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The reform process began when the European Commission published its proposals for modernising the existing EU public and utilities procurement rules in December 2011. Since then, the proposals have reached an advanced stage in the legislative process.
The proposals aim to modernise the existing regime by introducing more simplicity and flexibility. They will also bring far-reaching changes to the rules which govern how your business competes for contracts for the public sector or utilities companies.
This briefing note reviews the main changes and offers thoughts on what the changes will mean for public buyers and suppliers. The proposals would, in some respects, be a step forward for business as they introduce flexibility into the regulatory regime.
The proposed Directives would amend procurement procedures so that:
Some amendments have been proposed to the procedures which may be used to award public and utilities contracts. These main changes are as follows:
The trade-off for extended availability of the negotiated procedure is the introduction of new safeguards to prevent discrimination and unfair treatment. There can be no changes to the contract's subject matter, the initial qualification or award criteria. Any amendments to the structure of the authority's proposed procedure or to technical specifications must be communicated to all participants at the same time and in the same manner. In addition, the contracting authority must draw up a report at the end of the process on how it has conducted the procedure.
The rules will allow contracting authorities to sequence procurements differently, and to consider award criteria before selection criteria. Contracting authorities will also be able to take greater account of experience of each tenderer as an award criterion. It is clarified that the quality of staff to be deployed on the project can be a valid scoring criterion.
One of the Commission's focuses has been on opening up contract opportunities for small and medium sized enterprises ("SMEs"). The proposed Directives would encourage high value public sector contracts whose value exceeds €500,000 to be split into smaller, "bite-sized" lots, which would be more contestable by smaller operators. There will, however, be discretion not to do so where this is not appropriate.
The rules will impose on contracting authorities a duty to put in place effective, proportionate and rapid systems to prevent actual or perceived conflicts of interest in tender situations. Undue preference cannot be given to bidders who provided the authority with initial advice on the process. There will also be a prohibition on tenderers from engaging in improper contact with competing bidders to manipulate the outcome of the procurement process.
Legal uncertainty surrounds the permissibility of changes in a regulated contract after its award. Previous case-law has ruled that where there is a substantial change to an awarded contract, the agreement will need to be competitively re-tendered. Following earlier case-law (principally, Case C-454/06, Pressetext Nachrichtenagentur GmbH v Republik Osterreich), the proposed Directives define a "substantial change" as one which:
The proposed Directive codifies this definition, but also adds some clarifications. For example, it confirms that small changes to scope (those which fall under the thresholds and are worth no more than 5% of the contract price) should not be considered substantial.
The proposed Directive also clarifies that a change will be permitted where it was foreseen at the outset of the original contract by an option clause set out in clear, unequivocal and precise terms. That clause must not enable the "overall nature" of the contract to be changed (a term which is not defined further). Furthermore, certain changes may be permitted where these are required to accommodate an unforeseen change in circumstances.
Previous case-law (Case C-454/06, Pressetext Nachrichtenagentur GmbH v Republik Osterreich) has held the change of a contracting party, as a general rule, to be a substantial change which, as stated above, can trigger an obligation to re-tender. This ruling creates uncertainty in a variety of situations involving mergers and acquisitions, assignment and insolvency.
Although the Directive codifies the case-law, it also proposes that there should be no substantial change where one supplier (which would have qualified for the original tender) succeeds another supplier following a corporate restructuring or the insolvency of the first supplier. It also recognises that a substitution of bidder may be permitted following a corporate merger or acquisition.
The Directive proposes to simplify greatly the applicable rules for procuring entities which are not Central Government bodies (eg local and regional government authorities). Such authorities could opt to use pre-information notices instead of full OJEU Notices. They could also shorten deadlines in agreement with participating bidders.
The current Directives provide for the mandatory or discretionary exclusion of bidders who have been involved in certain criminal acts or other serious infringements of the law or professional misconduct. The proposed Directives aim to tackle uncertainty on how these provisions should be applied and whether mandatory exclusions should be permanent.
The proposed Directives provide that an excluded bidder may make a case for its re-admission to tender processes where it has provided compensation for its previous wrongs, co-operated with any official inquiry relating to its wrongdoing and taken internal steps to prevent the recurrence of future, similar offences.
The authorities must take into account any such case made and consider whether re-admission is warranted and must also give reasons for rejecting a provider's request.
On the other hand, the proposals will allow contracting authorities to exclude tenderers more easily for unsatisfactory performance on previous projects.
Certain changes to the Directives aim to encourage innovation in procurement by introducing the concept of an "innovation partnership" procedure. This allows the contracting authority to select, through a negotiated procedure, a provider with whom it will enter into partnership in order to deliver an innovative solution.
The Commission has proposed a new Directive on the issue of works and service concessions (arrangements under which the supplier is paid mainly from the end beneficiaries of the works or services it provides). The Directive will target service and works concessions which are worth more than €500,000.
The scheme of regulation to works and service concessions is quite basic at present. These need to be awarded in accordance with the "general principles" of EU Law (transparency, equality and non-discrimination).
Disagreement frequently arises as to how these general principles will apply in practice. Works concessions must be advertised in the OJEU, whereas service concession opportunities need only be subject to a degree of advertising to open them up to competition.
The Concessions Directive would continue to allow contracting authorities a degree of discretion on how to structure the tender award procedure. The Directive requires seven "procedural guarantees" to be observed.
For example, the authority must not favour one provider over another in the information which it provides on the tender process. Effectively, this gives specific guidance on how the general principles apply to concession procurements, helping the authority to structure its process in a compliant way.
Member States will be required to create national supervisory bodies to monitor, implement and control public procurement activities within the Member State. Contracting authorities must provide information to this body on contracts whose value exceed €1 million. Thought must be given to how this body will share jurisdiction with other bodies responsible for supervising procurement, such as Monitor, the health sector regulator.
At the time of writing, it is expected that the EU will formally adopt the Public Sector and Utilities Directives before the end of 2013. Member States will have two years to transpose these into their national law.
The UK, however, has announced its intention to implement the Directive much sooner, in order to take advantage of the more flexible processes which these Directives introduce.
The Concessions Directive must still be subject to a plenary vote in the EU Parliament and agreement with the EU Council of Ministers. Once adopted, Member States will have two years in which to transpose it into their national law.
For more information please contact Paul Henty, Partner
T: +44 (0)20 7427 6506