Regulation 58 – Selection criteria

Commentary

Regulation 58 PCR2015 transposes Article 58 and Annex XI of Directive 2014/24concerning selection criteria for the participation in public procurement procedures. Regulation 58 defines the rules under which contracting authorities may proceed to select economic operators during a public procurement procedure. Under this Regulation, contracting authorities may undertake the selection of economic operators according to their suitability to pursue a professional activity, economic and financial standing and technical ability.

Contrary to the Public Contracts Regulations 2006, a potential selection criterion must pass a double legality/validity test: first, it must be appropriate and second it must proportionate and related to the subject-matter of the contract. Although it can be argued that both the appropriateness and proportionality would arise from other areas of the Regulations, it is important (though not strictly necessary) to show contracting authorities the need to comply with them.

(1) Numerus clausus? of selection criteria and minimum ability levels 

Article 58(1) of Directive 2014/24/EU consolidates and somehow clarifies the requirements in Articles 41(1) and 41(2) of Directive 2004/18/EC as regards the fact that selection criteria can exclusively relate to: i) the suitability to pursue the professional activity concerned, ii) the economic and financial standing, and iii) the technical and professional ability of the economic operator; and that, in any case, the requirements shall be limited to ‘those that are appropriate to ensure that a candidate or tenderer has the legal and financial capacities and the technical and professional abilities to perform the contract to be awarded. All requirements shall be related and proportionate to the subject-matter of the contract’. 

However, Article 58(1) of Directive 2014/24/EU is not free from interpretive difficulties, since it seems to aim to establish a numerus clausus or exhaustive list of selection criteria when it indicates that ‘Contracting authorities may only impose criteria referred to in paragraphs 2, 3 and 4 of this Article on economic operators as requirements for participation’ (emphasis added). The same issue arises from Regulation 58(2) PCR2015, which indicates that ‘Contracting authorities may impose on economic operators as requirements for participation only the criteria referred to in paragraphs (5) to (18)’ (emphasis added).

This is not consistent with the open-ended wording of such paragraphs and would contradict the existing case law of the CJEU, which establishes that contracting authorities have wide discretion to set the specific requirements that they consider adequate for the evaluation of the suitability of candidates to perform the contract [Joined Cases 27 to 29/86 CEI and Bellini [1987] ECR 3347 paras 13-15].

Therefore, regardless of the specific drafting, it seems clear that there is actually no numerus clausus of selection criteria, as long as they refer to the suitability to pursue the professional activity concerned, the economic and financial standing, or the technical and professional ability of the economic operator (are related and proportionate to the subject-matter of the contract, and are kept to a minimum in order to take into account the need to ensure genuine competition). 

In any case, where contracting authorities want to establish minimum capacity levels, they have to comply with Article 58(5) of Directive 2014/24 and Regulation 58(19) PCR2015 which carry forward the requirements of art 44(2) of Directive 2004/18 and ‘indicate the required conditions of participation which may be expressed as minimum levels of ability, together with the appropriate means of proof, in the contract notice or in the invitation to confirm interest’. 

(2) Suitability to pursue the professional activity concerned 

This is now regulated in Article 58(2) of Directive 2014/24/EU, which recasts and keeps the rules of Article 46 of Directive 2004/18/EC substantially unchanged. In this regard, it may simply be worth noting that, in relation to service contracts, contracting authorities may face difficulties in cases of breach of the Services Directive by Member States that impose excessive professional requirements.   

For the purposes of establishing the professional activity of an economic operator, contracting authorities may require the economic operator to be enrolled in a professional or trade register mentioned in Schedule 5 (Companies Registrar for the UK) or to comply with its requirements. According to Schedule 5, in the UK it is possible as well to provide a certificate (by whom?) stating “that the person concerned has declared on oath that he is engaged in the profession in a specific place under a given business name.” However, for other countries the Schedule only makes reference to the Registries and not an alternative way of generating the professional activity information that may be required.

For services, contracting authorities may require proof of a particular authorisation or membership of an organisation.

(3) Economic and Financial Standing and its Capping 

Article 58(3) of Directive 2014/24/EU provides substantive guidance on the requirements concerned with the economic and financial standing of the economic operator and goes beyond Article 47 of Directive 2004/18/EC, which was limited to regulating the means of proof that could be furnished and had to be accepted by the contracting authority now regulated in Article 60(3) of Directive 2014/24/EU. Interestingly, Article 58(3) of Directive 2014/24/EU focuses on requirements of minimum yearly turnover, which is one of the criteria more widely used in practice. 

According to this provision and Regulation 58(8) PCR2015, ‘contracting authorities may impose requirements ensuring that economic operators possess the necessary economic and financial capacity to perform the contract’ and, in particular, ‘may require  that economic operators have a certain minimum yearly turnover, including a certain minimum turnover in the area covered by the contract. In addition, contracting authorities may require that economic operators provide information on their annual accounts showing the ratios, for instance, between assets and liabilities. They may also require an appropriate level of professional risk indemnity insurance’. 

