The Public Contracts Regulations 2015

The Public Contracts Regulations 2015 (SI 2015/102) (“the Regulations”) came into force on 26 February 2015 and implement Directive 2014/24 on Public Procurement in the UK (although some provisions will not come into force until 2018). Directive 2014/24 itself was a response to a successful lobbying campaign by a number of Member States to negotiate a more straightforward and flexible regime of procurement rules. 

The new Regulations apply to all new tender processes commenced on or after 26 February 2015 (Regulation 118). Generally speaking, “commencement” for the purposes of the Regulations is the date that the procurement is first advertised via the Official Journal of the European Union (“OJEU”) notice or otherwise.¹  However, under the Regulations “commencement” also occurs in circumstances where a contracting authority contacts an economic operator to seek expressions of interest or offers in respect of a proposed public contract (Regulation 118(c)(i)), or where the contracting authority responds to an economic operator who has sent an unsolicited expression of interest or offer to it (Regulation 118(c)(ii)).

In relation to tender processes started before this date, the Public Contracts Regulations 2006 (SI 2006/5) still apply.

Application of the Public Contracts Regulations 2015

The 2015 Regulations apply broadly in the same way as the 2006 Regulations. They will continue to apply where a contracting authority seeks offers in respect of a public works, services or supply contract with a value in excess of the applicable financial threshold.² 

Significantly, and for the first time, the Regulations now also bite on contracts that fall under the threshold value. Regulations 110 and 112 require that:

(a) contracts as low in value as £10,000 (or £25,000 for ‘sub-central’ contracting authority procurements), if advertised at all, must be advertised on the government’s “Contracts Finder” portal; and

(b) unless one of the exemptions at Regulation 112(2) applies, details about contract award must also be sent to the Contracts Finder.

Another key change to the existing procurement regime is the removal of the distinction between Part A and Part B services and the introduction of a new ‘light touch regime’ (“LTR”) in respect of certain service contracts that tend to be of lower interest to cross-border competition (the LTR is discussed in greater detail below).

As with the 2006 regime, certain types of contracts are excluded from the scope of the 2015 Regulations altogether (see Regulations 7 to 12). The exclusions are similar to those under the 2006 regime, with the exception of a new exclusion under Regulation 12 relating to in-house contracts and joint co-operation between contracting authorities. This of course reflects the position set out in European case law (in the Teckal and Hamburg cases).

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As with the old regime, contracts covered by the 2015 Regulations must be the subject of a ‘call for competition’ published in the OJEU. This will normally be in the form of a Contract Notice.
However, the new regime allows for greater flexibility for sub-central contracting authorities; Regulation 26(9) permits sub-central contracting authorities to use a Prior Information Notice (“PIN”) as a call for competition to commence a procurement under either the restricted procedure or the competitive procedure with negotiation, so long as the PIN complies with the content requirements set out in Regulation 48(5).

Following advertisement (i.e. from the date that a Contract Notice or invitation to confirm interest following a PIN is published in the OJEU) a contracting authority is now obliged to offer full and unrestricted access to all the procurement documents (Regulation 53). “Procurement documents” is defined in the Regulations as:

“[A]ny document produced or referred to by the contracting authority to describe or determine elements of the procurement or the procedure, including the contract notice, the prior information notice where it is used as a means of calling for competition, the technical specifications, the descriptive document, proposed conditions of contract, formats for the presentation of documents by candidates and tenderers, information on generally applicable obligations and any additional documents.”

Pre-Qualification Questionnaires

The Public Contracts Regulations 2015 contain new requirements in relation to the use of Pre-Qualification Questionnaires (“PQQs”), for above and below EU thresholds. The new requirements aim to ensure a simpler and more consistent approach to selection across public sector authorities.

In relation to above EU threshold contracts, contracting authorities must have regard to statutory guidance in relation to the qualitative selection of economic operators (Regulation 107). This has now been supplemented by a new standardised PQQ, which sets out what is required by way of information on:

(a) the supplier;
(b) its bidding model;
(c) licensing and registration;
(d) whether any of the grounds for mandatory exclusion apply;
(e) whether any of the grounds for discretionary exclusion apply;
(f) economic and financial standing of the supplier; and
(g) the technical and professional ability of the Supplier.

