Monday, 2 March 2015

Service contracts awarded on the basis of an exclusive right under Reg.11 Public Contracts Regulations 2015

Reg.11 of the Public Contracts Regulations 2015 (PCR2015) creates the first carve-out for (pseudo) public-public cooperation (more to follow under reg.12 PCR2015) and excludes from the rules of Part 2 PCR2015 'public service contracts awarded by a contracting authority to another contracting authority on the basis of an exclusive right which the latter enjoys pursuant to a law, regulation or published administrative provision which is compatible with TFEU.' 

This is an instance of quasi self-supply, which has been regulated in Art 18 of Directive 2004/18 and is now maintained in Art 11 of Directive 2014/24. The reference to compatibility with the TFEU is primarily to Art 106 and public undertakings.

The rule in Art 11 Dir 2014/24 is fundamentally the same, but reg.11 PCR2015 deviates from the EU provision in that the latter also excludes public services contracts awarded to 'an association of contracting authorities' and, consequently, reg. 11 PCR2015 seems to reduce the flexibility of public-public cooperation rules after their transposition. However, the PCR2015 Explanatory Memorandum offers no justification for such a restriction of the scope of application of this exclusion.

The purpose of the exclusion in reg.11 PCR2015 may seem superficial because both Art 32(2)(b)(iii) Dir 2014/24 and reg.32(2)(b)(iii) PCR2015 allow for the use of a negotiated procedure without prior publication (which is functionally equivalent to an exclusion from compliance with the rules, except for some very limited transparency obligations) where the works, supplies or services can be supplied only by a particular economic operator protected by an exclusive right, including intellectual property rights. However, the specific exclusion in reg.11 PCR2015 may not be considered (completely) superficial or unnecessary if two details are taken into consideration.

Firstly, a literal interpretation (or a natural reading) of reg/art 32(2)(b)(iii) could seem to exclude 'contracting authorities (or associations of contracting authorities' from their scope of application if they were not considered 'economic operators'. However, once this is checked against the definitions in art 2(1)(10) Dir 2014/24 / reg.2(1) PCR2015, it is clear that 'contracting authorities (or associations of contracting authorities' would be covered, as economic operators are defined as 'any natural or legal person or public entity or group of such persons and/or entities, including any temporary association of undertakings, which offers the execution of works and/or a work, the supply of products or the provision of services on the market'. Hence, from this perspective, the specific exclusion in reg.11 PCR2015 seems unnecessary.

Secondly, however, it is worth stressing that the special rule under art/reg 32(2)(b)(iii) 'shall only apply when no reasonable alternative or substitute exists and the absence of competition is not the result of an artificial narrowing down of the parameters of the procurement'. Hence, the specific (quasi) public-public cooperation exception in reg/art 11 seems to be oriented at suppressing the requirement for an assessment of availability of alternative or substitute works, products or services that could be procured. Under this light, this exception seems to now acquire a specific purpose.

In my view, however, if the goal of art/reg 11 is to deactivate the additional requirements of absence of alternative/substitute supplies or artificial narrowing down of the procurement, then these rules are bound to fail and become ineffective. Indeed, it should be stressed here that art/reg 18 include the principle of competition amongst the general principles of procurement and, as a general requirement, impose an obligation for contracting authorities to design the procurement in a way that does not artificially narrow competition. Consequently, a systematic interpretation of art/reg 11 does not allow for an interpretation that is functionally any different than art/reg 32(2)(b)(iii). Thus, ultimately, reg/art 11 is an unnecessary rule and could have been avoided in view of the (proper) public-public and in-house provision rules in Dir 2014/24 and the PCR2015 (commented next).

Friday, 27 February 2015

Specific exclusions for service contracts under Reg.10 Public Contracts Regulations 2015

Following the list of specific derogations in Art 10 of Directive 2014/24, reg. 10 of the Public Contracts Regulations 2015 (PCR2015) lists a significant number of services contracts that are excluded from the procurement rules of its Part 2. 

Under the specific exclusions for service contracts, a relatively large number of categories are excluded concerning rental of land, existing buildings or other immovable property, audiovisual and radio programmes, arbitration and conciliation services, legal services, financial services, loans, employment contracts, civil defence, rail and metro transportation services, as well as political campaigns. These exclusions are exactly the same at domestic and EU level and some of them have been included as a result of the suppression of Part B services in the 2014 rules. 

In my view, some of the justifications are easier to support than others. All those concerned with legal services seem quite problematic, though, as there seems to be no clear advantage for the public sector in having unfettered discretion to choose its legal counsel. Similar considerations make the exclusion of financial services dubious. 

Other professional services are covered by the rules in Dir 2014/24 and the PCR2015, which raises the question of which difficulty would there be to choose appropriate providers of legal and financial services under the applicable rules (eg, through a competitive procurement with negotiation with particular requirements in terms of experience and accreditation of the specific members of staff to provide the services, in the case of legal services; or through reverse electronic auctions within a dynamic purchasing system for the provision of financial services, which seems rather close to the liquidity auctions that central banks have been conducting for decades anyway).

In my view, then, the list of exclusions is excessive and should be pruned. Obviously, one cannot expect the UK to do so unilaterally, particularly in view of the relevance of its legal and financial sectors. However, I would put such a reduction of the list of exclusions in my wishlist for the next round of reform of the EU rules.

Thursday, 26 February 2015

Procurement pursuant to international rules under Reg.9 Public Contracts Regulations 2015

Reg.9 of the Public Contracts Regulations 2015 (PCR2015) establishes an exemption for public contracts awarded, and design contests organised, pursuant to international rules and, once more, it follows very closely (but improves) the drafting of Art 9 of Directive 2014/24

Reg.9 PCR2015 (and art 9 dir 2014/24) basically creates three specific rules. Firstly, it creates space for compliance with international law obligations, which can become more and more relevant in the immediate future as the EU exercises its external relations powers.

