Compass

Changes to the Public Contract Regulations

The Public Contract Regulations 2015 came into effect on 26th February 2015.

Part 1 and 2 implements the new Public Sector Procurement Directive 2014/24/EU; Part 3 re-enacts the relevant provisions of the Remedies Directives;

Part 4 embodies regulations relating to the establishment and publishing of notices on the national e-procurement portal 'Contracts Finder';

Part 4 covers procurements that fall below the EU thresholds and also terms of payment for undisputed invoices;

Part 5 covers miscellaneous and transitional arrangements including the programme for full adoption of e-procurement;

Schedule 6 addresses consequential amendments to existing Acts such as in Schedule 6.8 The Public Service (Social Value) Act 2012 which strengthens interoperability in alignment with the direction of the new regulations.

It should be noted that the Regulations do not apply to Scotland whilst the Part 4 provisions don't apply to devolved functions in Wales or N. Ireland.

This supports a less risk-averse approach and should set a legal framework which promotes the quality of the built environment by ensuring genuine competition and providing better value for money.

This represent significant reform and modernisation of public sector procurement which will have significant impact on the preparations for a procurement, processes, procedures, awards, contracts and implementation through to life cycle completion.

There is now greater flexibility, and application processes should become simpler, faster and - with the programmed emergence of full e-procurement - more streamlined. SME access has also been addressed and sustainability embedded.

The legislative drafting including, greater reliance on a 'copy out' approach to embodying Directive 2014/24/EU has considerably improved legibility, accessibility, clarity and comprehension for all, which may also be expected to significantly reduce overall procurement costs and recourse to remedies.

The Legislators, especially the UK, the European Parliament and the European Commission, have recognized the most important problems in procuring architects' services: the lack of real competition as a result of the misuse of selection criteria in for example, turnover and number of employees and, last but not least, to focus the awarding decision on price and not on quality.

The transposition of the new directive on 26th February 2015 has provided an opportunity to create a better basis for growth, stakeholder engagement, more competition, at lower economic cost and with better results. However this will depend on how the new law is applied in practice and whether the existing culture of UK procurement is capable of changing to meet the evidential challenges.

Items we would note:

Of particular interest, giving guidance to clients and designers

General

It is noted that special provisions for the NHS and schools are not generally covered in the following.

Transparency

Public procurement under the regulations will be required to be published on the UK's new National e-Procurement Portal 'Contracts Finder'.

This time around the regulations have been comprehensively digitalised and Parts 1 and 2 are largely 'a copy out' of Directive 2014/24/EU with fewer linguistic and structural amendments to the well worded and better structured EU Directive.

Definitions

Regulations 2 now includes more consistent and extended relevant alphabetically arranged definitions that improve comprehension.

Cabinet Office guidance

In Regulation 107 contracting authorities shall have regard to Cabinet Office national guidance in relation to the qualitative selection of economic operators which may be issued is conferred on a range of issues including what might be deemed proportionate, sufficient and not unduly onerous, burdensome, excessive. Procurement authorities will no longer be able to be aberrant. This supports reform over the long term providing potential for ongoing improvements in practice.

More SME friendly

A specific number of items, some of which are described below, have been brought forward to make the regulations more SME friendly. In doing so contracting authorities should be encouraged to make use of the 'European Code of Best Practices Facilitating Access by SMEs to Public Procurement Contracts' 2008, along with the SME Friendliness tool which was produced to help government departments engage with SMEs.

Relevant requirements

When buying in design or architectural services it is only necessary to consider relevant and mandatory requirements. The regulations are only compulsory where 'shall' is used; 'may' typically means requirements are optional and there is flexibility. Many aspects of the Regulations such as electronic auctions, dynamic purchasing, and electronic catalogues don't apply to professional services and can be disregarded.

Unrestricted free document access and supply

To address the practices of charging for procurement documents or charging for access to procurement portals holding any procurement documents regulation 53 (1) now specifies that contracting authorities shall offer free and unrestricted access to procurement documents from the date of publication.

