On 26 February 2015, the Public Contracts Regulations 2015 (the "Regulations") entered into force, transposing EU Directive 2014/24 (the "Directive") into UK law.
The Regulations follow a period of consultation period which began in September 2014, and have arrived ahead of schedule; member states were allowed a period of two years from the Directive's adoption within which to enact their own implementing legislation. This was largely achieved through the UK's use of the "copy-out" procedure, in line with the government's desire to finalise the Regulations quickly. The government was eager to begin reaping what it perceives as substantial benefits available through the new regime. However, the Regulations do introduce some additional "gold-plating" following the recommendations of the Lord Young Report on Growing Micro Businesses.
The Regulations do not have retrospective application, and are applicable only to procurements commenced on or after 26 February 2015. Those commenced prior to this date will continue to be subject to the Public Contacts Regulations 2006 (the "2006 Regulations"). As such, some Contracting Authorities ("CAs") will have compliance obligations under two sets of procurement rules for a time. A procurement will, generally speaking, have “commenced” for these purposes if:
- an advertisement, contract notice or equivalent publication has been made (whether via OJEU or otherwise);
- when a CA seeks expressions of interest from a supplier; or
- where it responds to an unsolicited expression of interest or offer from a supplier.
As the UK government has been very clear about its use of the copy-out procedure we have had a fairly clear picture of the main changes that the Regulations would introduce for some time (for more information on these, please read our earlier note on the Directive). As such, where the Regulations deviate from the content of the Directive this has primarily been to clarify the drafting, rather than to seek to make substantive amendments. However, there are some interesting subtleties arising from the government's approach.
The Regulations confirm the position in the Directive that all contracts must be awarded on the basis of the MEAT: the most economically advantageous tender. This suggests that "lowest price" can no longer be used as a headline award criterion. However, the drafting of the Regulation 67 seems to permit a CA to determine the MEAT based on "price" or "cost" alone, without using qualitative evaluation factors such as product quality, technical merit or life-cycle costing. It appears therefore, that CAs may still award contracts based on lowest price alone, albeit that CAs will need to exercise caution in the drafting of award criteria and evaluation methodology. Unless addressed by further guidance, this could be an issue which a court could be asked to clarify sooner rather than later.
The definition of "Procurement Document" under the Regulations is extremely broad, and could have significant implications for CA's transparency obligations. The definition includes the initial call for competition, all technical specifications and service descriptions, pre-qualification documentation, invitations to tender, and terms and conditions of contract. Since CAs are required to offer unrestricted and full direct access to the "procurement documents" from the date of OJEU publication (or equivalent advertisement), this arguably creates a new obligation to publish contract terms at a much earlier stage of the process.
This would not only entail significant changes to CA's usual, more staged timetables and processes, but could also raise concerns regarding the rules on material changes to public contracts and tenders. If authorities are forced to formulate contractual terms at qualitative selection stage, they will need to include carefully drafted review clauses. These would seek to ensure there is sufficient flexibility to develop their requirements during the process, while at the same time avoiding challenges from unsuccessful bidders.
CAs will be subject to more extensive reporting and record-keeping obligations under the Regulations. They are now required to retain all copies of all concluded contracts with a value exceeding €1 million in relation to goods and services contracts, and €10 million in respect of works contracts.
CAs must also produce reports on awarded contracts, including details of the successful bid, the suppliers that participated, the subject matter of the contract and its value. They should also specify the reasons justifying the use of competitive award procedures, details of any issues around conflict of interests (and their resolution) and any bids rejected as being abnormally low. Should any tender process be abandoned, CAs should also report on the reasons for this.
The Young Reforms
The most significant additions to the Regulations are those set out in Part 4, which result from the recommendations of the Lord Young Report. The changes focus on increasing the level of transparency in public procurement in order to improve opportunities for SMEs. Although the Directive mandated a number of steps to improve SME access to public contracts including relaxing pre-qualification criteria and division of substantial contracts into lots, the Young reforms show the UK government's preparedness to gold-plate the Directive in this regard.
In addition to being published in the OJEU, UK CAs must publicise contract opportunities in the UK government's Contracts Finder portal where they meet the following thresholds:
- £10,000 for central government contract opportunities; or
- £25,000 for sub-central government contract opportunities.
Note that contracts covered by the NHS (Procurement, Patient Choice and Competition) (no.2) Regulations 2013) are exempt from this requirement.
The Regulations suggest that the Cabinet Office is working on a system through which information can be automatically extracted from the OJEU and added to Contracts Finder, which may reflect a desire to minimise the impact of this additional burden on CAs. CAs are also now required to publish details of awarded contracts via the Contracts Finder portal.
The Regulations also bring in some changes regarding qualitative selection. CAs are now required to have regard to Cabinet Office guidance regarding selection including on the use of questionnaires and assessment of relevant information, and are required to provide explanations to the Cabinet Office where this guidance is not followed. This "comply or explain" obligation mirrors that implemented by the Directive in relation to the sub-division of large contracts into lots in order to facilitate SME participation. The Regulations also prohibit the use of a pre-qualification stage for contracts below the thresholds set out above, also limiting the ability of CAs to rule out SME participation unless there is a robust justification.
Finally, CAs are now required to pay undisputed invoices within 30 days of "timely verification", and this must be reflected in all relevant contracts. Where CAs fail to include wording to this effect, this obligation will be implied. CAs will also be required to keep a record of its compliance with these obligations and publish statistics on the internet. Provided SMEs are in fact able to use the Regulations to secure further public sector contracts this should also provide further welcome protection, although the vagueness of the terminology used here also suggests this could be fertile ground for disputes.
Watch this space
So, while the implementation of the Regulations marks the culmination of a lengthy legislative process which began in 2011, the work is not yet over. In addition to the Directive, the Utilities Contracts Directive and Concessions Directive were also adopted in 2014 and require implementation through UK Regulations by April 2016.
While this may seem a long way off, the government began consulting on the Regulations in September 2014 and it took over six months to finalise them. In addition, it is possible that the consultation process in relation to the Concessions Directive, in particular, could be much more complicated. In addition, the Cabinet Office is understood to be working on further guidelines in relation to the Regulations and will have to facilitate the transition; factors likely to put further strain on the timetable. The general election may also have a significant impact, and although the two further Directives will need to be implemented regardless of the outcome, it will be interesting to see how the parties will seek to use the flexibilities afforded by the new system to serve their broader policy goals.