1 Procurement present and future – the art of the possible Procurement present and future – the...

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Procurementpresent and future – the art of the possible

Procurementpresent and future – the art of the possibleChristopher Brennan, Wragge & Co LLP

Royal Northern College of Music, Oxford Road, Manchester

Thursday 14 June 2012

Christopher Brennan, Wragge & Co LLP

Royal Northern College of Music, Oxford Road, Manchester

Thursday 14 June 2012

Name of Speaker, Position2

Overview of EU procurement law (1): its purpose and origins

A creature of Brussels (and the Single Market imperative)

Regulates the way purchasing must be conducted, to promote competition (and therefore value) within the Single Market

Three branches of this law: one regulates the public sector, another regulates utilities, but with a lighter touch; the third regulates defence and security

The “free movement” rules (free movement of goods; freedom to provide services) are the bedrock of the Single Market (and are enshrined in the Treaty of Rome (now the Treaty on the Functioning of the European Union))

Procurement law is designed to be an enabler of the cross-border trade promoted by the free movement rules


Overview of EU procurement law (2): its legislative make-up Treaty on the Functioning of the European Union (TFEU)

Directive 2004/18 (Public sector)

Equivalent directives for utilities and defence

Directive 2007/66 (dealing with redress)

Case-law of the European courts

The Public Contracts Regulations 2006 (SI 2006/5) (as amended)

Equivalent regulations for utilities and defence

Amending regulations in 2009 (SI 2009/2992) and 2011 (SI 2011/2053) to tighten:

– the rules on getting redress for bad decisions; and

– the time-limits for doing so

Domestic case-law in (England, Northern Ireland, Scotland)


TFEU

- Free movement rules

RULESDirective 2004/18 (Public Sector)

Directive 2004/17(Utilities)P

R

I

N

C

I

P

L

E

S

Equal Treatment

Transparency

Non-discrimination

Mutual recognition

Proportionality

Utilities Contracts

Regulations 2006 Public Contracts

Regulations 2006

Amending Regulations in 2009

(on getting redress for bad decisions)

Amending Regulations in 2011

(on the timescales for doing so)

RULES


Overview of EU procurement law (3): The state of play today In Europe, public authorities spend about 18% of GDP buying goods and

services, and procuring construction works

The European Commission recognises that procurement can be used as a powerful lever for achieving a Single Market fostering growth

But the current rules don’t really address many of the legal and practical issues faced in the context of complex procurements

So a large body of case-law has grown up to fill some of the gaps

And there are proposals to modernise the whole of procurement law, to codify key case-law, and to make the law more flexible - starting with an all-new set of Directives by end 2012 (implementable in all member states by mid-2014)


Basic concepts (1): classification of different types of procurement The procurement rules apply where a public body – a “contracting

authority” – “procures”, i.e. buys, (1) goods, (2) services*, and/or (3) building work/development

The rules apply when the estimated total value of what is being bought exceeds £113,057 (for goods and services*), and £4,348,350 (building work/development)

*THE BIG “BUT”: services are sub-classified into 2 groups – those whose procurement is fully regulated by the rules (“Part A”) and those whose procurement is only partially regulated (“Part B”)

HEALTH/SOCIAL CARE SERVICES ARE PART B, so most of the detailed rules don’t apply when buying those services. Fully regulated (Part A) services include architectural, financial, management consultancy, ICT

So what is there to watch when buying Part B services?


Basic concepts (2): buying Part B services Remember the EU principles of equal treatment, transparency etc? They

are considered to apply when buying Part B services, IF there is likely to be foreign interest in what’s being procured

BUT our own national rules require us to treat candidates equally and in a non-discriminatory way, and to act in a transparent way – regardless of whether there’s any cross-border interest

And the standing orders/SFIs of the commissioner may require it to put purchases out to tender if the estimated contract value exceeds a certain amount (in the SFIs of many commissioners, the threshold here can actually be lower than the applicable EU threshold)


Basic concepts (3): what aren’t Part B services Remember that health and social care services class as Part B; in

essence, these are services to the individual (in other words the services of clinicians, other healthcare/social care professionals and those in allied professions)

So, the following are not Part B services and may be subject to the full procurement rules:

– the purchase of equipment (e.g. a scanner)

– the purchase of software or a software solution

– the purchase of medical devices

Some services may involve a mix of elements - software plus services of clinicians (e.g. teleradiology reporting). Rule: what represents most of the contract value – the software or the service?


