New procurement regulations – help for small firms and mutuals

Back to the new EU Directives today. And there are a range of changes designed to help smaller firms and mutuals. (And many thanks to those who commented on previous installments of this series too).

Bidders will be able to self-certify that they have the various certifications that are often asked for, and buyers only need check that the supplier really does hold that once they have awarded the contract. Well-meaning in terms of cutting bureaucracy certainly, but as one of our readers pointed out previously, what happens if, when checked, the self-certification wasn’t genuine? Do we have to start the process again? I would be cautious if the certification is really mission-critical rather than a ‘nice to have.’

Buyers will only be allowed to block bidders on size grounds if their turnover is less than twice the contract value, but we would hope that few buyers do this anyway.  If it is a £100,000, four-year contract, the contract value is £400,000 and I can exclude a firm if their turnover is less than £800,000. That seems ridiculous – 99 percent of firms of that size could deliver a £100,000 contract without any problems. I first wrote guidance for public procurement on this topic for OGC (then in the UK’s Finance Ministry) in about 2002 and the advice remains the same today – look at every case on its merits, and turnover limits are at best a very blunt instrument!

In terms of mutuals (like the Co-op, there’s a great example of how effective such organisations can be -- he said sarcastically), contracting authorities will be able to award contracts without competition to mutuals that are spun out of organisations by public sector staff. The organisations will have to fulfil certain criteria, but those contracts can be up to three  years in duration. After that time, the work will have to be competed.  Fair enough, but we haven’t exactly seen a rush of new mutuals as yet in the public sector.

One change the UK government resisted was the proposal to force contracts to be dis-aggregated (broken up into smaller ‘lots’  to help smaller businesses bid). Cabinet Office in the UK hates this because it has spent the past three years desperately trying to aggregate demand to fit the centralising Government Procurement Service /Crown Commercial Service business model. (That’s in part because of a misplaced faith in the powers of economy of scale, but that’s a whole different discussion)!

Buyers will have to explain, however, why they decided not to divide a contract into lots. So this is just one more minor bit of hassle for buyers, but one that you can’t forget, as it could be challenged. I’m sure we can come up with a standard paragraph to cover most cases. And I believe some countries will use national legislation to take a stronger line on this, as they pay more attention to small / local business  agenda and are prepared to forego some aggregation to support SMEs.

There has been no change to thresholds. There was some lobbying to raise thresholds so fewer contracts would have to be fully advertised but that’s not happening. Arguably that makes authorities more enthusiastic about keeping contract values low to avoid OJEU, which may help smaller firms. However, more OJEU processes also might mean more work for bidders.

Innovation partnerships’ are another new introduction – authorities can tender for goods or services not currently available in the market. That could be interesting for a few organisations (Ministry of Defence comes to mind, although its requirements might be too constrained by secrecy). Whilst a good move, this probably isn’t going to be taken up by many folk, we suspect.

On a different note, there is clarification of the rules around modification of contracts. That’s been an issue in the past. Is an extension or a change in specification effectively a new contract requiring a new competition? Some case law has now emerged and the new directives reflect that. Initial documents should be clear about the scope, and if the modification isn’t too dramatic (e.g. value no more than 50 percent greater than original contract) it will be allowed, but the authority has to post an OJEU notice to explain the changes. Will that really happen?  Probably depends on whether procurement departments even hear about the changes!

So, what does this all add up to? It is a significant set of changes certainly, but is it a game changer, or just a new set of bureaucratic rules to learn and a few new bear traps for the unwary? We’ll be back with an overall viewpoint soon.

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