The In-House Lawyer

Hardly a week goes by now when there is not a new development in public procurement. The once staid regime has had a new lease of life and there have been several contributory factors. More challenges to award decisions mean there is less stigma attached to bringing a challenge. The current economic climate has also meant that some bidders no longer have the luxury of thinking twice before doing so. The effects of a lost contract are now more immediate. Add into the mix the new procurement remedies regime, which kicked in on 20 December 2009, and it is easy to see why contracting authorities and bidders alike have their work cut out keeping pace with the latest developments.¹

At times like these, however, it is important not to forget the basics. Getting the foundations of the tender process right helps make for a robust transaction. On that note, this article provides an overview of the public procurement regime and highlights changes that have impacted on its fundamental aspects.

regime in brief

Public procurement law regulates the purchase of contracts for goods, works or services by contracting authorities and certain utilities where the value of those contracts are above specified financial thresholds. The purpose of the regime is to open up public procurement to EC-wide competition and to ensure the free movement of supplies, services and works within the EU.

The regime is set out in two EU directives that have been implemented into UK law by the Public Contracts Regulations 2006 and the Utilities Contracts Regulations 2006.² The rules (ie the EU directives and implementing UK regulations) applicable to public sector procurement are generally stricter than those relevant to the utilities sector. This article focuses on public sector procurement.

The rules set out the principles and procedures that must be followed for the award of contracts that fall within their scope. In addition, contracting authorities should have regard to the general EC Treaty principles, including non-discrimination, equal treatment, transparency, mutual recognition and proportionality.

When do the rules apply?

The rules apply when four main conditions are met:

1. the procuring body is a ‘contracting authority’ as defined in the rules;
2. the contract is a public works, services or supplies contract;
3. the estimated value of the contract equals or exceeds the relevant financial threshold; and
4. no relevant exclusions apply.

1) Contracting authority?

Whether a body is a contracting authority is, in most cases, a straightforward question. The definition of a ‘contracting authority’ is broad and captures central government, local authorities, and police and fire authorities.

A further category of ‘bodies governed by public law’ seeks to bring within the scope of the rules bodies that carry out some public interest function and that are closely linked (by control, management or financing structures) to the state or other government bodies. It can be more difficult to tell whether a body falls within this ‘sweep up’ category, although the rules contain a three-part test for this purpose. Registered social landlords fall within this category. Certain public-private partnerships can do too.

2) Public works, supplies or services contract?

The public procurement rules apply when a contracting authority seeks offers in relation to a proposed works, supplies or services contract. Sometimes a contract may be a ‘mixed’ contract in that it concerns, for example, the supply and maintenance of coffee machines. In that case it is important to identify the predominant purpose of the contract in accordance with the rules. That will determine the relevant financial threshold, above which the application of the rules will be triggered.

The contract must be in writing and for consideration (whatever the nature of the consideration). Case law has underlined that ‘consideration’ is not limited to money payments, and can extend to other benefits such as guarantees against possible losses or income from third parties.³ It should not include philanthropic arrangements where the donor does not receive any remuneration or benefit in return from the contracting authority.⁴

Exemption for in-house awards

However, no contract can exist for the purposes of the public procurement rules where the purchases are to be made in-house. This exemption applies to the obvious inter-departmental arrangements within an organisation, as well as to arrangements between closely affiliated bodies, provided that the two limbs of the following test are met:

1. the contracting authority exercises control over the contractor similar to that which it exercises over its own departments; and
2. the contractor carries out the essential part of its activities with the contracting authority.

There is now a large body of case law on this exemption and in the past three years the issue has come to the fore in the UK through Brent London Borough Council v Risk Management Partners (RMP) Ltd [2009].⁵RMP concerned the establishment by Brent of a new mutual insurance fund (London Authorities Mutual Limited (LAML)) that would be controlled by and run for the benefit of participating London boroughs. In June 2009 it reached the Court of Appeal, which confirmed that the necessary control had not been established (the relationship between LAML and the London boroughs being more akin to independent third parties). Brent was held liable to RMP in damages.

Nearly redundant distinction of Part A and Part B services

Services are treated slightly differently to works and supplies in that the rules distinguish between two types of services:

1. Part A services (eg civil engineering, computer services and property management services); and
2. Part B services (eg education services, health services and legal services).

