15 September 2006
Certain services and lower-value contracts have always been exempt from the European Union's procurement directive. But fresh guidance now requires even these to be publicly advertised
An 'interpretive communication' issued by the European Commission at the end of July is likely to change the way the public sector awards lower-value contracts.
Those familiar with the European Union's procurement regime will be aware that the Public Contracts Regulations 2006 lay down detailed rules for higher value contracts, including advertising it in the Official Journal of the European Union.
Higher value contracts are defined as those worth more than £93,738 at central government level and more than £144,371 for local authorities and other public sector bodies. Lower value contracts are excluded as are certain service contracts listed in Schedule 3B, such as social, education and legal services where there is generally a lack of cross-border trade but significant activity across the public sector.
These exclusions have traditionally allowed many authorities to procure services without any form of prior advertising, provided internal rules have been met and value for money is obtained. If, for example, a local authority wished to let a management consultancy contract for £40,000, it could, subject to those constraints, contact four known providers and ask them to tender for it directly. If the contract was for legal services or social services, the value could exceed the thresholds set out above. This type of more flexible procurement activity will now have to change, according to the commission.
The communication ('on the community law applicable to contract awards not, or not fully, subject to the provisions of the public procurement directives') has now advised that many lower value and Part B contracts should be publicly advertised to help develop the internal market (http://ec.europa.eu/ internal_market/publicprocurement/key-docs_en.htm). Perhaps more worrying is the express reference to the fact that the commission is going to assess the internal market relevance of these contracts and might begin infringement proceedings for more grave offences.
It has already taken action against several member states where authorities have awarded lower value or Part B contracts without any form of public advertising. The commission must feel confident about the outcome of those cases, begun last year, as it has now produced the guidance without waiting for a ruling from the European Court of Justice.
The guidance reminds public authorities that all procurement activity (even that excluded from the 2006 regulations) is regulated by the EC treaty. It points out that in Case C-324/98, Telaustria, the ECJ said that the treaty itself imposed a positive obligation of transparency which required 'a degree of advertising sufficient to enable the services market to be opened up to competition and the impartiality of the [tendering] procedures to be reviewed'.
The commission therefore believes that the widespread practice of contacting a number of favoured contractors directly and inviting them to tender is unlawful unless preceded by some form of public advertising.
The only circumstances where the current practice can continue is where the value is 'very modest' or where the contract is not potentially of interest to providers across the EU. This decision will have to be taken on a 'case by case' basis, taking into account 'the subject matter of the contract, its estimated value, the specifics of the sector concerned and the geographic location of the place of performance'.
No further guidance is given on those matters and therefore it would be prudent to consider that most contracts of any reasonable value should be advertised. This means that the current practice of awarding contracts up to £50,000 by direct contact with potential suppliers is vulnerable to challenge.
One area where this could have a major impact is shared services. The Gershon efficiency drive has led many in the public sector to explore shared working initiatives. This might be between central government and local government or within the local government sector. Typical examples might be one local authority supplying internal audit services to its neighbours or arrangements between social services and an NHS trust. If those arrangements are contractual in nature, they will potentially trigger the EU procurement regime.
While there are many ways of structuring shared service or collaboration arrangements without triggering EU rules, merely arguing that the value is below threshold is unlikely to work in future.
While the new communication will not prevent the shared services agenda, it does mean that those actively pursuing it will need to thumb through the rules and look for other exemptions.
Stephen Cirell and Professor John Bennett are respectively head of local government and consultant solicitor with Eversheds. They are authors of Best Value Law and Practice and John Bennett is also co-author of EC Public Procurement Law and Practice, both published by Sweet & Maxwell
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