Invoice payments within 30 days

Regulation 113 provides for payment within 30 days of all undisputed invoices to tier one contractors and sub-contractors (at any stage of remoteness from the contracting authority in a subcontracting chain) and the publication of records to evidence performance.

This is a clear incentive for contracting authorities to adopt project bank accounts (PBA's), which Crown Commercial Services are now committed to using, as it provides the optimum way with e-procurement to best meet the required objectives. Further guidance on the use of PBAs leading to their full adoption within the e-procurement timescales would be welcome and might be anticipated.

Part 4

The light regime - low value procurements

If you are interested in procurements below the EU thresholds first start by reading Part 4 of the Regulations - Chapter 8.

These new UK regulations which cover procurement below EU thresholds are specific to the UK and are located towards the end of the document. Although the opening up of below threshold procurement is very welcome this is somewhat confusing for many who might expect these regulations to be placed first and in accordance with the general principles and structure of the EU Directive. The 'copy out' principle in conjunction with conventions for legal transcription haven't been able to extend to adoption of a suitable regulatory prefixing or sub-divisional system which might have addressed this; despite the fact that there is considered to be a significantly more numerous market at lower values and therefore far greater need to access this section with frequency by less qualified procurement personnel. For that reason we have placed these comments here and before Parts 1 & 2.

Procurement below EU thresholds

To open up (digital) access, opportunities and improve transparency, contract award opportunities from central government (where not less than £10,000) or from a sub-central authority (where not less than £25,000) will also now, under regulation 109, be required to be advertised on 'Contracts Finder' with full and unrestricted digital access free of charge to any relevant contract documents.

NO PRE-QUALIFICATION QUESTIONNAIRES (PQQ's)

Regulation 111(1) states specifically that a pre-qualification questionnaire (PQQ) can no longer be included for this value of a procurement.

Parts 1 & 2

e-Procurement

Regulation 1(3) and 22 set out the phasing of the programme and provisions for full e-procurement which come into effect on 26th Feb. 2015, 18th April 2017 and 18th Oct. 2018.

A REGULATED PROCUREMENT BUT WITH LOTS WHICH ARE NOT REGULATED

Regulation 6 (14) now confers with improved legal clarity an ability to let some tendered lots within a single procurement, where each of these individual lots is below €80,000, without full procedures. This provides opportunity within a service procurement to remove many smaller consultancies associated with a lead consultant to the regime below the full scope of the EU procedures [i].

CONSORTIA PRACTICE

How a contracting authority selects its design team is one of the single most important factors in achieving good value high quality projects. Professional consultants who bring themselves together into consortia on the basis of their own empathies can create opportunities for stronger more integrated team working; allow creative practices to work with larger firms or contractors; provide an innovative way of drawing complementary strengths, skills and resources together; and help talented designed teams to meet criteria collectively. Some of the best projects historically have arisen from such relationships.

Consortia can also provide clients a 'one-stop-shop' contractual supply relationship.

The new provisions for more equal access and opportunity to contracts for groups of economic operators and temporary associations under regulation 19 (3), (4), (5) and (6) are therefore particularly welcome; and by allowing for reliance on the capacities of others under regulation 63 clients can now adopt better practices.

PROCEDURES

A. COMPETITIVE PROCEDURE WITH NEGOTIATION - NEW PROCEDURE

Regulation 29 replaces what was previously known as the 'negotiated procedure'.

On the choice of procedures Regulation 26.4 provides that contracting authorities may apply a competitive procedure with negotiation … in the following situations:

(a) with regard to …. services fulfilling one or more of the following criteria:-

(i) the needs of the contracting authority cannot be met without adaptation of readily available solutions

(ii) they include design or innovative solutions;

Whilst Regulation 29 lays down the procedural basics which in summary are:

By providing the qualitative selection information sought in the call notice anyone eligible to tender may make a submission.

In the procurement documents, contracting authorities shall identify the subject-matter of the procurement by providing a description of their needs and the characteristics required of the supplies, works or services to be procured and specify the contract award criteria.

