Commentary on Public Contracts Regulations 2015
The UK Government has now published the Public Contracts Regulations 2015, as well as its response to the consultation held on the draft legislation in Autumn 2014. This article highlights some of the changes made as a result of the consultation, and some remaining areas of ambiguity in the law. Future articles will look at how the new rules are likely to affect procurement practice once they come into effect on 26th February.
A number of changes have been made to Regulation 57, which sets out the mandatory and discretionary grounds for exclusion from procurement procedures. In the draft legislation, several of the grounds appeared to be narrower in scope than what is provided for in Directive 2014/24/EU. This applied in particular to Regulation 57(1)(b) regarding exclusion for corruption convictions, which in the draft referred only to ‘active corruption.’ This has now been amended to bring it into line with the Directive, which does not distinguish between active and passive corruption. Terrorism offences had also been omitted from the draft regulations and are now covered by Regulation 57(1)(f). The consultation document sought views on the list of offences to be referred to under each ground for exclusion and it appears that a number of submissions addressed these points.
A further noteworthy change is that the mandatory exclusion grounds now extend to cover equivalent offences under the law of any jurisdiction, as opposed to the restriction to EEA countries which applied under the 2006 Public Contracts Regulations and also appeared in the draft of the new regulations. This brings the UK's approach into closer alignment with Germany and other countries which have given a global interpretation to the scope of offences mandating exclusion. The importance of such an approach may grow as multilateral and bilateral trade agreements open up European public procurement markets to greater international competition.
Compliance with environmental, social and labour law
As per the draft regulations, the Government has chosen not to transpose Article 18(2), which sets out the general requirement to ensure compliance with applicable environmental, social and labour law and collective agreements in the performance of public contracts. This does not however deprive the provision of its effect, as it is embedded in the discretion of contracting authorities to exclude or refuse to award a contract to an operator found not comply with these obligations (set out in Regulations 57(8)(a) and 56(2) respectively) as well as the ability to require replacement of a subcontractor which has been shown not to comply (set out in Regulation 71(9)(b)).
The UK could have opted for stronger implementation of Article 18(2) by including non-compliance with applicable environmental, social and labour law amongst the mandatory grounds of exclusion. This may have been considered excessive - however it should be borne in mind that the mandatory grounds of exclusion are also subject to the ability of operators to demonstrate their reliability despite the existence of one or more of the grounds ('self-cleaning') and a maximum exclusionary period of five years. Again, increased international competition for public contracts may mean that verifying compliance with such laws becomes more important in practice.
Lord Young reforms
The 2015 Regulations include measuresrecommended by Lord Youngto increase SME participation in public procurement. Despite the limited evidence that SMEs are seriously underrepresented in the award of public contracts when account is taken of the sectors of the economy in which they operate, substantial changes to the rules on below-threshold procurement are being introduced on the presumption that this will increase SME participation and success. These are set out in Regulations 109-112 and deal with the publication of contracting opportunities and award notices on Contracts Finder, as well as restrictions on the use of a pre-qualification stage.
While the increased transparency and availability of data on public contracts associated with publication on Contracts Finder is to be welcomed, the obligation to publish on that site only arises where some other form of advertisement takes place (Regulation 110). Likewise the ban on pre-qualification— defined as assessing the suitability of candidates to perform a public contract for the purpose of reducing the number of candidates to a smaller number who are to proceed to a later stage of the process— only applies to below-threshold contracts between £10,000 and £111,676 for central government and £25,000 and £172,514 for sub-central. This leaves open the possibility that contracting authorities will choose to use frameworks or other closed systems which are not subject to the new rules, counteracting the intention to provide greater accessibility to public contracts. The finalised regulations do include Chapter 7, which extends some of the same obligations to above threshold contracts, notably the requirement to publish opportunities and award notices on Contracts Finder (in addition to OJEU publication.)
Chapter 7 also indicates that contracting authorities must have regard to guidance on qualitative selection issued by the Cabinet Office, particularly on the use of questionnaires and the 'avoidance of burdensome, excessive or disproportionate questions.' Given the ban on use of pre-qualification for below-threshold contracts there is still a risk of procedures below and above threshold varying significantly - making it more difficult for SMEs to gain experience with PQQs. The use of PQQs is unlikely to die out completely as checking suitability after tender evaluation implies considerably higher public sector workloads for contracts where a large number of tenders are expected, and/or tender evaluation is complex. As discussed in a previous article, the idea of leaving checks on suitability and compliance with exclusion criteria to the end of a process also creates potential difficulties in two-stage procedures, where a candidate may argue that it has been unfairly excluded in favour of a competitor who does not actually comply with the relevant criteria.
Concessions and utility sector contracts
The Cabinet Office has not yet started consultations on the transposition of the Concessions Directive (23/2014/EU) or the Utilities Directive (25/2014/EU). While indications have been given that this will be done within 2015, this may well be after the general election. As the Public Contracts Regulations bear the ideological imprint of the current government, an interesting question arises regarding the merits of consistency between the three sets of rules, against the possible desire of a new government to transpose key provisions in a different manner.
For example, Article 18(2) and the mandatory exclusion grounds have counterparts in the Concessions and Utilities Directives, which could be used more effectively to target tax evasion and illegal environmental and labour practices. The thresholds and subject matter of these two directives also mean that contracts falling within their scope are even more likely to be subject to international competition. A Labour government in particular might be inclined to take a harder line on such practices within the regulations, in order to reduce the risk of contracts being awarded to companies with questionable records. Examples of how this can be achieved within the text of the Directives may soon be forthcoming, as other EU countries implement them in national law.