On 20 December 2011 the European Commission published three new draft Procurement Directives which will replace the existing public sector and utilities Directives and introduce a new Directive covering the procurement of works and service concessions.

Please note that the proposals will be subject to further negotiations at EU level and so may well change. The planned date for implementation of the Directives is 30 June 2014.

Full details are available from the European Commission’s website.

This note is not intended to be an exhaustive analysis. It highlights ten key areas of change raised by the draft public sector Directive.

1. Abolition of Part A and Part B Services distinction – but an important new approach to procurement of social, health and education services

All services are to be subject to the procurement rules 

The current rules distinguish between Part A services which are subject to the full application of the procurement rules and Part B services which are only subject to limited technical and procedural requirements and which do not require the use of an OJEU contract notice. This distinction will be abolished.

With one key exception, all services will be subject to the full application of the procurement rules, including advertising in the OJEU and following one of the standard procurement procedures.  This means that, for example, above threshold contracts for legal, recreational, hotel and restaurant services (currently Part B services) will be subject to the full rules.

Social and health services

There is one very important exception which is the introduction of a new regime applying to the procurement of social and health services and a limited number of other specified services. 

A higher threshold of €500,000 will apply to these service contracts. The new rules will require contracting authorities to publish an OJEU contract notice for these contracts as well as a contract award notice on award. Detailed procedural requirements will, however, be limited to ensuring compliance with principles of transparency and equal treatment. There are not specified procedures or statutory time limits. There are some specific provisions relating to factors to be taken into account in the awarding of contracts such as quality, continuity and accessibility.

2. Lighter regime for some contracting authorities – including local authorities

Annual procurement notices

Contracting authorities which are not classified as central government bodies* will be able to publish annual notices for specified types of procurements and set their own procurement timetables. This means that where the conditions are satisfied there will be no need for a further contract specific OJEU notice.

Receipt of tenders under the restricted procedure

These contracting authorities* will also be able to set the time limit for receipt of tenders by mutual agreement between the contracting authority and the selected tenderers.

*These provisions will cover contracting authorities such as local authorities and housing associations to which the higher financial thresholds for services and supplies contracts currently apply. They will not cover central government bodies. NHS Trusts are currently classified as central government bodies and so these new provisions will not apply to them unless that classification changes.

3. Structuring the procurement  and choice of procedure

Preliminary market consultations

There are provisions specifically permitting pre-procurement market consultation.

Use of the Negotiated and Competitive Dialogue procedures

The conditions permitting the use of Competitive Negotiated and CD have been changed so that they are same for both procedures. Use of the Competitive Negotiated procedure will be no harder to justify than CD. The UK Government has provided a very clear steer to date that the use of the Competitive Negotiated procedure can be justified in only very limited circumstances. This proposal  reopens the possibility of using the Competitive Negotiated procedure as an alternative to CD. See the note in para.4 below on new rules applying to the conduct of the Competitive Negotiated and CD procedure.

Division of contracts into lots

There are a number of provisions relating to the use of lots. These are aimed at encouraging authorities to consider the structuring of opportunities to encourage SME participation. These include, for example, a requirement on a contracting authority to explain why, for contracts with a value over the threshold and under €500,000, it has decided not to split a contract into lots.

Electronic procurement

There will be mandatory requirements for the transmission of notices in electronic form and electronic availability of the procurement documents. There are provisions which impose the switch to fully electronic communication, in particular e-submissions, in all procurement procedures within a transition period of two years.

4. The procurement process

Official lists

Specific provisions are introduced permitting the establishment and use of official lists – which create a presumption of suitability for qualification purposes.

Grounds for obligatory exclusion and “self cleaning”

There are new provisions relating to grounds for obligatory exclusion and opportunities for economic operators to demonstrate “self cleaning” and thus avoid mandatory exclusion.

Selection criteria

Amended provisions emphasise the need for conditions for participation to be “appropriate” and requirements to be “related and strictly proportionate” to the subject matter of the contract. There is also a limitation on the use of a minimum turnover requirement (if used) to 3x turnover and a specific reference to PI risk indemnity insurance.

Identity of staff can be requested at PQQ or ITT stage

The draft Directive provides that for works and services contracts a contracting authority can require tenderers to name in the tender or in the selection (PQQ) stage the names and relevant professional qualifications of staff to be responsible for performance of the contract. Current provisions, if interpreted strictly, only permit this information to be requested at the PQQ stage.

Conduct of the Competitive Negotiated procedure

There are more rules governing the conduct of this procedure than under the current legislation. There are specific provisions permitting the number of tenderers to be limited and reduced during the process as well as requirements that certain specified aspects are not changed during the course of negotiations.  There are also obligations to ensure equal treatment, inform tenderers whose tenders are eliminated of the reasons, allow adequate time for submissions and maintain confidentiality.

Conduct of the Competitive Dialogue procedure

The current provisions have changed and the new draft includes proposals permitting the negotiation of final terms of the contract with the successful tenders provided that this does not modify essential aspects of the tender and does not risk distorting competition or causing discrimination.

