E-Invoicing in Public Procurement: Legal DevelopmentsOn 26th June 2013, the European Commission (“the Commission”) published both a communication (“the Communication”) entitled “End-to-End Procurement to Modernise Public Administration” and a related proposed draft directive (“the Draft Directive”) on “Electronic Invoicing in Public Procurement”. This legislative proposal is now being considered by the EU’s Council and Parliament and there has already been some useful initial reaction concerning its policy objective and substantive provisions.

 

First some of the basic terminology will be outlined, followed by: the Communication, setting out the Commission’s vision for the full digitisation of the public procurement process; the Draft Directive, dealing specifically with electronic invoicing in public procurement.

 

Background

 

Electronic procurement (“e-procurement”) concerns public sector organisations’ use of electronic means to purchase goods and services or to tender public works. It encompasses the following stages: electronic publication of notices announcing public procurement tenders (“e-notification”); publication of public procurement documentation, such as terms of reference on the web (“e-access to procurement documents”); and electronic submission of tenders by companies when responding to a call for tender (“e-submission”).

 

End-to-end e-procurement (“end-to-end e-procurement”) is the use of electronic communications and transaction processing in public procurement contracts throughout the entire process, starting from electronic publication of notices to electronic payment. It concerns a wider number of stages than e-procurement (such as the post-tender award stages of ordering and archiving).

 

Electronic invoicing (“e-invoicing”) is the electronic transfer of invoices between suppliers and buyers.

 

The Communication

 

The Communication considers the benefits of end-to-end e-procurement, then identifies the current state of implementation across the EU and finally proposes a series of actions enabling the EU and Member States to achieve the transition towards end-to-end e-procurement. The Communication is intended to act as a basis for possible future initiatives on the further digitisation of the public procurement process.

 

It describes the general benefits of making the transition to end-to-end e-procurement, including: generating significant savings; cutting the duration of the purchase-to-pay cycle; and constituting a growth enabler by opening up the Internal Market and by fostering innovation and simplification.

 

The Communication notes there are particular benefits for small and medium size enterprises (“SMEs”) and for public administration modernisation as end-to-end e-procurement could facilitate both SME participation in public procurement (by reducing overall administrative burden, increasing transparency over business opportunities and lowering participation costs) and structural re-thinking of certain areas of public administration.

 

It discusses the wider efforts which are being made to digitise public procurement. Out of the three relevant post-tender award processes (respectively electronic payments, ordering and archiving), the first two have already been addressed by other legislation (respectively on the Single Euro Payments Area and electronic catalogues) and only the third process is dependent on e-invoicing. Therefore the Commission has prioritised dealing with e-invoicing at this moment, as outlined in the Draft Directive below.

 

In assessing the current “state of play” of the public procurement landscape, the Communication observes the situation is highly fragmented and complex; accounting for a high number of different procedures, IT technologies, certification requirements, and usage of practices that do not fully exploit the opportunities offered by IT technologies. The ease-of-use of e-procurement systems and their interoperability are key elements which could enable high e-procurement take-up and large savings and benefits. The Communication has concluded, even allowing for regional differences, there is currently generally a low-take up of end-to-end e-procurement across the EU, with potential for high growth.

 

To further enable end-to-end e-procurement, the Communication sets out a series of action points to further support the implementation of end-to-end e-procurement by Member States. Overall they seek to: make e-invoicing the rule rather than the exception in public procurement; take forward standardisation work; devise national strategies for end-to-end e-procurement; and share best practice.

 

The Draft Directive

 

The Communication’s first action point is the Draft Directive which seeks to make e-invoicing the rule rather than the exception in public procurement.

 

The Draft Directive aims to establish a European e-invoicing standard to improve interoperability between the existing different (global, national, regional and proprietary) e-invoicing systems and standards. It aims to eliminate legal uncertainty, excessive complexity, additional operating costs for economic operators (who currently have to use different electronic invoices across the Member States) and should help boost the uptake of e-invoicing in Europe which currently remains very low (accounting for only 4-15% of all invoices exchanged).

 

The goal of interoperability allows information to be presented and processed in a consistent manner between business systems, regardless of their technology, application or platform. Full interoperability includes the ability to interoperate in content (semantic), format (syntax), and transmission terms. Semantic interoperability implies that the precise meaning of the exchanged information is preserved and well understood in an unambiguous manner, independently of the way in which it is physically represented or transmitted.

 

Through ensuring semantic interoperability and improving legal certainty, the Draft Directive ought also to promote the uptake of electronic invoicing in public procurement, thereby allowing Member States, contracting authorities, contracting entities, and economic operators to gain significant benefits in terms of savings, environmental impact, and reduction of administrative burdens.

 

More practically, and with due regard for data protection legislation, it is proposed such a European standard, drafted by the relevant European standards authority, should define particular semantic data elements referring to: complementary seller and buyer data, process identifiers, invoice attributes, invoice item details, delivery information, payment details and terms. Such a standard should also be compatible with the existing standards for payments to allow for automatic processing of payments. It should not require electronic signatures.

 

The Draft Directive acknowledges existing legislation setting out the conditions for issuing and accepting electronic invoices for VAT purposes (European Council Directive 2006/112/EC of 28.11.06) and states those provisions must remain unaffected by the Draft Directive. The Draft Directive also acknowledges that initially the transition to e-invoicing should not be obligatory.

 

Regarding timing, the Draft Directive is only a Commission legislative proposal and so will now be considered by the EU Council and Parliament. The current proposal foresees that Member States should be able to transpose the final version of the Directive within four years after its adoption by the legislators (perhaps coinciding approximately with the provisions on e-procurement in the modernisation of public procurement directives).

 

Draft Directive: Initial External Reaction

 

Since its publication, initial external reaction to the Draft Directive has generally been supportive of its intention, while critical about its lack of ambition and certain specific substantive aspects.

 

The argument has been raised that the EU is failing to follow the successful precedent of its agreement in the 1980s over the GSM telephony standard (which subsequently gave the region a competitive advantage and an initially world-leading position in mobile telephones). The Draft Directive is criticised for failing to grasp a similar opportunity today with e-invoicing. Support for that argument is presented by the Commission’s sponsorship of the 30 million Euro PEPPOL project; a project which aimed to create a pan-European infrastructure for e-procurement based on open standards and open infrastructure and has now been successfully implemented in Norway, Denmark, Sweden, Finland, Ireland (and will be soon in the Netherlands).

 

The forthcoming legislative scrutiny by the EU’s Council and Parliament will show whether the preferred policy path will be to follow the Commission’s option of letting the market decide the more common e-invoicing standard(s) or to push for an EU-wide standard, based around established standards in certain Member States, which could potentially give the EU a comparative advantage (as with GSM telephony) and be adopted rapidly in other parts of the world.

 

For further information on this legal development please contact World IT Lawyers.