LIBOR transition: government proposes legislation to deal with 'tough legacy' contracts
Out-Law News | 15 Jan 2014 | 4:15 pm | 6 min. read
At a time when the public purse continues to be stretched, the reforms aim to make public procurement more efficient and to use public procurement to deliver wider societal goals.
The European Parliament voted to approve three new EU Directives, on public sector procurement, utilities sector procurement and the procurement of works and services concessions by contracting bodies in the public and utilities sectors. A new Regulation on the access of third country goods or services to the EU’s internal public procurement market has also been agreed.
The new Regulation will apply unilaterally across the EU without the need to be implemented into national law and will take effect 60 days after its publication in the Official Journal of the EU. The Directives have to be implemented into national law within two years of their publication in the OJEU, although the Cabinet Office has already undertaken work in a bid to introduce some of the reforms in England, Wales and Northern Ireland, possibly as early as autumn this year.
The legislation voted through by MEPs has not yet been made public, but comments issued by the European Parliament suggest that the approved texts resemble draft versions of the reforms published in September 2013.
Under the new Public Procurement Directive, social issues are tackled in a number of ways. Contracting authorities will now be able to consider social aspects amongst other criteria for determining which bid is the most economically advantageous to accept. Price is no longer allowed to be the central determining factor.
In addition, public bodies will be able to limit competition for specific health, social and cultural contracts to mutuals and social enterprises where those organisations satisfy certain conditions. The reforms also set new mandatory grounds for excluding suppliers from competitions for contracts, and this includes where a bidder falls foul of social and labour laws.
"The incorporation of social clauses into publicly procured contracts and the maximisation of social benefit and value through the procurement process, particularly at a time when public money is tight, is a key aspiration of many public sector bodies," said Kathrine Eddon, an expert in procurement law at Pinsent Masons, the law firm behind Out-Law.com. "The new Public Procurement Directive facilitates this type of progress."
The new Public Procurement Directive will also force public bodies to exclude suppliers that have been found not to have met their tax obligations from bidding for or winning public contracts. It also introduces new, discretionary grounds for excluding suppliers, and offers scope for individual EU member states to make some or all of these grounds mandatory.
The changes to the law could permit public authorities to effectively blacklist companies and prevent them from bidding for public contracts. This action would be justified where, for example, those companies have shown significant or persistent deficiencies when performing past public contacts and where those deficiencies led to early termination of a prior contract, damages or other sanctions.
"This is an area where public authorities will need to tread carefully and where national guidance will be essential, including on the new supplier self-cleansing mechanism," procurement law specialist Jennifer Robinson of Pinsent Masons said. "It would be potentially dangerous territory for a public authority to seek to blacklist a supplier where the early termination or imposition of other sanctions in relation to another public contract is in dispute between the parties."
Public authorities also face a change in how they engage with prospective suppliers during procurements as the new regime will require contracting bodies to communicate with bidders electronically.
"The new Public Procurement Directive takes a giant leap forward in that it mandates that all communication and information exchange throughout tender processes must be electronic," Robinson said. "There are only limited carve outs, for example where the specialised nature of the procurement requires a file format that cannot be supported by generally available applications. Member states may buy themselves and their contracting authorities some extra time in this area as the Directive allows Member States to delay these e-requirements becoming mandatory until 54 months after the Directive enters into force, such as in the context of general correspondence with bidders during tender processes."
"However, there is no possibility to delay the requirement that from the date of publication of an OJEU notice the buyer must make available all procurement documents, including the proposed conditions of contract, electronically. This is consistent with where public procurement is going in the UK but will nevertheless bring about a change in current practice where in many cases the proposed conditions of contract are being worked up in parallel with the expression of interest or pre-qualification period," Robinson added.
The new rules will also see the introduction of a new procedure that public authorities will be able to select to follow when procuring innovative products, services or works that are not widely available on the market.
The 'innovation partnership' procedure gives scope to the contracting bodies to set a broad goal for what they are looking to achieve and gives prospective suppliers the opportunity to present potential solutions for meeting the brief and carry out further research, as well as deliver the end product, work or service.
Jennifer Robinson said the new innovation partnership procedure might work for public authorities that are willing to "take a bird's eye view of an issue" but would not be suitable for bodies seeking new services in a short timeframe. The expert also identified some problems that could arise as a result of public authorities following the procedure.
"If the research is as truly novel and innovative as some of the EU press suggests it could be, the parties working in partnership could discover during the course of the research that the successful bidder is lacking in certain expertise to more fully develop or deliver the service it has promised," Robinson said. "This may give rise to issues concerning the change in the identity of the winning bidder. Procurement law permits change in consortium members or changes in key sub contractors but only within strict parameters."
"In addition, unless the needs of the buyer are defined broadly enough there could be a risk of material change to the terms of the contract once entered into, again giving rise to a risk of procurement challenge," she said.
The new Public Procurement Directive does not contain any changes to the existing rules on the remedies available to unhappy bidders for public contracts.
The package of reforms will be implemented in England, Wales and Northern Ireland by the Cabinet Office on behalf of the UK Government and in Scotland by the Scottish Government.
The UK Government has expressed enthusiasm for the imminent reforms and said that it viewed the changes as helping to stimulate growth and tackle the UK's debt problem.
The Cabinet Office has already begun the process for delivering the reforms and has indicated that it will 'copy out' the Directives into national law applicable in the three jurisdictions. This means that there will be three new sets of regulations rather than further amendments to the existing ones. The new sets of regulations are expected to retain the existing remedies provisions, although these may need to be restructured to coincide with the new 'copied out' rules.
In Scotland the reforms are also likely to be implemented through a set of new regulations but these are not expected to directly mirror the contents of the Directives.
"This may result in a longer implementation period north of the border and, possibly, in substantive differences in procurement law as a result of policy differences between Scotland and the rest of the UK," procurement law expert Jamie McRorie of Pinsent Masons said. "It is widely recognised that these latest procurement reforms entail many more policy choices for member states compared to the last reforms."
Kathrine Eddon of Pinsent Masons said that the package of reforms contains "important changes" to procurement rules but that they do not represent a "fundamental root and branch rethink" of the current legal frameworks.
Eddon said that the changes "should help reduce the administrative burden, and enable authorities to make use of some useful ideas, such as greater scope for negotiation, reduction in time limits, and other changes brought in to reflect case law". However, she said that some local authorities in the UK have expressed concern about whether they have the resources to cope with and conform to a new set of rules, particularly if the Cabinet Office does press ahead with an accelerated timetable for implementation.
"The Cabinet Office is promising support in the form of guidance and training, but the implementation timetable doesn’t give authorities long to get their house in order," Eddon said.
LIBOR transition: government proposes legislation to deal with 'tough legacy' contracts