Regulation 76 – Principles of awarding contracts

Commentary

Regulation 76 PCR2015 introduces a number of rules applicable to the contracts that are awarded under the new “light touch regime” of Section 7. By and large the logic of the Regulation is to provide a basic framework leaving a lot of flexibility for contracting authorities to decide how they want to award the contract. In this Regulation we trade (more) flexibility for (less) legal certainty. We trade as well standardisation for customisation. Time will tell if this emphasis in flexibility will bring about better procurement in the contracts covered. We remain sceptical and not optimistic. From an EU law perspective, Regulation 76 PCR2015 also raises issues about its transposition. Our comments will first focus on the content of the regulation and will later concentrate on the issues of transposition.

 

Comment of Regulation 76 PCR2015

For contracts awarded under this section, contracting authorities need to comply with the principles of transparency and equal-treatment/non-discrimination. This is similar to what happens already for contracts with a value below-thresholds and cross-border interest. The difference are the ancillary rules applicable to the Section 7 contracts.

Paragraphs 3 and 4 establish a number of ancillary rules which make the whole system more complex than it needed be for a light touch regime, that is. According to paragraph 3, if a contract or PIN notice were used as required by Regulation 75, then the contracting authority is bound to conduct the procurement in accordance with the information published in the notice regarding the conditions of participation, time limits and award procedure. The problem is paragraph 4.

Paragraph 4 introduces exceptions and loopholes to the above rules – sorry, principles – bringing about layers of complexity to the system. Under this paragraph, contracting authorities may change the “rules of the game” as long as the changes comply with certain cumulative requirements. They cannot amount to a breach of the principles of transparency and equal treatment/non-discrimination (paragraph 4(a)). To ensure there is no breach of said principles, the contracting authority needs to “give due consideration to the matter”, document the decision making process and inform the suppliers of the outcome. These rules are a textbook example of what is expected of public bodies to carry out in any administrative decision.

Having said that, we are not sure on how a contracting authority can change the terms of procedure after the notice has been published without violating the principle of transparency. Perhaps this is just a small concession to those small mistakes that are corrected quickly after being detected? If so then indeed this is a little flexibility being introduced here at least in traditionally more formalistic countries like Portugal, Spain or Italy.

The principle of proportionality is used in this Regulation, in addition to the principles of transparency and equal-treatment/non-discrimination. According to paragraph 6 all time limits imposed on economic operators need to be “reasonable and proportionate”.

Paragraph 7 explicitly allows contracting authorities to either design new procedures from scratch or to adapt the ones that already exist in any way or form that they may see fit. What we think will happen here is that contracting authorities will either “scale up” the procedures they already use below-thresholds (RFQ type of procedures) or scale down the traditional procedures. By scaling down we essentially mean “shortening time limits” because we all know how fundamental those detailed PQQs are. As for the people waiting to see a breadth of new excellent procurement practices arising from this flexibility, this may be too optimistic. If flexibility was the key ingredient for incredible procurement practice, contracts below-thresholds would have provided plenty of evidence by now.

When we read paragraph 8 for the first time we were puzzled. Paragraph 8 is essentially a laundry list of statements of intentions. All procurement processes should start with the users/beneficiaries and the objectives that need to be met and then work backwards to define what is the best way to achieve the outcome. That this does not happen more often is (again) a problem of practice and not rules.

Our problem with paragraph 8 is that it has nothing to do with the bulk of the Regulation. They are not principles of awarding contracts, they are “pie in the sky” nice things some people would like to happen.  It looks out of place here but would be perfect as a Recital. If you doubt my analysis read again the first sentence of the paragraph and check which modal verb is being used: may or shall.

 

Transposition of Article 76 of Directive 2014/24/EU by Regulation 76 PCR2015

Regulation 76 PCR2015 transposes Article 76 of Directive 2014/24/EU. It does so in a way that deviates from the general copy-out approach and, in our view, incurs in potential instances of defective transposition that are very likely to result in infringements of the rules of the Directive.

Where the transposition keeps the defects of the Directive 

The only part where Regulation 76 PCR2015 follows Article 76(2) of Directive 2014/24/EU is Regulation 76(8) PCR2015 where it is set out that, in the award of contracts for social and other specific services covered by Regulation 74 PCR2015, contracting authorities may take into account any relevant considerations, including the need to ensure quality, continuity, accessibility, affordability, availability and comprehensiveness of the services, the specific needs of different categories of users, including disadvantaged and vulnerable groups, the involvement and empowerment of users and innovation. However, Regulation 76 PCR2015 has not transposed the possibility given by Article 76(2) in fine Directive 2014/24/EU whereby Member States may also provide that the choice of the service provider shall be made on the basis of the tender presenting the best price-quality ratio, taking into account quality and sustainability criteria for social services.

These provisions are not free from interpretive difficulties, particularly when it comes to their coordination with general principles for the award of contracts. Briefly, our general views are as follows [extracted, but updated, from A Sanchez-Graells and E Szyszczak, “Modernising Social Services in the Single Market: Putting the Market into the Social”, in JM Beneyto and J Maillo (eds), Fostering Growth: Reinforcing the Internal Market (Madrid, CEU Ediciones, 2014) 61-88].

