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Public procurement law: the basics

This guide is based on UK law and focuses on the current public, and not utilities, procurement rules. The law stated is up to date as at 6 February 2013.

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.

In the UK there are two sets of Regulations, depending on where the contracting authority is based:  

  • 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.  The EU is currently debating the wholesale revision of the procurement Directives, but it will at least a couple of years before those changes are implemented into UK law.

When do the Regulations apply?

Where the following pre-conditions are met a contracting authority must normally advertise the contract in the EU's Official Journal and follow the procedural rules set down in the Regulations:

  • The body doing the buying is a "contracting authority".  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. universities and housing associations);
  • The contract is for public works, public services or public supplies. Sometimes the contract will be a mixed contract (e.g. the supply and maintenance of computers). Where it is, a contracting authority must determine which element (eg the supply element or the service element) is the predominant element and, therefore, which set of rules will apply. This can be 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.

Current Financial Thresholds until January 2014

  • £4,348,350 (€5,000,000) for the procurement of works;
  • £113,057 (€130,000) for the procurement of supplies and so called Part A services by Central Government bodies; and
  • £173,934 (€200,000) for the procurement of supplies and Part A services by other public sector bodies.

Are all types of services caught?

The Regulations currently 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, and include:-

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

Part A services include:-

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

The Regulations themselves do not require any form of prior advertising or competitive tendering of Part B services.  However, they are still caught by the general obligations of transparency, equal treatment, non discrimination and proportionality that derive directly from the Treaty on the Functioning of the European Union (TFEU) when the contract is of 'certain cross border interest'.  What this means in practical terms is explained under "Contracts below the financial threshold", set out below. 

Contracts below the financial threshold

Below-threshold contracts are not caught by the Regulations, but case law says that where the contract is of 'certain cross border interest' ie of interest to suppliers located in other EU Members States, they should be tendered in line with the general principles of non-discrimination, equal treatment and transparency.  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 going 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?

Open

This procedure is often used for the procurement of commodity products which do not require a complex tender process in order to be purchased.  No negotiation with the tenderers is permitted but there are no restrictions as to when the procedure can be used.

All interested parties can submit a tender in response to the OJEU notice. This means that anyone responding to the OJEU notice can ask to be sent a copy of the contract documents.  Candidates will not only provide any information requested by the authority as part of a shortlisting or 'selection' exercise; they will also submit a tender at the same time.  This does not necessarily mean that everyone's tender will be evaluated.  The authority can evaluate all tenders if it wants to, but it can also decide only to evaluate the tenders of those candidates who meet any selection criteria that the authority may have set. 

Restricted

All interested parties may express an interest in tendering for the contract but only those meeting the selection criteria will be invited to tender.  When responding to the OJEU notice, candidates submit any information required by the authority as part of its selection stage.  Candidates who get through the selection stage will then be invited to submit a tender. 

Like the Open procedure, no negotiation with the tenderers is permitted but there are no restrictions as to when the procedure can be used.

Competitive Dialogue

All interested parties may express an interest in tendering for the contract but only those meeting the authority's selection criteria will be invited to participate in dialogue.

During the dialogue tenderers are able individually to discuss all aspects of the contract with the authority. Solutions are worked up with each tenderer on the basis of the ideas and proposals put forward by that tenderer. There can be no 'cherry-picking' by the authority of the best bits of various individual solutions, except with the consent of those concerned. Once the dialogue has generated potential solutions to the authority's requirements, the remaining tenderers are invited to submit a final tender based on their individual solutions. The best tender can then be selected, but there is very limited room for any further changes to be made once submitted.

This procedure can only be used in the limited circumstances described in the Regulations.

Negotiated

There are two types of negotiated procedure. Under the negotiated procedure without prior advert, the authority is not required to issue an OJEU notice and may negotiate directly with the supplier of its choice. Under the negotiated procedure with prior advert, an OJEU notice must be published.

All interested parties may express an interest in tendering for the contract but only those meeting the authority's selection criteria will be invited to tender.

Under the negotiated procedure with prior advert, tenderers are invited to negotiate the terms of the advertised contract with the authority. The Regulations do not prescribe how negotiations should be structured or run.  This means that the authority can, within certain parameters, establish its own procedures for the negotiation and tender stage.

This procedure can only be used in the very limited circumstances described in the Regulations.

How are candidates selected to be invited to tender?

A supplier may be excluded from the tender process, without any assessment of their qualifications or experience etc, where certain grounds concerning the supplier's personal position are met (e.g. bankruptcy or professional misconduct).

Suppliers must be excluded if 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. if they don't meet a minimum annual turnover threshold set by the authority) or technical capacity (e.g. if they don't have the required experience of similar contracts over the past 3 years). 

How many candidates should be invited to tender?

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

Restricted

A minimum of 5

Negotiated (with prior advert)

A minimum of 3

Competitive Dialogue

A minimum of 3

On what basis can a contract be awarded?

A contract must be awarded 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 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 a minimum of 10 or 15 clear calendar days between the date the notification is sent to candidates and the date of entry of 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 come with certain 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:-

  • Holding a mini competition held 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 between the suppliers).

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, 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.