The Public Contracts Regulations 2015

The new Regulations replace the Public Contracts Regulations 2006 (as amended) in their entirety.  The Regulations transpose the Public Sector Reform Directive 2014/24/EU of 26 February 2014. The Government had stated that these would be transposed last autumn, but they were finally transposed with little fanfare on Thursday, 26 February 2015 and, in the main, apply to all procurements started on or after 26 February 2015. The old rules apply to procurements started before that date. The Regulations apply in England, Wales and Northern Ireland.  The Scottish Government has not yet transposed the EU Directive into Scottish Regulations.

A Prior Information Notice (“PIN”) issued on or after 26 February 2015 will fall within scope of the PCR 2015. The new Regulations will not apply to any health services contracts that are within the scope of the NHS (Procurement, Patient Choice and Competition)(No.2) Regulations 2013 (the “NHS Regulations”) until 18 April 2016.

Change to Procedures

You will be aware that there were previously four procurement procedures:

• The Open Procurement Procedure
• The Restricted Procurement Procedure
• The Negotiated Procurement Procedure with and without advertisement
• The Competitive Dialogue Procedure

Changes to the Competitive Dialogue Procedure

There are some subtle changes to some wording. For example, tenders received after close of dialogue may now be “clarified, specified and optimised” rather than “clarified, specified and fine-tuned”. In that context changes must now not be made to the “essential aspects of the tender” rather than the “basic features of the tender” as was previously the case.

The Negotiated Procedure with advertisement has been abolished. There are two new procedures:

• The Competitive Procedure with Negotiation

The CPN is a more heavily regulated procedure than the previous competitive negotiated procedure. It requires contracting authorities to specify award criteria and minimum requirements up-front in the procurement documents. Initial tenders (to be submitted within 30 days) then form the basis for negotiations. The minimum requirements must not be the subject of negotiation and there are controls on the conduct of the negotiations. It is permitted to reduce the number of tenders during the course of negotiations. Importantly, no negotiation is permitted after receipt of final tenders.

• Innovation Partnerships

Innovation partnerships are a new concept in EU procurement law. They are intended to be long term partnerships which allow for both the development and subsequent purchase of new and innovative products, services or works.

The term “partnerships” is not used in a technical sense to mean legal partnerships as defined under UK law. The term is used to indicate the partnering type approach to working together.

The Innovation partnership procedure allows for a single procurement process for: 1) the appointment of one or more innovation partners; 2) parallel innovative development work as well as permitting the number of partners to be reduced; and 3)  an option for the contracting authority to purchase the innovative supply, service or works developed as a result of the Innovation partnership.

The Regulations define “innovation” as “the implementation of new or significantly improved” products, services or processes. The non-exhaustive definition covers:

• production
• building and construction
• a new marketing method
• a new organisational method in business practices
• workplace organisation or external relations

This broad definition will cover a wide range of procurements, from development of a single specialist product to, potentially, major outsourcing arrangements.

The new or significantly improved products, services or processes should be implemented with the purpose of helping to “solve societal challenges” or to support the Europe 2020 strategy. From a practical perspective, contracting authorities will need to have a clear audit trail demonstrating how the proposed arrangements achieve this objective and fall within the definition of “innovation”.

Selection criteria for innovation partnerships are to include capacity in R&D and developing and implementing innovative solutions.  The contracting authority must invite a minimum of 3 economic operators to participate in the innovation partnership procedure, provided that there are 3 suitably qualified economic operators.

Time limits

The minimum timelimit for the PQQ stage for all of the procedures is now to be 30 days from dispatch of the OJEU Contract Notice.

The minimum timelimit for the ITT stage under the Restricted Procurement Procedure is now to be 30 days.

OJEU Contract Award Notices must be dispatched within 30 days of contract award, rather than the current 48 days limit.

New Light Touch Regime

Under the current rules, services are classified as either “Part A” services, which are fully regulated, or “Part B” services, which are only regulated lightly. The new Regulations abolish this concept. All services are subject to full regulation unless they fall within the list of services which are subject to a new “light touch regime”.

The new light touch regime requires contracting authorities to advertise contracts for light regime services, worth €750,000/£625,050 (the equivalent value in £ is fixed until 31 December 2016 and will then be revised along with the other financial thresholds) or more, in the OJEU. The way in which the procurement process is run is not regulated in detail in the new Regulations.  EU Member states are required to implement their own rules on procurement processes for light regime contracts, subject to complying with transparency and equal treatment principles.

