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The rules governing the Procedures in the award of Public Contracts

1. Introduction

The Treaty of Rome, did not lay down specific rules relating to public procurement, but it did establish four fundamental principles applicable to the award of public contracts, namely;

No discrimination on the grounds of nationality;
Free movement of goods and a prohibition on any quantitative restrictions on imports and exports and measures having equivalent effect;
Freedom of establishment;
Freedom to provide services.

However these four fundamental principles were too general and imprecise so as to be easily applied. Since then, EU law in this area has developed to provide a legal framework setting out the basic rules applicable to the award of public contracts.

Public procurement at an EU level has huge economic significance. In 1995, public procurement was valued at ECU900 billion, which equated to 12% of the total Gross Domestic Product of the 15 member states. In an Irish context, the award of public contracts has become increasingly economically significant. The recent controversy over the Department of Defence Helicopter Contract has thrown some light on the difficulties that can arise, where it is alleged that the public procurement rules have been not adhered to.

In a recent Irish Times article, a Trinity economist was reported as contending that general inefficiencies in the management of the public procurement process, was costing the Irish economy dearly.

The National Development Plan is by far the single biggest engine driving the growth in infrastructural development. The figures that are being spoken about are very significant by international standards. The huge road-building programme, as well as the mooted Metro for Dublin and the Luas programme that is well under way feature among the large projects.

2. The Legal Context

The Treaty of Rome

As mentioned earlier, the Treaty of Rome established the four fundamental principles applicable to the award of public contracts. The Treaty enshrined the obligation to ensure that unfair practices were prohibited, but did not establish any positive obligation to ensure transparency and effective competition in the contract award process.

The Supplies, Works and Services Directives

These obligations were addressed by what are colloquially termed the EU Public Procurement Directives. The first of these were adopted between 1971 and 1977 and have now been consolidated into three principal Directives (the Public Sector Directives): -

Council Directive 93/36/EEC on the co-ordination procedures for the award of public supply contracts (the Supplies Directive);
Council Directive 93/37/EEC on the co-ordination of the procedures for the award of public works contracts (the Works Directive);
Council Directive 92/50/EEC on the co-ordination of procedures for the award of public service contracts (the Services Directive).

There is a parallel set of rules set out in Council Directive 93/38/EEC of 14th June 1993 on the co-ordination of the procurement of procedures of entities operating in the water, energy, transport and telecommunications sectors (the Utilities Directive).

Council Directive 89/665/EEC provides for the review procedures for Public Supply, Public Works and Public Services contracts. Council Directive 92/13/EEC sets out the procedures for the Utilities Directive. Both Directives are colloquially called the "Remedies Directives".

What was the aim and objective of these Directives? At the outset, it is important to state that these Directives were not an attempt to harmonise the national public procurement rules of the member states. Rather, they sought to co-ordinate the national member state contract award procedures by introducing a basic set of common rules that would have to apply to such public contracts above given contract value thresholds. These common rules are as follows: -

The definition of public purchasers and the scope of contracts subject to the Directives;
The rules defining the contract award procedures to be followed by public sector purchasers;
The rules on technical specifications, giving preference to EU standards and banning technical discriminatory requirements
The advertising rules to be followed, whereby tender notices must be published in the Official Journal of the European Communities, following certain specific time limits and following certain specific models set out in the annexes to the Directives
Common rules on participation, setting out objective criteria for qualitative selection and for the award of contracts. In essence, contracts must be awarded on the basis of either the lowest price, or the most economically advantageous tender, as the contracting authority itself chooses;
Obligations setting out the statistical reporting requirements to the EU Commission.

International Agreements relevant to public procurement

The principal international agreement affecting public procurement is the Government Procurement Agreement (GPA) was adopted simultaneously with the conclusion on the 15th April 1994 of the Uruguay round of the GATT Agreement.

The GPA covers supplies, works and services. Its ambit extends beyond state authorities to include contracts awarded by public authorities at regional and local level and follows the general principles contained in the EU Directives of non-discrimination and transparent procedures.

There is a system of contract value thresholds that trigger the obligations, prohibitions on discriminatory technical specifications and an obligation to publish tender notices and to use objective and non-discriminatory selection and award criteria.

