Regulation 29 – Competitive procedure with negotiation

Commentary

Regulation 29 establishes rules for the conduct of competitive procedures with negotiation (formerly known as negotiated procedures with publication) and transposes the very similar requirements under Article 29 of Directive 2014/24/EU. It does so however by lengthening and complicating its drafting by including unnecessary repetition of time limit-related rules in paragraphs (6) to (10), which could have been minimised by a cross-reference. 

As mentioned in relation to Regulation 26 one of the main changes in the new rules is that a lax interpretation of the grounds that justify the use of this procedure may transform it into the default procedure or, in the case of the UK consolidate its widespread use. Hence, the specific rules that are set out in Regulation 29 PCR2015 regarding the conduct of negotiations are bound to have a very significant practical impact.

The general design of the procedure is on the one hand close to the competitive dialogue, and on the other hand a variation of the restricted procedure that allows for two main adjustments: (1) the negotiated procedure does not necessarily have to be two-stage, but it can be multi-stage (paragraph (19)); and (2) the object of the procurement does not need to be completely defined from the time the negotiations start, but can evolve provided some minimum requirements are not subject to negotiation (paragraph (14) PCR2015). 

As for the second point, the contracting authority needs to provide sufficiently precise information at the start so that economic operators can make an informed decision to participate. This appears to impose a stricter requirement of more information to provide than that of a competitive dialogue, but less than the restricted procedure.

These will, in our view, be the two main criteria that can justify resorting to a competitive procedure with negotiation instead of a restricted procedure, given that these are the areas where increased flexibility can provide advantages to the contracting authority. However, the significant flexibility of using rough documents at the first stage and detailed requirements at the second stage of a restricted procedure somehow close this gap as (2) is concerned.

Contracting authorities need to be mindful of two main risks created by the rules applicable to competitive procedures with negotiation. The first risk is strictly legal and derives from the strange particularisation of the principle of equal treatment in Regulation 18 in connection with Regulation 29(13) PCR2015, which requires contracting authorities to “negotiate with tenderers the initial and all subsequent tenders submitted by them, except for the final tender, to improve their content.” The immediate question is whether they have to negotiate with all tenderers and whether they have to do it simultaneously (if at all possible) and with the same intensity. More negotiations mean as well plenty of scope for unequal treatment but the real key is not whether there is actually more unequal treatment, but whether there is more scope for litigation on that basis. Note however that the final tender is not supposed to be negotiated further, just as in a restricted procedure.

These are very difficult issues and proving the any underlying issues infringements to any acceptable procedural standard in case of judicial review of award decisions will be even more difficult, but we would not be surprised if tenderers started challenging contracting authorities’ negotiating strategy on the basis that they were not negotiating in good faith or with best efforts (should they? must they?), or that there has been more interest in concluding an agreement with a competing tenderer. 

The best way out will be for contracting authorities to disclose more specific rules, such as sequential negotiations whereby they engage with negotiations with one tenderer (eg the one with the highest score for the initial offer) and, failing an agreement within a set deadline, they move on to the next, and so on and so forth–this may be difficult to square with a strictly literal interpretation of Regulation 29(19) PCR2015 on staging the negotiations, but it seems like the most functional interpretation. Otherwise, they are exposing themselves to significant litigation risks which can be compounded by the difficulties in the rules on record-keeping under Regulation 22.

The second risk is of a strategic nature. Regulation 29(15) PCR2015 allows contracting authorities to award contracts on the basis of the initial tenders without negotiation where they have indicated, in the contract notice or in the invitation to confirm interest, that they reserve the possibility of doing so. This does not seem to restrict the options of the contracting authority to the moment prior to engaging in negotiations. 

That is, a literal interpretation supports that contracting authorities, at any point prior to concluding the negotiations (Regulation 29(21) PCR2015) can decide to go back to the original tender and award the contract. This is a risky strategy, particularly if the negotiations are bound to repeat themselves in time, as it would create a very limited incentive for tenderers to actually engage in meaningful negotiations if the contracting authority can at any point dismiss the process and hence render the transaction costs derived from the negotiations useless. 

Moreover, it is hard to see whether this clause actually makes much economic sense, even if interpreted as limiting the options of the contracting authority to the initial decision. If the negotiation game is one in which the contracting authority can (freely) decide to award or negotiate, tenderers may have an incentive to provide their absolute best conditions as the initial offer to try to deactivate the negotiation bit. However, they will only do that if they perceive the contracting authority as a tough negotiator and a well-informed evaluator of the initial tenders. Otherwise, tenderers will have an incentive to offer non-optimal initial tenders in the hope of keeping some surplus during the negotiations (ie they do not need to offer their absolute best, but just a condition that is slightly better than the next most efficient competitor). 

Hence, it seems obvious that in view of the informational asymmetry and the difficulties that contracting authorities face when it comes to negotiating (see Telles and Butler, “Public Procurement Award Procedures in Directive 2014/24/EU“, in F Lichere, R Caranta and S Treumer (ed) Modernising Public Procurement: the new Directive (Copenhagen, Djof Publishing, 2014) 131-184), this clause will rarely result in the initial offers reflecting the absolute best available conditions. If this is true (certainly, a difficult empirical question), then it would always be inefficient to award on the basis of the initial tenders, unless the negotiation costs where very high and could offset any loss of efficiency derived from second-best contract terms. 