More importantly, the new rules introduce a cap on economic and financial standing requirements that is particularly addressed to foster SME participation. Indeed, ‘The minimum yearly turnover that economic operators are required to have shall not exceed two times the estimated contract value, except in duly justified cases such as relating to the special risks attached to the nature of the works, services or supplies. The contracting authority shall indicate the main reasons for such requirement in the procurement documents’ (emphasis added). Regulation 58(9) PCR2015 replicates the requirement in slightly different words: The minimum yearly turnover that economic operators are required to have shall not exceed twice the estimated contract value, except in duly justified cases …’ (emphasis added). 

However, in order to avoid this becoming the de facto standard requirement, it is still important to stress that contracting entities and authorities still have to comply with the requirement of Article 58(1) of Directive 2014/24/EU, so that—within that limit—the specific requirements set still are ‘strictly proportionate to the subject-matter of the contract’, taking into account the need to ensure genuine competition (Article 18 of Directive 2014/24/EU and Regulation 18(2) PCR2015). 

This is an important development because financial requirements (particularly turnover) have been used in the past by contracting authorities in the UK to weed out suppliers during the selection stage. This might have been due to a desire to limit the total number of bids the contracting authority assesses, but it affected SMEs the most. The higher the turnover requirement the least likely a SME will be able to hit it. There was no indication either of the proportionality or appropriateness of such requirements, but they were quite common.

Regulation 58(9) establishes a cap in the minimum turnover requirements: they cannot exceed twice the estimated value of the contract except for contracts generating special risks. The way this was undertaken is problematic in contracts where the contract value is not disclosed. In these situations the market will know what is the maximum value of the contract (half the turnover cap), forcing contracting authorities to indicate a lower cap unless they are prepared to disclose the contract value indirectly.

The turnover cap is problematic for another reason. Imposing this cap targets the symptom (high turnover requirements) but not the root cause (why contracting authorities did it in the first place). Furthermore, because the root cause remains untreated what will happen is that contracting authorities will now use insurance requirements to achieve the same objective of weeding out weaker economic operators. In fact, this is already happening in the UK, where professional risk indemnity insurance requirements have been going up over the last few years.

Further, it is worth noting that the turnover rule must be adjusted where the contract is tendered in lots and, in that case, the cap to double the value ‘shall apply in relation to each individual lot. However, the contracting authority may set the minimum yearly turnover that economic operators are required to have by reference to groups of lots in the event that the successful tenderer is awarded several lots to be executed at the same time’. In cases of framework agreements and dynamic purchasing systems, this cap should be calculated on the basis of expected maximum size of specific contracts (see Regulation 58(11) to (14) PCR2015).

(4) Technical and professional ability and a hidden rule on conflicts of interest 

Similarly to the changes introduced in relation to the economic and financial standing, Article 58(4) of Directive 2014/24/EU goes beyond the documentary requirements in Article 48 of Directive 2004/18/EC (now in Article 60(4) of Directive 2014/24) and lays down some substantive requirements concerned with the technical and professional ability of economic operators. Generally, this provision indicates that ‘contracting authorities may impose requirements ensuring that economic operators possess the necessary human and technical resources and experience to perform the contract to an appropriate quality standard’ and, in particular, may require ‘economic operators have a sufficient level of experience demonstrated by suitable references from contracts performed in the past’. 

Even more specifically, and consolidating the rule in Article 48(5) of Directive 2004/18, Article 56(4) in fine of Directive 2014/24/EU stresses that ‘[i]n procurement procedures for supplies requiring siting or installation work, services or works, the professional ability of economic operators to provide the service or to execute the installation or the work may be evaluated with regard to their skills, efficiency, experience and reliability’. 

Interestingly enough, Article 58(4) includes a rule against conflicts of interest disguised as a requirement of professional ability (which seems to stretch the concept, at least if taken on its ordinary meaning). Indeed, it establishes that ‘A contracting authority may assume that an economic operator does not possess the required professional abilities where the contracting authority has established that the economic operator has conflicting interests which may negatively affect the performance of the contract’ (emphasis added). The same is established in Regulation 58(17) PCR2015.

This development should be welcome, as it aims to cover a significant gap in the regime of Directive 2004/18/EC, which had no rules concerned with the existence of conflicts of interest (despite mentioning them in the recitals). However, more clarification should have been provided as to the type of conflicts of interest that justify the exclusion of the economic operator on the basis of its lack of professional ability. 