Light touch regime services are listed in Schedule 3 of the Regulations. In practice the list of services covered by the “light touch regime” looks very similar indeed to the current list of Part B services (certain health, educational/vocational services and social services)!  There are, however, some services which were Part B services but which are now fully regulated and so you have to check the list very carefully.

Light touch regime contracts at or over the threshold must be advertised in the Official Journal of the European Union (OJEU), using standard form notices. All contracting authorities may use either a Contract Notice to advertise in the OJEU or an enhanced Prior Information Notice, which can be published a year or more in advance and which can cover multiple contracts.

The Light Touch regime will not apply to any health services contracts that are within the scope of the NHS Regulations until 18 April 2016.

Changes to benefit SMEs

Division into Lots: Regulation 46(2), as part of the drive to encourage smaller suppliers, requires a contracting authority deciding not to divide a contract into lots to explain why this decision was taken in the Regulation 84 report (see paragraph 14 for more information on this). In order to encourage contracting authorities to “share out” lots amongst bidders, Regulation 46(4) allows a limit to be set on the number of lots that may be awarded to one particular supplier. However, Regulation 46(5) also requires contracting authorities setting such a maximum to provide details of the objective criteria they intend to use to decide how a lot should be awarded if the winner of that lot has already won the maximum number of lots permitted. This may prove to be difficult to do in practice.

The division into lots could be of particular interest to the construction industry, lots could potentially be used where a contracting authority wants to tender for the entire project under a single contract notice but then breaks that down into separate lots for perhaps site remediation, demolition, construction, or perhaps specialist works packages are required but the contracting authority wants to retain particular control.  Similarly with consultancy contracts, the contracting authority may wish to procure all of its professional team under one contract notice and then split each discipline into lots for the architect, engineer, surveyor, project manager etc.

Maximum of two times turnover: Regulation 58 limits the maximum turnover requirements that contracting authorities may set to a maximum of twice the contract value, unless due to the particular risks a greater turnover requirement is justified.

European Standard Procurement Document (ESPD): Regulation 59 requires contracting authorities to accept the ESPD, which is a standard EU form of self-certification available for use by a supplier, to demonstrate it is not within the exclusion criteria and that it meets financial standing and technical capability criteria. The contracting authority may request supporting documentation or evidence at any stage (Regulation 59(8)); however, if the evidence needed is directly obtainable (e.g. through central databases) then this route must be taken (Regulation 59(5)). In simple terms, it is intended that suppliers are unlikely to be requested to provide financial reports and accounts etc. unless they are appointed as preferred bidder, saving SMEs money and time.

Selection stage

New grounds for mandatory exclusion include those under the Counter Terrorism Act 2008 and the Serious Crime Act 2007. In addition, for example, where a supplier has failed to pay taxes or social security contributions and there has been a binding judgment or decision in the case, that supplier must be excluded.

There are new grounds for discretionary exclusion which contracting authorities will need to address, for example, where the supplier has:

• failed to pay taxes or social security contributions and the contracting authority can demonstrate this by ‘appropriate means’ even in the absence of a formal ruling; or
• performed poorly on previous contracts, resulting in termination or damages or the equivalent; or
• exerted undue influence on procurement decision making process; or
• various other circumstances which would distort competition e.g. conflicts of interest, collusion, prior involvement (where the impact of this is incapable of being neutralised by dissemination of information to other bidders).

Duration of exclusion: Regulation 57(11) states that for a mandatory exclusion offence a bidder shall be excluded for a period of five years, and for a discretionary exclusion, a period of three years. In addition, Regulation 57(13) sets out a “self-cleaning” mechanism where a supplier may provide evidence that, despite the existence of mandatory or discretionary grounds, it can demonstrate its reliability and that it has taken compensatory measures to prevent the issue happening again (see Regulation 57(15)). There is an obligation on the contracting authority to evaluate the evidence in the light of the gravity and circumstances of the misconduct, and to provide reasons to the supplier if it considers the “self-cleaning” to be insufficient and it wishes to proceed to exclude in any event (Regulation 57(17)).

Public Sector Mutuals: Reserved contracts for mutually-owned entities and sheltered workshops

The Regulations contain new opportunities for contracting authorities to further social and community policies by reserving contract opportunities to certain types of supplier.

Regulation 77 allows contracting authorities to reserve contracts for certain health, social and cultural services to employee mutuals without having to subject the contract to the application of the Regulations in full. (Note that health services which fall under the NHS Regulations are not covered by Regulation 77).

