Regulation 35 – Electronic auctions
Regulation 35 of the Public Contracts Regulations 2015 (PCR2015) transposes Article 35 of Directive 2014/24/EU and sets out rules for the conduct of electronic auctions, which consolidate current practice and clarify some aspects of their initial regulation in Directive 2004/18. Regulation 35(8) PCR2015 also includes the further details provided in Annex VI of Directive 2014/24/EU, which makes the rules more readily accessible.
Directive 2004/18/EC allowed Member States to provide that contracting authorities may use electronic auctions (Article 54(1) and 54(2) Directive 2004/18/EC). For general discussion on eProcurement and electronic auctions, see G Racca, ‘The Electronic Award and Execution of Public Procurement’ (2012) Ius Publicum Network Review; and DC Wyld, ‘Reverse Auctions: How Electronic Auctions Can Aid Governments in Significantly Cutting Their Procurement Spending and Introduce Greater Competition in Public Sector Contracting’ (2013) 151 Emerging Trends in Computing, Informatics, Systems Sciences, and Engineering 277–89. See also S Khorana, K Ferguson-Boucher and WA Kerr, ‘Governance Issues in the EU’s e-Procurement Framework’ (2014) Journal of Common Market Studies 1–19.
Under that previous Directive, electronic auctions were introduced as a specific method of price-setting, and as a novelty that tried to provide additional flexibility in certain tendering procedures—particularly, follow-up tenders developed in relation with i) negotiated procedures following an event of irregular tenders or the submission of tenders which are unacceptable under national provisions, ii) the reopening of competition among the parties to a framework agreement, or iii) the opening for competition of contracts to be awarded under the dynamic purchasing system— while increasing their economic efficiency.
This technique continues to be available under the rules of Regulation 35 PCR2015, which extend the intended use of the electronic auctions to a larger array of situations, including tenders in open or restricted procedures or competitive procedures with negotiation where technical specifications can be established with precision. Electronic auctions allow a contracting authority to introduce a phase in a public procurement procedure (open, restricted or competitive procedure – paragraph 4: framework agreements, DPS – paragraph 5), after full evaluation of tenders and whereby tenderers are invited to bid down their prices or change quality elements (paragraph 1) that can be measured objectively across all participants. Effectively, they allow for a modicum of competition or “negotiation” to be used in procedures where it is not usually accepted. By their nature, electronic auctions need to be done over an electronic platform and as such are subject to the vagaries of e-procurement adoption in the UK. Electronic auctions need to be disclosed from the start (paragraph 7) and can only be used if the technical specifications have been established with sufficient precision (paragraphs 4 and 5), hence requiring a fair bit of planning.
In terms of scope of application, Directive 2014/24/EU has also clarified that certain public service contracts and certain public works contracts having as their subject-matter intellectual performances, such as the design of works, which cannot be ranked using automatic evaluation methods, shall not be the object of electronic auctions (Regulation 35(3) PCR2015). It is also now clearer that the electronic auction shall be based either (a) solely on prices where the contract is awarded on the basis of price only; or (b) on prices and/or on the new values of the features of the tenders indicated in the procurement documents where the contract is awarded on the basis of the best price-quality ratio or to the tender with the lowest cost using a cost-effectiveness approach (Regulation 35(6) PCR2015).
To use electronic auctions, contracting authorities must disclose the award criteria and the mathematical formula used to compute scores, once again underlining the need for planning and technical capacity by the contracting authority to understand these issues. Electronic auctions also force the contracting authorities to be comfortable in disclosing a lot of information which they may not be inclined to do so otherwise, such as the relative position of each tenderer in relation to the others.
In case contracting authorities decide to conduct electronic auctions, they must comply with the specific procedure, which determines in fairly precise detail the steps and rules to be followed in the conduct of the electronic auctions (in terms of disclosure of information, time limits, applicable criteria and formulae, etc) (Regulation 35(7) to (28) PCR2015). The use of electronic auctions for the award of the contract seems to be particularly prone to the generation of unacceptable changes in the subject-matter of the contract—particularly because of the ability of tenderers to alter significantly the terms of their offers during the auction phase—and, consequently, article 54(8) of Directive 2004/18 emphasised that contracting authorities may not use electronic auctions ‘to change the subject-matter of the contract, as put up for tender in the published contract notice and defined in the specification’. This restriction is now suppressed in the text of Directive 2014/24/EU (and hence, of the PCR2015), but the limitation seems to remain in place in view of the rules on irregular, unacceptable and unsuitable tenders (Regulation 35(9) to (13) PCR2015). In this regard, general restrictions on the need to prevent material changes in the original specifications of the (re-)tendered contract will apply, particularly in framework agreements and dynamic purchasing systems.
