Welcome to a new era of EU procurement
Rebecca Rees examines the key points in the new EU Public Procurement Directive.
The draft of the EU’s new Public Procurement Directive (the Directive) has now been approved by the European Parliament. Here is a summary of the more thorny procurement issues the Directive has attempted to clarify and/or simplify.
Valuation of contracts
The Directive clarifies that the value of a contract for the purposes of deciding whether the EU procurement regime applies or not is the total revenue that the contractor is likely to receive relating to that contract. This is particularly relevant to energy companies obligation (ECO) contracts, with significant revenue being paid to contractors directly by the utility companies, rather than the client (which will often consider that it is receiving the works for “free” or at a discount).
The Directive, which codifies existing case law, makes it clear that the value of the ECO grant/contribution needs to be taken into account by the client when estimating the value of a contract. This is useful clarification for clients, which will now need to consider all revenue streams, rather than simply the amount they will be paying under the contract.
Abnormally low tenders
Given the increased competitiveness in the current marketplace, there have been a number of challenges before UK and European courts concerning abnormally low bids and the question of whether there is a general duty on a contracting authority to investigate a bid where the tender prices look abnormally low.
The previous Directive simply stated that such a duty existed only where a client wanted to reject the tender. The new Directive imposes a general duty on contractors to ask suppliers to explain the price or costs proposed in a tender that appear to be abnormally low. A client will, therefore, be at risk of challenge from an unsuccessful bidder if they fail to investigate a suspiciously low tender price. Obviously this is more onerous for clients, which will want their procurement team or consultants to provide clear guidance on whether a price is or is not “abnormally low” in the current market. Unhelpfully, the Directive does not offer guidance as to what might constitute an “abnormally low” price or cost.
The Directive codifies current case law and provides a useful steer as to the circumstances in which amendments to a contract post award are sufficiently “material” to amount to creation of a new contract and hence trigger an obligation to reprocure the contract via a further EU-compliant procurement procedure.
A material change is one that is likely to:
- introduce conditions which, had they been part of the initial award procedure, would have allowed for the admission of tenderers other than those initially admitted and/or accepted;
- extend the scope of the contract considerably to encompass works/services not initially covered;
- change the economic balance of the contract in favour of the contractor in a manner which was not provided for in the terms of the initial contract.
The Directive provides a list of scenarios where post-contract awards will be permitted without a reprocurement, for example:
- where any increase in value/price does not exceed 50% of the value of the original contract and the contracting authority publishes a “modification notice” in the Official Journal of the European Union;
- where the change is below the relevant EU value thresholds and does not exceed 10% (services and supplies contracts) or 15% (works contracts) of the initial contract value.
The Directive also clarifies that where a new contractor replaces the initial contractor a new procurement process will be required. (Unless the original tender provided for an unequivocal review and replacement procedure or a new contractor succeeds to the business of the initial contractor following a corporate restructuring, takeover, merger etc.)
Life-cycle costing at tender stage
The Directive makes it clear that clients may assess tenders on the basis of a life-cycle costing approach, which it defines as “all consecutive and/or interlinked stages, including research and development to be carried out, production, trading and its conditions, transport, use and maintenance, throughout the existence of the product of the works or the provision of the services, from raw material acquisition or generation of resources to disposal, clearance and end of service or utilisation”.
This is a useful clarification and hopefully will drive quality and sustainability by encouraging clients to move away from evaluating the lowest delivery cost towards a consideration of the whole-life/long-term cost of the works or asset it is procuring.
We look forward to reviewing the Cabinet Office’s draft regulations in due course. It has said that it will adopt a “light touch” approach to the implementation of the new Directive and while this remains to be seen, it is encouraging that the Directive has clarified a number of difficult issues facing clients and bidders in the UK on a day-to-day basis.
Directive enshrines social value
The new Directive states that it aims to better integrate social and environmental considerations into the regulated procurement procedures and re-emphasises the ability of clients to incorporate social aspects of the works, services or supplies to be provided into the evaluation criteria or contract performance conditions.
Such evaluation criteria and/or contract conditions must comply with the EU Treaty principles of non-discrimination, fairness and transparency and must be linked to the subject matter of the contract. It is useful to note that the provisions of the Directive are complementary to the Public Services (Social Value) Act 2012 (the Act).
Further, the Directive’s move to embrace life-cycle costing (as noted above) will help clients in complying with the Act by ensuring that social, environmental and economic value forms a standard part of the designing, developing and procuring the relevant services.
Rebecca Rees is a partner, projects & construction at Trowers & Hamlins