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Public Contracts Regulations 2015

Simon McCann, PartnerPenri Desscan, Partner

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“To boldly go”

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Commencement, Exceptions and VariationsPenri Desscan, Partner

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Transition – Old to New (1) (R118)

• PCR 2015 applies to procurement exercises advertised on/after 26 th February 2015

• Procurements commenced before 26th under PCR 2006• ‘Commenced’ includes:

– Contracts, Frameworks, DPS - advertised, awarded or called off pre 26/2

– Expressions of interest/offers sought – Response to unsolicited expressions /offers

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Transition – Old to New (2) (R118)

• PCR 2015 do not apply to– Contracts, frameworks, DPS - advertised or awarded pre 26/2– Calls off under a framework or DPS that were advertised or

awarded pre 26/2• Therefore new rules relating to contract variations/modifications

(R72) will not apply

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Early Access to Procurement Documents (R53)

• Electronic Access to Procurement documents • “unrestricted and full direct access” from

– date of publication of notice in OJEU, or– Invitation to confirm interest sent (PIN)

• ‘Procurement documents’ widely defined includes the 2nd stage ITT documents’ (contract condition and so forth)

• Planning and preparation – work front loaded• Speeds up process at the back end / bidders can make

informed choice early on• Exceptions – urgency, confidential material, technical

rationale• What about CD process , iterative ITPD / ISFT stage docs ?

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Public - Public Collaboration (1) (R12)

• Codifies Teckal or quasi ‘in-house’ exception• Exempt from PCR 2015 if:-

– CA has control over legal entity similar to its own departments. – “Control” = decisive influence over strategic and significant

decisions– Controlled body (CB) does more than > 80% of its activity for CA– No direct, controlling/blocking private capital interest

• Joint Control also permissible if above conditions fulfilled– > 80% rule applies jointly across the CA’s – interests pursued by CB not contrary to those of CA’s

• Applies Vertically (upwards/downwards)and Horizontally– Controlled body can award to controlling authority, and to

another controlled body of same authority(ies)

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Public - Public Collaboration (2) (R12)

• Hamburg exception also codified and made clearer• Contract between CA’s exempt from PCR 2015 if:-

– Co-operation to perform services conferred upon CA’s, with aim of achieving common objectives

– Governed solely by considerations in the public interest– CAs perform less than < 20% of the activities on the open

market • Has to be a genuine co-operation and commitment to

contribute• Mere pass-through of costs for procuring services from

another CA not enough• 20% & 80% measure based on 3 years turnover/activity or

credible business projection

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Contract Variations (1) (R72)

• Codification of Pressetext case – ‘material’ changes to a contract could = new contract which

needs re-procuring – but what is ‘material’ ?• Legal Services Commission case

– fact there has been a variation clause apparent since tender stage is not enough as no transparency or certainty

• Each variation therefore a question of fact and degree:- – how much change could reasonably have been understood from

the tender documents to be allowed for?• New rules seek to remove the uncertainty

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Contract Variations (2) (R72)

• Variations permitted where:-– Set out in tender docs in clear, unequivocal terms – e.g. price

variation/fluctuation clauses or options – Not included in original tender but can’t change contractor for

economic or technical reasons, or where would cause serious inconvenience or duplication (e.g. IT contracts, construction, etc.) subject to maximum of 50% of original contract value (cumulative)

– Unforeseen, and variation doesn’t alter nature of contract – again 50% value cap

– Change of contractor (if provided for) as a result of merger, insolvency, step in

– Variation/Modification NOT substantial

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Contract Variations (3) (R72)

• Substantial Modification:-– Materially different in character– Alternative winning bid or expressions of interest – Pro-contractor shift in economic balance not provided for– Extend scope considerably– New contractor (other than permitted by R72)

• Uncertainty continues? • De-Minimis

– below OJEU threshold, and – less than 10% (supplies and services) 15% (works) of original

contract value, and– nature of contract unchanged

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New Procedures

Simon McCann, Partner

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Procedures – what’s new ?