Of more interest, it is also important to stress that Article 54(8) of Directive 2004/18/EC also seemed to have been drafted in the light of the potentially pro-collusive features of electronic auctions, which can increase the likelihood of distortions of competition ([see C Kennedy-Loest and R Kelly, ‘The EC Competition Law Rules and Electronic Reverse Auctions: A Case for Concern?’ (2003) 12 Public Procurement Law Review 27; and, in more general terms, regarding electronic markets, PA Trepte, ‘Electronic Procurement Marketplaces: The Competition Law Implications’ (2001) 10 Public Procurement Law Review 260.)]. In this regard, article 54(8) specified and strengthened the applicability of the principle of competition in the conduct of electronic auctions, by restricting the ability of contracting authorities to ‘use them in such a way as to prevent, restrict or distort competition’.
Once again, this specific requirement has been suppressed in the text of article 35 of Directive 2014/24 (and hence, of the PCR2015), but it is submitted that it remains in place as an implicit requirement derived from the principle of competition in reg.Regulation 18(1). Therefore, contracting authorities should be particularly careful in the design of the specific rules applicable to the electronic auction, so as to prevent instances of collusion amongst tenderers. To this end and although authorised by Regulation 35(23) & (24) PCR2015 they should restrict the information disclosed. Section (25) of the Regulation stipulates that the disclosure cannot include the identities of the bidders in any circumstances, in what we believe is a concession to competition worries. It is regrettable such concession was not extended to the competitive dialogue and framework agreements.
The same level of care should be put in ensuring equality of opportunity for all tenderers to place bids in each of the eventual rounds or phases of the electronic auction so as not to distort competition within the auction (Regulation 35(14) PCR2015), subject to rules restricting the number of tenderers that can advance from one phase to the next. These—which must be clearly specified in the tender documents and implemented in a transparent manner by the contracting authority (Regulation 35(15) PCR2015).
A final consideration regards the decisions made as to the electronic equipment used and the arrangements and technical specifications for connection—which, in order to prevent unnecessary restrictions of competition, should aim at choosing widely spread and easily accessible technologies, so as not to restrict the participation of less technologically advanced tenderers or to advantage unduly one or several tenderers by reason of their communications technology (which is unrelated to the subject-matter of the contract).
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
35.—(1) Contracting authorities may use electronic auctions, in which—
(a) new prices, revised downwards, or
(b) new values concerning certain elements of tenders,
or both, are presented.
(2) Contracting authorities shall structure the electronic auction as a repetitive electronic process, which occurs after an initial full evaluation of the tenders, enabling them to be ranked using automatic evaluation methods.
When electronic auctions may and may not be used
(3) Public service contracts, and public works contracts, which have as their subject-matter intellectual performances (such as the design of works) which cannot be ranked using automatic evaluation methods, shall not be the subject of electronic auctions.
(4) In open or restricted procedures or competitive procedures with negotiation, contracting authorities may decide that the award of a public contract shall be preceded by an electronic auction when the content of the procurement documents, in particular the technical specifications, can be established with precision.
(5) In procurements where the content of the procurement documents, in particular the technical specifications, can be established with precision, an electronic auction may be held—
(a) on the reopening of competition among the parties to a framework agreement as provided for in regulation 33(8)(b) or (c), and
(b) on the opening for competition of contracts to be awarded under a dynamic purchasing system.
(6) The electronic auction shall be based on one of the following elements of the tenders:—
(a) solely on prices where the contract is awarded on the basis of price only;
(b) on prices or on the new values of the features of the tenders indicated in the procurement documents, or on both, where the contract is awarded—
(i) on the basis of the best price-quality ratio, or
(ii) to the tender with the lowest cost using a cost-effectiveness approach.
(7) Contracting authorities which decide to hold an electronic auction shall state that fact in the contract notice or in the invitation to confirm interest.