Secondly, it creates a specific criterion that money rules, so that procurement funded by international organisations or international funders is subjected to their procurement processes (this can, however, create difficulties in the integration of rules where the international organisation/funder relies on domestic procedures for all or part of the procurement process, which could create a spiral of cross-referrals). 

Thirdly, it allows for negotiated solutions to mix-funded projects, where the international organisations/funders only provide part of the funds. In this case, it seems logical to require that the applicable rules are at least subjected to requirements of equivalence and effectiveness, so as to avoid infringement of general Treaty rules and the general principles of public procurement (see art 18 dir 2014/24 and reg. 18 PCR2015). 

Finally, reg.9(4) PCR2015 (and art 9(3) dir 2014/24) introduces an (unnecessary) cross-referral to the rules applicable to defence and security procurement for those cases in which the specific "international" procurement concerns goods, works or services covered by the special rules (see reg.17 PCR2015  and art 17 dir 2014/24).

This is a topic where Dr Baudouin Heuninckx has expertly written on repeated occasions [see "Applicable Law to the Procurement of International Organisations in Europe" (2011) 20(4) Public Procurement Law Review 103-22, as well as his Private Contribution to the Commission Green Paper on the modernisation of EU public procurement policy (2011)], so it is worth re-reading his proposals for improvement of the previous rules.

In my view, even if the 2014 rules now implemented by the PCR2015 have created some clarity (cf art 15 Dir 2004/18), there still seems to be room for clarification as to the concepts of "international organisation" or "international financing institution", as well for the introduction of a safeguard clause in case the procedures to be followed under other rules create a gap in scope of coverage or result in otherwise undesirable protectionism or direct award of contracts. However, these are issues that deserve separate analysis and do not affect the PCR2015 exclusively, so they are saved for some other time.

Wednesday, 25 February 2015

An interesting different take on public procurement decision-making (reference to Crowder, 2015)

I have just read an interesting piece of research that sheds different light on public procurement decision-making processes. That short, accessible and interesting piece, [M Crowder, "Public procurement: the role of cognitive heuristics" (2015) 35(2) Public Money & Management 127-34] explores the cognitive heuristics of public procurement processes. As the abstract makes clear
Public procurement processes have been extensively studied, but previous research has not sought to explain public procurement in terms of cognitive heuristics. This paper examines the award of a large public sector contract and outlines how the decisions were made. Heuristics were used throughout the process. Three heuristics—EBA [elimination by aspects], conjunctive, and WADD [weighted additive]—were used in combination to reduce the number of bidders for the contract from a somewhat unmanageable 63 down to four. This paper allows the underlying stages to be viewed from this perspective and therefore it explores procurement in a way that sheds new light on the processes involved.
The paper is easy to follow if one has some experience in public procurement evaluation or, absent that, some knowledge of the rules on exclusion, qualitative selection and short-listing of tenderers [for a summary of the rules under the new Directive 2014/24, see A Sanchez Graells, “Exclusion, Qualitative Selection and Short-listing”, in F Lichère, R Caranta & S Treumer (eds), Modernising Public Procurement. The New Directive, vol. 6 European Procurement Law Series (Copenhagen, DJØF, 2014) 97-129]. As the conclusions stress, the paper shows
that procurement decisions can be explained in terms of cognitive heuristics. The EBA heuristic makes a decision on the basis of a single aspect; the conjunctive heuristic makes a decision on the basis that a number of requirements are all met; and the WADD heuristic makes a decision by weighing up various factors and offsetting the good against the bad. This was reflected in the procurement under study, where the number of bidders under consideration was reduced in precisely this way.
The paper offers a good perspective to complement our understanding of procurement decision-making and provokes some thoughts on how to better regulate these processes in order to avoid weaknesses derived from cognitive biases. 

This is an area that promises to open roads towards interdisciplinary efforts to incorporate the insights of psychology and other sciences into legal research on public procurement. And this seems to me like an area of high research potential, so it may be worth keeping an eye on it!

Specific exclusions in the field of electronic communications under Reg.8 Public Contracts Regulations 2015

Reg.8 of the Public Contracts Regulations 2015 (PCR2015) sets certain Specific exclusions in the field of electronic communications, which apply to the exploitation of public communications networks or the provision to the public of one or more electronic communications services by contracting authorities, as defined in Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services

Reg.8 PCR2015 adopts the almost exact wording of art 8 Directive 2014/24, with the only addition that the reference to the definitions included in Directive 2002/21 includes "as amended from time to time", which creates a dynamic referral to avoid future amendments, should the EU rules change.

Other than that, this is a provision that deserves no further comment.

Tuesday, 24 February 2015

Utilities' exclusion under Reg.7 Public Contracts Regulations 2015

Reg. 7 of the Public Contracts Regulations 2015 (PCR2015) sets the exclusion from its Part 2 rules for utilities-related procurement, which is instead covered by the Utilities Contracts Regulations 2006 (SI 2006/6, as amended--and which are now to be adjusted to the rules of Directive 2014/25, either through a repeal or further amendment)

Reg.7 PCR2015 significantly departs from the structure and content of Art 7 of Directive 2014/24 on exclusions applicable to the water, energy, transport and postal services sectors.