Basic concepts (4): Exemptions originating from the European Court Teckal: direct award to an entity specially established by the

commissioner is allowed where:

– the commissioner exercises over that entity a degree of control equivalent to the control it exercises over its own departments, and

– the controlled entity carries out the essential part of its activities for the controlling commissioner

This also applies where more than one commissioner controls the entity (so a “Teckal” JV co)

Hamburg: no procurement needed where commissioners co-operate to carry out their public functions and there is genuine co-operation, carried out in the public interest, no profit is made (there is cost reimbursement only), and there is no private participation in the provision of the services. Here the commissioners are effectively just “helping each other out”


Basic concepts (5): NHS specifics NHS pilots:

– These may be short- or longer-term contracts

– They may involve procurement

– They may involve a mix of Part A/Part B services, or could involve a mix of services/goods (or more)

– How the procurement is classified, and the extent to which the rules apply, depends on what accounts for the greater (or greatest) element in the contract for the pilot

– Not all pilots are procured competitively. This may be intentional, and may be sanctioned by the fact that they class as Part B services

– They may evolve into bigger projects later, which may be procurable

Purchasing for other bodies:

– As agent for a number of health bodies

– With their authority


Basic concepts (6): the procedures (mandatory in procurements other than Part B or below-threshold) Open: contract notice (min. 30 days), tender, evaluation, standstill

(min.10 days), award. Typical timeline: about 2 months

Restricted: contract notice (min. 30 days), selection, tender (min. 40 days), evaluation, standstill (min.10 days), award. Typical timeline: between 3 and 4 months

Competitive dialogue: contract notice (min. 30 days), selection, dialogue (often phased) leading to tender, evaluation, standstill (min.10 days), award. Typical timeline: anything between 8 or 9 months and 3 or 4 years, depending on the complexity of the project

Negotiated: contract notice (min. 30 days), selection, negotiation (leading to “BAFO”), evaluation, standstill (min.10 days), award. Typical timeline: same as competitive dialogue


Basic concepts (7): the procedures, their use and limitations Open: an uncomplicated procedure, for uncomplicated requirements

Restricted: generally regarded as the “default”. Fine when the authority can specify the precise make-up of the project (technical, financial, legal). Allows for NO negotiation at any stage

CD: Used for the procurement of “particularly complex” contracts, where the authority isn’t “objectively able” to specify the make-up of the project and where the open or restricted procedures do not allow the award of the contract. Allows for NO negotiation after dialogue, except to “clarify, specify or fine-tune” tenders (leaving their “basic features” unaltered)

Negotiated: only available for super-complex procurements; otherwise outlawed. Note: the legislative reform proposals, if implemented, will alter this

REMINDER – these procedures only formally apply to fully regulated procurements (so not procurements of health services). But purchasers can adopt the same or similar procedures for those, and it may make for a more demonstrably fair process if they do


Basic concepts (8): Fairness – how candidates can expect to be treated Much of the body of public procurement case-law has arisen out of

complaints about lack of fairness, openness and objectivity on the part of authorities carrying out procurements and making award decisions following evaluation

Notably, and from the perspective of the Treaty Principles, the case-law has highlighted the importance of articulating selection criteria, award criteria, and the weightings of each, at the right time

Case-law has also underlined the importance of an effective system of pre-contract review of award decisions (hence the standstill period), and has resulted in the introduction of a means of having signed contracts declared ineffective in certain situations (in each case recognising that

damages may not be adequate)

Be aware - some of the case-law does come from procurements of Part B

services!


Evaluation: Distinguishing between selection criteria and award criteria (1) Selection Criteria: these are tightly regulated, so their range is limited.

