18 April 2016 is the date by which three new public procurement Directives are due to be transposed in Ireland: an updated Utilities Directive, an updated Public Sector Directive, and a new Concessions Directive (together the “New Directives”).
It is therefore timely to remind ourselves of the background to the new Directives and some of the key changes they contain.
Background to the Directives
The New Directives aim to:
- simplify the procurement process, by streamlining and codifying existing procurement rules;
- make procurement more efficient, through the mandated use of technology; and
- facilitate Europe 2020 objectives in the procurement process, by clarifying the rules on “green” spending and assisting SMEs in tendering.
The previous regime had a great deal of uncertainty around when contract changes were and were not permitted. The New Directives set out a number of scenarios under which contract changes are permitted, including:
- a de minimis threshold of an increased value of 10% (for services and supply contracts and concessions) and 15% (for works contracts), below which changes will not be considered substantial enough to be prohibited. This is provided the general nature of the contract remains the same and provided the value of the change does not by itself exceed the thresholds for application of the New Directives;
- where the changes have been provided for in clear, precise and unequivocal clauses in the initial procurement documents (irrespective of their monetary value);
- changes in the contractor, in certain circumstances;
- additional necessary work, or a change brought about by unforeseeable circumstances, provided certain conditions are met; and
- where the modification is not “substantial”, when tested against certain tests which reflect current case law on prohibited changes.
Greater flexibility around choice of procedure
The Directives keep the current open and restricted procedures in place for procuring bodies, but make a number of changes elsewhere:
- competitive dialogue, which to date was only available to the public sector, will now be available to utilities;
- for the public sector, the negotiated procedure has been renamed “competitive procedure with negotiation” and will now be available for a wider variety of contracts;
- both utilities and public bodies can use the new “innovation partnership” procedure, a process used to procure a partner (or partners) to develop some new or innovative solutions, taking place in successive stages which can mirror the R&D process;
- finally, the grounds for awarding contracts without advertising have been clarified in both Directives, with the public sector grounds being brought closer to those available to utilities.
Clarification on application of procurement rules
The New Directives codify existing case law on when public bodies can enter into arrangements without having to go to procurement, including:
- where public bodies allocate work to “Teckal” entities, ie separate entities which carry out the majority of their work for the public bodies in question and which the public bodies control to such a degree that the separate entities might as well be in-house divisions; and
- arrangements between public bodies allowing them to co-operate to achieve common objectives, governed solely by considerations of public interest (commonly known as the “Hamburg” exemption).
In addition, health, social and “cultural” services are to be subject to a new “light touch” regime. Minimal regulation will apply to tenders for these services (and the New Directives will not apply at all to contracts for these services if the value is less than €750,000). The “light touch” regime replaces the Part A/Part B distinction contained in the old regime, with a number of old Part B services now being fully regulated. Public bodies procuring Part B services now need to check whether the service is fully regulated or falls under the “light touch” regime, and update their procurement procedures to ensure they comply with the new “light touch” approach.
Concessions are contracts where the contractor is wholly or partly remunerated, not by the procuring entity directly, but by third parties (usually users of the concession, eg drivers paying tolls on a road built by a concessionaire who keeps the toll revenue). To date they have been largely excluded from the procurement Directives, but the new Concessions Directive will apply to works and services concessions with a value in excess of €5,225,000, procured by both public sector and utility bodies (there are a number of sectoral exemptions eg lotteries and air transport concessions).
For the first time, the duration of concession arrangements is regulated. Concessions must be limited in duration and, if the concession is to be longer than 5 years, it must be limited to the period within which the concessionaire can reasonably be expected to recoup his investment and make a reasonable return. There is however, limited regulation of the procurement process itself. Contract notices must be published and a concession award notice must also be published.
Otherwise however, the Directive is relatively light-touch, stating only that any limit on the number of participants must be done in accordance with objective criteria, and that the winner must also be chosen on the basis of objective criteria. Procurers are free to design their own process around those parameters.
Increased access for SMEs
A number of procedural changes have been implemented to lighten the administrative burden associated with participating in tender processes (which can disproportionately disadvantage SMEs). These include:
- the introduction of the European Single Procurement Document (the “ESPD”), to simplify the process of demonstrating suitability for a particular contract and to streamline the process across all Member States. Instead of requiring candidates to provide full documentary evidence of their suitability, financial status and capabilities, the ESPD will allow businesses to electronically self-declare that they fulfil the required conditions to participate in a public procurement procedure. They will only need to submit the documentation once the procurement reaches a point where that becomes necessary (eg if they are chosen as the winner). While ESPD regulations have been published at a European level, the electronic database underpinning the system is still in development and for the time being it appears paper documentation will remain necessary;
- public bodies will be encouraged to divide a tender into lots (they will have to provide reasons for not doing so);
- it will no longer be permissible to require the turnover of tenderers to be more than twice a contract’s value (unless there are justifiable reasons for requiring a higher turnover); and
- the use of electronic communication in all aspects of the procurement process will become mandatory (although member states may postpone the full implementation of this provision until October 2018).
Other points of note include:
- new rules in relation to conflicts of interest, requiring Member States to ensure authorities “prevent, identify and remedy” conflicts in the procurement process;
- all contracts must now be awarded on the basis of “most economically advantageous tender”, although this can still be a costonly criterion. Where not cost only, the most economically advantageous tender can be identified on the basis of “best price-quality ratio”, taking into account factors such as quality, staff assigned to the contract (where staff quality can have a “significant impact” on the level of supplier performance), and environmental and social characteristics; and
- individual reports on each procurement must be prepared by contracting authorities, with detailed prescribed information to be included, and authorities must “keep sufficient documentation to justify decisions taken in all stages of the procurement procedure”, including documentation on internal deliberations. These are likely to become key documents for bidders to look for in any challenges.
In general the changes brought about by the New Directives are to be welcomed, bringing clarity to a number of current grey areas and streamlining procurement procedures and options. They reflect an increased focus on using procurement to drive policy objectives, such as social and environmental goals and increasing market access for SMEs. However, they also bring increased obligations for contracting authorities and there will inevitably be a period of adjustment as authorities align their systems and procedures to the new rules.