 Art 7 Dir 2014/24 establishes a direct cross-reference to Dir 2014/25 and excludes from its own rules the public contracts and design contests that are either covered by Directive 2014/25 or expressly excluded from its scope of application. Instead of following the same approach, reg.7 PCR2015 keeps a "domestic" list of exclusions with references to the definitions and schedules of activities of the Utilities Contracts Regulations 2006

This creates the practical difficulty of assessing the compatibility or otherwise of such "old" definitions and schedules with the new coverage of Dir 2014/25 (and art 7 Dir 2014/24). However, given that the scope of application of the utilities rules has not been altered significantly in the 2014 revision (ie, Dir 2004/17 and Dir 2014/25 have almost the same scope of application), this is not a significant practical problem

Indeed, "[t]he only change in this regard is in relation to the energy sector where the exploration for oil and gas [is] no longer be regulated" [T Kotsonis, "The 2014 Utilities Directive of the EU: codification, flexibilisation and other misdemeanours" (2014) 23(4) Public Procurement Law Review 169-187, 170]. Such exclusion for exploration is included in reg.7(e)(iii) PCR2015.

Hence, it seems that the coordination of the scope of application of the PCR2015 and the Utilities Contracts Regulations 2006 remains aligned with the coordination provisions of Dir 2014/24 and Dir 2014/25.

Monday, 23 February 2015

Methods for calculating the estimated value of procurement under Reg.6 Public Contracts Regulations 2015

After having cross-referred to Directive 2014/24 regarding the value thresholds that trigger compliance with its Part 2 rules, reg.6 of the Public Contracts Regulations 2015 (PCR2015) establishes the Methods for calculating the estimated value of procurement. The rules under reg.6 PCR2015 also follow extremely closely those of art 5 Dir 2014/24, with some minor drafting changes and a renumbering and consolidation of subsections that provides some improvements. There are two points that deserve some comments (Pedro's are here).

Firstly, the only difference in drafting that is worth emphasizing concerns the timing of the calculation of the estimated value of the procurement. While art 5(4) Dir 2014/24 indicates that the "estimated value shall be valid at the moment at which the call for competition is sent ..." (emphasis added), reg.6(7) PCR2015 indicates that the "estimated value shall be calculated as at the moment at which the call for competition is sent ..." (emphasis added). 

The consequences of this divergence depend on how literally the rules are interpreted. Under a strict literal interpretation, reg.6(7) PCR2015 seems more limiting for contracting authorities, as it imposes a positive obligation to calculate the estimated value at a specific time (ie dispatch of the relevant notice or start of the procurement), whereas art 5(4) Dir 2014/24 requires a check of (a previous?) calculation at that time. However, it seems clear that contracting authorities need to actually check the estimated value at the same point in time either under reg.6(7) or art 5(4), which makes the drafting rather irrelevant in practical terms.

Secondly, it is worth stressing that reg.6(14) keeps references to values in Euro when it comes to exempt the award of contracts for individual lots. This creates a significant problem of a financial moving target that Pedro identified in his previous post (although I disagree with the fact that it applies to reg.5 PCR2015 as well). As Pedro rightly stressed, the problem with keeping values in Euro 
is that Central Government decided to trade certainty in practice for lawmaking simplicity. It can be argued that the new way is the correct one to ensure sterling values do not deviate from the original euro ones ... but the price to pay is to force every single public procedure close to those values to be manually checked by the contracting authority before tender. Furthermore, for really close call cases it is not clear what is the correct approach to determine the exchange rate applicable: is it the mid-market value? The end of day? Is it the value from the day before launching the procedure or when the decision of launching a procedure is being taken? (emphasis added).
Given that the European Commission has been including the corresponding values in currencies other than Euro for the 80,000 and 1,000,000 thresholds in its previous communications for these purposes, it would have been much more preferable for the UK Government to follow the technique used in relation to the thresholds covered by reg.5 PCR. 

Indeed, they should have extend the rule under reg.5(4), whereby "The value in pounds sterling of any amount expressed in euro in any of the provisions of the Public Contracts Directive ... shall be taken to be the value for the time being determined by the Commission for the purpose of that provision and published from time to time in the Official Journal in accordance with Article 6 of the Public Contracts Directive. This would have avoided significant legal uncertainty and would have reduced the administrative costs to contracting authorities willing to benefit from this derogation to compliance with the rules of Dir 2014/24 in the award of "low-value" lots. 


Pedro has spotted the issue of the difficulty in valuing framework agreements or innovation partnerships and has raised the issue of "a perverse incentive for contracting authorities to establish framework agreements with procurement values below thresholds to avoid any sort of transparency. Now let's marry this idea with a short initial term of the framework (say, one year) which [coincidentally] justifies a below-threshold calculation value and that the framework then gets extended to the maximum 4 year period afterwards." I agree with the existence of the risk, however, I think that this is the sort of issue clearly covered by the anti-circumvention prohibition in art 5(3) Dir 2014/24 and reg.6(5) and 6(6) PCR2015, which clearly set out that "The choice of the method used to calculate the estimated value of a procurement shall not be made with the intention of excluding it from the scope of this Directive [Part]. A procurement shall not be subdivided with the effect of preventing it from falling within the scope of this Directive, unless justified by objective reasons."

The following are my comments on this issue, as they will be soon published in A Sanchez Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 261-63.

Specific rules have been developed to deter such strategic use of public procurement thresholds, or the unjustified resort to ‘unregulated’ public procurement activities. As regards the strategic conduct of public procurement below the thresholds set by the EU directives on public procurement, article 5(3) of Directive 2014/24 expressly states that the object of public contracts may not be subdivided to prevent its coming within the scope of the directive. More specifically, it establishes that the choice of the method used to calculate the estimated value of a procurement shall not be made with the intention of excluding it from the scope of this Directive,[1] and that a procurement shall not be subdivided with the effect of preventing it from falling within the scope of this Directive, unless justified by objective reasons.

