EU Public Procurement: Part 1

What is the impact of European Legislation upon the procurement of construction projects?

EU Treaty Principles

The main EU Treaty principles applicable to procurement are:

1. Non-discrimination;
   
   
2. Equality of treatment;
   
   
3. Mutual recognition; and
   
   
4. Proportionality.
   
   

These principles are developed in the EU Procurement Directive.

EU Procurement Directive

The EU Procurement Directive applies where a public authority or a utility wants to acquire

1. Goods;
   
   
2. Services; or
   
   
3. Building or civil engineering works.
   
   

It establishes a procedure that must be followed where the contract to be award has a value above a certain threshold. Note that even where an authority is below this threshold they will still need to consider the Treaty objectives, and so may need to advertise to some extent to meet with the minimum requirements of transparency. There are some exemptions, but they are quite limited, for example, secrecy.

Implementation

In the UK the Directive has been implemented by Regulations. There were originally 4 separate Regulations for:

1. Supply;
   
   
2. Works;
   
   
3. Services; and
   
   
4. Utilities.
   
   

All four of these have been replaced by 2 new Regulations:

1. Public Contracts Regulations 2006 (SI 2006 No 5). Replacing the first 3, supply, works and services regulations; and
   
   
2. Utilities Contracts Regulations 2006 (SI 2006 No 6). Replacing the Utilities Regulation
   
   

The aim of the Regulations

The aim of the new Regulations is to reinforce the EU's drive towards free movement of goods and services within the EU. In that respect the aim is to continue to open up the market for public procurement work through out the EU member countries.

This is done by encouraging and supporting the concept of fair competition. If competition is open to anyone then not only does this assist the market to function, but public bodies and utilities should also obtain the goods, services or work more economically.

The other side of the equation then is value for money (VFM).

Value for Money

The EU and UK Government's driving force behind the concept of competition is to obtain value for money when procuring works, services and supplies. VFM is defined by the Office of Government Commerce (OGC) as: "the optimum combination of whole-life cost and quality (or fitness for purpose) to meet the user's requirements". The OGC's Best Practice guidance Notes also states that VFM is rarely synonymous with lowest price.

What is new?

The new Regulations include some new innovations:

1. Consolidation. Supply, works and services are now contained in one set of regulations.
   
   
2. Framework agreements. Considered for the first time.
   
   
3. Electronic Auctions. Expressly covered now.
   
   
4. Competitive Dialogue. A new procedure for complex procurement if the open or restricted approaches are not suitable. This will not be as freely available as some public bodies might think. It allows the procuring body to enter into a dialogue with the bidders before obtaining final tenders.
   
   
5. Dynamic Purchasing systems. An electronic system for repetitive purchases. The notice system is simplified.
   
   
6. Supported Factories and Businesses. If more then 50% of the workers are disabled then a contract can be awarded to them.
   
   
7. Central Purchasing Bodies. Covers organisations set up by a contracting authority, from or through which the authority purchases.
   
   
8. Social and Environmental. Clarifies how these issues can affect the procurement process.
   
   
9. Mandatory Exclusions. A procuring body must now exclude a potential bidder that has been convicted of (as defined in the Regulations):
   
   

10. Standstill Period. A 10-day standstill period is now required when awarding the contract to allow the unsuccessful tenderers to seek clarification and challenge the award. This is as a result of the Alcatel case (ECJ ref C-81/98 Alcatel Austria v Bundesministerium für Wissenshaft und Verehr). In that case it was held that were a contract could not be set aside (after being awarded to the wrong bidder) the EU Directive had not been properly implemented. An award of damages was insufficient. So the standstill period is to allow challenges to be made before the contract is awarded.
    
    

Application; EU members and beyond

The Regulations apply to the 25 EU members, but as a result of international agreements also to a number of other countries. First, as a result of European agreements the Regulations also apply to Bulgaria; and Romania.

Second, as a result of the World Trade Organisation Agreement on Government Procurement ("GPA"). For countries that are also part of the WTO they should comply with the WTO's GPA. If they comply with the EU rules then they meet the requirements of the GPA. The GPA countries are:

1. Aruba;
   
   
2. Canada;
   
   
3. Hong Kong;
   
   
4. Iceland;
   
   
5. Israel;
   
   
6. Japan;
   
   
7. Republic of Korea;
   
   
8. Liechtenstein;
   
   
9. Norway;
   
   
10. Singapore;
    
    
11. Switzerland; and
    
    
12. USA.
    
    

Procurement Procedures

There are 4 main procurement procedures;

1. Open Procedure;
   
   
2. Restricted Procedure;
   
   
3. Competitive Dialogue Procedure; and
   
   
4. Negotiated Procedure.
   
   

From a procedural point of view the distinction between these approaches starts from the advertising of the potential contracts, minimum time periods for a response, and particularly what then happens next. Advertisement is by way of a notice in the Official Journal of the EU (an "OJEC Notice").

1. Open procedure

Any one may respond to the OJEC Notice by submitting a tender.

2. Restricted procedure

Tenders are selected from those that respond to the OJEC Notice. Only those selected are invited to submit a tender. This means that a limited number of tenders are submitted. The effect is twofold. First, a bidder knows that they have an ascertainable chance of winning, and so is encouraged to submit a carefully prepared tender. Second, the authority is not overwhelmed.

3. Competitive Dialogue Procedure

Once the OJEC Notice period has expired the authority enters in a discussion with the bidders in order to develop at least one suitable solution. The bidders can then submit a tender based on the solution. In effect, the bidders are using their expertise to develop a VFM solution (design and buildability focused) for the authority.

4. Negotiated Procedure

The authority may identify one or more organisation, with which the authority can negotiate the contract. An OJEC Notice is nearly always required. This procedure is only really appropriate where the authority requires something that only one organisation can provide, for example, an artistic works or an item covered by an exclusive right.

Selection of the appropriate procedure

The authority can use the Open or Restrictive Procedure as it see fit. The Competitive Dialogue Procedure will rarely be applicable. The use of a Negotiated Procedure is again very limited.

OJEC Advertising

Contracts covered by the Regulations require a "call for competition". This is done by publishing a notice in the Official Journal of the EU ("OJEC"). Standard official forms are available and their use is mandatory.

There are minimum periods during which potential tenders may respond. These periods can be reduced when: a Prior Information Notice ("PIN") has been issued giving sufficient time in advance of the OJEC Notice; full access is given electronically to the tender documents; or the OJEC Notice was submitted electronically following the SIMPA web site procedures.

To see further articles by Nicholas Gould please visit www.fenwickelliott.co.uk.

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