Public Contracts Regulations 2015 – In with the new, but not quite out with the old...
April 2015
On 26 February 2015, the Public Contracts Regulations 2015 (the "2015 Regulations") entered into force, transposing EU Directive 2014/24 (the "Directive") into UK law and marking the culmination of a legislative process that began in 2011. The 2015 Regulations introduce a number of changes which will benefit both Contracting Authorities ("CAs") and suppliers and, as a result, many have welcomed the 2015 Regulations coming into force ahead of schedule. Consultation has not yet begun on the required implementing regulations for either the new Utilities Directive or Concessions Directive, which were adopted at the same time as the Directive.
The drafting of the 2015 Regulations' transitional arrangements requires that many CAs will have compliance obligations under both sets of procurement rules for a time. Further, it has been decided that the rules in relation to the UK's new "light touch regime" ("LTR"), applicable to services including health and social care services, will not affect procurements covered by the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 ("PPCCRs") until the implementation deadline on 18 April 2016.
Implementation
The relatively swift implementation of the 2015 Regulations was largely achieved through the UK's use of the "copy-out" procedure, in line with the government's desire to finalise the reforms quickly. The government was eager to take advantage of what it perceives to be the substantial benefits of the new regime (see our article, The EU's New Public Procurement Directives for more information on these benefits). Notwithstanding this approach, following the Cabinet Office's consultation on the draft 2015 Regulations in September 2014 and the recommendations of the Lord Young Report, there has been some limited "gold-plating" of the Directive.
The 2015 Regulations do not have retrospective application, and are applicable only to procurements commenced on or after 26 February 2015. Those commenced prior to this date will therefore continue to be subject to the Public Contracts Regulations 2006 (the "2006 Regulations"). A procurement will, generally speaking, have "commenced" for these purposes if:
- an advertisement, contract notice or equivalent publication has been made (whether via OJEU or otherwise);
- when a CA seeks expressions of interest from a supplier; or
- where it responds to an unsolicited expression of interest or offer from a supplier.
As a result, many CAs, particularly those involved in protracted procurement exercises utilising competitive dialogue and negotiated procedures, may have compliance obligations under the 2006 Regulations for some time, until all procurements initiated prior to 26 February have concluded.
The light touch regime
Perhaps more significantly, CAs procuring services which fall within the scope of the PPCCRs will continue to operate on the basis of the previous regime until April 2016. The 2006 Regulations distinguish between services set out in Part A of their Schedule 3 and those set out in Part B. This distinction is based on the assumption that Part B services, which include health and social services, education services and legal services, possess features which make them distinctly "local" in nature, and therefore unlikely to attract interest from suppliers outside of the UK. As such, the 2006 Regulations apply different and much less onerous requirements on the latter (regardless of their financial value).
As such, the full application of the 2006 Regulations only extends to Part B services where there are factors specific to the procurement which mean that such cross-border interest would, nevertheless, be generated. Where there is no such cross-border interest, the requirements on CAs under the 2006 Regulations are limited to ensuring that CAs are fully transparent and treat all tenderers equally.
The 2015 Regulations have removed the Part A/Part B distinction and the accompanying provisions. Instead, they have introduced the revised LTR, which applies to a modified, shorter list of services set out in Schedule 3 of the 2015 Regulations. The Schedule 3 list contains many of the services previously listed in Part B, including healthcare and social services.
The LTR introduces several new obligations on CAs which apply even when procuring services of a "local" nature, where those procurements exceed a new value threshold of €750,000 (currently £625,050). For the first time, there will be a requirement to advertise these contracts through an OJEU Notice or a continuously published Prior Information Notice ("PIN"), and notices of contract award decisions must also be published. CAs must run appropriate competitive processes, specifying the criteria on which contract awards will be decided (albeit that they will retain significant flexibility to design and manage their processes), ensuring that the principles of transparency and equal treatment of respondents are observed and that any specified time limits are reasonable and proportionate. They may choose to follow one of the formal procedures set out in the 2015 Regulations, but are not obliged to do so.
The PPCCRs
The application of this new LTR is, however, being delayed in relation to a particular sub-class of services, namely those falling within the scope of the PPCCRs. The PPCCRs did not have the most auspicious beginning, with their first iteration being effectively withdrawn amid political opposition and objections from healthcare professionals that they would, effectively, mandate competitive tendering for all healthcare services. The PPCCRs were reissued in an attempt to address some of these concerns, with Regulation 5(1) stating:
"A relevant body may award a new contract for the provision of health care services for the purpose of the NHS to a single provider without advertising an intention to seek offers from providers in relation to that contract where the relevant body is satisfied that the services to which the contract relates are capable of being provided only by that provider".
The emphasis under the PPCCRs is on choosing the provider that is most capable of delivering the CA's objectives and providing best value for money; competitive tendering is simply one option available to commissioners to achieve this. This is supported by guidance from Monitor, which emphasises that:
"There is no requirement in the Procurement, Patient Choice and Competition Regulations for Commissioners to publish a notice inviting offers from prospective providers to supply NHS healthcare services (a contract notice) before awarding a contract to provide those services. The decision whether or not to publish a contract notice is a matter for the commissioners."
However, concerns about mandatory competitive tendering have arisen again in light of the 2015 Regulations. Although the LTR does allow CAs considerable flexibility as to how to go out to tender, some form of competitive tender process, with appropriate advertising, now appears mandatory. As a result, the position under the PPCCRs is clearly in conflict with the 2015 Regulations in relation to above-threshold procurements. Any such conflict must, of course, be resolved in favour of the 2015 Regulations, since they are derived from an EU Directive.
Further guidance
The Cabinet Office stated in its consultation document on the 2015 Regulations that the delayed implementation was designed to give commissioners time to adapt to the new rules. This is an interesting explanation since, of course, commissioners should have been made aware when the PPCCRs were introduced that the TFEU principles could trump the PPCCRs and require a tender, if the procurement stood to attract cross-border interest. However, it is true to say that the increased obligations under the LTR will bring this issue into much sharper focus.
Commissioners, however, will need more than just time in order to address the changes. The clear clash of rules will need to be addressed by more detailed guidance on the circumstances in which they will be required to run competitive tenders. There may, for example, be some limited exceptions to rely on in certain cases, such as those relating to the negotiated procedure without notice, but these are very narrowly drawn and would seem unlikely to be available to many procurement exercises carried out by NHS commissioners. CAs may also consider the possibility of seeking to structure their procurements to remain below the financial thresholds, but the Regulations include aggregation provisions targeted at such tactics and the approach therefore carries considerable risk.
Given the inherent inconsistency between the regimes and the controversy that already surrounds the PPCCRs and competitive tendering obligations for healthcare services, the extended transitional period may certainly be necessary. If nothing else it will give the Cabinet Office and Crown Commercial Service some breathing space to come up with the detailed guidelines which are clearly required, in what is already a testing implementation timetable.
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Richard Craig
Richard is a senior associate in the IT, Telecoms & Competition group based in our London office.
"The light touch regime introduces several new obligations on CAs which apply even when procuring services of a "local" nature, where those procurements exceed a new value threshold."