Scottish public procurement rules – one year on

In April last year, a comprehensive new set of regulations entered into force in Scotland. The rules require the advertising of all public contracts on the Public Scotland Contracts (PCS) portal, and introduced new rules governing tender processes for contracts with values both above and below EU thresholds.

The new “Scottish model of procurement” was in part designed to implement new EU Directives and in part to use Scottish public procurement - of around £10 billion pa - to promote sustainable and inclusive economic growth in Scotland.

One year on, how have the new rules been received? Both by authorities and by bidders? Have they led to improvements in procurement procedures: better market engagement; speedier, less onerous, less bureaucratic tender processes; innovation; and a broader approach to award criteria and achieving value for money?

In this article, we highlight some of the key features of the new regime and how these have been received.

The Scottish public procurement rules

Three new regulations governing public procurement in Scotland came into effect from 18 April last year:

• The Public Contracts (Scotland) Regulations 2015 (the PC(S)R 2015), implementing EU Directive 2014/24;
• The Utilities Contracts (Scotland) Regulations 2016, implementing EU Directive 2014/25; and
• The Concession Contracts (Scotland) Regulations 2016, implementing EU Directive 2014/23.

The Procurement Reform (Scotland) Act 2014 (the Act) contains an overarching framework of rules governing public sector procurement in Scotland, and introduces comparable rules applying to lower value procurements sitting below the EU thresholds. These were supplemented by a separate set of regulations, The Procurement (Scotland) Regulations 2016, also effective from 18 April last year.

Toolkit approach?

This suite of legislation was designed to provide a “toolkit” of rules for authorities letting public contracts, underpinned by a policy to use the procurement rules to foster sustainable and inclusive economic growth, complementing wider Scottish Government economic policy.

One year on, however, it is questionable whether authorities have fully embraced the new toolkit of rules; or at least whether the toolkit is being used in the way it was intended.

We consider below some of the particular tools and how they have been used.

Market engagement

The new rules included an express recognition that authorities can engage with the market in advance of commencing a procurement exercise. Indeed, accompanying guidance states that authorities should in fact do so. In the past, there has been reluctance on the part of authorities to engage with the market due to fears of challenge based on the principle of equal treatment. While there are many examples of good practice, there also appears to be a lack of confidence on the part of many authorities. For example, there is a tendency to run set piece supplier days, run as open forums, but reluctance to engage in one-to-one discussion with potential suppliers/contractors. Provided such engagement is conducted prior to publication of any OJEU notice and is carefully managed, it should not give rise to procurement compliance issues.

ESPD

Another new tool in the toolkit that authorities have been uncertain how to make best use of is the European Single Procurement Document (ESPD). The ESPD has replaced the Scottish Government’s standard form Pre-Qualification Questionnaire (PQQ) for all above EU threshold procurements. The ESPD is intended to reduce the administrative burden on bidders, as a standard form self-declaration by the bidder that it has not breached any of the mandatory or discretionary exclusion grounds and that it meets the relevant selection criteria. The form can then be updated and re-used for other bids (provided the information remains correct).

It has proved difficult to incorporate the ESPD (Scotland) into tender processes and the PCS Procurement Journey. Guidance issued by the Scottish Government has helped to clarify a number of issues, but this is still an area where there appear to be very different approaches from one authority to another.

Use of award procedures

For higher value, complex procurements, the new rules provide for a choice between Competitive Dialogue procedure and the Negotiated Procedure (termed the Competitive Procedure with Negotiation). A number of infrastructure and IT projects have now been tendered under the new Negotiated Procedure, providing greater flexibility to authorities and the prospect of lower costs for bidders.

A potentially less healthy trend is the apparent increased use of Open Procedure, which risks discouraging bidders and straightjacketing the procurement process.

MEAT

In Scotland, for all above EU thresholds procurements, authorities must base the award of contracts on the most economically advantageous tender (or MEAT), as determined by the authority. The MEAT must be identified on the basis of the “best price-quality ratio”, which must be assessed “on the basis of criteria linked to the subject-matter of the contract and must include the price or cost, using a cost effectiveness approach”. Scottish Government guidance states that the MEAT approach should also be applied for below EU threshold regulated procurements.

It is unclear at this stage what (if any) impact this new approach has had on the setting of award criteria and evaluation methodologies. For all the talk of life-cycling and whole-life costing models, most contracts still seem to be awarded principally on the basis of price, at least in terms of the factor that is likely to determine which bidder is successful.

Duty to investigate ALTs

Another important change to the rules has been the introduction of a new duty to investigate abnormally low tenders (ALTs). This new duty applies to EU regulated procurements and Scottish Government guidance suggests it is also best practice to apply it to regulated procurements below the EU threshold.

On one hand the introduction of the duty to investigate ALTs could be regarded as a helpful change, in that it provides a degree of clarity on the issue, which has remained unclear for a number of years. The duty now requires authorities to request an explanation from a bidder as to why its price or cost appears to be abnormally low (which could pose a risk to the effective delivery of the contract). However, there is no definition as to when a bid should be treated as being abnormally low and no guidance beyond the short provision in the new rules as to the conduct of any ALT investigation an authority decides to undertake.

Conflicts of Interest

Another new duty introduced by the new rules is the duty on authorities to take appropriate measures to prevent, identify, and remedy conflicts of interest arising in the conduct of procurement procedures so as to avoid any distortion of competition and to ensure equal treatment of all economic operators. It is often surprising the number of instances where a potential conflict of interests may arise, and this has been an issue identified in a number of recent procurement challenges. Given the positive duty in the new rules, this is an area where authorities have to make sure they have properly considered and taken appropriate steps.

The new rules have introduced a comprehensive set of rules governing all public sector procurement in Scotland. Many authorities still seem to be getting to grips with them, understanding how best to make use of the greater flexibility they offer but also ensuring tender processes comply with the more prescriptive approach advertising and the conduct of the processes themselves.

In terms of risk of challenge, for both above and below EU threshold contracts the principal risks will be around disclosure of selection and award criteria and compliance with the general principles of equal treatment and transparency.