There are also additional PQQ modules that a contracting authority should use if they are relevant and proportionate to the subject matter of the contract, such as project-specific questions, insurance cover, compliance with equality legislation, environmental management and health and safety.

The Regulations also place a restriction on the use of a pre-qualification stage in relation to below-EU threshold procurements. A contracting authority may not include a pre-qualification stage in any procurement where the value of the procurement is below the EU threshold for goods and services, currently £111,676 in central government, and £172,514 outside central government (Regulation 111). In practical terms, this means that PQQs used as part of a pre-qualification stage are not permitted. However contracting authorities may ask “suitability assessment questions” relating to a potential supplier, provided that the questions are relevant to the subject matter of the procurement and proportionate.

Choice of Procedure

For public bodies carrying out a procurement exercise, a contracting authority’s choice of award procedure is essentially the same under the 2015 Regulations: open (Regulation 27); restricted (Regulation 28); competitive procedure with negotiation (formerly the negotiated procedure with prior advertisement) (Regulation 29); and competitive dialogue (Regulation 30). The possible use of the negotiated procedure without a notice is also retained in exceptional circumstances (Regulation 32).

There are, however, a number of important changes to these procedures:

(a) the minimum time limits applicable to public procurement procedures are shortened by approximately 30%;

(b) there is a greater freedom to use the competitive procedure with negotiation and competitive dialogue procedures;

(c) the Regulations confirm that negotiations are not mandatory under the competitive procedure with negotiation, provided that this possibility is highlighted from the outset;

(d) under the competitive dialogue procedure, an authority may clarify, specify and optimise final tenders and negotiations with the preferred bidder within certain parameters; and

(e) in situations of urgency, a contracting authority can (if the urgency is duly substantiated) rely on accelerated forms of the open procedure and competitive procedure with negotiation, in addition to the accelerated form of the restricted procedure which was already available under the 2006 Regulations.

More significantly, the Public Contracts Regulations 2015 have also introduced a new innovation partnerships procedure, to allow for both the development and subsequent purchase of new and innovative products, services or works. This appears to have been introduced so that a contracting authority does not have to hold a further competition to purchase a product from a developer already engaged by the contracting authority to carry out innovative research and development of a product.

Evaluation

Regulation 67 of the 2015 Regulations provides that when a public authority weighs up all the bids that are ultimately submitted, it must award the contract to the most economically advantageous tender (“MEAT”), assessed from the point of view of the contracting authority. 
In carrying out this evaluation, the authority must weigh up criteria linked to the subject matter of the contract, which must include price, technical merit, aesthetic and functional characteristics, environmental characteristics, running costs, cost effectiveness, after-sales service, technical assistance, delivery date and delivery period, and period of completion (Regulation 67(3)(a)-(c)).

Again, the Regulations have kept up to date with case law; Regulation 67(3)(b) confirms that it is possible to evaluate the experience of the staff assigned to performance of the contract, where staff quality is likely to have significant impact on performance levels. It remains the case that any evaluation of experience as an award criteria must be linked to the performance of the contract itself. 

The public authority must have made clear in the formal notice in the OJEU what weighting it will give to each of these criteria, except where this is identified on the basis of price alone (Regulation 67(9)).

Regulation 69 requires contracting authorities to demand an explanation where a tender appears to abnormally low; the regulation also states that bids may only be rejected where this explanation is unsatisfactory (Regulation 69(4)). However, where it is established that the tender is low due to breaches of environmental, social or labour law, the contracting authority is obliged to reject the tender (Regulation 69(5)).

Changes to Contracts Once Awarded

The 2015 Regulations set out the circumstances in which a contract, once awarded, may be varied without the need for a new procurement process. Previously, a contracting authority had to rely on case law, in particular the decision in Pressetext; however, the test is now enshrined in Regulation 72.

Regulation 72(1) states that a modification which is provided for in the original contract in “clear, precise and unequivocal” terms will not trigger a new procurement process. The Regulations also expressly provide that a further procurement process is not required where:

(a)  the change in value is relatively small (Regulation 72(5));
(b)  there are unforeseen circumstances (Regulation 72(1)(c));
(c)  additional works, services or supplies necessary and a change in contractor cannot be made for economic or technical reasons (Regulation 72(1)(b)); or
(d)  there has been a replacement of the supplier following a corporate restructuring, insolvency or merger, and the new supplier still meets the original selection criteria (this exemption is only available where there is no other substantial modification to the contract: Regulation 72(1)(d)(ii)).

