Procurement and the Public Contracts Regulations 2015

The Public Contracts Regulations 2015, which implement the Public Sector Procurement Directive 2014/24/EU (repealing Directive 2004/18/EC) came into force on 26 February 2015 and (subject to transitional provisions¹) replace the Public Contracts Regulations 2006. Whilst EU member states had two years from February 2014 to implement the Directive, the current administration sought to implement the changes rapidly. The Directive sought to ensure a more flexible, streamlined and simpler approach to procurement rules. Lord Young (in his report of May 2013 entitled "Growing your Business") recommended specific changes which would be of particular benefit to small to medium sized enterprises, which have been broadly incorporated into Part 4 of the Regulations.

Most of the provisions in the 2015 Regulations apply to all new tender processes started on or after 26 February 2015. Some of the provisions (such as Regulation 61 which mandates the use of e-Certis) will not however take effect until 2018. The EU Directives will be implemented separately in Scotland.

The 2015 Regulations will not apply to any health service contracts that are within the scope of the NHS (Procurement, Patient Choice and Competition) (No 2) Regulations 2013 until 18 April 2016.

The definition of contracting authority has not changed substantively and the list of central government authorities is set out at Schedule 1 of the 2015 Regulations. By virtue of regulation 26 (9) sub-central contracting authorities are those contracting authorities not listed at Schedule 1 and include universities and local government.

This article briefly summarises the main changes introduced by the 2015 Regulations

What has changed?

Some highlights include:

