Procurement
present and future –
the art of the possible
Christopher Brennan, Wragge & Co LLP
Royal Northern College of Music, Oxford Road, Manchester
Thursday 14 June 2012
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Overview of EU procurement law (1):
its purpose and origins
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
A creature of Brussels (and the Single Market imperative)

Regulates the way purchasing must be conducted, to promote competition (and
therefore value) within the Single Market

Three branches of this law: one regulates the public sector, another regulates
utilities, but with a lighter touch; the third regulates defence and security

The “free movement” rules (free movement of goods; freedom to provide services)
are the bedrock of the Single Market (and are enshrined in the Treaty of Rome (now
the Treaty on the Functioning of the European Union))

Procurement law is designed to be an enabler of the cross-border trade promoted
by the free movement rules
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Overview of EU procurement law (2):
its legislative make-up

Treaty on the Functioning of the European Union (TFEU)

Directive 2004/18 (Public sector)

Equivalent directives for utilities and defence

Directive 2007/66 (dealing with redress)

Case-law of the European courts

The Public Contracts Regulations 2006 (SI 2006/5) (as amended)

Equivalent regulations for utilities and defence

Amending regulations in 2009 (SI 2009/2992) and 2011 (SI 2011/2053) to tighten:

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–
the rules on getting redress for bad decisions; and
–
the time-limits for doing so
Domestic case-law in (England, Northern Ireland, Scotland)
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TFEU
RULES
- Free movement
rules
RULES
P
Directive 2004/18
(Public Sector)
Directive 2004/17
(Utilities)
R
I
N
Utilities Contracts
Regulations 2006
Public Contracts
Regulations 2006
Equal Treatment
C
I
P
Transparency
Amending Regulations in 2009
Non-discrimination
(on getting redress for bad
decisions)
Mutual recognition
Amending Regulations in 2011
L
E
S
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(on the timescales for doing so)
Proportionality
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Overview of EU procurement law (3):
The state of play today
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
In Europe, public authorities spend about 18% of GDP buying goods and services,
and procuring construction works

The European Commission recognises that procurement can be used as a
powerful lever for achieving a Single Market fostering growth

But the current rules don’t really address many of the legal and practical issues
faced in the context of complex procurements

So a large body of case-law has grown up to fill some of the gaps

And there are proposals to modernise the whole of procurement law, to codify
key case-law, and to make the law more flexible - starting with an all-new set of
Directives by end 2012 (implementable in all member states by mid-2014)
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Basic concepts (1): classification of
different types of procurement
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
The procurement rules apply where a public body – a “contracting authority” –
“procures”, i.e. buys, (1) goods, (2) services*, and/or (3) building
work/development

The rules apply when the estimated total value of what is being bought exceeds
£113,057 (for goods and services*), and £4,348,350 (building work/development)

*THE BIG “BUT”: services are sub-classified into 2 groups – those whose
procurement is fully regulated by the rules (“Part A”) and those whose
procurement is only partially regulated (“Part B”)

HEALTH/SOCIAL CARE SERVICES ARE PART B, so most of the detailed rules don’t
apply when buying those services. Fully regulated (Part A) services include
architectural, financial, management consultancy, ICT

So what is there to watch when buying Part B services?
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Basic concepts (2): buying Part B
services
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
Remember the EU principles of equal treatment, transparency etc? They are
considered to apply when buying Part B services, IF there is likely to be foreign
interest in what’s being procured

BUT our own national rules require us to treat candidates equally and in a nondiscriminatory way, and to act in a transparent way – regardless of whether
there’s any cross-border interest

And the standing orders/SFIs of the commissioner may require it to put
purchases out to tender if the estimated contract value exceeds a certain
amount (in the SFIs of many commissioners, the threshold here can actually be
lower than the applicable EU threshold)
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Basic concepts (3): what aren’t Part B
services

Remember that health and social care services class as Part B; in essence, these
are services to the individual (in other words the services of clinicians, other
healthcare/social care professionals and those in allied professions)

So, the following are not Part B services and may be subject to the full
procurement rules:

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–
the purchase of equipment (e.g. a scanner)
–
the purchase of software or a software solution
–
the purchase of medical devices
Some services may involve a mix of elements - software plus services of
clinicians (e.g. teleradiology reporting). Rule: what represents most of the
contract value – the software or the service?
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Basic concepts (4): Exemptions
originating from the European Court

