Public procurement as a driver for stimulus

Legal aspects of using public procurement to deliver on economic goals.

There has never been greater focus on the area of public procurement in Ireland than there is today.

Ireland is making structural changes to the ways in which the public sector is purchasing what it needs. There are also key policy initiatives aimed at using public procurement to deliver better value for money and to generate domestic economic stimulus. These, set against a background of bidders chasing fewer contracts, where price often determines tender outcomes, are just some of the issues facing contracting authorities and bidders alike. This article considers some of the legal issues critical to the implementation of the broader economic policy initiatives proposed.

Generating economies of scale

Leveraging greater purchasing power to drive better value for money makes economic sense. This has given rise to a significant increase in the use of frameworks by contracting authorities. Indeed, Circular 06/12 issued by the Department of Public Expenditure and Reform in July 2012 introduced new mandatory arrangements for centralised procurement of certain supplies and services using frameworks.

Appointment to a framework therefore becomes critical when your big clients are in the public sector. Failure to be appointed can result in a provider being shut out of a market for up to four years, with potentially dire economic consequences. Frameworks are not to be used to distort competition so careful thought needs to be given to the appropriateness of using a framework at all. One of the side-effects of the establishment of significant frameworks is that they can restrict access by SMEs unless the framework is structured in a way to facilitate SME participation.

We are increasingly seeing concerns expressed about the process for the award of call off contracts under frameworks either because no details are provided to bidders when bidding for appointment to the framework or because the rules being applied to framework members appear arbitrary. When establishing a framework, both its scope and the mechanics for awarding contracts under it must be clearly set out in a way which is understood by bidders at the outset. There must always be an overarching framework agreement to which all framework members are bound.

Croke Park II

One of the interesting features of the discussions on Croke Park II is the focus on ensuring that the public sector is structured to facilitate procurement mechanisms such as shared services, collaborative procurement (between public bodies) and outsourcing. Some of these mechanisms will be novel and will require detailed analysis to deliver value while being robust from legal challenge.

SME participation

Some initiatives, such as reducing the amount of paperwork required at pre-qualification stages through self-declaration advocated by Circular 10/10, were welcomed by the bidding community. However, we continue to see tender processes which are very elaborate at pre-qualification stage and place a significant commitment on the resources of bidders.

Self-declaration relies, by its nature, on the veracity of the declarations made. There have been instances where declarations have turned out to be incorrect, leading to the collapse or delay in tender processes. Providing the information in support of declarations at tender submission stage rather than just prior to contract award is one way of mitigating the effect this can have on a tender process.

Social inclusion

There is a renewed commitment to social inclusion clauses in public tender processes. It will be interesting to see how those clauses are used in practice. One of the key aims of an EU-wide public procurement regime is to ensure and promote cross-border trade and to allow bidders from different countries to compete in different markets for goods, services and works. Social inclusion clauses need to be drafted very carefully to ensure that they do not cut across these fundamental aims.

Economic environment

Marks awarded for price in tenders now regularly exceed 50 per cent of the total marks available meaning that tenders are increasingly decided by the lowest cost. The combination of the contraction in the purchasing power of the public sector and this increased focus on cost has given rise to a considerable issue around abnormally low tendering.

Identifying whether or not a tender is abnormally low, presents the first difficulty. Bidders are ordinarily entitled for commercial or economic reasons to tender, for example, at below cost and contracting authorities can decide to accept such tenders. The obligation to investigate abnormally low tenders only arises in the Procurement Directive where the contracting authority is considering rejecting it. However there is an increasing line of authority which suggests that investigations of such tenders should be made where it is proposed to allow them to proceed. Checking whether a tender is deliverable for the price proposed obviously makes common sense.

The elimination of a tender is a significant step to take and all the more so when it generally means eliminating the cheapest priced bid. Lowest cost does not necessarily mean best value, however. The decision to eliminate a tender should be an informed one based on relevant information and fair procedures.

Material changes to awarded contracts

One of the knock-on effects of abnormally low tendering has been an increased prevalence of requests for variations once contracts have been awarded. It is important to remember that even after contracts are awarded, they exist in a ‘regulated’ arena. In other words, it is not simply a case of commercially agreeing whatever changes may be appropriate once a contract is up and running. Material changes to publicly procured contracts are generally not permissible. Both contracting authorities and bidders should be aware of the restrictions which remain on publicly procured contracts even after they are awarded.

Rise in litigation

Much greater attention is being paid by bidders both to how tender processes are run as a whole and particularly to the information that is provided to them when they are unsuccessful. Failure to provide sufficient reasons can invalidate the standstill process and prejudice the award of the contract.

We have seen an increase in both threatened and actual litigation on procurement matters. Public procurement law is evolving almost on a daily basis. Being an educated buyer or seller in this sector is critically important so that you understand both your rights and obligations.

The public procurement sector in Ireland is undergoing dynamic change. Being seen as a key driver in the economic recovery of Ireland is likely to keep it at the forefront of policy developments for the rest of 2013 and beyond.

Arthur Cox has the largest procurement law practice on the island of Ireland comprising four partners with dedicated procurement expertise. Arthur Cox is also the only law firm on the island to provide a specific procurement portal service, providing case law and updates on procurement matters. Please visit www.arthurcox.com/procurementlawupdate

For further details on Arthur Cox please visit www.arthurcox.com