Reform of EC procurement law

The European Commission has been consulting on a reform to the existing EC procurement regime since 1996. It has recently published its proposals.

The existing regime began in the early 1970s, and was significantly extended in the late 1980s and early 1990s to cover the procurement of works, services and supplies by the public sector and by utilities. There is also an enforcement regime.

It is not proposed to alter the enforcement regime, but much work has been done to consolidate and simplify the substantive rules by reducing them to just two directives, one for the public sector and one dealing with utilities.

Common approach

The proposals for the public sector and for the utilities regime have a number of common features:

• the introduction of electronic purchasing mechanisms (in certain situations time limits can be shortened if e-procurement mechanisms are used);
• there is a considerable simplification of the value thresholds at which the regimes bite;
• the use of standards has been clarified and there is greater reference to performance- based standards;
• the regime will in future refer to the Common Procurement Vocabulary (CPV) as the reference nomenclature.

One proposal will cause considerable change in the way procurements are administered. This will involve the weighting of award criteria when the deciding factors involve more than just price. At present there is only a weak requirement to list the various factors "where possible" in order of importance. Contracting authorities and utilities will be required to state in the invitation to tender a weighting range for each factor. If this proposal remains, it will add to the burdens of the purchaser but will impose disciplines in the procurement process and make it clearer for bidders what is expected of them. As a result not everyone will welcome this change.

Public Sector Regime

Apart from consolidating three directives into one and thereby removing anomalies, there are two main changes which are particular to the public sector regime. These relate to framework contracts and to "particularly complex contracts". The latter has important ramifications for PFI/PPP projects.

Framework contracts
The framework contract regime is an important innovation. Under the existing public sector procurement rules framework contracts are of limited use because generally they do not exempt the contracting authority from the need to go through an award procedure if an individual contract under a framework exceeds one of the value thresholds. The proposals would remove the need for repeated calls for competition for contracts awarded under a framework. The framework agreement itself would need to be awarded following a competition under the rules. The idea is to admit a minimum of three candidates to the framework and then run a sub-competition between them when each specific procurement can be identified. The framework agreement would be limited to a maximum duration of three years.

Particularly complex contracts and PFI/PPP
The proposals for "particularly complex contracts" raise important issues for PFI/PPP projects. The Commission's original policy had been to broaden the use of more flexible competitive negotiations in the public sector regime. Unfortunately the overall proposals contain some significant limitations.

At present many PFI projects follow a competitive negotiated procedure on the basis of an existing rule. This rule permits a competitive negotiation where "exceptionally" the nature of the contract or the related risks do not permit prior overall pricing. The Commission has recently called the use of a competitive negotiated procedure into question in relation to a schools PFI project (Pimlico).

The innovation in the proposals would extend the use of competitive negotiated procedures to "particularly complex contracts". Under this approach the contracting authority would publish a notice inviting interested parties to participate. In the notice, the contracting authority would define the objectives it wishes to obtain. It would also state the qualitative selection criteria and award criteria. These criteria would remain unchanged throughout the procedure.

The contracting authority thereafter has two options - it may:

• decide that it wishes to receive only the normal documentation concerning the candidates' personal position and their technical, economic and financial capacity. The qualitative selection criteria must be appropriate and based on the object of the contract concerned; or
• decide that this documentation must be accompanied by an "outline solution", i.e. a preliminary indication of the solution which the candidate intends to propose to meet the contracting authority's needs and requirements. Candidates may also have to give an estimate of the cost of preparing the outline solution.

The contracting authority has to announce its choice between these two options in the notice.

After receiving the applications, the contracting authority chooses the participants to be invited to negotiate. Selection is based on the previously established qualitative selection criteria (economic, financial and technical capacity, following the usual verification of the information relating to the candidate's personal position).

A further, optional stage is possible by which the contracting authority, having selected candidates on the basis of route (a), may then request these candidates to submit an "outline solution" to form the basis for further negotiations. This latter approach may be preferable to bidders since fewer of them would have to develop outline solutions.

In all cases, the contracting authority then consults a minimum of three selected participants to examine how its needs can best be satisfied. At the end of the negotiations, the contracting authority defines the final technical specifications, either by retaining one of the solutions presented by one of the participants or by combining more than one of the solutions presented. Once this stage is completed, the contracting authority invites the participants to submit a formal, priced tender. No further negotiation is permitted.

This proposal may not be a great help to PFI/PPP projects. Although the procedure permits a dialogue between contracting authority and bidders, this dialogue basically relates to the specification and does not allow negotiation on price. Also the Commission is taking a very narrow view of what contracts are "particularly complex". The Commission is suggesting that the contracting authority would have to demonstrate that it is unable to define or evaluate the relevant requirements e.g. where there are no precedents for the project or where there would be a disproportionate cost in acquiring the relevant knowledge. Where would this leave the more generic PFI projects which may be more complex contractually than they are to deliver?

The Commission's approach reflects its preoccupation with transparency of process and non-discrimination. As a result it is at odds with HM Treasury's priority of achieving value for money.

Utilities

The proposals recognise that utilities are undergoing radical transformations. Some operate in truly competitive markets where the players can be relied on to make objective, value for money assessments in their purchasing, without the need for a procurement regime to compel them.

As a result telecoms has now been taken out of the utilities regime. The other sectors - water, transport and energy - are still covered, but there is to be a mechanism whereby any sector can be taken outside the regime when the appropriate competitive market conditions have evolved.

Conclusion

Overall there is something for everyone in these proposals. There is much that is good. The consolidation of the rules themselves will be particularly welcome to those who have to deal with them regularly. Concerns on the PFI/PPP front remain. Let us hope they are removed by the time the new regime is adopted.

For further information, please contact David Marks on [email protected] or on +44 (0)20 7367 2136.