Background

In December 2011, the European Commission announced ambitious new plans to modernise the existing EU procurement rules.  Following two years of intense negotiation, debate and various revisions, new directives have been formally adopted by the European Parliament and Council as follows:

  1. a new public sector procurement directive (replacing Directive 2004/18);
  2. a new utilities sector procurement directive (replacing Directive 2004/17); and
  3. a completely new directive on the award of concession contracts.

The new directives will come into force twenty days after formal publication in the Official Journal of the European Union (expected to be before the end of March 2014). Member States will then have up to two years to transpose the majority of the new rules (there are different transposition deadlines for some provisions, including those related to electronic tendering).

The Cabinet Office has previously indicated that it plans to introduce new regulations in England, Wales and Northern Ireland quickly, with a view to enabling authorities to enjoy the benefits of the new provisions as soon as possible. They have been proactively consulting over the last six months on key issues where Member States have discretion as to how to transpose certain aspects of the directives, such as the approach to excluding bidders at the selection stage.  

It is also expected that the Cabinet Office will draft the regulations in accordance with the “copy-out” policy, namely the majority of the provisions will be copied out word for word with any amendments restricted to where necessary.  The main driver behind this policy is to prevent 'gold-plating'.  Given some of the ambiguity in the new directives, this approach is unlikely to assist in ensuring a consistent interpretation and application of the new rules across authorities. 

Given the ambitious implementation plans, all authorities and utilities subject to the rules should be considering now how best to hit the ground running.

Aims of the New Rules

This original objectives of the new rules included:-

  1. a general simplification and flexibilisation of the existing public procurement rules to try and increase the efficiency of public spending to ensure the best possible procurement outcomes in terms of value for money;
  2. more efficient procedures to benefit all economic operators, but in particular to try and facilitate increased participation and access for SMEs;
  3. 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; and
  4. improving legal certainty by clarifying certain provisions (including creating a whole new directive just dealing with concessions) and codifying well established European case law.

Some of the Key Changes

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

  1. 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 and/or by the use of lifecycle–costing as a means of assessing cost-effectiveness. Specific provisions have been included on what is expected to be covered by the term “lifecycle-costing”.
  2. Categories of Services - replacing the distinction between priority 'Part A' services (fully regulated) and non-priority 'Part B' services (currently subject to limited regultion) with a new, less onerous advertising and award regime for a specific sub-set of social and other specific services with a contract value over €750,000 (public sector) and €1,000,000 (utilities).
  3. Access to procedures - easier access to the use of the competitive negotiated procedure, with the grounds for using this procedure being harmonised with the grounds for using the competitive dialogue procedure.
  4. New procedure - the inclusion of 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.
  5. Reducing documentation – the introduction of the concept of a “European Single Procurement Document”, namely a document which bidders can continually update and use to “self-declare” as part of their responses that they satisfy relevant selection criteria with the aim of simplifying procedures for bidders.
  6. Revisions to exclusions - additions to the grounds for exclusion at selection stage (including poor performance on previous contracts) and provisions allowing for “self-cleaning” to permit economic operators to potentially continue to be involved in procurements even where exclusion grounds technically apply.
  7. Assessment of financial capacity – as one of the measures to encourage SME participation, the introduction of a limit on the minimum yearly turnover that economic operators are required to have being twice the contract value (except in duly justified circumstances where a higher level may be permitted based on the nature of specific works, services or supplies).
  8. Use of lots – provisions have been included requiring contracting authorities to explain why they may have decided not to sub-divide a contract in lots.  The new rules also expressly provide for the assessment of offers across multiple lots when determining the most economically advantageous tender.
  9. Incorporating case-law - codifying the TeckalHamburg Waste and Pressetext case-law on in-house awards, public-public co-operation and substantial modifications of existing contacts respectively.
  10. Reflecting market practice - specific provisions dealing with potential conflicts of interest, prior involvement in a procurement process and anticipating the potential for preliminary market engagement, all of which are situations which often come up in practice.
  11. Simplified procedures - the ability for certain contracting authorities (including local authorities) to use a prior information notice as a means for calling for competition and potentially reducing timescales, as well a general reduction in other mandatory timescales (such as those for submitting expressions of interest and tender responses).
  12. 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.
  13. Provision of monitoring information – provisions requiring increased monitoring of public procurement at a national level and regular reporting of information back to the Commission on national implementation.
  14. Additions and clarifications  - other clarificatory and procedural provisions relating to issues such as the following:-
  • the scope of awarding reserved contracts to certain organisations (for example, public service mutuals and social enterprises in the UK);
  • compliance with EU environmental, social and labour obligations;
  • procedures relating to sub-contracting;
  • the role of central purchasing bodies;
  • the use of dynamic purchasing systems; and
  • joint procurement.
  1. Utilities specific - for the utilities sector only, a revised and simplified article 30 exemption procedure for certain activities to potentially be excluded from the scope of the directive upon application, the exclusion of the exploration of oil and gas activity and clarification around the concept of “special and exclusive rights”.
  2. Separate rules for concessions - a separate new directive just covering concessions to address the issue of these not currently being covered by the rules and to deal with inconsistencies in the way these have been approached at a national level. Key issues covered include:-
  • a definition of what constitutes a concession based on the relevant case-law;
    • the extent of advertising and key principles that need to be complied with when awarding  concessions; and
    • specific exclusions from the scope of the directive (for example, in the water sector).

Getting ready

Both purchasers and suppliers should be considering now how best to prepare for the new regime.  We would recommend the following:-

  1. Making sure procurement personnel are aware of the proposed changes and keep up to speed on the timetable for national implementation; this could include planned training (possibly aligned with the publication of the draft regulations) or more general awareness raising. Until the new rules come into force, the existing regulations will continue to apply and there is likely to be a transitional phase during which an authority could have procurements running under both regimes.
  2. If an issue comes up in the interim, consider how the new rules would apply.  Whilst not currently legally binding within the UK, the new directives may assist in assessing whether a contract change is likely to be considered 'material' or not.
  3. Identify and collate any contract management or performance information which may be relevant in future processes. For example, information which a contracting authority may need to use in the future when seeking to exercise the new ground of exclusion based on previous poor performance.
  4. Looking into the suitability of either existing or proposed IT systems early enough to ensure a smooth transition when e-procurement becomes mandatory. It is also worth making sure people are familiar with some of the specific provisions in the new rules which deal with the technical aspects of this issue.

Summary

Adoption of the new directives reflects the end of a long legislative road for the European institutions, however it is just the start for entities who operate within the framework of the procurement rules as they  now need to familiarise themselves with and prepare for the changes. There will inevitably be a period of adjustment and whilst the new rules cannot fairly be described as simpler, they will hopefully provide a clearer and more flexible set of rules for all involved.

On a final note, the Commission has indicated they will now be turning their attention to a review of the remedies regime.  Looks like no rest for procurement lawyers and practitioners…

Resources

Please click here for the texts as adopted by the European Parliament and Council.

The Cabinet Office has launched a web page (www.gov.uk/transposing-eu-procurement-directives) which is dedicated to the steps being taken as part of the transposition of the new directives.