However, this distinction is becoming increasingly redundant.

The benefit of categorising a contract as a Part B services contract was that no contract (or OJEU) notice was required at the start of the tender process.⁶ The rules require only that a contracting authority complies with the rules on technical specifications and publishes a contract award notice at the end of the process. By contrast, a contracting authority is bound by the public procurement rules in their entirety when running a tender process for a Part A services contract.

As case law has shown, Part B services contracts are still caught by the general EC Treaty principles.⁷If such a contract could be of certain cross-border interest, then it must be subject to adequate advertisement, and an open and impartial competition. Whether a contract could be of cross-border interest must be examined on a case-by-case basis. Factors relevant to that examination will include the subject matter of the contract, the estimated value of the contract, the place of performance, and the size and structure of the relevant market. This could (and in fact already does) result in some high-value Part B services contracts being widely advertised across EU member states, even in the OJEU. The benefits of classifying a contract as a Part B services contract are increasingly hard to see.

3) Financial thresholds

The rules only apply when the estimated value of the contract, net of VAT, equals or exceeds the relevant financial threshold. The new thresholds, which were put into place on 1 January 2010, are shown in the table below.

Contracts valued below the relevant threshold are not caught by the public procurement rules. However, these contracts are still subject to general EC Treaty principles.⁸This means that, where the contract could be of cross-border interest, it should be subject to an adequate degree of advertisement, and a fair and open competition.

4) Exclusions

The public procurement rules contain a list of contracts that are excluded from the scope of the rules. These include certain contracts for research and development services, employment contracts, and contracts for the acquisition of land and rights over land.

AWARD procedures and timescales

When a contract satisfies the four main conditions outlined above, it must be advertised by publishing a contract notice (also referred to as an OJEU notice) in the OJEU.

The contracting authority must indicate in that notice which of the four procedures set out in the rules it intends to follow. A contracting authority has a free choice to use two of the procedures (the open and restricted procedures) but must justify use of the other two procedures (the competitive dialogue and negotiated procedures).

This article will now describe the key features of these four procedures, together with an indication of any minimum timescales that must be adhered to. The public procurement rules provide for the shortening of timescales where OJEU notices are sent electronically for publication. As this is the norm for most contracting authorities, the minimum timescales for each procedure are set on this basis. Additional time must be allowed on top of these minimum timescales for the standstill period.

Open procedure

All interested parties must be allowed to submit a tender under an open procedure. However, only those parties meeting the contracting authority’s pre-qualification criteria are entitled to have their tenders assessed. This procedure is only suitable for straightforward tenders that can be easily assessed. The minimum timescale is 45 days.

Restricted procedure

Under the restricted procedure, all interested parties can submit an expression of interest (EOI), but only those invited by the contracting authority following apre-qualification stage may submit a tender. A minimum of five contractors must be invited to tender (provided that there are five suitably qualified candidates). As with the open procedure, there is a specific prohibition on post-tender negotiations on fundamental aspects of contracts (especially price), variations in which are likely to distort competition.

An accelerated form of the restricted procedure is available in situations of urgency where such urgency can be justified. The European Commission considers that the present economic climate is sufficient justification for use of this abbreviated procedure for major public projects during 2009 and 2010.⁹

The minimum timescale is 70 days (20 days in cases of urgency).

Competitive dialogue procedure

More flexible than the restricted procedure, the competitive dialogue procedure allows the input of contractors during the tender process to shape the solution for the contracting authority. This procedure is only available for ‘particularly complex contracts’ where the contracting authority does not consider that the contract can be awarded under the open or restricted procedure. For a contract to be ‘particularly complex’ the contracting authority must not be able, objectively, to define the technical means capable of satisfying its needs, or to identify in advance the legal or financial make-up of a project.

Following submission of EOIs, a contracting authority must invite at least three contractors to participate in the dialogue (provided there are sufficient pre-qualified candidates). During the dialogue phase the contracting authority will engage with bidders individually to develop solutions to meet its needs and may reduce the number of bidders during this phase.

When an appropriate solution has been identified, the dialogue phase must be concluded and final tenders (based on bidders’ individual solutions) invited. After tender submission, the extent of permitted clarification is limited, although in practice several issues can only be addressed post-tender (eg detailed planning applications and detailed information on sub-contractors).

