 23 April 2009:

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1 Resolution of 23 April 29: ANNEX 78: 'Calls for an overall analysis by an independent body of the sound financial management, effectiveness and efficiency of contracts with external service providers in areas such as IT, security, bars, restaurants, canteens, travel office, cleaning and building maintenance, with particular regard to: - the method of selection - the most suitable type of contract - possible loss of management control through excessive externalisation - transparency of fee/billing mechanisms - reliance on commission as a factor in remuneration - the problem of monopolies in the provision of services in certain areas - justification for payments from Parliament's budget;' Analysing the sound financial management, effectiveness and efficiency of contracts with external service providers is both a constant concern and an obligation for authorising officers: Article 78 of the Financial Regulation specifically stipulates that when adopting a budgetary commitment, and when registering the relevant legal commitment, the authorising officer must ensure that the principle of sound financial management is complied with. 2. The Internal Auditor and the Court of Auditors carry out regular checks designed to ensure that that obligation is being met. As far as the work of the Internal Auditor in this area is concerned, the following audits can be cited (those which have been completed can be consulted by any members of the Committee on Budgetary Control who wish to do so): A - Audit work which has been completed or will be completed shortly Audit report 7/4, 'IT Governance', which, in particular, addresses the issue of dependence on outside staff in the IT sector. Draft audit report 9/2, 'Audit of the public procurement process in DG Presidency', which focuses on the award of two major contracts in the security sphere (provision of security services in Brussels and framework consultancy contract on security systems). This report not only deals with the contract award procedures, but also, as regards the consultancy contract, analyses aspects of the management of the framework contract. The findings are relevant to a number of points raised in the discharge resolution. Draft audit report 9/4, 'Audit of the public procurement process in DG INLO', which covers a wide sample of contract award procedures, including a contract for the provision of catering services, contracts with external consultants and buildings maintenance and works contracts. The findings are relevant to a number of the points DV\ doc

2 raised in the discharge resolution. The first draft of the report is being prepared ahead of the contradictory procedure with the authorising officer by delegation. Audit report entitled 'IT Audit: Application Development', which will address, in particular, issues relating to dependence on external consultants in the area of the development of IT applications. The audit work itself is almost complete and a start has been made on drafting the report. B - Audit work scheduled as part of the 'rolling plan ': Departmental audits of contract award procedures will continue and should cover DGs PERS and ITEC in particular. As regards DG ITEC, the audit will certainly deal with procedures for the award of framework IT service contracts with external consultants and, in all likelihood, some consultancy contracts. In 21, the medium-term plan provides for a third audit in the IT area, on the topic of 'Delivering & supporting IT services and data'. That audit is also likely to address externalisation issues. Finally, in both 21 and 211 the Internal Auditor plans to carry out an audit which for the moment has the title 'Value-for-Money in sundry contracts with external service providers'. In the light of the findings of the audit of contract award procedures, there is a good chance that this audit will focus on security. 3. In addition, the Court of Auditors, acting as external auditor, has also analysed compliance with the principle of the sound financial management, effectiveness and efficiency of contracts with external service providers. In this context, mention might be made of recent annual reports and the following special reports: Special Report No 2/27 concerning the institutions' expenditure on buildings (OJ C148, corrigendum, OJ C 178, ) Special Report No 9/26 concerning translation expenditure incurred by the Commission, Parliament and the Council (OJ C 284, ) Special Report No 5/25: interpretation expenditure incurred by Parliament, the Commission and the Council (OJ C 291, ). 4. The work of the Internal Auditor, together with the reports drawn up by the Court of Auditors, in principle meet the request made by the discharge authority and a fresh analysis by an external body should be envisaged only in order to achieve a more specific aim, otherwise the risk of duplicating the checks and analyses already scheduled and carried out in connection with application of the Financial Regulation would be considerable. 5. However, with a view to obtaining additional, up-to-date information the authorising officers have been asked to carry out an analysis of the contracts they themselves have concluded. The findings are summarised below. 2/6 DV\ doc