(8) Where contracting authorities have decided to hold an electronic auction, the procurement documents shall include at least the following details:—
(a) the features, the values for which will be the subject of electronic auction, provided that such features are quantifiable and can be expressed in figures or percentages;
(b) any limits on the values which may be submitted, as they result from the specifications relating to the subject-matter of the contract;
(c) the information which will be made available to tenderers in the course of the electronic auction and, where appropriate, when it will be made available to them;
(d) the relevant information concerning the electronic auction process;
(e) the conditions under which the tenderers will be able to bid and, in particular, the minimum differences which will, where appropriate, be required when bidding;
(f) the relevant information concerning the electronic equipment used and the arrangements and technical specifications for connection.
Admissibility of tenders
(9) Before proceeding with an electronic auction, contracting authorities shall make a full initial evaluation of the tenders in accordance with the award criteria and with the weighting fixed for them.
(10) A tender shall be considered admissible where—
(a) it has been submitted by a tenderer which has not been excluded under regulation 57 and which meets the selection criteria; and
(b) it is in conformity with the technical specifications without being irregular, unacceptable or unsuitable.
(11) In particular, tenders—
(a) which do not comply with the procurement documents,
(b) which were received late,
(c) where there is evidence of collusion or corruption, or
(d) which have been found by the contracting authority to be abnormally low,
shall be considered irregular for the purposes of paragraph (10)(b).
(12) In particular—
(a) tenders submitted by tenderers which do not have the required qualifications, and
(b) tenders whose price exceeds the contracting authority’s budget as determined and documented prior to the launching of the procurement procedure,
shall be considered unacceptable for the purposes of paragraph (10)(b).
(13) For the purposes of paragraph (10)(b)— a tender shall be considered not to be suitable where it is irrelevant to the contract, being manifestly incapable, without substantial changes, of meeting the contracting authority’s needs and requirements as specified in the procurement documents.
Commencement and structure of the auction
(14) All tenderers that have submitted admissible tenders shall be invited simultaneously to participate in the electronic auction using, as of the date and time specified in the invitation, the connections in accordance with the instructions set out in the invitation.
(15) The electronic auction may take place in a number of successive phases.
(16) The electronic auction shall not start sooner than 2 working days after the date on which invitations are sent out.
(17) The invitation shall be accompanied by the outcome of a full evaluation of the relevant tender, carried out in accordance with the weighting provided for in regulation 67(9).
The formula to be used
(18) The invitation shall also state the mathematical formula to be used in the electronic auction to determine the automatic re-rankings on the basis of the new prices or new values submitted, or both.
(19) Except where the most economically advantageous offer is identified on the basis of price alone, that formula shall incorporate the weighting of all the criteria established to determine the most economically advantageous tender, as indicated in the notice used as a means of calling for competition or in other procurement documents.
(20) For the purposes of paragraph (19), any ranges of weightings shall be reduced beforehand to a specified value.
(21) Where variants are authorised in accordance with regulation 45, a separate formula shall be provided for each variant.
Communication of information
(22) Throughout each phase of an electronic auction the contracting authorities shall instantaneously communicate to all tenderers at least sufficient information to enable them to ascertain their relative rankings at any moment.
(23) Contracting authorities may, where this has been previously indicated, communicate other information concerning other prices or values submitted.
(24) Contracting authorities may also at any time announce the number of participants in the current phase of the auction.
(25) In no case, however, may contracting authorities disclose the identities of the tenderers during any phase of an electronic auction.
Closing the auction and awarding the contract
(26) Contracting authorities shall close an electronic auction in one or more of the following manners:—
(a) at the previously indicated date and time;
(b) when they receive no more new prices or new values which meet the requirements concerning minimum differences, provided that they have previously stated the time which they will allow to elapse after receiving the last submission before they close the electronic auction; or
(c) when the previously indicated number of phases in the auction has been completed.
(27) Where contracting authorities intend to close an electronic auction in accordance with paragraph (26)(c), whether or not in combination with paragraph (26)(b), the invitation to take part in the auction shall indicate the timetable for each phase of the auction.
(28) After closing an electronic auction, contracting authorities shall award the contract in accordance with regulation 67 on the basis of the results of the electronic auction.