Procurement enthusiasts armed with more questions than answers gathered at the European Bank for Reconstruction and Development on the evening of Monday 14 October to discuss the new draft procurement directives.
Two panels of experts provided their insights into the development of the Directive and the impact its provisions might make in practice. Rosemary Choueka of Lawrence Graham LLP chaired the event. The texts of three new procurement directives have been agreed replacing the existing Directive 2004/17 (Utilities Directive) Directives 2004/18 (Public Sector Directive):
- Proposal for a Directive of the European Parliament and of the Council on public procurement (Classical Directive) (First reading) – Approval of the final compromise text.
- Proposal for a Directive of the European Parliament and of the Council on the award of concession contracts (First reading) – Approval of the final compromise text.
- Proposal for a Directive of the European Parliament and of the Council on procurement by entities operating in the water, energy, transport and postal services sectors (First reading) – Approval of the final compromise text.
The Directives are likely to be adopted in December 2013 or January 2014 and member states will have two years to transpose them into their national law.
The presentations and discussion focussed on the first of these (New Directive).
Development of the New Directive
Alessia Centioni from the European Parliament, speaking on behalf of Marc Tarabella, gave an interesting summary of the key features of the Directive, including how it facilitates access to public contracts by SMEs and enables the rules to be used to achieve strategic aims, such as social or environmental outcomes. Ms Centioni also gave an insight into the political process leading to the agreement of the Directive by the 28 member states.
Nico Spiegel explained the view of the European Commission as the text was negotiated and refined. He saw the goals of the new Directive as enabling:
- Simpler/ more flexible procurement.
- Strategic use of procurement to advance social or ecological outcomes.
- Better access to the internal market for SMEs.
- Sound procedures.
- Improved governance and professionalisation of procurement.
Mr Spiegel recognised the potential tension between these aims, as some complexity may be required to incorporate strategic objectives. A number of alternatives have been provided to member states to enable them to reflect, in their transpositions of the Directive, measures that would, in their view, facilitate these objectives in their national context.
Mr Spiegel also highlighted the focus on negotiation with the new competitive negotiated procedure and the competitive dialogue procedure. Contracts are no longer required to be “particularly complex” to justify use of the competitive dialogue procedure.
As Professor Sue Arrowsmith of the University of Nottingham pointed out, the new Directive removes the discretion contained in the current Directive 2004/18 that allows member states to specify which procedures their contracting authorities may use. Under the new Directive, member states must provide that contracting authorities may use all the procedures, subject to the conditions set out in the Directive.
The UK government’s perspective
Sam Rowbury, Deputy Director, EU/International Procurement Policy at the Cabinet Office, led the negotiations on the New Directive for the UK government. He emphasised the government’s position that the New Directive deliver more efficient and flexible procurement enabling greater participation by SMEs, which the government sees as the engine of growth in the UK. In particular the UK government promoted the following elements of the New Directive:
- Leaner, shorter and more transparent processes leading to better value for money.
- Simpler processes for assessing suppliers’ credentials.
- More scope for negotiation.
- Clarity around pre market engagement.
- Clearer rules on dynamic purchasing and open frameworks.
- Reduced timescales.
- Clarity around taking experience into account at award stage.
- Reserved contracts, for example for mutuals.
- Using procurement to further social and environmental outcomes.
The UK government was also in favour of the commitment to review the procurement thresholds, which have not increased in 20 years.
Ministers aim to get the New Directive transposed as soon as possible following their adoption. However, as some parts of the text are optional, an analysis is required to inform the UK’s position in each of those areas. The government will consult on those policy choices and the draft regulations next year. The Cabinet Office will also consider what support is required for contracting authorities and procurement practitioners in preparation for the implementation of the New Directive.
What will the UK regulations look like?
Charles Barton of the Treasury Solicitor’s Department advising the Cabinet Office is responsible for drafting the new public contracts regulations. There will be three sets of regulations in all, reflecting each of the new directives. The regulations will incorporate the provisions of the remedies directive.
To avoid “gold-plating”, the new regulations will mirror the format (and numbering) of the New Directive as closely as possible and will therefore look completely different from the Public Contracts Regulations 2006. This “copy out” approach avoids clarifying any ambiguity in the New Directive, leaving it to individuals to interpret the New Directive.
It is for member states to determine their own rules applicable to the “light touch regime” which replaces the current rules applicable to Part B services contracts.
Codification of case law into New Directive
Professor Sue Arrowsmith considered how effectively the New Directive had codified existing case law. While she considered that the inclusion of large discrete areas, such as public to public cooperation and changes to concluded contracts, was useful, other attempts to incorporate, sometimes confusing, case law to clarify existing concepts had been less successful. For example, the new provisions on abnormally low tenders (Article 69) may create more confusion by failing to specify what is and is not a legitimate reason to reject an abnormally low tender.
In these circumstances, guidance might be a better way of clarifying the text and has the added advantage of being capable of regular updating. The provisions aimed at enabling social considerations to be taken into account also lack teeth as there is no duty on contracting authorities to investigate compliance, though whether such a duty would be appropriate is moot as it is unclear whether these provisions will achieve their aims.
The panel echoed Professor Arrowsmith’s view that existing case law, notably Case C-368/10 – European Commission v Kingdom of Netherlands, judgment of 10 May 2012 (see Legal update, ECJ finds that Netherlands has breached procurement rules in specifying use of eco-labels and fair trade labels), provided adequate guidance on incorporating social objectives into the procurement process.