The latter caveat allowing for the objective justification of a subdivision of a contract that makes it fall below the relevant thresholds was not present in the equivalent rule of art 9(3) dir 2004/18 (‘No works project or proposed purchase of a certain quantity of supplies and/or services may be subdivided to prevent its coming within the scope of this Directive’). It is submitted that this new caveat is prone to create significant litigation, particularly if the European Commission identifies numerous instances of recourse to ‘objective reasons’ on the part of the Member States and the latter argue for a broad interpretation of the exception—which should be rejected.[2] However, given the additional explanation provided in recital (20) of Directive 2014/24, it is submitted that the addition of the caveat is largely irrelevant and only aimed at a further prevention of the artificial split of contracts in the framework of centralised procurement. In that regard, it is important to take into account that, according to the recital, the rationale for the ‘objective reasons’ caveat is that

For the purposes of estimating the value of a given procurement, it should be clarified that it should be allowed to base the estimation of the value on a subdivision of the procurement only where justified by objective reasons. For instance, it could be justified to estimate contract values at the level of a separate operational unit of the contracting authority, such as for instance schools or kindergartens, provided that the unit in question is independently responsible for its procurement. This can be assumed where the separate operational unit independently runs the procurement procedures and makes the buying decisions, has a separate budget line at its disposal for the procurements concerned, concludes the contract independently and finances it from a budget which it has at its disposal. A subdivision is not justified where the contracting authority merely organises a procurement in a decentralised way (emphasis added).

In my view, then, the caveat should be interpreted as creating a strengthened requirement for a justification that intends to escape the rule on prohibited division of contracts on the basis of (allegedly) objective reasons and, particularly, aims to anticipate and prevent potential infringements of the EU rules by contracting authorities that manage (de)centralised procurement systems. Generally speaking, however, the discussion seems to need being re-oriented towards the definition of contracting authority and the recouse to collaborative procurement (below).

Generally, though, the anti-split or anti-circumvention rule is clear and establishes a prohibition of strategic use of public procurement thresholds. To be sure, these rules do not prevent contracting authorities from splitting or dividing the contracts into as many lots as they deem fit or objectively justified (on issues regarding the division of contracts in lots and the aggregation of lots, see below §II.A.xviii), but rather focus on their obligation to take the aggregate value of those lots into consideration when determining whether the relevant thresholds are met—and, hence, whether their award should be conducted pursuant to the rules of the EU directives on public procurement (see art 5(8) and 5(9) dir 2014/24).[3] Consequently, the prohibition on circumventing the application of the directives is not violated per se by dividing the contracts in lots, but only by failing to treat those lots as a single economic and technical unit and, consequently, by failing to award them in compliance with public procurement rules.[4]

This prohibition has also been clearly interpreted by the EU judicature, which has provided guidance as to what constitutes an ‘artificial’ division of the object of a contract to circumvent public procurement rules—by putting emphasis on the criterion of the economic and technical unity of the object of the various contracts whose award should have been conducted jointly.[5] Therefore, a public buyer that artificially divided into separate contracts or purchases certain of its requirements that should objectively be considered to constitute a single economic and technical unit would be found in breach of the EU directives on public procurement. A different dimension is that of the temporal compatibility between the spread of the needs and the periodicity of the contracts or purchases conducted by the public buyer.[6] Where a significant mismatch can be identified—ie, when purchases below the thresholds occur too often—the public buyer should equally be found in breach of the EU public procurement rules, since the conduct of an excessive number of purchases or the conclusion of an excessive number of contracts should equally be considered an artificial split of the object of the contract in circumvention of the EU rules.

From a competition perspective, the rule against the artificial division of the contract to exclude it from public procurement rules seems to be sound and, in general, should prevent the exercise of strategic public procurement below the thresholds. Nonetheless, it is suggested that, when exercising their discretion as regards the need to group their requirements into a single or few contracts—rectius, when assessing the extent of the obligation not to split them—contracting authorities should not only bear in mind a criterion of strict proportionality (between the inconveniencies and costs of running a procurement process and the unity or separability of its requirements), but also the principle of competition. In cases where the application of the proportionality principle might be neutral towards the aggregation or not of contracts, competition considerations might become relevant. In those cases, if recourse to public procurement rules can generate increased competition for the contract—or, put otherwise, if the conduct of ‘unregulated’ procurement activities might generate a negative impact on market dynamics—the contracting authority should opt for the aggregation of its requirements and the conduct of the corresponding tender. The same criteria apply to both the conduct of procurement below EU and national thresholds, since the competition element is equally important in both cases. In the end, it is submitted that public buyers should not divide their requirements to avoid compliance with public procurement rules not only when it is unwarranted or disproportionate, but also when it could result in a negative impact on market competitive dynamics.

[1] For a discussion on the very problematic use of intentional elements in the 2014 Directives and, in particular, in the context of the principle of competition embedded in art 18 dir 2014/24, see above ch 5, §III.

[2] Case C-394/02 Commission v Greece [2005] ECR I-4713 33; Case C-337/05 Commission v Italy [2008] ECR I-2173 57; C-250/07 Commission v Greece [2009] ECR I-4369 17.

