Towards a modern procurement regime

Just before Christmas the European Commission published its long-awaited proposals for reforming the legal framework for public procurement. So what does it all mean for local authorities? Sharon Jones examines the plans.

Following its announcement 18 months ago that it was reviewing the public procurement rules, the European Commission has produced its proposals, in the form of draft Directives published on 20 December 2011, leaving lawyers to digest the contents hurriedly during the pre-Christmas rush.

Local Government Lawyer published a summary of the contents of the draft Public Sector Directive on 20 December - in this article I will be looking at particular implications for local authorities.

The draft Directive has incorporated many of the concerns expressed by the Local Government Association, the Partnership of Public Employers and other UK bodies representing local authorities, so there is certainly cause for cheerfulness.

The abolition of the distinction between Part A and Part B services plus the revised treatment of social, health and education services will have a significant effect on local authority procurement. While the application of the basic European Union (EU) principles of transparency and equal treatment to the procurement of social services contracts over €500,000 is essentially “as you were”, the assumption that such contracts valued below €500,000 will have no cross border interest – and thus EU rules wil not apply - will be a weight off procurement managers’ shoulders. This does not mean that it can be a free for all. Standing orders will still require competitive tenders for many procurements.

Local authorities will certainly benefit from the simplified procurement regime that applies to contracting authorities below central government level. Where a prior information notice is published, there is no need for a separate contract notice.

The simplified procedure allowing shorter time limits for Pre-Qualification Questionnaire (PQQ) and Invitation To Tender (ITT) responses – and the ability to shorten time limits further, where all the bidders agree, will help, as will greater flexibility to sequence criteria as between PQQs and ITTs. The inability to consider experience at ITT stage has been a frequent cause of frustration under the current rules.

One of the areas local authorities currently struggle with is how to procure information technology contracts. Realistically, it is difficult to deal with strong providers and standard form software licences without an element of “negotiation” at some point. The current requirement to use the restricted procedure – or, exceptionally and expensively, competitive dialogue – makes it difficult for authorities to comply with the rules and get a sensible result. The draft Directive brings the negotiated procedure back into the picture, with appropriate safeguards. This option will, no doubt, be taken up with considerable enthusiasm.

The trend towards shared services has not diminished, with local authorities continuing to be under pressure to reduce costs. The draft Directive builds on the recent Commission Staff Working Paper on the application of the EU public procurement rules to relations between contracting authorities and codifies the Teckal caselaw on "in-house" procurement.

Agreements between contracting authorities are not caught by the procurement rules where there is genuine cooperation aimed at carrying out, jointly, public service tasks, with mutual rights and obligations, the agreement is governed only by considerations relating to the public interest, the agreement does not result in more than 10% of its relevant turnover deriving from the open market, consideration between the authorities must only be reimbursement of actual costs of the works, services or supplies and there is no private interest in any of the contracting authorities involved.

With a Teckal company, the draft Directive confirms that it is outside the  procurement rules where there is control over the company similar to that which authorities exercise over their own departments, 90%+ of the company’s activities are carried out for the controlling contracting authorities or for other subsidiaries of them and there’s no private participation in the company. The rules apply whether there is one public sector parent or several, but there is clarification as to what amounts to joint control, in the latter case.

Finally, local authorities will particularly welcome the helpful new provisions relating to the modification of existing contracts, which clarify and expand the law in this area. It is now clear that a modification is not substantial where its value does not exceed the relevant threshold and is below 5% of the price of the initial contract, provided that the modification does not alter the overall nature of the contract. What is new is that a variation is acceptable where the need for modification has been brought about by circumstances which a diligent contracting authority could not foresee, the modification does not alter the overall nature of the contract and any price increase is not higher than 50% of the value of the original contract.

Additionally, the debate over whether a replacement of the contractual provider amounts to a substantial modification is now (largely!) concluded – it is only acceptable where there’s corporate restructuring or insolvency of the initial contractor, so optimistic interpretations of Pressetexte were off the mark, sadly.

What happens now?

The draft proposals are not yet set in stone. They will be considered and negotiated by the Council and the European Parliament. Once adopted, there will be a requirement on Member States to incorporate them into national legislation, together with any optional provisions – and if the EU adopts the Directive by the end of 2012, the backstop date will be 30 June 2014.

Sharon Jones is Of Counsel in the Government and Infrastructure team at Browne Jacobson LLP. She can be contacted on 0115 976 6284 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..