Article 76 of Directive 2014/24/EU sets out the principles for the award of these contracts, although their regulation is left to the Member States (see below) provided that they take measures ‘to ensure contracting authorities comply with the principles of transparency and equal treatment of economic operators. Member States are free to determine the procedural rules applicable as long as such rules allow contracting authorities to take into account the specificities of the services in question’. The general requirement for contracting authorities to make sure that those procedures shall be at least sufficient to ensure compliance with the principles of transparency and equal treatment of economic operators is encapsulated in regulation 76(2) PCR2015, whereas regulation 76(1) in fine stresses that contracting authorities may take into account the specificities of the services in question.

A key element to take into consideration will be the need to further comply with the (more) general principles of procurement set out in Article 18 of Directive 2014/24/24 and Regulation 18 PCR2015, which requires that procurement also complies with the principles of competition and proportionality, and that economic operators participating in public procurement comply with applicable obligations in the fields of environmental, social and labour law. Given that Article 18 is nested in Title I and that the procurement of social and other specific services is regulated in Title III, Article 76(1) may be seen as a lex specialis that would de-activate the requirements for proportionality and undistorted competition in their procurement. However, such interpretation may not be welcome by the CJEU.

With a permissive tone, Article 76(2) continues to regulate that: ‘contracting authorities may take into account the need to ensure quality, continuity, accessibility, affordability, availability and comprehensiveness of the services, the specific needs of different categories of users, including disadvantaged and vulnerable groups, the involvement and empowerment of users and innovation. Member States may also provide that the choice of the service provider shall be made on the basis of the most economically advantageous tender, taking into account quality and sustainability criteria for social services’. The drafting of the last sentences leaves an open question as to the obligation to choose the awardee of the contract on the basis of the most economically advantageous tender (MEAT), although (functionally) it seems to be out of the question, and the provision should simply be seen as allowing for the introduction of ‘specific’ criteria in the determination of the MEAT, such as quality and sustainability.

By not going beyond the wording of the Directive and, in particular, not offering guidance on how to interpret the elements of Regulation 76(8) PCR2015 when it comes to determining the MEAT, the PCR2015 do not provide any workable clarification and do not resolve difficult issues that were already present in sectoral procurement regimes, such as that applicable to healthcare [see A Sanchez-Graells, “New Rules for Health Care Procurement in the UK. A Critical Assessment from the Perspective of EU Economic Law” (2015) 24(1) Public Procurement Law Review 16-30].

Where the transposition seems defective and in breach of EU law

One of the initial difficulties in assessing the appropriateness of the transposition of Article 76 of Directive 2014/24/EU by means of Regulation 76 PCR2015 derives from the opening clause of the EU provision, whereby “Member States shall put in place national rules for the award of contracts” for social and other specific services. In a literal reading, this may be seen as requiring the creation of a general (national) procedural framework for the award of these contracts or, in other words, a set of common, generally applicable rules. If that was the proper interpretation, then Regulation 76(1) PCR2015 may have failed to properly create those “national rules for the award of contracts” by determining that “[c]ontracting authorities shall determine the procedures that are to be applied in connection with the award of contracts” or social and other specific services.

By granting contracting authorities (almost) unfettered discretion to determine the applicable procedures–whether they correspond (with or without variations) to procedures, techniques or other features provided for in Part 2 PCR2015, or not–the PCR2015 may have failed to set any sort of specific “national rules for the award of contracts”. However, such a literal reading of the requirement in Article 76(1) ab initio of Directive 2014/24/EU may be opposed on the basis of the principles of procedural autonomy and subsidiarity, so this may not carry as much weight as one may initially have thought. In any case, it is also possible to read national as domestic, in which case this discussion would be moot.

Be it as it may, however, looking at the details of the very light touch approach adopted by Regulation 76 PCR2015, the defects seems even more apparent. Regulation 76(3) PCR2015 sets out bare minimum requirements for procedures initiated by one of the notices mentioned in Regulation 75 PCR2015, whereby the contracting authority shall conduct the procurement, and award any resulting contract, in conformity with the information contained in the notice about conditions for participation, time limits for contacting the contracting authority, and the award procedure to be applied. Regulation 76(6) PCR2015 adds that all time limits imposed on economic operators, whether for responding to a contract notice or taking any other steps in the relevant procedure, shall be reasonable and proportionate. Taken together, this barely creates any specific rule other than implicitly following the case law preventing substantial modifications of tender procedures without cancellation and readvertisement.

