Member Article

The new EU Procurement directive was published in the Official Journal of the EU today (28 March 2014) and will come into force on 17 April 2014.  This article summarises some of the key changes from the new Directive which are likely to be of interest to both the public and private sector. The UK will have 2 years to implement the Directive but the government has suggested that it will be implemented in a shorter timescale.  This Article will cover the following:

•  A summary of the key changes;

•  Codification of the Teckal Exemption

•  Codification of the horizontal co-operation exemption

•  A link to a copy of the published full Directive is available here.

Summary of key changes

1.  The Directive puts in place a simpler PQQ bidder credential process by providing for the use of a European Single Procurement Document (self-declared).  This is covered by Article 59 which provides that the ESPD shall consist of a formal statement by the economic operator that the relevant ground for exclusion does not apply and/or that the relevant selection criterion is fulfilled and shall provide the relevant information as required by the contracting authority. The ESPD shall further identify the public authority or third party responsible for establishing the supporting documents and contain a formal statement to the effect that the economic operator will be able, upon request and without delay, to provide those supporting documents.

2.  The Directive includes relaxations around using the negotiated procedure. At present, the negotiated procedure should only be used in very restricted circumstances and for all other complex projects the competitive dialogue process is used but the new Public Procurement Directive at EU level will make that slightly more flexible.

3.  There will now formally be an ability to take into account past poor performance.   This is one of the more interesting aspects of the new Directive.  Article 57(4)(g) allows exclusion of a supplier by a contracting authority where the economic operator has shown significant or persistent deficiencies in the performance of a substantive requirement under a prior public contract, a prior contract with a contracting entity or a prior concession contract which led to early termination of that prior contract, damages or other comparable sanctions.  We can envisage this provision being contentious as by its nature it seems subjective.  Obviously, the interpretation of the words significant or persistent difficulties will be key; but it is also possible to envisage more indirect queries arising such as how to evaluate a situation where the entity has been acquired by another company, or the previous management has been replaced. It is likely that both sides of the procurement fence will be keen to see how this provision is adopted into UK law and how it is to be applied in practice.

4.  The Part A and Part B service distinction that currently exists in the existing procurement legislation has now been removed at EU level. 

5.  There is going to be a reduction of statutory response times which will hopefully help to make procurement processes quicker and smoother. That is often sometimes dictated by the amount of time needed to consider the information provided as well as the statutory timescales so it will be interesting to see, in practice, whether the timescales actually reduce to the degree envisaged in the new Directive. 

6.  Article 24 restates the importance of avoiding conflicts of interest for the reasons of competition and equal treatment and Article 57(4)(e) allows exclusion of supplier by contracting authority where a conflict of interest under Article 24 cannot be remedied by other less intrusive measures.

7.  The EU regime also is looking to encourage greater Small and Medium Enterprises SME participation and looks to contracting authorities to break procurements down into smaller lots as well as a requirement to limit turnover requirements to a cap of 2x contract value. One of the issues that SMEs face when tendering for public sector projects or contracts is that the PQQ often automatically includes a fairly high turnover requirement.  Article 58(3) states that Contracting authorities may only set a minimum annual turnover of up to two times the estimated contract value. Although this is likely to encourage SMEs to bid for large contracts, it is possible that it may cause problems for contracting authorities who want to ensure their contractors are sufficiently well-financed and/or set-up to deliver the particular contract but on the whole this provision should be welcomed by the market.

8.  Innovation Partnerships have now been introduced.  Article 31 provides for a new Innovation Partnership Procedure where a contracting authority identifies a need for an innovative product, service or works that cannot be met by purchasing products, services or works already available on the market. Contracting authorities may decide to set up the Innovation Partnership with one partner or with several partners conducting separate research and development activities.  Effectively Suppliers are invited to submit tenders that are negotiated with the contracting authority, along similar lines to the Competitive Dialogue and Negotiated procedures. The contract is awarded on the sole basis of the award criterion of the best price-quality ratio.  The aim of the procedure is the development of the product, service or works and its subsequent purchase by the contracting authority, structured in successive phases following the sequence of steps in the research and innovation process. The partnership may be terminated after each phase or the contracting authority may reduce the number of partners by terminating individual contracts.

Codification of the Teckal Exemption

It is a well established principle following the Teckal Case that a relationship between a Contracting Authority and an arm’s length entity may fall outside the scope of the Regulations if it meets two requirements:

1. The Control Test: The Council exercises a control over the company which is similar to that which it exercises over its own departments; and 

2. The Essential Activities Test: At the same time, the company carries out the essential part of its activities with the Council.

Over time the case law has gone on to establish that:

•  the level of control exercised must be a power of decisive influence over both strategic objectives and significant decisions of the company; 

•  ownership of the company does not in itself fulfil the control criterion the contracting authority must also play a role in the company's management; 

•  the exemption can apply where several contracting authorities control the company;

•  private capital participation may preclude the application of the exemption; 

•  any activities conducted by the company outside of those provided for by the contracting authority must be of marginal significance only; and 

•  fthe two limbs of the Teckal exemption must be met on a continuing basis.

Article 12 of the new Public Sector Procurement Directive seeks to codify the Teckal exemption, providing that a contract can be awarded outside the scope of this Directive where the following cumulative conditions are fulfilled:

•  the contracting authority exercises over the legal entity concerned (the controlled entity) a control which is similar to that which it exercises over its own departments; and 

•  more than 80% of the activities of the controlled entity are carried out in the performance of tasks entrusted to it by the controlling authority or by other legal persons controlled by that contracting authority; and 

•  there is no direct private capital participation in the controlled entity with the exception of non-controlling and non-blocking forms of private capital participation required by national legislation which does not exert a decisive influence on the controlled entity.

This brings more clarity to the situation and is likely to be welcomed by the public sector in principle.

Horizontal Co-operation

The new Procurement Directive also seeks to codify recent case law and protect arrangements between Public Sector entities – i.e. the shared services agenda and provides a new exemption for horizontal co-operation.  This is also set out in Article 12 and provides that:

A contract concluded exclusively between two or more contracting authorities shall fall outside the scope of the Directive where all of the following conditions are fulfilled:

•  the contract establishes or implements a cooperation between the participating contracting authorities with the aim of ensuring that public services they have to perform are provided with a view to achieving objectives they have in common;

•  the implementation of that cooperation is governed solely by considerations relating to the public interest; and

•  the participating contracting authorities perform on the open market less than 20% of the activities concerned by the cooperation.

This is also likely to be welcomed by the public sector at a time when central government is looking to implement the Christie reforms which include greater use of shared services and integrated service delivery.

 

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