[3] It is important to stress that the system allows for certain flexibility and that, despite the rules preventing the artificial split into lots in art 5(8) and 5(9) dir 2014/24, contracting authorities may award contracts for individual lots without applying the procedures provided for under the Directive, provided that the estimated value net of VAT of the lot concerned is less than EUR 80 000 for supplies or services or EUR 1 million for works. However, the aggregate value of the lots thus awarded without applying the Directive shall not exceed 20 % of the aggregate value of all the lots into which the proposed work, the proposed acquisition of similar supplies or the proposed provision of services has been divided (art 5(10) dir 2014/24).
[4] Along the same lines, although with reference to the equivalent provisions in Directive 93/38, see Opinion of AG Jacobs in case C-16/98 Commission v France 34–37. From the opposite perspective, analysing whether the improper or artificial aggregation of contracts that do not constitute a single economic and technical unity could result in a breach of the same provisions, see Opinion of AG Mischo in case C-411/00 Swoboda 53–64. In very clear terms, the ECJ concluded that the purpose that inspires these provisions ‘(the concern to avoid any risk of manipulation) also precludes a contracting authority from artificially grouping different services in the same contract solely in order to avoid the application in full of the directive to that contract’; see Case C-411/00 Swoboda [2002] ECR I-10567 58.
[5] Case C-16/98 Commission v France [2000] ECR I-675; and Case C-412/04 Commission v Italy [2008] ECR I-619 72. See also Opinion of AG Jacobs in case C-16/98 Commission v France. Similarly, albeit in less elaborated terms, see Opinion of AG Kokott in case C-220/05 Auroux 65 fn 58; Opinion of AG Ruiz-Jarabo Colomer in Case C-412/04 Commission v Italy 85–88; and Opinion of AG Mengozzi in case C-237/05 Commission v Greece 76–79. See also Opinion of AG Trstenjak in Case C-271/08 European Commission v Federal Republic of Germany 165. For recent cases discussing the splitting of contracts, see T-384/10 Spain v Commission [2013] pub. electr. EU:T:2013:277 and T-358/08 Spain v Commission [2013] pub. electr. EU:T:2013:371. Both of them respectively appealed as C-429/13 and C-513/13, which will give the ECJ an opportunity to update its doctrine on the artificial split of contracts. (*)
[6] The temporal dimension was also analysed, although in a limited way, in the Opinion of AG Jacobs in case C-16/98 Commission v France 71.

(*) The text of the foonote indicates that the appeals are pending due to the fact that I closed the 2nd edition of the bookin the fall of 2014. Both cases have now been decided by the CJUE: C-429/13 and C-513/13. I am grateful to Jonn Sannes Ramsvik for having raised this issue to my attention.

Friday, 20 February 2015

Threshold amounts under Reg.5 Public Contracts Regulations 2015

I know that Pedro will feast (*) on the rules applicable to Threshold amounts under reg.5 of the Public Contracts Regulations 2015 (PCR2015), as he has been working on the issue of value thresholds and cross-border interest for quite a while now [see his "The Good, the Bad and the Ugly: EU's Internal Market, Public Procurement Thresholds and Cross-Border Interest" (2013) 43 Public Contract Law Journal 3-25, with an interesting Editor's Note by Prof Schooner, one of our commonly admired procurement gurus]. 

Also, we are due to have an in person face-off about this in the coming Public Procurement: Global Revolution VII Conference in Nottingham in June (workshop A7). Hence, I will restrict my comments to the transposition of the regulation itself and a criticism of the continued disconnect that they create with the case law of the CJEU, at least as a matter of tendency. This is something I already criticised in relation with the concessions Directive 2014/23 here, so I will try to avoid repetition.

As far as reg.5 PCR2015 goes, there is not much to say really. Reg.5(1) simply creates a system of referrals to the thresholds set by Art 4 of Directive 2014/24. On its part, reg.5(2) refers to the conversion of those amounts into pounds sterling according to the rules of Art 6 Dir 2014/24. Hence, the transposition is rather automatic and ensures that it can be applied in a dynamic way without need for reform each time the European Commission reviews the applicable value thresholds.

However, reg.5 may be more important for what it does not do. It does not clarify what rules are applicable below the relevant value thresholds and perpetuates a situation whereby the 
"United Kingdom had not adopted specific legislation regulating low value public procurement ... Consistent with an historical reluctance to regulate low value public procurement, the United Kingdom legislator has not extended the application of the Directives to contracts below EU thresholds ... Instead, this field of activity is governed primarily by general policy guidance promulgated at the national level as well as individual rules adopted by procuring authorities" [L Butler,"Below threshold and Annex II B service contracts in the United Kingdom: A common law approach", in R Caranta and D Dragos (eds) Outside the EU Procurement Directives—Inside the Treaties?, vol. 4 European Procurement Law Series (Copenhagen, DJØF, 2012) 283, 285].
Interestingly, then, and as already pointed out during the drafting of the PCR2015,
Contracts worth less than the threshold figures would not, generally, be subject to the new public procurement rules, although a number of Lord Young's recommendations on opening up public sector procurement opportunities and removing barriers to SME participation are set to be implemented in the new legislation and would apply to 'below threshold' contracts that are above certain minimum levels – £10,000 for central government contracts and £25,000 for any other public sector contract [Out-law, 24.09.14, Public bodies can deviate from procurement process under reforms outlined by Cabinet Office, emphasis added].
Of course, this is a legitimate regulatory strategy. However, it is also one that significantly increases risks of non-compliance in case threshold values are improperly calculated (on that, see comment to reg.6 PCR2015) and, more generally, leaves UK (England & Wales) contracting authorities open to legal challenge on the basis of the general principles of EU public procurement law (now in reg.18 PCR2015, also to be commented), at least where cross-border interest can be found. 

Now that significant (excessive?) flexibility has been introduced in Dir 2014/24, particularly as the use of procedures involving negotiations are concerned, it seems that the UK has lost an opportunity to re-imagine its procurement rules and create a system applicable to contracts of all values. However, this is a project that would take too long to explain here, and one in which I am planning to work in the coming months.


