Draft regulations have been issued for consultation, to implement both the Utilities Directive and the Concessions Directive - expected to be in force April 2016. There has been some interesting case law on application of remedies, the minimum wage, and lead contractors relying on the capabilities of third parties. We also catch up on Procurement Policy Notes and guidance issued by the Cabinet Office since June.
Draft Concession Contracts Regulations, 2016 (CCR'16): The draft regulations are accompanied by a consultation document, explaining the policy choices (already consulted on in connection with the Public Contracts Regulations, 2015 (PCR'15)) and asking for comments as to whether the draft effectively transposes the Concessions Directive (2014/23/EU). The proposed implementation date is 18 April 2016 - the last date allowed for implementation by the Directive. The substantive change introduced by CCR'16 is that service concessions will now be subject to procurement law - previously only works concessions have been regulated. The Euro 5,186,000 financial threshold at which CCR'16 will bite is however high - and will apply to both works and services concessions. It will be interesting to see how the debate develops on which projects should be treated as concessions, and which would be caught by PCR'15. The format of the CCR'16 "procedural guarantee" procurement process is left to the discretion of the "concession granter", as are the selection and award criteria - provided that the exercise of that discretion will ensure effective competition. This is potentially more appealing than following the structured procedures set out in PCR'15, although in practice any competition compliant process will follow similar rules, to ensure transparency and impartiality. The debate will centre on codification in CCR'16 of case law analysis of when there can be said to be real transfer of operating risk to the concessionaire , or "real exposure to the vagaries of the market, such that any potential estimated loss incurred by the concessionaire is not merely nominal or negligible".
Draft Utilities Contracts Regulations, 2016 (UCR'16): The accompanying consultation for UCR'16 sets out some of the key changes from UCR'06:
- The definition of Utility no longer refers to an indicative list of utilities; it defines solely by reference to relevant activities.
- The definition of "special or exclusive rights" now makes it clear that any right/licence obtained pursuant to a publicised procurement process which followed objective award criteria, will not be considered special or exclusive, and in such a scenario, although an organisation pursues one of the listed relevant activities, it will not be caught by UCR'16.
- The "competitive conditions" exemption can still be applied for, and regulation 34 usefully confirms that the three exemptions already awarded for England, Scotland and Wales (electricity generation, electricity supply and oil and gas exploration and exploitation) will remain in place.
Otherwise much of the new drafting reflects that already consulted on for the purposes of PCR'15; most importantly - codification of contract variation (Pressetext), conflict of interest and preliminary market engagement case law, the introduction of the innovation partnership procedure and the "light touch" procedure, improvements to dynamic purchasing systems, revised exclusion criteria and the introduction of life cycle costing award criteria. UCR'16 now offers utilities the option to use a Competitive Dialogue procedure (already used for complex projects in the public sector), although the negotiated procedure (with or without advertisement) continues to be available, so it is not expected that CD will be widely used. Grounds for making a direct award remain substantially the same, save that the argument that only one contractor can be approached because competition is absent for technical reasons or to protect exclusive rights, is now caveated by an obligation to show that "no reasonable alternative or substitute exists and the absence of competition is not the result of the artificial narrowing down of the parameters of the procurement."
Remedy application : The first instance court held that the Council’s tender evaluation process was fundamentally flawed, that the score awarded to the successful bidder should be significantly reduced, and the score awarded to the second place bidder, Woods, marginally increased. Consequently, the parties agreed that it was Woods who provided the best tender. The outcome of the subsequent remedy application provides us with guidance (of which there has been little to date) on how the courts will approach remedies for breach of the procurement rules. Mr Justice Coulson held that:
- Woods should not be offered a contract with the Authority primarily because regulation 47I of the Public Contracts Regulations 2006 (which sets out the remedies available where the contract has not been entered into), only specifically allows the setting aside of the procurement decision and amending any procurement document and/or an award of damages. Whilst the regulation states that it "does not prejudice any other powers of the court", and whilst the court could (by mandatory injunction) order the Council to enter into a contract with Woods, it did not consider it appropriate to do so, particularly because the contract would have derived from a flawed procurement process.
- Woods was entitled to an award of damages, but assessment of damages had to be after the procurement process had been re-run, because "it is perfectly possible that this could affect the quantum of any claim made by Woods for loss of profit."
Relying on the capacity of other entities : In principle there is no objection to a tenderer relying on the capacity of a third party to improve its position in a procurement procedure. On the basis of Directive 2004/18, the court in this case held that, whether the third party must actually carry out particular aspects of the project to which its capabilities relate, will depend on the facts, and must be determined on a case-by-case basis. Directive 2014/24/EU (implemented by regulation 63(2) of the PCR'15 (which applies to contracts deriving from procurement processes commenced on or after 26 February 2015)) takes a stricter approach and specifically states "With regard to … relevant professional experience, economic operators may however only rely on the capacities of other entities where those entities will perform the works or services for which those capacities are required." The AG pointed out that 2014/24/EU (the implementation period for which has not yet expired) can only be relied upon to interpret points of law based on Directive 2004/18, "in so far as it codifies case law applying Directive 2004/18, or adds detail thereto, but is neither contrary to Directive 2004/18 nor sets out unconditional rules or conditions to the detriment of economic operators."
Declaration of commitment to minimum wage: The Ruffert case held that requiring payment of a minimum wage in a public sector procurement process is not compatible with article 56 of the Treaty on the Functioning of the European Union - freedom of movement of services. The reasoning being that to impose a minimum wage obligation on a contractor from a state where there is either no, or a lower, minimum wage puts an additional burden on that contractor. The practice has therefore developed whereby contracting authorities ask potential bidders for confirmation that they will commit to a minimum wage in the contract awarded pursuant to the procurement process. To date practitioners have taken the view that to exclude bidders who refuse to agree to such a contractual condition, would also offend article 56. In this case, the Attorney General opined that it is not contrary to Treaty rules to (1) ask bidders and their subcontractors to commit to payment of a minimum wage in contractual conditions, and (2) to exclude those who refuse to give that commitment from the procurement process. His logic was that it would be "incompatible with the efficient use of public finances to pursue a procurement procedure with such an operator, and … conclude the contract with this operator, and then have to impose contractual penalties due to non-compliance with the [minimum wage] requirement …" He also sought to rely on recital 34 of Directive 2004/18 - that employment and health and safety laws and the posted workers directive apply during performance of a public contract. The last sentence of recital 34 states: "If national law contains provisions to this effect, non-compliance with those obligations may be considered to be grave misconduct or an offence concerning the professional conduct of the economic operator concerned, liable to lead to the exclusion of that economic operator from the procedure for the award of a public contract." A number of previous AG opinions have sought to be advocates of the EU social economy, but to date the EU court has continued to support the market economy.
We therefore reiterate that AG opinions are not always followed in the final court decision, and we will monitor for the benefit of Pulse readers, whether the Court ultimately adopts the AG's advice in its decision on this case.
AG opinion on Case C-115/14 GmbH & RegioPost Co KG v Stadt Landau (9 September 2015) - English version not yet available.