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Teckal: direct award to an entity specially established by the commissioner is
allowed where:
–
the commissioner exercises over that entity a degree of control equivalent
to the control it exercises over its own departments, and
–
the controlled entity carries out the essential part of its activities for the
controlling commissioner

This also applies where more than one commissioner controls the entity (so a
“Teckal” JV co)

Hamburg: no procurement needed where commissioners co-operate to carry out
their public functions and there is genuine co-operation, carried out in the
public interest, no profit is made (there is cost reimbursement only), and there
is no private participation in the provision of the services. Here the
commissioners are effectively just “helping each other out”
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Basic concepts (5): NHS specifics


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NHS pilots:
–
These may be short- or longer-term contracts
–
They may involve procurement
–
They may involve a mix of Part A/Part B services, or could involve a mix of
services/goods (or more)
–
How the procurement is classified, and the extent to which the rules apply, depends on
what accounts for the greater (or greatest) element in the contract for the pilot
–
Not all pilots are procured competitively. This may be intentional, and may be
sanctioned by the fact that they class as Part B services
–
They may evolve into bigger projects later, which may be procurable
Purchasing for other bodies:
–
As agent for a number of health bodies
–
With their authority
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Basic concepts (6): the procedures
(mandatory in procurements other than
Part B or below-threshold)
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
Open: contract notice (min. 30 days), tender, evaluation, standstill (min.10
days), award. Typical timeline: about 2 months

Restricted: contract notice (min. 30 days), selection, tender (min. 40 days),
evaluation, standstill (min.10 days), award. Typical timeline: between 3 and 4
months

Competitive dialogue: contract notice (min. 30 days), selection, dialogue (often
phased) leading to tender, evaluation, standstill (min.10 days), award. Typical
timeline: anything between 8 or 9 months and 3 or 4 years, depending on the
complexity of the project

Negotiated: contract notice (min. 30 days), selection, negotiation (leading to
“BAFO”), evaluation, standstill (min.10 days), award. Typical timeline: same as
competitive dialogue
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Basic concepts (7): the procedures,
their use and limitations
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
Open: an uncomplicated procedure, for uncomplicated requirements

Restricted: generally regarded as the “default”. Fine when the authority can
specify the precise make-up of the project (technical, financial, legal). Allows
for NO negotiation at any stage

CD: Used for the procurement of “particularly complex” contracts, where the
authority isn’t “objectively able” to specify the make-up of the project and
where the open or restricted procedures do not allow the award of the contract.
Allows for NO negotiation after dialogue, except to “clarify, specify or fine-tune”
tenders (leaving their “basic features” unaltered)

Negotiated: only available for super-complex procurements; otherwise outlawed.
Note: the legislative reform proposals, if implemented, will alter this

REMINDER – these procedures only formally apply to fully regulated
procurements (so not procurements of health services). But purchasers can
adopt the same or similar procedures for those, and it may make for a more
demonstrably fair process if they do
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Basic concepts (8): Fairness – how
candidates can expect to be treated

Much of the body of public procurement case-law has arisen out of complaints
about lack of fairness, openness and objectivity on the part of authorities
carrying out procurements and making award decisions following evaluation

Notably, and from the perspective of the Treaty Principles, the case-law has
highlighted the importance of articulating selection criteria, award criteria, and
the weightings of each, at the right time

Case-law has also underlined the importance of an effective system of precontract review of award decisions (hence the standstill period), and has
resulted in the introduction of a means of having signed contracts declared
ineffective in certain situations (in each case recognising that damages may not
be adequate)

Be aware - some of the case-law does come from procurements of Part B
services!
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Evaluation: Distinguishing between
selection criteria and award criteria
(1)
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
Selection Criteria: these are tightly regulated, so their range is limited. They
are basically designed to assess the suitability of candidates to be taken forward
to the bid stage of the procurement, and are used at pre-qualification

Award Criteria: these are loosely regulated, and their aim is to identify which
candidate should win the contract by being applied in the assessment of the
price and quality aspects of each bid
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Evaluation: Distinguishing between
selection criteria and award criteria
(2)

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Selection Criteria look at ability to perform the contract, based on
–
Economic and financial standing
–
Skills and technical capacity, based on current credentials and past
experience
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Evaluation: Distinguishing between
selection criteria and award criteria
(3)

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Award Criteria look at the attractiveness of the actual bid, and have to be used
to assess the bid on the basis of one of the following:
–
Lowest price, or
–
The most economically advantageous tender (“MEAT”) – i.e. price balanced
against qualitative aspects of the bid
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Evaluation: MEAT criteria and weightings
(1)
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
It is up to the contracting authority to decide what criteria should apply, and
what weightings should apply to them

