The New Procurement Directives – What’s changed?

The new EU Public Procurement Directive is a key piece of legislation that will shape the public procurement landscape for years to come.  On 15 January 2014, the European Parliament adopted a package of three new public procurement directives (Directives).  The Directives will replace the existing Public Sector Directive (2004/18/EC) and the Utilities Directive (2004/17/EC) in addition to introducing new rules on the award of concession contracts.

The new Directives will impact on all areas of public sector procurement and suppliers will need to consider how the changes will affect their tender strategies and processes as we move towards the next set of Public Contracts Regulations later in the year.  The new Directives are designed to give more flexibility within the rules to facilitate access to contracts for SMEs, support strategic use of public procurement for environmental and social policy targets and provide greater clarity on the application of the new rules.

Why are the new Directives important?

The new Directives for procurement, utilities and concessions will significantly impact on the current practices of both the public and private sectors, as a result of the reinforcement of the Treaty principles aligned to the introduction of social considerations in procurement.  Social considerations are an important consideration for buyers and suppliers following the recent introduction of the Public Services (Social Value) Act 2013, which states that public bodies in the UK now have a legal requirement to consider the social good offered by bidders during the procurement process in addition to price and quality.

Key changes

Whilst the new Directives include number of changes to the current procurement process, we have provided a brief summary of the most significant changes below:

• MEAT as the sole award criterion

Under the new Directives, contracts may only be awarded based on the ‘most economically and advantageous tender’ (MEAT).  The criterion itself may be assessed on price, costs or the best quality-to-price ratio.  The award criteria will also include design, innovative aspects, environmental and social characteristics and conditions for commercialisation.  When considering performance of the contract, the organisational strength, experience or qualification of the staff delivering the contract may also be considered.

• Simplifying the negotiated procedure

The new Directives acknowledge the need for more flexible procedures when dealing with tendering, specifically the competitive procedure with negotiation and the competitive dialogue.  The grounds for using a competitive procedure with negotiation are significantly extended.  In essence, the procedure will be available for all purchasing that is not “off the shelf”, such as purchasing innovative solutions or designs.  There is a trade-off, however, as the price to be paid for the wider availability of the competitive negotiated procedure is the determination of more narrow and express procedural rules reducing the procurer’s flexibility when conducting the procedure.  The main example of this is the express requirement that there may be no negotiation of final tenders.

• Establishment of SME-friendly measures

The Directives establish a range of measures to promote the participation of SMEs in procurement procedures, including encouraging contracting authorities to divide contracts into ‘lots’ or establishing a turnover cap limited to no more than twice the contract value.  In addition, contracting authorities will have to explain in their OJEU advertisement why the works or services were not split up where it could have been.  Furthermore, the reduction of bureaucratic burdens (such as the establishment of self certification) is designed to promote SME participation.

• Group structures

The Directives now include the test in the Teckal case, which exempts contracting authorities from the public procurement rules for contracts between themselves and their subsidiaries (in certain circumstances).  There is also specific authorisation of “shared services” arrangements, where two or more contracting authorities jointly control a subsidiary.

• Clarification of grounds for exclusion

The Directives clarify and extend the grounds for the exclusion of candidates and tenderers.  Under the new procedures, contracting authorities will now be able to exclude potential candidates that have shown significant or persistent deficiencies in performing prior contracts.  Purchasers will also be permitted not to award a contract for the best tender where that bidder does not comply with EU or domestic social, labour and environmental obligations in law.

• Modifying existing contracts

The new Directives codify rules and exemptions arising out of decisions of the European Court.  Even if substantial modifications to an existing public contract must be considered a new contract (and thus the procurement process must be restarted), the Directives provide certain abilities to change existing contracts.

• Innovation Partnerships

An entirely new procurement process has been introduced, known as the Innovation Partnership (IPs).  IPs will allow public authorities to call for tenders to solve a specific problem without pre-empting the solution.  This leaves room for the authority and the bidding companies to find the most appropriate solutions.  This process should be used by authorities when a need for the development of an innovative product, service or works arises.

• E-Procurement

Contracting authorities will now be required to make procurement documents freely available electronically from the date of publication of the notice.  In addition, it will also be mandatory to submit notices in electronic form and fully electronic procurement, including all communication and submission.

Implementation

The new Directives will come into force in early March, from which time EU Member States will have a period of two years to align their domestic legislation with the new Directives.  The UK Government indicated its intention to achieve a speedy transition to the new rules and has informed the public sector that it is keen to implement the new Directives as early as possible.  It is likely that the new UK legislation will be enacted in early 2015.

Summary

The new Directives are geared towards making the public procurement process faster, less costly and more effective for businesses and procurers alike, in addition to supporting deficit reduction and economic growth.  For contracting authorities, this will result in the ability to run faster procurement exercises, with less ‘red tape’ and with a greater focus on obtaining the best tender and getting the right supplier.

The benefits for suppliers are that the process of bidding for public contracts should be quicker, less costly and far less bureaucratic enabling suppliers to compete more effectively.  The rules themselves are similar to the existing rules but include a greater degree of flexibility.

For more information, help or advice, contact Andrea Gardner on 0191 211 7999.