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Towards a modern procurement regime

4 January 2012

Following its announcement 18 months ago that it was reviewing the public procurement rules, the Commission has produced its proposals, in the form of draft Directives published on 20th December 2011, leaving lawyers to digest the contents hurriedly during the pre Christmas rush.

LocalGovernmentLawyer published a summary of the contents of the draft Public Sector Directive on 20th December - in this article Ill be looking at particular implications for local authorities.

The draft Directive has incorporated many of the concerns expressed by the Local Government Association, the Partnership of Public Employers and other UK bodies representing local authorities, so theres certainly cause for cheerfulness.

The abolition of the distinction between Part A and Part B services plus the revised treatment of social, health and education services will have a significant effect on local authority procurement. While the application of the basic European Union (EU) principles of transparency and equal treatment to the procurement of social services contracts over €500,000 is essentially "as you were", the assumption that such contracts valued below €500,000 will have no cross border interest - and thus EU rules wont apply - will be a weight off procurement managers shoulders. This doesnt mean that it can be a free for all. Standing orders will still require competitive tenders for many procurements.

Local authorities will certainly benefit from the simplified procurement regime that applies to contracting authorities below central government level. Where a prior information notice is published, theres no need for a separate contract notice.

The simplified procedure allowing shorter time limits for Pre-Qualification Questionnaire (PQQ) and Invitation To Tender (ITT) responses - and the ability to shorten time limits further, where all the bidders agree, will help, as will greater flexibility to sequence criteria as between PQQs and ITTs. The inability to consider experience at ITT stage has been a frequent cause of frustration under the current rules.

One of the areas local authorities currently struggle with is how to procure information technology contracts. Realistically, its difficult to deal with strong providers and standard form software licences without an element of "negotiation" at some point - the current requirement to use the restricted procedure - or, exceptionally and expensively, competitive dialogue - makes it difficult for authorities to comply with the rules and get a sensible result. The draft Directive brings the negotiated procedure back into the picture, with appropriate safeguards. This option will, no doubt, be taken up with considerable enthusiasm.

The trend towards shared services hasnt diminished, with local authorities continuing to be under pressure to reduce costs. The draft Directive builds on the recent Commission Staff Working Paper on the application of the EU public procurement rules to relations between contracting authorities and codifies the Teckal caselaw on "in house" procurement.

Agreements between contracting authorities arent caught by the procurement rules where theres genuine cooperation aimed at carrying out, jointly, public service tasks, with mutual rights and obligations, the agreement is governed only by considerations relating to the public interest, the agreement doesnt result in more than 10 of its relevant turnover deriving from the open market, consideration between the authorities must only be reimbursement of actual costs of the works, services or supplies and there is no private interest in any of the contracting authorities involved.

With a Teckal company, the draft Directive confirms that its outside the procurement rules where theres control over the company similar to that which authorities exercise over their own departments, 90+ of the companys activities are carried out for the controlling contracting authorities or for other subsidiaries of them and theres no private participation in the company. The rules apply whether theres one public sector parent or several, but theres clarification as to what amounts to joint control, in the latter case.

Finally, local authorities will particularly welcome the helpful new provisions relating to the modification of existing contracts, which clarify and expand the law in this area. Its now clear that a modification isnt substantial where its value doesnt exceed the relevant threshold and is below 5 of the price of the initial contract, provided that the modification does not alter the overall nature of the contract. Whats new is that a variation is acceptable where the need for modification has been brought about by circumstances which a diligent contracting authority couldnt foresee, the modification doesnt alter the overall nature of the contract and any price increase isnt higher than 50 of the value of the original contract.

Additionally, the debate over whether a replacement of the contractual provider amounts to a substantial modification is now (largely!) concluded - its only acceptable where theres corporate restructuring or insolvency of the initial contractor, so optimistic interpretations of Pressetexte were off the mark, sadly.

What happens now?

The draft proposals arent yet set in stone. They will be considered and negotiated by the Council and the European Parliament. Once adopted, there will be a requirement on Member States to incorporate them into national legislation, together with any optional provisions - and if the EU adopts the Directive by the end of 2012, the backstop date will be 30th June 2014.

This article was first published by www.localgovernmentlawyer.co.uk

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