The minimum timescale for submission of EOIs is 30 days. All other timescales must be reasonable and are at the contracting authority’s discretion. In practice, the length of a competitive dialogue procedure can range from 12-18 months and in certain cases can take longer.

Negotiated procedure

This procedure is less common today after the Commission and Office of Government Commerce (OGC) warned against the unjustified use of the negotiated procedure.¹⁰ This followed an infraction case against the UK.¹¹

There are two types of negotiated procedure:

1. with prior advertisement of an OJEU notice; and
2. without such prior advertisement.

The public procurement rules contain a list of exhaustive grounds for use of these procedures that must be narrowly construed. Direct negotiations between the contracting authority and a particular contractor are permitted under the negotiated procedure without prior advertisement. Under the negotiated procedure with prior advertisement, the contracting authority will follow the same process as the competitive dialogue, up to the selection of a minimum of three contractors. Instead of being invited to participate in dialogue, those contractors will be invited to negotiate with the contracting authority.

The minimum timescale for submission of EOIs is 30 days. All other timescales must be reasonable and are at the contracting authority’s discretion.

Pre-qualification assessment

Pre-qualification is the initial shortlisting of the parties that express an interest in response to an OJEU notice. It is relevant to the restricted, competitive dialogue and negotiated (with prior advertisement) procedures. In practice, pre-qualification is based on interested parties’ responses to a pre-qualification questionnaire (PQQ) issued by the contracting authority.

The PQQ has three key functions:

1. it confirms any grounds for the mandatory and automatic exclusion of candidates;
2. it highlights any minimum pre-qualification requirements that a candidate must satisfy to be shortlisted (these should first be highlighted in the OJEU notice); and
3. it sets out the criteria against which candidates will be assessed provided that they pass the first two hurdles above.

Grounds for the mandatory and automatic exclusion of candidates are listed in the public procurement rules. Contracting authorities usually list these grounds in a PQQ and ask contractors to confirm whether or not they satisfy these grounds. If a contractor has been convicted of money laundering, it must be excluded from the competition. If a contractor has been convicted of grave professional misconduct, however, exclusion of the contractor on that basis is at the contracting authority’s discretion, provided the PQQ is appropriately worded.

Minimum requirements and criteria must relate to candidates’ economic and financial standing, or technical or professional ability. The public procurement rules list the types of information that can be requested as evidence for these purposes (eg financial accounts, list of previous similar projects and CVs). In addition, any minimum requirements must be related and proportionate to the subject matter of the contract.

Where responses are to be scored, the contracting authority should indicate in the PQQ the relevant scores and weightings it intends to apply, together with any additional methodology.

Tender EVALUATION

In almost all award procedures a contracting authority has a choice between awarding the contract based on the criteria of lowest price or the most economically advantageous tender (MEAT). However, the public procurement rules require that MEAT is the basis for the award of contracts under the competitive dialogue.

The MEAT award criteria allows the contracting authority to evaluate more than just price and to weigh up the whole life costs of an offering. The public procurement rules provide a non-exhaustive list of factors that the authority may use in the evaluation of MEAT. Any criteria used must be linked to the subject matter of the contract.

The public procurement rules state that a contracting authority must indicate (by way of a single number or range) the weightings according to the criteria to be used to evaluate the MEAT. Only if that is not possible may the contracting authority list those criteria in descending order of importance. According to case law, contracting authorities must also disclose any sub-criteria (and in some cases even the sub-sub-criteria) and their accompanying weightings where they are relevant to the evaluation of the MEAT.¹² At least one court has recognised, however, that at some point disclosure of the minute detail of evaluation methodology may undermine the efficacy of the tender process.¹³

Contracting authorities must also take care to distinguish correctly between pre-qualification criteria and award criteria.¹⁴ Pre-qualification criteria must be used to assess the ability of the bidder to perform the contract in question. They are therefore viewed as backward looking, and focus on areas such as experience, economic standing and qualifications. Award criteria must relate to the tender and should therefore be forward looking, for example, price, technical specifications and project management proposals.

