Deep impact

Local authority procurement has long been regulated by the European Union and has seen many changes since the introduction of Regulations in the UK covering the procurement of works, goods, services and utilities in the early 90s. The current regime, introduced into UK legislation in 2006, consolidated the procurement of works, goods and services and has seen subsequent amendments in 2009 and 2011, primarily incorporating developments in case law and the markets growing appetite for challenge.

Following the circulation of the EU Commission’s consultation Green Paper on the modernisation of EU public procurement policy Towards a more efficient European Procurement Market in January 2011, many procurement advisors, including Enfield Council, provided responses to the consultation in the hope revisions to the current regime would further assist local authorities in their procurement activity and clarify areas of practice long reliant upon case law.

The recent proposal published in December 2011 by the European Commission Proposal for a Directive of the European Parliament and of the Council on Public Procurement (‘Proposal’) contains a number of interesting changes that must be implemented into UK legislation by 30th June 2014. It would be beyond the scope of this article to consider all of the changes proposed, but I have attempted to summarise the main changes impacting on our daily procurement activity.

Whilst the current Proposal aims to consolidate and streamline Part A Services (those to which the procurement regime applies fully) and Part B Services (those to which the procurement regime apply currently only in part), the Commission has recognised the distinct nature of social services and has recognised the "specific characteristics which make them inappropriate for the application of the regular procedures for the award of public service contracts"*. Given the very little cross border interest associated with social services, the Proposal provides a separate regime with a threshold of 500,000 euros and the requirement to comply fully with the principles of transparency and equal treatment.

The Commission has further recognised the need to promote SME and small business engagement in procurements. In a particularly difficult economic climate, such consideration is welcomed to stimulate new growth and competition. The Proposal builds on existing guidance on SME engagement and introduces the mandatory acceptance of self declaration as preliminary evidence for selection, which will speed up the selection process for contracting authorities and reduce tender costs for contractors (particularly those that are unsuccessful).

Contracting authorities are also encouraged to break procurements down into homogenous or heterogeneous lots, with the potential to limit the number of lots awarded to a particular contractor, in order to provide further opportunity to SMEs and small businesses. Conditions for participation (listed in the Proposal) are also to be limited "to those that are appropriate to ensure that a candidate or tenderer has the legal and financial capacities and the commercial and technical abilities to perform the contract to be awarded".* Minimum yearly turnover requirements are also not to exceed three times the contract value except in duly justified circumstances. The Proposal further provides that Member States may require that sub-contractors are paid directly by the procuring Contracting Authority at the sub-contractor’s request where the nature of the contract so allows. Essentially this would appear to build on collateral arrangements with sub-contractors. If it chooses to do so, it will be interesting to see how the UK will implement the same.

The Proposal appears to make a positive move toward engaging SMEs and it will be interesting to see how these elements of the Proposal are introduced into UK legislation.

The Proposal further seeks to improve and clarify the procedures relating to e-procurement. In particular, the Commission recognises the potential for "significant savings and improved procurement outcomes while reducing waste and error". The Proposal requires the "mandatory transmission of notices in electronic form, the mandatory electronic availability of the procurement documents and imposes the switch to fully electronic communication, in particular e-submission, in all procurement procedures within a transition period of two years". This will clearly have a financial impact on contracting authorities that have not yet completely embraced the move to electronic tendering, however, in the long term one can see the benefit both financially and with regard to procurement turnaround time for contracting authorities and contractors.

Procurement time limits have been reduced to allow for quicker and more streamlined procurement (one would assume with the requirement to act proportionately), a move that is welcomed.

The grounds for exclusion have also been reviewed and clarified. Contracting authorities will now be able to exclude contractors that have shown "significant or persistent deficiencies in the performance of any substantive requirement under a prior contract". Again, a move that is welcomed particularly where service performance is of fundamental importance. Conversely, "contracting authorities may accept candidates or tenderers in spite of the existence of an exclusion ground if they have taken appropriate measures to remedy the consequences of any illicit behaviour and effectively prevent further occurrences of the misbehaviour."

Lastly, the Proposal has sought to deal with an issue of increasing importance to contracting authorities – the modification of contracts during their term. A specific provision on modification of contracts has been included to deal with the increasing problems faced by contracting authorities where unforeseen circumstances arise during the term of the contract. Although "substantial modifications" are to be considered new awards requiring new procurement procedures to be followed in accordance with the Directive, modifications that are below the threshold and do not exceed 5% of the of the initial contract price will be permitted provided they do not alter the overall nature of the contract, as will modifications that have been clearly and precisely scoped in the original procurement documents. Furthermore, a derogation will be available to contracting authorities with regard to "substantial modifications" and the requirement for a new procurement procedure where certain prescribed cumulative conditions are satisfied.  The Proposal provides "a pragmatic solution for dealing with unforeseen circumstances requiring an adoption of a public contract during its term".

In summary, the proposed changes are in the main welcome. However, it will be interesting to see how the UK implements the Proposal and how contracting authorities including local authorities interpret such changes in light of the global economic downturn particularly in the euro zone. No doubt time will tell.

Hakkan Hassan is a lawyer (solicitor) at the London Borough of Enfield.

* referenced from the Proposal for a Directive of the European Parliament and of the Council on Public Procurement Dec 2012.