On 19 September 2014, the Cabinet Office published a consultation on the transposition of the Public Procurement Directive 2014/24/EU and on the draft Public Contracts Regulations 2015 (Draft Regulations) which will implement it.
One of the issues most eagerly anticipated was how the government intended to give effect to the “light touch regime” described in the Directive, a new process applicable to contracts which currently largely fall outside the procurement regime.
The current public procurement regime (set out in the Public Contracts Regulations 2006) divides services contracts into Part A and Part B services. Part A services contracts are subject to advertising and must follow the full procurement regime (such as adherence to one of the mandatory procedures) if they exceed the threshold (£111,676 for central government departments and agencies; £172,514 for others including local authorities). However, contracts for Part B services, whatever their value, fall largely outside the regime and need only be advertised where they are of cross border interest (in compliance with the EC Treaty principles, see Practice note, Part B, below threshold and other procurements outside the regulations).
That is set to change under the Draft Regulations. Instead, the distinction between Part A and Part B services has gone. All services contracts which exceed the threshold must adhere to the full procurement regime unless they are listed in Schedule 3 (which will contain the list of services in Annex XIV to the Directive). This list contains many of the services that are currently categorised as Part B services including health, social care and education services.
Schedule 3 contracts must be awarded in compliance with a “light touch regime”, which is for member states to determine, where they exceed a new threshold of EUR 750,000.
New rules at a glance
| Part B Contracts | Schedule 3 contracts | |
| Advertising | No advertising necessary | Mandatory for contracts valued at EUR 750,000 or more |
| Award notice | Mandatory for contracts valued at EUR 207,000 (£172,514) or more | Mandatory for contracts valued at EUR 750,000 or more |
| Procedures | No mandated procedures | Procedures to be determined by contracting authorities in accordance with draft regulation 76 |
UK “light touch regime”
The Draft Regulations set out the UK government’s proposed rules for these above threshold Schedule 3 contracts. In line with its policy to avoid gold-plating by copying out the Directive as far as possible, the rules are set out in draft regulations 75 and 76:
- Contracts must be advertised by OJEU notice or continuously published PIM.
- Contract award notices must be published, though such notices can be grouped together and published quarterly.
- Contracting authorities can design their own award procedures which must ensure compliance with the principles of transparency and equal treatment of bidders.
- Contracts must be awarded in conformity with the information contained in the advertisement about the conditions for participation, time limits and the award procedure to be adopted. However, the contracting authority can vary these rules during the course of the tender exercise provided the change would not amount to a breach of the principles of transparency and equal treatment.
- All time limits imposed on bidders shall be reasonable and proportionate.
- Contracting authorities can choose to follow the specific procedures set out in the regulations or variations thereof.
- Contracting authorities may take various factors into account when determining the award of these contracts including the need to ensure quality, continuity, affordability, and the needs of users.
Unlike the remainder of the Draft Regulations, which the government aims to bring into force in the Spring of 2015, the UK’s light touch regime will not be brought into force until 18 April 2016, the deadline for member states to implement the Directive. Until then, the existing Part B services regime will continue to apply.
Schedule 3 contracts falling below EUR 750,000
Aside from the rules on advertising inserted by the UK government in respect of contracts valued at £10,000 for central government and £25,000 for other contracting authorities (see below), no rules apply to Schedule 3 contracts falling below EUR 750,000. Although it is assumed that such will not be of cross border interest, it is possible that a failure to advertise such a contract could still be challenged by an aggrieved bidder that succeeded in establishing that there was in fact such cross border interest.
Tenders reserved to bidders from the third sector
Contracting authorities can limit participation in a tender exercise for the award of certain listed contracts, which include certain health, social and cultural services, to third sector organisations and staff mutual (draft regulation 77).
Contracts let under this provision must not exceed 3 years. An organisation which has been awarded a contract for the services following a reserved tender process within the preceding three years will be ineligible to take part in a further reserved tender process for the same services.
This provision does not apply to contracts which are subject to the National Health Service (Procurement, Patient Choice and Competition) (No 2) Regulations 2013 (SI 2013/500) (NHS Procurement Regulations).
