On 31st January 2006 The Public Contracts Regulations 2006 and the Public Contracts (Scotland) Regulations 2006 (the “Public Sector Regulations”) and The Utilities Contracts Regulations 2006 and the Utilities Contracts (Scotland) Regulations 2006 came into force in the United Kingdom implementing the new Procurement Directives (Public Sector 2004/18/EC “the Classic Directive” and Utilities 2004/17/EC).
This article discusses some of the key changes for both suppliers and contracting authorities arising from the adoption of the Classic Directive and its transposition into United Kingdomlegislation.
The changes to the procurement rules have been a long time in development. The EU Commission Green Paper which “kick started” the process of rationalising the three separate public sector directives (the “Directives”) was adopted by the Commission as long ago as November 1996.
Responses to the Green Paper, made by contracting authorities and service providers alike, requested simplification and modernisation of the procurement procedures such that it was decided that the Directives should be recast. The new Directives were adopted by the Commission and the European Parliament in March 2004.
The Classic Directive provides a framework within which public procurement must be conducted. Primarily it consolidates the separate Directives into a single directive and removes certain inconsistencies as between the earlier Directives. In addition there have been significant additions, mainly the introduction of a new procurement procedure.
These co-ordinating provisions for the award of public works contracts, public supply contracts and public services contracts should be interpreted in accordance with the Treaty principles and rules.
Summary of Changes
Significant additions to the Public Sector Regulations are the introduction of a new procedure called the “competitive dialogue” procedure, explicit reference to framework agreements, inclusion of central purchasing bodies and dynamic purchasing systems and introduction of electronic auctions.
Refinements to the existing provisions have resulted in simplification of the financial thresholds; requirement to publish the relative importance of contract award criteria; use of electronic means of communications; emphasis on use of performance specifications and “equivalence”; and introduction of environmental and social considerations in relation to the performance of a public contract.
A brief commentary on the significant additions is as follows:
The Commission Note explains that the new procedure was introduced to counter the criticism that the open and restricted procedures did not offer sufficient flexibility with certain complex projects where such projects did not fall within the limited exceptions provided under the negotiated procedure.
The original suggestion to allow the free use of the new procedure at the discretion of the contracting authority was not taken forward. Article 29(1) provides that the new procedure can be used only in the case of particularly complex contracts, where use of the open or restricted procedure will not allow the award of the contract. Article 1 (11) defines “particularly complex” as where contracting authorities:
are not objectively able to define the technical means (in accordance with the Classic Directive’s requirements) satisfying their needs or objectives; and/or
are not objectively able to specify the legal and/or financial make-up of a project.
The types of complex projects envisaged are integrated transport infrastructure projects, large computer networks or projects involving complex and structured financing where the financial and legal make-up cannot be defined in advance. Contracting authorities will need to assess on a case by case basis whether or not this procedure is available for the project in question, and in doing so the contracting authority will have an obligation of diligence – if it is in a position to define the technical resources necessary or establish the legal and financial framework, the use of the competitive dialogue is not possible.
There are similarities with the negotiated procedure – for example similar rules on number and method of selection of bidders to invite to tender. Key differences include the use of staged tendering and the prohibition on selection by “lowest price” (Article 29(7)).
Whilst staged bidding is included as a “new concept” under the Classic Directive, staged bidding has been carried out in projects for many years. In fact, the principles do not differ so greatly from the “TAP guidance” on IT procurement processes issued by the UKgovernment in the mid-1990s. One area of concern is perhaps the uncertainty over scope of negotiations after selecting a winner – which may in turn result in more challenges as disappointed bidders are more likely to challenge at this stage of the process.
Although framework agreements have been used as a successful procurement method in the public sector in the United Kingdom for a number of years – for example high-profile frameworks such as G-Cat and S-Cat – this is the first time that express mention of them has been made.
Given that historically there was some uncertainty as to their validity, the inclusion of rules regulating framework contracts should be a welcome inclusion for legal practitioners and contracting authorities. There is some concern that the rules have introduced further uncertainties, and that the particular requirements on multiple suppliers and mini-competitions may undermine the use of frameworks.
For those frameworks with large numbers of contractors this may be so. However, where the range of contractors is between 3 and 10 we believe that there will be no major changes to what has been happening over the last 2 years. OGC at that time made a policy decision that contracting authorities should run any framework procurements on the basis that Article 32 of the Classic Directive was in force. The rationale being that the Classic Directive merely stated what was the situation in practice. Therefore, although the Classic Directive has been adopted as law in the United Kingdomfrom February 2006, we do not believe that in practice there are going to be major changes to use and take up of frameworks.
Central Purchasing Bodies
The Classic Directive, by the addition to the reference of Central Purchasing Bodies (CPB), explicitly recognises that there are central contracting authorities who purchase goods and services on behalf of other contracting authorities, whether through frameworks or through straightforward on-sale arrangements. In the UK a good example is OGCbuying.solutions.
The Public Sector Regulations define a CPB as “a contracting authority which:
acquires goods or services intended for one or more contracting authorities; or
awards public contracts intended for one or more contracting authorities; or
concludes framework agreements for works, goods or services intended for one or more contracting authorities”
The Public Sector Regulations provide that a contracting authority who acquires works, goods or services from or through a CPB shall be deemed to have complied with the Public Sector Regulations in so far as the CPB has complied with them in the original acquisition or award.
