EFFECTIVE OVERSIGHT OF PROCUREMENT JOHN MCKENDRICK BARRISTER OUTER TEMPLE CHAMBERS THE OUTER TEMPLE 222 STRAND LONDON WC2R 1BA

Legal Sources UN Convention Against Corruption – Article 9 OCED Principles for Integrity in Public Procurement WTO Agreement on Government Procurement Three new EU Directives came into force on 17 April 2014

UN Convention Against Corruption Article 9 – Public procurement and management of public finances: Each State Party shall, in accordance with the fundamental principles of its legal system, take the necessary steps to establish appropriate systems of procurement, based on transparency, competition and objective criteria in decision-making, that are effective, inter alia, in preventing corruption. The Convention requires each Party State to, inter alia: Publically distribute information relating to procurement procedures and contracts; Publish selection and award criteria and tendering rules; Establish an effective system of domestic review including appeals to ensure remedies are available where the relevant rules or procedures are not followed; Article 9(3) states that each State Party shall take such civil and administrative measures as may be necessary, in accordance with the fundamental principles of its domestic law, to preserve the integrity of accounting books, records, financial statements or other documents related to public expenditure and revenue and to prevent the falsification of such documents.

OCED Principles for Integrity in Public Procurement Principle 1 – provide an adequate degree of transparency in the entire procurement cycle in order to promote fair and equitable treatment for potential suppliers Principle 2 – maximise transparency in competitive tendering and take precautionary measures to enhance integrity, in particular for exceptions to competitive tendering Principle 3 – ensure that public funds are used in public procurement according to the purposes intended Principle 4 – ensure that procurement officials meet high professional standards of knowledge, skills and integrity Principle 5 – put mechanisms in place to prevent risks to integrity in public procurement Principle 6 – encourage close co-operation between government and the private sector to maintain high standards of integrity, particularly in contract management Principle 7 – provide specific mechanisms to monitor public procurement as well as to detect misconduct and apply sanctions accordingly Principle 8 – establish a clear chain of responsibility together with effective control mechanisms Principle 9 – handle complaints from potential suppliers in a fair and timely manner Principle 10 – empower civil society organisations, media and the wider public to scrutinise public procurement

OECD Checklist The OECD identifies three phases of the procurement process: Pre-tendering, including needs assessment, planning and budgeting, definition of the requirements and choice of procedures Tendering, including the invitation to tender, evaluation and award; and Post-tendering, including contract management, order and payment The OECD has produced a checklist which includes guidance about common risks. It is available at http://www.oecd.org/gov/ethics/48994520.pdf

WTO Agreement on Government Procurement The Agreement sets out rules including, inter alia, transparency requirements and a prohibition of discrimination among suppliers of Parties to the Agreement. Article XX deals with ‘Challenge Procedures’. It provides that interested suppliers must be able to challenge alleged breaches of the Agreement either before a court or an independent review body. Challenge procedures must be available in writing and an interested supplier must have not less than 10 days from the date on which the basis of the complaint was known or reasonably should have been known, to make a challenge.

2014 EU Directives Directive 2014/24/EU deals with public sector procurement. Directive 2014/23/EU deals with the award of concession contracts. Directive 2014/25/EU deals with utilities. This presentation will focus on Public Procurement Directive 2014/24/EU and in particular on some of the key new features of the legislation

The Principles of Procurement Article 18 sets out the ‘principles of procurement’: 1. Contracting authorities shall treat economic operators equally and without discrimination and shall act in a transparent and proportionate manner. The design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or of artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators. 2.   Member States shall take appropriate measures to ensure that in the performance of public contracts economic operators comply with applicable obligations in the fields of environmental, social and labour law established by Union law, national law, collective agreements or by the international environmental, social and labour law provisions listed in Annex X

Public Procurement Directive 2014/24/EU Article 4 sets threshold amounts below which the Directive is not engaged. The Directive only applies to procurements with a value (net of value-added tax) estimated as equal to or greater than: EUR 5 186 000 for public works contracts EUR 134 000 for public supply and service contracts awarded by central government authorities and design contests organised by such authorities; where public supply contracts are awarded by contracting authorities operating in the field of defence, that threshold shall apply only to contracts concerning products covered by Annex III EUR 207 000 for public supply and service contracts awarded by sub-central contracting authorities and design contests organised by such authorities; that threshold shall also apply to public supply contracts awarded by central government authorities that operate in the field of defence, where those contracts involve products not covered by Annex III EUR 750 000 for public service contracts for social and other specific services listed in Annex XIV.

Transparency The need to promoting transparency is reflected throughout the Directive. Title II, Chapter III, Section 2 makes specific provision in relation to these matters. Article 83(6) states: Contracting authorities shall, at least for the duration of the contract, keep copies of all concluded contracts with a value equal to or greater than: 1 000 000 EUR in the case of public supply contracts or public service contracts; 10 000 000 EUR in the case of public works contracts. Contracting authorities shall grant access to those contracts; however, access to specific documents or items of information may be denied to the extent and on the conditions provided for in the applicable Union or national rules on access to documents and data protection

Time limits The 80th recital to the directive states that: In order to make procedures faster and more efficient, time limits for participation in procurement procedures should be kept as short as possible without creating undue barriers to access for economic operators from across the internal market and in particular SMEs Articles 27 – 31 and 47 set out the minimum time limits for the receipt of tenders. In respect of the ‘open procedure’ the minimum time limit is 35 days from the date on which the contract notice was set out. Under the ‘restricted procedure’ the minimum time limit for the receipt of requests to participate is 30 days from the date on which the contract notice or invitation to confirm interest was sent. These time limits can be shortened where specified criteria are met however, Article 47 requires contracting authorities to have regard to the complexity of the contract and the time required for drawing up time limits when setting time limits.

