European Union: Proposals For The Modernisation Of European Public Procurement: Progress Or Hindrance?

BACKGROUND

The current European public procurement rules, intended to ensure open EU-wide competition for public contracts are contained in two directives:

  1. The Public Sector Directive (Directive 2004/18) sets out the rules that apply to contracts awarded by public sector bodies (e.g. government, schools, and health authorities).
  2. The Utilities Directive (Directive 2004/17) sets out a parallel set of rules that apply to contracts awarded by public utilities (or private utilities that have the benefit of special or exclusive rights) operating in the water, energy, transport and postal sectors.

 The current rules have been criticised for their lack of clarity and efficiency and case law has substantially developed our understanding of the rules as set out in the directives. These factors, in combination with the developing public policy objectives of the European Commission (the "Commission") relating to the promotion of electronic communication, the development of small and medium sized enterprises (SMEs), and social, environmental and employment considerations, have prompted the Commission to embark on simplifying, codifying and modernising procurement regulation. As a result, the Commission launched a review of the procurement rules in April 2010 and a consultation followed.

INTRODUCTION

On 20 December 2011, the Commission published its proposed directives to replace the Public Sector Directive and the Utilities Directive respectively. The proposals seek to simplify the procurement rules; promote the use of electronic communications; encourage access to SMEs; and promote objectives such as social, environmental and employment aims.

On 23 January, two working papers prepared by the European Commission to facilitate discussions at a Working Group meeting held on the same day were published. The first working paper discusses the proposals to make the procedures more flexible and the second working paper discusses the use of procurement to pursue social, environmental and employment objectives. The papers provide useful summaries of the proposals in these areas.

The proposed directives are expected to be adopted by the end of 2012 and currently have a proposed date for transposition by Member States of 30 June 2014.

A. Proposals affecting both the Public Contacts and Utilities Directives

Some of the proposals which introduce significant changes and which affect both the Public Contracts Directive and the Utilities Directive (except where otherwise indicated) are described below.

1 Scope of the Directive

1.1 Under the proposals, the procurement rules will apply to research and development public services contracts (currently excluded from scope), where the contract is for the benefit of the contracting authority for its own use, and the service provided is wholly paid for by the contracting authority.

2 The Procedures

2.1 The proposed changes introduce some welcome safeguards to protect against discrimination and unfair treatment in procurement and to enhance efficiency. These include ensuring all relevant information is provided to all bidders at the outset, that every bidder is given the opportunity to submit a final tender, and an obligation on the contracting authority to document the negotiations in a report. The time limits for submission of bids and invitations to tender will be shortened.

2.2 The proposals include the introduction of a new innovation partnership procedure. This will allow an economic operator, where the contract in question is for the development and/or purchase of innovative goods, services or works, to submit a request to participate with the intention of establishing a structured partnership.

3 Electronic Procurement

3.1 The proposals seek to promote the use of electronic communication. In particular, the transmission of notices in electronic form and the electronic availability of procurement documents will be mandatory. A switch to fully electronic communication, such as e-submission, in all procurement procedures is proposed for implementation within a period of two years from adoption of the directives. In addition, a contracting authority may require bids to be presented in the form of an electronic catalogue. These changes should make the procurement process more efficient and convenient for both bidder and contracting entity.

4 Joint Procurement

4.1 New rules establish the choice of applicable national law when one or more contracting authorities from different Member States act together to perform a procurement.

  1. Where several contracting authorities purchase works, goods and/or services from or through a central purchasing body located in another Member State: the national rules will be those where the central purchasing body is located;
  2. Where several contracting authorities from different Member States jointly award a public contract: the national rules will be those that are agreed to apply between the contracting authorities; and
  3. Where several contracting authorities from different Member States have established a joint legal entity: the national rules will be either those of the Member State where the joint legal entity has its registered office or where the joint legal entity is carrying out its activities.

4.2 New rules determine the applicable national rules, when no agreement is made.

5 Compliance

5.1 A number of the proposals seek to ensure compliance with the procurement rules. The mandatory exclusion of bidders who attempt to manipulate the process; safeguards against undue advantage of bidders involved in the preparation of the procedure; and a requirement that Member States designate a national authority to oversee adherence to the procurement rules are proposed.

6 Award of Contracts – Life-cycle costing

6.1 A contracting authority will be able to choose whether lowest cost means (a) lowest price or (b) cost-effectiveness in accordance with a life-cycle costing approach. Life-cycle costing may take into account external environmental costs if capable of being monetised and verified as well as direct monetary expenses.

7 Social Measures

7.1 Social related proposals include a separate regime for social services contracts with a higher threshold of EUR 500,000 and the mandatory exclusion of bidders that have infringed social, labour or environmental EU law.

8 Facilitating access to SMEs

8.1 Measures designed to facilitate access to SMEs, but which will apply to all bidders equally, include the relaxation of information requirements, the mandatory acceptance of self-declarations as confirmation that bidders meet section criteria and are not excluded, the division of public contracts into lots to make them more accessible for SMEs, and the ability of the contracting authority to transfer payments due directly to the subcontractor.

B. Proposals affecting only the Utilities Directive

The main proposed revisions affecting only the utilities directive are detailed below.

1 Contracts with affiliated undertakings and joint ventures

1.1 The meaning of affiliated undertaking is clarified. The award of contracts to affiliated undertakings will be exempt if at least 80% of the affiliated undertaking's average total turnover for the relevant category of contract (e.g. services or goods) for the past three years arose from sales to affiliated undertakings.

1.2 The proposals clarify that the award of a contract (a) by a joint venture comprised only of contracting entities to one of its members; or (b) by a contracting entity to such a joint venture of which it is part, is excluded from the scope of the rules.

2 Contracts for exploring oil and gas

2.1 Procurement relating to contracts for the purpose of exploring oil and gas will be excluded from the scope of the directive.

DO THE PROPOSALS REPRESENT REAL PROGRESS IN PROCUREMENT REGULATION?

The simplification of the rules and codification of principles deriving from case law are welcome improvements to the procurement landscape that should promote understanding and help bidders and contracting entities to comply with their requirements. Likewise, the measures introduced which seek to improve efficiency of the procedures, such as the promotion of electronic communications and procurement, and relaxation of information requirements, are welcome developments. However, the proposed changes which introduce public policy objectives, such as life-cycle costing and reserved contracts, raise queries about how these will be used by contracting authorities in practice and whether, in reality, they will be used to manipulate the process towards a preferred bidder (a risk noted, and in fact prohibited, by the proposed directives). Queries may also be raised about the artificial division of contracts in order to allow access to SMEs. In practice, whilst such measures may benefit SMEs, they may present a real hindrance to contracting entities that prefer to enter into a contract with a single economic operator for efficiency reasons.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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