Briefings

Tender Rules: New Proposals

Following the adoption of the Single Market Act in October 2010, the European Commission (the Commission) confirmed its intention to issue legislative proposals by 2012 updating and reducing the complexity of public procurement rules. These proposals are pivotal to the Europe 2020 strategy.

In late December 2011, the Commission published proposals for three new draft directives in this area, relating to public procurement rules, utilities procurement rules and concession contracts.

1. Proposed Public Procurement Directive

Public procurement guidelines are currently implemented by Directive 2004/18 EC (Directive 2004/18/EC of the European Parliament and of the Council on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts, 31 March 2004).

The Commission published a Green Paper on public procurement rules in January 2011 (A Green Paper on the modernisation of EU public procurement policy - towards a more efficient European Procurement Market, European Commission, COM (2011) 15). In parallel with the Green Paper an evaluation of the impact and cost effectiveness of public procurement policy was undertaken.

In the current economic climate public authorities are facing increasing fiscal constraints and there are also concerns about the relative lack of cross-border investment. The proposed new directives seek to address these issues.

The provisions are intended to achieve the following aims:

1. The reduction in the complexity of procurement rules and enhancement of their flexibility. The proposals attempt to achieve this in a variety of ways:
1. Clarifying the language of the directive - definitions of key procurement terms have been expanded and updated in line with established case law.
2. Clarifying the extent of the directive - the proposed directive eliminates the distinction between “Part A” services (to which the full procurement rules currently apply) and “Part B” services (to which only residuary procurement rules currently apply). Former Part B services will now be subject to the full application of the procurement rules.
3. Improving provisions in respect of public-public authorities - the proposal enshrines in legislation the Teckal (Case C-107/98, Teckal Srl v Comune di Viano and Azienda Gas-Acqua Consorziale (AGAC) di Reggio Emilia, 18 November 1999) ruling on “in-house” procurement. It provides that a contract awarded by a contracting authority to another legal person falls outside the scope of the proposed directive if the following cumulative conditions are met:
• The contracting exercises over the legal person concerned a control which is similar to that which it exercises over its own departments.
• At least 90% of activities of that legal person are carried out for the controlling contract authority or for other legal persons controlled by that contracting authority.
• There is no participation in the controlled legal person.
4. The relaxation of the conditions for using negotiation - based procedures and the promotion of a move towards electronic communications, by adopting the measures below:
1. Improved practices - the proposals stipulate that either an open or restricted procurement procedure must be made available, with other procedures permissible upon fulfilment of certain criteria, including a competitive procedure with negotiation, a competitive dialogue procedure and an innovation partnership procedure.`
2. E-procurement -the proposals envisage transparent, complimentary and unrestricted access to the relevant procurement documents by electronic means within two years of adoption, with limited exceptions.
3. Procedural conduct - the proposed directive revises the rules relating to conduct of the procurement procedure, including a new section on the preparation of the procurement bid. The proposals also set out further rules on transparency of the procedure and the choice of participants and contractual awards. Generally, the procedures have been made more flexible. The criteria for awarding contracts still remain the most economically advantageous tender or the lowest cost. The proposed directive states that a contracting authority may elect to assess costs on the basis of the price only or using a cost-effectiveness approach, such as life-cycle costing.
4. Contractual variation - the proposals seek to resolve inconsistencies as regards contractual modification during their execution. Modification must not be used to rescue either party from a bad bargain. A substantial change to the tender contract will be regarded as a new award and require a new tender. The proposals define what is meant by a substantial modification and grant greater latitude for parties for extraneous unforeseen events.
5. Miscellaneous measures - the proposed directive also makes several changes to streamline the procurement process, including new methods for calculating the value of procurement (to be revised periodically); the shortening of time limits for participation and submission of offers; clarification of the grounds for excluding candidates; and simplification of documents to be provided by bidders.
2. The encouragement of greater SME involvement in the procurement market. The Commission places strong emphasis on the potential of SMEs and believes that simplifying the procurement process will increase market access for SMEs. The Commission proposes to simplify the process for SMEs by:
1. Reducing the information burden required in the submission of documents.
2. Inviting the contracting authorities to divide public tenders into either heterogeneous or homogeneous lots to increase accessibility for SMEs.
3. Removing unjustified barriers to entry for SMEs by providing an exhaustive list of conditions for participation in procurement procedures.
4. Allowing the Member State to provide that subcontractors may request direct payment by the contracting authority of supplies, works and services provided to the main contractor in the context of the contract performance. This offers greater payment protection for subcontractors, which are often SMEs.
3. The use of public procurement rules to achieve broader policy objectives, through technical specifications, selection criteria and award criteria. These policy objectives include improved environmental conditions and efficiency, the promotion of increasing employment and innovation and other conditions that might foster the best conditions for the provision of high quality services.
4. The introduction of a simplified procedure for “social services”. The Commission considers that social, health and education services possess idiosyncratic qualities that take them outside the regular procurement procedure and so has rationalised the procurement rules relating to such services.
5. The introduction of better compliance procedures. These procedures will enhance existing risk management procedures and protect against conflicts of interest, illicit conduct and corruption.
6. The establishment of a national authority to monitor procurement contracts.

