European Union: New EU Procurement Rules Adopted To Bring Greater Flexibility To Public Tendering

Summary and implications

New directives on public procurement surmounted the final legislative hurdle at the EU level on 11 February 2014 and were adopted by the Council of the EU.  The main objective of the new rules is to simplify the rules and procedures and introduce greater flexibility. The UK Government appears to have high hopes of this. Although the UK has two years to implement the changes, the Government is aiming for early adoption and took the unusual step of starting consultation on discretionary changes last year. This means that the new rules could come into effect in the UK late this year or early next.

This briefing focuses on 10 key changes the new legislation is likely to have on tendering by public authorities and their suppliers in the UK. Similar changes made to the rules on procurement for utilities were also adopted.

What are the 10 key changes?

1. Greater flexibility to negotiate

Arguably welcome change to the procurement rules is the relaxation of the rules on use of the competitive negotiated procedure and the introduction of a new innovation partnership procedure.

Under the new rules, while the open and restricted procedures are still the standard requirement for tenders, both the competitive negotiated procedure and the competitive dialogue procedure may be available in a wider range of circumstances than is currently possible.  These include where:

  • the requirements of the authority cannot be met without adaptation of readily available solutions or they include design or innovative solutions;
  • negotiation is necessary for reasons related to the nature, complexity or legal and financial make-up of the contract or because of associated risks;
  • the contracting authority's technical specifications cannot be met with reference to EU standard technical specifications; or
  • an open and restricted tender has been undertaken but has resulted in the submission of irregular or unacceptable tenders.

The new Innovation Partnerships procedure will facilitate procuring innovative products, services or works that are not already available on the market place. It essentially allows public authorities to publish an opportunity to partner with one or more enterprises to conduct research and development to meet its requirements. The procedure can be structured in successive stages of the research and development process to be delivered at agreed levels by various parties at agreed costs without going out to further procurement for each stage of development and subsequent purchase.

2. Making it easier to identify your options before you buy

It is not always easy for any purchaser to know exactly what they want to buy until they have had a look at the options.  But many contracting authorities are concerned that doing just that may fall foul of the procurement rules. So it is a welcome clarification that contracting authorities may consult with market participants before going out to tender. Seeking advice on planning a procurement and identifying is fine - provided that the advice is not likely to result in unfair competition or violate basic principles of non-discrimination and transparency.

If participation in planning is likely to distort competition then there is an obligation to exclude the bidder. But the rules allow a bidder a chance to prove that their participation will not distort competition, prior to exclusion. This may not be a significant change in the law but by clarifying the "dos and don'ts" may set minds at rest about the limits of engaging in pre-procurement consultation.

3. No more distinction between "A" and "B" services but a new "light touch" regime for certain social and other services

At present, a distinction is made between "Part A" services, which are fully subject to the procurement rules and "Part B" services, which are subject to only limited requirements. The main reason for that distinction was that Part B services did not generally attract much cross-border interest. However, as those markets have developed there are cases where that distinction has lost some of its justification. Consequently, the new rules no longer maintain the old distinction between "A" and "B" services and most service contracts will be subject to the full scope of the procurement rules.

Nevertheless, the new rules recognise that certain types of service contracts will still have limited attraction to cross-border bidders.  For these types of public service contracts there is a higher financial threshold of €750,000 and these are subject to procurement under a "light regime" mainly designed to ensure transparency, equal treatment and access to the remedies rules.

These cover public services such as:

  • health;
  • social services; certain educational and cultural services;
  • hotel and restaurant services;
  • certain legal services;
  • prison;
  • public security and rescue services; and
  • postal services.

4. Simplified selection process

The new rules introduce simpler processes for assessing bidders' credentials at the selection stage. This will involve greater use of self-declarations. Bidders can make use of a European Single Procurement Document comprising an updated self-declaration to provide preliminary evidence of satisfaction of selection criteria and confirmation that they do not fall within the grounds for exclusion. Only the winning bidder will have to submit certificates and documents for verification. In practice, authorities may want to verify information submitted by bidders earlier in the competitive process to avoid the risk of uncovering an issue with respect to the preferred bidder when it is too late.

5. Award criteria: most economically advantageous tender and new provisions on life-cycle costing

Under the current rules contracting authorities can choose to award tenders to the lowest price offer on the basis of the most economically advantageous tender (MEAT). Under the new rules MEAT may be established on the basis of price or cost effectiveness, including full life-cycle costing.

The aim is to enable contracting authorities to make a price-quality assessment related to the subject matter of the contract, taking into account factors including environmental and social aspects. Award criteria can include not only technical merit and functionality, aesthetic and innovative characteristics, but also factors such as the technical competence and organisation of staffing relevant to carrying out the contract and after-sales services and delivery conditions.