The big problem comes with Regulation 76(4) PCR2015 whereby contracting authority may, however, deviate from the content of the previous notice and conduct the procurement, and award any resulting contract, in a way which is not in conformity with that information. It is true that Regulation 76(4) PCR2015 imposes a relatively stringent set of conditions, so that disregard for the (procedural) information disclosed in the previous notice can take place only if all the following conditions are met: (a) the failure to conform does not, in the particular circumstances, amount to a breach of the principles of transparency and equal treatment of economic operators; and (b) the contracting authority has, before proceeding to deviate from the published information, (i) given due consideration to the matter, (ii) concluded that there is no breach of the principles of transparency and equal treatment, (iii) documented that conclusion and the reasons for it in accordance with regulations 84(7) and (8) PCR2015 (CROSSREF), and (iv) informed the participants of the respects in which the contracting authority intends to proceed in a way which is not in conformity with the information contained in the notice. For these purposes, “participants” means any economic operators which have responded to the notice and have not been informed by the contracting authority that they are no longer under consideration for the award of a contract within the scope of the procurement concerned as per Regulation 76(5) PCR2015.

There are two main difficulties. First, this adopts a very narrow interpretation of the principle of equal treatment that falls into a participation trap that will result in de facto discrimination and an unavoidable infringement of the principle of transparency. And, second, this is very likely to trigger infringements on the rules applicable to cancellation and retendering of public tenders.

As to the participation trap or ‘trap of tender-specific reasoning’, by designing a system that allows contracting authorities to (1) disclose information that preselects a subset of potential suppliers and (2) later on, alter the rules of the procedure in a way that potential suppliers not included in that subset cannot challenge (because they are not informed and, seemingly, there is no further transparency/publication requirement), Regulation 76(4) PCR2015 fails to ensure actual compliance with the principle of non-discrimination. By analogy, see the reasoning of the EGC regarding the need for clarity of tender specifications in Commission v Cyprus, C-251/09, EU:C:2011:84 35-51 (not available in English).

As to the infringement of the requirements for cancellation and retendering of procedures that would otherwise be substantially amended, it seems clear that the case law applicable to changes of disclosed contractual conditions applies (if nothing else, by analogy). In that regard, the CJEU has been clear that “where the amended condition, had it been part of the initial award procedure, would have allowed tenders submitted in the procedure with a prior call for competition to be considered suitable or would have allowed tenderers other than those who participated in the initial procedure to submit a tender” are to be deemed substantial modifications of the tender conditions and, consequently, not acceptable [Case C-250/07 Commission v Greece [2009] ECR I-4369 52. See also, by analogy, Case C-454/06 Pressetext Nachrichtenagentur [2008] ECR I-4401 35]. Thus, unless contracting authorities could clearly prove that no other tenderers would have participated had the modified (procedural) conditions been disclosed from the beginning, reliance on Regulation 76(4) PCR2015 is bound to trigger an infringement of EU law.

For all of the above, we consider Regulation 76 PCR2015 a very clear instance of defective (if not outright improper) transposition of the requirements in Article 76 of Directive 2014/24/EU and, consequently, we think that it should be modified as soon as possible and substituted by a sensible, fully-developed set of procedural rules applicable to the award of contracts for social and other specific services.

Last modified: December 5, 2016 by Pedro Telles

76.—(1) Contracting authorities shall determine the procedures that are to be applied in connection with the award of contracts subject to this Section, and may take into account the specificities of the services in question.

(2) Those procedures shall be at least sufficient to ensure compliance with the principles of transparency and equal treatment of economic operators.

(3) In particular, where, in accordance with regulation 75, a contract notice or prior information notice has been published in relation to a given procurement, the contracting authority shall, except in the circumstances mentioned in paragraph (4), conduct the procurement, and award any resulting contract, in conformity with the information contained in the notice about—

(a)conditions for participation,

(b)time limits for contacting the contracting authority, and

(c)the award procedure to be applied.

(4) The contracting authority may, however, conduct the procurement, and award any resulting contract, in a way which is not in conformity with that information, but only if all the following conditions are met:—

(a)the failure to conform does not, in the particular circumstances, amount to a breach of the principles of transparency and equal treatment of economic operators;

(b)the contracting authority has, before proceeding in reliance on sub-paragraph (a)—

(i)given due consideration to the matter,

(ii)concluded that sub-paragraph (a) is applicable,

(iii)documented that conclusion and the reasons for it in accordance with regulation 84(7) and (8), and

(iv)informed the participants of the respects in which the contracting authority intends to proceed in a way which is not in conformity with the information contained in the notice.

(5) In paragraph (4)(b)(iv), “participants” means any economic operators which have responded to the notice and have not been informed by the contracting authority that they are no longer under consideration for the award of a contract within the scope of the procurement concerned.

(6) All time limits imposed on economic operators for the purposes of this regulation, whether for responding to a contract notice or taking any other steps in the relevant procedure, shall be reasonable and proportionate.

(7) Without prejudice to the generality of paragraph (1), and subject to the other requirements of this Chapter, contracting authorities may apply procedures for the purposes of this regulation which correspond (with or without variations) to procedures, techniques or other features provided for in Chapter 2, as well as procedures which do not.

(8) In relation to the award of contracts subject to this Section, contracting authorities may take into account any relevant considerations, including —

(a)the need to ensure quality, continuity, accessibility, affordability, availability and comprehensiveness of the services;

(b)the specific needs of different categories of users, including disadvantaged and vulnerable groups;

(c)the involvement and empowerment of users; and

(d)innovation.