UK government consults on transposition of the new procurement Directive: what else do you need to know?

20 November 2014

In September, the Cabinet Office issued for consultation a draft version of the intended implementing regulations for the new Public Procurement Directive (Directive 2014/24).  The Regulations will, when passed, become the Public Contracts Regulations 2015. The consultation closed on 17 October 2014 and the Cabinet Office is now considering responses. However, given the tight timetables to which the Cabinet Office is working, we are not expecting it to make very significant changes in the final version of the Regulations.  

Much has been written about the new Directive and Regulations, and many of you will be familiar with some of the headline changes, such as changes to the procurement processes that are available and the codification of the Pressetext case law on post-contract modifications. However, there are some other key changes that will have a significant impact for authorities and bidders, but which have been less widely reported. Many of these have now been further specified by the Cabinet Office in its draft Regulations. These include the following:

  • The authority must either include an express right of termination in three specified circumstances, or the new Regulations will 'deem' a right for authorities to terminate (having given notice) in the same circumstances, being:
    • Where the contract has been subject to a substantial modification which would have required a new procurement procedure (what would currently be referred to as a 'material change');
    • If the contract has at the time of contract award satisfied one of the mandatory grounds for exclusion and so should have been excluded; and
    • If the European Court of Justice has declared that the contract should not have been awarded to the contractor in view of a serious infringement of the Treaty obligations and the Directive.

This new provision (which arises from the Directive) will be a key risk for bidders. The Regulations do at least provide that the terms in the contract may provide for a notice of termination and may address consequential matters arising – that is something bidders will need to manage going forward.

  • The Cabinet Office has chosen to implement the changes to the mandatory and discretionary grounds for exclusions of bidders in the way that gives an authority the most flexibility. An authority will still, in the circumstances described below, be able to put through a bidder which satisfies a mandatory ground for exclusion, and the Cabinet Office has chosen not to specify any of the discretionary grounds for exclusion as mandatory requirements. However, the new rules are nonetheless inherently stricter, leaving bidders more likely to be excluded. For example:
    • they provide that the authority may only disregard a mandatory ground for exclusion "on an exceptional basis, for overriding reasons relating to the public interest such as public health or protection of the environment" whereas the current regime permits the exercise of the same discretion where there are "overriding requirements in the general interest". 
    • there is a longer, and more easily satisfied, list of discretionary grounds for exclusion, such as breach of competition law, compliance with tax, poor past performance and conflicts of interest. 
    • the authority will also have the obligation (subject to overriding reasons) to exclude a bidder if it satisfies one of the mandatory grounds for exclusion at any point during the procurement procedure and the discretion to do so in respect of discretionary grounds for exclusion

  • The new 'light-touch' regime which the Cabinet Office is proposing to implement (which will apply to some of the current Part B services valued at about €750,000) is extremely light-touch and in practice, other than the requirement to publish contract notices, seems unlikely to make a significant difference to the procurement of these services going forward. In any event a key category of authority who currently rely heavily on the Part B exemption, being clinical commissioning groups, will remain under the current regime until April 2016. One key point to note about the way in which the Cabinet Office has implemented the new 'light-touch' regime is that a failure to advertise relevant services valued at about €750,000 would mean that the contract is subject the ineffectiveness remedy. 
  • There will be new matters to which authorities will be obliged to have regard before every regulated procurement they undertake. In particular, they will need to think about whether the contract should be divided into lots, and to justify in writing their decision not to divide it into lots if not. They will also need to consider the security levels required for the information involved in that procurement. 

Also of note from the draft Regulations are certain provisions which do not arise from the new Directive, but are instead measures intended to assist SME participation in procurement procedures, on which the Cabinet Office had previously consulted. These are likely to have a significant impact:

  • there will be rules requiring authorities to advertise below threshold contracts above a certain value (albeit not in the Official Journal) and prohibiting them from using a PQQ for such contracts;
  • a provision which requires authorities for all regulated procurements to "have regard to any guidance issued by the Minister for the Cabinet Office in relation to the qualitative selection of economic operators", and to send a report explaining any deviation from such guidance. It is understood that the intention is to implement a standard PQQ across the public sector;
  • Contracting authorities will be obliged to pay undisputed invoices within 30 days and to require that similar obligations are flowed down in the contract between the main contractor and any subcontractors (and onwards, throughout the supply chain). 

The Cabinet Office does not specify when it expects the Regulations to be passed but, as the draft Regulations have been named the '2015' Regulations, we expect it to be early next year. We are following developments closely and would be very keen to hear of any thoughts, comments or concerns you have about the new Directive.

Finally, in July this year, we published a paper that set out the choices that the Cabinet Office would have to make in transposing the new Directive, and addressed what we thought would be the likely position taken in the UK regulations. We have reviewed the draft Regulations and the consultation document, and have added a column to our original paper which sets out the actual approach taken by the Cabinet Office on the choices we identified.  In general the choices, as we expected, reflect the current government's policy aim of avoiding gold-plating and of allowing maximum flexibility for contracting authorities. In the majority of cases, the choice taken reflects the conclusion we drew from the discussion papers issued by the Cabinet Office. That paper can be found here.