Introduction to EU Public Procurement Law April 2014

Contents About Bird & Bird....................................................3 Introduction..............................................................5 When do the detailed rules of the Regulations apply?....................................................6 What do the Regulations require?..........................7 Choice of procedure.................................................7 Award criteria...........................................................9 Invitation to tender / dialogue / negotiate............9 Debriefing................................................................10 Standstill requirements..........................................12 What are the time limits for bringing a challenge and what remedies are available?........12 Summary of available remedies:...........................12 Legislative reform...................................................13 Key contacts............................................................14

About Our International Public Projects and Procurement Group provides cross-border and domestic advice to public sector organisations, companies bidding to the public sector and institutions financing public sector projects in all of the key markets across Europe. Having advised both government bodies and bidders on complex procurement processes and procurement law challenges and disputes, we provide integrated advice on procurement law, commercial negotiations, contract drafting and dispute resolution. Clients turn to us for the value we can add to their involvement in the procurement process, whether through advice on financing, structuring consortia bids, helping to resolve disputes or just an instinct for what to do next. Set out below is a high level summary of the EU public procurement rules in force as at January 2014 in the UK in their most common application (i.e. standard civil government procurements). Brief commentary on the new public procurement directive is also provided. This note is not intended to be a comprehensive note on public procurement law. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions. For further information please contact our public procurement specialists whose details are provided below.

Introduction

Purchases of goods, works and services by public sector bodies in the EU exceed €500 billion annually, around 20% of EU GDP. The EU public procurement rules aim to open up public procurement to EU-wide competition by ensuring that such contracts are awarded fairly, transparently and without discrimination on grounds of nationality and that all bidders are treated equally. The EU public procurement rules are derived from European Treaties and European legislation. When purchasing goods, works or services, public bodies (referred to in the legislation as ‘contracting authorities’1) must, in most cases2, comply with the ‘Treaty Principles’, such as equal treatment and transparency, as described below. In addition, European Directive 2004/18/EC sets out detailed and stringent rules that apply to public procurements of certain kinds whose value exceeds specified thresholds. Each individual EU Member State is required to transpose the requirements of that Directive into their national law. This leaves open the scope for different interpretations of the Directive, and the Directive also allows Member States to make certain choices, which results in public procurement law and practice in European marketplaces varying widely from country to country. In the UK the relevant implementing legislation is the Public Contracts Regulations 2006 (the Regulations). Guidance on the interpretation on the Treaty Principles and the legislation is provided by the numerous cases both at the EU and national level. Specific rules apply to defence and security procurements and to procurements by utilities. Other separate areas of law may also be of relevance to public procurements (such as administrative law, competition law and State aid). These rules are outside the scope of this note.

1. 2.

The definition of ‘contracting authority’ is wide and is intended to capture all bodies that spend public money. Broadly speaking whenever there may be cross –border interest in the works, goods or services being procured.

04 & Introduction to EU Public Procurement Law

The Treaty Principles

The Treaty Principles derive from the European Treaties and guidance on their scope is found in numerous European cases. These apply to nearly all public sector purchasing even when the full rules in the Regulations described below do not. The table below illustrates how they may apply in practice: Principle

Examples in practice

Equal treatment - Similar situations must not be treated differently

• Requirements cannot be waived for one bidder and not others.

• All bidders must be given equal access to information. Proportionality - Measures chosen must be both necessary • Qualification requirements such as turnover thresholds and appropriate in the light of the objectives sought must be proportionate to the value of the contract.

• Time limits must be appropriate and long

enough to allow for a meaningful assessment of the need and the preparation of a bid.

Transparency - Intentions must be made public according to appropriate rules

• Obligation to advertise contract opportunities. • Disclosure of selection and award criteria so that contracts are not awarded arbitrarily.

Mutual recognition - Products and services supplied in other EU states must be accepted

• Mutual recognition of diplomas, certifications and other evidence of formal qualifications.

Introduction to EU Public Procurement Law & 05

Obligations if the full rules apply When do the detailed rules of the Regulations apply?

