Public Procurement After Brexit – Improvements & Ideas

(We're delighted to welcome a guest article from Dan Warnock, Procurement Manager at Home Group, one of the UK's largest housing associations, based in the North-East).

Following the Brexit referendum one of the big questions being asked by, well, almost nobody was: what is the future of the procurement regulations?  These are based on EU Directives, and involve advertising on an EU website and following the decisions of the EU Court of Justice, and are fundamentally concerned with upholding the Single Market. Once the UK leaves the EU, will they still apply?

Unfortunately, no-one knows the answer just yet. For some reason things like immigration, human rights, trade and security seem to be higher up the agenda. So, in the absence of any clear direction from the powers that be, I’ve put together a wish-list of changes that I’d like to see in the future.

Broadly speaking I’m in favour of the regulations as they are – they put a floor on how bad a procurement process can be, and uphold the concept of value for money for taxpayers’ money, while making sure suppliers are treated reasonably fairly. However, I think they could be improved with changes to the following:

Remedies

These are currently far too strict – the risk/reward balance is skewed too far to the risk side of the equation. I think the most severe remedies should only be reserved for where the buyer has distorted the process deliberately, rather than mistakes or where there are uncertainties around the interpretation of the law. The US Federal Acquisition Regulations only mandate that the buyer cover the bid costs of disgruntled tenderers, not their lost potential profits, which I think is fairer for most cases. Most contracts will exclude ‘loss of profits’ in their liability clauses as it’s seen as onerous, so why should the procurement regulations be any different? This is even before you take into account those increasing number of firms who use the current system to extort more money out of contracting authorities with baseless claims, who would rather settle than risk court.

Past performance

On one level, I understand the need for controls around this - a lot of poor supplier performance is at least partly because of poor contract management by the buyer, so it’s not fair on the supplier if the buyer holds them wholly responsible. However, the current provisions reward those companies that are good at bidding rather than performing – all they need to do is perform just well enough to avoid contract termination and/or damages and they’ll be fine, no matter how much managing them feels like pulling teeth. And on the flip-side, it doesn’t allow you to reward those suppliers who perform beyond your expectations – the contract will still expire and they’ll have to retender, alongside those companies mentioned above who seem to specialise in tendering.

Innovation

How innovation works in the private sector: the supplier approaches the buyer, having worked with them for a while and seen how the buyer operates. They have a great new idea which will save the buyer money or increase profit. The buyer then gives the supplier more business. In the public sector, this cannot happen. Rules around contract variation prevent contracts from changing too much or being extended too far. So the supplier goes to the buyer with a great idea. The buyer then has to give that idea to the supplier’s competition so they can all tender, and the supplier that came up with the idea in the first place gets nothing. All innovation has to happen at the early market engagement phase before tendering, which limits the amount of true innovation that can be accessed, given the market isn’t really that familiar with the contracting authority.

Selection & award criteria

Currently the Regulations distinguish between selection and award criteria. Asking the wrong type of question at the incorrect stage of the process can lead to a legal challenge, and frankly, I still can’t work out why. I’m not sure that the order you ask the questions in can really cause the procurement to be unfair to such an extent.

Subject matter of the contract

This is particularly problematic for contracting authorities – one of the reasons why they have difficulty in using procurement to advance their policies is because the policy in question has to be related to the subject matter of the contract. Personally I would like to see an exemption to this, so a contracting authority's strategic objectives can be, by implication, part of the subject matter of their tenders. Obviously there would need to be controls around this, in order to stop them making up new objectives every time they wanted to avoid a challenge, but it help procurement better deliver benefits for our citizens.

Regulation 84 report

This is a relatively small matter, but I think it’s symptomatic of the overly-prescriptive approach taken in regards to the procurement regulations. Contracting authorities have to complete a report on each OJEU tender, containing information about the process. What do they do with it once it’s complete? Nothing. They just have to retain it in case the Commission or the Cabinet Office want to see it. Feel free to take a guess on how often that happens. For me, it’s just a colossal waste of time. Sometimes the public sector’s reputation for excessive bureaucracy has a grain of truth.

Social and Other Services

These are services that are subject to a much more flexible regime (healthcare, social, legal, etc.), and are predominantly separate because the EU feel there is less ‘cross-border interest’ (see below) in these services because they’re so different from country to country. I’d like to see this expanded to cover services that don’t fit well with a mandated tender process – marketing for example, where creativity, relationships and flexibility would allow for better outcomes.

Thresholds

The current thresholds are, I feel, too low. However, these are actually set by the WTO’s Government Procurement Agreement rather than the EU, so the chance of these changing is pretty low.

Cross-Border Interest

The EU Court of Justice has decided in the past that tenders that would be lower than the threshold will still be caught by the EU Treaty principles of transparency, proportionality and non-discrimination where this is a cross-border interest. This includes a measure of advertising and use of proper evaluation criteria. However, the Court can never make up its mind how you are supposed to judge if there is a cross-border interest. Buyers either treat everything as having a cross-border interest, or just hope for the best. And, personally, I’ve never thought of ‘hope’ as a valid contracting strategy.

So what do you think? Is there anything you would disagree on, or anything you would like to add to the list? (I know a few people who would just say ‘all of it!’ to either of those questions …)

Voices (6)

  1. Karen Walters:

    I agree with the majority of your “wish list”, especially with regards to supplier performance, cross border interests and remedies. However, one thing I would reiterate is that the regulations do provide a baseline of tried and tested “best practice” principles. As a procurement professional in the Public Sector spending tax payer’s money, there is a comfort of sorts in being bound by the regulations and having something solid to back me up when having challenging conversations with Cabinet Members about why we can’t award to X (cheapest) when Y is the MEAT. I would therefore retain the Reg 84 requirement. I would also maintain the threshold levels as it ensures that Procurement are involved in all procurement activity at or above that threshold and thus ensures we are building in the “best practice” principles to achieve the desired savings. With regards to LTR principles being extended, I can see where this is of benefit. However, we do need to be wary of overly short tender timescales. We must ensure that they are workable for the Supplier (especially SME’s) who may not be large enough to always have a bid team ready and will need to plan their own limited resource to deliver a competitive bid. We can guarantee that any leniency we add to the regulations will be exploited and may not always deliver the positive effects we anticipated. We also do not want changes that will weaken the role of the Procurement Function.

  2. Victor Ruskin:

    I totally agree about past performance issue. It is embarrassing when we are unable to ban a failing provider to participate in the future tenders. I would create a national blacklist, why not. Who can argue against it?

  3. Paul Wright:

    I agree the requirement for a report is excessive, but given the tendency to not document and the churn of personnel on both sides I think it does a useful job. Its easy to explain why it needs time to be allocated if it is a legal requirement, less so if it is just good practice.

  4. John Diffenthal:

    I think I saw some commentary from a judgement where the judge complained that the procurement records for the defence were not developed contemporaneously. If procurement documentation was sufficiently thorough to produce a Regulation 84 report by contract award then that concern would be eliminated.

    1. Dan:

      Its not the recording of information that’s problematic per se, as everyone should maintain an effective audit trail for decisions – its the requirement for a report that no-one will ever look at again.

  5. Nicholas Martin:

    I was really interested to read this article. I agree EU Directives are generally positive, despite introducing a lot of red tape.

    I believe the original purpose was to promote the internal market. I guess this objective needs to be re-framed. However, the ways in which they seek to do this – prohibiting discrimination, implementing transparency, and removing barriers to access – are still very relevant.

    I think the suggestion to review the rules is a great idea. I wonder if the EU will take the opportunity to do the same.

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