Since the high profile cancellation by the government of FirstGroup’s West Coast Main Line contract in October 2012, there has been a marked increase in the scrutiny of passenger rail franchising awards in the UK. The Brown Review of the government’s rail franchising programme, published in January 2013, made a number of clear recommendations, further to which the government announced a long‑term plan for rail franchises in March 2013. It is against this background that the proposed reforms of the EU procurement rules must be considered. Of most relevance to the rail sector is the exclusion of service contracts for the provision of public passenger transport services by rail from both the new Utilities Directive and the Public Contracts Directive, with primacy being given to the existing Rail Regulation and the proposed Concessions Directive.

The exclusion of service contracts for the provision of public passenger transport services

Currently, the Rail Regulation (Regulation (EC) No 1370/2007) (which applies to the operation of public passenger transport services by rail) allows contracting authorities, unless prohibited by national law, discretion as to whether to tender or directly award public service contracts. However, in practice in the UK over the past five years, rail franchises have been advertised under the Public Contracts Regulations 2006 (as amended) and generally categorised as service contracts (rather than concessions). Indeed, the Brown Review recommended that where a franchise is undergoing infrastructure works which cause major and sustained disruption, a management contract is more appropriate given that maintaining services should be given priority over revenue growth. Conversely, further to the Brown Review, the Department for Transport relied on the provisions of the Rail Regulation in proposing to enter into interim direct contracts with current franchisees.

Further, rolling stock contracts (depending on their exact requirements) are generally categorised as service contracts, eg Crossrail, or supply contracts, eg Thameslink. Thus, if an award is successfully challenged, the remedies under the procurement regulations are applicable and a remedy of ineffectiveness could be granted.

The interrelationship between the Rail Regulation and the current public procurement regulations has, however, been criticised as unclear. The transitional provisions within the current Rail Regulation are complex, which makes it difficult both to be certain as to which regime should apply but also to mount a challenge to award procedures based on the Rail Regulation.

The interrelationship has been clarified in the new procurement directives, which both specifically exclude from their scope service contracts covered by the Rail Regulation. In addition, the Fourth Railway Package, proposed by the European Commission in January this year, amends the Rail Regulation to provide more certainty to the transitional provisions and to require the mandatory tendering for public service contracts involving public transport by rail, which have an average annual value of €5m or more, or concern the annual provision of 150,000 or more kilometres. Thus, the award of service contracts for the provision of public passenger transport services by rail are no longer to be governed by the public procurement rules under the new directives, but will instead be governed by the Rail Regulation, as amended.

Although these proposed amendments provide some clarity, there remain some key difficulties with the proposals. In particular, for contracts that fall within the Rail Regulation it is not clear exactly what process is to be followed for the mandatory tendering of the contract. The Rail Regulation merely provides that the process must be open, fair and observe the principles of transparency and non-discrimination, and may involve negotiations in accordance with these principles. It may also be more difficult for disgruntled bidders to mount a challenge given there is no express private law route to claim damages. In addition, the directives retain scope to provide that national public procurement rules may be adopted where the regulation allows.

The Concessions Directive

The proposals include, for the first time, a separate directive governing the procurement of concessions for works or services. Historically, provisions relating to works concessions appeared within the Public Contracts Directive, while service concessions were not covered at all. However, it was decided that EU law on concessions needed to be placed on a more formal standing. That said, it is worth noting that the new Concessions Directive recognises that contracting authorities must retain the freedom to decide the best way to administer these works and services.

Although the Commission’s revised approach to concessions is of interest generally, again passenger transport services by rail are excluded, giving precedence to the Rail Regulation.

The directive will apply to concessions that are valued at, or in excess of, €5m. There will be no prescribed procedure for the procurement of these concessions but the principles of equal treatment, non-discrimination and transparency must be respected – case law suggests that some degree of advertising and competition will therefore be required. The concession period must be limited and where in excess of five years must be limited to the period ‘to recoup the investments made for operating the works or services together with a return on invested capital’. To meet selection criteria, bidders can rely upon the capacities of other entities if the bidder can prove to the contracting authority that it will, for the period of the concession, have at its disposal the necessary resources. In addition, there are different levels of requirements relating to information about subcontractors, eg in certain circumstances the contracting authority can require the concessionaire to provide information about the subcontractors after the award of the concession up to when the performance of the concession commences.