The Utilities Contracts Regulations 2016 (“UCRs”) will come into effect on 18 April 2016, implementing the provisions of the new EU Utilities Directive (2014/25/EU).

The UCRs usher in a number of significant changes that are intended to speed up, reduce cost and bolster flexibility in procurement procedures. The principal changes are summarised in this note.

WHAT IS A UTILITY?

Changes are made to those entities that are covered by the existing rules. Unlike under the existing law, there is no list designating the bodies that are covered by the regulations. Instead, guidance is set out in Regulation 5 on this question.

As under the existing law, certain entities will be caught by the UCRs if they carry out their activities under “special or exclusive rights” (for example, to operate a service or facility). Under the new law, however, the law will no longer apply to entities that have been awarded such rights pursuant to a competitive process (as opposed, for example, to a body that is or was a state monopoly). 

CHANGES IN RULES ON EXCLUSION CRITERIA

Utilities who are also contracting authorities (under the Public Contracts Regulations 2015) will be required to set out the mandatory exclusion criteria of Regulation 57 of the PCR 2015 when selecting bidders.

All utilities (whether or not also contracting authorities under the PCRs) will have the option to apply the discretionary exclusion criteria set out under Regulation 57 of the PCRs (which include, for example, the non-payment of taxes or social security contributions and poor performance on previous contracts). 

LIMITS ON MINIMUM TURNOVER THRESHOLD

Where a utility specifies a minimum turnover requirement as part of its financial criterion, this can no longer exceed twice the value of the contract (unless this is warranted because of specific, inherent project risks). The purpose of this change is to boost participation by SMEs in competitive tender processes. 

PART A AND PART B CONTRACTS

The existing law made a distinction between Part A and Part B services (applying fewer rules to Part B services). Although this dichotomy is removed under the new rules, there will be a “light touch regime” applied to services related to social, health and certain other types of activity (Regulation 90). The net effect will be to increase the number of contract opportunities that fall within the scope of the UCRs. 

NEW PROCEDURES

The UCRs introduce two new procedures, competitive dialogue (Regulation 48) and innovative partnerships (Regulation 49).

CD is a procedure that exists already under the public contracts regulations. Its purpose is to allow purchasers, in the context of highly complex procurements, to engage in a structured dialogue with bidders to identify solutions that meet its needs. 

While CD brings its own challenges, its introduction is, in our view, beneficial to utilities and in fact was long overdue.

STRUCTURING OF CONTRACT OPPORTUNITIES

In an effort to bolster opportunities for SMEs, Utilities are encouraged to break up larger contracts into smaller ones. Where they opt not to disaggregate larger packages in this way, utilities will need to provide reasons for their decision. 

FRAMEWORK AGREEMENTS

Utilities are generally prohibited from concluding framework agreements that exceed eight years’ duration (Regulation 51(3)). The law to date had imposed no such restriction. However, this is still considerably more generous than the corresponding, four year limit imposed on public buyers under the PCRs (Regulation 33(3) of the Public Contracts Regulations 2015). 

AWARD CRITERIA

As before, experience of the bidder is a criterion that is permitted for shortlisting criterion but not for bid evaluation or contract award. The new UCRs, however, now expressly permit utilities to take into account the experience of a bidder’s personnel at the evaluation stage provided that this is restricted to those individuals who will be involved in the delivery of the goods, works or services under the contract (Regulation 82(3)(b)).   

Under the reformed regime, it is also easier for purchasers to take account of the life-cycle cost of a proposed solution when evaluating bids (Regulation 82(3)(a)).

CHANGES TO TENDERED CONTRACTS

It is established law that where a contract is materially changed it must be re-tendered. The new law contains express guidance (at Regulation 88) on when a change is “material” for this purpose, confirming existing case-law. It also confirms that where a change is made in accordance with the original terms of the contract, a re-tender may not be required. 

TIME-SCALES

A number of reforms have been made to shorten time-scales and speed up the overall time frame of procurement processes.

RECORD KEEPING

Regulation 99 creates new duties for utilities to maintain documentary records relating to its conduct of designated aspects of procurement processes, such as the selection of and conduct of negotiation with bidders. 

CONCLUSION

These changes will have a significant impact on the way utilities carry out their purchases. It should be noted that this note provides coverage on some, but not all of the features of the new law.

If they have not already done so, now is the time for utilities to take detailed advice and to consider their policies and practices to ensure they are ready for the new regime.