Public procurement law: the basics

This guide is based on UK law and focuses on the current public, and not utilities, procurement rules. It was last updated in February 2010.

What is public procurement law?

Public procurement law regulates the purchasing by public sector bodies and certain utility sector bodies of contracts for goods, works or services. The law is designed to open up the EU's public procurement market to competition, to prevent "buy national" policies and to promote the free movement of goods and services.

Previously, there were three separate regulations in the UK which applied depending upon whether goods, works or services were being procured. These three sets of rules were brought together in one piece of consolidated legislation which came into force on 31 January 2006:

• In England, Wales and Northern Ireland: the Public Contracts Regulations 2006
• In Scotland: the Public Contracts (Scotland) Regulations 2006.

These Regulations implement into UK law the European Commission's Consolidated Directive on public procurement (2004/18/ EC), which was adopted in March 2004.

When do the Regulations apply?

The Regulations generally apply when three main pre-conditions are met:

• The procuring body is a "contracting authority" as defined in the rules. The definition is wide and includes central government, local authorities, associations formed by one or more contracting authorities and other "bodies governed by public law" (e.g. registered social landlords and fire authorities);
• The contract is a public works, services or supplies contract. Sometimes the contract will be a mixed contract (e.g. for the supply and maintenance of computers). Where it is, a contracting authority must determine, in accordance with the rules, the predominant element of the contract and, therefore, which set of rules will apply. This is important to get right as the rules vary slightly depending on the type of contract (e.g. lower financial thresholds apply to services and supplies contracts than to works contracts);
• The estimated value of the contract (net of VAT) equals or exceeds the relevant financial threshold. The rules expressly prohibit deliberately splitting contracts to bring them below the thresholds.

The current thresholds are: £3,927,260 (€4,845,000) for the procurement of works; £101,323 (€125,000) for the procurement of supplies and so called Part A services by Central Government bodies, and £156,442 (€193,000) for the procurement of supplies and Part A services by other public sector bodies.

Where these three pre-conditions are satisfied a contracting authority must normally advertise the contract in the EU's Official Journal and follow the procedural rules set down in the Regulations.

Are all types of services caught?

The Regulations divide services into so called "Part A" (or "priority") services and "Part B" (or "residual") services. Only Part A services are fully caught by the Regulations.  Part B services are caught by a lesser regime, with only a few of the detailed rules of the Regulations applying. 

Generally, Part B services are those that the EU considered would largely be of interest only to bidders located in the Member State where the contract was to be performed.  Part B services include:-

• Health services
• Education services
• Recreational, cultural and sporting services

Part A services include:-

• Computer and related services
• Accounting services
• Architectural and consultancy services

Although the Regulations themselves do not require prior advertising of Part B services or any form of competitive tendering to be carried out for Part B services, they are still caught by general obligations such as transparency, equal treatment and non discrimination that derive directly from the Treaty on the Functioning of the European Union (TFEU). 
The practical implications of these general obligations when procuring Part B services are explained in the following section ("Contracts below the financial threshold"). 

Contracts below the financial threshold

Although below-threshold contracts are not caught by the Regulations, there is case law to say that where the contract is of 'certain interest' to suppliers located in other EU Members States, contracting authorities must still procure them in line with the general TFEU principles of non-discrimination, equal treatment, transparency, proportionality and mutual recognition.  The same applies to contracts for Part B services (see section above: "Are all types of services caught?"). 

What these principles imply in practice, is that the contract has to be "adequately" advertised and some form of fair competition run thereafter.  The scope and nature of the advertisement will depend on the nature of the contract in question and who is or is likely to be interested in it.

Where should contracts be advertised?

Contracts caught by the Regulations must be advertised by way of an OJEU notice i.e. a standard form notice placed in the EU's Official Journal. Use of the standard form notices is mandatory, and they are available on the EU's SIMAP web site.

What procedures can be used to award a contract?

How should candidates be selected to be invited to tender?

A contracting authority may automatically exclude a supplier from the tender process, without any assessment of their qualifications having to take place, where certain grounds concerning the supplier's personal position are met (e.g. bankruptcy or professional misconduct).

