How will the UK implement the new public procurement directive?

31 July 2014

The Cabinet Office has indicated that it intends to follow a 'copy out' approach to implementing the new Public Procurement Directive (Directive 2014/24) in the UK with the aim of implementing the Directive by early 2015. The UK legislation will therefore reflect much more closely the European wording than it has done previously. Notwithstanding this approach, which the Cabinet Office has adopted partly in the interests of implementing the Directive as quickly as possible, there are a number of decisions that the Cabinet Office will have to make in transposing the Directive.  

Our team at Bird & Bird has identified the choices that the Cabinet Office will have to make and sought to identify the Cabinet Office's likely approach using the public policy notes issued to date, discussion papers that were issued to the public sector towards the end of last year, and in some cases some educated best guesses. Our views on the likely UK approach to implementation of these decisions are set out in the table below and reflect the position as at 31 July 2014. 

Whilst the Cabinet Office has played down the number of decisions that are to be taken, in fact some of them will have an important impact on the shape of the new regime.  For example:

  • 'appropriate national rules' must be developed and implemented for the procurement of 'light touch' services (which are largely those that are currently Part B services);
  • the new Directive provides that authorities may exclude bidders for poor past performance – the Cabinet Office must decide the maximum time limit for taking that past performance into account;
  • there are important decisions to be made as to how sub-contracting of public contracts will be dealt with going forward; and
  • the Cabinet Office must develop and implement new rules relating to avoiding conflicts of interest.

We are expecting that a formal consultation on the Directive should be issued either just before or just after the summer break. That will be an opportunity for those who are affected by the changes to shape the thinking that the Cabinet Office has already undertaken. 

 

Article

Choice in Directive

Potential UK Approach

18(2)

Member States shall take appropriate measures to ensure that in the performance of public contracts economic operators comply with applicable obligations in the fields of environmental, social and labour law established by Union law, national law, collective agreements or by certain international environmental, social and labour law provisions. The choice for Member States is what appropriate measures to take to ensure this.

In its discussion papers, the UK considers that it has three choices: (i) regulatory measures; (ii) administrative measures, such as policy or guidance materials; or (iii) a combination of these approaches.  It has indicated that there may be some risk that it has not 'ensured' compliance if it only adopts administrative measures, but clearly sees adopting administrative measures as the easiest option.  Such options may include specifying in guidance that authorities must include relevant obligations in contract clauses, and specifying that non-compliance with such a clause would be grave professional misconduct (meaning that the bidder risks exclusion from future competitions). 

Alternatively, the Cabinet Office could require in the Regulations, and therefore more formally, that authorities include such a contractual condition.  

19(2)

Member States may establish standard terms to consider how groups of economic operators meet various selection criteria, instead of these assessments being made by individual contracting authorities.

The Cabinet Office has indicated that it does not see this as a particular problem, and has suggested instead that it may adopt an administrative approach.  For example, it may provide standard contract terms to cover group participation, or simply leave it to the authorities' discretion and monitor whether centralised intervention is necessary. 

20(1)

Member States may reserve the right to participate in public procurement procedures to sheltered workshops and economic operators whose main aim is the social and professional integration of disabled or disadvantaged persons and similar.

The discussion paper addresses whether this provision should be transposed. It is assumed that the existing approach (i.e. allowing flexibility to reserve contracts) will remain but the Cabinet Office wants to confirm this with the relevant lead departments (i.e., probably those dealing with policy for disabilities).

22(4)

For public works contracts and design contests, Member States may require the use of specific electronic tools, such as of building information electronic modelling tools or similar.

The Cabinet Office discussion paper contains a fairly open discussion with extensive discussion questions.  HMG policy (in its construction strategy) requires the use of collaborative 3-D BIM on all projects by 2016, but the discussion paper seems largely open-minded and gives no pointers as to any Cabinet Office "direction of travel".

22(6)(b)

 

 

Member States or contracting authorities within a framework established by the Member State, shall specify the level of security required for e-communications; this level should be proportionate to the risks attached;

 

The discussion paper points out the difficulties in imposing a one size fits all approach, and suggests that a logical position would be to set a framework for contracting authorities to decide.  Stakeholders are asked to suggest any disadvantages in this and/or advantages in a centrally-specified approach.

The discussion paper asks a number of follow up questions for each approach, in a way which does not suggest a preferred position.

