REUTERS | John Kolesidis

Competitive negotiation under the new draft regulations – a final nail in the coffin?

Enthusiasm for the use of the competitive version of the negotiated procedure (“competitive negotiated”) has varied over time. For those with long memories, it was used extensively until the 2004 directive (Directive 2004/18/EC) restricted its use and introduced the new “competitive dialogue” procedure. It then largely fell out of favour as the UK government and the EU Commission encouraged competitive dialogue

In this post, John Bennett, co-author of the loose-leaf encyclopedia: “EU Public Procurement: Law and Practice”, considers the competitive negotiated procedure in the new procurement directive and the draft Public Contracts Regulations 2015.

Practitioners may have thought that the new procurement directive (Directive 2014/24/EU) would see a return to favouring the negotiated procedure. After all, recital 42 states: “there is a great need for contracting authorities to have additional flexibility to choose a procurement procedure, which provides for negotiation”. In the light of the government’s default position of “copy out” to transpose the new directive we can assume that the current draft regulations will largely reflect the final position. Unfortunately these seem not to have met the desired intention in the recital – although this is down to the wording of the directive itself rather than the UK government.

In terms of positives, the grounds for both competitive negotiated and competitive dialogue have been harmonized (draft regulation 26(4)), thus giving a real choice between the two procedures. The new competitive negotiated procedure replaces the current negotiated procedure with prior publication of a contract notice, though the negotiated procedure without prior publication is still available in limited circumstances. To use either the competitive dialogue or competitive negotiated procedure, a contracting authority must meet one of four grounds, relating to issues around the need to adapt solutions, or to design solutions or for reasons of complexity or the inability to establish the specification with sufficient precision. In other words, a procurement for anything other than “off the shelf” products will apparently justify negotiation. The choice of procedure will depend on which gives the necessary flexibility for what after all will not be a straightforward procurement.

Where matters have changed, is that under the current rules for competitive negotiation there is very little detail as to the actual conduct of the procedure for the negotiations themselves – this has allowed practitioners to craft the procedure to suit the outcomes sought. Currently, regulation 17 of the Public Contracts Regulations 2006 (SI 2006/05) only provides that:

“(20) Where the contracting authority needs to identify the best tender in order to award the public contract in accordance with regulation 30(1), that contracting authority shall negotiate with economic operators which have submitted tenders with the aim of adapting the tenders to the requirements specified in the contract documents.

(21) During any negotiations which take place in accordance with this regulation, a contracting authority shall ensure equal treatment among all economic operators and in particular, shall not provide information in a discriminatory manner which may give some economic operators an advantage over other economic operators.”

That flexibility has been considerably reduced with the new directive. The reasoning is given in recital 45: “In order to ensure transparency and traceability of the process, all stages should be duly documented. Furthermore, all tenders throughout the procedure should be submitted in writing”.

Under the new rules, within draft regulation 29, there are many more procedural steps that must be followed. The “procurement documents” (these should be available at the time of the OJEU notice) will need to include certain information: that is, the needs of the authority, the non-negotiable minimum requirements and the award criteria. This is good practice now and should not be too much of a burden. However, contracting authorities will need to ensure the “conduct and progress of negotiations and dialogue with tenderers” are well documented, as these can be requested at de-brief (draft regulation 55(2)(d)).

Likely to be more problematic is the obligation, under draft regulation 29(9) that: “contracting authorities shall negotiate with tenderers, the initial and all subsequent tenders submitted by them, except for the final tender, to improve its content.”

Here the drafting has departed slightly from that in the original directive (article 29(4)) – although the drafting intention remains clear. There will be a final tender that cannot be negotiated. This is required by the directive which states that negotiation takes place on the initial and subsequent tenders “except for the final tenders”.

Draft regulation 29(17) lays down the manner in which the negotiated procedure must be concluded. This includes the obligations in 29(17)(b), (c) and (d) to: “verify that the final tenders are in conformity with the minimum requirements and comply with regulation 56(1), assess the final tenders on the basis of the award criteria, and award the contract in accordance with regulations 66 to 69”.

In short, it would seem that the new competitive negotiated procedure will always have a best and final offer stage where a final and formal tender is submitted by the bidders, and that the authority cannot negotiate on those final tenders. Can they be “clarified” or “fine tuned”? Even this seems to be problematic if one considers the alternative wording used in draft regulation 30 for the treatment of final tenders in competitive dialogue.

Draft regulation 30(17) expressly states that when using competitive dialogue: “… [final] tenders may be clarified, specified and optimized at the request of the contracting authority”. This parallels the existing rules in regulation 18 (26) of the Public Contracts Regulations 2006 and on which there was so much debate in the context of PFI deals. Draft regulation 30(20) also enables the contracting authority to continue negotiations with the preferred bidder to “confirm financial commitments or other terms contained in the tender by finalising the terms of the contract” as long as the resulting changes are not material and do not risk distorting competition. This regulation appears to considerably extend the current power contained in regulation 18(28) to require the bidder to “clarify aspects of the tender or confirm commitments”. Contracting authorities should be wary of the procurement and commercial risks in engaging in protracted negotiations at this stage of the process. Bidders may see this power as an opportunity to improve their position when their status as preferred bidder is confirmed.

Overall therefore it would seem that, because the grounds for using competitive negotiated and competitive dialogue will shortly be the same, there may well be more flexibility for contracting authorities that choose to use the competitive dialogue procedure than those choosing to use the competitive negotiated procedure. As this has been the default position for complex procurement activity since 2006, authorities should be more familiar with that procedure than with competitive negotiated in any event. It will be interesting to see what, if any, advantages are seen by procurement professionals in the use of competitive negotiated, once the new rules are in place.

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