Summary and implications

  • There has been a recent increase in challenges to the way public bodies evaluate tenders, and there have been various initiatives which relate directly to the way in which infrastructure-related services are procured in the United Kingdom and internationally. For example: the Technology and Construction Court (the “TCC”) in England and Wales has been active in developing jurisprudence in the field of public procurement, notably in Amaryllis Ltd v HM Treasury. In this 2009 case the TCC considered (amongst other things) whether the claim against the defendant was brought promptly and in any event within three months as required by the Public Contracts Regulation 2006;
  • on 10 September 2009 it was announced that the Construction Sector Transparency Initiative has initiated a three month pilot to enhance transparency and accountability in public procurement; and
  • in the next article in this Newsletter my colleague, Steven Williams, provides a narrative on recent developments in European Community Law which will impact on the way public bodies may structure their procurement processes.

There are also initiatives relating to procurement being discussed at the United Nations under the auspices of Working Group I (Procurement) (the “Working Group”) established by the United Nations Commission on International Trade Law (the “Commission”).

If adopted, the initiatives, in the form of revisions to the 1994 UNCITRAL Model Law on Procurement of Goods, Construction and Services (the “Model Law”), will affect how major internationally-funded infrastructure projects are procured by public bodies, and specifically those projects that are financed by the World Bank. The revisions to the Model Law have also been the subject of discussions with other international organisations, including: the European Union; Asia-Pacific Economic Co-operation; and the World Trade Organisation.

Background to the Model Law

In 2004, the Commission decided that that the Model Law required updating to reflect changes in public procurement. Alongside amendments to the Model Law, the Working Party would publish a Guide to Enactment to address the amendments in more detail where appropriate, and provide guidance to the legislators in enacting States.

The focus of the Working Group’s work includes:

  • new practices in public procurement such as electronic procurement;
  • the avoidance of abnormally low tenders (“ALT”);
  • Electronic Reverse Auctions (“ERAs”);
  • Framework Agreements (“FAs”); as well as#
  • simplifying and clarifying the Model Law.

Electronic Procurement

The Working Party has formulated proposals to amend the Model Law to reflect the rapid technological advances in enacting States, whilst appreciating that the level of advancement is not uniform across all enacting States.

The main proposals concern the use of electronic procurement, advertisement of procurement-related information (including the publication of the laws and regulations governing procurement contracts), the solicitation of documents and related information and contract awards, and the use of electronic communications in the procurement process.

The use of electronic means was thought to make information more available than traditional paper means by making it more accessible to suppliers. The Working Party accepted, however, that electronic publication should be optional to preserve the principle of flexibility and reflect the different situations that apply in enacting States.

The Working Party considered the use of electronic communications in the procurement process. In particular, they considered whether the use of electronic communications should only be by consent or should be a requirement of one policy. They discussed also the conditions of use to safeguard procurement law obligations, so as to avoid the electronic means chosen from operating as a barrier to access, to secure confidentiality, and to ensure authenticity and security of transactions and the integrity of the data. The Working Party agreed that the Model Law should be revised to enable the promotion of the use of electronic communications. However, this is subject to a general requirement not to unreasonably restrict access to the procurement and to set out a number of guiding principles (see table).

ERAs

ERAs are structured as tendering proceedings in which suppliers are provided with information on the other tenders. Suppliers post tenders electronically through an electronic auction site, using information on ranking or amount requirement to beat the other offers. Suppliers are able to view electronically the progress of the tenders as the auction proceeds and amend their own tenders accordingly. ERAs usually take place over a set period of time.

The Model Law does not address ERAs; the tendering method used for procurement assumes a single-tendering stage, and prohibits substantial changes to tenders – including price – after submission; see, for example, Article 34(1)(a) of the Model Law. The Working Party has edged towards adopting a framework for the use of ERAs, in part because certain enacting States commonly use ERAs and could generate significant savings and promote transparency. It was suggested that in future ERAs could be incorporated into the Model Law as a distinct procurement method, such as the publication of prices during the tender process and a two-phase evaluation of tenders.

FAs

FAs are arrangements used by procuring entities when they require particular products or services over a period of time, but do not know the exact quantities, nature or timing of their requirements. Initial tenders are obtained against set terms and conditions. The supplier(s) is/are then selected, and periodic orders or contracts are subsequently placed with the supplier(s) chosen, as particular requirements arose.

In some countries, like the United Kingdom, FAs are regulated by national law. The use of FAs has been acknowledged by some regional bodies and by international leading institutions.

The potential benefits of FAs, as opposed to initiating a new procurement procedure, include the saving of procedural costs and time in procurement. In particular, the arrangements avoid the need to advertise individual contracts and to assess suppliers’ qualifications for each order placed. FA also enhances value for money.

The Model Law does not contain any specific provisions on FAs. Tender solicitation documents must state the quantity of goods required, but under the FA arrangement, the quantity is normally not known. Further, the Model Law’s tendering proceedings do not contemplate arrangements that involve entering into a binding contract, for example, when orders are placed. Indeed, Article 36(4) of the Model Law provides that a contract arises when a tender is accepted, but does not provide for contracts that arise only when the procuring entity later decides to make specific purchases. Also, the procedure in the Model Law relating to the publishing of a public notice of a “contract award” (i.e. Article 14) is not suitable for providing publicity for FAs. The Working Party recognised that there are a number of potential problems with FAs. In particular, there was a concern amongst a number of enacting States that FAs may result in a lack of transparency and competition at every step of the procurement process. FAs may also create a marketplace based on relationships between suppliers and purchasers, rather than on competition amongst suppliers. In conclusion, the Working Party proposed that the Model Law should reflect FAs which appreciated:

  • the desirable level of competition in a multi-supplier framework;
  • whether FAs should be exclusive;
  • appropriate criteria for establishing the duration of FAs;
  • suitable types of procurement for FAs; and
  • procedures for selecting the participants in a framework arrangement and for awarding purchase orders.

Concluding thoughts

The Working Party is finalising the proposed revisions to the Model Law for consideration by the Commission. That process may still take a number of months or years. When finalised, and given the World Bank’s reported support for the policy considerations that underpin the revisions, it is likely that the revised Model Law will result in a radical change to the way in which international construction projects are procured.

Changes to procurement procedures which reflect current policy objectives should be welcome.