They shall also indicate which elements of the description define the minimum requirements to be met by all tenders.

Unless otherwise provided for in regulation 29.4, contracting authorities shall negotiate with tenderers the initial and all subsequent tenders submitted by them, except for the final tenders within the meaning of 29.7, to improve the content thereof.

The minimum requirements and the award criteria shall not be subject to negotiations.

This procedure is evidentially [ii] the fastest and most economic within the construction design sector, is highly suited for design team selection yet is one of the most infrequently adopted.

Significant legally robust clarifications improve procedural simplicity providing multiple incentives to its more frequent use.

B. INNOVATION PARTNERSHIPS - NEW PROCEDURE

This new procedure, regulation 31, tailored towards research and development activities, with its emphasis on staged and targeted outputs, and a contracting authorities ability to terminate the partnership after each stage, would not appear to offer in the more general provision of public construction procurement significant advantages above those provided for by for example the competitive procedure with negotiation. It is not therefore addressed in any further detail.

C. NEGOTIATED PROCEDURE WITHOUT PRIOR PUBLICATION

Under regulation 32 (7) & (8) the negotiated procedure without prior publication may be used for public service contracts, where the contract concerned follows a design contest organised in accordance with the regulations and is to be awarded, under the rules provided for in the design contest, to the winner or one of the winners of the design contest; in the latter case, all winners must be invited to participate in the negotiations.

STAKEHOLDER & PRE-MARKET ENGAGEMENT

As part of a pre-procurement strategy in the preparation of a procurement and prior to embarking on issuing notices authorities are encouraged under regulation 40 to pursue stakeholder and market consultations and engagement to improve the quality and level of understanding, briefs, selection of appropriate criteria, performance and resultant outputs. Stakeholder engagement is evidentially important as a way of ensuring that public outputs better meet expectations upon their delivery. Pre market engagement with designer's can be enabled in a variety of ways either physically or digitally. Where the market might cover a wide geographic area and entail considerable travel time, digital engagements may be most appropriate in the first instance.

DIVISION OF CONTRACTS INTO LOTS

The UK is the most heavily aggregated market in the EU and the most inefficient. The argument that a one size fits all, bigger is better solution has been evidentially disproven… several research projects in the Member States, including several extensive studies undertaken by the courts of auditors have shown that, in general, a separate procurement of planning services and works guarantees better economic results [iii]. Although no one denies the need for size when appropriate, any sense of a proportionate and sustainable market approach had got lost.

Contracting authorities will now have to explain why they are not subdividing contracts into lots and may also limit the number of lots awarded to any one tenderer.

Under Regulation 46.(1), (2) and (4); contracting authorities may decide to award a contract in the form of separate lots and may determine the size and subject-matter of such lots; Contracting authorities shall provide an indication of the main reasons for their decision not to subdivide into lots, which shall be included in the procurement documents or the report referred to in regulation 84(1); Contracting authorities may, even where tenders may be submitted for several or all lots, limit the number of lots that may be awarded to one tenderer, provided that the maximum number of lots per tenderer is stated in the contract notice or in the invitation to confirm interest.

The division of contracts into more numerous lots is also a material consideration in the UK for improving social value and economic sustainability under The Public Services (Social Value) Act 2012.

The principle established within Directive 2014/24/EU is clarified by legal opinion [iv].

Such division could be done on a quantitative basis, making the size of the individual contracts better correspond to the capacity of SMEs, or on a qualitative basis, in accordance with the different trades and specializations involved, to adapt the content of the individual contracts more closely to the specialized sectors of SMEs or in accordance with different subsequent project phases.

Planning is the basis for the subsequent execution of construction works. So as to guarantee a performance that is not solely orientated purely towards the contractors' financial benefit, the architect should be put into a position to act as an independent trustee of the contracting authority. Thus, design and execution of work should also be procured separately [v].

Limitations on the number of lots that a client may award to any one tenderer furthers the legislators best practice objectives.

