Would you like to see a much simpler and more business friendly approach taken by the European procurement legislation?

EU Procurement LegislationThe publication of the European Commission’s Green Paper  on the modernisation of EU public procurement policy gives a once in a decade opportunity to influence the way in which your procurement is controlled. I would like to urge you to make your voice heard.

The Commission is seeking to streamline procurement legislation and bring it up-to-date as part of a general programme to look at all single market issues which affect trade between member states in the run up to 2020 (as part of the Europe 2020 strategy).

The Commission thinks the rules need to be simplified and updated to improve the climate for business innovation and provide support for small firms and for the European Union’s requirement to improve carbon efficiencies, whilst ensuring the best use of public funds and that European markets are kept open.

The Green Paper is one of a number of elements of the review process which also includes extensive consultancy reports to inform Commission policy leading to a formal proposal in 2012 to amend the public and utility sector procurement directives. The process of producing the new directives is likely to take at least five years. With further time for member states to make that directive into their own national law, it’s unlikely we’ll see formal changes in the UK law arising from this review until at least 2018, assuming that the legislative process moves fairly quickly.  However stakeholder comment at this early stage is likely to have much more impact than when the legislative process formally starts.

The Green Paper seeks comments on a large number of suggestions for improvements to the legislation, many of which have come from the supplier community, and the range of issues it covers can be measured by the fact that it covers 55 pages and seeks answers to 114 separate questions arising from the paper.  The Commission also makes it clear that it is seeking new ideas not mentioned in the paper, in particular from those in the procurement community.

The Green Paper includes a large of suggestions aimed at improving flexibility for the purchaser. These include simpler rules for simple, commercially available items and much greater access to negotiated procedures (which most purchasers consider essential to improve value for money). The paper also suggests the use in the public sector of qualified lists of suppliers, eliminating the need to apply to individual notices for each contract (currently this ‘qualification system ‘ approach is only available to energy, water transport and postal services “utilities entities”).

The paper also echoes something of the modernisation and transparency agenda of the UK Cabinet Office efficiency programme, including the reduction of the detail of pre-qualification processes to allow small firms greater access to the contract opportunities. 

The Commission thinks there could be greater discretion given to purchasers to build social and environmental policies (sustainability) into procurement.  This is considered particularly important for measures to help reduce carbon intensity.  The tone of the paper however suggests the Commission has doubts as to how this can be achieved without risk to the openness of European markets.

An interesting suggestion which fits in well with the concept of deregulating procurement is that the rules should no-longer apply to entities in the utilities sector. These are bodies such as electricity, water and transports companies that have been regulated by the European procurement legislation since 1990. At that point it was argued that the procurement of these utilities was strongly influenced by national governments and that regulation was necessary to ensure the opening up of trade between member states. The liberalisation of those markets since 1990 suggests to the commission that there is no need to regulate through directives, when the commercial behaviour of utility companies in procurement is more likely to be influenced by commercial factors, rather than government diktat. This approach is probably one of the most radical suggestions in the Green Paper and is likely to attract support from many in the UK utility community.

A large part of the paper is clearly aimed at reducing regulation and to simplify the process for purchaser and supplier communities. However there are a number of areas in which the Commission suggests an increase in the degree of regulation.

For example, it suggests that the legislation should limit the changes that could be made to a contract once it has been awarded – this is currently not covered by the legislation. It also suggests that certain standards, (e.g. environmental standards) should be made mandatory within the legislation and they suggests providing obligations to protect whistle blowers who expose corruption in procurement.

Many of these areas are traditionally considered to be matters for the discretion of the member states or of the purchasing entities themselves. The commission’s suggestion of EU regulation of these areas should be increased is therefore likely to prove controversial with purchasers and suppliers and with the member states.

The European Commission seeks comments on its Green Paper by 18th April 2011.   Comments should be made to MARKT-CONSULT-PP-REFORM@ec.europa.eu.

I have aimed to set out some of the key points that I believe are important in the Green Paper. This is a rare opportunity to shape the approach taken by European procurement legislation at this very early stage of policy development.   I urge you to make the most of this opportunity.

Will the increased risk of challenge under EU legislation inhibit the improved commercial action needed to deliver real savings?

Much attention has been focussed on improving the efficiency of public spending. The new government has stressed its intention to target spending rather than taxation and to avoid cutting spending on front line services.

Getting better public procurement deals should be a fairly painless way of improving efficiency and there is anecdotal evidence that public sector buyers would like the opportunity to lead in this field. And yet… how much freedom do they have to deliver these savings?

All public sector buyers are required to award large contracts under detailed requirements of the EU procurement legislation, which is designed to ensure equal opportunity for all suppliers by maximising competition.

A key part of the legislation is the right for suppliers to take civil action in the UK courts for breaches of these (complex) rules.

There is anecdotal evidence that more suppliers are starting court proceedings against public sector buyers, although most of those proceedings are settled out of court. Even so, the number of ‘decided’ cases in the UK courts under the legislation increased sharply between 2008 and 2009.

The increase in legal challenges is probably, in part, a result of greater supplier awareness of their rights. Since 2006 each supplier that fails in a procurement competition has had the right to be told in some detail why they failed. The increase probably also reflects a greater appetite for legal action by suppliers who have been losing business in the recession.

One often quoted strategy to reduce future public expenditure is to increase collaborative procurement, allowing much larger contracts, or frameworks, for use by a large number of public authorities who would normally have carried out their own procurement competitions.  Losing one of these much larger contracts will thus result in a much larger impact on a supplier’s business, increasing the incentive for a supplier to start or even threaten legal action.

The law was tightened up at the end of 2009 to increase the effectiveness of legal challenges by suppliers. One result of this is that, in some circumstances, the court can issue an order cancelling an authority’s contract, accompanied with a fine at a level determined by the court.

The increased risk of legal challenge and consequences of successful action is already making authorities more cautious in their procurement. A number of procurements have been reported to have been withdrawn by authorities as a direct result of supplier challenges.

This caution could well have the unintended effect of making public procurement more of an administrative procedure, rather than one driven essentially by seeking better value.

Like some World Cup soccer teams, the emphasis may be on ‘not conceding’ goals, rather than scoring them.

Glenn Fletcher is a specialist consultant on the application of EU procurement policy.

He has worked for over 20 years for energy businesses and for the UK Treasury and now directs EU procurement business for Achilles, where he advises over 500 public and private sector businesses. With pressure on costs and increased risk of legal challenge under more complex EU legislation he believes that it is time for professional purchasers to use their practical knowledge of ‘EU risk’ to ensure best commercial outcomes.