A “substantial” modification not originally provided for under the contract will, however, trigger a further procurement process. A modification will be considered “substantial” if one of the criteria in Regulation 72(8) is met, namely:

(a) the modification renders the contract or the framework agreement materially different in character from the one initially concluded;
(b) the modification introduces conditions which, had they been part of the initial procurement procedure, would have:

(i) allowed for the admission of other candidates than those initially selected;
(ii) allowed for the acceptance of a tender other than that originally accepted; or
(iii) attracted additional participants in the procurement procedure;

(c) the modification changes the economic balance of the contract or the framework agreement in favour of the contractor in a manner which was not provided for in the initial contract or framework agreement;

(d) the modification extends the scope of the contract or framework agreement considerably; or

(e) a new contractor replaces the one to which the contracting authority had initially awarded the contract.

Termination of contracts

The 2015 Regulations contains provisions to ensure that a contracting authority can terminate a public contract in circumstances where there has been a breach of EU law on public procurement, particularly where this results from a change in an awarded contract (see Regulation 73).

The contracting authority must be able to terminate a contract should any of the following three grounds occur:

1. where the contract has been subject to a substantial modification that constitutes a new award (Regulation 73(1)(a));
2. where it is discovered after contract award that the contractor should have been excluded on mandatory exclusion grounds (Regulation 73(1)(b)); or
3. where the Court of Justice of the European Union (“CJEU”) has declared a serious infringement by the contracting authority of its obligations, meaning the contract should not have been awarded to the contractor (Regulation 73(1)(c)). 

New Light-Touch Regime: Social, Health and Education Services

The 2015 Regulations do away with the distinction between Part A and Part B services and introduce the LTR as a specific set of rules for certain service contracts that tend to be of lower interest to cross-border competition. Those service contracts include certain social, health³ and education services, defined by the CPV codes.⁴

A relatively high threshold (when compared to that for Part A services) has been applied to the LTR of EUR 750,000 (currently £625,050). Below that threshold, contracts do not need to be advertised in the OJEU, unless there are concrete indications of cross border interest, as they would typically be regarded as not being of interest to service providers from other Member States.

Contracting authorities now have to follow a new light-touch set of procurement rules for LTR contracts above the threshold. The main mandatory requirements are as follows:

(a) OJEU advertising: the publication of a Contract Notice or PIN. Except where the grounds for using the negotiated procedure without a call for competition could have been used, for example, where there is only one provider capable of supplying the services required.

(b) Contract award notice: this is to be published after each procurement or, if preferred, group notices on a quarterly basis.

(c) Transparency and equal treatment: contracting authorities must comply with the Treaty principles of transparency and equal treatment.

(d) Conduct of the procurement: this must be done in conformance with the information provided in the OJEU advert, regarding conditions for participation, time limits for contacting/responding to the authority and the award procedure.

(e) Time limits: there are no stipulated minimum time periods in the LTR rules, such as the time limit imposed by a contracting authority for responding to adverts and tenders. The time limits must be reasonable and proportionate, thereby allowing a contracting authority to use its discretion and judgement on a case-by-case basis.

The new regime is, therefore, designed to give a contracting authority much greater flexibility for LTR contracts, in that following the initial OJEU notice, there is significant flexibility to decide how to run a LTR procurement as long as it complies with the mandatory requirements above. There is no requirement to use the standard EU procurement procedures (for example, open or restricted etc).

1. Which may include a Prior Information Notice issued on or after 26 February 2015; this is discussed in greater detail below.
2. Regulation 6 sets out the rules on how to calculate the value of a contract for the purposes of assessing whether the threshold is exceeded.
3. Implementation of the LTR has been delayed for certain clinical commissioning contracts: procurement by NHS England or Clinical Commissioning Groups of NHS healthcare services should not be subject to the new rules until the transposition deadline of April 2016, allowing service commissioners the necessary time to adapt. Such procurement will continue to be governed by the pre-existing regulations until that time.
4. The full list of services to which the LTR applies is set out in Schedule 3 of the 2015 Regulations.