Regulation 4 – Mixed procurement

Commentary

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 Regulation 4 of the Public Contracts Regulations 2015 tries to sort out. It is interesting, though, that this regulation departs from the (even more complicated) drafting of Article 3 of Directive 2014/24/EU by making a genuine effort to simplify the rules.

Mixed procurement can involve contracts in which all or part of their elements are covered by the same set of rules. In the case of of contracts fully covered by the same set of rules we could have contracts covered by Part 2 of the Regulations (see Regulation 4(1)). But mixed contracts can also attract different sets of rules – as it is the case where certain elements are covered by the rules of the PCR2015 and the Utilities Contracts Regulations 2016, or the Concessions Contracts Regulations 2016 (see Regulation 4(2), 4(3) and 16).

In its amended form, Regulation 4 offers four main ways for contracting authorities to decide how to award mixed contracts, depending on the particular mix of contracts involved: i) mixed contracts entirely covered by Part 2; ii) mixed contracts covered partially by Part 2, including those partially covered by the Concession Contracts Regulations 2016; iii) mixed contracts covered by the Utilities Contracts Regulations 2016; and iv) covered by defence exceptions.

The first case is easier to sort out, whereas the second one creates more difficulties. The third and fourth cases are basically limited to a referral to other sets of rules. Moreover, in all 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 Regulation 4(2).

 

(A) Regarding mixed contracts which have as their subject-matter different types of procurement all of which are covered by Part 2,

Regulation 4(1) sets out two rules. The general rule in paragraph 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“. It is interesting to note that this general rule is applicable depending on the main subject-matter of the contract, without any reference to the value of each component of the mixed contract.

Regulation 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 Article 3 of Directive 2014/24/EU, although it must be acknowledged that this is not very clear, particularly in view of the wording and position of Article 3(6). In that regard, Recital (12) of Directive 2014/24/EU 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 risk of avoidance of 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 economic 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).

Under this heading there is no obligation to divide the contract into its component parts although one wonders if that should not be the default rule as there is a preference expressed in the Directive for division into lots bearing in mind however the rules preventing disaggregation of contracts. Dividing a mixed contract into its component parts would effectively be the same thing as dividing it into lots, but that is not the option adopted by the Regulations.

 

(B) Regarding mixed contracts which have as their subject-matter procurement covered by Part 2 PCR2015 and procurement not covered thereby

Regulation 4(2) sets out two different rules depending on whether the parts are separable or not, and closely follows the rules in Article 3 Directive 2014/24/EU. Regulation 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“.

The concept of separability of the several elements of a contract and the determination of its main subject matter was addressed in Club Hotel Loutraki and Others (C-145/08, EU:C:2010:247, para 48), where the Court of Justice stressed that ‘in the case of a mixed contract, the different aspects of which are, in accordance with the contract notice, inseparably linked and thus form an indivisible whole, the transaction at issue must be examined as a whole for the purposes of its legal classification and must be assessed on the basis of the rules which govern the aspect which constitutes the main object or predominant feature of the contract (see, to that effect, Case C‑3/88 Commission v Italy [1989] ECR 4035, paragraph 19; Case C‑331/92 Gestión Hotelera Internacional [1994] ECR I‑1329, paragraphs 23 to 26; Case C‑220/05 Auroux and Others [2007] ECR I‑385, paragraphs 36 and 37; Case C‑412/04 Commission v Italy [2008] ECR I‑619, paragraph 47; and Case C‑536/07 Commission v Germany [2009] ECR I‑0000, paragraphs 28, 29, 57 and 61).’ In the specific case, which involved both the acquisition of shares in an undertaking and the obligation to carry out works and services as a result thereof, the CJEU determined that the share transfer was the main object of the mixed contract, and that the works and services elements were ancillary to the main object of the contract. Unavoidably, the analysis ultimately lies on a case by case analysis.

In situations where the different parts of a given contract are objectively separable, contracting authorities are given a discretionary choice of applicable legal regimes. 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“. Secondly, where contracting authorities choose to award a single contract, the ensuing mixed contract shall be tendered 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/EU and does not seem to create specific issues.

The original drafting of Regulation 4 omitted two significant cases of potential mixed contracts which were included in Article 3(4) and (5) of Directive 2014/24/EU. The first one is mixed public – concessions contracts and the second public – utilities contracts. Both omissions were rectified by the Public Procurement (Amendments, Repeals and Revocations) Regulations 2016 which added sub-paragraph (2)(iv) for concessions and paragraph (2A) for utilities. Therefore, mixed public – concessions contracts are to be awarded in accordance with Part 2 of the PCR2015, whereas public – utilities contracts are to be awarded in accordance with the rules set in Regulations 6 and 7 of the Utilities Regulations 2016. In our view, the current drafting addresses the regulatory gap left open by the original drafting.

Finally, Regulation 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). You can find some brief comment on issues raised by the multiple references to Art 346 TFEU on our commentary to Regulation 3.

 

(C) But what about multiple contracting authorities?

What Regulation 4 does not solve, however are the situations where the mixed nature is due to multiple contracting authorities being involved and not only the contract in itself. The solution for this issue is to be found in Regulations 12 (partly), 38 and 39 where occasional joint procurements are covered. Even then, it would seem that the Regulations do not foresee a situation where multiple contracting authorities covered either entirely by these Regulations or by different legal regimes. The example springing to mind is a joint procurement where one of the contracting authorities is a sub-central authority (higher financial thresholds) and the other a central authority (lower financial thresholds).

 

(D) Conclusion

In our 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.

Last modified: July 4, 2016 by Pedro Telles

4.—(1) In the case of mixed contracts which have as their subject-matter different types of procurement all of which are covered by this Part—

(a) contracts which have as their subject-matter two or more types of procurement (works, services or supplies) 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; and

(b) in the case of—

(i)mixed contracts consisting partly of services to which Section 7 applies and partly of other services, or

(ii)mixed contracts consisting partly of services and partly of supplies,

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.

(2) In the case of contracts which have as their subject-matter procurement covered by this Part and procurement not covered by this Part—

(a)where the different parts of a given contract are objectively separable—

(i)contracting authorities may choose to award separate contracts for the separate parts or to award a single contract;

(ii)where contracting authorities choose to award separate contracts for separate parts, 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;

(iii) where contracting authorities choose to award a single contract, this Part applies to the ensuing mixed contract, irrespective of—

(aa) the value of the parts that would otherwise fall under a different legal regime, and

(bb) which legal regime those parts would otherwise have been subject to;

(b) 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; and

(iv)where, in the case of mixed contracts containing elements of public contracts covered by this Part and of concession contracts, contracting authorities choose to award a single contract, that contract shall be awarded in accordance with this Part, provided that the estimated value of the part of the contract which constitutes a public contract covered by this Part, calculated in accordance with regulation 6, is equal to or greater than the relevant threshold set out in regulation 5;”.

(2A) In the case of contracts which have as their subject-matter both procurement covered by this Part and procurement for the pursuit of an activity which is subject to the Utilities Contracts Regulations 2016, the applicable rules shall, despite paragraph (2), be determined by regulations 6 and 7 of those Regulations.

(3) But where part of a given contract is covered by Article 346 of TFEU or the Defence and Security Regulations, regulation 16 applies instead of paragraph (1) to (2A).