Getting to grips with the new public procurement rules - Issue four

11 minute read
19 March 2015

In this final alert in our four-part series, "Getting to Grips" (with the public procurement rules), we examine the two "new" procedures introduced into procurement law by the Public Contracts Regulations 2015 (PCR 2015). Under the new rules, contracting authorities may now be able to call upon the 'Competitive Procedure with Negotiation' and the 'Innovation Partnership' Procedure, in addition to the existing open, restricted and competitive dialogue procedures.

1) Competitive procedure with negotiation

The competitive procedure with negotiation (or CPN), arguably signals something of a volte-face by the European policymakers. Previously, use of the competitive negotiated procedure was restricted on the grounds that it permitted potentially distortive behaviour (primarily in the form of excessive post-award negotiation). However, there has been a growing realisation that authorities require greater access to procurement procedures which countenance elements of negotiation. Accordingly, the CPN has been introduced to replace the now defunct competitive negotiated procedure (though the negotiated procedure without notice can still be used in very limited circumstances).

When can the CPN be used?

The grounds for use of the CPN are set out in Regulation 26 of the PCR 2015. These are harmonised with the grounds permitting use of the competitive dialogue procedure. Authorities procuring complex subject matter therefore now have a choice of either CPN or competitive dialogue, providing they can justify its use on one of the following grounds:

  • where the needs of the authority cannot be met without adaptation of readily available solutions;
  • where the requirements include design or innovative solutions;
  • where the contract cannot be awarded without prior negotiation, because of specific circumstances relating to the nature, the complexity or the legal and financial make-up, or because of the risks attaching to them;
  • where the technical specifications cannot be established with sufficient precision by the authority with reference to specified European technical standards; or
  • where only irregular or unacceptable tenders have been received in response to an open or restricted procedure.

What flexibility does an authority have in running a CPN?

The PCR 2015 seek to allow authorities a certain amount of flexibility within the CPN. Regulation 29 gives them a range of options which allow a tailoring of the process according to the authority's needs. However, for an authority to take advantage of the discretionary elements outlined in Regulation 29, the contract notice must be sufficiently well drafted to allow for such eventualities. As such:

  • Acceptance of initial tenders: authorities have the option of reserving the right to accept initial tenders without any further negotiation. However, if this right is not reserved in the contract notice (or invitation to confirm interest), then negotiation is mandatory. Authorities will then be required to negotiate with tenderers throughout the procedure. Authorities are therefore most likely to reserve the right to accept the initial tender as a matter of course, given that it provides an element of additional flexibility.
  • Successive stages: authorities can elect to run negotiations in successive stages. In doing so, the award criteria can be applied to submitted tenders, and tenderers with poorly scoring tenders can be eliminated. It is important to make this clear at the outset by stating, in the procurement documents, that this option will be taken up.
  • Negotiation and changes: the competitive procedure with negotiation enables negotiation of all characteristics of the purchase, except award criteria and minimum requirements. These restrictions are aimed at safeguarding the principles of transparency and equal treatment. Changes can be made to other aspects of the procurement (subject to compliance with the general Treaty principles). However, changes must be communicated to all participants.

Can the negotiations continue after submission of the final tenders?

No, final tenders are not permitted to be the subject of negotiation. This effectively means that the final tender must constitute a best and final offer. As such, authorities are unable to adjust the terms of a final bid, or, it would appear, even to "clarify" elements of a final tender.

This is in contrast to the flexibilities granted to authorities undertaking procurements under the competitive dialogue procedure which permits the clarification, specification and optimisation (within parameters) of final tenders at the request of the authority. We may find that authorities faced with a choice of procedure for a complex procurement opt for competitive dialogue. This could be as a result of the greater degree of flexibility afforded to them at final tender stage, or because that procedure is now part of the procurement vernacular - better the devil you know?

