New rules for contracting with the public sector: what do they mean for you?

The new regulations for tendering for contracts with the public sector will come into force in England, Wales and Northern Ireland on 26 February 2015 by way of the Public Contracts Regulations 2015 (the 2015 Regulations).

Except for a new ‘light touch’ regime, any qualifying procurement procedure started by a contracting authority after that date will be governed by the 2015 Regulations. All procurement processes commenced before then will continue to be governed by the Public Contracts Regulations 2006.

No ‘gold plating’

The 2015 Regulations implement an EU Directive. The Government’s view is that the 2015 Regulations ‘deregulate and simplify’ the rules that public authorities must follow when they run tenders for contracts (for anything from major infrastructure projects to IT services), and should make it easier for SMEs to win work in the public sector.

As expected, the Government has followed the wording of the Directive closely and has not looked to ‘gold plate’ the rules.

Key changes

The most important changes being introduced by the 2015 Regulations are, in summary, the following:

The procurement process

1. The Directive gave Member States the option to impose rules requiring contracting authorities to divide all contracts up into smaller lots. The Government has chosen not to implement this option, although where authorities choose not to split contracts into lots, they will need to record their reasons for doing so.

2. The 2015 Regulations make clear that contracting authorities can engage in market consultations with suppliers before a procurement commences. Where this takes place there is an obligation to ensure that competition is not distorted by the subsequent participation of economic operators that were involved in the market engagement.

3. The procedures that can be followed to procure a contract have been tweaked and a new “Innovation Partnerships” procedure has been added. The “competitive procedure with negotiation” and “competitive dialogue” have both been amended. Government guidance, however, is that where possible the open or restricted procedures should still be used.

4. A ‘self-cleaning’ provision has been added. If an economic operator is in a situation where it might be excluded from taking part in a public procurement (for example, one of its directors has been convicted of a fraud offence) it may provide evidence that measures have been taken to demonstrate its reliability, despite a relevant ground for exclusion existing.

Procuring from other authorities or through Central Purchasing Bodies

5. The provision for the award of contracts directly by one contracting authority to another without an advertised and competitive tender (known as the Teckal exemption) has been codified in the 2015 Regulations.

6. Central Purchasing Bodies can only procure on behalf of public bodies, not private entities.

7. Contracting authorities can use CPBs in other member states.

Awarding the contract

8. If a procurement is being run using lots, contracting authorities can award a single contract to cover several lots, but only if the contracting authority makes it clear in the procurement documents that it reserves the right to do so.

9. For each tender process that leads to the award of a public contract or framework, the contracting authority must produce a written report to include all the key information on the process followed, reasons for decisions taken (including choice of procedure used) and why the successful tenderer was chosen. Documents relating to the progress of all procurement procedures must be kept by contracting authorities for three years.

10. There have been no changes to the remedies section currently contained in the 2006 Regulations or the procedural rules for bringing challenges to procurement decisions.

Material changes to contracts

11. Contracting authorities will be required to include a condition in all contracts that allows them (but does not oblige them) to terminate a contract if the contract has been subject to a material change (“substantial modification” is the phrase used in the 2015 Regulations). If a condition has not expressly included it will be implied by the 2015 Regulations.

12. The 2015 Regulations codify the existing case law on the extent to which a public contract can be materially changed before it became a “new” contract, which must be put out for a fresh tender (the line of cases starting with Pressetext).

Other reforms

13. Lord Young’s May 2013 report ‘Growing Your Business’ recommended a number of key reforms to open up public sector procurement and streamline procurement to remove barriers to SMEs. The 2015 Regulations implement some of these recommendations, including:

a. abolishing PQQs for contracts below the EU Threshold;

b. 30 day payment terms being passed down the supply chain and a requirement to report on late payment of invoices;

c. all public sector contracts have to be accessible on Contracts Finder; and

d. encouraging the use of lots.

14. There have been no changes to the value thresholds for contracts to be caught by the regulatory regime (£111,676 for contracts with central government departments and agencies and £172,514 for local authorities and others).

15. The 2015 Regulations will only apply to new procurement processes beginning on or after 26 February 2015 (with the new ‘light touch’ regime coming in on 18 April 2016).

Light touch regime for certain services contracts, including health, social care and education

One of the key reforms being introduced by the 2015 Regulations is the removal of the distinction between ‘Part A’ and ‘Part B’ services. Previously, contracts for Part B services fell outside the full regulatory regime.

In place of this distinction between Part A and Part B services, the 2015 Regulations introduce a new ‘light-touch’ procurement regime for social and other specific services.

Where this regime applies, contracting authorities will need to advertise contracting opportunities and follow a process which complies with the obligations of principles of fairness, equal treatment and transparency. However, beyond that, authorities will have a choice in how they run tender exercises and the evaluation criteria which they can take into account when awarding contracts. Along with looking at which tender offers the best value, authorities can take into account the need to ensure quality, continuity, affordability and the needs of users.

The light touch regime has a much higher threshold (£557,181). Contracts for specified services falling below this threshold will also be governed by the parallel regime under the NHS (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013. Given the challenges of operating these two parallel regimes, the light touch regime will not take effect until 18 April 2016. Until that time the specified services will continue to be required to be procured as Part B services.

Further information

The full text of the 2015 Regulations can be found here.

If you are interested in finding out more about how the 2015 Regulations will affect your business our experts are hosting seminars on the impact of the 2015 Regulations in Bristol on 5 March 2015 and in London on 23 April 2015.