How to look good in public: Public Contracts Regulations

With the current state of the private development sector, public projects have become the construction industry’s lifeline. The announcement at the beginning of March regarding Treasury support for PFI projects is certainly a help. However, those wishing to get involved in public procurement projects need to familiarise themselves with the Public Contracts Regulations 2006. A couple of issues buried away in them have come to the fore with the changing circumstances that we are experiencing today.

For instance, the regulations do or do not apply to a contract depending on the value of the works, services or supplies. These thresholds are set centrally in euros and only revised once every two years (the last change having been made at the start of 2008). An easy mistake to make would be to assume that, as sterling has weakened against the euro, the threshold measured in terms of pounds sterling has changed. This is not, in fact, the case. The regulations make clear that the nominal exchange rate between the euro threshold and the equivalent sterling value that trigger the regulations in the UK is set and does not follow currency fluctuations.

The limits for works are £3,497,313; for services and supplies they are £139,893. If the contracting authority is seeking to award a contract for that value or more, the regulations generally apply.

The second trap for the unwary is that European case law suggests that although the regulations do not apply to contracts below the threshold, it is still necessary to apply a form of discipline when advertising them. This was established by the Tel Austria case.

Third, if the regulations do apply, then it is worth considering the form of process that the procuring body must apply in relation to tenders for the works. There are open, restricted, negotiated and competitive dialogue processes. This last option was introduced in 2006 and is significant not only because of its popularity but because of certain nuances in relation to how it works.

The competitive dialogue process sounds attractive. It gives an opportunity to progress and develop a scheme and the solutions to delivering it during the tender process

The competitive dialogue is intended to be used for “particularly complex contracts” where the contracting authority is not able to “define the technical means … capable of satisfying its needs or objectives …” or “specify either the legal or financial make up of a project, or both”. Put simply, the competitive dialogue process is one where the procuring body knows what it wants but does not know how to get there. The process therefore sounds attractive. It gives an opportunity to progress and develop the scheme and the solutions to delivering it during the tender process.

However, in practice, this is fraught with difficulties. As the dialogue develops, the procuring authority is bound to become aware of attractive solutions put forward by different bidders. The rules say that the procuring authority cannot discuss solutions proposed by one bidder with the others. However, the procuring authority may clarify offers through the dialogue process with all tenderers so long as no bidder is prejudiced.

One significant feature of the competitive dialogue process is that selection of a preferred bidder can only be judged on the basis of the “most economically advantageous tender” (MEAT). It is immediately apparent from this that the lowest price is not the sole differentiator that the public procurement body can use in reaching a decision as to which tender to accept.

The tenderer therefore has a greater opportunity to secure work based on its technical ability and the solutions that it is coming up with for the benefit of the procuring body rather than just offering the lowest price. The catch is that in doing that, the tenderer needs to be careful as to the nature of the information it is putting forward and the possibility or risk that the information might be either directly passed to other tenderers or be presented in such a way that other tenderers can deduce the “added value” that is in a particular tender.

Public procurement therefore does offer a real opportunity for good firms to win work. In particular, the competitive dialogue process offers a chance for the industry to show its ability to add value. However, for those not previously heavily involved in this market, it is important to be aware of the special considerations that apply when using it.