They are basically designed to assess the suitability of candidates to be taken forward to the bid stage of the procurement, and are used at pre-qualification

Award Criteria: these are loosely regulated, and their aim is to identify which candidate should win the contract by being applied in the assessment of the price and quality aspects of each bid


Evaluation: Distinguishing between selection criteria and award criteria (2) Selection Criteria look at ability to perform the contract, based on

– Economic and financial standing

– Skills and technical capacity, based on current credentials and past experience


Evaluation: Distinguishing between selection criteria and award criteria (3) Award Criteria look at the attractiveness of the actual bid, and have to

be used to assess the bid on the basis of one of the following:

– Lowest price, or

– The most economically advantageous tender (“MEAT”) – i.e. price balanced against qualitative aspects of the bid


Evaluation: MEAT criteria and weightings (1)

It is up to the contracting authority to decide what criteria should apply, and what weightings should apply to them

Evaluation methodologies should be prepared (ideally in MS Excel spreadsheet or other workable format) at the same time as the criteria themselves are actually formulated



All award criteria their weightings should be disclosed as early as possible in the procurement process and MUST be disclosed by the time the ITT is issued

Where it is believed that weightings cannot be provided (on objective grounds), authorities MUST disclose award criteria in descending order of importance



Whatever criteria are used, they and their weightings must be CLEAR – and able to be understood in the same way by all candidates (including foreign ones!)

They must be linked to the subject matter of the contract

They must not operate to confer unrestricted freedom of choice on the authority

They must not deprive an incumbent provider of the advantages afforded to that provider


Evaluation: MEAT criteria and weightings (4) Sub-criteria can be used, PROVIDED they are disclosed in advance of

bid preparation, OR (if they are not disclosed) wouldn’t have affected bid preparation if they had been disclosed

Pass-fail criteria: take care when using these!

Weightings: remember that even if the criteria are right, wrong weightings can produce disaster

Remember the Treaty principles – they must be applied throughout


Proposals for modernisation (1): headline stuff To recap: new Directives expected end 2012, new domestic rules in

2014

Big changes:

– Overall simplification

– More scope for negotiation

– New procedure – “innovation partnership” (a negotiated procedure – “we negotiate, you innovate and then we’ll buy”)

– Very light-touch rules for NHS commissioners, CCGs and FTs


Proposals for modernisation (2):Loss of Part A/B services distinction All services to be fully regulated, with a few key exceptions including

health services, and legal services with limited cross-border interest

EUR500,000 threshold for the carved-out services

Contracts estimated to exceed threshold will be subject to an OJEU and Contract Award Notice requirement, but otherwise the only obligation will be to ensure transparency and equal treatment (and some relatively flexible rules around evaluation criteria)


Proposals for modernisation (3):procedural changes Competitive dialogue and negotiated procedure will rank equally in terms

of the ability to choose between them

Electronic availability of procurement docs and transmission of notices will be mandatory

Incentivising division into lots: where contract value falls above threshold but below EUR500,000, a CA will have to justify NOT dividing into lots

New provisions specifically allow pre-procurement consultation with the market

Rules on negotiated procedure are tighter around phased de-selection, explaining reasons for de-selection and allowing adequate time for submissions, and not changing specified aspects during the process

Rules on competitive dialogue are a bit looser: negotiation with preferred bidders is permitted provided essential aspects of tender are not modified and no risk of distortion of competition, or discrimination

REMINDER: the above apply to fully regulated procurements


Proposals for modernisation (4):best of the rest Innovation partnership: “establishing a structured partnership for the

development of innovative products, services or works and the subsequent purchase of the resulting supplies, services or works” (follows NP)

Timescales: all shortened. OP - 40 (elec: 35) (PIN: 25); RP – 30+35 (PIN:15) (elec: knock off 5) (sub-centrals can agree); NP – 30+30; CD – 30+whatever

Teckal codification: note - 90% activity requirement

Hamburg codification: no procurement needed where authorities co-operate and (i) genuine co-operation, (ii) public interest, (iii) no more than 10% open market activity, (iv) cost reimbursement only and (v) no private participation

Pressetext codification: substantial change

Requirement for declarations by candidates of “privileged links” and MSs to impose rules to “prevent, identify and…remedy conflicts of interest”

Requirement for a public oversight body in each member state


Commercial Issues: striking the balance People often want to run a mile from the procurement rules. You can

sometimes avoid them, but when you can’t, you can make them work for you rather than against

It’s all about the art of the possible – they allow surprising amounts of flexibility

Where they don’t, what’s the likelihood of challenge?

Think about market testing/engagement, and commercial risk management

Compare:

– “value for money” requirements; the imperative for savings

– compliance with governance protocols

– “best practice” in procurement

Spotting potential conflicts of interest makes them easier to avoid (or manage)

Getting strategic legal advice early can make all the difference


Thank you

Questions?

[email protected]

0121 214 1055

07841 322716

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