(*) Pedro's contribution to the debate came on the same day as the comment above. He takes issue with the cross-reference of values that reg.5 PCR2015 makes to art 4 Dir 2014/24 and considers that "It seems we moved from a system controlled by Central Government to a casuistic approach where for every procurement with a value close to the thresholds, contracting authorities will have to calculate the conversion in the days before launching the procedure to assess what if the value is above or below the thresholds."I disagree with this reading, given that reg.5(4) PCR2015 indicates that "The value in pounds sterling of any amount expressed in euro in any of the provisions of the Public Contracts Directive mentioned in this regulation shall be taken to be the value for the time being determined by the Commission for the purpose of that provision and published from time to time in the Official Journal in accordance with Article 6 of the Public Contracts Directive.

Art 6(3) Dir 2014/24 indeed authorises the Commission to "determine the values, in the national currencies of the Member States, whose currency is not the euro, of the thresholds referred to in" Art 4. Hence the European Commission will continue publishing instruments such as Communication of 14.12.2013 on corresponding values of the thresholds of Directives 2004/17/EC, 2004/18/EC and 2009/81/EC of the European Parliament and of the Council [OJ C366/1], which avoids any issues of thresholds as financial "moving targets" due to fluctuations in currency exchange. I agree with Pedro on the (implicit) criticism that, in terms of currency volatility, the economic value of the contracts deemed to be of cross-border interest is altered, but I disagree with the point on legal uncertainty derived from the cross-reference in reg.5 PCR2015.

Thursday, 19 February 2015

Mixed procurement under Reg.4 Public Contracts Regulations 2015

Mixed procurement involves tendering of contracts that involve elements of a different nature (works, services or supplies) or contracts covered by different sets of rules, and is one of the areas that is creating more difficulties in EU public procurement law, particularly as a result of the multiplication of EU Directives that regulate procurement processes in different sectors (utilities, defence) or specific types of contracts (concessions). 

This creates complexity, at least where contracts are subjected to different sets of rules, and could have been avoided through a consolidation of all EU public procurement rules into a single Directive [as proposed by S Arrowsmith, 'Modernising the European Union’s Public Procurement Regime: a Blueprint for Real Simplicity and Flexibility' (2012) 21 Public Procurement Law Review 71–82]. However, and regrettably, that was not the chosen regulatory option and domestic governments and legislators have been left with a rather complex puzzle, which reg.4 on Mixed procurement of the Public Contracts Regulations 2015 (PCR2015) tries to sort out. It is interesting, though, that this regulation departs from the (even more complicated) drafting of Art 3 of Directive 2014/24, and tries to simplify the rules.

As reg.4 PCR2015 indicates, although not in the clearest terms, mixed procurement can involve contracts in which all of their elements are covered by the same set of rules [and, in this case, Part 2 PCR2015 itself, see reg.4(1)], or contracts which elements are covered by different sets of rules [such as the PCR2015 and rules on utilities procurement, see regs.4(2), 4(3) and 16, although there are other aspects covered in an even larger number of regulations]. The first case is easier to sort out, whereas the second one creates more difficulties. Moreover, in both cases, the several elements involved in the mixed procurement can be either objectively separable or not, and this should create even more regulatory choice or complexity-This point last point is controversial under the PCR2015, which seem to limit the issue of objective separation to cases in which the several elements of the contract are covered by different sets of rules; see reg.4(2) (see below).

(A) Regarding mixed contracts which have as their subject-matter different types of procurement all of which are covered by Part 2 PCR2015, reg.4(1) sets out two rules. The general rule in reg.4(1)(a) is that contracts "shall be awarded in accordance with the provisions applicable to the type of procurement that characterises the main subject-matter of the contract in question". Reg.4(1)(b) sets a special rule based on value for mixed contracts consisting (i) partly of social and other specific services (covered by Section 7) and partly of other services, or (ii) partly of services and partly of supplies, in which case "the main subject-matter shall be determined in accordance with which of the estimated values of the respective services, or of the respective services and supplies, is the highest". These rules are in line with the case law of the CJEU (see particularly Commission v Italy, C-412/04, EU:C:2008:102].

As briefly mentioned, this seems to impose an obligation of tendering a single contract for all elements of the mixed procurement, which may not necessarily be the best solution and definitely not necessarily the only option under Art 3 Dir 2014/24 (although it must be acknowledged that this is not very clear, particularly in view of the wording and position of art 3(6) dir 2014/24). In that regard, Rec (12) Dir 2014/24 seems to usefully shed some light by stressing that
In the case of mixed contracts which can be separated, contracting authorities are always free to award separate contracts for the separate parts of the mixed contract, in which case the provisions applicable to each separate part should be determined exclusively with respect to the characteristics of that specific contract. On the other hand, where contracting authorities choose to include other elements in the procurement, whatever their value and whatever the legal regime the added elements would otherwise have been subject to, the main principle should be that, where a contract should be awarded pursuant to the provisions of this Directive, if awarded on its own, then this Directive should continue to apply to the entire mixed contract (emphasis added).
On this point, it is important to note that, provided there is no intention to avoid the application of specific rules, contracting authorities should indeed be free to tender either as many discrete contracts as elements with a different nature, or a single contract for the mixed procurement (which would then be governed by the rules applicable to the main characteristic of the subject-matter). This would reflect an analogical application of the case law of the CJEU concerning anti-avoidance rules concerned with the value of contracts rather than the nature of their subject matter, where the CJEU has been clear in stressing that the possibility to divide or to group requirements should be led by technical and economical considerations [Commission v France, C-16/98, EU:C:2000:541 and Commission v Italy, C-412/04, EU:C:2008:102] and that, in any case, is not possible to group or divide requirements where that (is aimed to? or) results in the circumvention of (stricter) rules [Swoboda, C-411/00, EU:C:2002:660].
(B) Regarding mixed contracts which have as their subject-matter procurement covered by Part 2 PCR2015 and procurement not covered thereby, reg.4(2) PCR2015 sets out two different rules depending on whether the parts are separable or not, and closely follows the rules in art 3 Dir 2014/24. Reg.4(2)(b) clarifies that "where the different parts of a given contract are objectively not separable, the applicable legal regime shall be determined on the basis of the main subject-matter of that contract". On the contrary, where the the different parts of a given contract are objectively separable, contracting authorities have a choice. Firstly, if the contracting authority opts to tender separate contracts, "the decision as to which legal regime applies to any one of such separate contracts shall be taken on the basis of the characteristics of the separate part concerned". And, secondly, where contracting authorities choose to award a single contract, the ensuing mixed contract shall be tenderer under Part 2 of the PCR2015 "irrespective of the value of the parts that would otherwise fall under a different legal regime, and of which legal regime those parts would otherwise have been subject to". This is in line with Directive 2014/24 and does not seem to create specific issues.