3. Scope of public contracts

In the context of the Public Sector Directives, public contracts are defined as contracts concluded in writing for profit between a supplier, contractor or service provider and a public purchaser termed "a contracting authority".

Public Supply Contracts govern the delivery of products.
Public Works Contracts cover:-
The execution of works;
The execution and design of works;
The execution by whatever means of works corresponding to the contracting authorities' requirements.

"Works" must relate to one of the classification activities listed at Annex 2 to the Works Directive and are usually taken to mean the outcome of any building or civil engineering project:

Public Service Contracts are very broadly defined by the Services Directive. The definition covers all contracts concluded in writing for profit between a service provider and the contracting authority for the execution of the contracted for services, excluding;
Public Supply and Public Works contracts;
Contracts awarded in the water, energy, transport or telecommunications sectors which are covered by a parallel set of rules contained in Council Directive 93/38/EEC of 14th June 1993 ("the Utilities Directive").

Typically, service contracts would include contracts for the carrying out of studies, provision of consultancy services, the provision of advertising services, the provision of transport services, the provision of maintenance and repair services, engineering services, financial services, computer services and legal services, amongst other categories.

Contracting authorities

For the purposes of the Public Sector Directives, contracting authorities are regarded as follows: -

The state;
Any regional or local authority, including town councils, municipalities and regional administrations;
Bodies governed by public law and
Associations formed by regional or local authorities.

Value thresholds

For any of the Public Sector Directives to apply, the value of the contract to be awarded by the contracting authority must exceed the relevant threshold. There are different thresholds for each of the Directives which are periodically revised. In circumstances where the relevant threshold is not exceeded, the Directive does not apply.

There is a prohibition against dividing contracts into lots, so as to defeat the thresholds. The total value of all of the contract lots must be taken into account to determine the threshold level. This rule is specifically set down in each of the Public Sector Directives. In simple terms, no procurement contract can be sub-divided into separate lots with the intention of taking the contract or any part outside of the scope of the Public Sector Directives.

The procedures governing participation

The Public Sector Directives provide for three types of award procedures that contracting authorities can use: -

1. The Open Procedure

As the title of this procedure suggests, it is open to all interested suppliers, contractors or service providers, as the case may be, without restriction. It is a general invitation to submit tenders.

2. The Restricted Procedure

Only those suppliers, contractors or service providers that the contracting authority has invited to participate may submit tenders. This usually involves a two-stage process, where following a general invitation the contracting authority creates a short-list (usually not less than 5) from those parties that have expressed interest, who are invited to submit formal tenders. The contract is then awarded following a tender evaluation stage from the short-list.

3. The Negotiated Procedure

This procedure governs the circumstances where the contracting authority consults the supplier, contractor or service provider of its choice and negotiates the terms of the contract with one or more of them. There are two types of negotiated procedure: -

Negotiated procedure with prior publication in the Official Journal of the European Communities.
Negotiated procedure without publication of a notice in the Official Journal.

Each of the Public Sector Directives exhaustively sets out the specific circumstances where the two types of negotiated procedure can be used. If these specific circumstances do not exist, then the contracting authority must choose between the open procedure and the restricted procedure. The negotiated procedure is the procedure that is most limited in its application.

Publication of Tender Notice

Contracting authorities that wish to procure public supplies, works or services by one of the three award procedures outlined above, must publicise their intention by means of a Notice which follows the models contained in the annexes to the Public Sector Directives. Publication of the Notice must be made in the Official Journal. The publication of the Notice is the point of departure of the contract award procedure.

Notice periods

Depending on which procedure is followed, there are different time limits, both for the receipt of the requests to participate (if applicable) and for receipt of tenders (if applicable).

Open Procedure

Time limit for receipt of requests to participate: - no minimum period specified.
Time limit for receipt of tenders: - not less than 52 days.

Restricted Procedure

Time limit for receipt for request to participate: - normally not less than 37 days (but if the accelerated procedure is used, not less than 15 days).
Time limit for receipt of tenders: - normally not less than 40 days (but if the accelerated procedure is used, not less than 10 days).

