Wednesday

21st Nov 2018

Investigation

EU Commission paying too much for iPhones and IT

  • Commissioners at their weekly meeting. The EU executive has bought about 1,000 iPhones since December, apparently overpriced. (Photo: European Commission)

The European Commission has possibly overspent taxpayer money on contracts for a total of some hundred million euros on a massive IT security network as well as on iPhones and notebooks.

Internal documents and confidential emails obtained by EUobserver suggest mismanagement of framework contracts with outside suppliers, who are overcharging with the apparent knowledge of senior staff and management inside the European Commission's Directorate General for Informatics (DG Digit).

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These contracts included, among others, the purchase of Apple iPhones and Microsoft Surface Pro notebooks, at what appears to be inflated prices from German supplier Bechtle AG.

Such devices are supposed to be sold without VAT, following the rules outlined under a protocol of the privileges and immunities for the European Union. But the European Commission agreed to pay above base price.

At the time of the contract submission dated October 2017, a new iPhone X with 256GB was priced at €1,319 with 19-percent VAT included, on Apple Germany website. It means the European Commission should have paid just over €1,000 but instead doled out €1,188.29 for this model, according to the leaked document.

The European Commission gave EUobserver the contested contract following a freedom of information request but redacted the pricing for reasons linked to commercial sensitivity. However, a leaked document seen by this website, reveals the prices in full.

It shows it had spent €719.82 per iPhone 8 64GB. The stated price with 19-percent VAT included for the model was €799, meaning it should have paid €671.43.

It also paid €872.97 per iPhone 8 256GB and €972.07 per iPhone 8 plus 256GB - above the normal base price.

A similar purchasing scheme was applied to Microsoft Surface Pro notebooks by the same German supplier when the commission also agreed in 2014 to purchase them above base price.

At the time, Microsoft on its website in Belgium was selling its Surface Pro 3 i5 256GB with 8GB ram notebooks for €1,299 with 21-percent VAT included. Yet the commission agreed to pay €1,110.26 for each device, almost €40 above base price.

The commission did not respond to questions on why it agreed to the prices or if additional hidden fees could explain the extra costs. However, it later said its contracts include a host of services and insurances above and beyond the simple cost of the equipment.

"The tenderers had to submit a quote for these additional benefits and services in terms of percentage. For these reasons, the prices paid by the Commission cannot be directly compared to the retail prices minus VAT alone," it said, in an email.

It could also not provide correct numbers of devices purchased under the specific contracts.

Instead, it gave "roughly accurate" figures of almost 1,000 iPhones purchased for the six months since last December from the German supplier, on top of 36 Microsoft notebooks since 2014.

Bechtle AG's spokesperson did not respond to pricing questions on the contract either. But the biggest possible loss for the public purse lays elsewhere.

The Testa-ng

The EU institutions use an internal data exchange network that operates separately from the internet.

Also known as the "Trans European Services for Telematics between Administrations" or Testa, it aims to create secure electronic communications between the EU public administrations and allows for the exchange of EU classified information up to the "restricted EU" level.

Some 43 agencies and institutions at the EU level use it.

The EU police agency, Europol, built its dedicated Europol network on Testa. The European Commission's internal affairs department, or DG Home, also uses it to implement the EU-wide criminal database called the Schengen Information System (SIS).

It means Testa is firmly embedded, making it difficult for the European Commission to challenge any price spikes by the company behind it.

Which is what happened.

In 2013, T-Systems International GmbH signed a Testa-ng contract with the European Commission for an initial period of three years, with four possible renewals of one year each. In 2016, the framework contract was renewed for one year, with the end-date being 11 July 2017.

But in February last year, T-Systems told the DG Digit it did not want to renew the contract "because of financial losses from the project".

DG Digit then agreed to a 150-percent price increase and a brand new T-Systems contract for three years at €103 million. Estimated monthly running costs also increased from €109,000 to €184,000.

Additionally, T-Systems were apparently granted a grace period to get familiar with the initial Testa-ng contract even though it was the very same system and same contractor.

This happened despite the fact that DG Digit could have used a so-called negotiated procedure, where there is no open competition, to extend the contract for one year until an open call for tenders would have been organised and finalised.

This article was updated at 20:56 on 6 August 2018 to reflect the Commission responses.

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