Finally, reg. 4(3) excludes the applicability of the previous rules where part of a given contract is covered by Article 346 of TFEU or the Defence and Security Regulations, in which case regulation 16 applies instead of paragraph (1) or (2) (see brief comment on issues raised by the multiple references to Art 346 TFEU regarding reg.3 here).

It is important to stress that, taken together, the rules included in reg.4 PCR2015 omit two cases covered in art 3(4) and 3(5) Dir 2014/24. On the one hand, reg.4 does not address the coordination with the rules on the award of concessions under art 3(4) Dir 2014/24, according to which "mixed contracts containing elements of supply, works and service contracts and of concessions ... shall be awarded in accordance with this Directive, provided that the estimated value of the part of the contract which constitutes a contract covered by this Directive ... is equal to or greater than the relevant threshold". My interpretation is that the need for a separate regulation of this case can be avoided if the interpretation of reg.4(2)(a) is such that mixed contracts involving elements of concession are always awarded under Part 2 of the PCR2015, regardless of the value of the non-concession elements. That would not result in a breach of EU law because it would result in "over-compliance" (given that the rules under Dir 2014/24 are much more stringent than those under Dir 2014/23). Any other interpretation of the rules under reg.4(2) PCR2015 would create risks of non-compliance.

On its part, Art 3(5) Dir 2014/24 determines that "[i]n the case of contracts which have as their subject both procurement covered by this Directive and procurement for the pursuit of an activity which is subject to Directive 2014/25/EU, the applicable rules shall ... be determined pursuant to Articles 5 and 6 of Directive 2014/25/EU." Again, the need to include this case can also be avoided following the same reasoning as above. Particularly in view of the very significant similarity of Arts 5 and 6 Dir 2014/25 with the functional criteria included in Art 3 Dir 2014/24 and, more specifically, the special rule under Art 6(1) in fine Dir 2014/25, whereby "[t]he choice between awarding a single contract or awarding a number of separate contracts shall not, however, be made with the objective of excluding the contract or contracts from the scope of application either of this Directive or, where applicable, Directive 2014/24/EU or Directive 2014/23/EU."
Hence, in my view, reg.4 PCR2015 has effectively managed to simplify the rules under Art 3 Dir 2014/24 and avoids the unnecessary regulation of cases covered by its general criteria--and, particularly, by the rules of reg.4(2), which needs to be interpreted in view of its vis attractiva. The only point where a more flexible approach should be adopted regards the interpretation of reg.4(1) PCR2015, which should not prevent the application of the "severability" option where all parts of mixed contracts are covered by its Part 2.

Pedro's comments, and some disagreement regarding reg.4(1) are available here.

Wednesday, 18 February 2015

Subject-matter and scope under Reg.3 Public Contracts Regulations 2015

Reg. 3 Public Contracts Regulations 2015 (PCR2015) defines their subject-matter and scope and aims at clarifying the limits on their applicability as both the content and the value of the contract are concerned. In my view, however (and Pedro fundamentally agrees in his comment from earlier today), reg.3 PCR2015 has very limited content of its own and, despite trying to provide some clarity as to the scope of application of its rules (an issue that will keep us entertained for a while), actually muddies some issues. 

On the one hand, reg.3(1)(a) PCR2015 simply describes the function of this statutory instrument by indicating that its operative part "establishes rules on the procedures for procurement by contracting authorities with respect to public contracts and design contests". This seems to be superficial and unnecessary, as the purpose of the instrument is abundantly clear in the Explanatory Memorandum. Moreover, from a strictly conceptual point of view, this description is partly tautological, as design contests are procedures in themselves [see definition in reg.2(1) PCR2015]. Hence, nothing would have been lost if this clause had been avoided (as, indeed, Directive 2014/24 does not include any similar article).

On the other hand, reg.3(1)(b) PCR2015 stresses that the contracts covered by its rules are those of "a value estimated to be not less than the relevant threshold mentioned in regulation 5" (which will be discussed in due course, and simply aims at freeing below-threshold contracts from compliance with Part 2 PCR2015), provided that they "are not excluded from the scope of this Part by any other provision in this Section"--or, in other words, provided they are not mixed contracts that must be tendered under alternative rules in view of the criteria set out in reg.4 PCR2015 (to be discussed tomorrow). Hence, reg.3(1)(b) PCR2015 is also an unnecessary repetition of what is established in regs.4 and 5.