2) Innovative partnership procedure

The second new procedure introduced by the PCR 2015 is the innovation partnership procedure. As research and innovation sit at the centre of the Europe 2020 strategy for growth, there has been a move towards encouraging authorities to harness private sector expertise to deliver innovation - and, in no small part, through innovative public procurement. The theory goes that innovation will spur contracting authorities to achieve value for money and deliver environmental and societal benefits through procurements.

What is the innovation partnership procedure?

The innovation partnership procedure is designed to allow authorities to run a single packaged procurement for the research/development and subsequent purchase of innovative goods, services or works. Research and development contracts have, historically, fallen outside the procurement rules; however, this exemption did not extend to the subsequent purchase of the "fruits" of the R&D, to which the rules would apply.

Through the innovation partnership procedure, which combines these processes into one single award process, authorities now have the option of introducing "market pull" into the R&D phase, and then purchasing the fruits of the R&D in a single, phased process.

When can the innovation partnership procedure be used?

There are two essential components required for the use of the innovation partnership procedure:

  1. Authorities must be seeking innovative ideas where solutions are not already available on the market (this "need" must be expressly stated in the contract notice alongside the minimum requirements, performance levels and maximum costs).
  2. There must also be an intention to include both the development of the outcome and its subsequent purchase (subject to meeting agreed performance levels and maximum costs) in the procurement

How will innovation partnership procedures work?

The innovation partnership procedure is intended to operate in a manner unlike that of any of the other procurement procedures. In general terms, the "life-cycle" of an innovation partnership procedure will operate as follows:

  1. Identifying the need (advertisement)

    The "need" must be expressly stated in the contract notice alongside the minimum requirements to be met by all tenderers, including performance levels and maximum costs.
  2. Procure the partnership (selection)

    The selection criteria used for innovation partnerships must focus on a tenderer's 'capacity' in the field of R&D, rather than 'experience'. This represents a shift in emphasis which should provide greater scope for small and medium-sized enterprises (SMEs) to be admitted into the process.
  3. Negotiation

    Once initial tenders are submitted, it is up to the authority to negotiate with tenderers to improve the content of their tender documents. This negotiation may adopt a staged approach, to reduce tenderer numbers through assessment against the award criteria. As with the CPN, this negotiation does not extend to the final tender.
  4. Award

    Authorities are free to decide whether they wish to set up the partnership with one partner, or several. The award criteria must always be the most economically advantageous tender, comprising the best price-quality ratio.
  5. Partnership - R&D and staged elimination

    Once the partner(s) have been selected, R&D can be structured into a series of successive development phases which follow the sequence of steps in the R&D process. Partners work independently to meet a series of milestone targets which must be achieved in order to remain within the partnership. At each stage, the authority will determine whether to terminate the innovation partnership (if one partner is involved) or reduce the number of partners by terminating individual contracts (if multiple partners are involved). The rules ensure that payments for work undertaken are made to the partners in appropriate instalments.
  6. Purchase

    The end-goal of the partnership is to secure the development, and purchase, of the right solution for the authority. However, the authority will only be bound to purchase the "end result" if it corresponds with the agreed parameters around maximum cost and performance levels.

Will innovation partnerships catch on?

It is questionable whether the innovation partnership will be widely used. From the perspective of authorities, some will feel that there is a real benefit to the prospect of procuring R&D together with the resulting subject matter - especially in sectors where markets are rapidly evolving. Ultimately, however, the overheads associated with managing such partnerships could be significant; not just on a monetary level but also in terms of the resourcing required.

For a supplier, innovation partnerships could present a significant level of risk. There is an ever-present possibility of termination of its involvement pre-award and also post-award (and before it has secured a contract to supply the subject matter resulting from successful R&D). R&D relies on significant front-end capital expenditure, and many firms may depend on the possibility of an eventual supply contract in order to justify initial investment. Without any guarantee of securing the supply contract, some potential suppliers may be deterred from bidding.

In addition, the (significant) question of intellectual property rights may render suppliers wary of any possibility that they could be eliminated from the process and (a) lose the value of their intellectual property rights, and (b) have their ideas fall into the hands of a competitor. Careful management of the procedure on the part of authorities would be required from the outset.

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