Procurement Pulse - October 2016

by DLA Piper

DLA Piper

The new regime based on the 2014 procurement directives continues to evolve. In September, Crown Commercial Service (CCS) issued guidance on its new Selection Questionnaire, replacing the standard PQQ, and considered to be an appropriate alternative to the European Single Procurement Document. CCS has also issued a reminder to contracting authorities of the obligation to advertise on Contracts Finder. This triggers a broader reflection of the different levels at which procurement obligations apply - above the financial thresholds in the directives, below those thresholds where there is cross border interest and below the thresholds set out in UK implementing legislation. We look at this in more detail in the context of the Tecnoedi case on abnormally low tenders below. We also look at the Politano case on discretions around selection criteria, in the context of public service concessions. Finally, for utilities sectors seeking full exemption from the procurement rules, new guidance issued by the EU Commission, sets out the information required in any application for exemption.

Below threshold contracts attracting abnormally low tenders

Pursuant to Italian law if a public works contract (valued at EUR 1 million or less - a threshold specific to Italian legislation) is to be awarded on the basis of lowest price, then a contracting authority may provide in the contract notice for automatic exclusion of tenders which demonstrate a percentage discount equal to or greater than a statutorily determined threshold - if the number of tenders admitted to the process is more than ten. In the Italian court's view, the contract was likely to attract cross border interest, and it asked whether automatic exclusion of ALTs breached the freedom of establishment and freedom to provide services principles set out in the Treaty on the Functioning of the European Union (TFEU). This case reflects the different layers of analysis in procurement law. There are the "strict" or "special" procedures, (for example, the ALT rules at regulation 69 of the Public Contracts Regulations, 2015 (PCR'15)) which apply where the value of a contract is equal to or greater than the de minimis threshold set out in the procurement directives. Those rules do not apply where a contract is below the de minimis threshold. Where a contract is below threshold, but deemed to have cross border interest, the broad TFEU principles apply.

Because the Italian court had not carried out a specific assessment as to whether or not there was cross border interest, the European Court dismissed the application. However an almost identical scenario was referred to the European Court in combined cases Secap and Santorso C-147/06 and C-148/06, and the court held that automatic exclusion of ALTs does breach general TFEU principles. The only caveat would be where, as an administrative measure (to take into account unduly large tender responses), the contracting authority sets a threshold above which automatic exclusion could take place. In Secap, a threshold of five tenders was not deemed reasonable/sufficiently high. In Tecnoedi, legislation allowed automatic exclusion where more than ten bidders had been admitted to the process, but the court did not pronounce on its validity. From a practical point of view, contracting authorities must ensure that procurement documents for the below threshold process set out in clear, precise and unequivocal terms, the criteria for excluding ALTs, and determine a proportionate threshold above which the rules apply if they expect a large number of bidders to respond.

C-318/15 Tecnoedi v Commune di Fossano

Public service concessions - proportionate selection criteria

Pursuant to Italian law, collecting and managing of bets are licensed activities. The licence must have been granted pursuant to a public tendering procedure, and is subject to police authorisation. Mr Politano managed a betting agency, but had been excluded from the tender process pursuant to which he could have obtained the necessary licence. Italian administrative police sought to seize the assets associated with the business. By way of defence, Mr Politano argued that obliging tenderers to produce certificates from two different banks was onerous, and may dissuade them from participating in a procurement procedure. This breached the restriction on freedom of establishment and freedom to provide services set out in articles 43 and 49 of TFEU - having agreed that directive 2004/18 did not apply. Case law also indictes that a contracting authority cannot impose criminal penalties in connection with a non-compliant procurement process. The court decided that the requirement to provide certificates from two separate banks was not a disproportionate measure, when looked at in the context of the overriding public interests of having a healthy regulated betting market, and protecting consumers. The case casts light on the EU concessions directive (2014/23/EU), implemented in the UK through the Concessions Contracts Regulations, 2016 (CCR'16) and the Concessions Contracts (Scotland) Regulations, 2016. In terms of scoping financial and economic standing selection criteria, regulation 38(2) of CCR'16 (regulation 41(2) of the Scottish regulations) provides no guidance on specific information which must be requested from bidders, but simply states that information required should be "non-discriminatory and proportionate to the subject matter of the concession contract". This shows that in procuring a concession, the contracting authority has more discretion in evolving its process, than in procuring a public contract. The judge's reasoning in Politano on proportionality in the context of broad Treaty principles would, therefore, be apposite when justifying CCR'16 selection criteria.

C-225/15 Re Politano

Contracts Finder transparency obligations

PPN 07/16 reminds contracting authorities that part 4 of PCR'15 requires:

  • Any contract notice or contract award notice published in the Official Journal or other procurement portal, to be published on Contracts Finder within 24 hours of notification of publication (or 48 hours where no notification is given). 
  • Any advertisement for a public contract or the award of a public contract to be published on Contracts Finder, within 24 hours of its original publication in any other media, unless: 
  1. It would not have been subject to PCR'15 - even if its value was above the EU financial thresholds. 
  2. In the case of central government contracts, it has an estimated value (net of VAT) less than £10,000. 
  3. In the case of NHS Trust (subject to certain exemptions) and local government contracts, it has an estimated value (net of VAT) less than £25,000.

PPN 07/16 is to be read in conjunction with CCS guidance on transparency requirements for publishing on Contracts Finder.

SQ replaces PQQ and ESPD

We reported on the EU Commission's template for the European Single Procurement Document in our March Procurement Pulse. We indicated then that, as the UK has a well developed pre-qualification process, it seemed likely that, rather than having one comprehensive document, we would now have the ESPD and a separate "amending schedule" in the procurement documents, setting out which ESPD questions must be answered, and where further information will be required. This, in effect, is what has now happened. PPN 08/16 includes a template for the standard Selection Questionnaire (SQ), and recommends that it be used either on its own, or in conjunction with the ESPD - using parts I-III of the ESPD on mandatory and discretionary exclusion grounds, and part 3 of the SQ, which sets out selection criteria questions. The PPN confirms that the SQ "is compliant with the requirements of the ESPD", but makes it clear that contracting authorities are obliged to accept self-certification of the exclusion grounds through an ESPD if a potential supplier uses the ESPD in the selection process. The SQ has been designed for use on PCR'15 supplies and services procurements; for works procurements PPN 08/16 requires contracting authorities to use the PAS91 PQQ. In the UK, there are now four different approaches to pre-qualification : SQuID in Wales, SQ in England, modified SQ in Northern Ireland and ESPD (Scotland) in Scotland.

Utilities - activities directly exposed to competition

Where a utilities sector is considered to be subject to the checks and balances of a competitive market, it may obtain exemption from application of the procurement rules. For example, in England, Scotland and Wales, purchasers within the electricity generation and the electricity supply markets do not have to comply with the procurement rules. Requests for exemption must provide the EU Commission with adequate information on the relevant market to enable it to assess whether activities are sufficiently exposed to competition. Commission Implementing Decision (EU) 2016/1804 sets out new guidance on details required and the process to be followed.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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