Procurement rules are changing and this is why utilities should take note

“For too long, modern and innovative approaches to public procurement have been bogged down in bureaucratic, process-driven procedures. We need to abandon these complicated and stifling rules and unleash the potential of public procurement so that commercial teams can tailor their procedure to meet the needs of the market. The UK is ready.”

 

The government’s Green Paper on transforming public procurement frames its search for the Holy Grail of fast, fair and effective procurement rules that also deliver value for money. The current UK rules implement EU Directives and are guided by EU case-law. Now that the UK has left the EU and is out of the Brexit transition period, the government is eager to flex its newfound independence.

The Green Paper is consulting on changes to the procurement rules to make them less burdensome.

By way of a recap, the UK’s procurement rules regulate contracts awarded by public sector bodies, quasi-public sector bodies and utilities so as to ensure fair competition; are set out in secondary legislation, specifically the Utilities Contracts Regulations 2016 (“UCR”). These Regulations which affect a large number of private companies, from network operators and water and sewerage companies through to ports and postal services, are in some respects, less onerous than their equivalents for public bodies.

How will procurement rules affect utilities?

The Green Paper proposes four big changes, which could have huge implications for utilities:

Simplifying and modernising the multiple procurement regulations into a single set of rules
The public sector procurement rules set out in the Public Contracts Regulations 2015 (“PCR”) regulate almost £300bn per year of public spending and are extremely detailed and prescriptive – whereas the UCR is less prescriptive, thus providing utilities with a greater amount of flexibility.

The Green Paper acknowledges that consolidating both sets of rules will be a major and complex legislative exercise. The key concern here is that the consolidated code (which must substantively cover the same things in the PCR) will overlook and do away with distinct characteristics of the utilities procurement regime – e.g. its greater flexibility.

So, should utilities contracts be regulated by detailed and onerous procurement rules? One argument is that current regulatory regime for utilities (i.e. the existing licences and codes etc. policed by independent regulators) ensures utilities deliver value for money by employing good procurement practices.

It is also worth noting that whilst the international Government Procurement Agreement (“GPA”) (within the framework of the World Trade Organisation), establishes rules requiring, open, fair, and transparent conditions of competition be ensured in government procurement, it does not require WTO members to implement procurement rules for the utilities sector. Furthermore, the UK is no longer obliged under EU law to implement procurement rules for the utilities sector. Indeed, the UK utilities sector is very different to those of its European counterparts, and therefore using solutions originally designed for European markets may not be appropriate for the UK.

A consolidated code for public sector procurement and the utilities sector may do away with niche procurement rule exceptions (e.g. some contracts for the purchase of energy by some utilities are exempt from the UCR) ) which could mean that procurement rules will apply where they currently do not – thus increasing bureaucracy instead of speeding up procurement processes.

Three simpler award procedures
The procurement rules currently provide for seven different procedures:

• Open procedure;
• Restricted procedure;
• Competitive dialogue procedure;
• Competitive procedure with negotiation;
• Negotiated procedure without prior publication;
• Innovation partnerships procedure, and
• Design contests.

The proposals are for:

Retaining the open procedure – which buyers can use for simpler, ‘off the shelf’ competitions;

A new competitive, flexible procedure – This new procedure replaces the current restricted, competitive dialogue, competitive procedure with negotiation, innovation partnerships and design contests procedures. This is similar to the existing “Light Touch Regime” (for social and other services under the PCR; and the negotiated procedure with advertisement under the UCR) and is designed to give “maximum flexibility to design a procurement process that meets their needs and the needs of the market”. This will mean that the detailed and prescriptive rules which apply would be reduced in order to give more flexibility to procurement teams; and

Retaining the negotiated procedure without prior publication – but renaming it as the “limited tendering” procedure, and modifying it to include a ground for procuring in a “crisis” and including option to publish a voluntary transparency notice and apply a ten day standstill period before entering into the contract (except in cases of extreme urgency / crisis).

New award criteria

There is a suggestion that the assessment of tenders should be based on which are the most advantageous overall, as opposed to which will deliver the cheapest price or costs. This is not a change, so much as a shift in emphasis as these social concerns could already be taken into account.

The procurement regulator

The most eye-catching structural change, set out in the Green Paper is the establishment of a new unit to oversee public procurement with new powers to review and, if necessary, intervene to improve the commercial capability of contracting authorities.

However, this new regulatory unit is not designed to assist commercial parties in seeking redress for unfair procurement competitions – but will have two functions: monitoring and intervention. The powers of intervention include what local authority lawyers would recognise as improvement notices. This raises a number of issues, not least whether the proposed powers of intervention are appropriate for any sectors outside of central government.

There does not appear to be any substantive change to the current system of the procurement review: many procurement specialists have argued for a cheaper, specialist review tribunal, as exists in many EU jurisdictions; and there is no similar (non-legal) investigatory role, similar to the EU Commission, within an independent body, such as the Competition & Markets Authority.

Have your say by 10 March 2021

The Green Paper is intended to spark discussion, and there is certainly plenty to consider! The value of modernising and simplifying procurement processes is clear, but procurement law is complicated because it regulates a range of complicated markets.

The consultation on the Green Paper: Transforming public procurement closes on 10 March 2021.

We are working with market participants and utilities companies who would like to give their input into this discussion before the consultation deadline. If you would like to take part in this once in a generation opportunity to influence utility procurement, please get in touch with Uddalak Datta or Sushma Maharaj in our energy team.

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