• New core principle of proportionality• Pre-tender consultation• Central / sub central authorities and PIN as call for competition• Open, restricted and comp dialogue largely the same (flexible time

limits)• Competitive procedure with negotiation• Innovation partnership• Frameworks tougher – prohibition on authorities joining later• Dynamic Purchasing System (improved)• Changes to selection stage and award criteria• Abnormally low tenders• Award processes, standstill etc. largely the same

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Getting a sense of proportion

• “Contracting authorities shall treat economic operators equally and without discrimination and shall act in a transparent and proportionate manner” (R18(1))

• Fit tender to contract requirements – no more “one size fits all”

• E.g.: selection criteria, additional requirements on consortia (R58.4), technical specifications (R42.1), security requirements for e-procurement, decisions generally

• Could be a ground for challenge in its own right

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Pre-tender consultation

• Expressly recognised that can be done, and can use independent experts or market participants to assist. Only restriction - must not distort competition (R40)

• Prior involvement of candidates (for any reason – could include incumbent) – CA must take steps to avoid distorting competition e.g. equal access to information and sufficient time limits. Only exclude if no other way of securing equal treatment (R41).

• Conflicts of interest (for any reason) – CAs must take steps to prevent (e.g. employees/families, consultant who advises then joins bidder)(R24). If no other way of preventing; discretionary ground for

exclusion (R57(8))

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Contracting authorities

• Lighter regime for “sub-central” contracting authorities– Central Govt, NHS, NDPBs and others named in Annex 1

– Any not named in Annex 1 – e.g. Local Govt, HE/FE, police

• Benefits of being “sub-central”– Higher thresholds (E207k vs E134k)(R5)– Can use PINs as call for competition – valid for up to 12 months,

invite all who responded to confirm interest (PQQ), then run as restricted/competitive procedure with negotiation (R26(9))

– Flexible tender periods – can be set by agreement with bidders in restricted procedure (minimum 10 days)(R28(7))

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Procedures with negotiation (CD & CPWN) - grounds

(R26(4))

• Where needs cannot be met without adaptation of readily available solutions (new justification)

• Where the contract includes design or innovative solutions (new justification)

• Where the requirement is complex in nature, in its legal and financial make-up or because of its risks (extended version of the current justification for competitive dialogue)

• Where the technical specifications cannot be established with sufficient precision (as current negotiated procedure with a call for competition)

• In the case of unacceptable/irregular tenders (as current negotiated procedure with a call for competition)

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Competitive procedure with negotiation (R29)

• Very similar to competitive dialogue - slightly more flexible

• At outset - must describe subject matter well enough to allow EOs to decide whether to participate

• Selection – same as restricted or CD (can limit numbers to 3)

• Invitation to submit initial tenders

• Negotiate on initial/subsequent tenders (but not final tenders) to improve their quality. Can reduce numbers by applying award criteria

• No negotiation on award criteria or minimum requirements

• Can award on basis of first tender (if stated at outset) to save going through whole process. Otherwise, end negotiations and set deadline to submit new/revised tenders

• Evaluate in accordance with award criteria stated at start

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Innovation Partnership (R31)

• Needs “cannot be met by purchasing products, services or works already available on the market”

• Define minimum requirements and subject matter• Selection is qualitative

• Negotiation (except award criteria / minimum requirements)• Can choose 1/more partners, staged reduction option

• Partnership must be structured in successive phases with targets and milestone payments

• Contract structure must be proportionate to degree of innovation and activities necessary to bring to market

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Dynamic Purchasing System (1) (R34)

• Similar to formalised kind of approved list• Initially – procure by restricted procedure• 30 days PQQ. No time limits for subsequent requests to participate.• Open to any EO who fulfils selection criteria – can apply at any time.