There are improved provisions permitting authorities to take into account social and environmental criteria when making awards. Purchasers can require certification, labels or other proof of meeting equivalent to social or environmental standards (e.g. fair-trade or Eco-labels).

6. Provision to improve access for SMEs

Another objective of the reform is to improve access to public tenders for small and medium-sized enterprises (SMEs). These include:

  • use of simplified selection processes (as discussed above);
  • encouraging contractors to divide larger contracts into lots by the "do or explain" method i.e. requiring those who do not do so to explain in procurement documents the main reasons for not sub-dividing; and 
  • limiting proof of financial capacity of bidders to twice the estimated contract value other than where objectively justified. 

7. Clarifications on public sector contracts

For over a decade contracts within the public sector has generated a raft of case law. The new legislation aims to codify the principles set out in the Teckal and related cases. Essentially, it confirms that procurement rules do not apply to in-house arrangements between public authorities. The exemption applies to contracts awarded by a contracting authority to another entity established under public or private law, where the following cumulative test is met:

  • the contracting authority (or authorities) exercise control of that legal entity similar to that which it exercises over its (or their) own departments; and
  • more than 80 per cent of the activities of that legal entity are carried out for the controlling entity/entities or other contracting authorities controlled by it; and
  • there is no private capital involvement in the controlled entity.

The new legislation also provides clarification that the procurement rules do not apply to situations in which contracting authorities are simply co-operating  to meet common objectives and where this does not involve activities in which they compete on an open market to any significant extent.    

8. Measures to improve sound procedures

A number of new or strengthened measures to improve procedures have been introduced.

Measures to improve sounds procedures include:
  • Extended grounds of mandatory exclusion to include terrorist offences, human trafficking and breaches of obligations to pay taxes or social security contributions
  • Expansion of discretionary grounds to include previous poor performance; collusion; conflict of interest (which cannot be otherwise resolved); and undue influence or misrepresentation
  • A provision on "self-cleansing" in other words, a bidder may provide evidence to demonstrate reliability in spite of the existence of grounds for exclusion

 

9. Material and non-material changes to contracts

There is also a helpful clarification of the rules concerning modifications to contracts. The legislation follows the rules established by the European courts established in Pressetext to elucidate the circumstances in which non-material changes do not require the retendering of the contract. For example where:

  • modifications or options were originally precisely and unequivocally provided for;
  • additional works, supplies or services have become necessary and where a change of contractor cannot be made for technical reasons or without significant inconvenience or cost (subject to a cap of 50 per cent  of the value of the original contract);
  • the modification has been brought about by unforeseen circumstances (subject to a cap of 50 per cent of the value of the original contract);
  • under certain conditions, a contract is novated to a new provider who assumes the obligations of the original contractor; and
  • the modifications are minor or of low value in relation to the value of the initial contract.

10. Concessions

Concessions are partnerships between the public sector and private companies where the operator receives remuneration through exploiting the infrastructure, works (e.g. a toll road or tramline) or services (e.g. operating a public leisure complex or provision of transport services) and assumes the operating risk in doing so. Currently works concessions are covered by the procurement rules but service concessions are not. Under the new Concessions Contract Directives, all concession contracts (both works and services) will have to be advertised in the OJEU where the contract value exceeds €5m. The contracts will have to be competitively procured in compliance with certain procedural rules, although these are more flexible than those for public contracts.

Future developments 

  • Electronic procurement:  Many contracting authorities already use electronic tendering. Under the new rules e-procurement will become mandatory within 30 months of implementation. One of the main advantages of using electronic tendering systems is the ability to speed up procurement and make use of reduced mandatory timescales.
  • Future review of thresholds: One important thing which has not changed is the threshold caps for works, supplies and services contracts covered by the rules. But there will be a review of these within three years of the transposition of the new directive.
  • Implementation: Certain elements of the new rules are discretionary (for instance the introduction of simplified measures for local authorities and other non-central government bodies and in relation to sub-contracting). The UK Government has stated its intention to avoid "gold plating" the implementing regulations; the consultations it has issued to date indicate that there may be some significant aspects of the new rules as they apply in the UK which are still to be clarified.

Things to consider

The new rules will provide helpful changes and a number of useful clarifications. It is time to consider how to make the most of them. For instance:

  • Can we make better use of pre-contractual planning to make sure we are getting the best out of our procurements?
  • Are there areas in which innovative partnering will assist us in ensuring we are providing the best possible, state-of-the-art solutions?
  • Can we use the more flexible competitive negotiation option to achieve better value and quality from our procurements?

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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