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Will Scotland elect to follow Westminster’s lead on EU Directives?

9th July 2017

The difference in public policy between Scotland and the rest of the UK has become increasingly marked since devolution and the ongoing development of the Scottish Parliament.

Just how marked that difference is in practice for those involved in public procurement will shortly be seen as the Scottish Government’s consultation on the changes to the public procurement rules in Scotland closed on 30 April 2015. 

A new EU directive on public procurement (the “Directive”) was introduced last year with the deadline of 18 April 2016 for Member States to transpose the Directive into national law.  The Public Contracts Regulations 2015 (the “2015 Regulations”), which transposed the Directive into national law in England and Wales, were brought into force by the UK Government on 26 February 2015 and the Scottish Government has indicated its intention to introduce new regulations to transpose the Directive into national law in Scotland by the end of 2015.

The Scottish Government also consulted on elements of the Procurement Reform (Scotland) Act 2014 (the “Act”) which received royal assent last year but has not yet come into force.  The Act is not a requirement of the Directive and it imposes a number of additional obligations on contracting authorities in relation to procurement of contracts which are below EU threshold value and the way in which contracting authorities generally undertake their procurement activities.

Below we consider some of the key points from the consultation in comparison against the 2015 Regulations, and what the difference might be for those involved in public procurement north of the Border.

The consultation

Overall, the approach proposed by the Scottish Government for the transposition of the Directive into national law is similar to that taken by the UK Government with regard to implementing the minimum requirements set down by the Directive in order to retain discretion and flexibility. This approach aims to avoid “gold plating” the Directive.

Selection and exclusion criteria

One of the key policy drivers which underpins the Directive and the Act is a desire to make the bidding process for public procurement exercises more accessible for SMEs.

In particular, Article 58 of the Directive requires that the minimum annual turnover requirement which economic operators must meet as a selection criterion should not exceed two times the estimated value of the contract being procured, except in exceptional circumstances. Whilst the Directive does not give Member States discretion in how this requirement is implemented into national law, the Scottish Government proposes to apply it to the procurements regulated under the Act.

In addition, the Scottish Government proposes to allow conflicts of interest to be a ground for exclusion from a tender exercise. Where the conflict might mean that the economic operator is less able to deliver the contract, contracting authorities can treat those economic operators as not having the professional ability needed for the contract. Again, the Scottish Government proposes to make regulations to apply this requirement to procurements regulated under the Act.

The Scottish Government’s minimalist approach is evidenced by its proposals not to make certain of the provisions of the Directive mandatory for contracting authorities. One example of this is the requirement on contracting authorities to check whether sub-contractors fail any selection criteria.

Part A and Part B services

The removal of the distinction between Part A (“priority”) and Part B (“non-priority”) services is one of the most notable reforms in the Directive. Currently services listed as being Part B services are not subject to the full procurement regime but this will no longer be the case following the transposition of the Directive into national law. In particular, the catch-all “other services” category in Part B will no longer be available to contracting authorities.

Whilst the Part B services category has been abandoned, the Directive maintains a list of social, health and cultural services which will be subject to a lighter touch regime under a new simplified procedure. The new categories of services, however, are limited in comparison to those services currently listed as Part B services.

The Scottish Government proposes that only limited regulation will apply to social, health and cultural services and that the approach to be taken in the new Scottish regulations will be similar to the approach taken by the UK Government, by requiring compliance with the basic EU Treaty principles (transparency, equal treatment and non-discrimination) together with prescribed publication requirements outlined in the Directive.

PINs and shorter deadlines

The Scottish Government also consulted on whether a Prior Information Notice (“PIN”) is a sufficient call for competition in some situations. Under Article 26 of the Directive, the Scottish Government proposes to allow all or some non-central contracting authorities to use a PIN for calling competition, removing the need for both a PIN and a contract notice at the start of the competition. In addition, the Scottish Government plans to extend this to procurements regulated under the Act.

The Directive makes provision for contracting authorities and economic operators to agree shorter deadlines for submission of bids in a restricted procedure. The Scottish Government consulted on proposals to allow non-central contracting authorities to set shorter deadlines with the agreement of participating economic operators. The aim behind these proposals is to make the process simpler, easier and faster and in introduced is likely, in our view, to help reduce overall procurement timescales and costs for both contracting authorities and economic operators.

Limitations

The consultation did not contain a full description or analysis of the Directive as it related only to those matters where the Scottish Government has discretion. It did not shed much light on the format of the proposed new Scottish regulations, which require to be introduced prior to the 18 April 2016 deadline.

Two significant elements of the Directive are omitted from the consultation. The consultation made no mention of the codification of the Teckal test which makes provision for an “in-house” exemption, subject to a tripartite test, or the implementation of the rules flowing from the Pressetext judgment in relation to material changes to the terms of public contracts and the need to re-procure any contracts which are to be materially changed. We can, however, look to the 2015 Regulations as an indicator of how the new Scottish regulations may make provision for these elements of the Directive.

The 2015 Regulations

The introduction of the 2015 Regulations was expedited in order to take advantage of the “flexibilities” offered by the Directive. The UK Government has undertaken what it describes as the “copy-out approach”, which means that the 2015 Regulations directly implement a number of provisions from the Directive.

Outcome of the consultation

While the Directive contains a number of mandatory requirements, from the consultation we consider it likely that the Scottish Government will adopt a similar “copy out” approach to that of the UK Government and produce new Scottish regulations implementing the Directive to the minimum extent required.

The result of the Act and new regulations combined will be further regulation for contracting authorities, particularly in relation to lower-value procurement exercises which will be subject to the provisions of the Act. We assume that the Act will come into force at the same time as the new regulations, although we await confirmation of this.

It appears likely, at least in the early stages following implementation of the Directive and the coming into force of the Act, the new procurement regime will create a number of practical challenges for contracting authorities in Scotland, given that it will impose a range of new obligations on them and require them to consider new ways of working and thinking about their procurement activities. That being said, we are hopeful that the new regulations will also offer greater flexibility and clarity for contracting authorities in what are currently some of the most challenging areas of procurement law and practice. Although the new legislation is still some time away, contracting authorities should be starting to think about the likely impact of the reforms on their procurement practices and ensure that they are fully prepared for the changes to come.

Kelly is a Solicitor with Harper Macleod LLP and can be contacted at kelly.sleight@harpermacleod.co.uk



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