Reform: Top 6 Changes To Procurement In New Directives

1. Part A and part B

The established regime divides service contracts into two parts: A and B. Part A services are subject to the full rigour of the regime, while part B services which are 'inherently local' need only comply with more limited aspects, principally the advertising requirements in addition to the overarching Treaty principles.

The draft directives remove this distinction with the result that all above threshold procurements not able to avail themselves of an exception, will be required to comply with the full process. The distinction between the two parts had reduced in importance since the 2006 Regulations were enacted. Part B contracts which are of 'cross border interest' were none the less required to comply with the full extent of the Regulations and the number of contracts which could fairly be said not to have such cross-border interest has declined. The abolition of the distinction may not therefore have as much impact as might at first glance be expected.

There is a saving provision to create a separate category of 'social services' to which only a more limited regime will apply. The inherent locality of social, health and education services is recognised and a separate threshold of €500,000 will apply. Below this level, only the principles of transparency and equal treatment will apply.

There has been much criticism of the abolition of part A and B services, not least from the Committee of the Regions which calls for the reinstatement of the distinction as the limited protection retained for social services is thought to be insufficient compensation for the disadvantages of removing the part B distinction. It is also interesting to note that the UK government has estimated that the cost of implementing the full regime to part B services currently stands at £14m per annum with estimated benefits of £4.5bn per annum. Conducting a procurement in full compliance with the regime can be a costly process and we suggest these figures will ultimately be somewhat closer together.

2. Promoting involvement of SMEs

There are a number of provisions within the draft directives aimed at promoting the opportunity for SME involvement in supplying the public sector. These include requiring that contracting authorities divide procurements into lots wherever possible and in cases where a procurement could have been so divided but is not, providing an explanation for this.  It is open to contracting authorities to limit the number of lots for which any one bidder may tender and permit appointment of a single supplier to a maximum number of lots.

The Committee of the Regions suggests that one of the key barriers to SME progress to securing public sector contracts is the complexity of the regime and that these changes to the directive exacerbate rather than alleviate that situation. They suggest that fewer, simpler rules would assist SME bidders in securing contracts. A comparison is drawn with the World Trade Organisation's Government Procurement Agreement which is simpler than the EU rules.

3. In-house suppliers

The draft directives seek to improve uniformity of interpretation of case law across the EU by codifying a number of cases. Of particular interest is the codification of the Teckal exemption for 'in-house' procurement, found at article 11 of the draft directive. The two stage test set out in that case is now expressed in three parts; the authority is exempt from procurement requirements where it:

• exercises control over the contractor as if it were an internal department;
• 80% or more of the contractor's activities (based on turnover) is for the authority; and
• there is no private sector ownership of the contractor.

4. Flexibility - Modification of contracts

The revised directives adopt a more flexible approach to modification of contracts, in effect, codifying the Pressetext case. Changes would be permitted where they are not material. Materiality is considered to be below 5% of the contract value, provided that percentage remains below threshold. In addition, there are some exceptions allowing changes to take account of a change in circumstances which could not have been foreseen by the contracting authority, provided they do not affect the overall nature of the contract and do not increase the price by more than 50%.

The Committee recommended the wholesale removal of this provision as the directives create procedural rules related to the carrying out of procurement rather than addressing issues related to the modification of contracts during their term. Inclusion of these provisions was therefore seen as an unnecessary administrative burden on contracting authorities.

5. E-procurement

One area of agreement between the Commission and the Committee was over the move towards e-procurement. The draft directives require contracting authorities to make procurement documents freely available by electronic means from the date of publication of the notice. It will also be mandatory to submit notices in electronic form and fully electronic procurement, including all communication and submission, must be in place within two years.

6. Thresholds

The final point to note is not technically a change proposed in the new Directive, but rather a decision to retain the current situation. Thresholds are subject to periodic revision and the Commission has decided not to use the opportunity of the new Directives to introduce a change to the thresholds above which the regime applies.

There are, however, calls for this to be revisited as it suggests that the number of procurements which are caught by the regime but are not, in fact, of genuine cross-border interest renders the system expensive for contracting authorities without advancing the single market. The Committee of the Regions argues that of contracts concluded under the regime in 2009 only 1.4% were of cross-border interest. They therefore suggest that the threshold for services should be increased to €1,000,000 from its current level of €200,000.