22(6)(c)

Where Member States (or contracting authorities within a framework established by the Member State) conclude that the level of risks is such that advanced electronic signatures are required, contracting authorities shall accept advanced electronic signatures supported by a qualified certificate, subject to various conditions.

Choice is whether the Member State makes the conclusion about the level of risk or sets a framework for contracting authorities to do so.

The Cabinet Office discussion paper seeks views without indicating the likely outcome of this choice. Questions that it poses include: if the UK government makes the decision what level of risk will require the use of advanced electronic signatures?; if a framework is set should it recommend the use of electronic signatures for certain levels of risk or leave this entirely to the discretion of individual procuring bodies?; and how much detail should be set in law and how much should be set out in non-statutory guidance and advice?

24

Members States shall ensure that contracting authorities take appropriate measures to effectively prevent, identify and remedy conflicts of interest arising in the conduct of the procurement procedures so as to avoid any distortion of competition and to ensure equal treatment of all economic operators.

The Cabinet Office in its discussion paper has not indicated any express preference as to how it intends to transpose these provisions.  However, it has asked for initial views as to whether the obligation could be met if the UK simply transposed a requirement that contracting authorities themselves must take appropriate measures to prevent, identify and remedy conflicts.  It has also asked for views on whether non-statutory advice information and directions may suffice.  That suggests that its preference is to simply copy the wording of the Directive, but to accompany it with guidance as to what measures an authority should properly take.

Interestingly, the Cabinet Office has also asked whether any specific powers of enforcement are needed for these measures regarding conflicts of interest.     

26(5)

Where the contract is awarded by restricted or competitive procedure with negotiation, Member States may provide that sub-central contracting authorities (or specified categories of them) may make the call for competition by means of a Prior Information Notice (rather than a contract notice).

Given that this increases flexibility (and was supported by the UK in negotiations for the Directive) it seems likely that this will be transposed in full – i.e. available to all sub-central contracting authorities.

Interestingly, the discussion paper is at least relatively open-minded in terms of taking views as whether not to transpose this.

The UK is in support of this provision.

26(6)/32

Member States can provide that contracting authorities may use the negotiated procedure without prior publication (in various circumstances specified in the Directive).

Although the discussion paper asks for views in a relatively open way, to us it seems highly likely that this will be transposed. Such derogations appear in the current Regulations and the UK is keen to ensure maximum flexibility for contracting authorities.

28(4)

In relation to the restricted procedure, Member States may provide that all or specific categories of sub-central contracting authorities may set the time limit for the receipt of tenders by mutual agreement between the contracting authority and selected candidates, subject to various provisos.

Given that this increases flexibility it seems likely that this will be transposed, and although the discussion paper puts the options in a relatively open way, the background (a) suggests support for this provision but (b) suggests a preference in this case for it to apply to all sub-central contracting authorities, not given sub-sets of them.

36(1)

Member States may render the use of electronic catalogues mandatory in certain types of procurement.

The Cabinet Office seeks views as to whether the use of electronic catalogues should be made mandatory and if so the types of procurement that should be covered.

37(1)

Member States may provide that contracting authorities may acquire supplies and/or services from a central purchasing body.  Member States may also provide that contracting authorities may acquire works, supplies or services using contracts/dynamic purchasing systems/framework agreements operated or set up by a central purchasing body.

Under the Cabinet Office Discussion Paper on CPBs, Cabinet Office proposes transposing this flexibility into Regulations (as is the case with the equivalent provisions in the current Regulations) and sees this as so clear cut an issue as not to invite comments.

37(1)

Member States may also provide that certain procurements are to be (i.e., must be) made by having recourse to central purchasing bodies or one or more specific central purchasing bodies.

The Cabinet Office states in the Discussion Paper that it will transpose this to reinforce the exiting mandate on central government departments to procure common goods and services through the CCS. 

However, it invites comments on the extent to which CPBs are mandated in the wider public sector and utilities sector, the extent to which compliance causes issues, the categories this applies to, what CPBs are specified and likely future changes.  This suggests that although the Cabinet Office is keen in principle it is potentially open minded on scope and mechanisms for this.

39(2)

Member States shall not prohibit contracting authorities from using CPBs located in other Member States.