Evaluation methodologies should be prepared (ideally in MS Excel spreadsheet
or other workable format) at the same time as the criteria themselves are
actually formulated
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Evaluation: MEAT criteria and weightings
(2)
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
All award criteria their weightings should be disclosed as early as possible in the
procurement process and MUST be disclosed by the time the ITT is issued

Where it is believed that weightings cannot be provided (on objective grounds),
authorities MUST disclose award criteria in descending order of importance
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Evaluation: MEAT criteria and weightings
(3)
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
Whatever criteria are used, they and their weightings must be CLEAR – and able
to be understood in the same way by all candidates (including foreign ones!)

They must be linked to the subject matter of the contract

They must not operate to confer unrestricted freedom of choice on the authority

They must not deprive an incumbent provider of the advantages afforded to that
provider
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Evaluation: MEAT criteria and weightings
(4)
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
Sub-criteria can be used, PROVIDED they are disclosed in advance of bid
preparation, OR (if they are not disclosed) wouldn’t have affected bid
preparation if they had been disclosed

Pass-fail criteria: take care when using these!

Weightings: remember that even if the criteria are right, wrong weightings can
produce disaster

Remember the Treaty principles – they must be applied throughout
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Proposals for modernisation (1):
headline stuff
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
To recap: new Directives expected end 2012, new domestic rules in 2014

Big changes:
–
Overall simplification
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More scope for negotiation
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New procedure – “innovation partnership” (a negotiated procedure – “we
negotiate, you innovate and then we’ll buy”)
–
Very light-touch rules for NHS commissioners, CCGs and FTs
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Proposals for modernisation (2):
Loss of Part A/B services distinction
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
All services to be fully regulated, with a few key exceptions including health
services, and legal services with limited cross-border interest

EUR500,000 threshold for the carved-out services

Contracts estimated to exceed threshold will be subject to an OJEU and Contract
Award Notice requirement, but otherwise the only obligation will be to ensure
transparency and equal treatment (and some relatively flexible rules around
evaluation criteria)
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Proposals for modernisation (3):
procedural changes
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
Competitive dialogue and negotiated procedure will rank equally in terms of the
ability to choose between them

Electronic availability of procurement docs and transmission of notices will be
mandatory

Incentivising division into lots: where contract value falls above threshold but
below EUR500,000, a CA will have to justify NOT dividing into lots

New provisions specifically allow pre-procurement consultation with the market

Rules on negotiated procedure are tighter around phased de-selection,
explaining reasons for de-selection and allowing adequate time for submissions,
and not changing specified aspects during the process

Rules on competitive dialogue are a bit looser: negotiation with preferred
bidders is permitted provided essential aspects of tender are not modified and
no risk of distortion of competition, or discrimination

REMINDER: the above apply to fully regulated procurements
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Proposals for modernisation (4):
best of the rest
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
Innovation partnership: “establishing a structured partnership for the
development of innovative products, services or works and the subsequent
purchase of the resulting supplies, services or works” (follows NP)

Timescales: all shortened. OP - 40 (elec: 35) (PIN: 25); RP – 30+35 (PIN:15) (elec:
knock off 5) (sub-centrals can agree); NP – 30+30; CD – 30+whatever

Teckal codification: note - 90% activity requirement

Hamburg codification: no procurement needed where authorities co-operate and
(i) genuine co-operation, (ii) public interest, (iii) no more than 10% open market
activity, (iv) cost reimbursement only and (v) no private participation

Pressetext codification: substantial change

Requirement for declarations by candidates of “privileged links” and MSs to
impose rules to “prevent, identify and…remedy conflicts of interest”

Requirement for a public oversight body in each member state
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Commercial Issues: striking the
balance
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
People often want to run a mile from the procurement rules. You can sometimes
avoid them, but when you can’t, you can make them work for you rather than
against

It’s all about the art of the possible – they allow surprising amounts of flexibility

Where they don’t, what’s the likelihood of challenge?

Think about market testing/engagement, and commercial risk management

Compare:
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“value for money” requirements; the imperative for savings
–
compliance with governance protocols
–
“best practice” in procurement

Spotting potential conflicts of interest makes them easier to avoid (or manage)

Getting strategic legal advice early can make all the difference
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Thank you
 Questions?
 christopher_brennan@wragge.com
 0121 214 1055
 07841 322716
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