In that regard, it is important to stress that Article 24 of Directive 2014/24/EU defines ‘conflicts of interest’ for other purposes , indicating that it ‘shall at least cover any situation where staff members of the contracting authority or of a procurement service provider acting on behalf of the contracting authority who are involved in the conduct of the procurement procedure or may influence the outcome of that procedure have, directly or indirectly, a financial, economic or other personal interest which might be perceived to compromise their impartiality and independence in the context of the procurement procedure’. However, the conflicts of interest that can affect economic operators are not necessarily identical, nor their mirror image and, consequently, some further clarification will be necessary.

For further discussion and references, see A Sanchez-Graells, “Exclusion, Qualitative Selection and Short-listing”, in F Lichère, R Caranta & S Treumer (eds), Modernising Public Procurement. The New Directive, vol. 6 European Procurement Law Series (Copenhagen, DJØF, 2014) 97-129, as well as A Sanchez-Graells, LRA Butler & P Telles, “Exclusion and Qualitative Selection of Economic Operators under Public Procurement Procedures: A Comparative View on Selected Jurisdictions”, in M Burgi, S Treumer & M Trybus (eds), Qualification, Exclusion and Selection in EU Procurements, vol. 7 European Procurement Law Series (Copenhagen, DJØF, 2016) forthcoming.

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

General principles

58.—(1) — Selection criteria may relate to—

(a) suitability to pursue a professional activity;

(b) economic and financial standing;

(c) technical and professional ability.

(2) Contracting authorities may impose on economic operators as requirements for participation only the criteria referred to in paragraphs (5) to (18).

(3) Contracting authorities shall limit any requirements to those that are appropriate to ensure that a candidate or tenderer has the legal and financial capacities and the technical and professional abilities to perform the contract to be awarded.

(4) All requirements shall be related and proportionate to the subject-matter of the contract.

(5) With regard to suitability to pursue a professional activity, contracting authorities may require economic operators to be enrolled in one of the professional or trade registers kept in their member State of establishment, as described in Schedule 5, or to comply with any other request set out in that Schedule.

(6) In procurement procedures for services, in so far as economic operators have to possess a particular authorisation or to be members of a particular organisation in order to be able to perform in their country of origin the service concerned, contracting authorities may require them to prove that they hold such authorisation or membership.

Economic and financial standing

(7) With regard to economic and financial standing, contracting authorities may impose requirements ensuring that economic operators possess the necessary economic and financial capacity to perform the contract.

(8) In particular, contracting authorities may require that economic operators—

(a) have a certain minimum yearly turnover, including a certain minimum turnover in the area covered by the contract;

(b) provide information on their annual accounts showing the ratios, for example, between assets and liabilities; and

(c) have an appropriate level of professional risk indemnity insurance.

(9) The minimum yearly turnover that economic operators are required to have shall not exceed twice the estimated contract value, except in duly justified cases, such as by reference to special risks attached to the nature of the works, services or supplies, in which case the contracting authority shall indicate their main reasons in the procurement documents or in the report referred to in regulation 84(1).

(10) Ratios, for example that between assets and liabilities, may be taken into consideration where the contracting authority specifies the methods and criteria for such consideration in the procurement documents, but such methods and criteria shall be transparent, objective and non-discriminatory.

Application to lots, framework agreements and dynamic purchasing systems

(11) Where a contract is divided into lots this regulation shall apply in relation to each individual lot.

(12) But the contracting authority may set the minimum yearly turnover that economic operators are required to have by reference to groups of lots in the event that the successful tenderer is awarded several lots to be executed at the same time.

(13) Where contracts based on a framework agreement are to be awarded following a reopening of competition, the maximum yearly turnover requirement referred to in paragraph (9) shall be calculated on the basis of the expected maximum size of specific contracts that will be performed at the same time, or, where it is not known, on the basis of the estimated value of the framework agreement.

(14) In the case of a dynamic purchasing system, the maximum yearly turnover requirement referred to in paragraph (9) shall be calculated on the basis of the expected maximum size of specific contracts to be awarded under that system.

Technical and professional ability

(15) With regard to technical and professional ability, contracting authorities may impose requirements ensuring that economic operators possess the necessary human and technical resources and experience to perform the contract to an appropriate quality standard.

(16) Contracting authorities may require, in particular, that economic operators have a sufficient level of experience demonstrated by suitable references from contracts performed in the past.

(17) A contracting authority may assume that an economic operator does not possess the required professional abilities where the contracting authority has established that the economic operator has conflicting interests which may negatively affect the performance of the contract.

(18) In procurement procedures for supplies requiring siting or installation work, or for services or works, the professional ability of economic operators to provide the service or to execute the installation or the work may be evaluated with regard to their skills, efficiency, experience and reliability.

Indicating requirements for participation

(19) Contracting authorities shall indicate the requirements for participation, which may be expressed as minimum levels of ability, together with the appropriate means of proof, in the contract notice or in the invitation to confirm interest.