Standstill period

As soon as practicable after reaching its decision on contract award, the contracting authority must hold a standstill period. This requirement stems from European Court of Justice case law but is now firmly embedded in UK law.¹⁵ The standstill period was introduced to allow unsuccessful bidders an opportunity to seek further information from the contracting authority and to consider whether their rights have been prejudiced during the tender process. If so, bidders can apply to court to have the contract award decision set aside. In the UK the standstill period is generally ten clear calendar days, although in some cases can be longer.

The new procurement remedies regime (introduced in the UK on 20 December 2009) will mean some changes to the standstill period for tender processes begun on or after that date. For example, in the standstill notification bidders must be informed of the reasons (rather than a summary of the reasons) why they have been unsuccessful, together with the characteristics and relative advantages of the successful tender and, if relevant, both parties’ scores. The notification need only be sent to unsuccessful parties who have not already been informed of their exclusion from the tender process and the reasons for their exclusion.

Even before the introduction of the new remedies regime, the standstill period had taken on a new significance. The courts had found a requirement for a standstill period to arise even in the case of some Part B services contracts and below threshold contracts.¹⁶ Going forward it will be all the more important to get the standstill notification right (see below).

PROCUREMENT REMEDIES

An unsuccessful bidder can bring an action in court against the contracting authority or make a complaint to the Commission. Court action is the preferred and most direct route for a bidder to seek redress.

The position of the unsuccessful bidder has been strengthened by the new procurement remedies regime. In particular, all new tender processes begun this year will be susceptible to the new post-contractual remedy of prospective ineffectiveness (ie the prospective cancellation of all unperformed obligations). While the spectre of this post-contractual remedy could loom over a contract up to six months after it has been signed, this remedy will only be available in extreme situations (eg where a breach of the standstill period rules has deprived the bidder of pre-contractual remedies, and this is combined with a breach of the requirement to disclose award criteria and weightings, which has affected the contractor’s chance of winning the contract). Getting back to basics is a good starting point to minimise the risk of such extreme situations arising.

By Jennifer Robinson, senior associate, and Talya Morris, associate, Berwin Leighton Paisner LLP.

E-mail:jennifer.robinson@blplaw.com;talya.morris@blplaw.com.

1. The new procurement remedies regime is set out in Directive 2007/66/EC, implemented into the UK by the Public Contracts (Amendment) Regulations 2009 and the Utilities Contracts (Amendment) Regulations 2009.
2. The two EU directives are: Directive 2004/18/EC (public sector procurement) and Directive 2004/17/EC (utilities sector procurement). Both directives and regulations have been subject to various amendments since they came into force in March 2004 and January 2006, respectively.
3. See Auroux & ors (law relating to undertakings)[2007] EUECJ C-220/05.
4. SeeChandler, R (on the application of) v Secretary of State for Children, Schools and Families [2009] EWCA Civ 1011.
5. The leading case is Teckal (law relating to undertakings) [1999] EUECJ C-107/98, although Parking Brixen (law relating to undertakings) [2005] EUECJ C-458/03 and Carbotermo & Consorzio Alisei (law relating to undertakings) [2006] EUECJ C-340/04 offer further guidance on the two limbs of the test.
6. The OJEU is the Official Journal of the EU.
7. See Contse & ors (law relating to undertakings) [2005] EUECJ C-234/03.
8. See Bent Mousten Vestergaard [2001] ECR I-9505, C-59/00.
9. See the European Commission’s press release IP/08/2040, 19 December 2008.
10. 10) See the Commission’s ‘Explanatory Note on Competitive Dialogue’ and the Office of Government Commerce’s ‘Guidance on the Competitive Dialogue’ (both January 2006).
11. 11)See ‘Pimlico School’, Commission press release IP/00/869, 27 July 2000.
12. See Letting International Ltd v London Borough of Newham [2008] EWHC 1583 (QB).
13. See McLoughlin & Harvey [2008] NIQB 122.
14. See Lianakis & ors (law relating to undertakings) [2008] EUECJ C-532/06.
15. See Alcatel Austria & ors (law relating to undertakings)[1999] EUECJ C-81/98 and Commission v Austria (law relating to undertakings) [2004] EUECJ C-212/02.
16. Federal Security Services v Chief Constable for the Police Service of Northern Ireland [2009] NICh 3 and Sidley v Clackmannanshire Council [2009] ScotCS CSOH 166.

Brent London Borough Council v Risk Management Partners Ltd [2009] EWCA Civ 490