The new utilities procurement directive came into force at an EU level on 17 April 2014 and in a few months’ time we expect the Cabinet Office to consult on draft regulations implementing the directive. (The public sector consultation results were published at the end of January 2015). A number of utilities are caught by the existing Utilities Contracts Regulations 2006 and will be affected by the changes in the new legislation.  In this article we consider how the new directive will change the procurement landscape for utilities in the transport and other sectors.

One of the key things to remember is that not only is there a new utilities procurement directive (effectively replacing the 2006 Regulations) but there will be an entirely new directive covering the award of concession contracts (other than for the water sector). Concession contracts are popular in a number of sectors and common concession contracts include contracts for advertising (for example in stations, on buses or trains) which are currently outside the scope of any procurement legislation though they are subject to a consideration of whether general Treaty Principles apply. It looks as though the concessions directive will be the last to be implemented by the Cabinet Office and the implications of this directive will be dealt with in a later article.

Aims of the New Rules

This original objectives of the new rules included:

  • a general simplification and “flexibilisation” of the existing rules to try and increase the efficiency of public spending to ensure the best possible procurement outcomes in terms of value for money
  • more efficient procedures to benefit all economic operators, but in particular to try and facilitate increased participation and access for SMEs
  • allow procurers to make better use of public procurement in support of common societal goals such as protection of the environment, higher resource and energy efficiency, combating climate change, promoting innovation, employment and social inclusion
  • improving legal certainty by clarifying certain provisions (including creating a whole new directive dealing with concessions) and codifying well established European case law (such as the case law on “material changes” to existing contracts)

Key Changes

There are a number of changes being introduced by the new rules, the key ones include:

  • Award criteria - all award decisions are to be on the basis of the most economically advantageous tender, which can be identified on the basis of things such as price-quality ratio.  The award of a contract on “lowest price” only is no longer permitted.
  • Frameworks – framework agreements must not be longer than 8 years unless there are “exceptional cases duly justified, in particular by the subject matter” of the agreement. (Currently there is no time limit on the length of a framework agreement in the utilities sector)
  • New procedures – utilities will be able to use the competitive dialogue procedure (which has previously only been available to the public sector) though it is expected that most entities will continue to use the competitive negotiated procedure. There is a completely new “innovation partnership” procedure intended to be used to allow the development of an innovative product, services or works with one or multiple partners and dealing with the subsequent purchase of the outcomes of such development. This is potentially a very useful tool and one which some utilities are looking at closely in anticipation of the new rules being implemented. A buyer will be able to go to the market for a partner to undertake research and development and will then be able to award a contract for that resulting product/service/work without having to undertake a further tender process
  • Time limits – the general mandatory time limits for procedures have been reduced
  • Incorporating case-law - codifying the Teckal, Hamburg Waste and Pressetext case-law on in-house awards, public-public co-operation and substantial modifications of existing contacts respectively. The modifications to existing contracts rules are certainly worth becoming familiar with as changes to contracts once they are signed are not uncommon!
  • Reflecting market practice - specific provisions dealing with potential conflicts of interest, prior involvement in a procurement process and the potential for preliminary market engagement, all of which are common situations in practice
  • E-procurement – plans included to work towards the mandatory use of e-procurement, although this is working to a separate and extended deadline for full implementation
  • Special and Exclusive Rights – of interest to train operating companies will be the clarification around the concept of “special and exclusive rights”.  This definition has been substantially extended so that it is clear 'special or exclusive rights' do not arise where an entity has been granted rights on the basis of objective criteria following a transparent process

Therefore a contract or franchise awarded to an operator via an open competition such as the current DfT franchising process should not, within the meaning of the new directive, amount to 'special or exclusive rights'. This is in line with previous clarification from the Commission on this point.

Summary

Adoption of the new directive reflects the end of a long legislative road but it is just the start for utilities covered by the rules as they now need to familiarise themselves with the proposed changes. 

On a final note, the Commission has indicated they will now be turning their attention to a review of the remedies regime...