Public procurement: Are you ready?

New regulations on tendering public sector contracts are ready to give effect to the EU public procurement directive, published last April. Draft regulations were published in September 2014. The government consulted and recently confirmed its approach on 30 January.

So, how do these change the tender process for public sector contracts? The significant changes for tenderers are:

• A contractor’s experience and competence in a particular area will be expressly recognised. For example, when awarding contracts to the most economically advantageous tenderer with the “best price-quality ratio”, it will be with reference to the bidder’s technical competence and the experience and qualifications of its staff. A mandatory exclusion of five years will apply to parties guilty of specific crimes such as bribery, corruption or money laundering. A bidder may also be excluded for three years if it has shown significant or persistent deficiencies in performing a prior public contract which led to damages or early termination. This period can be shortened if the bidder can prove it has “self cleaned”. While the principle of looking at awards of damages and terminations under previous contracts may be understandable, it must be approached carefully , to ensure contractors are only excluded when it is fair to do so.
• The regulations set out what is to happen if the authority considers that a given tender is “abnormally low”, giving the relevant tenderer the opportunity to explain itself. There is no definition as to what “abnormally low” means. Based on case law the bid must be beyond and below the range of anything which might legitimately be considered normal. Currently there is no obligation to reject an abnormally low tender and authorities only have to request an explanation for bids which they plan to reject. The draft regulations will require authorities to seek justification for all such bids. After consultation the authority shall reject the bid if its low price is due to failure to comply with environmental, social and employment laws, and may reject it if not satisfied by the explanation. 
• There is increased scope to modify a contract without triggering a new procurement process. One of the issues around public sector contracts is their inflexibility over fairly lengthy contract periods. For example, in PFI or maintenance contracts, parties may wish to vary a contract’s terms either because of efficiency/value for money initiatives or a changing marketplace. Decisions of the European Court have found that where such changes are considered material they would amount to a new award of a contract. The problem has been in identifying what is material.

The draft regulations seek to resolve this by specifically allowing modifications. A modification which is less than 15% of the original value; is not substantial and does not change the nature of the contract, will be lawful. Another lawful modification will be where the following is satisfied - the proposed change doesn’t alter the overall nature of the contract; a change of contractor cannot be made due to the nature of the work; it would cause significant inconvenience and cost duplication and the need to do was unforeseeable by the authority. In that circumstance it must not exceed 50% of the original contract value.

• Invitations to tender will require a number of certificates and obtaining these can be time consuming. This will be simplified by the introduction of a Standard European Single Procurement Document that allows self-certification to satisfy initial selection criteria. Only the winning bidder will have to submit certificates and documents for verification.
• Authorities are being asked to divide contracts into separate “lots” to make it easier for SMEs to submit a bid where they may have insufficient capacity or experience to fulfil the full contract. Authorities can also limit the number of lots a tenderer can bid for. Where an authority fails to divide a contract into lots, it must provide reasons.
• Mandatory time limits for bidders to respond to advertised procurement opportunities and submit tender documents will be reduced by about a third and can be shortened further where electronic communication is used. Bidders will have to be well organised to submit tenders on time.

There is a lot to get to grips with in these new regulations. It is hoped they will, as desired, be simpler and more flexible. Much will depend on the application of the guidance to be published and the approach of the courts.

Lindy Patterson QC is a partner and solicitor advocate in the construction team of CMS Cameron Mckenna