The New Directive reduces the current minimum time limits for receipt of tenders. Specifically, the minimum time limit for receipt of tenders under the open procedure is 35 days (instead of the current 52 days) and, for the restricted procedure 30 days (instead of the current 40 days). As with the current regime, these time limits can be reduced where a PIN is used. They may now also be reduced when the contracting authority permits tenders to be submitted electronically.
Under Article 51, contracting authorities must make all tender documents available electronically from the date the contract notice is published. If they do not, the time limits for receipt of tenders must be extended by 5 days.
It was mentioned that, in practice, many contracting authorities will struggle to make all their contract documents available at the time the notice is published.
Questions considered by the panel of experts
- Do you think the new regime in Articles 74-76 for health, social and other services (listed in Annex XVI) will increase or decrease level of competition in these markets?
Elizabeth Cooper of Bevan Brittan LLP considered that the new regime would not increase competition in these sectors. It is for member states to determine what national rules will apply to the award of these contracts. It will be interesting to see what impact different rules in different member states have on the sector. It is also unclear what these rules would include, for example, they could include time limits for receipt of tenders following an advertisement, or details of how contracting authorities could comply with the Treaty principles.
Simon Taylor of Keating Chambers commented on the potential difficulty posed by the interacting between the new national rules and the NHS (Procurement, Patient Choice and Competition) (No 2) Regulations 2013 which are enforced by Monitor. Would the new rules seek to achieve consistency with the NHS regulations or would there be a separate generic regime? (For more information, see Opinion, Back by popular demand: the new NHS procurement regulations.)
- Do you think that having reduced advertising requirements in Article 46 for sub-central authorities where they can publish an annual notice for all contracts as opposed to notices for each contract will lead to an increase or decrease in competition?
Peter Ware of Browne Jacobson LLP considered the reduced advertising requirements, specifically the new right to publish an annual PIN. This is an optional provision and it will be interesting to see whether member states include this right when transposing the New Directive.
In practice, it seems unlikely that many contracting authorities will have a roadmap for all their procurement over the coming 12 months. Suppliers may drop in and out during this period. It may also be unhelpful to SMEs who may not be geared up to review speculative PINs. It may also create additional administrative burdens on contracting authorities if many suppliers respond to speculative PINs.
Graeme Young of Dundas & Wilson LLP noted that the Scottish Parliament have been considering requiring contracting authorities to publish a procurement plan which must be republished each time they depart from it.
Nico Spiegel noted that the inclusion of this option arose from the desire to include in the New Directive the existing flexibilities available under the GPA. On a practical note, TED will be revised to enable access for top level business opportunities.
- Do you think that the contract modification provisions in Article 72 which sets out what constitutes material changes and circumstances where changes will not be considered substantial are clear enough?
Catherine Wolfenden of Osborne Clarke was tasked with discussing the provisions regarding changes to concluded contracts. She helpfully examined a hypothetical example in which parties to a PFI contract wished to introduce a new energy from waste facility. The new provisions would not necessarily help in determining whether what was proposed amounted to a material change. Therefore, the real value of the new provisions may simply be to highlight the procurement risk associated with varying contracts, leading to less change being undertaken on an informal basis. In any event, change is inevitable and it will be important to have clear pricing mechanisms that provide the required flexibility.
Rosemary Choueka’s view was that the new provisions simply codify the existing case law (see Practice note, Varying public contracts).
It was generally felt that the provision permitting a change of provider, for example on a re-structuring, without triggering a new procurement exercise was helpful.
Delegates speculated on whether a declaration of ineffectiveness would be made against the whole contract, or the part that was modified in breach of the procurement rules. The general view was that it should only apply to the amendment. However, Charles Barton reminded the delegates of the general principles of contract law which mean the former contract ceases to exist once varied. It is, however, for the parties to determine what would happen to that contract after a declaration of ineffectiveness and they could specify that the original contract would be reinstated if the varied contract were declared ineffective.
- Do you consider that the new competitive procedure with negotiation in Article 27 which permits negotiation pre tender but not post final tender will be helpful to contracting authorities? Do you consider that the revised competitive dialogue procedure in Article 28 which permits negotiation at preferred bidder stage will be helpful to contracting authorities?
Graeme Young of Dundas & Wilson LLP considered the new competitive procedure with negotiation, which was included following evidence that use of the negotiated procedure increased cross border trade. It is difficult to distinguish between this new procedure and the competitive dialogue.
Rosemary Choueka recognised the confusion that may be felt, particularly among local authorities, that were told not to use the negotiated procedure and that the competitive dialogue procedure was limited to only very complex contracts, as the New Directive positively encourages negotiation. That said, Rosemary saw the new competitive dialogue procedure as a hybrid between the existing competitive dialogue and restricted procedures and felt the flexibility to negotiate during part of the process would be welcomed.
- Can you think of any types of contracts/projects where the new innovation partnership procedure in Article 29 will be useful?
John Houlden of Burges Salmon LLP considered the introduction of a new procedure for innovation partnerships, aimed at developing an innovative product, service or works and their subsequent purchase (Article 29). While there were various examples of where contracting authorities have partnered with industry to develop new products, it was unclear what additional benefits this new procedure brought over and above the competitive negotiated and the revised competitive dialogue procedures.