The new Public Procurement Rules

European Procurement iStock 000011527633Small 146x219The much anticipated new public procurement directives have now been approved by the European Parliament. Judith Barnes and Alexandra Von Westernhagen assess the main changes.

On 15th January 2014, the European Parliament approved two new public procurement directives to replace Directive 2004/17 (Utilities Directive) and Directive 2004/18 (Public Sector Directive), respectively, and a separate proposed directive on the award of concession contracts. 

These directives will now be formally approved by the Council and published in the Official Journal, with an expected entry into force in March 2014. Member States have an implementation period of two years; the UK government has, however, expressed its intention to effect this in a shorter time period.

DAC Beachcroft has played an active role in the shaping of the texts since the early stages of the review process, going back to before the initial European Commission proposal was made in December 2011. The below contains informal comments from members of the European Commission who drafted the initial proposal.

Changes

The below table considers key changes for the Public Sector Directive (Directive), which has attracted considerable attention from DAC Beachcroft clients throughout the adoption process. Additional changes to take note of include the introduction of a mandatory use of electronic communications, a new innovation partnership procedure as well as simplified procedures for local authorities. Most of the changes listed in the table below will also be reflected in the new Utilities Directive.

   New Public Sector Directive
Social, healthcare, education and other similar services (including most legal services) 
  •     The new Directive removes the distinction between Part A services (subject to the full range of rules) and Part B services (subject to only limited procedural requirements) and provides a list of "social and other specific services" in respect of which a "light touch regime " will apply. The notification threshold for such services is €750,000.
  •     If the threshold of €750,000 is exceeded, there is a choice as to whether to publish a PIN or OJEU (with simplified content requirements for both).
  •     Member States are free to choose the applicable national rules for running a "light touch regime" as long as these ensure compliance with the principles of equal treatment and transparency.
  •     The Directive’s recitals state that, below the threshold of €750,000, there should normally be no cross-border interest in providing the services, which means that there should be no obligation to run a tender exercise under the EU Treaty either.
 Award Criteria:
  •     The new Directive provides that the award of contracts on the basis of the Most Economic Advantageous Tender (MEAT) will be the sole award criterion; the current rules allow for the award of contracts on the basis of either MEAT or price for most procedures.
  •     However, under the new rules, decisions as to what represents MEAT may be based on price and/or other criteria. It is, therefore, incorrect, to assume that future contract awards will have to be on the basis of MEAT. It will rather be for the individual Member States, when implementing the Directive, to decide if a contracting authority cannot award solely on the basis of price.
  •     The new Directive allows contracting authorities to explicitly state social criteria when assessing MEAT, to the extent that it relates to the subject matter of the contract.
 Dynamic Purchasing System (DPS)
  •     The rules on DPSs have been simplified in order to encourage their use. By way of example, there is no longer a requirement to publish a simplified OJEU notice each time the contracting authority wishes to make a purchase from the DPS.
  •     DPSs can be used for the procurement of supplies, services or works.
  •     However, procurements under a DPS must be made under the restricted procedure, which limits its practicality.
Procurement Procedures
  •     The minimum time limits for each procedure have been reduced. For example, the minimum time limit for the open procedure has been reduced from 52 days to 35 days.
  •     The Directive’s recitals provide that more contracting authorities should use the competitive negotiated procedure.
  •     The procedure has therefore been simplified and is available under broadly the same circumstances as the competitive dialogue.

 

 

 

Contracts between Contracting Authorities (CAs)

  •     European Court of Justice case law on both the in-house exemption (Teckal) and shared services exemption (Hamburg) has been codified in the new Directive. The compromise text, however, leaves much room for interpretation and legal advice should, therefore, be sought, before relying on one of these exemptions when awarding contracts.

The In-house Exemption

A contract will fall outside the Directive where:

    a) The CA(s) exercise(s) control over the legal person similar to that which it exercises over its own departments;

    b) more than 80% of the average turnover of that legal person relates to the performance of tasks entrusted to it by the controlling authority, or by other legal persons controlled by that contracting authority; and

    c) there is no direct private capital participation.

The Directive contains further elaboration on the definition of control. It also allows for the in-house exemption to apply where the CA exercises control over the legal person jointly with other CAs.

The in-house exemption has been explicitly extended to the award of contracts between companies which are controlled by the same parent (“sister companies”) as well as to the award of contracts by the controlled company to its parent.

The Shared Services Exemption

A contract will fall outside the Directive where:

    a) the contract establishes or implements a co-operation between the participating CAs, with the aim of ensuring that the public services they have to perform are provided with a view to achieving objectives they have in common;

    b) the implementation of that co-operation is governed solely by considerations relating to the public interest; and

    c) the participating CAs perform on the open market less than 20% of the activities concerned by the co-operation.

These provisions facilitate, at least at first sight, the co-operation between CAs. However, many questions remain open, for example, to what extent a CA, to which a contract is awarded under this provision, can aim to make a profit under the contract.

 

 

 

Modifications to contracts during their term

The new Directive clearly sets out under what circumstances a CA can make a change to a regulated contract without infringing public procurement rules. The provisions go beyond Pressetext, which sets out the parameters within which a CA can work.

The new Directive mainly allows for a change of the contractor’s identity where:

  •     a review clause explicitly allows for the change; or
  •     the identity of the contractor changes due to corporate restructuring (provided that the new operator fulfils the original procurement's selection criteria).

Changes to contract terms and conditions are permitted where either:

  •     the initial procurement documents provided for the change;
  •     the change is a contract extension which meets tests similar to those currently set out in Regulation 14 of the Public Contracts Regulations; or
  •     the change is de minimis. This is the case where the value of the change is below the relevant threshold AND for supplies and services contracts, account for less than 10% of the initial contract value (15% for works contracts).

If the above conditions do not apply, the Directive is clear that the change will be an illegal change where:

  •     had the change been in the initial procurement, it would have allowed for the admission of new candidates, the acceptance of a different offer or attracted additional participants;
  •     it changes the economic balance in favour of the contractor; or
  •     it extends the scope considerably.

 Judith Barnes is a Partner and Alexandra Von Westernhagen is an Associate at DAC Beachcroft. Judith can be contacted on 0113 251 4712 or This email address is being protected from spambots. You need JavaScript enabled to view it..