Tender and true

Utilities and public authorities will be keeping a keen eye on imminent procurement reforms which are being driven by changes at the EU level. Although the changes may result in processes which are more flexible and less costly for utilities and public authorities, bidders may face increased tendering costs. Public authorities particularly will welcome the ability to give greater prominence to social and environmental considerations in awarding a contract. A wary eye must also be kept on possible differences between separate Scottish and English implementing regulations.

It is difficult to pinpoint many developments in public procurement law which a procurement lawyer could describe as “exciting”, but the imminent reforms in the UK are about as dramatic a change as there has been since the public procurement rules were brought in. What follows is a review of the key changes and a discussion of some of the more significant issues.

What is changing?

Historically, there have been four main EU directives which govern procurement procedures – three for the public sector and one for utilities. These have now been consolidated at the EU level so that there will be one such directive for the public sector and one for utilities. These directives were published on 30 April 2004 in the EU’s Official Journal. They require to be implemented in the UK by January 2006. The Scottish Executive has decided that it wishes there to be a separate set of Scottish implementing rules and therefore procurement lawyers will need to be careful of any differences between the Scottish regulations and the English and Welsh regulations. Significantly, even at this stage, both the Scottish Executive and the DTI have warned in connection with recent consultation processes that they will not be able to implement the new EU legislation in time – there is likely to be a gap of a few months between the date by which the new directives should have been implemented and the date when they are actually implemented in the UK.

Are there major reforms?

In short, no, not really. Procurement lawyers who are familiar with the open, restricted and negotiated procedures will see the same procedures set out in the new directives with one or two tweaks. In essence, the European Commission has taken the opportunity to retain procedures with which the procurement community has become closely familiar, whilst implementing updates deriving from practice and case law since the rules first came into force in the mid-1990s.

The new directives do though make more express provision for procurement to be conducted by electronic means, a topic of some debate in the current rules. In practice, most contracting authorities and affiliates now use at least some element of electronic media in conducting a procurement and there has been a feeling that the public procurement rules were falling behind the times. Accordingly, the new rules expressly permit mechanisms such as electronic auctions.

Also, reflecting important EU decisions in case law, a tendering authority is expressly permitted to take into account social and environmental considerations in procurement processes. This is subject to some conditions, but overall public sector authorities have welcomed the reform of the procurement rules to reflect more accurately the wider social agendas which the majority of public authorities are generally required to observe.

The new rules introduce a new procedure – the so-called “competitive dialogue” procedure – and the intention is to provide the flexibility required by contracting authorities in PPP/PFI projects. As noted below, the introduction of this new procedure is not necessarily good news for the bidding community.

New provisions in the rules permitting dynamic purchasing systems have also been welcomed by public authorities and utilities. Essentially, these systems are rolling framework agreements which bidders can access during the term of the agreement on satisfying appropriate qualifying conditions. The contracting authority calls off contracts from the dynamic purchasing system as and when needs arise. Whilst this is not an innovative concept for the procurement community, it is helpful to see such systems being expressly permitted in the new procurement rules.

Introducing competitive dialogue

In looking in more detail at some specific issues, it is worth considering first the new competitive dialogue procedure.

The introduction of this procedure addresses the need to grant contracting authorities more flexibility to negotiate on PPP/PFI projects. Some contracting authorities have complained that the existing procurement rules are too inflexible to allow for a fully effective tendering process. Undoubtedly, the degree of concern has depended largely on how a contracting authority has interpreted the procurement rules as there are numerous examples of PPP/PFI projects which have been successfully tendered since the introduction of the public procurement rules.

However, the European Commission recognised the concerns being expressed, not only in the UK but also across Europe, and it has sought to introduce a new procedure which will accommodate these concerns.

In essence, the new competitive dialogue procedure permits a contracting authority to discuss bidders’ proposed solutions with them before preparing revised specifications for the project and going out to bidders asking for modified or upgraded solutions. This process can be undertaken repeatedly until the authority is satisfied with the specifications which it has developed.

Contracting authorities are therefore generally glad that there is to be more flexibility to negotiate whilst also allowing for them to adopt potentially more innovative solutions.

However, for bidders, this reform does undoubtedly mean that tendering processes could become longer and more complex should contracting authorities opt generally to employ the competitive dialogue procedure. This would lead to more expense for bidders too. Some in the private sector have also expressed concern that bidders would be less likely to suggest innovative solutions in case the contracting authority in question were to plagiarise the innovation in question and divulge it to other bidders as part of the refining of specifications. The new rules do provide certain confidentiality protections to seek to address these concerns, but only practice will tell if they work.

E-procurement legitimised

Many contracting authorities and utilities have already used electronic procurement (or “e-procurement”) within the framework of the current procurement rules. Some doubts have though been expressed as to whether such procurement is compliant with the current rules, and therefore the European Commission has taken the opportunity to confirm that e-procurement is acceptable. Fundamentally this is little more than an updating of the procurement rules to catch up with technology.

That said, now that specific provisions have been made for mechanisms such as e-auctions, there will undoubtedly be new procurement strategies to learn and develop. It does seem highly unlikely that an e-auction will be the “be all and end all” of any procurement, given the number of “soft” issues which usually require to be considered when making a contract award, but undoubtedly e-auctions will become a common component of tenders in the coming years. In the recent consultation by the Scottish Executive on public procurement, Glasgow City Council for example confirmed that it has made use of e-auctions but, at the time of response, it was assessing how beneficial they are.

Scottish for the sake of it?

An interesting development has been the decision by the Scottish Executive that it wishes to have its own set of Scottish implementing regulations that will be distinct from those in England and Wales. There has not yet been any convincing justification given for this decision, but it has certainly proved universally unpopular, judging by the responses to the recent public procurement consultation.

Concerns have been expressed by contracting authorities and utilities that this will simply lead to increased compliance costs, as procurement lawyers will need to become familiar with two sets of implementing regulations and with any differences between the two.

Additionally, there is a concern that ambiguity could be caused by the situation where, for example, a Scottish contracting authority runs a procurement for services to be delivered south of the border or there is a need for services to be delivered on both sides of the border. There is doubt as to which set of rules would apply, or whether both sets will.

Currently, there is one national set of implementing regulations which has worked well to date and perhaps this is a case of “if it ain’t broke, don’t fix it”.

So what does it all mean?

For public sector contracting authorities the reforms will mainly be welcomed as they will provide more flexibility and a more up to date system of rules.

For utilities the procurement regime is already relatively relaxed. No doubt they will welcome the explicit approval of e-procurement methods, but they will be wary of differences between Scottish and English & Welsh implementing regulations.

Finally, for bidders, the new procurement rules may herald more expensive tendering processes, particularly if contracting authorities opt to make frequent use of the new competitive dialogue procedure.