On 15 January 2014, the European Parliament adopted a package of three new public procurement directives ("Directives") replacing the Public Sector Directive (Directive 2004/18/EC) and the Utilities Directive (Directive 2004/17/EC) and introducing a directive on concessions. The new Directives represent a far-reaching reform of the regime by shifting to full e-procurement, introducing new procedures, and focusing on strategic use of the procurement rules.
Having been in gestation since April 2010 and winding their way through the European legislative machine for almost four years, the three new Directives mark a major milestone in the modernization of the EU procurement rules.
Aiming at achieving more flexibility with the rules, facilitating access to contracts for small and medium-sized companies (SMEs), supporting strategic use of public procurement for environmental and social policy goals, and providing more clarity on the application of the rules, the new Directives represent a significant and substantial reform of the public procurement law regime by introducing new procurement procedures, establishing new light regimes, and shifting to full e-procurement.
Some key changes
Some of the most significant changes introduced by the new Directives include the following:
- MEAT as sole award criterion
Under the new Directives, contracts may only be awarded based on the most economically and advantageous tender (MEAT). This criterion may be assessed on price, costs (using a cost-effectiveness approach), or the best quality/price ratio. In future, award criteria will also be allowed to include design for all users, environmental and social characteristics, innovative aspects, and conditions for commercialization. The Directive also clarified that the organizational strength, experience or qualification of the staff delivering the contract may be used where this has a significant impact on the performance of the contract.
- Greater flexibility and simplification of negotiated procedure
The new Directives acknowledge the need for broader access to flexible procedures, namely the competitive procedure with negotiation and the competitive dialogue. The grounds for using the competitive procedure with negotiation (which will be the same as those applying to the competitive dialogue) are significantly extended. Basically, this procedure will available for all purchasing that is not "off the shelf", such as purchasing designs or innovative solutions. However, the "price" to be paid for the wider availability of the competitive negotiated procedure is the determination of more narrow and express procedural rules reducing the procurer's flexibility when conducting the procedure. In particular, the Directives contain an express requirement that there may be no negotiation of final tenders.
- Elimination of distinction between priority and non-priority services
The current rules distinguish between Part A (priority) and Part B (non-priority) services. Part A services must comply with all requirements of the European directives, while Part B services (or "non-priority services", i.e. those less amenable to cross-border competition, such as legal services) are subject to more flexible rules. The new Directives eliminate this distinction by suppressing the Part B rules, although they do provide specific rules for the awarding of public contracts for health and social services, as well as for education.
- Establishment of SME-friendly measures
The Directives establish certain measures to promote the participation of SMEs in procurement procedures, such as encouraging contracting authorities to divide contract into lots or establishing a turnover cap limited to no more than twice the contract value. Among other measures, contracting authorities will have to explain in their OJEU advertisement why they did not split up the works or services into lots in cases where the procurement could have been so divided but has not been ("apply or explain" – principle). Other measures facilitating the participation of SMEs include the reduction of bureaucratic burdens (such as the establishment of Self Declarations and the European Procurement Pass) or the introduction of a turnover cap in relation to the financial capacity (a maximum of twice the contract value).
- Incorporation of in-house (Teckal) and inter-authority cooperation (Hamburg) exemptions
In transposition of the relevant European Case law, the Directives clarify when contractual relations between public bodies are not subject to the public procurement rules (so-called in-house procurement). The Directives also define when contracting authorities should be deemed to exercise joint control over a legal entity. Conditional upon certain requirements (eg public interest) also horizontal cooperation in performing public services for common interests between contracting authorities are recognized.
- Clarification and extension of exclusion grounds
The grounds for exclusion of candidates and tenderers have been reviewed clarified and extended. Contracting authorities will be entitled to exclude economic operators that have shown significant or persistent deficiencies in performing prior contracts. Purchasers will be permitted not to award a contract for the best tender where that bidder does not comply with, or has violated, applicable obligations under EU or national law in the field of (national/international) social, labour and environmental, law provisions. Bidders may at any time during the procedure be excluded in case the bidder committed exclusory acts before or during the procedure. However, bidders shall have the possibility of "self cleansing".
- Clarification on rules for modifying existing contracts
The new Directives codify rules and exemptions that have come about through well-known European Court of Justice case law (specifically, C-454/06, Pressetext, and C-91/08, Wall AG), a development that brings greater legal clarity to the regime. Even if substantial modifications to an existing public contract must be considered a new contract and thus the procurement process must be restarted, the Directives provide certain abilities to change excising contracts (such as a transfer of the contract to a successor following insolvency or in the event of "low value" modifications).
- Introduction of the "Innovation Partnership"
A new procurement process, the "Innovation Partnership", has been introduced. Innovation Partnerships will allow public authorities to call for tenders to solve a specific problem without pre-empting the solution, thus leaving room for negotiations between the authority and the bidding companies to find the most appropriate answer. Contracting authorities should have access to this procedure when a need for the development of an innovative product, service or works and the subsequent purchase of the resulting output cannot be met by solutions already available on the market.
- Move towards e-procurement
Contracting authorities will required to make procurement documents freely available by electronic means from the date of publication of the notice. It will also be mandatory to submit notices in electronic form and fully electronic procurement, including all communication and submission, must be in place latest until 2018.
Transposition until 2016
The new Directives are expected to enter into force end of March 2014. Member States are required to transpose the Directives by making national implementing regulations within 2 years from the date of EU adoption (hence most probably by March 2016). Once implemented, the rules will only bite on new procurement exercises commenced after the date when the new national rules take effect.
The new Directives support economic growth and deficit reduction by making the public procurement process faster, less costly, and more effective for businesses and procurers alike. For contracting authorities, this means being able to run procurement exercises faster, with less red tape, and with a greater focus on getting the right supplier and the best tender.
For suppliers, the process of bidding for public contracts should be quicker, less costly, and less bureaucratic, enabling suppliers to compete more effectively. The basic principles of the EU Treaty have not changed, so contracts still have to be competed and awarded transparently and without discrimination. The new rules have a similar overall structure to the existing rules, but the greater degree of flexibility that they promote will enable better commercial outcomes to be achieved. The full texts are publicly available here.
Johannes Stalzer and Franz Heinisch (head of the procurement section at City of Vienna's public utilities holding) will be addressing the highlights of the new Directives and their particular impact on Austria at a business breakfast at Schoenherr's Vienna head office on 27 February 2014. Please register online if you are interested in attending the event.
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