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Procurement changes on the horizon - Part 2

25 March 2014 #Public Sector


Following on from our previous article “Procurement changes on the horizon – Part 1” this article sets out the current status of the revised EU procurement directives, and discusses some of the proposed amendments to the existing procurement regime.

Status of the EU Procurement Directives

On the 15th January 2014, the European Parliament voted to approve a new package of directives to replace Directive 2004/17/EC (procurement in the water, energy, transport and postal services sectors), Directive 2004/18/EC (public works, supply and service contracts) (“the Public Contracts Directive”) and a new directive on concessions contracts.  

The new package of directives are due to come into force on 17th April 2014. EU Member States will then have two years to implement them into national legislation. The Cabinet Office has confirmed that it intends to implement legislation in the UK (excluding Scotland) before the two year deadline expires so that contracting authorities and economic operators can take advantage of the flexibilities offered up under the new rules.

The Revised Public Contracts Directive

As with Part 1 of this article, we focus on the draft directive due to replace the Public Contracts Directive (“the New Directive”), and sets out the position as reflected in the New Directive issued on the 30th January 2014.  We do not expect the content of the final New Directive to be significantly different from the draft New Directive issued in January. However, this article does not reflect the final text, which is due to be published in the Official Journal on 28th March 2014.  Please look out for further updates from us after 28th March.

Relations between contracting authorities

The New Directive contains provisions that incorporate principles from case law (Teckal Sri v Commune di Vianno, Azienda Gas-Acqua Consorziale (AGAG) di Reggio Emilia (C-107/98) and European Commission v Federal Republic of Germany (C-160/08)) in terms of public-public cooperation and the structure of such arrangements.  The intention is to provide clarity to Member States and contracting authorities, as interpretation of these cases has varied across Member States.

The New Directive provides that a public contract awarded by a contracting authority to a legal person governed by private or public law shall fall outside the scope of the New Directive where:

a)     the contracting authority exercises a control over the legal person concerned which is similar to that which it exercises over its own departments (i.e. where it exercises a decisive influence over both strategic objectives and significant decisions)

b)     more than 80% of the activities of the controlled legal person are carried out in the performance of tasks entrusted to it by the controlling contracting authority or by other legal persons controlled by the contracting authority

c)     there is no direct private capital participation in the controlled legal person subject to specific exceptions

Similar provisions apply where contracting authorities act together to exercise control over a legal person.

A contract concluded exclusively between two or more contracting authorities shall be outside the scope of the Directive provided that:

(a)   the contract establishes or implements cooperation exclusively between the participating contracting authorities with the aim of ensuring that public services they have to perform are provided with a view to achieving objectives they have in common

(b)   the implementation of that cooperation is governed solely by considerations relating to the public interest

(c)   the participating contracting authorities perform on the open market less than 20% of the activities concerned by the cooperation, and that no private sector provider is placed in a position of advantage compared to its competitors

Choice of participants

The New Directive intends to reduce obstacles that SMEs have to overcome when bidding for public sector contracts, such as where there are overly demanding requirements around an organisation’s economic and financial capacity.  Contracting authorities must ensure that any requirement for a minimum turnover is related and proportionate to the subject matter of the contract.  In addition, it should not exceed twice the estimated contract value apart from in limited circumstances, such as, where the contract is high risk.    

In addition, the New Directive seeks to reduce the administrative burden placed on economic operators at the pre qualification/selection stage, and there will be a process whereby economic operators can self-certify that they meet the selection criteria and should not be excluded from the process.  The requirement to produce supporting documentation, such as certificates of qualifications, will be limited to the successful tenderer prior to the contract being concluded.  Contracting authorities may ask for this information from more than one candidate prior to issuing the invitation to tender where a two stage procurement process, such as the restricted procedure, has been utilised to ensure the shortlisted organisations are able to satisfy the contracting authority’s requirements.

Life cycle costing

The New Directive allows contracting authorities to use a life-cycle costing approach when evaluating bids to determine the most economically advantageous tender.  This approach will not be available to contracting authorities awarding a contract on the basis of price only.

The intention is that life cycle costing should encourage more sustainable procurements by including all costs over the life cycle of the works, supplies and services, as opposed to an evaluation of the initial purchase price. 

Life cycle costing will not be a new concept to all sectors.  However, this is the first time it has been referenced as a tool for evaluating bids, and methodologies for evaluating life cycle costing will need to be developed.  Further, the method for evaluating life cycle costing will need to be developed by contracting authorities using an “objective and non-discriminatory manner and be accessible to all interested parties”.

Revised timeframes for procurement 

The New Directive states that “time limits for participation should be kept as short as possible without creating undue barriers to access for economic operators from across the internal market and SMEs”. Therefore, the statutory minimum time limits by which economic operators have to express an interest in a contract opportunity and submit tender documents have been reduced.   

In line with the Public Contracts Directive, the minimum timescales may be reduced further in certain circumstances, for example, where e-procurement is utilised.

The reduced time limits will be useful in some circumstances in terms of speeding up the process.  However, contracting authorities should remain mindful of the complexity of the procurement process as there will be circumstances where bidders require longer timescales in order to respond fully and competitively to the contracting authority. 

E-procurement

Under the New Directive, electronic means of information and communication is deemed to be a means to “greatly simplify the publication of contracts and increase the efficiency and transparency of procurement processes”.

The New Directive places a mandatory obligation on contracting authorities to ensure that, following a transition period, all communication and information exchanged is via electronic means.  The intention is that electronic means will become the standard medium for communication.  There are exceptions to this requirement, which includes where the procurement documents require the submission of physical or scale models which cannot be transmitted using electronic means. 

Further, the New Directive places an obligation on contracting authorities to offer unrestricted and full direct access free of charge to the procurement documents from the date the relevant notice was published or when an invitation to confirm interest was sent, as appropriate. 

Update of positions in Part 1 of Article

Within Part 1 of this article, we highlighted five provisions within the New Directive, and an update on each is set out below:

  • Removal of Part B Services: the provisions that will apply to those services subject to the lighter touch regime have not changed, save for a reduction in the timescale allowed for issuing the contract award notice
  • Thresholds:  A relatively small increase has been made to the thresholds from those set out in previous versions of the New Directive.  The threshold of 750,000 euro remains unchanged for those services subject to the ‘light touch’ regime replacing Part B services
  • Increased Use of Lots:  The principle of promoting the use of lots continues to apply, and the New Directive specifies that public procurement should be adapted to the needs of SMEs. However, the thresholds detailed in Part 1 of this article have been removed from the most recent version of the New Directive
  • Use of Competitive Negotiation: there are some amendments to the relevant provisions of the New Directive since Part 1 of this article was issued.  However, the process remains unchanged, and the expectation is that the availability of this procedure to contracting authorities is likely to increase cross-border trade
  • Modification of Contracts: the provisions relating to modifying contracts (public contracts and framework agreements) during their term have been amended in part.  We will provide a detailed overview of the revised provisions following the publication of the final New Directive, which is due to be issued on 28th March

A follow up article will be issued following publication of the New Directive.  We will provide readers with an updated position in respect of those provisions detailed above, and also highlight additional salient provisions of the New Directive that have not been discussed in Parts 1 or 2 of this article.

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