In addition to that under Directive2014/24/EU Art.46.4, the EU legislator has permitted that Member States may even render it obligatory to award contracts in the form of separate lots under conditions to be specified in accordance with their national law and having regard for Union law. Although the UK has not adopted this specific clause, guidance maybe anticipated on the appropriate and proportionate application of this option.

CALLS FOR COMPETITION IN PRIOR INFORMATION NOTICES (PINs)

A call for a competition can be made within Prior Information Notices (PIN) for restricted procedures, and competitive procedures by negotiation under regulation 48. This can accelerate clients' selection processes by 30 days or more. Previously PINs had been used to forewarn the market of a client's intended call for a competition which is then placed through issue of a subsequent Contract Notice, but for both these procedures direct calls for competition maybe made via a PIN.

AWARDS & FRAMEWORKS

The reforms now require the publishing of award notices for contracts and call-offs from framework agreements.

PQQ'S

Questioning can only be strictly related and proportionate to the subject matter of the contract. This principle is reinforced throughout with more value placed on the education, qualification, registration and standing of professionals, without recourse to repeated evidencing.

When the implementing legislation for the ESPD is introduced PQQ requirements can be self-certifiable under regulation until verification at shortlisting stage or before award, and standard PQQs above EU thresholds are incentivised. Although guidance is to be anticipated, for the construction industry PAS91 is currently the recommended format.

To put more emphasis in assessments on achieving better outputs - including design quality – the structure of PQQs will change within shorter, clearer documents having many standardised requirements, such as those relating to grounds for exclusion and the provision of core relevant information, capable of repeated usage and able to be confirmed by self-declaration (until clients seek verification after shortlisting). This then places greater focus on a contracting authorities ability to provide a brief in response to the outcomes being sought with short intelligent context specific questions along with selection on short form responses. There is nothing that precludes illustrated responses which opens the opportunity at all stages for the assessment of architect's submissions using their primary language.

PROFESSIONAL QUALIFICATION CRITERIA

The requirement that bidders meet core selection criteria may be evidenced acceptably under regulation 58 (1) (c) and (5) by, for example, their qualification and registration as an architect.

Intellectual services, such as architects' services, should be chosen on the basis of the best idea and concept; quantitative criteria like turnover and number of employees are no appropriate means of selection. In general, selection criteria should be restricted to the professional qualification and the absolute minimum of additional criteria to guarantee genuine competition.

INSURANCE

PI cover under regulation 58 (8) (a) at bid stage is no longer mandatory. It can be sought at a time more suitable to doing so, such as prior to the assignation of an actual contract under an award. The amendments to the regulations also opens up opportunity for the use of potentially more appropriate alternative insurance regimes such as integrated project insurance (IPI), which under an alliance contract provides a stronger framework for practice anchored to integrated team working and BIM production, or single project insurance.

TURNOVER REQUIREMENTS

Annual turnover required at bid stage under regulation 58 (8) (a) is no longer mandatory. Where this criteria may be used regulation 58 (9) it shall not exceed twice the estimated contract value, unless there are other specifically valid justifications.

PREVIOUS EXPERIENCE

The criteria, Regulation 58 (15) (16) and (18), for use in assessing technical and professional ability is not mandatory with regards to the level of previous experience. Where experience is sought it may typically be assessed over the last five years, but to ensure adequate competition, this period can be longer.

In the construction sector whenever using any such selection criteria, it is too frequently forgotten that one of the best ways a responsible client can verify previous experience is to visit previously executed work and engage the stakeholders. This on its own can be sufficient evidencing of track record [vi].

MEAT

The criteria for the award of contracts can under regulation 67 (1) can only be made on the basis of the 'Most Economically Advantageous Tender' (MEAT) rather than lowest price. This cost-effectiveness approach may take a variety of forms. But interestingly in MEAT selection, under regulation 67(4), the cost element may also take the form of a fixed price or cost on the basis of which bidders will compete on quality alone as the determining factor.

Regulation 67 (1)-(11) now also provides greater flexibility and no longer appears to preclude clients from using the Brook's method [vii] which can ensure that tenderers meet the highest quality standards, before any financial criteria and price are assessed at contract award stage, and that clients can use staged weighted assessments so long as this is specified in the procurement documents.