Negotiated Procedure

Time limit for receipt of request to participate: - not less than 37 days (unless the accelerated procedure is used, in which case the time limit is not less than 15 days).

There is no tender process as such, as it is essentially a negotiated contract procedure.

Publication of contract award notices

Each of the Public Sector Directives set out the requirement for contracting authorities to publish in the Official Journal, the details of how the contracts in question have been awarded. As with the notice procedure, each Public Sector Directive sets out in the annexes attached to it, the model contract award notice that must be utilised. Usually, the requirement is that the notice be sent not later than 48 days after the contract has been awarded.

The Contract Award Notice must set out at a minimum, the following: -

The date of the award of the contract;
The award criteria;
The number of offers received;
The name and address of the successful contract party; and
The price or range of prices paid.

Selection criteria

In order to underline the obligation to abide by procedures that are transparent and objective and to minimise the risk that contracting authorities would eliminate prospective suppliers, contractors or services providers on discriminatory grounds, each of the Public Sector Directives lists a number of possible selection criteria to be utilised by the contracting authority.

These selection criteria refer principally to issues of good repute, professional qualification, economic and financial standing and technical knowledge or ability of the supplier, contractor or service provider.

The objective is to stipulate for interested parties, the information or evidence that will be required to be produced by the interested party to the contracting authority, for the purpose of establishing the professional economic and financial capacity of the interested party.

Award criteria

Under the provisions of the Public Sector Directives, contracting authorities have the choice between two award criteria; either the lowest price or the lowest economically advantageous tender.

In order to determine what constitutes the most economically advantageous tender, the Public Sector Directives set out a non-exhaustive list of the criteria that may be applied in no particular order of importance. This non-exhaustive criteria list includes the following:

The price;
The delivery or completion date;
Technical merit;
Quality;
Aesthetic and functional characteristics;
Running costs;
Cost effectiveness;
After-sales service and technical assistance.

The Public Sector Directives require that the contract notice should set out all of the criteria to be applied, preferably in descending order of importance.

Special conditions for participation

Sub-contracting

Each of the Public Sector Directives set out the requirement that in the contract documentation, the tenderer may be asked by the contracting authority to indicate in the response document, whether any share of the contract is intended to be sub-contracted to third parties.

Consortia

Each of the Public Sector Directives allows for consortia to submit tenders without the necessity of having been set up in advance, or in any particular form.

Requirements concerning working conditions at the site location for the works or the place of performance of the services

It may be that the contracting authority wishes to involve a third party such as a supervisory authority to meet these requirements, in which case, it may supply the relevant information. If so, the interested contractor or service provider must indicate in their tender, whether they have taken the relevant requirements into account in preparing their bid.

Other conditions not mandated by the Public Sector Directives

Contracting authorities are free to lay down conditions that are outside the scope of the Public Sector Directives, provided that these conditions do not conflict with the four fundamental principles of the Treaty of Rome and are specifically mentioned in the tender notice.

Abnormally low tenders

If a contracting authority is of the view that a tender is abnormally low, it is not free as of right, to automatically reject the tender. Each of the Public Sector Directives establishes the procedures which the contracting authority must follow in dealing with the concerns that the abnormally low tender gives rise to. In simple terms, the contracting authority is obliged to request from the tendering party, detailed information on the constituent elements of the tender that give rise to the concerns and also to verify these elements as the concerns in the light of the explanations that are received.

Variants and technical specifications

Each of the Public Sector Directives provide that if the award criteria for the contract in question, is the most economically advantageous tender, then contracting authorities are free to consider variants that are submitted by the tender, meeting the minimum specifications of the contract. In the event that contracting authorities are willing to accept variants, this must be clearly stated in the contract notice.

One of the principal concerns in dealing with the issue of technical specifications, is to encourage the implementation of European-wide standards or the reference to European technical approvals or common technical specifications without prejudice to any legally binding national technical rules that exist, so far as these national technical rules are compatible with EU law.

For further information or general enquiries contact: -
Patrick Ryan
Email: pryan@kilroys.ie or
Kevin O'Gara
E-mail: kogara@kilroys.ie
Telephone: +3531-439 5600
Fax: +3531-439 5601/439 5602