Europe: The Final Countdown as new procurement Directives become law
The European Parliament has finally adopted three new procurement Directives to reform the public procurement regime.
The Directives, which deal with public contracts, utilities contracts and concessions, will bring in some significant changes, particularly to the range of contracts subject to the public procurement regime. On one hand contracting authorities may recoil at the thought of running more procurement exercises, however, suppliers will no doubt take a more positive view of an increase in the number of contract opportunities available.
The Directives will come into effect imminently (they still require to be adopted by the Council and will then come into effect 20 days after publication in the Official Journal of the European Union (OJEU)) although member states have 24 months to transpose the directives into national law.
Some of the key reforms
Part A and Part B Services
Arguably one of the most notable reforms is the removal of the distinction between part A ("priority") and part B ("non-priority") services. This means that the services currently listed in the part B services category, such as legal services, will be subject to the full procurement regime under the new Directives. There will, however, remain a list of social, health, cultural and assimilated services which will be subject to a lighter touch regime under a new simplified procedure. This new simplified regime will have a higher threshold of €750,000 and the only obligations, apart from general EU principles, which apply are the rules in relation to transparency and publicity.
Many contracting authorities may not welcome this change due to the extension of their obligations as the new provisions mean that generally all contracts for services, apart from the specified exceptions, will require to be formally procured through an OJEU notice. However, the new rules do seek to provide clarity as only the listed exceptions will not be subject to the full procurement regime and this will hopefully avoid further arguments on whether a particular contract comes under part A or part B services. For the avoidance of doubt, the relevant thresholds which came into force on 1 January 2014 will still apply.
Group Structures and Shared Services
The Directives also aim to codify the test set down by the European Court of Justice (ECJ) in Teckal SvL v Commune di Viano & Azienda Gas (1999) ECR-I-8121 which established that the relationship between contracting authorities awarding contracts for providing services or works to an "in-house" provider falls outside the scope of EU public procurement law. This exemption applies where: (i) there is no private ownership; (ii) the subsidiary company carries out 90% or more of activities for the contracting authority, which is slightly different to the "essential activity" test from Teckal; and (iii) the parent company exercises control over the subsidiary company in a similar vein to its own departments. This test can also be used in relation to direct contracts from the subsidiary company to the parent company.
The Directives are drafted to provide clarity in relation to co-operation between contracting authorities and the circumstances of when this is exempt from the application of the rules. The Directives are also aimed at striking a balance between the freedom of public bodies to organise public services and fair market access for suppliers. These provisions stem from the "Hamburg" exemption which was established by the ECJ in Commission v Germany (Case C-480/06), which is known as "Hamburg Waste", on 9 June 2009.
The codification of these tests into the new Directives provides greater flexibility for both contracting authorities and suppliers in terms of the application of the new rules under the procurement regime.
Amendments to Contracts and Supplier Insolvency
Provisions governing variations to contracts have been codified to provide clarity on the circumstances where a contract can be amended after it has been procured. Amendments such as a change to the economic balance in favour of the supplier or any change which, had it been part of the initial tender process, would have allowed for different suppliers to have been selected or accepted are considered to be "substantial changes" which will require a new tender exercise to be run. These new rules follow the Pressetext judgment (Case C-454/06 Pressetext v Austria) of 19 June 2008 and subsequent case-law.
The listing of substantial changes will hopefully remove some of the uncertainty around the type of amendments which will require the contracting authority to run a new procurement exercise. In turn, one would hope that this may also have the effect of reducing the risk of a challenge being raised by a supplier who was unsuccessful in a tender where there were amendments made to the contract after it had been procured.
Another change which is welcome is the clarification on amendments which will not be considered to be material, particularly in respect of the solvency of a supplier. The aim of these new rules is to address potential issues around new suppliers taking on a contract due to a restructuring or insolvency. Changes in supplier will be permitted in relation to an internal restructure or merger of the supplier or the transfer to another supplier following insolvency or corporate restructure provided that the new supplier would have passed the PQQ stage and there is no intention to avoid the application of the procurement rules.
The change which is likely to affect contracting authorities the most is likely to be the changes to the categories of services introduced by the new Directives, as the public procurement regime will apply to more contracts. While contracting authorities may wince at the thought of a regime with a wider application due to the practical implications of running more procurement exercises, suppliers may relish the thought of more contract opportunities being widely advertised through OJEU notices.
The codification of a number of tests laid down by the ECJ is welcome, however the impact of these new rules may not be as heavily felt due to the fact that contracting authorities and suppliers alike will have already been applying these tests.
It will be interesting to see how these new provisions are adopted by the UK and Scottish Governments into national legislation.