They may, however, choose to specify that their contracting authorities can only use one particular of the two types of central purchasing offering.  (The choices are: (a) where the CPB buys in its own name and resells to contracting authorities and (b) where the CPB awards contracts, operates dynamic purchasing systems or concludes framework agreements to be used by contracting authorities).

The starting point in the Cabinet Office Discussion Paper is that this could limit the ability to ensure value for money.  However, the Cabinet Office is looking for confirmation (and indeed any input on whether any UK contracting authorities have in fact purchased from overseas CPBs).

46(3)

Member States may provide that, where more than one lot may be awarded to the same tenderer, contracting authorities may award contracts combining several or all lots where they have specified in the contract notice or in the invitation to confirm interest that they reserve the possibility of doing so and indicate the lots or groups of lots that may be combined.

We are not aware that the UK has yet considered specifically how to transpose these provisions but in line with its general policy not to gold plate and to ensure maximum flexibility it seems likely that the UK will provide that more than one lot may be awarded to the same tenderer in specified circumstances.

46(4)

Member States may make it obligatory to award contracts in the form of separate lots under conditions to be specified in accordance with their national law and having regard for Union law.

We are not aware that the UK has yet considered specifically how to transpose these provisions but in line with its general policy not to gold plate and to ensure maximum flexibility it seems unlikely that the UK would want to oblige authorities to award contracts as separate lots. 

50(2)

Contracting authorities do not need to issue award notices for individual call off contracts under frameworks.

Member States may, however, provide that contracting authorities should group notices of call-off contracts under each framework agreement on a quarterly basis (and then submit a contract award notice for them within 30 days of the end of the quarter).

Consistent with the general Cabinet Office aim of reducing administrative overhead, we would expect them not to implement this in England and Wales.

The discussion paper supports this.

56(2)

Under the open procedure, contracting authorities may examine tenders before verifying if any of the grounds for exclusion apply or if the tenderer meets the selection criteria. Member States may however prohibit this, or permit it only in certain types of procurement or in specific circumstances.

The Cabinet Office notes that whilst it is logical to first check that the exclusion and selection criteria are satisfied, there may be valid organisational or operational reasons for doing this at a later stage. As such not to provide for this option would reduce flexibility. It seems likely that contracting authorities' will be given the flexibility to decide when they check that the tenders meet the exclusion and selection criteria.   

56(3)

Contracting authorities may ask economic operators to submit, supplement, clarify or complete information or documentation which is incomplete, erroneous or missing "unless otherwise provided for by the applicable national law implementing this Directive”.

The Cabinet Office notes that it would be sensible to allow certain matters, such as obvious errors to be corrected. However, whilst one option considered is to transpose this provision in full, the Cabinet Office is considering whether it should be limited to cases in which the incompleteness or other error is clear rather than merely apparent.

57

A Member State may require contracting authorities to exclude from participation in a procurement an economic operator where the contracting authority can demonstrate by any appropriate means that the economic operator is in breach of its obligations relating to the payment of taxes or social security contributions. 

The Cabinet Office has indicated that it intends to leave this as a discretionary ground for exclusion to avoid gold-plating and ensure simplicity. 

Member States may provide for derogation from the mandatory exclusion provisions, on an exceptional basis, for overriding requirements in the public interest.  

Note that the grounds for mandatory exclusion, from which the Member State can provide for a derogation, include participation in a criminal organisation, corruption, fraud, terrorist offences or offences linked to terrorist activities, money laundering or terrorist financing and child labour and other forms of trafficking in human beings.  

The UK has previously implemented this derogation, and has indicated that it is likely to do so again.  It gives greater powers and discretion to authorities, avoids gold plating and the Cabinet Office believes it reduces the likelihood of UK firms being disadvantaged.

Where the exclusion relates to failure to pay tax or social security, Member States may provide for derogation from mandatory exclusion where exclusion would be clearly disproportionate, such as where only minor amounts of taxes or social security are unpaid.

The Cabinet Office has indicated that it will apply the same logic as for the derogation from the other mandatory grounds for exclusion – leaving the decision as to whether to exclude to contracting authorities and therefore choosing to transpose a discretionary derogation for minor amounts of unpaid taxes.

Member States may transpose as either discretionary grounds for exclusion or mandatory grounds for exclusion situations where the economic operator (in summary):

(a)  has violated social/environmental/labour laws;

(b)    is bankrupt/insolvent;

(c)     has committed grave professional misconduct;

(d)    has significantly or persistently under-performed in previous public contract(s);

(e)    has misrepresented the evidence required to assess exclusion grounds;

(f)      has attempted to unduly influence the decision-making process;

(g)    has attempted to distort competition in various kinds of way.

