It was great to see so many of you at our PCR'15 panel event in London on 19 May - and thanks to those who posed queries to the panel members to make it a lively interactive session. We will be holding further events in respect of the new regulations and we shall notify you of those events in the Pulse. In the text below, we have picked up issues arising from the Public Contracts Regulations, 2015 which were raised - preliminary market consultations, choosing between a Competitive Dialogue (CD) procedure and the new Competitive Procedure with Negotiation (CPN), the risk of being excluded as a result of past performance, self-cleaning, the new "Teckal" and the new "Pressetext" rules. We were delighted to have Valentina Sloane of Monckton Chambers on the panel. Valentina explained how the recent dramatic increase in court fees of up to £10,000 is making bidders think twice before they issue a procurement challenge, and also that across the Bar, the tendency is for procurement claims to be settled - leaving us with something of a deficit of argued case law. Before the event, we looked to TED to provide data on which new procedures are being used. In total, about 1,000 contract notices have been issued under the new regulations since 26 February 2015. Most are under the open and restricted procedures. CPN, with 17 contract notices, is not far behind CD for which TED has registered 21 contract notices. It is also interesting to note that England, Wales and Northern Ireland was the first jurisdiction to fully implement the Public Contracts Directive (EU/2014/24). We are aware of implementing consultations having been issued in Germany, Spain, Republic of Ireland, Scotland, Netherlands and France. For those operating in the EU government contracting sphere, this is the start of staggered implementation of the new Public Contracts Directive across Europe. Not only will implementation be happening at different times but also member states have over 40 options to choose in the Public Contracts Directive. This means that public procurement law in one EU member state could be quite different in another EU member state.
Preliminary market consultation
PMC is very much part of the Government's LEAN procurement principles. Section 39 of the Small Business Enterprise and Employment Act, 2015 makes provision for secondary legislation to impose on contracting authorities "duties to exercise functions relating to procurement in an efficient and timely manner". Those obligations might include "preparation for entering into contracts and in the management of contracts", in particular the "extent and manner of engagement with potential parties to a contract". Failure to fulfil these duties could lead to the Government investigating the circumstances involved. So the pressure is on, and both the public and private sectors should be giving some thought to practical PMC "ethics". An invitation to the market followed by group consultation is less likely to distort competition than one-to-one discussions and exchange of information. Giving real thought as to whether it is necessary to engage a single consultant to structure or advise on an upcoming contract, and in the event that it is, asking the consultant itself to outline how it intends to avoid being unfairly advantaged should it choose to take part in the resulting tender. Can the consultant put in place information barriers/"ethical walls" between those involved in the preparatory works and those involved in the bid (perhaps not given that regulation 41 applies to "undertakings related to a candidate or tenderer")? The ultimate risk for the private sector consultant is that regulation 57(8) now includes grounds on which bidders can be excluded from the procurement process, where the risk of prior involvement distorting competition cannot be remedied by other less intrusive means.
CD or CPN?
Apart from the fact that CPN is a hybrid procedure (a contracting authority can elect to accept a bid on the basis of initial tenders, in the same way it would had it followed the restricted procedure, rather than negotiate the bid), CPN and CD have many similar characteristics. The grounds for use are the same (contracts to be let must be innovative, not capable of sufficiently precise specification or have risks attached that cannot be priced from the outset), each follows a phased negotiation/dialogue structure, and must maintain competitive tension throughout. The difference between the two is the level of negotiation allowed at final tender / preferred bidder stage.
- CPN - "contracting authorities shall negotiate with tenderers the initial and all subsequent tenders submitted by them, except for the final tender" - "the minimum requirements and the award criteria shall not be subject to negotiation."
- CD - the dialogue will inform the nature of the tender submitted, and once tenders are received:
- they may be "clarified, specified or optimised" provided that does not involve changes to "essential aspects of the tender" ; and
- negotiations with any preferred bidder can be carried out "to confirm financial commitments or other terms contained in the tender by finalising the terms of the contract
in both cases provided that negotiations are not likely to distort competition or have a discriminatory effect.
The panel discussed that CD could be used for the procurement of PPP projects where final negotiations on financing are required post submission of final tenders. CPN could be used for complex infrastructure procurement where contract risks and terms need to be negotiated prior to receipt of final tenders otherwise, without negotiation, the contracting authority could run the risk of receiving qualified final tenders.