These rules apply to purchases of goods, works or Part A services by contracting authorities where the value of the contract exceeds the following thresholds4: Contract type

Thresholds

Works Contract

£4,322,012

Goods/Services – Central Government

£111,676

Goods/Services – Other Public Body

£172,514

Services are categorised as being either Part A or Part B. Part A services are those types of service that are likely to be of interest to bidders from across the EU, such as IT services, telecommunications and advertising, and as such the detailed rules in the Regulations apply in full. On the other hand, Part B services, such as legal and education services, are seen as less likely to be of interest to bidders outside of the country in which they are being awarded and therfore are largely excluded from the requirements of the Regulations (although the Treaty Principles often apply).

In summary: Type of contract

What applies?

Contracts below the thresholds

Treaty Principles apply.

Above threshold works, goods and Part A services contracts

Treaty Principles and the detailed rules of the Regulations.

Part B services

Treaty Principles and limited parts of the Regulations. Notably prior advertisement in the OJEU is not necessarily required (although some form of advertisement will usually be) nor is any particular form of competitive tender process mandated.

Service concessions

Treaty Principles.

Contracting authorities are defined in the Regulations. Although most cases are fairly obvious, whether or not an organisation is a contracting authority can be less obvious at the fringes of government. 4 There are certain exceptions, however these are outside the scope of this note. The thresholds are amended from time to time by the European Commission. 3

06 & Introduction to EU Public Procurement Law

What do the Regulations require?

The Regulations set out detailed rules on many aspects of the procurement, including the procedures that must be followed, the award criteria, specifications, de-briefs for unsuccessful bidders and the use of framework agreements. Key aspects of the rules are set out below, but this note is not exhaustive.5

Choice of procedure

At the outset the contracting authority must choose to run the procurement using one of the procedures in the table below. Procedure

Key Features

Permitted circumstances

Open

• Any interested party may submit a tender

No restrictions on use of this procedure.

i.e. no pre-qualification stage. This makes it unsuitable for procurements where a large number of bidders are anticipated.

• No negotiation with bidders permitted. • Suitable for tenders that are easy to evaluate. Restricted

• Pre-qualification stage – i.e. only

those bidders that meet selection criteria will be invited to tender.

No restrictions on use of this procedure.

• No negotiation with bidders permitted

although it is permissible to clarify bids and finalise terms. The scope for amendments to tenders through clarifications and finalisation of terms is however very limited.

• Minimum of 5 bidders to be invited

following the pre-qualification stage.

• Suitable for many procurements, particularly for standard goods or services.

Competitive Dialogue

• Pre-qualification stage – i.e. only

bidders that meet the selection criteria will be invited to dialogue.

This procedure is only available for ‘particularly complex contracts.’

• Dialogue is used to develop one

or more suitable solutions to the contracting authorities’ needs.

• Once solutions are identified the

dialogue phase is concluded and final tenders are invited.

• Once tenders are submitted there

is no negotiation of tenders only clarifications and finalisation of terms.

• Suitable for complex contracts such as major ICT contracts.

Negotiated

• Only bidders that meet the selection criteria will be invited to negotiate.

• The negotiation can take place in stages with

Only available in rare circumstances where there are clear reasons why the competitive dialogue cannot be used.

the number of bidders reduced at each stage.

5.

The detailed rules on framework agreements, dynamic purchasing systems and specifications are not for instance covered by this note.

Introduction to EU Public Procurement Law & 07

The key steps of the various procedures can be summarised as follows:

