Public procurement law: the basics
This guide is based on UK law and focuses on the current
public procurement rules – not the utilities procurement rules. It
was last updated in August 2007.
What is public procurement law?
Public procurement law regulates the purchasing by public sector
bodies and certain utility sector bodies of contracts for goods,
works or services. The law is designed to open up the EU's public
procurement market to competition, to prevent "buy national"
policies and to promote the free movement of goods and
services.
Previously, there were three separate regulations in the UK
which applied depending upon whether goods, works or services were
being procured. These three sets of rules were brought together in
one piece of consolidated legislation which came into force on 31st
January 2006:
- In England, Wales and Northern Ireland: the Public
Contracts Regulations 2006
- In Scotland: the Public Contracts (Scotland)
Regulations 2006.
These Regulations implement into UK law the European
Commission's Consolidated Directive on public procurement, which
was adopted in March 2004.
When do the Regulations apply?
The Regulations generally apply when three main pre-conditions
are met:
- The procuring body is a "contracting authority" as defined in
the rules. The definition is wide and includes central government,
local authorities, associations formed by one or more contracting
authorities and other "bodies governed by public law" (e.g.
registered social landlords and fire authorities);
- The contract is a public works, services or supplies contract.
Sometimes the contract will be a mixed contract (e.g. for the
supply and maintenance of computers). Where it is, a contracting
authority must determine, in accordance with the rules, the
predominant element of the contract and, therefore, which set of
rules will apply. This is important to get right as the rules vary
slightly depending on the type of contract (e.g. lower financial
thresholds apply to services and supplies contracts than to works
contracts);
- The estimated value of the contract (net of VAT) equals or
exceeds the relevant financial threshold. The rules expressly
prohibit deliberately splitting contracts to bring them below the
thresholds.
The current thresholds are: £3,611,319 for the procurement of
works; £93,738 for the procurement of supplies and so-called Part A
services by Central Government bodies, and £144,371 for the
procurement of supplies and Part A services by other public sector
bodies.
Where these three pre-conditions are satisfied a contracting
authority must normally advertise the contract in the EU's Official
Journal and follow the procedural rules set down in the
Regulations.
Are all types of services caught?
The Regulations divide services into so called "Part A" (or
"priority") services and "Part B" (or "residual") services. Only
Part A services are fully caught by the Regulations. Part B
services are caught by a lesser regime, with only a few of the
detailed rules of the Regulations applying.
Generally, Part B services are those that the EU considered
would largely be of interest only to bidders located in the Member
State where the contract was to be performed. Part B services
include:
- Health services
- Education services
- Recreational, cultural and sporting services
Part A services include:
- Computer and related services
- Accounting services
- Architectural and consultancy services
Although the Regulations do not require prior advertising of
Part B services, or any form of competitive tendering to be carried
out for Part B services, they are still caught by general
obligations such as transparency, equal treatment and non
discrimination that derive directly from the EC Treaty.
The practical implications of these general obligations when
procuring Part B services are explained in the following section,
Contracts below the financial threshold.
Contracts below the financial threshold
Although below-threshold contracts are not caught by the
Regulations, there are indications that where the contract is
potentially of interest to suppliers located in other EU Members
States, contracting authorities must still procure them in line
with the general EC Treaty principles of non-discrimination, equal
treatment, transparency, proportionality and mutual recognition.
The same applies to contracts for Part B services (see section
above, Are all types of services caught?).
What these principles imply in practice is that the contract has
to be "adequately" advertised and some form of fair competition run
thereafter.
The European Court of Justice has yet to rule definitively on
this issue for both sub-threshold contracts and Part B services,
but for the time being at least, these general principles probably
mean that a risk-averse contracting authority should advertise the
contract and run a fair competition, applying objective selection
and award criteria. The scope and nature of the advertisement will
depend on the nature of the contract in question and whether it is
likely to be of purely local, regional, national or EU-wide
interest.
Where should contracts be advertised?
Contracts caught by the Regulations must be advertised by way of
an OJEU notice i.e. a standard form notice placed in the EU's
Official Journal. Use of the standard form notices is mandatory,
and they are available on the EU's SIMAP website.
What procedures can be used to award a contract?
| Open |
All interested parties can submit a tender in response to the
OJEU notice (albeit only those meeting the contracting authority's
selection criteria, if there are any, will be entitled to have
their tender assessed).
No negotiation with the bidders is permitted but there are no
restrictions under the Regulations as to when the procedure can be
used.
|
| Restricted |
All interested parties may express an interest in tendering for
the contract but only those meeting the contracting authority's
selection criteria will actually be invited to do so.
No negotiation with the bidders is permitted but there are no
restrictions under the Regulations as to when the procedure can be
used.
|
| Competitive dialogue |
This is a new procedure introduced by the Regulations which has
the advantage of allowing the input of those participating in the
tender process.
All interested parties may express an interest in tendering for
the contract but only those meeting the contracting authority's
selection criteria will actually be invited to do so.
During the "dialogue" phase, tenderers are able to discuss all
aspects of the contract individually with the contracting
authority. Once the dialogue has generated solutions to the agreed
requirements, final tenders are invited based on each tenderer's
individual solution. The best tender can then be selected, but
there is very limited room for any further changes to be made once
submitted.
This procedure can only be used in the limited circumstances
described in the Regulations.
|
| Negotiated |
There are two types of negotiated procedure. Under the
negotiated procedure without prior advert, the contracting
authority is not required to issue an OJEU notice and may negotiate
directly with the supplier of its choice. Under the negotiated
procedure with prior advert, however, an OJEU notice must be
published.