In addition, it is now mandatory to exclude suppliers convicted of involvement in organised crime, corruption, fraud or money laundering.  

Suppliers can also be assessed and excluded on the basis of their economic and financial capacity (e.g. annual turnover for past three years) and technical capacity (e.g. experience of similar contracts in the past five years). 

How many candidates should be invited to tender?

Provided that in all cases there is a sufficient number of candidates to do so:

On what basis can a contract be awarded?

A contracting authority must award a contract on the basis of either:

• Lowest price:  The lowest priced tender wins. No other element of the tender may be taken into account; or
• The most economically advantageous tender (MEAT): Factors other than or in addition to price, like quality, technical merit and running costs can be taken into account.

If MEAT is being used:

• the contract award criteria (e.g. "price, quality of services, risk to contracting authority etc.") and any sub-criteria must be set out either in the OJEU notice or the tender documents; and
• the weighting of each criterion (and sub-criterion, if weighted) must also normally be given, either as an exact number or as a meaningful range (e.g. 'price: 30%-40%'.).

Use of email in the tender process

Electronic communication (e-mail etc) is possible at all stages of the procedure including the transmission of notices to the Official Journal, the receipt of requests to participate and the receipt of tenders.  In certain circumstances it may be possible to shorten the minimum statutory timescales where e-communication has been used.  For example the standard period for receipt of expressions of interest from candidates is reduced from 37 days to 30 days where the notice has been sent electronically to the Official Journal. 

The 'Alcatel' standstill period

For all contracts caught fully by the Regulations (so not sub-threshold contracts or contracts for Part B services) contracting authorities must notify all tenderers (and any candidate who has not already been informed that they have been unsuccessful at the earlier selection stage) of their decision on contract award in writing, allowing a standstill period of either 10 or 15 calendar days between the date the notification is sent to candidates and the date it is proposed to enter into the contract.  

Frameworks

A framework is basically an umbrella agreement which sets out all or some of the terms on which the parties to the agreement will enter into contracts ("call-offs") in the future.

Frameworks were not expressly provided for in the old rules, but are now in the new Regulations.   This belated recognition for frameworks has come with a series of restrictive rules as to their use, for example:- 

• The framework term must generally not exceed 4 years.
• Substantial changes must not later be made to any terms of the framework agreement/call off contracts that were agreed at the outset. 
• The purchasers entitled to benefit from the framework must be identified definitively at the outset (either individually by name or by meaningful generic description (e.g. "all Central Government Departments").

When the time comes for "calling-off" a contract from the framework there are two alternative means of choosing suppliers:-

• mini competition amongst the suppliers on the Framework; or
• by applying the terms of Framework itself (e.g. the framework may allocate all business of a certain type to supplier x, and of another type to supplier y, or it may provide for business to be allocated in strict rotation).

Risks of not complying with the Regulations

If a candidate, or disgruntled third party contractor, thinks that its rights under the Regulations have been infringed, it has two main courses of action open to it. It may pursue a legal action in the High Court (or the Court of Session in Scotland) against the contracting authority concerned. It may also make a complaint to the European Commission in the hope of persuading it to intervene. However, injunctions, orders to set aside a contracting authority's decision, damages, and the new remedy of contract ineffectiveness are only available to the tenderer or contractor under the legal action route.

Conclusion

Whilst the public procurement rules may seem daunting in their detail and the pace at which the rules are updated, a contracting authority will be off to a good start if it remembers certain key principles:

• Be open and transparent – allow tenderers to understand what you are going to do and how you are going to do it;
• Be objective and ensure equal treatment of tenderers – allow all tenderers a fair and equal chance of winning the contract;
• Be consistent – do what you said you were going to do.

For contractors and tenderers, it stands to reason that if contracting authorities are better aware of their obligations, contractors and tenderers should benefit from this.  Contractors and tenderers must also ensure that they understand the tender process, and their rights under that process.  If in doubt, seek clarification from the contracting authority.

Contacts