Open

Restricted

Competitive dialogue

Negotiated

OJEU Notice

Pre-Qualification

Potential Progressive Reduction in numbers

Dialogue

Invite tenders/best and final offer

Select Contractor

Standstill Period and de-brief successful bidders

Sign contract and publicise award in the OJEU

08 & Introduction to EU Public Procurement Law

Negotiations

The pre-qualification - ‘selection’ stage

All procedures other than the open procedure include a pre-qualification stage. This stage is used to exclude bidders that are not capable of meeting the contracting authorities’ needs or who have committed acts of past misconduct. Bidders are required to respond to a pre-qualification questionnaire concerning: economic and financial standing; technical and professional ability; and integrity (for instance including confirmation that the bidder has not committed acts of bribery, fraud or money laundering). European case law makes clear that the selection and award stages serve different purposes and that selection criteria cannot be used at the award stage and vice-versa. This is an important point in practice as contracting authorities may find their procurements open to challenge if they confuse these distinct stages. This is particularly the case in relation to testing ‘experience’ as this is a selection criterion rather than an award criterion (even though it is something a purchaser would often wish to take account of in awarding a contract). In summary:

• Selection criteria relate to the bidder – for instance does it have the ability to perform the contract? • Award criteria relate to the tender – these are applied to determine which tender is most economically advantageous to the contracting authority or to determine the lowest price.

Award criteria

Contracts can be awarded either on the basis of: lowest price (not permitted for competitive dialogue and not suitable for the negotiated procedure); or the most economically advantageous tender taking into account criteria linked to the subject matter of the contract. Determining the most economically advantageous tender will involve an assessment of price and quality issues. Evaluation criteria must not confer unrestricted freedom of choice i.e. they cannot allow the arbitrary award of contracts. In order to ensure transparency, contracting authorities must inform bidders of the weightings that will apply to each evaluation criterion and sub-criterion.

Invitation to tender/dialogue/negotiate

Depending on the procedure in question this stage is also referred to as the Invitation to Participate in Dialogue (IPTD) (competitive dialogue procedure) or the Invitation to Negotiate (ITN) (the negotiated procedure). The invitation to tender will set out the ground rules for the procurement process. It will often include: descriptive document(s); instruction documents (formalities such as when to submit tenders and the timetable for the procurement); ‘disclaimers’; a draft contract; and importantly the evaluation criteria by which the contract will be awarded.

Introduction to EU Public Procurement Law & 09

Debriefing

Once the contract has been awarded contracting authorities must provide bidders with certain information: What is required?

What this means

What to check

The award criteria

These should already have been disclosed at an earlier stage of the procurement.

• Do the evaluation criteria and

The name of successful tenderer

-

-

The score obtained by both the recipient of the de-brief and the successful tenderer

Expect a breakdown of scores against all criteria and sub-criteria.

• Have the weightings been

weightings match those set out in the tender documents?

evaluated correctly and in accordance with the formulae in the invitation to tender?

• Have the figures been correctly evaluated?

• Have marks been awarded for

exceeding requirements where this was not indicated in the evaluation criteria? (this may entitle a bidder to challenge)

The reasons for the decision and the characteristics and the relative advantages of the successful tender

Expect some reasoning against each criteria and the details of key advantages of successful bidder. However:

• ‘It is not a ground of objection

that the reasons are short. The contracting authority is not under an obligation to undertake a detailed comparative analysis…” Healthcare at Home v The Common Services Agency.

• Do the authority’s reasons

correspond to the disclosed evaluation criteria?

• Have factors been taken

into account that were not reasonably foreseeable?

• Have the award criteria

been applied in a manner such that in reality they are selection criteria?

• The level of detail may depend on the nature of the procurement.

A precise statement of when the standstill period will end, or the date before which the authority will not enter into the contract

10 & Introduction to EU Public Procurement Law

See below in relation to the standstill period.

• Pay careful attention to the date the standstill period ends – challenges must be brought quickly!

Introduction to EU Public Procurement Law & 11

Standstill requirements

The contracting authority is required to observe a ‘standstill period’ post award during which time it must not enter into the contact. This is to ensure that aggrieved suppliers are able to seek an effective remedy through the courts where the contracting authority has failed to comply with the procurement rules. If the contracting authority enters into the contract during the standstill period an aggrieved bidder can apply to the court to have the contract declared ineffective (see below) i.e. prospectively set aside.

What are the time limits for bringing a challenge and what remedies are available? Any legal challenge in the courts to the procurement process must be brought quickly. The bidder has only 30 days from the date it knew or ought to have known of the breach to bring its challenge. This period can be extended by the court up to 3 months however courts are very unlikely to do so except in very exceptional circumstances. In practice this means that bidders cannot adopt a wait and see approach but must decide on whether to challenge at the time they become aware of the breach.

