Public Procurement - Regulations and Risk

by Kenny Ling

Those who work in public purchasing, or supply the public sector, will have heard of the Public Contract Regulations 2006, which came into force on 31 January 2006, but what is the justification for going through this sometimes cumbersome and expensive process?

The first reason: probably the main one is “we do it, because we have to”. 

When the UK signed up to the EC treaty one of its main aims was to create a single market for goods and services within the EU, and this meant that nationality should not be a ground for discrimination and there should be free trade of goods and services within the Common Market. So the driver is competition to create fairness.

The second reason: since the turn of the Millennium, government purchases have represented over 15% of the EU’s GDP amounting to somewhere between £900 billion and a trillion Euros a year. This amount of public spending is a strong incentive for member states’ governments to ensure that they get best value, which is achieved by using a tendering system that introduces competition for government funded contracts.

So what do we have to do and how do we do it?

The Regulations will apply if the following are involved:

* a public body;
* contracting for goods, services or works;
* value of the contract (net of VAT) exceeds the relevant threshold (currently around £140,000 for goods and services and £3,500,000 for works); and
* type of contract is not excluded.

The Regulations prescribe three types of notices that need to be published:

Prior Information Notice –
* Provides brief details of a contract which a public body expects to award over a period of time;
* Optional unless relevant threshold is exceeded (currently around £510,000 for goods and services and £3,500,000 for works);
* If published, mandatory time limits in open and restricted procedures are reduced; and
* Mainly used to test interest in market.

Contract Notice –
* With only a few exceptions, this must be published.
* Provides specific details of a contract required by a public body including the type of procedure to be used to conduct the process and the selection and award criteria;
* Starts the clock running on mandatory time limits; and
* Any significant alteration to the requirements may mean that the process needs to be restarted. Therefore, it is vital that the Contract Notice is drafted appropriately.

Contract Award Notice –
* With only a few exceptions, this must be published.
* Summarises the procurement process once the contract has been awarded; and
* Certain information may be omitted from the notice i.e. commercially sensitive material, confidential information, etc.
  
Public bodies must choose one of the four types of procedures to conduct the procurement process:

Open –
* Bidder must set out all terms in tender as there is no opportunity to negotiate; and
* All tenders received must be evaluated therefore this procedure may attract a high number of tenders.

Restricted –
* Bidder must set out all terms in tender as there is no opportunity to negotiate; and
* Two stage procedure: selection and invitation to tender, public bodies may choose not to invite bidders that do not meet the minimum standards set out in selection to tender.

Competitive Dialogue –
* Allows negotiation up to submission of “best and final offer”, discussions only thereafter;
* Suitable for complex contracts, i.e. 2012 Olympics;
* Two stage procedure: selection and invitation to participate, public bodies may choose not to invite bidders that do not meet the minimum standards set out in selection to participate in dialogue; and
* Need to justify use over open or restricted procedures.

Negotiated –
* Only allowed if other three procedures are not suitable; and
* Difficult to justify: even 2012 Olympics were not procured using this procedure.

There are only two bases for awarding a contract: 

* Lowest price; or
* The most economically advantageous tender (MEAT); this equates to value for money.

The Regulations prescribe what factors can be used in the selection criteria and the award criteria. 

The difference between selection and award is that selection is used to exclude bidders from winning the competition, and award is used to choose the winner from those who are not excluded.

Selection can only be based on the economic and financial standing of the contractor (the Regulations prescribe a non exhaustive list of the sort of information that can be requested) and the contractor’s technical or professional capacity (the Regulations prescribe an exhaustive list of the sort of information that can be requested). Information on economic and financial standing aims to assist assessment of the level of financial risk associated with working with a bidder. Information on technical or professional capacity aims to assist selection of bidders most able to execute the contract.

In terms of award, information on the economic and financial standing, and technical and professional capacity of the contractor are excluded from being part of the award criteria. The Regulations state that the criteria used to award the contract must relate to the subject matter of the contract (the Regulations prescribe a non exhaustive list of the sort of information that can be requested). The criteria factors need to be published with weighting for each factor (if possible), otherwise the criteria should be listed in order of importance.

A bidder may seek redress for breach of the Regulations by issuing a claim in the High Court within 3 months from the date of the breach.  

If the Court is satisfied that a breach has occurred, it can:

* Make an order setting aside any relevant decision or action by the public body or require any document to be amended;
* Award damages to a bidder that has suffered loss or damage as a consequence of that breach; or
* Do both of the above.

Alternatively, anyone can make a complaint to the European Commission.

In conclusion, certain aspects of the process, such as the contract notice, choice of procedure and the selection and award criteria may cause potential difficulties. Therefore, both public bodies and bidders must get these matters right in order to avoid delays, increased costs and potential legal challenges.

Kenny Ling is a lawyer working in Burnetts' commercial division. For further information on public procurement contact Kenny or Jonathan Marshall (Head of Construction) at Burnetts in Carlisle on 01228 552222.