Private sector progress at public sector expense?

Anyone with significant experience of public sector procurement (on either side of the fence) will be aware of the legal minefield that awaits the unwary visitor. Now we can add the Procurement Reform (Scotland) Act 2014 into the mix. It aims to make it easier for SMEs to bid for local authority contracts, and to create “sustainable public procurement”. However, one consequence, intended or otherwise, is to add to the burden on contracting authorities, as the Act does not replace the existing regulations, the Public Contracts (Scotland) Regulations 2012.

In short, more Scottish public contracts are being brought into the procurement arena. The 2012 Regulations still have effect at the financial thresholds set by the EU, but the Act will now catch certain regulated contracts, namely public contracts above £50,000, and also public works contracts with a value of £2 million or above. If the proposed public contract crosses these thresholds, it will be subject to the Act unless explicitly excluded by the Act.

Duties and obligations

Some of the new duties and obligations on contracting authorities to be aware of include:

• Sustainable procurement duty: Before carrying out a regulated procurement, the contracting authority must consider the procurement process and whether or not it can “(i) improve the economic, social and environmental wellbeing of the authority’s area; (ii) facilitate the involvement of small and medium enterprises, third sector bodies and supported businesses in the process; and (iii) promote innovation”. While carrying out the procurement, it must “act with a view to securing such improvements identified as a result of the consideration” of the factors in (i) above.
• Procurement strategy: If authorities are expected to have procurement expenditure of £5 million or more in the next financial year, then, before the start of that year, they are to prepare and publish a procurement strategy which includes statements on certain policy areas as detailed in the Act.
• Annual procurement report: Authorities will need to produce a report which details their procurement activities, along with certain information (including details as to whether procurements complied with the authority’s strategy).
• Community benefits requirements: If the public contract has a value of more than £4 million, the authority is required to consider whether to impose community benefits requirements as part of the procurement. These are contractual requirements imposed by the authority relating to training and recruitment, the availability of subcontracting opportunities, or that are otherwise intended to improve the economic, social or environmental wellbeing of the authority’s area (additional to the main benefit or purpose of the contract).
• Reasons to unsuccessful participants: If an authority decides to exclude an economic operator from the procurement process at any stage before submission of tender, it must notify its decision to that operator as soon as possible, giving certain information (e.g. details of non-excluded participants, criteria used to exclude, scoring (if any) against the criteria). Those used to procurement challenges will immediately see the scope for delays and disputes in these apparently reasonable requirements.
• Request for further information: Successful and unsuccessful tenderers, and those excluded as above, will all have rights to request certain further information in relation to the regulated procurement.
• Contracts register: A publicly available register (accessible on the internet, and by other means if considered appropriate) is to be maintained by the authority, with information in relation to each “regulated procurement” contract (such as name of contractor, estimated contract value, circumstances in which the contract will end, and duration of any possible extension).
• Exclusion on grounds of criminal activity: If the Scottish ministers “by regulations require”, authorities can exclude an economic operator if “(a) the economic operator; (b) a director, secretary, office-holder or partner...; or (c) another person having powers of representation, decision-making or control in relation to the economic operator” has been convicted of an offence specified in the regulations.

Practical implications

Three new EU Procurement Directives came into force on 17 April 2014. The Scottish Government’s aim is for the 2014 Act, and the implementation of the new directives, to coincide, coming into force by the end of 2015. A stakeholder engagement process is to take place for the rest of 2014. In short, there is still some time before the Act will be up and running, and further guidance and regulations will be required.

There is no doubt the Act will increase the administrative burden on contracting authorities, and the potential risks of challenge if authorities fail to comply properly with its requirements. However, it also allows new suppliers more scope to enter this market, and hopefully increases visibility as to the policies and procedures that authorities will apply in their procurement processes.