Must assess within 10 days (15 where need to check info)• Completely electronic

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Dynamic Purchasing System (2) (R34)

• Can divide up by goods/services or geographical area. Can also impose maximum contract value

• Tenders – invite all who are eligible. 10-day minimum tender period. Do not need OJEU

• Award in line with advertised criteria (can refine)• Can ask participants to refresh periodically• Duration – not fixed• Must notify Commission if duration different than advertised

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Selection – the European Single Procurement Document (R59)

• CAs must accept ESPD• ESPD = self declaration (updated) that bidder:-

– Not guilty of any exclusion grounds– Meets required selection criteria– Meets objective criteria for short-listing

• CA can request supporting documents at any point in procurement• CA must get them from existing databases where freely available • Lists of databases in other Member States to be maintained and

published on e_Certis (R61)

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Criteria (R67)

• Most economically advantageous tender• Must include price or cost, using cost-effectiveness (e.g. life-cycle

costing)• May include price/quality ratio• Can include staff qualifications, experience (Lianakis)• Must allow for effective competition• Must be linked to specifications that allow for effective verification of

how well criteria met• Much greater scope for inclusion of environmental / social factors

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The Light Touch Regime (your flexible friend?) and dealing with low bids

Penri Desscan, Partner

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Light Touch Regime (1) (R74)

• Services no longer split Part A / B, shorter list than old Part B

• Sch. 3 covers certain services - health, social care, education, hotel/restaurant, legal (unless excluded) and a few others listed in Sch. 3.

• If services not listed in Sch. 3 then fully regulated

• Rules do not apply at all unless value more than > £625k – Transparency and non-discrimination may apply to sub-threshold

LTR contracts if concrete evidence of cross-border interest

• Carve out for NHS Clinical commissioning until April 2016– In the interim old rules apply - Part B’s and/or NHS Procurement,

Patient Choice and Competition (No.2) Regs. 2013 for NHS England

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Light Touch Regime (2) (R74)

• Flexible – CA’s can– determine own procedures, – modify or adopt standard PCR 2015 award procedures

• MUST start with a Contract Notice or a PIN• MUST conclude with Contract Award Notice• No prescribed time limits – but reasonable and proportionate• Principles of transparency and non-discrimination • Note - Debrief, Standstill and Remedies (inc. ineffectiveness) do

apply

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Light Touch Regime (3) (R74)

• Award Criteria :– flexible with selection based on range of factors e.g. quality,

affordability, needs of users, availability and comprehensiveness, and sustainability

• Designed to allow CAs to take a holistic, integrated approach to procuring services

• Resist private/3rd sector providers ‘cherry-picking’ profitable/less risky elements

• CA take into account – overall effect on sustainability of services, weakened service

provision if key element contracted out?– user involvement and patient choice

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Abnormally low tenders (R69)

• No definition of ‘abnormally low’

• Duty on Contracting Authorities to consider whether a tender appears ‘abnormally low’, if so

• Must require explanation from bidder

• Investigate and analyse

• Only exclude if evidence does not satisfactorily explain low cost

• Must exclude if reason for low price is non-compliance with environmental, social or labour law

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Social, Environmental and SMEs - Putting Policy at the heart of Procurement

Simon McCann, Partner

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Social and Environmental issues

• Directive aims for “better integration of social and environmental considerations in procurement” – Recital 41 & 42

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Criteria (1) (R67)

• MUST use most economically advantageous tender. Can be price alone or price/quality ratio

• Price must use cost-effectiveness approach such as life-cycle costing

• Life-cycle costing (R68) may include:-– Cost of acquisition– Energy consumption/running costs– Maintenance– Disposal

• Can include environmental impacts external to CA e.g. greenhouse gas emissions) (but must use EU-approved calculation method where provided)

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Criteria (2) (R67)

• Criteria can include environmental and social, if linked to subject matter

• Criteria are linked to subject matter where they relate to it in any respect and at any stage of its life cycle including:-

– any part of lifecycle (production, provision or trading)– A specific stage for another process in their lifecycle (e.g.

maintenance, disposal)• Even where not part of their “material substance”• Very wide scope to adopt criteria which favour environmental and

social objectives

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Labels (R43)

• Much wider – specifically includes environmental, social or other characteristics

– Must be linked to subject matter and drawn up on basis of scientific information established transparently and accessible to all interested parties

– E.g. environmental performance/emissions, or non-use of child/trafficked labour, health and safety of workforce, fair trade