However, if the CPB has failed to comply with the Public Sector Regulations, a contracting authority wishing to avail itself of the services of the CPB is potentially exposed to claims for non-compliance. The implications of this are obvious, and due diligence by a contracting authority to satisfy itself of the compliance of the CPB may be sensible in certain circumstances. OGC guidance whilst suggesting that “a contracting authority should not have to supervise the processes of the CPB” also recommends that“it should be careful, in entering into arrangements with CPBs, to ensure that there are appropriate provisions in those arrangements to protect itself”.
Dynamic Purchasing Systems
A dynamic purchasing system (dps) is a new form of purchasing arrangement which has been introduced in the Classic Directive. It is a completely electronic system which may be established by a contracting authority to purchase commonly used goods, works or services (i.e. regular “off the shelf” purchases). A contracting authority can only advertise the establishment of the dps under the open procedure rules. Unrestricted, direct and full access to the specification and any additional documentation must be offered by the contracting authority by electronic means from the date of publication of the dps contract notice to the date when the dps ceases to be operated.
Whilst we applaud the sentiments behind the set up of the dps, we are concerned that the dynamic purchasing system will not prove particularly useful in practice. For a start the set up costs for a completely electronic system will not be insignificant. Despite the financial outlay in setting up this system, no charge may be levied for admission to the dps.
Once set up it can only run for a limited duration. The contracting authority must however continue to allow additional economic operators to join it at any time, where they submit a compliant indicative tender. Membership of the dps does not itself guarantee orders for goods/services. Nor is it a closed group as before procuring contracts under a dps, the contracting authority must first advertise its intention by a simplified OJEU notice, inviting any interested parties to tender.
The unwieldy nature of the dps suggests that take up will be limited.
For the first time provisions dealing with eAuctions have been included in the Classic Directive. eAuctions (or electronic reverse auctions) are on-line auctions where selected bidders submit offers electronically against the contracting authority’s specification. Only price and quality elements which can be expressed as a value suitable for incorporation within a formula can be included at the auction stage. Other quality aspects must be assessed prior to the auction stage. eAuctions are not just about lowest price and can be used either when a contract is awarded to the lowest price or when the contract is awarded to the most economically advantageous tender.
Provided a contract notice refers to possible use of eAuctions, an eAuction may be used as part of the open and restricted procedure, on the opening for competition of contracts to be awarded through a dps, or the reopening of competition within a framework agreement (mini competition). It can also be used in specified circumstances under the negotiated procedure with publication of a contract notice.
We would recommend that suppliers and contracting authorities give serious consideration to the use of eAuctions in relatively straightforward procurements. A reverse auction capability could certainly assist in achieving costs savings or improvements in other qualitative areas. The rules are fairly complex, but the prospect of value which attaches to this process should not be ignored.
Both the Classic Directive and the new Utilities Directive introduce a new regulatory regime relating to e-communications mechanisms in procurement processes. The basis of the new regime is that e-communication mechanisms should be available to participants in procurement processes “on a par” with traditional communication mechanisms.
However, in practice, the new provisions have the result that e-tendering solutions are required to be purchased by contracting authorities in order to electronically receive requests to participate and tenders. It is not possible to comply with the detailed rules through the use of standard email solutions, such as Microsoft Office. The rules preclude compliance through a combination of technological and administrative processes (as is the case with traditional communications mechanisms). We feel that the same mixed approach should have been adopted for e-communications mechanisms.
The net effect of the new regime is likely to be that contracting authorities will be hesitant about using e-communications mechanisms, particularly for the receipt of tenders and requests to participate. This is a retrograde step and amounts to something of an “own- goal” by the EU Commission.
In general terms the new rules are a welcome update to the procurement rules and represent a significant attempt by the EU Commission to modernise the procurement law regime. In a variety of instances, practitioners still have concerns that the regime is less liberal than would be hoped. For example, in the United Kingdom there remains a significant body of opinion that seeks the free use of the competitive negotiated procedure. The EU Commission does not appear to distinguish negotiation on a single tender basis, from competitive negotiated procedures.
The new rules on framework contracts are a welcome development and the inclusion of the mini-competition approach to call-offs should be seen as a brave development by the EU Commission. However, the attempts by the EU Commission to deal with the need for a dynamic environment in the goods and services to be provided and the prices to be paid in commodity purchasing through the (so-called) dynamic purchasing system are too restrictive and will lead to the more wide-spread and potentially inappropriate use of framework contracts.
The EU Commission should keep the regulated procurement environment under further review. With the wider use of e-procurement processes in the non-regulated procurement processes, there is a danger of an even greater contrast developing between the flexibility of regulated and un-regulated procurement processes.
 Directives 92/50/EEC, 93/36/EEC and 93/37/EEC
 in particular the principle of freedom of movement of goods, freedom of establishment, freedom to supply services and to the principles deriving from them such as the principle of equal treatment, non-discrimination, mutual recognition, proportionality and transparency.
 On the whole little has changed under the new Directives with the maintaining of the principle of using lowest price or most economically advantageous tender. However non-price criteria are permissible. In Concordia Buses [Case C-153/99 Concordia Bus Finland v Helsinki E.C.R. I-7213] the ECJ clarified that criteria need not be purely economic, provided that it relates to the contract’s subject matter. Regulation 38 confirms this ruling.
 Explanatory Note – Competitive Dialogue – Classic Directive document CC/2005/04_rev 1 of 5.10.2005
 The Office of Government Commerce
 Article on Framework Agreements
 Central Purchasing Bodies: OGC Guidance January 2006 (paragraph 9.1)