Article 84 - Individual reports on procedures for the award of contracts For every contract covered by the directive contracting authorities shall draw up a written report. The directive requires that a large amount of information must be included in the report, these include: the name and address of the contracting authority, the subject-matter and value of the contract, framework agreement or dynamic purchasing system; the names of the selected candidates or tenderers and the reasons for their selection the names of the candidates or tenderers rejected and the reasons for their rejection the reasons for the rejection of tenders found to be abnormally low the name of the successful tenderer and the reasons why its tender was selected and, where known, the share of the contract or framework agreement which the successful tenderer intends to subcontract to third parties; and, where known at this point in time, the names of the main contractor’s subcontractors, if any where applicable, conflicts of interests detected and subsequent measures taken The documentation must be kept for at least three years from the date of award of the contract

Article 57 - Grounds for Exclusion In additional to a range of specified criminal activity and corruption, the Directive adds new and important grounds on which a supplier/economic operator can be excluded from a public procurement procedure. Contracting authorities are ‘required’ to exclude an economic operator where it they can demonstrate that the economic operator is in breach of its obligations to pay tax or social security contributions. However, Member States may derrogate from this requirement in circumstances were there are overriding reasons relating to the public interest. Member States are not ‘required’ (but nevertheless may) exclude an economic operator where this would be clearly disproportionate Article 57(4) provides additional grounds upon which economic operators may be excluded related to conflicts of interest, distortion of competition and misrepresentation

Article 69 – Abnormally low tenders The Directive imposes a new duty on contracting authorities to require economic operators to explain the price or costs proposed in tenders that appear to be abnormally low. The effect of this is that contracting authorities may potentially be subject to challenge by unsuccessful economic operators if they fail to scrutinise low tenders. Article 69(3) provides that the contracting authority may only reject a tender where the evidence supplied by the economic operator does not satisfactorily account for the low level of the price or costs proposed.

Article 72 – Modification of contracts Article 72 provides for the modifications of contracts without a new procurement process being undertaken in a number of specified cases. Where such a modification is agreed there are further publishing/transparency requirements. For example, a notice must be published in the Official Journal of the EU. There is a general exception for modifications with a value below the thresholds in Article 4 and below 10 % of the initial contract value for service and supply contracts and below 15 % of the initial contract value for works contracts.

Article 73 – Termination of contracts Member States shall ensure that contracting authorities have the possibility, at least under the following circumstances and under the conditions determined by the applicable national law, to terminate a public contract during its term, where: the contract has been subject to a substantial modification, which would have required a new procurement procedure pursuant to Article 72; the contractor has, at the time of contract award, been in one of the situations referred to in Article 57(1) and should therefore have been excluded from the procurement procedure; the contract should not have been awarded to the contractor in view of a serious infringement of the obligations under the Treaties and this Directive that has been declared by the Court of Justice of the European Union in a procedure pursuant to Article 258 TFEU

Title IV Governance Articles 83 requires Member States to monitor the application of the public procurement rules and to make the results of such monitoring available to the public. By 18 April 2017 and every three years thereafter Member States must submit a monitoring report to the EU Commission. Member States must ensure that information and guidance about EU public procurement law is available free of charge in particular to SMEs. Support must also be available to contracting authorities in relation to procurement procedures.

Social and other specific services Articles 74 and 77 provide that the right to participate in the procedures for the award of public contracts exclusively for health, social and cultural services can be reserved to organisations that meet the following criteria: its objective is the pursuit of a public service mission linked to the delivery of the services referred to in paragraph 1. profits are reinvested with a view to achieving the organisation’s objective. Where profits are distributed or redistributed, this should be based on participatory considerations the structures of management or ownership of the organisation performing the contract are based on employee ownership or participatory principles, or require the active participation of employees, users or stakeholders; and the organisation has not been awarded a contract for the services concerned by the contracting authority concerned pursuant to this Article within the past three years.

Comments The UK Government welcomes the changes in Articles 74 and 77 and is encouraging public sector staff to form mutuals. It has expressed its intention to legislate quickly to ensure that the UK is able to take advantage of the shorter minimum time limits provisions. The reduction in minimum time limits and the new requirement for contracting authorities to require an explanation in respect of abnormally low tenders represents a shift of emphasis away from rigid processes. The requirement on contracting authorities to require an explanation of abnormally low tenders coupled with the reporting and publication (transparency) requirements should empower economic operators to effectively challenge procurement decisions. As unsuccessful economic operators have both an incentive to challenge procurement decisions, such empowerment provides a meaningful check on contracting authorities https://www.gov.uk/government/news/eu-to-open-up-public-procurement-following-uk-government-lobbying