In short, we fail to see how the use of this clause can be made economically efficient in the generality of cases, particularly if contracting authorities do not have strong in house negotiation teams or are subjected to (political) constraints that prevent them from developing a credible long-run strong negotiation reputation. And, if its use carries no clear economic advantage, then contracting authorities may be better off ignoring the clause in Regulation 29(15) PCR2015, as its weak use would open yet another opportunity to challenge award decisions on the basis of excess of discretion or failure to provide reasons where the contracting authority chooses not to negotiate for undisclosed (or inexistent) reasons.

Proposed citation: Albert Sanchez-Graells & Pedro Telles, (2016) Commentary to the Public Contracts Regulations 2015, available at: www.pcr2015.uk.

Last modified: September 5, 2016 by Pedro Telles

Starting the procedure

29.—(1) In competitive procedures with negotiation, any economic operator may submit a request to participate in response to a call for competition by providing the information for qualitative selection that is requested by the contracting authority.

(2) In the procurement documents, contracting authorities shall—

(a) identify the subject-matter of the procurement by providing a description of their needs and the characteristics required of the supplies, works or services to be procured,

(b) indicate which elements of the description define the minimum requirements to be met by all tenders, and

(c) specify the contract award criteria.

(3) The information provided under paragraph (2) shall be sufficiently precise to enable economic operators to identify the nature and scope of the procurement and decide whether to request to participate in the procedure.

Time limits

(4) The minimum time limit for receipt of requests to participate shall, subject to paragraph (10), be 30 days from—

(a) the date on which the contract notice is sent, or

(b) where a prior information notice is used as a means of calling for competition, the date on which the invitation to confirm interest is sent.

(5) The minimum time limit for the receipt of initial tenders shall, subject to paragraphs (6) to (10), be 30 days from the date on which the invitation is sent.

(6) Where contracting authorities have published a prior information notice which was not itself used as a means of calling for competition, the minimum time limit for the receipt of initial tenders as laid down in paragraph (5) may be shortened to 10 days, provided that both of the following conditions are fulfilled:—

(a) the prior information notice included all the information required in section 1 of part B of Annex V to the Public Contracts Directive, insofar as that information was available at the time the prior information notice was published;

(b) the prior information notice was sent for publication between 35 days and 12 months before the date on which the contract notice was sent.

(7) Sub-central contracting authorities may set the time limit for the receipt of initial tenders by mutual agreement between the contracting authority and all selected candidates, provided that all selected candidates have the same time to prepare and submit their tenders.

(8) In the absence of such an agreement, the time limit shall be at least 10 days from the date on which the invitation to tender is sent.

(9) The time limit for receipt of initial tenders provided for by paragraph (5) may be reduced by 5 days where the contracting authority accepts that tenders may be submitted by electronic means in accordance with regulation 22.

(10) Where a state of urgency duly substantiated by the contracting authorities renders impracticable the time limits laid down in this regulation, they may fix—

(a) a time limit for the receipt of requests to participate which shall not be less than 15 days from the date on which the contract notice is sent, and

(b) a time limit for the receipt of initial tenders which shall not be less than 10 days from the date on which the invitation to tender is sent.

Tenders and negotiations

(11) Only those economic operators invited by the contracting authority following its assessment of the information provided may submit an initial tender which shall be the basis for the subsequent negotiations.

(12) Contracting authorities may limit the number of suitable candidates to be invited to participate in the procedure in accordance with regulation 65.

(13) Subject to paragraphs (15) and (19), contracting authorities shall negotiate with tenderers the initial and all subsequent tenders submitted by them, except for the final tender, to improve their content.

(14) The minimum requirements and the award criteria shall not be subject to negotiation.

(15) Contracting authorities may award contracts on the basis of the initial tenders without negotiation where they have indicated, in the contract notice or in the invitation to confirm interest, that they reserve the possibility of doing so.

(16) During the negotiations, contracting authorities shall ensure equal treatment of all tenderers and, to that end —

(a) they shall not provide information in a discriminatory manner which may give some tenderers an advantage over others;

(b) they shall inform all tenderers whose tenders have not been eliminated under paragraph (19), in writing, of any changes to the technical specifications or other procurement documents, other than those setting out the minimum requirements; and

(c) following any such changes, they shall provide sufficient time for tenderers to modify and re-submit amended tenders, as appropriate.

(17) In accordance with regulation 21, contracting authorities shall not reveal to the other participants confidential information communicated by a candidate or tenderer participating in the negotiations without its agreement.

(18) Such agreement shall not take the form of a general waiver but shall be given with reference to the intended communication of specific information.

(19) Competitive procedures with negotiation may take place in successive stages in order to reduce the number of tenders to be negotiated by applying the award criteria specified in the contract notice, in the invitation to confirm interest or in another procurement document.

(20) In the contract notice, the invitation to confirm interest or in another procurement document, the contracting authority shall indicate whether it will use the option described in paragraph (19).

Concluding the procedure

(21) Where the contracting authority intends to conclude the negotiations, it shall—

(a) inform the remaining tenderers and set a common deadline to submit any new or revised tenders,

(b) verify that the final tenders are in conformity with the minimum requirements and comply with regulation 56(1),

(c) assess the final tenders on the basis of the award criteria, and

(d) award the contract in accordance with regulations 66 to 69.