The Utilities Contracts Regulations 2016 and the Concession Contracts Regulations 2016 came into force yesterday. This is the final step in the UK’s transposition of the new EU procurement directives aimed at modernising and improving flexibility in public procurement. In this briefing we look at the key points of interest.

The Utilities Contracts Regulations 2016 (the “Utilities Regulations”) implementing the Utilities Directive (Directive 2014/25/EU) and the Concession Contracts Regulations 2016 (the “Concessions Regulations”) implementing the Concession Contracts Directive (Directive 2014/23/EU) came into force yesterday, which was the deadline for transposition.

This is the final step in the UK’s transposition of the new EU procurement directives, following the implementation of the Public Contracts Regulations 2015 which came into force on 26 February 2015. Please click here for the Freshfields briefing on the Public Contracts Regulations.

The stated objective behind the reforms is to modernise and improve flexibility in public procurement so as to maximise opportunities to achieve smart, sustainable and inclusive growth and the efficient use of public funds. Consultations on the draft Utilities Directive and Concession Directive were published by the Government on 21 August 2015 and closed on 18 September 2015. The Directives provide limited scope for the Government and other stakeholders to influence the substantive content of the UK’s transposing regulations. In addition, many of the provisions in the Utilities and Concessions Directives are analogous to provisions in the Public Sector Directive.For the Utilities Regulations the points of interest set out in our previous briefing continue to be of particular relevance, including in summary:

  1. Greater choice of procurement procedures: there is now greater flexibility in the choice of procurement procedures. For example, the Utilities Regulations provide for access to the competitive procedure with negotiation where e.g. the requirements of the utility include an element of design, innovative solutions or where prior negotiations are necessary due to the complexity of the subject matter. In addition, there is a new innovation partnership procedure where a utility requires a product, service or work not available on the market. There is also a new “light touch regime” which allows utilities to determine the procedures applicable to procurements for social and other specific services, provided the principles of transparency and equal treatment are met.
  2. Modifications of contracts during their term: the Utilities Regulations include detailed provisions on modifications of contracts during their term. These in essence codify the existing case law and set out the parameters within which change is permitted without a new procurement procedure.
  3. New mandatory and discretionary grounds for exclusion: the mandatory and discretionary exclusion grounds have been extended to include:
    • terrorist and corruption offences (mandatory);
    • “plausible indications” that the economic operator has entered into agreements with other economic operators aimed at distorting competition (discretionary); 
    • a conflict of interest or a distortion of competition from the economic operator’s prior involvement in the procurement procedure, which cannot be resolved by other less intrusive means (discretionary); 
    • significant poor performance under a prior public contract which led to early termination of the contract, damages or other comparable sanctions (discretionary); 
    • withholding of or misrepresenting information relevant to a utility’s verification of the grounds for exclusion (discretionary); 
    • attempts to exercise undue influence over the decision making process or obtain confidential information that brings with it an unfair advantage in the procedure (discretionary); and 
    • evasion of tax/social security contributions, which can result in either mandatory exclusion (where there has been a conviction) or discretionary exclusion (where the utility has knowledge of breach short of a conviction).
  4. Termination: utilities must include in their contracts a right to terminate in certain circumstances, such as a substantial modification requiring a new competition; grounds for mandatory exclusion at the time of contract award; or a declaration from the Court of Justice of the EU of a serious infringement by the utility of its obligations such that the contract should not have been awarded. Such a term will be implied where not expressly included.

In addition to these matters, particular points to note in relation to the Concessions Regulations include:

  1. New regime for works and services concessions: this is the first time that there has been separate domestic legislation governing the procurement of concessions for works and services. Historically, provisions relating to works concessions appeared within the Public Contracts Regulations, while service concessions were not covered at all. The stated intention is to harmonise the rules relating to the award of concession contracts, as disparities among the various national legislations may cause distortions in the internal market and increase prices. The Government has, however, recognised that bringing services concessions in scope will create costs for awarding bodies and bidders alike. In addition, respondents to the Government consultation queried whether savings to the public sector would, in reality, be delivered through increased competition created by the new rules. Where markets in certain sectors are already fully competitive, it is questionable whether the new regime will lead to improved bid prices. In contrast, in other less competitive sectors, it is questionable whether sufficient cross-border interest would be generated to deliver additional savings.
  2. Restrictions on the length of concessions: the Concessions Regulations provide that the concession period must be limited in length and that where the concession is longer than five years, the maximum duration must be limited to the period ‘to recoup the investments made for operating the works or services together with a return on invested capital’ (Regulation 17(3)). However, five years will often not be sufficient time for the contractor to recoup its initial investment. Despite concerns raised by respondents to the consultation, the Concessions Regulations give very limited guidance on how to calculate the maximum duration of a concession when a longer period is required. This creates significant uncertainty and potential risk for awarding bodies and winning bidders. For example, there is no guidance in the Concessions Regulations regarding what rate of return is justifiable, whether both operating expenditure and capital expenditure can be taken into account, or how to address the fact that different bids might justify different concession terms.
  3. Flexible procedure: in keeping with the stated aim of added flexibility there is no prescribed procedure for the procurement of the concessions governed by the Concessions Regulations. However, the Treaty principles of equal treatment and transparency apply. There is also an express obligation, amongst other things, to publish a notice in the Official Journal of the European Union (Regulation 30). Against this background, it is notable that all respondents to the consultation stated that the new Concessions Regulations would not speed up the procurement of concessions contracts and some suggested that the burden of complying with a regulated process would, in fact, slow procurements down.
  4. Exclusion of rail transport services: passenger transport services by rail are excluded from the scope of the Concessions Regulations giving primacy to obligations under the Rail Regulation (Regulation (EC) No 1370/2007). Historically, the interrelationship between the Rail Regulation and the public procurement regulations has been unclear. The clarity provided by Concessions Regulations is to be welcomed. However, this approach potentially restricts even further the potential impact of the Concessions Regulations.

Further changes to the procurement landscape are under consideration. The European Commission ran a consultation to evaluate the effectiveness of the provisions of Directive 2007/66/EC on remedies in the field of public procurement in July last year (the results have yet to be published) and is currently running a consultation on Directive 2009/81/EC on procurement procedures in the fields of defence and security and its effect on the European defence market and industrial base. The deadline for responses is 29 May 2016.

In addition, with the referendum on whether Britain should remain in the European Union scheduled for 23 June, the possibility of Britain leaving the EU presents a host of questions. The approach to UK public procurement law post Brexit would very much depend on the basis of the future UK/EU relationship and although it would appear very unlikely that there would be a wholesale abandonment of the current regime there would be significant questions on issues such as the statutory basis for public procurement law and the effect of CJEU judgments.