• A greater choice of procedures (and accompanying timescales) and greater freedom to use competitive with negotiation (regulation 29) and competitive dialogue (regulation 30) procedures. Both can be used in circumstances such as when needs cannot be met without adapting readily available solutions or requirements that involve design or innovative solutions or the contract is so complex that it cannot be awarded without negotiation or the specifications cannot be established with sufficient precision.
• The introduction of "innovation partnerships" (regulation 31) which offer an opportunity to ensure the development and subsequent purchase from the same supplier(s) of an "innovative" work service or product. In practice this means that project proposals are submitted during the competitive tender process but the actual solutions are developed following the award of the contract. The Regulations envisage more than one innovation partner (regulation 31(4)) and specify that the innovation partnership shall set intermediate targets to be attained by the partners and provide for payment in appropriate instalments. It envisages "phases" of completion of targets, and allows contracting authorities to terminate the innovation partnership, or in the case of an innovation partnership with several partners, reduce the number of partners by terminating individual contracts. As this is a new area, there is a degree of uncertainty as to how innovation partnerships will work in practice and it may be that contracting authorities are initially reluctant or simply unsure when or how to make use of this provision.
• The availability of electronic procurement documents (now required under regulation 53).
• The ability to modify contracts during their term (regulation 72).
• The obligation to publish on the government’s "Contracts Finder" any Contract Notice or Contract Award Notice which is published in the Official Journal of the EU (OJEU) (this was previously only contained in guidance)(regulation 110).
• The introduction of strict time limits for payment of invoices: regulation 113 stipulates the payment of undisputed invoices within 30 days by contracting authorities, contractors and subcontractors².
• A statutory obligation on contracting authorities to have regard to government guidance around the selection and exclusion of suppliers (regulation 107). Where a contracting authority decides to depart from the guidance, it must then draw up a report explaining the reasons for its decision.
• An obligation on contracting authorities to draw up a report in relation to each individual contract or framework that is awarded, a copy of which may be requested by the Cabinet Office (regulation 84 (5)).The reports must contain the value of the contract, details of the winning bid and the parties involved.
• The introduction of a new "light touch" regime (the current threshold is €750,000 as set out in Article 4(d) of the Directive) in the health and social care sector³ (regulation 74 onwards). Under this regime, public bodies have the freedom to determine the procedures that will be applied to those procurements albeit that they still have to generally "conduct the procurement, and award any resulting contract" in conformity with those stated procedures. Contracting authorities will be able to award contracts in accordance with a different process from the one it has previously communicated in its tender notice so long as certain conditions are satisfied, such as ensuring that such action will not amount to a breach of the principles of transparency and non-discrimination. There is also a new requirement to advertise such contracts.
• The positive encouragement of smaller suppliers. Regulations 109 to 112 deal with below threshold procurements and provide that contracts as low in value as £10,000 (or £25,000 for "sub-central" contracting authority procurements) if advertised at all must be advertised on the government’s "contracts finder" as must details about contract award (unless one of the exemptions at regulation 112(2) is of application). However, these provisions do not apply to maintained schools or Academies. Regulation 46 allows for the division of contracts into lots-again encouraging smaller enterprises-to submit tenders and requires contracting authorities to provide reasons for not sub-dividing within its regulation 84 report.
• Allowing contracts to be modified without triggering a requirement to run a new procurement process. Regulation 72 sets out, for the first time⁴, the circumstances in which this is possible. It provides that a modification which is provided for in “clear precise and unequivocal” terms will not trigger a new procurement process. The need for careful drafting within the original contract is therefore paramount. A new process is not triggered if the change in value is relatively small (under 10% or 15% depending on whether it covers services and supplies or work) and is also under the applicable EU financial threshold or where there are unforeseen circumstances.
• Planned procurements will be publicised via prior information notices (PIN) and such notices must contain the information set out within section I of part B of Annex V to the Public Contracts Directive (regulation 48).
• Notices for publication at EU level have to be undertaken via the EU Publications Office (Regulation 51) and publication of notices at a national level cannot be published prior to publication on the EU Publications Office (regulation 52).
• New grounds for mandatory exclusion for offences under the Counter Terrorism Act 2008 and the Serious Crime Act 2007 are included for the first time under Regulation 57 and also where the contracting authority is aware that the economic operator has failed to pay taxes or social security contributions (although if the latter breach is a small amount this need not lead to automatic exclusion (regulation 57 (7).
• The requirement upon contracting authorities in cases of abnormally low tenders (although the meaning of this remains undefined) under regulation 69 to demand an explanation where a tender appears to be abnormally low, bids may only be rejected where the explanation is unsatisfactory.  A public authority must reject a tender where the tender is low due to breaches of environmental, social or labour law. (See also regulation 56 (2)).
• The requirement that all contracting authorities shall accept the European Single Procurement Document (ESPD) at the time of submissions of requests to participate or of tenders, which is to be provided in electronic form (regulation 59). The requirement to provide ESPDs in electronic form does not come into effect until October 2018 (regulation 1(5)).
• The requirement that all public contracts must retain the right for a contracting authority to terminate a contract where there has been a substantial modification to the contract or the contract ought not to have been awarded under regulation 57 (grounds for mandatory exclusion) or there has been a serious infringement of European law (and this has been declared as such by the Court of Justice under Article 258 of the Treaty on the Functioning of the European Union Treaty on the Functioning of the European Union TFEU) (regulation 73). Even if these provisions are not explicitly contained within a contract, these provisions will be "read-in" to all contracts.

Conclusion

Overall, the 2015 Regulations achieve the intended goal of simplifying and creating a degree of flexibility in a notoriously complex area. The new "innovation partnerships" will provide contracting authorities greater opportunities to ensure and actively encourage innovation via the procurement process. However, innovation partnerships may prove somewhat difficult to navigate from a contracting authority’s perspective. The requirement to publish on the government contract finder in addition to the OJEU and Lord Young’s other reforms, ought to extend opportunities for small to medium size enterprises. However, it remains to be seen if the reforms will achieve the laudable aim of encouraging small to medium firms to bid for public contracts, in an area which has, to date, due to its complexity and the presence of larger bidders, represented a significant barrier to entry to such firms competing for public contracts.

1. See Regulation 118 and 119
2. This applies to all public contracts except those awarded by a maintained school or academy or for health services under the NHS Regulations.
3. This regime will not apply to any health services contracts that are within the scope of the NHS Regulations until 18 April 2016.
4. Practitioners had up until this point relied upon case law see Pressetext C-454/06