PLC Public Sector reports:
We recently published some new materials based on queries that we have received about the award of contracts for Part B services, which have generated significant interest. It is clearly a subject that is being considered by contracting authorities of all types and sizes in respect of contracts delivering many different types of services.
In the light of this level of interest, we thought it appropriate to try and open up the debate and seek the views of our subscribers on some of issues involved.
In June 2012, we published two “Ask the team” pieces:
- Ask the Team: How do I decide if I have to competitively tender a Part B services contract?, which looked at the legislative background to the award of contracts for Part B services, the issues to consider when trying to establish if there might be cross-border interest in a contract and the leading case law on whether a cross border interest in a contract has been established.
- Ask the Team: What are the risks of awarding a contract for Part B services without going through a procurement process?, which focused on the risks of a challenge if cross-border interest is established, together with the potential remedies for a failure to advertise if a challenge is successful.
The whole issue of the regulation of Part B (and other “unregulated” procurements) is one that has evolved to a great degree through case law and, inevitably when this is the case, there will always be new questions arising that have not been considered in previous cases – and as a result will fall into grey areas.
We are very interested in finding out exactly what grey areas our subscribers and the public procurement community in general has found itself facing to see if, to some extent, consensus can be reached as to what contracting authorities need to do, and when, during the course of a procurement for Part B services.
Therefore we would be grateful for:
- Any comments on the content of our new materials referred to above, particularly if anyone feels that a different approach may need to be considered in certain circumstances; and
- Details of any issues which you feel are not covered by is in these materials, or our practice note.
Comments can be submitted below, or if you would prefer by e-mailing feedback@practicallaw.com.
To get the ball rolling we’ll share one query we have already had, and our view (again please feel free to let us know your thoughts on this):
Question: is there any obligation to advertise a Part B (or below threshold) contract for which there is no cross border interest?
Our view: from a purely public procurement point of view, no. However, in coming to this conclusion we ignore any issues involving an authority’s standing orders, government policy requirements and any other public law argument based for example on a legitimate expectation based on the prior actions of the authority concerned.
Other questions that we would be interested in hearing your thoughts on include:
- Do people working for contracting authorities feel they are being advised to comply with a regulated type process for Part B procurements, in circumstances where such a process is disproportionate? If so, should the public sector take more of a risk based approach to determining whether to advertise, taking into account all relevant commercial, as well as legal, circumstances?
- Alternatively, should advertisement always be the default option, whatever the law says? If so, are too many contracts directly awarded without advertisement and more competitive tendering, not less, is what we need?
Dear PLC
I read with interest your recent ‘Ask the Team’ articles regarding the requirement to advertise Part B services. As a local authority solicitor, this is an issue that is cropping up with increasing frequency in the context of staff mutuals – i.e. considering whether the authority can award a contract for Part B services to a newly formed staff mutual without following an advertised tender process. Often in these cases there are local providers that would be interested in tendering, so the strength of the legal justificaiton for not running an advertised tender process is particularly important.
I was reassured to find that my authority had arrived at the same conclusions as were outlined in the articles.
However, I would be interested in your opinion on the following query. I have set out a number of assumptions / comments in the bullet points below, but the actual query is in the final bullet point.
– The legal basis for determining the procurement obligatons of a contracting authority for Part B services is derived from the TFEU. If the contract would be of interest to contractors in other member states, then the TFEU applies, and the Treaty principle of transparency would require some form of advertised tender process. So if there is no cross-border interest, then there is no requirement for a tender process on the basis that the TFEU transparency principle does not apply.
– However, there appear to be provisions in the Public Contracts Regulations 2006 (as amended) (“PCR”) that arguably require an advertised competitive tender process for all Part B Services contract (i.e. regardless of whether there is a cross-border interest) – this argument is set out below.
– Reg 5(2) PCR states sets out the limited application of the PCR to (all) Part B Services contracts (i.e. regardless of whether there is a cross-border interest). Reg 5(2) states that Part 1 of the PCR applies to such contracts. Part 1 of the PCR covers Regs 1 – 8 inclusive.
– Reg 4(3)(b) (which therefore applies to Part B contracts) states: “a contracting authority shall (in accordance with Article 2 of the Public Sector Directive) act in a transparent way”.
– Is there an argument that Reg 4(3)(b) applies in relation to ALL Part B Services Contracts? If so, presumably the obligation to “act in a transparent way” would require an advertised competitive process? If these assumptions were correct, then an advertised tender process would presumably be required for Part B services even if there were no cross-border interest.
– Therefore, in order for the PCR to impose a similar level of obligation for Part B Services as is imposed under the TFEU, the concept of cross-border interest would need to be introduced into the Reg 4(3)(b) – Do you consider that this achieved through the wording that states “in accordance with Article 2 of the Public Sector Directive”?
Many thanks
Phil Roberts
Solicitor, Bristol City Council
Phil’s point was exactly the point I made when I said to plc that I thought their initial answer was too simplistic (which I think has led to this debate).
It was particularly the case of Azam v LSC [2010] EWHC 960 that set the alarm bells ringing. This case suggested that there is a free standing duty to “afford equality of opportunity” as part of the duty of transparency, irrespective of cross border interest. Personally, I think that the case was wrongly decided; the interpretation makes the words “in accordance with Article 2 of the Public Sector Directive” redundant.
The issue potentially applies also to below threshold contracts, since there is uncertainty over whether Reg 4(3) applies generally (as being derived from the Treaty – but then this takes us back to the issue of cross border interest). In relation to this, contrast the start of Reg 4(2) “When these Regulations apply” with Reg 4(3) (containing no such words) and Reg 8(1) “These Regulations do not apply”.
I don’t think we can rule out the possibility of a challenge for failing to advertise a Part B (or below threshold) contract that is not of cross border interest, but it will be a brave economic operator that is the first to bring such a challenge.
I would be interested to know what others think and if it is clearly a topic of interest, I will take it to the Procurement Lawyer’s Association as a suggestion for a Project (although I think we may all need a rest after the furious work on the Directive).
Andrew Millross
Partner
Anthony Collins Solicitors LLP
andrew.millross@anthonycollins.com
Many thanks Phil and Andrew (and apologies to Phil for the delay in responding to his query).
Firstly, to give our view on this issue briefly, we do not believe that the Regulations impose an obligation to advertise contracts for Part B services that do not have a cross border interest. However, as has been set out by both Phil and Andrew an argument can be constructed that says they should, therefore there is a risk of challenge on this basis and a (smaller) risk that such a challenge could be successful. Our view would be that if such a challenge was successful this would be a result of imprecise implementation of the Directive by the Regulations.
Looking at the detail:
Why could there be a general obligation to advertise?
As set out above, on the face of it, Regulation 4(3) applies to above threshold Part B contracts and requires public authorities to act in a transparent way. ECJ case law has established that acting in a transparent way equals advertising opportunities.
Why do we think there isn’t?
Again as stated above, the obligation in Regulation 4(3) is expressed to be “in accordance with Article 2 of the Public Sector Directive”. This would appear to clearly imply that the aim of the obligation is to implement the requirements of the Directive (it is difficult to believe that a purposive interpretation could conclude otherwise). That being the case it would only apply if there is a cross-border interest. To be clear on this issue:
• Recital 2 to the Directive makes it clear that its purpose is to ensure that the award of contracts respects “the principles of the Treaty and in particular to the principle of freedom of movement of goods, the principle of freedom of establishment and the principle of freedom to provide services and to the principles deriving therefrom” (that is, not to interfere in procurement/contracting in general).
• The ECJ has made it clear on numerous occasions that there must be a cross border interest in a contract for Part B services for the Treaty principles to apply (see for example, “The obligation of transparency applies where the contract for the provision of services in question may be of interest to an undertaking located in a Member State other than that in which the contract is to be awarded.” (C-226/09 – Commission v Ireland (paragraph 32)).
Therefore to base a requirement to advertise in Regulations solely intended to implement the Directive and on a Regulation that explicitly references the Directive, when that requirement to advertise does not exist in the context of the Directive (as acknowledged by both the ECJ and the Commission) can surely not be correct.
As Andrew points out there is case law, Azam, to suggest the UK courts have assumed the obligation in Regulation 4(3) does apply to Part B services without even considering whether there was cross border interest. In our view, the court was wrong to accept that Regulation 4(3) applied at all without such evidence (but going back to the above it shows that if an argument can be made it can never be discounted!). One interesting point concerning Azam is that it was heard in the Administrative Court and essentially argued on JR grounds; the question of where the appropriate place is to bring a procurement challenge is an interesting one, and Azam suggests that the Administrative Court may be the place to choose where arguments of transparency will be made (possibly because the focus on what transparency means will be viewed in more of a public law context than just in the context of the Treaty (any thoughts on this issue would be welcomed)).
However, even if the conclusion in Azam is that the obligation in Regulation 4(3) applies to all contracts for Part B services, then this still does not in our view mean that advertising will always be required. Rather, it simply means that contracting authorities would be required to observe the EC Treaty principle of transparency, where applicable, when carrying out a procurement. The European Commission has given clear guidance in its Interpretative Communication to explain what is meant by transparency and equal treatment in the context of the Treaty (from which Regulation 4(3) directly derives). It states that the standards in the Directives are “derived directly from the rules and principles of the EC Treaty” (paragraph 1.2) and “the standards derived from the EC Treaty apply only to contract awards having a sufficient connection with the functioning of the Internal Market” (paragraph 1.3). That is, an authority will not breach the Treaty principles by failing to advertise a contract that does not have cross border interest. Put simply this argument states that even if Regulation 4(3) does apply, then it does not actually impose any additional obligations where a contract does not have a cross border interest.
Below threshold contracts?
We do not agree that there is an argument that Regulation 4(3) means that below threshold contracts should be advertised. A combination of Regulations 5 and 8 states that the Regulations do not apply. There is no qualification on this and therefore we do not think that it can be argued that an obligation arises based on one of the Regulations.
Mistaken implementation
If we are wrong and the courts do generally accept that Regulation 4(3) does mean automatic advertising, then we think that this must be put down to mistaken gold plating by the UK government in implementation. We have never heard any suggestion that it was the deliberate goal of the government to impose greater requirements on procurement in the UK than is required by the Directive and the Treaty. What is clear from above is that if all Part B contracts must be advertised, this is the end result. It would be interesting to see, if the courts do take the view that advertising is required, whether the government takes steps to rectify the issue.
Over simplifying or over complicating?
We note Andrew’s suggestion that our Ask the team pieces on Part B contracts were too simplistic and we will be happy to add a note in them to address the issues raised in this discussion (which we hope others will contribute to!), however we think that it is important to note that the issues that we chose to include in our two pieces are the key issues that a contracting authority needs to consider on each occasion a contract for Part B services is let. Andrew states that it would be a “brave” contractor that pursued this route of challenge and we agree. On this basis it is important that contracting authorities do strike a balance when carrying out public procurements and not get too bogged down in hypothetical challenges. Having said that we appreciate that it is far easier for someone not facing the direct threat of challenge to say that.
Chris Knuckey
Acting Head, PLC Public Sector