3 OVERVIEW OF THE SOUND FINANCIAL MANAGEMT, EFFECTIVESS AND EFFICICY OF CONTRACTS WITH EXTERNAL SERVIVCE PROVIDERS (based on data provided by the authorising officers) A total of 174 procedures have been analysed. I - Analysis of the method of selection Tendering was made as competitive as possible through the use of open and restricted procedures accounting for 71% of the total number which were published in the OJ or on the basis of a CEI. The remaining 29% were negotiated procedures (including low-value contracts, under Article 129 of the Detailed Rules for the Implementation of the Financial Regulation) Open Restricted Negotiated Simple Total per procedure % 64,9% 6,3% 28,7% % II - Analysis by type of contract The results (41% direct contracts/59% framework contracts) show that the authorising departments did not use framework contracts excessively or in such a way as to prevent, restrict or distort competition (Article 89(2) of the FR). The type of contract was determined by the subject of the contract. 2 1 Direct Framework Type of contract % 41% 59% DV\ doc 3/6

4 III - Analysis of reliance on third-party expertise Contracts and related expenditure are always administered by officials under the authority of the relevant desk officers and the supervision of the head of service. In some cases, owing to the scale or technical complexity of the operations to be checked, external companies are called upon to check the services provided (= management assistance), the aim being to optimise the checking process, not to delegate it. No administrative and/or budgetary management tasks are contracted out. 2 1 Loss of management control through excessive externalisation 174 IV - Analysis of transparency of billing mechanisms. Checking of goods/services delivered. Fee and billing mechanisms are laid down in the contract's specific conditions and/or the 'specific terms and conditions applicable to contracts' attached to order forms. Billing mechanisms are laid down in specimen documents used by all departments. They may be adapted to specific cases and, within limits, by the competent departments prior to initiating a tender procedure. Fee mechanisms are generally laid down by contract and costs are adjustable annually on the basis of HICPs, or the indices applicable in the countries concerned, at the express request of either party. They are generally expressed in unit prices in the case of framework contracts and flat-rate and/or unit prices for other contracts. It should be noted that fee/billing mechanisms are totally transparent and are checked by several officials from different entities prior to the award of any contract. Invoices are signed off as 'certified correct' following verification of the services provided and then as 'passed for payment'. Subsequently, payment orders are approved by the ex ante verifier and finally validated by the appropriate authorising officer. 4/6 DV\ doc

5 2 Transparency of billing mechanisms. Checking of goods/services delivered 174 V - Reliance on commission as a factor in remuneration Reliance on commission as a factor of remuneration has been extremely limited, as illustrated by the following figures: 2 1 Commissions % 2% 98% VI - Problem of monopolies in the provision of services in certain areas Many major groups have been set up in recent years in certain specific areas (technical and general maintenance of buildings, IT). However, they have not constituted monopolies, but rather oligopolies. Because of the volume of services required in a number of areas (cleaning of buildings, technical maintenance, etc.), only certain larger companies submit tenders. Very little use is made by smaller companies of the possibility afforded in tender procedures of forming a grouping or association. Special attention is paid to lift servicing (case of 'unlawful agreement' followed up by the Commission) and effective interinstitutional cooperation in this area. DV\ doc 5/6

6 The service can only be provided by a single supplier % 15% 85% VII - Justification for payments from Parliament's budget All payments made from Parliament's budget are subject to stringent checks before they are validated. Verification of invoices before payment is carried out by several officials in different areas: 'financial initiation', 'certified correct', 'passed for payment', 'ex ante verifier', 'subdelegated authorising officer', etc. Virtually all invoices (with the exception, for example, of invoices of less than 5) are accompanied by supporting documents (list of services to be provided, maintenance report, acceptance report, etc.). A copy of the relevant contract is attached at the initial billing stage and the contract (or order form) reference always appears on the invoice. Where the documents attached to the invoice do not provide sufficiently explicit justification for the payment, an explanatory note is added to the invoice by the official responsible. 2 1 There is proof that the relevant action complies with the provision of the contract /6 DV\ doc