2. Proposed Utilities Directive

Utilities procurement rules are currently implemented under Directive 2004/17 EC (Directive 2004/17/EC of the European Parliament and of the Council on coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors, 31 March 2004).

The proposed new Utilities Directive applies to “activities relating to the exploitation of a geographical area for the purpose of the provision of airports and maritime or inland ports or other terminal facilities to carriers by air, sea or inland waterway” (Article 9, “Proposal for a Directive of the European Parliament of the Council on procurement by entities operating in the water, energy, transport and postal services sectors”, COMM (2011) 895 final, 20 December 2011).

The proposal for the new Utilities Directive introduces most of the same procedural changes as the proposal for the Public Procurement Directive (listed in section 1). However there are some additional proposals that are particular to the Utilities Directive, listed below:

1. The proposals indicate that a utility will not be deemed to have “special and exclusive rights” where the rights have been conferred by means of a procedure in which adequate publicity has been ensured and where the rights were obtained according to objective criteria (Recital 9, “Proposal for a Directive of the European Parliament of the Council on procurement by entities operating in the water, energy, transport and postal services sectors”, COMM (2011) 895 final, 20 December 2011).
2. Procurement for the exploration of oil and gas is no longer included.
3. The innovation partnership procedure has been added to the list of possible utilities procurement procedures. This involves an operator submitting a request to participate in response to a tender notice with a view to establishing a partnership for an innovative project. The partnership is structured in successive stages that follows the process. Any contract awarded according to this procedure is governed by the rules for a competitive procedure with negotiation.
4. The proposed directive provides further clarity on the exemption for contracts awarded to affiliated undertakings or joint ventures.

3. Proposed Concession Contracts Directive

Concessions are public-private partnerships where private companies bear the risk of exclusively operating, maintaining and undertaking the development of infrastructure or providing services of economic interest on behalf of public authorities.

The Commission has recognised the need to provide greater legal certainty for concession contracts to reduce market inefficiencies.

Following consultations in 2010 the Commission has published a proposed new directive on the award of concessions. The proposals apply to both works and services concessions.

The provisions of the proposed directive are designed to improve access to concession markets by improving the clarity of the awards process and providing uniformity for various aspects of the tender process. The proposed provisions will not apply retroactively and are detailed below:

1. The proposed directive applies fully to concessions awarded by utility contracting entities or authorities where the value of the concession is estimated to be not less than €5 million. Furthermore, for services concessions between €2.5 million and €5 million there is an obligation to publish the concession award notice.
2. The proposals contain formal definitions for concession contracts including public works concession, a works concession and a services concession.
3. The proposals stipulate a minimum deadline of 52 days for the submission of interest in any concession award procedure.
4. The proposals also contain a number of exclusions from the directive.
5. The proposals stipulate that a concession notice must be issued where it is intended that a concession will be awarded, although derogation is possible. The proposals also stipulate the use of technical specifications, selection criteria and award criteria for any tender.
6. The proposals limit the duration of the concession to the time estimated for the concessionaire to recover investments made in operating the works as well as a reasonable return on capital.
7. The proposals set out a number of “procedural guarantees” to ensure procedures are fair and transparent.
8. The proposals for modification of an awarded concession are the same as the Public Procurement modification rules (see 1(b) (iv)).
9. On remedies, the proposals state that the Remedies Directives (Directives 89/665/EEC and 92/13/EC, as amended by Directive 2007/66/EC) should be extended to apply to all concession contracts above the threshold mentioned in section 3(a).

Impact

The aim of the proposals is to streamline public procurement procedure across the EU. The passing of further legislation with the aim of reducing “red-tape” may appear to be counter-intuitive, but the Commission maintains that the adoption of three directives will ensure lasting improvements in procurement law.

Next steps

The proposed new directives will now be reviewed by the Council of Ministers and the European Parliament with a view to beginning the adoption procedure before the end of 2012. The final implementation of the legislation is currently expected in 2014.

The UK Cabinet Office published a Procurement Policy Note on 21 December 2011 (“Procurement Policy Note - Legislative Proposals for the Revised Procurement Directives and a new Directive of Concessions”, Information Note 11/11, 21 December 2011), welcoming a number of the proposals but also expressing concern on governance requirements and the absence of provision of an exemption for employee-led organisations/mutuals.

The Cabinet Office has invited comments on the proposals in order to assist in legislative negotiations. An initial deadline of 20 January 2011 has been set for the receipt of initial comments, although the Cabinet Office has stated that it will welcome input at all times.

For more information, please contact Anthony Woolich, Partner, on +44 (0)20 7264 8033 or anthony.woolich@hfw.com, or Eliza Petritsi, Partner, on +44 (0)20 7264 8772 / +32 2 643 3402 or eliza.petritsi@hfw.com, or Konstantinos Adamantopoulos, Partner, on +32 2 643 3401 or konstantinos.adamantopoulos@hfw.com, or your usual HFW contact.

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