In addition to the right not to be excluded from a bid process on mandatory grounds (where there exist "overriding reasons in the general interest, such as public health or protection of the environment"), PCR'15 now includes a right to self-clean. Taking all necessary measures to ensure that prior problems will not occur again in the future, can be used by a bidder as a defence to a contracting authority seeking (either on mandatory or discretionary grounds) to exclude that bidder from its procurement process. The contracting authority has the ultimate discretion to decide whether those measures are sufficient to avoid exclusion. This will be a sensitive area - bidders will challenge if they consider the discretion to have been exercised unfairly. It is important to remember that self-cleaning is based on the EU Treaty principles of proportionality and equal treatment. The panel anticipated that self-cleaning will be a source of future litigation.
PCR'15 includes a new discretionary ground for excluding a bidder from the procurement process, if that bidder has "shown significant or persistent deficiencies in the performance of a substantive requirement under a prior public contract … which lead to early termination of that prior contract, damages or other comparable sanctions". The Cabinet Office PPN on past performance (re-issued on 25 March 2015) applies ("as a matter of policy") from 1 April 2015 to central government contracts for IT services, facilities management, or business processing outsourcing, anticipated to be worth over £20 million. Whilst PCR'15 allows authorities to exclude against hard specifics such as contract termination, the PPN requires selection criteria to be structured to elicit details of poor performance, and verify steps which have been taken to ensure that it does not recur. Responses to those selection criteria may mean that bidders are not considered to be suitable candidates for the anticipated contract. The risk of challenge is ever present when subjective decisions such as these have to be made. The PPN reminds contracting authorities to observe the EU Treaty principles of equal treatment, non-discrimination, proportionality and transparency when evaluating against past performance criteria. It also indicates that the PPN will be revised and updated when the European Single Procurement Document comes into effect (18 April 2017).
Codification of the "Teckal" rules
The rules on in-house contracts, first ruled on in the Teckal case, are set out at regulation 12 of PCR'15. Regulation 12 extends the scenarios, where a contracting authority can avoid following a compliant procurement process, if there is a relationship of control between it and the entity with which it intends to contract. Teckal and related case law defined that relationship as one where:
- the contracting authority exercises over the other contracting entity a control similar to that which it exercises over its own departments
- the controlled entity carries out the essential part of (now codified at 80%) its activities with the contracting authority
- there is no private capital participation in the controlled entity
PCR '15 permits a controlled legal entity (which is a contracting authority) to contract with the controlling entity, and with any "sister" legal entity which is also controlled by the controlling entity. Whilst crystallising these scenarios in PCR'15 might deter procurement law challenges, to date in-house scenarios have been closely scrutinised by the courts, and it may be the case that those who think a contract should have been opened to competition, may seek to challenge on state aid/competition law grounds.
Codification of the "Pressetext" rules
Generally the new rules on permitted contract change without the need to re-advertise, have been well received on the basis that the position on amendments post contract awards is now clarified. The 50% cap for price increases where contract changes result from the need to extend a contract for inconvenience or duplication (regulation 72(1)(b)), or because of unforeseen circumstances which do not alter the overall nature of the contract (regulation 72(1)(c)) is seen as generous. There is limited case law on change pursuant to an "unequivocal" review clause (regulation 72(1)(a)), but going back to basic principles, transparency will be key - review clauses must provide the information which a bidder would need in order to assess the potential scope for variation after contract signature. This might include a suite of clauses to cover issues such as price indexation, change control procedures, benchmarking and market testing, funder step-in and options to extend the contract term. The Crown Commercial Service guidance on amendments to contracts during their term appears to have taken a "point in time" analysis of when regulation 72 will apply - that is, if a contract awarded before PCR'15 was in force, is amended after PCR'15 is in force, then regulation 72 will apply. This causes some ambiguity with the wording of PCR'15 itself. PCR'15 states that nothing in PCR'15 affects a contract awarded before 26 February 2015 (regulation 118(5)). Therefore, this indicates that Pressetext principles will continue to apply to contracts which have been awarded prior to PCR'15 coming into force. This issue and guidance require further clarification.
Keeping up to speed with PCR'15 guidance
Since the last edition of Procurement Pulse, CCS has published the following guidance on PCR'15: