Martin Vincent, Partner, Weightmans LLP:
On 8 March 2012, the Public Services (Social Value) Act 2012 was passed with the headline being that when conducting a procurement for services that is subject to the Public Contracts Regulations 2006 (as amended) contracting authorities must consider:
“how what is proposed to be procured might improve the economic, social and environmental well-being of the relevant area, and how, in conducting the process of procurement, it might act with a view to securing that improvement.”
We’ve seen a recent surge in demand for advice on “policy by procurement”, but what are the implications of the new Act?
When the new Act comes fully into force, not only will the authority need to consider improving the “economic, social and environmental well-being” of the area but must also consider consulting on the needs of the local community, which will presumably add to the timescales leading up to a procurement exercise and lead to pressure to ensure that the results of the consultation and consideration exercises become part of the assessment methodology for the resultant bids – and that’s the tricky part.
The 2006 Regulations are derived from European law. The UK is not free to vary the provisions of the procurement regime so that they become incompatible with the relevant European directives and we know two things for certain from the EU directives and resultant case law:
- The criteria used to award a contract must either point to establishing the most economically advantageous tender or the lowest price tender. From this it follows that there must be a demonstrable economic advantage identified in the criteria used that flows to the contracting authority concerned. Simply using criteria to assess improving “well-being” without the vital link to an economic advantage is unlikely to be lawful.
- The criteria used to assess bids must be relevant to the supplies, services or works being procured, and this is recognised by section 6 of the new Act which states “only matters that are relevant to what is proposed to be procured and, in doing so, must consider the extent to which it is proportionate in all the circumstances to take those matters into account.”
Furthermore, the ECJ recently confirmed in Commission v Germany that just because something has a worthy objective, it will still be declared unlawful if it does not comply with the public procurement regime.
So, the new Act creates a positive duty on a contracting authority to consider the social improvements available from procurement, but does not alter the already complex procurement regime that proves so problematic for many.
The social value in any procurement must be assessed on a case-by-case basis and will vary with each project, but careful analysis will be required to satisfy the obligations imposed by the new Act without falling foul of the existing procurement regime.
For local authorities, the Act appears to play into the localism and big society principles of outsourcing activity to social enterprises, mutuals and voluntary organisations. Specifically, the Community Right to Challenge under the Localism Act 2011 will provide a mechanism for voluntary and community bodies, charities, parish councils and groups of employees to force local authorities to take a formal decision on outsourcing work to them, with limited grounds for rejecting the proposal. But the government has made it clear that, if the 2006 Regulations apply, the appropriate procurement exercise must be undertaken. So, faced with competing bids from, say, a social enterprise and a large commercial provider, will the new Act make it possible to favour the social enterprise on policy grounds, even if the alternative is cheaper? We suspect that appearances are deceptive, and it will not, but we await further guidance.
“The criteria used to award a contract must either point to establishing the most economically advantageous tender or the lowest price tender. From this it follows that there must be a demonstrable economic advantage identified in the criteria used that flows to the contracting authority concerned. ”
This runs contrary to the ruling of the ECJ in Concordia (C-513/99), in which the Court stated:
“It cannot be excluded that factors which are not purely economic may influence the value of a tender from the point of view of the contracting authority. ” (Para 55 of judgement)
There is ample scope for addressing environmental, social or other non-economic criteria in EU-level tenders. The Commission itself has acknowledged this by producing guidance on green and socially responsible procurement (available from the website of DG Markt).
Hi Abby, many thanks for your comment.
You are correct that sustainability criteria can be included as part of a MEAT evaluation. (Examples of criteria that have been held to be lawful include requirements relating to the noise and emissions from buses, the minimum levels of renewable energy to be supplied and the employment of long-term unemployed in the local area.)
However, it is important to note that they must be related to the subject of the contract and non-discriminatory. I think the issue here is that the new requirement in the Act could be seen to be authorising things that are not so connected and therefore cause a conflict.
More information on sustainability and public procurement can be found in our practice note and checklist on the subject.