The Cabinet Office has indicated that leaving the decision as to whether to exclude to each authority would seem the simplest approach and avoid gold plating.  However, it seems open to views to the contrary, for example on the grounds that it is better for there to be a consistent approach – it is therefore not inconceivable (but unlikely) that some of the discretionary grounds could be transposed as mandatory grounds for exclusion.  

Member States may provide that the contracting authority does not have to exclude an economic operator which is bankrupt/subject to insolvency/winding up proceedings where the contracting authority has established that the economic operator will be able to perform the contract.

In principle, the Cabinet Office has indicated that the UK would not wish economic operators to be excluded for financial reasons if they are able to perform the contract without significantly increased risk of default.  It seems likely that the choice will be left to contracting authorities rather than mandated, and that the UK government will issues guidance to explain how authorities should decide if someone is able to undertake the contract.

Member States may require contracting authorities to exclude any economic operator at any stage of the procurement procedure if it is discovered that the operator satisfies one of the discretionary grounds for exclusion.

The Cabinet Office has not addressed this point in its discussion papers, but in line with its approach on other topics we would expect it to leave a discretion to the authority in such circumstances, but not mandate that it must exclude someone in such circumstances.

By law, regulation or administrative provision, Member States must specify the implementing conditions for mandatory exclusion. They shall, in particular, determine the maximum period of exclusion (subject to self-cleaning) up to a maximum of 3 or 5 years (depending on the exclusion ground concerned). The choice here is whether to opt for the maximum exclusion periods allowed by the Directive, or limit these to shorter periods.

There are two separate issues arising under this policy choice:

1.  Whether the UK should identify the specific offences under UK law that correspond to those in the mandatory grounds for exclusion in the Directive.  It has done so in the current Regulations, but seems to be unsure as to whether to do so when transposing the new Directive, although the implication of the Cabinet Office's paper on this topic is that it is leaning towards indicating specific UK offences.

2.  What maximum periods of exclusion the UK will implement.  The Cabinet Office has not yet indicated any preference, however we would expect that it would tend towards implementing the maximum periods to provide greatest flexibility for the contracting authorities. 

67(2)

Member States may provide that contracting authorities may not use price only or cost only as the sole award criterion or restrict their use to certain categories of contracting authorities or certain types of contracts.

The Commission's original proposal provided that Member States could provide that certain types of contract, such as 'intellectual services' should be awarded on the basis of MEAT. This was intended to encourage more emphasis on quality. The European Parliament tried to remove the lowest price award criteria entirely, however this faced strong resistance from many Member States including the UK. The final wording represents a compromise, however given the UK's position in the negotiations that the full range of criteria should be available for all contracting authorities and for all types of contract so as to ensure flexibility, it seems unlikely that this provision will be transposed.     

71

Member States may make it compulsory (instead of discretionary) for a contracting authority to ask tenderers to indicate in their tenders any share of the contract they may intend to subcontract to third parties and any proposed subcontractors.

The Cabinet Office has not indicated any specific preference or likely way of implementing. 

Member States may provide that at the request of the subcontractor and where the nature of the contract so allows, the contracting authority shall transfer due payments directly to the subcontractor.  Member States may even provide for more stringent liability rules on direct payments e.g., by making it not be necessary for subcontractors to have to request such direct payment. 

The Cabinet Office's paper highlights that not having specific provision for direct payment in the Regulations has never prevented it being a possibility before (for example, Project Bank Accounts have been used in the UK construction sector).  Whilst the Cabinet Office does not express any specific view, the tenor of the paper seems to be that it supports quicker payment for SMEs in the supply chain but that there is no need to implement specific provisions which may increase administrative burdens for authorities. 

Contracting authorities have to obtain from the main contractor (only for works contracts or for services contract which are provided at the authorities' premises) information about the subcontractors involved and require the main contractor to update that information if it changes.  However, Member States can also choose to impose an obligation on the main contractor itself to provide such information.

The Cabinet Office has indicated that placing the obligation on the main contractor would tend to impose more obligations, and therefore limit flexibility, but it seems open to hearing views to the contrary. 

