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Procurement Pitfalls: Common Mistakes made by Contracting Authorities

9th July 2017

Contracting Authorities' purchasing teams are usually very aware of the EU public procurement rules and the requirements of procurement law. However, the application of this knowledge is not necessarily always as comprehensive. Mistakes and misinterpretations can easily occur where the law is complex and procurement law is certainly a challenging area.

The potential implications of getting it wrong can be significant and far reaching for a Contracting Authority. As all procurement professionals should know, a successful procurement challenge could potentially result in costly fines and compensation claims for the Contracting Authority and contracts being shortened or declared 'ineffective'. There is also the risk of reputational damage and increased costs associated with delay.

The implications of a procurement challenge for a successful tenderer can also be significant. If a contract is declared ineffective or shortened, or a procurement is challenged, the only recourse for a tenderer to recover its costs in entering into the contract or participating in the procurement may be a claim against the Contracting Authority. This would involve potentially lengthy litigation and it is unlikely the tenderer would fully recover its losses. It is important therefore for tenderers to be alive to potential breaches of procurement law and not to unwittingly be an accomplice to a breach.

In addition to the above, compliance with applicable procurement law is often a condition of grant funding, especially any EU funding. It is possible for such grant funding to be 'clawed back' due to a non-compliant procurement exercise. It is often the case where an exercise is found to be lacking through an audit by the relevant authority.

We find that the majority of challenges are brought due to a few common mistakes or bad practice. Ensuring these 'procurement pitfalls' are avoided goes a long way to minimising the risk of a challenge.

We have set out below some of the more common procurement pitfalls and how they can be avoided. Whilst this is by no means an exhaustive list, we have included areas we come across time and time again in the context of procurement challenges and which we believe are relatively easy to avoid.

Common Procurement Pitfalls

The aggregation rules (as set out in Regulation 6 of the Public Contracts Regulations 2015) prohibit the artificial 'splitting' of contracts to bring them below the relevant EU threshold to avoid a regulated procurement procedure.

In simple terms, if two contracts are for the same 'business need' or otherwise linked unless there is objective justification they should be procured as one contract.

Breach of the aggregation rules can be quite difficult to spot in practice; often contracts are let as needs arise, then are renewed or replaced when the original contract runs out. If this occurs across a number of departments within a Contracting Authority, it would be easy to rack up a number of small contracts with similar scope, quickly falling foul of the aggregation rules.

One way of avoiding the above situation is to undertake periodic reviews of all contracts placed by a Contracting Authority to identify trends and establish centralised procurement. Not only will this hopefully prevent a breach of the aggregation rules, but it should create economies of scale and reduced costs.

Frameworks are a very useful alternative to fully regulated procurement procedures. However, due to their ease of use, they are very often abused or followed without due caution. The risk is that the incorrect use of frameworks can in some circumstances be the equivalent of not following a compliant procurement procedure at all.

The most common mistakes we come across involving frameworks are the use of frameworks by Contracting Authorities not entitled to do so and failures to apply the relevant award criteria and call-off procedures correctly. These do sound simple points to check off but the regularity with which we see problems arising suggests it isn't something regularly checked.

Contracting Authorities should always check the original OJEU Contract Notice for the framework, to check they are listed (either specifically or by category). Also check the geographical scope of the framework – it is highly unlikely that a framework for the London area could be used by a Contracting Authority in North Yorkshire, for example.

The original framework agreement and procurement documentation will set out the appropriate award criteria and call-off procedure. Always check the original documentation rather than rely on guidance or website blurb. Any queries should be raised with the manager of the framework.

This principle is founded in the case of Lianakis, which mandate that selection criteria should be used during the selection or PQQ stage, whilst award criteria should only be used to evaluate tender submissions.

This is a very clear rule but is often confused. Sometimes Contracting Authorities will use meticulous wording to try to phrase a selection criteria as an award criteria or vice versa – this should be avoided at all costs.

A simple rule of thumb is that selection criteria look backwards at the Tenderer, their financial standing and previous experience, whilst award criteria look forward, at the way in which the contract will be performed.

Regulation 67(3)(b) has clarified that the experience of staff assigned to performing the contract can be an award criterion. However, this still clearly links to the contract to be performed.

As per the Lianakis and Lettings cases, all award criteria and sub-criteria used to evaluate tenders and the relevant weightings must be disclosed to tenderers. This does mean everything!

One criterion we find Contracting Authorities often do not disclose is affordability. If there is a ceiling price above which the Contracting Authority will not award, this is an award criterion and should be disclosed. If a Contracting Authority ends a procurement or excludes a tenderer because it cannot afford the contract, but did not disclose affordability as an award criterion, it exposes itself to potential challenge.

After tenders have been submitted, Contracting Authorities are only permitted to clarify tenders, not openly negotiate. This is limited to rectification of errors or ambiguities and would not allow a request for a lower price or alteration of the scope of the contract, even where this is masked as a 'clarification'.

Tenderers often try to 'scope creep' after they have been made preferred bidder. However, with the increasing transparency regime making publication of information on contracts more and more mandatory, it is going to be increasingly easy to see where illegal negotiations have taken place.

The standstill period is designed to allow tenderers time to challenge a contract award before the contract is entered into. Correctly following the standstill rules (including providing details of the characteristics and relative advantages of the successful tender to disappointed tenderers) reduces the remedies available to challengers, but getting it wrong can cause an otherwise faultless procurement to fall at the last hurdle.

The requirements for standstill are set out in Regulations 86 and 87. Essentially, the Contracting Authority must not enter into the contract for 10 days after notices of the decision to award a contract have been sent to tenderers. This period should be calculated precisely – if unsure and there is time, we would recommend leaving two weeks to be 100% sure not to fall foul of these requirements.

Modification of an existing contract without re-tendering is only permitted in certain circumstances, as set out in Regulation 72. This Regulation incorporates the Pressetext body of case law on 'material change', but helpfully now calls it 'substantial modification'.

Pressetext gave specific criteria to ascertain what is permitted and what would be considered 'material change' but procurement professionals used to use 10% of the original contract value as a rule of thumb to gauge whether a modification was likely to be 'material'.

However, Regulation 72 now states that a change is 'substantial' (and therefore not permitted) where the value exceeds 10% of the original contract value for services and supplies (15% for construction works contracts) or the relevant EU threshold. The latter significantly limits this safe harbour; depending on the contract value, the EU threshold could be much less than 10%, rendering the safe harbour on its own next to useless for large procurements.

It must also be remembered that the materiality of changes are taken cumulatively, not in isolation, so all changes to a contract must be considered to establish whether it is substantial.

This update contains summaries of complex issues and should not be relied upon in relation to specific matters. We recommend that you take legal advice on particular matters and we will be happy to assist. If you would like further information on the topics discussed above, please contact: Jason Phelps, Head of Procurement at jason.phelps@michelmores.com or his assistant Amy Dimond at amy.dimond@michelmores.com.



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