All interested parties may express an interest in tendering for
the contract but only those meeting the contracting authority's
selection criteria will actually be invited to do so.
Under the negotiated procedure with prior advert, tenderers are
invited to negotiate the terms of the advertised contract with the
contracting authority. The Regulations do not set out any rules to
govern the conduct of negotiations, which means that the
contracting authority can, within certain parameters, establish its
own procedures for the negotiation and tender stage.
This procedure can only be used in the limited circumstances
described in the Regulations.
|
How should candidates be selected to be invited to tender?
A contracting authority may automatically exclude a supplier
from the tender process, without any assessment of their
qualifications having to take place, where certain grounds
concerning the supplier's personal position are met (e.g.
bankruptcy or professional misconduct).
In addition, it is now mandatory to exclude suppliers convicted
of involvement in organised crime, corruption, fraud or money
laundering.
Suppliers can also be assessed and excluded on the basis of
their economic and financial capacity (e.g. annual turnover for
past three years) and technical capacity (e.g. experience of
similar contracts in the past five years).
Under the Regulations, the shortlisting rules or criteria must
be specified in the OJEU notice, and any minimum standards (e.g. a
minimum turnover requirement) must also be specified in the
notice.
How many candidates should be invited to tender?
Provided that in all cases there is a sufficient number of
candidates to do so:
| Restricted |
A minimum of 5 |
| Negotiated (with prior advert) |
A minimum of 3 |
| Competitive dialogue |
A minimum of 3 |
On what basis can a contract be awarded?
A contracting authority must award a contract on the basis of
either:
- Lowest price: The lowest priced tender wins.
No other element of the tender may be taken into account; or
- The most economically advantageous tender
(MEAT): Factors other than or in addition to price, like quality,
technical merit and running costs can be taken into account.
If MEAT is being used:
- the headline contract award criteria (e.g. "price, quality of
services, risk to contracting authority etc.") must be set out
either in the OJEU notice or the tender documents; and
- the weighting of each criterion must also normally be given,
either as an exact number or as a meaningful range (e.g. 'price:
30%-40%').
Use of email in the tender process
Electronic communication (email etc.) is possible at all stages
of the procedure including the transmission of notices to the
Official Journal, the receipt of requests to participate and the
receipt of tenders. In certain circumstances it may be possible to
shorten the minimum statutory timescales where e-communication has
been used. For example, the standard period for receipt of
expressions of interest from candidates is reduced from 37 days to
30 days where the notice has been sent electronically to the
Official Journal.
The 'Alcatel' standstill period
For all contracts caught fully by the Regulations (so not
sub-threshold contracts or contracts for Part B services)
contracting authorities must notify all candidates (i.e. all those
who responded to the Pre-Qualification Questionnaire (PQQ) and not
just those who were invited to tender) of their decision on
contract award in writing, allowing a standstill period of at least
10 calendar days between the date the notification is sent to
candidates and the date it is proposed to enter into the
contract.
If a candidate makes a request for a debriefing by the end of
the second working day of the 10 day period, it must be debriefed
during the standstill period. Contracting authorities must also
allow for a "buffer zone" of three working days between providing
the debriefing and the end of the standstill period.
Frameworks
A framework is basically an umbrella agreement which sets out
all or some of the terms on which the parties to the agreement will
enter into contracts ("call-offs") in the future.
Frameworks were not expressly provided for in the old rules, but
are now defined and in the new Regulations.This belated recognition
for frameworks has come with a series of restrictive rules as to
their use, for example:
- The framework term must generally not exceed four years.
- Substantial changes must not later be made to any terms of the
framework agreement / call-off contracts that were agreed at the
outset.
- The purchasers entitled to benefit from the framework must be
identified definitively at the outset (either individually by name
or by meaningful generic description (e.g. "all central government
departments").
When the time comes for "calling-off" a contract from the
framework there are two alternative means of choosing
suppliers:
- mini competition amongst the suppliers on the Framework;
or
- by applying the terms of Framework itself (e.g. the framework
may allocate all business of a certain type to supplier x, and of
another type to supplier y, or it may provide for business to be
allocated in strict rotation).
Candidates' rightsto information
When a candidate is excluded at any stage of the tender process
it can write to the contracting authority and request a debrief.
The contracting authority is obliged to respond within 15 days of
the written request, providing reasons why the candidate was
unsuccessful and, if it submitted a compliant tender, also the
characteristics and relative advantages of the successful tenderer
and the name of the successful tenderer.
Risks of not complying with the Regulations
If a candidate, or disgruntled third party contractor, thinks
that its rights under the Regulations have been infringed, it has
two main courses of action open to it. It may pursue a legal action
in the High Court (or the Court of Session in Scotland) against the
contracting authority concerned. It may also make a complaint to
the European Commission in the hope of persuading it to intervene.
However, injunctions, orders to set aside a contracting authority's
decision and damages are only available to the tenderer or
contractor under the legal action route.
Conclusion
Whilst the public procurement rules may seem daunting in their
detail and the pace at which the rules are updated, a contracting
authority will be off to a good start if it remembers certain key
principles:
- Be open and transparent – allow tenderers to understand what
you are going to do and how you are going to do it;
- Be objective and ensure equal treatment of tenderers – allow
all tenderers a fair and equal chance of winning the contract;
- Be consistent – do what you said you were going to do.
For contractors and tenderers, the combination of consolidation
and clarification means that the Regulations are a clearer, more
user-friendly statement of the law. It stands to reason that if
contracting authorities are better aware of their obligations
contractors and tenderers should benefit from this. Contractors and
tenderers must also ensure that they understand the tender process,
and their rights under that process. If in doubt, seek
clarification from the contracting authority.
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