Member States may apply the information obligations to other contracts, such as supply contracts or all services contracts or to other subcontractors further down the supply chain.

The Cabinet Office has not indicated any specific preference or likely way of implementing. 

Member States may require contracting authorities to verify whether there are grounds for mandatory and/or discretionary exclusion of any subcontractors, and may require that contracting authorities require the main contractor to find a substitute subcontractor where appropriate.

The Cabinet Office has indicated that placing the obligation on the main contractor would tend to impose more obligations, and therefore limit flexibility, but it seems open to hearing views to the contrary. 

Where a Member State exercises the above options on subcontracting, it must specify the implementing conditions for the various measures.  Member States may limit the scope of the requirements.

The Cabinet Office has not indicated any specific preference or likely way of implementing.  It sought views as to whether it should impose any conditions and, if so, whether it should be for any specific services, or for anything over a specific value for example. 

73

Member States shall ensure that contracting authorities have the ability to terminate contracts in certain circumstances "under the conditions determined by the applicable national law”. The main issues are likely to be how this should be ensured and under what conditions.

The discussion paper is clear that the UK will have to do something proactive to implement the Directive in this area, and identified four options:

  • Specify in the Regulations that contracting authorities must include a condition in their contracts allowing them to terminate if any of the specified grounds apply.  This would allow contracting authorities freedom to tailor their own conditions to do this, although recognising the possibility that there might be risks in this.
  • Have the Regulations include a deemed termination provision in each contract.  It could also set out the consequences of such termination (although views are sought on whether this would be helpful (or indeed practicable) given the vastly different types of public contract).
  • Have a separate right of termination in the Regulations which exists outside the contract.  This would need to include details about notice and consequences of termination.  The discussion paper suggests that the Cabinet Office sees some practical difficulties in this given the various types of contract and termination scenarios.
  • Cabinet Office guidance requiring contracting authorities to include termination rights in their contracts, backed up by assurance requirements and monitoring.  The Cabinet Office suggests a concern that this might not be sufficient to count as "ensuring" for the purpose of compliance with the Directive, although otherwise one might normally expect this approach to be the most attractive to them.

76

Member States shall put in place appropriate national rules for the award of contracts under the "light touch” regime.  The choice is what the national rules should be.

The Cabinet Office stresses the UK's policy of not gold-plating (i.e. not going beyond the minimum requirements of the Directive), but notes that for this Article it is difficult to ascertain what the minimum requirements are. The Cabinet Office notes that the starting point for the minimalist approach would seem to be that the light touch regime only contains OJEU advertising, the Treaty principles, and any particular requirements imposed by case law. The Cabinet Office poses a series of questions as to how these rules could look. For example should these rules make clear that some or all of the procedures in the main rules are available in the light-touch regime or would this be unhelpfully restrictive? This seems to be an area in which the Cabinet Office has no decided view beyond the general principle of not gold plating.      

76

Member States may provide that the choice of service provider (for 'light touch' regime services) shall be made on the basis of MEAT, taking into account quality and sustainability criteria for social services.

The Cabinet Office notes that whilst UK procurement has an established policy of pursuing best value for money (a concept analogous to MEAT) mandating the use of MEAT would remove flexibility and thus would be against the UK's general appetite for more not less flexibility. It seems unlikely that this article will be transposed.  

77

Member States may provide that contracting authorities may reserve the right for organisations to participate in procedures for the award of public contracts exclusively for certain health, social and cultural services.

The UK pushed very hard for such a provision in the negotiations and as such it is inconceivable that it will not be transposed.

91

Member States may postpone the requirement for electronic communication until 30 months after the deadline for transposition of the directive in national law.

Whilst the UK recognises the benefits of e-communication its preference for avoiding gold-plating is likely to mean that it will take advantage of this option. However this does not mean that the UK will not have a policy (as opposed to a legislative requirement) of earlier implementation of full e-communication.

91

Member States may postpone the requirement for contracting authorities to have recourse to e-Certis and only require types of certificates etc. which are covered by e-Certis until 30 months after the deadline for transposition of the directive in national law.

Taking advantage of the derogation would avoid gold-plating. The Cabinet Office notes that recourse to e-Certis should therefore only be introduced before the final permissible dates if there is a clear net benefit in doing so. This would not however preclude the earlier use of e-Certis by individual authorities, nor would it preclude a policy to use e-Certis.