LIFE CYCLE COSTING

Sustainability has been better embedded throughout the new regulations not least within regulation 68 which cover parts or all of the described costs over the life cycle of a product service or works from acquisition to end of life and those imputed to environmental externalities provided their monetary value can be determined and verified and where these are relevant to the award.

Clients seeking to use life cycle costings for planning and design services in construction will likely to be unable to determine verifiable monetary values of outputs as the modelling of sufficiently detail performance criteria will not be available prior to the design of a specific construction project.

However the cost element at the award stage (ref. MEAT selection above) may also take the form of a fixed cost, allowing bidders to compete on the basis of quality criteria, enabling target costs to be determined at the outset in the procurement stage.

Fixed targets for life cycle costs may therefore be the most appropriate approach to achieving better outputs that can meet these requirements.

ABNORMALLY LOW TENDERS

Where tenders appear abnormally low contracting authorities shall now require that bidders explain the proposed price or cost under regulation 69 (1). This welcome new regulation [viii] mitigates the risk of appointing consultants who will not be able to provide the time and level of service a client needs for the low fee. 12% or more below the mean of all tenders is the threshold below which fee bids maybe considered too low [ix].

DESIGN CONTESTS

Located within Part 2 Chapter 3 Section 8 in regulations 78, 79, 80, 81 and 82 this route to a procurement is entirely distinct, is not a standard procedure, is provided specifically to enable a contracting authority to mainly acquire architecture, engineering and planning (regulation 2 Definitions) and is advertised under a different notice.

Design contests are organised as part of a procedure leading to the award of a public service contract. Design Contests maybe held in one or two stages and are particularly well suited to being followed by the negotiated procedure without prior publication (as described above).

Where design contests are restricted to a limited number of participants, the contracting authorities shall lay down clear and non-discriminatory selection criteria. For lower value and popular projects this can include the contest being preceded by a sortation system which is a digitally certified anonymous equal chance method of pre-selection that is clear and none discriminatory.

This route to a procurement offers enormous versatility, flexibility and opportunity, and when well-managed is highly cost effective. Improvements in legal clarity presage potential UK expansion in its use, where architectural design solutions are sought for individual buildings, client project folios and lots; or even for awards onto frameworks.

Under the new regulations this procurement route has been opened up by legislators to provide more cost effective ways to hold design contest selections. The EU legislators have also provided that design contests can be made obligatory at national level without being in conflict with procurement legislation, providing opportunity through guidance to set targets, which might also relate to general stock or areas identified as being of national civic and cultural importance.

CABINET OFFICE GUIDANCE

For procurements above thresholds contracting authorities must have regard under regulation 107 to any guidance Cabinet office issue in relationship to qualitative selection of economic operators.

PROMPT PAYMENT

Under regulation 113 and 122 Contracting authorities must ensure that all public contracts contain suitable provisions stating that valid undisputed invoices will be paid by the contracting authority within 30 days. Public contracts must also contain a condition requiring contractors to include similar provisions in their contracts, and so on down the supply chain. Additionally, each contracting authority must publish statistics showing the proportion of invoices paid in accordance with these obligations; the total amount of any liability to pay interest which arose during the year; and the total amount of interest actually paid in discharge of any such liability. This figure must be published annually in relation to the previous 12-month period at the end of the authority's accounting year.

 


[i] A Brief Guide to the new EU Public Contracts Directive (2014) Crown Commercial Services, pp8 Item 13.2

[ii] 'Public Procurement in Europe: Cost and Effectiveness' prepared for the European Commission by London Economics, PWC and Ecorys Research and Consulting, March 2011 pp80 (Fig 2.3); Building Ladders of Opportunity How reforming construction procurement can drive growth in the UK economy, RIBA 2012, p21 (Fig.8),