Finally, and maybe of more interest, reg.3(2) PCR2015 stresses that the rules in the PCR2015 are "subject to Article 346 of TFEU", which allows Member States to derogate from Internal Market rules when their essential security interests are at stake [see Commission's interpretative communication on the application of Article [346] of the Treaty in the field of defence procurement (COM(2006) 779 final) and, for discussion, A Georgopoulos, 'The Commission's Interpretative Communication on the application of Article 296 EC in the field of defence procurement' (2007) 3 Public Procurement Law Review NA43-52]. 

In my view, however, this is also an unnecessary clause. To begin with, because the need to take into consideration the special requirements derived from the application of Art 346 TFEU in the field of defence procurement resulted in Directive 2009/81 on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities or entities in the fields of defence and security [see the references provided by Pedro in his blog, as well as B Heuninckx, 'The EU Defence and Security Procurement Directive: trick or treat?' (2011) 1 Public Procurement Law Review 9-28, and M Trybus, 'The tailor-made EU Defence and Security Procurement Directive: limitation, flexibility, descriptiveness, and substitution' (2013) 38(1) European Law Review 3-29]; and that Directive has been implemented through the Defence and Security Public Contracts Regulations 2011 (SI 2011/1848, as amended). And, secondly, because the interaction between the rules in the PCR2015 and defence and security-related issues is also expressly detailed in reg.15 on Defence and security procurement. Consequently, this final clause of reg.3 PCR2015 is also unnecessary.

Generally, then, reg.3 PCR2015 is superfluous and its inclusion despite the nonexistence of an equivalent provision in Dir 2014/24 seems to indicate both an intention to overemphasize the 'limited' scope of application of the PCR2015 (by creating unnecessary repetition of the rules that restrict their scope) and a certain fear that coordination with other mandatory instruments (either of an EU or domestic origin) may be faulty. 

On this last point, the worry of the UK legislator must be shared, as the system that results from the existing substantive procurement directives creates a fiendish web of cross-referrals that generates significant uncertainty when mixed contracts are concerned. Hence, the need for specific rules at EU level to simplify this entangled web couldn't be overemphasized. In the meantime, though, the options of domestic legislators are limited and the strategy followed in the PCR2015 of 'better be safe than sorry' is understandable, although it results in unnecessary repetition and, in certain points, tautology.

Tuesday, 17 February 2015

Definitions under Reg.2 Public Contracts Regulations 2015

Reg. 2 Public Contracts Regulations 2015 (PCR2015) sets out the Definitions used in Part 2 of the instrument. In a clear display of superior legislative technique than that used in the drafting of Directive 2014/24, its contents are alphabetically ordered. The first observation that this regulation triggers is that its content is different from that of Art 2 Dir 2014/24, which is also concerned with some applicable public procurement definitions. Some of the discrepancies between reg.2 PCR2015 and Art 2 Dir 2014/24 derive from the need to include some "autochthonous" definitions (below). 

Reg.2 PCR2015 includes a significant number (23) of definitions already included in Directive 2014/24 and it mostly either repeats them verbatim or introduces some limited further specifications (mainly a change in the cross-references to other parts of the PCR2015). It only omits or alters two of the definitions: centralised purchasing activities (where a reference to reg.37(10) PCR2015, but the content of the definition under art.2(1)(14) Dir 2014/24 is kept) and procurement service provider (which is not included in reg.2(1) PCR2015; see art.2(1)(17) Dir 2014/24). 

One wonders about the need to include this material, particularly in view of the fact that reg.2(2) PCR2015 establishes that "Unless the context otherwise requires, any expression used both in Part 2 and in the Public Contracts Directive has the meaning that it bears in that Directive", which should ensure the coordination needed between both instruments. 

On second thought, though, the difficulty with reg.2(2) PCR2015 is that the first caveat ("Unless the context otherwise requires") is actually either inconsequential or a potential source of infringements of EU public procurement law. Given the supremacy and direct effect of Directive 2014/24 from the moment of its transposition (Van Duyn v Home Office, C-41/74, EU:C:1974:133) and the duty of consistent interpretation (Marleasing v Comercial Internacional de Alimentación, C-106/89, EU:C:1990:395), UK Courts (for England and Wales) are bound by the concepts contained in the Directive and by their interpretation by the Court of Justice. Hence, the first part of reg.2(2) is completely meaningless, as the context in which a defined term is used in Part 2 PCR2015 cannot alter the content of the "EU definition". Any diverging interpretation may result in an infringement of EU public procurement rules.

As far as the rest of the definitions are concerned, reg.2(1) PCR2015 includes the following "autochthonous" definitions: academy, call for competition(*), Commission(*), common technical specification(*), contest notice(*), contract notice(*), CPV(*), defence and security regulations, disabled, dynamic purchasing system(*), ESPD(*), EU publications office(*), European standard(*), European technical assessment(*), framework agreement(*), GPA(*), international standard(*), invitation to confirm interest(*), legal person, maintained school, national standard(*), NHS trust, Official Journal(*), prior information notice(*), procurement(*) [although this definition incorporates the content of art 1(2) Dir 2014/24], public contracts directive, selection criteria(*), standard, technical reference(*), technical specifications(*), TFEU(*), the Treaties(*), VAT(*) and working day. 

Most of these definitions are either expressly included in parts of Directive 2014/24 other than its Art 2 on definitions, or seem quite superfluous (I marked them with *). The only ones that bear emphasis are those concerned with the procurement of education or healthcare services (ie academy, maintained school and NHS trust) because they are already indicating the special treatment that these social and special services will be afforded under the PCR2015 (as already hinted yesterday, and an issue to return to in due course).

Finally, regs.2(3) and 2(4) PCR2015 set specific rules regarding time limits and the calculation of periods of time. The rules on periods of time are quite straightforward and do not require much comment.

Pedro's reply and assessment of reg.2 is available here.