Summary of available remedies Before the contract is awarded

After contract award

• The court can set aside the decision to award

• Damages.

• Damages

• In some circumstances it must apply the remedy

of ineffectiveness. The grounds for ineffectiveness include where a contract has been awarded without prior publication in the OJEU (i.e. an illegal direct award); and where the contract has been entered into in breach of the standstill period such that the bidder was deprived of the possibility of starting proceedings before the contract was entered into. Special time limits apply in relation to the ineffectiveness remedy.

• Fines • Shortening of term. Aggrieved bidders can also make a complaint to the Commission, which may ultimately lead to proceedings against the UK, but no direct remedy for the bidder.

12 & Introduction to EU Public Procurement Law

Legislative reform

In 2010 the European Commission announced that it was conducting a review of the public procurement rules. The reforms aim to simplify procurement processes, provide contracting authorities with greater flexibility in conducting their procurements, and to enable contracting authorities to better drive innovation. A new public procurement Directive has now been agreed and came into force on 17 April 2014, bringing in sweeping changes to public procurement law in the EU. Although Member States have two years to implement the Directive in national law, the Cabinet Office is aiming to fast-track this in England and Wales. The detailed changes that will be brought in by the rules are outside the scope of this note however some of the more significant changes include: Outcome

Mechanism

More freedom to negotiate

Constraints on using the negotiated procedure will be relaxed.

Exclusion for poor performance of prior contracts

Poor performance will be explicitly listed as a permitted ground for excluding bidders

Greater use of mutuals/social enterprises

Introduction of an option to reserve the award of certain services contract to mutuals / social enterprises for a limited period.

Assessment of experience at the award stage

Legal clarity that contracting authorities can take into account experience and skills of individuals at the award stage (e.g. lawyers, consultants etc.)

Increased ability to take account of social and environmental aspects

For instance, social aspects can be taken into account in certain circumstances and contracting authorities can require certification/labels or other evidence of social/environmental characteristics.

More opportunities for SMEs

Contracting authorities will be encouraged to break contracts into smaller lots to facilitate SME participation.

Improved safeguards from corruption

Introduction of safeguards against conflicts of interest and self-cleansing measures for suppliers who have cleaned up their bad practices.

Introduction to EU Public Procurement Law & 13

Key contacts Peter Elliott

Roger Bickerstaff

Direct: +44 (0)207 415 6056 Tel: +44 (0)207 415 6000 [email protected]

Direct: +44 (0)207 415 6160 Tel: +44 (0)207 415 6000 [email protected]

Partner

Partner

Jeremy Sharman Partner

Direct: +44 (0)207 905 6214 Tel: +44 (0)207 415 6000 [email protected]

“Clients praise the ‘superb’ organisation and ease of access to partners at Bird & Bird LLP. An ‘excellent’ team”. Legal 500 UK 2013

14 & Introduction to EU Public Procurement Law

“The large team at Bird & Bird continues to maintain a strong reputation for its work in procurement’’. Chambers Europe 2013

twobirds.com Abu Dhabi & Beijing & Bratislava & Brussels & Budapest & Copenhagen & Dubai & Düsseldorf & Frankfurt & The Hague & Hamburg & Helsinki & Hong Kong & London & Lyon & Madrid & Milan & Munich & Paris & Prague & Rome & Shanghai & Singapore & Skanderborg & Stockholm & Warsaw

Bird & Bird is an international legal practice comprising Bird & Bird LLP and its affiliated and associated businesses. Bird & Bird LLP is a limited liability partnership, registered in England and Wales with registered number OC340318 and is authorised and regulated by the Solicitors Regulation Authority. Its registered office and principal place of business is at 15 Fetter Lane, London EC4A 1JP. A list of members of Bird & Bird LLP and of any non-members who are designated as partners, and of their respective professional qualifications, is open to inspection at that address. 001623-01