[iii] See for example „Finanzamt Ludwigburg – Umbau und Neubau“, published by the Ministry of Finance, Baden- Württemberg Juni 1999; Hochbau des Bundes Wirtschaftlichkeit bei Baumaßnahmen, Empfehlungen für das wirtschaftliche Planen und Ausführen von Hochbaumaßnahmen des Bundes, Hrsg.:; Die Präsidentin des Bundesrechnungshofes (Federal Court of Auditors) als Bundesbeauftragte für Wirtschaftlichkeit in derVerwaltung, Bonn März 2001, S 63; Jahresbericht 2000 des Landesrechnungshofes Rheinland---Pfalz (Court Of Auditors) Tz. 26

[iv] European Public Procurement Legislation and Architects' Services: Recommendations and Guidelines for Transposition into National Law. Adopted by the ACE General Assembly on 24 April 2014. pp 4,5

"With regards to these matters in relationship to building design and planning.

The definition of the project is the first step in the procurement procedure. It is a critical phase, especially as the contracting authority has to make initial decisions which will be of considerable importance for the overall procurement process. The project is defined in the brief either using the contracting authorities' own resources or with the assistance of experts (architects). The quality of the brief is vital for the results of the procedure in functional and economic terms.

A crucial moment in setting the course for the project is the decision on whether to award design and execution of work separately or jointly. The European legislator has decided to leave the decision for joint or separate contract awards to the contracting authority ….. “However, in view of the diversity of public works contracts, contracting authorities should be able to make provision for contracts for the design and execution of work to be awarded either separately or jointly. This Directive is not intended to prescribe either joint or separate contract awards.” On the other hand, the legislator has taken the decision to set the division of contracts into lots as a principle. Under Article 46, there is an obligation to provide an indication of the main reasons for their decision not to subdivide into lots. In Whereas 78 it is clearly stated that “where the contracting authority decides that it would not be appropriate to divide the contract into lots, the individual report or the procurement documents should contain an indication of the main reasons for the contracting authority's choice. Such reasons could for instance be that the contracting authority finds that such division could risk restricting competition, or risk rendering the execution of the contract excessively technically difficult or expensive, or that the need to coordinate the different contractors for the lots could seriously risk undermining the proper execution of the contract.”

Furthermore, it is stated that “public procurement should be adapted to the needs of SMEs. Contracting authorities should be encouraged to make use of the Code of Best Practices set out in the Commission Staff Working Document of 25 June 2008 entitled 'European Code of Best Practices Facilitating Access by SMEs to Public Procurement Contracts', providing guidance on how they may apply the public procurement framework in a way that facilitates SME participation. To that end and to enhance competition, contracting authorities should in particular be encouraged to divide large contracts into lots.

In addition to that, the legislator has permitted that Member States may even render it obligatory to award contracts in the form of separate lots under conditions to be specified in accordance with their national law and having regard for Union law."

[v] Ibid pp5

[vi] Also Directive 2014/24/EU ANNEX XII Part II. (a) (i)

[vii] The Brooks Method, modelled on the European double envelope method, considers core competency criteria, followed by an assessment of quality and finally financial criteria and price. 'Guidance for Clients on the Brooks Method of Architect Selection' RIBA Publications 1995. Directive 2014/24 Art 67.5 (3)

[viii] Directive 2014/24/EU Art 69.1

[ix] Based on Project Compass's research that evaluated cost ranges based on time charges across standard professional levels (director, partner, architect, assistant, support etc) derived from RIBA recommended salary levels as published in 2013. This was applied to a fee bid matrix assumed identical in all other respects (time & professional capability) and having an identical output to conform to a brief. A range of industry profit and overhead levels were applied over and above base, with an assumptions that there would be either 5 or 3 fee bids (under the EU procedures for the ITT stage shortlist).

Permutations on these were evaluated on various value and time ranges eg cost, time and efficiency 1 was high, 1 median and 1 low; 2 high, 2 median and 1 low etc. on the basis that those getting to shortlisting had track record - to develop the assessment of what was a competitive range to deliver the outputs. A hi-lo range about the mean of the order of 18 or 16% was derived, with a contingently conservative hi-lo range of 25%, or 12% (rounded) when reported as the value below the mean.