EU raises the procurement barrier for SMEs

Rebecca Rees outlines new EU-wide procurement rules that should help smaller firms

After a year of debate by the European Commission and EU member states, a package of three new procurement directives has been provisionally agreed, which are due to be published and adopted by the European Parliament by November. A revised Public Sector Directive will replace the current directive for the procurement of goods, services and supplies by public sector clients, with a separate revised directive for utilities. A new directive covering works and services concessions will also be introduced.

The Cabinet Office has announced “ambitious plans” for early implementation of the directives, “so that the UK can take advantage of the additional flexibilities in the new rules as soon as possible”. Though the exact timetable isn’t yet known, the Cabinet Office hopes to finalise the required legislative package within a year of adoption and we will therefore need to get to grips with the new rules some time in 2014.

The Cabinet Office promises that the new directives will support the government’s priorities of economic growth, and that clients will be able “to run procurement exercises faster, with less red tape, and more focus on getting the right supplier and the best tender”. This sounds encouraging, but what are the new directives likely to mean for clients and bidders?

The new directives have been designed to achieve:

1. A simpler, more flexible procedural regime

The new directives are drafted with the emphasis on achieving a lower administrative burden for both clients and suppliers alike. For example, legislation will introduce a system where bidders can make self-declarations as to their compliance with the stated selection criteria. This will be supported by the provision that only the winning bidder has to submit various certificates and documents to prove their status/previously made self-declarations.

There is also a strong emphasis on electronic procurement. The previous Directives attempted to implement a “no-paper” approach to procurement practices, but clients have thus far been slow to embrace this aim. The new directives have again pushed this agenda, but gone further by stipulating that electronic communication/e-procurement will become mandatory within four and a half years of the directive’s adoption.

While a number of administration-saving measures are welcomed, the move to a purely e-based procurement system will need to be carefully implemented by clients to ensure that they do not inadvertently favour larger companies that are able to invest in cutting-edge IT tools, leaving SMEs at a disadvantage when approaching bid opportunities.

2. Better SME access to the markets

The directives have attempted to reduce the barriers to SME involvement in the EU procurement market-place by addressing a number of practical issues.

There is now an express obligation on clients to consider splitting contracts into lots to facilitate SME participation. Whether this is successful will depend on the individual client, particularly as the directive reserves to them the discretion not to do so “where appropriate”. This could still mean that clients seek to achieve savings through bulk-buying and bundling smaller contracts into one opportunity, rather than prioritising the benefits that SME involvement in its supply-chain could bring.

The EC has also made a commitment to consider whether the level of the EU procurement thresholds should be increased or decreased. An increase would potentially take numerous procurements outside of the scope of the full EU procurement regime, but whether this will ultimately assist SMEs in accessing contracts is not guaranteed, particularly given that non-regulated procurements may adopt any format and documentation, with SMEs then having to get to grips with a multitude of different bidding requirements.

Another question hangs over the standardisation of procurement documentation, which is also recommended and encouraged under the new directives. This could assist SME access by adopting a singular approach to procurement requirements, thereby reducing the administrative burden.

However, current behaviour of UK clients shows that even standardised documents (for example the PAS 91 pre-qualification questionnaire) are not universally adopted and, if they are adopted, they are amended to reflect a specific client requirement. Whether such entrenched behaviour can be changed remains to be seen.

A turnover cap has also been introduced to aid SME participation. Clients cannot set company turnover requirements at more than twice the overall contract value. While benefiting SMEs, this cap will represent an increased risk for clients, who will need to consider the overall size of the contract and likely bidders to ensure that the risks of successful delivery and/or potential insolvency of the successful bidder are satisfactorily addressed through other means.

3. A greater focus on common social goals such as employment, public health and social responsibility

There has been much debate over the inclusion of “social” or “secondary” aims and whether procurement should be used as a mechanism through which such aims should be achieved. Politically popular, the EU procurement regime has always primarily been based upon core competitive drivers.

Nevertheless, the draft directives make it clear that social aspects can also be taken into account in some circumstances (in addition to environmental aspects which had previously been allowed). Clients may also ask bidders to provide evidence of the social and environmental credentials of the works/services/supplies that they are offering, including factors directly linked to the production process.

Rebecca Rees is a partner, projects & construction, at Trowers & Hamlins