Talking yourself into it

This year the public contracts regulations introduced the procedure of “competitive dialogue” for the award of “particularly complex contracts” by public authorities.

Competitive dialogue is suited to UK PFI projects. Before the regulations, PFI contracts were mainly awarded under the “negotiated procedure”. But this was, and is, only available in exceptional circumstances, for instance where prior overall pricing is impossible. Public authorities have got into trouble for applying such exceptions to contracts that did not justify their use. The UK and other EU member states therefore sought a more flexible procedure. Competitive dialogue was the result.

The procedure

Up to and including the prequalification stage, competitive dialogue is like the negotiated procedure. The purpose of competitive dialogue is to enable the public authority to define the means best fitted to meeting its objectives. After the prequalification of bidders, the dialogue continues until a suitable solution has been identified. It may take place in stages in order to reduce the number of solutions for discussion. But the authority must ensure that enough bidders are left for there to be a genuine competition. During the dialogue, the authority may refine or change its requirements (provided that these remain within the scope of its original notice in the EU Official Journal), reissue documents and invite revised proposals.

Bidders usually will not want their ideas passed on to competitors. The regulations therefore prohibit the authority from revealing solutions or confidential information communicated by a bidder without the bidder’s consent. “Confidential information” is not defined in the regulations, but can be assumed to cover more than narrowly defined intellectual property rights.

The regulations differ in this respect from the form of competitive dialogue introduced in France in 2004. The French rules allowed cherry-picking from the various solutions. After objections from the European commission, the rules are now being amended to exclude that possibility. In practice the authority may seek from bidders a general permission to pool ideas. In considering such a request a bidder will want to assess whether it is likely to be a net gainer from such an arrangement.

At the end of the dialogue the authority asks the surviving bidders to submit final tenders on the basis of the solutions they have presented. Before the contract is awarded, a bidder may be asked to ”clarify, specify or fine-tune” its tender, but no changes can be made to the tender’s basic features when the changes are likely to distort competition or to have a discriminatory effect.

Bidders will not want their ideas passed on to competitors. The authority is prohibited from revealing solutions

The contract is then awarded to the bidder submitting the most economically advantageous tender. The winner may be asked to clarify aspects of its tender or to confirm commitments, provided that this does not substantially modify the tender, distort competition or cause discrimination.

The pros and cons

Competitive dialogue is new, but it is already plain what some of its advantages and disadvantages are. One disadvantage, in comparison with the negotiated procedure, is that it compresses discussions between the authority and bidders into one phase of the process and requires the winner to be chosen on the basis of a substantially complete offer. The authority therefore needs to be careful not to close the dialogue phase prematurely.

Another problem can arise in relation to funding: lenders may want the agreed arrangements to be changed in ways that go beyond mere clarification. Other objections that have been heard are that the procedure is expensive and slow (French experience suggests a timetable of nine-to-18 months), that it is exposed to challenge at every stage, that the confidentiality requirements limit its use to the authority and that the relevant regulations are unclear as to what is and is not permitted.

On the other hand, it has the advantage of being available in circumstances that do not permit use of the negotiated procedure, thus reducing the need for authorities to stretch the use of permitted exceptions or to employ informal mechanisms such as convergence or early contractor mechanisms.

At the most general level, competitive dialogue encourages creativity, enabling bidders to explore fully the possible ways of meeting the authority's requirements. Despite its relative novelty it has already been taken up, for example by the Olympic Delivery Authority, and we can expect to see it used frequently.