• Must accept alternatives or (where not possible for bidder to obtain accreditation in time), technical dossier showing it meets requirements

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Non-compliance with environmental, social and labour law

• Breaches of social, labour or environmental law – MAY exclude bidders (discretionary) (R56(2))– MUST exclude if bid is abnormally low because of non-

compliance (R69)– Mandatory exclusion for forced labour, child trafficking, people

trafficking, etc. (R57)

• Failure to pay taxes/social contributions (R57)– MUST exclude if judicial finding– MAY exclude on other appropriate evidence– UNLESS bidder has paid or made binding agreement to pay

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Poor past conduct

• New discretionary ground for exclusion:- – Contractor "has shown significant or persistent deficiencies in

the performance of a substantive requirement under a prior public contract…which led to early termination of that prior contract, damages or other comparable sanctions" (R57(8)(g))

• What is “significant” or “persistent”, and “substantive requirement”? Could lead to subjectivity

• Some obvious examples – union blacklisting, systematic overcharging (as alleged in offender “tagging” cases)

• Could also include failure to meet environmental/social standards (where set out in a previous contract)

• But what about less serious matters? Delays/LADs?

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Selbstvereinigung

• Possibility of “self cleaning” (R57(13))– Contractor can provide evidence of remedial measures taken to

demonstrate its reliability despite existence of a ground for exclusion

– If contracting authority considers measures are insufficient, must provide reasoned decision

• Applies to mandatory and discretionary grounds• So – if contractor has skeletons in cupboard, needs to

provide evidence of remedial measures/explanations why it is unlikely to recur

• Can still exclude them if good reason

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Supported Business (R20)

• Old law – could reserve participation to organisations employing more than 50% disabled persons i.e. only they can tender

• New Directive - can reserve participation to those organisations whose main aim is integration of disabled and disadvantaged persons, or provide for contract to be performed in this context, provided at least 30% of workers are disabled or disadvantaged

• Covers much wider range of social enterprises

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Spin-outs/employee-owned businesses (R77)

• Social enterprise spin-outs

– Health/social/cultural services – can reserve to organisations which meet conditions (inc. employee-owned or controlled, non-profit distributing)

– Max contract length 3 years and mustn’t have had a contract via this route in last 3 years

– Effectively allows CA to give spin-out companies a “safe launch” for first 3 years with minimal competition (only from other similar organisations)

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SME-friendly measures (1)

• Simplification of information requirements at selection:-– All selection criteria must be proportionate and related to subject

matter (R58(4))– Self certification (ESPD, R59, 60)– Not exclude for minor documentary failings/allow rectification so

long as doesn’t affect equal treatment (R56(4), Directive rec.101)

– Can call for supporting docs at any stage (R59(8))

• Lots (R46)– “to enhance competition, contracting authorities should in

particular be encouraged to divide large contracts into lots”– Choice is with CA, but must give reasons if not using Lots– Can limit number of Lots tendered for/awarded. Must state

criteria/mechanism to be used

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SME-friendly measures (2)

• Limits on requirements for participation (selection)(R58)– MUST relate to suitability for professional activities,

financial/economic standing and/or technical/professional capability and nothing else

– Turnover – maximum 2x contract value unless exceptional reasons

– Groups/consortia – any conditions imposed must be objective and proportionate

• Direct payments (Directive, art 71(3)– Sub-contractors may request direct payment from CA. Main

contractor has right to object to undue payments. Does not affect liability of main contractor

– Similar to Project Bank Accounts (Constructing Excellence pressing for use, currently being used on Crossrail)

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SME-friendly measures (3) – UK Govt measures

• Advertising sub-threshold contracts (R109 – 112)– Must advertise in Contracts Finder if between threshold and

£10k (central) or £25k (sub-central)– No pre-qualification. “Suitability” requirements but must be

proportionate and linked too subject matter

• Payment within 30 days (R113)– Authority must pay within 30 days– Contractor to pay subcontractors within 30 days– Terms implied if not included– Authority must publish on internet annual report of how well it

has complied

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