Lord Young reforms: additional obligations in respect of below threshold contracts
The Draft Regulations implement a number of measures proposed by Lord Young aimed at facilitating access to public contracts to SMEs, including:
An obligation to advertise all contracts on the Contracts Finder website where the value is:
- £10,000 or more, net of VAT, for central government departments and agencies.
- £25,000 or more, net of VAT, for sub-central authorities, including local authorities.
Authorities will not be obliged to advertise if they have already brought the contract to the attention of pre-selected providers, for example, providers on a framework agreement or select list.
Subject to certain exceptions, draft regulation 107 prohibits contracting authorities from using a pre-qualification stage for contracts which fall below the EU thresholds.
Contracting authorities shall publish an award notice for these contracts on Contracts Finder. The notice must specify whether the contractor is a SME or voluntary, community or social enterprise (VCSE).
Contracting authorities shall ensure their contracts contain provisions requiring payment of undisputed invoices within 30 days, and that such terms are passed down through the supply chain. Contracting authorities will then be obliged to publish on the internet statistics on how far they have complied with their obligations to pay invoices within 30 days.
These rules do not apply to:
- Contracts for health care services under the NHS Procurement Regulations.
- Maintained schools and academies, which will not be obliged to advertise their contracts, post award notices on Contracts Finder or adhere to the provisions regarding sub-contracts.
Contracts which are subject to these rules will not be subject to the remedies regime and therefore cannot be set aside on grounds of non-compliance.
Summary of regimes applicable to health and social care contracts
| Contracts valued at EUR 750,000 or more | Contracts valued at less than EUR 750,000 | |
| Contracts for health care contracts | Draft regulations 74-76 apply. Contracts must be advertised and let in accordance with the light touch regime. NHS Procurement Regulations also apply | NHS Procurement Regulations apply. EC Treaty Principles apply where contract is of cross border interest |
| Other Schedule 3 contracts including social care services | Draft regulations 74-7 apply. Contracts must be advertised and let in accordance with the light touch regime | Part 4 of the Draft Regulations apply, including obligation to advertise contracts of £10,000 or £25,000 (depending on type of authority). EC Treaty Principles apply where contract is of cross border interest |
Interface between the light touch regime and the NHS procurement regulations
The NHS Procurement Regulations apply to contracts for health care services for the NHS, meaning “all forms of health care provided for individuals, whether relating to physical or mental health, and […] it does not matter if a health care service is also an adult social care service (section 64, Health and Social Care Act 2012)” (see Opinion, Back by popular demand: the new NHS procurement regulations).
Regulation 5(1) of the NHS Procurement Regulations state:
“A relevant body may award a new contract for the provision of health care services for the purposes of the NHS to a single provider without advertising an intention to seek offers from providers in relation to that contract where the relevant body is satisfied that the services to which the contract relates are capable of being provided only by that provider.”
However, Monitor’s guidance goes further: “There is no requirement in the Procurement, Patient Choice and Competition Regulations for commissioners to publish a notice inviting offers from prospective providers to supply NHS health care services (a contract notice) before awarding a contract to provide those services. The decision whether or not to publish a contract notice is a matter for commissioners (paragraph 3.1).”
However, draft regulation 75 of the Draft Regulations requires above threshold Schedule 3 contracts (which include health care services) to be advertised.
Draft regulation 32, which allows for the use of the negotiated procedure without prior publication of a notice, applies in very limited circumstances and, arguably, the flexibility accorded by the NHS Procurement Regulations is wider. Certainly, Monitor’s guidance tells commissioners they have a wide discretion about whether to advertise contracts for health care services.
Further clarification on the interface between the two regimes is necessary, particularly given the application of the remedies regime to contracts which are currently largely excluded. This means that failure to advertise an above threshold Schedule 3 contract could result in that contract being declared ineffective.
While some of the questions about how the light touch regime will work have been answered in the Draft Regulations, further clarification is needed before the regulations come into force next year.