An organisation will qualify under regulation 77 if:

• its objective is the pursuit of a public service mission linked to the delivery of those services;
• profits are reinvested and/or are distributed on participatory considerations;
• ownership of the organisation is based on employee ownership/participatory principles or requires the active participation of employees, service users or stakeholders;
• the organisation has not had a contract for the services concerned reserved to it by this contracting authority in the previous three years;
• the contract term is no longer than three years; and
• the call for competition/advertisement makes reference to Article 77 of the Directive (from which the provisions of Regulation 77 are derived).

In addition, Regulation 20 allows contracting authorities to reserve the right to compete in a procurement process to sheltered workshops, provided that the OJEU Contract Notice references Article 20 of the Directive and at least 30% of the employees of the workshop are disabled or disadvantaged.

Under-threshold contracts

Regulations 109 to 112 of the PCR 2015 regulate contracts that fall under the threshold; this is part of the so-called “Lord Young reforms” aimed at encouraging smaller suppliers.

Regulations 110 and 112 require that:

• contracts as low in value as £10,000 (or £25,000 for ‘sub-central’ contracting authority procurements), if advertised at all, must be advertised on the government’s “Contracts Finder” portal; and
• unless one of the exemptions at Regulation 112(2) applies, details about contract award must also be sent to Contracts Finder.

Maintained schools and Academies are exempt from these requirements, as are contracts for health services covered by the NHS Regulations. In addition, Regulation 111 brings in a new ban on use of a selection (PQQ) stage for under threshold contracts and a statutory obligation to have regard to Cabinet Office guidance around this.

Codification of in-house exemption and material change case-law

Previously European case law (particularly, the Teckal and Hamburg cases) was authority on when an in-house contract or joint co-operation arrangement fell outside the scope of the 2006 Regulations. The new Regulations now sets out these exemptions in statute for the first time.

Previously European case law, especially the Pressetext case, was authority on the extent to which a public contract could be modified without triggering a requirement to run a new procurement process. Regulation 72 now sets that test out in statute for the first time and clarifies it to a certain extent.

Regulation 72(1) states that a modification which is provided for in the original contract in “clear, precise and unequivocal” terms will not trigger a new procurement process.

There is now a formal safe harbour where the change in value is relatively small – the lower of the value of the relevant threshold applying to the procurement or under 10% (services & supplies) or under 15% (works) (Regulation 72(5).

There is also no need for a new procurement where there has been a replacement of the supplier following a corporate restructuring, insolvency or merger, and the new supplier still meets the original selection criteria. This exemption is only available where there is no other substantial modification to the contract (Regulation 72(1)(d)(ii)).

Framework agreements

There is little new law in relation to frameworks, save that Regulation 33(5) confirms what guidance and case law have previously required; i.e. only contracting authorities who are identified as customers in the call for competition are entitled to call off contracts from a framework agreement.

Reports

There is now a need to provide a comprehensive procurement report for each tendering exercise.

Payment of Invoices

Regulation 113 was another late addition to the final version of the PCR 2015 and applies to all public contracts other than those for health services under the NHS Regulations and those awarded by a maintained school or Academy. It puts onto a statutory footing what previously had been the subject of guidance only; an obligation on contracting authorities to pay valid and undisputed invoices within a 30 day period (Regulation 113(2)(a)). There is also a requirement to ensure that invoices are considered and verified in a timely fashion – undue delay will not be a justification for failing to treat an invoice as valid and undisputed (Regulation 113(b)). Finally, there is an obligation on contracting authorities to ensure that suppliers abide by these conditions in relation to their own sub-contractors, such that the 30 day payment term is passed down the supply chain (Regulation 113(2)(c)).

Where a public contract fails to include these provisions, Regulation 113(6) will “deem” them to be included in any event, meaning there is no possibility of opting out of these obligations.

New Directives

There are two more Directives to implement, one on utilities and one on higher value concessions.

A concession contract is a contract under which a contracting authority or a utility outsources works or services to a contractor or provider, who then has the right to commercially exploit those works or services in order to recoup its investment and make a return. The key feature is that the contractor/provider bears the operating risk of the arrangement and so has no guarantee of recouping its investment or operating costs. Common examples of concessions might include: running catering establishments in publicly owned sports and leisure facilities, provision of car parking facilities and services; or the operation of toll roads.

The new concessions regime will mean that all concessions above € 5,186,000 will have to be advertised in the EU’s Official Journal. Purchasers will still be able to determine how their tender procedure runs, subject to certain minimum rules on mandatory/discretionary grounds for bidder exclusion, time limits for expressions of interest and tenders, and award criteria.

The above article contains a summary of complicated areas of law and is not legal advice.

Author

Ian Holyoak