Lost in translation

The new procurement regulations are muddled, unclear and do little to promote an active and flexible market, writes David Gollancz

Procurement lawyers and their clients will read the Public Contracts Regulations 2006, which come into force on 31 January, with a familiar mixture of resigned understanding, bafflement and irritation. No blame attaches to the officials and lawyers who negotiated and transposed the directives – they have done as well as could be expected. But if we were hoping for leaner, less ambiguous legislation, calculated to promote effective public/private commerce, which surely must be a prerequisite of inter-state commerce, our hopes have been dashed.

Two aspects of the new regulations – the threat to the effectiveness of framework agreements and the cumbersome and costly competitive dialogue – are likely to be of particular concern. A third issue is the threat and opportunity presented by the introduction of an express provision allowing authorities to apply social and environmental criteria. That will require some careful thinking and planning by both contracting authorities and their suppliers.

Framework agreements
The point of a framework agreement is that the competition happens once, in accordance with the relevant procedure. Contracting authorities can then let contracts, and suppliers accept work, without either side having to invest in further procurement activity. Mini-competitions can help to identify the supplier particularly suited for a specific job and contracting authorities can extend their scope by inviting off-framework suppliers to tender. Framework agreements have thus enabled contracting authorities to put into practice the principles of public procurement while mitigating the bureaucracy and expense associated with carrying out public competitions.

Under the new Regulation 19, it seems that authorities will still be able to select a single supplier, but the mini-competition will be unavailable: any competition between members of a framework agreement must allow for the participation of every member. Furthermore, the authority will not be able to extend the invitation to off-framework suppliers. It is easy to see how this will tend to clog up public/private commerce and the effectiveness of competition, but it is not so easy to see what commensurate benefit it confers. Authorities will have to consider whether to make frameworks smaller so that all-member competitions are manageable and deliver some benefit; and suppliers will have to consider whether they want to participate in frameworks which offer, in effect, only the opportunity to take part in a further competition.

The competitive dialogue
The competitive dialogue seems to have been intended to provide a process that is more commercial, enabling authorities and suppliers to work collaboratively to develop solutions and agree terms without sacrificing the competitive disciplines which are supposed to promote inter-state market penetration. It is meant to be used where the authority can identify its needs, but not how to meet them.

Unfortunately, the European Community’s (EC) cultural addiction to confecting detailed schemes of regulation and wholly unrealistic standards has asserted itself. I am reminded of a US colleague’s flat refusal to believe most of what I had to tell him about the jurisprudence of the Acquired Rights Directive. “You gotta be kidding me!” he said. Suppliers are asked, in effect, to provide consultancy services as part of the bid procedure. They are asked to accept that their confidential information will be protected during the bid process, but that protection is to apply only “during the… procedure” (Reg 18(21)). There is no certainty that the general law of IP will be adequate to the task. Indeed, it is clear that it will not.

The process itself is complex and often unclear about significant issues. For example, authorities are allowed to provide for the competition to proceed in stages, in order to reduce the number of bidders by applying the award criteria iteratively. However, since bids will by definition be incomplete at those interim stages, how likely is it that suppliers will accept that they have been treated fairly? When the authority decides that the dialogue should conclude, it asks each remaining bidder to submit a “final” tender, but it can then ask bidders to “clarify, specify or fine-tune” their tenders. And it appears from the wording of the regulation (Reg 18(26)) that these changes may affect “basic features” of the tender, provided that they are not likely to distort competition or have a discriminatory effect. Then, after the authority has chosen a single preferred bidder, it can ask again for that bidder to “clarify aspects” of its tender or “confirm commitments”, but this time the conditions are that such clarifications and confirmations do not “modify substantial aspects” and, independently, do not distort competition or cause discrimination.

What is the difference between basic features and substantial aspects? Presumably there is a difference: this is legislative drafting, so changes in wording should express conceptual differences. More generally, we are entitled to question whether these provisions do anything to promote the kind of active, flexible market that the EC surely should be seeking if it genuinely wants to encourage the development of a single market.

The competitive dialogue, like the directive and the regulations generally, creates a plethora of rules, the application of which are often conditional, requiring the exercise of judgement. That is worrying. It increases manifold the potential bases for disagreement between suppliers and authorities, which undermines good commercial relations and opens the way to litigation. It promotes still further the development and entrenchment of public procurement as a costly and complex field divorced from ordinary commerce. It increases the anxiety that the unwritten subtext of the legislation is that everything that is not compulsory is forbidden. Only in the competitive dialogue is reference made to the authority paying bid costs: does this mean that, by omission, bid costs may not be paid in any of the other procedures? Where the regulation says that clarification must not involve basic changes “when those changes are likely to distort competition”, are we not likely to find (analogously with state aid) that, so far as the EC is concerned, basic changes amount to such distortion?

Social and environmental criteria
UK legislation and policy are increasingly directing public authorities to promote workplace equality and encouraging them to practise corporate social responsibility. Now that the legislation expressly provides for the use of social and environmental criteria in evaluating bids, we should expect that public authorities will make increasing demands of suppliers’ policies and practice in these areas. It is arguable that a public authority which does not ensure that its suppliers at least comply with statutory standards is failing in its own statutory duty to promote workplace equality. Both sides of the public procurement relationship will need to give this serious attention and ensure that they have policies that are rational, defensible, consistent and understood fully by their own personnel and their suppliers.

This continues to be the best advice to those involved in public procurement, with the worthwhile objectives of transparency, objectivity, fairness and non-discrimination continuing to be the key considerations. Provided those principles are understood properly and applied rationally and conscientiously, the complexities and perplexities of the rules will be manageable, and the lost opportunity to simplify and really modernise will not be fatal.

David Gollancz is a partner at Field Fisher Waterhouse