• On 19 September 2014, the Cabinet Office published a consultation on the draft Public Contracts Regulations 2015. The eagerly anticipated draft regulations will implement Directive 2014/24/EU which came into force on 17 April 2014. The government aims to bring the regulations into force in Spring 2015.

    The draft regulations make significant changes to public procurement in the UK. Claire Barwick has considers how the regulations have addressed key questions.

    Can variations be made without re-running the procurement?

    The draft regulations have codified recent case law and confirm changes can be made where:

    • clearly provided for in the initial documents and do not alter the overall nature of the contract; or
    • additional works, services or supplies by the same contractor are needed and where a change cannot be made for economic or technical reasons or would cause “significant inconvenience” or “substantial duplication” of costs; or
    • due to unforeseeable circumstances and do not alter the overall nature of the contract; or
    • a new contractor replaces the original one following corporate restructuring; or
    • not substantial; or
    • their value is less than 10% of the initial contract value for services and supplies and 15% for works.

    Whilst this is welcomed, clarification is needed in many areas such as what will amount to altering the overall nature of the contract or how can it be proved that a diligent authority could not have “foreseen” the circumstance? Also, how far can a contractor be “restructured” and still be within the provisions.

    Can the tender process favour small and medium sized enterprises (SMEs)

    The European Commission has defined “small” as being less than 50 employees and medium as between 50 and 250. Such businesses are hugely significant to the economy – in 2013 99.9% of UK businesses were SMEs accounting for 60% of private sector employment. However, SMEs find the current financial thresholds high and may find it difficult to demonstrate the breadth of relevant experience needed to tender.

    There are four reforms to assist such enterprises:

    • Financial Capacity: minimum yearly turnover required shall not exceed twice the estimated contract value except in ”duly justified” cases.
    • Self-Declaration: contracting authorities must accept an updated self-declaration as preliminary evidence there is no reason to exclude.
    • Division into Lots: the contract may be awarded in separate lots.
    • Use of electronic document submission.

    Whilst electronic document submission will reduce overheads and costs, the effectiveness of the other reforms is far from clear.

    What does “duly justified” mean?

    The regulations suggest that an authority may be able to justify not subdividing a project where timely and correct performance is critical. However, is not such performance critical for all contracts?

    Can Authorities favour the local economy

    The local economy may benefit from measures to help SMEs where such enterprises are represented there. Social criteria can also be introduced in the specification which can reflect such issues provide they are linked to end user needs. For example, requiring a contractor to have a local presence requirement will be acceptable provided genuinely based on the need for a timely response. Award criteria can include health and safety issues, equal opportunities initiatives, employment of long term job seekers and similar if genuinely relevant.

    The key question is whether they impose a higher cost burden on some bidders than others. Can earlier poor performance be punished? New or strengthened measures to improve procedures have been introduced. These include:

    • extended grounds of mandatory exclusion to include terrorist offences, human trafficking and failure to pay taxes;
    • expansion of discretionary grounds to include previous poor performance; collusion; conflict of interest, undue influence and misrepresentation; and
    • provision on self-cleansing where a bidder can show reliability despite grounds for exclusion.

    However, any such measures must not breach the overriding Treaty principles of proportionality and equal treatment. These provide the means used to attain a given end should be no more than what is appropriate and necessary to attain that end; identical or comparable situations must not be treated differently and different situations must not be treated identically. There is a strong body of opinion that using the new regulations to exclude will be difficult Interesting questions have arisen i.e. when can it be proportionate to exclude a bidder for a breach that was not treated as sufficient to end the relevant contract at the time?

    Similar issues arise in considering exclusion. What if a breach was persistent but unintentional or was partly caused by authority? All these are interesting questions and we will wait to see how the law develops in this area. In conclusion, the new regulations are, undoubtedly, a good thing. However, there is concern that they have not gone far enough to provide certainty in a number of critical areas. What stands out is the need to look at both the specific wording of the regulations and the general treaty principles when interpreting them. Hopefully, 2015 will provide further clarification on these areas.

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