Innovation partnerships

This introduces a new concept of “establishing a structured partnership for the development of innovative product, service or works and the subsequent purchase of the resulting supplies, services or works …”. The partnership “shall be structured in successive stages following the sequence or steps in the research and innovation process ….”. Structure, duration and value are to reflect the degree of innovation of the proposed solution, cost recovery. The procurement process to be used is the Competitive Negotiated procedure.

5. Shorter statutory time limits

There are proposals to reduce the standard statutory minimum time limits as follows: 

  • Open procedure: 40 days from advertisement to submission of tenders reduced to 35 where tenders can be submitted electronically. Reduced to 20 days where a Prior Information Notice (PIN) is used and specific conditions met. 
  • Restricted procedure: 30 days for requests to participate (PQQ in UK practice). 35 days from ITT to return,  reduced to 15 days where a PIN is used and specific conditions met. Reduction of 5 days where tenders can be submitted electronically.   See also note at para.2 above relating to the ability for some authorities to agree the time limit for return of tenders in a restricted procedure.
  • Competitive Negotiated procedure: 30 days for selection stage, 30 days for tender stage.
  • Competitive Dialogue procedure: 30 days for selection stage.

6. Incorporation of the in-house (Teckal) and inter-authority cooperation (Hamburg) exemptions

In-house exemption

The in-house or “Teckal” exemption has been developed by the Court of Justice of the European Union (ECJ) to permit the direct award of contracts by contracting authorities to entities owned and controlled by them where a two part test is satisfied.  The proposals incorporate into legislation the principles developed in the Teckal exemption. The “control” part of the test is expressed in the same way as in the current Teckal test but the requirement for the controlled entity to carry out its  “essential activity” for its owner authorities is replaced with a "90 per cent activity" requirement.

Inter-authority co-operation

The ECJ also introduced the “Hamburg” or inter authority cooperation exemption which permits the establishment, in certain circumstances, of cooperation arrangements between contracting authorities without the need to follow EU procurement rules. The new provisions incorporate this approach but the exemption will only be available where five conditions are all fulfilled: genuine cooperation, public interest considerations, no more than 10% of activity on the open market, cost reimbursement only and no private participation.

7. Modification of contracts during their term and changes in the contractual partner

New provisions confirm that substantial modifications to a contract during its term will be considered to be the award of a new contract and require a new procurement process. The provisions go on to deal with what amounts to a substantial modification, incorporating principles developed by the ECJ including consideration of changes in the context of corporate restructuring or insolvency. 

8. Central support to the public and private sectors

Member states will be under an obligation to provide a technical support structure to deliver legal and economic advice, guidance and assistance to contracting authorities in the procurement context. There are also requirements to provide procurement support to economic operators.

9. Governance

Conflicts of interest

Requires Member States to provide rules to “effectively prevent, identify and immediately remedy conflicts of interest” arising in the conduct of EU procurement procedures. The rules must cover staff members of contracting authorities, procurement service providers, other providers who are involved in the conduct of procurement procedures (so will cover the private sector acting in this capacity) as well as chairs and members of decision making bodies.

Declarations of interest

Candidates and tenderers will be required to submit a declaration of the existence of any “privileged links” with relevant persons within the contracting authority or acting on their behalf. Where a “privileged link” is identified then this must be disclosed immediately to the national “oversight body” (for which see more below) and the contracting authority must take appropriate measures to manage the situation.

10. Public oversight

Member States are obliged to appoint a single independent body responsible for the oversight and coordination of implementation activities. There are provisions empowering this oversight body to “seize jurisdiction” for review of contracting authorities’ decisions where a violation is detected.

All contracting authorities will be subject to oversight. The oversight body will be responsible for a number or areas some of which, in our view, could create problematic internal conflicts of interest: 

  • Monitoring the application of public procurement rules and practice by contracting authorities and, in particular,  central purchasing bodies 
  • Providing legal advice to contracting authorities on interpretation and application of public procurement rules and practice in specific cases 
  • Issuing opinions and guidance on public procurement questions of general interest, recurring questions, systemic difficulties and ECJ case law 
  • Establishing and applying “comprehensive actionable “red flag” indicator systems to prevent, detect and adequately report instances of procurement fraud, corruption, conflict of interest and other serious irregularities 
  • Drawing the attention of national competent institutions including auditors, to specific violations and systemic problems 
  • Examining complaints from citizens and businesses on application of public procurement rules in specific cases, transmitting analysis to contracting authorities
  • Monitoring decisions taken by courts/authorities following ECJ rulings/Court of Auditor findings 
  • Being the specific point of contact for EC on various listed issues 
  • Preparation and publication of annual report on SME success, sustainable procurement, breaches and centralised date re fraud, corruption, etc
  • Publication of full text of concluded contracts of a value in excess of €1m for services/supplies and €10 m for works (subject to commercial confidentiality).

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