Procurement, State Aid and Social Value Update The new Public Contracts Regulations –what to expect and how to be prepared 13 January 2015

Timetable 9:45am – Introduction (Stephen Pearson) 9:50am – 10:30am – The New Public Procurement Directive (Annie Moy) 10:30am – 11:15am – State Aid Update (Stephen Pearson) 11:15am – 11:30am – Coffee 11:30am – 12:30am - Exercises

The New Public Procurement Directives An overview of the changes Annie Moy – Sharpe Pritchard

Aims of the reforms: Simpler, more flexible procurement Better access to EU market for SMEs Consolidating case-law Improved governance and more professionalism in procurement

Key changes Removal of Part A and B distinction New procedures Shortlisting and award criteria Electronic procurement Procurement between public authorities Contract changes

Removal of Part A and Part B Default position: all service contracts have to be advertised and procured in accordance with the requirements of the Directive Exclusions: Many of the current B Services will benefit from lighter- touch regime and a higher threshold (Specific Exclusions set out at Articles 7 – 12 e.g legal, health and social) BUT: OJEU Notice requirement if above threshold Threshold = currently €750,000

Choice of procedure (1) The existing four procedures with reduced timescales: Open Procedure: 35 days (old regime = 52 days) Restricted Procedure: 30 days (old regime = 40 days) Plus PIN reduction Plus electronic reduction Plus two new procedures: Competitive procedure with negotiation (Article 29) The innovation partnership procedure (Article 31)

Choice of procedure (2) Competitive Negotiation (Art 29) or Competitive Dialogue (Art 30) can only be used where: Needs cannot be met without adaptation of readily available solutions Include design or innovation solutions Nature, complexity or legal and financial make-up or risk Cannot establish specifications with sufficient precision Or – only irregular or unacceptable tenders received following open or restricted procedure.

Choice of procedure (3) Competitive Procedure with Negotiation (Art 29): Purpose of negotiation: to improve the content of the offers in order to better correspond to the award criteria and minimum requirements Authority will need to: –Know exactly what it wants, and –Be able to specify its requirements, Authority is allowed to negotiated to ensure that the bid is an improvement in terms of meeting requirements.

Choice of procedure (4) Innovation Partnership Procedure (Article 31): Purpose: to establish a structured partnership for the development of an innovative product, service or works not already available in the market. Procedure is the same as the Competitive Procedure with Negotiation BUT Council only able to use this if there is not already a solution on the market. Select partly on innovation Negotiate apart from final tender Final contract will have intermediate stages (with targets).

Shortlisting and award criteria (1) Shortlisting (Article 58.1): suitability to pursue the professional activity economic and financial standing technical and professional ability Factors must be proportionate and relate to the subject matter of the contract Financial turnover threshold limited to 2x contract value (or each individual lot).

Shortlisting and award criteria (2) Award based on Most Economically Advantageous Tender (MEAT) only: MEAT may be based on price or cost using cost- effectiveness approach e.g. life-cycle costing May be the best price-quality ratio mix of qualitative, environmental and/or social aspects linked to the subject matter of the contract Cost element may be fixed price/cost on the basis of which economic operators will compete on qualitative criteria alone No unrestricted freedom to choose Must specify relative weighting given to criteria

Procurement between public authorities (1) Teckal Companies (in house companies): Case C-107/98 (Article 12 (1)) A Contract will fall outside the scope of the Directive if: Contracting authority exercises control which is similar to that which it exercises over its own departments More than 80% of the activities of the controlled company are carried out in the performance of tasks entrusted to it by the contracting authority No direct private capital participation

Procurement between public authorities (2) Pooled Funding: Hamburg, Case C-480/06 (Article 12(4)) A Contract will fall outside the scope of the Directive if: Establishes or implements a co-operation between authorities The implementation of that cooperation is governed solely by considerations relating to the public interest The participating authorities perform on the open market less than 20% of the activities concerned by the cooperation

Procurement between public authorities (3) Mutuals (Art 77): Reserved contracts for certain CPV codes in health, social and cultural Maximum duration is 3 years Call for competition to cite this article Cumulative conditions for “mutual”: Public service mission Re-investment of profits Employee ownership/participation No award to organisation by the authority under this article in last three years

Contract changes (1) Existing contracts may be varied if: a)Variation was already provided for in the procurement; b)Additional works, services or supplies where no change of contractor is realistic – 50% rule (modification not to exceed 50% of the value of the original contract); c)Modification is not foreseeable, no fundamental change and 50% rule; d)Change of contractor – partial succession; or e)Where not substantial, a de-minimis change both below 10% contract value (15% works) and also below threshold; and f)for the Pressetext reasons (see next slide)

Contract changes (2) Where the modifications, irrespective of their value, are not substantial (Article 72.1(e) – the “Pressetext” criteria). A modification will be deemed substantial if: It would have allowed for the admission of other candidates/acceptance of another tender/attracted additional participants; It changes the economic balance of the contract in favour of the contractor in a manner not provided for in the initial contract; It extends the scope of the contract considerably; or It results in a change of contractor other than the case provided for at (d) on previous slide.

Preparing for implementation Ensure ICT systems can handle electronic procurement Monitor changes to existing contracts carefully Consider how Part B services will be advertised in future Consider how to encourage greater involvement of SMEs Review procurement processes with a view to simplifying / making use of new procedures

Thank you – any questions?

State Aid What fresh hell is this? Refresher & Update Stephen Pearson (Partner) Freeths LLP

Why is State Aid Important? Free Trade – part of the founding principles of the EU Article 107 TFEU “Any aid granted … through state resources … which distorts … competition by favouring undertakings … shall … be incompatible with the internal market” Increased intervention by DCLG in ERDF Projects Awareness of public and private sectors / funders

What is State Aid? Key cases and principles –2014/3292 – Block Exemption Regulation –Advice

What is State Aid Cont’d? Advantage –granted by State –to an undertaking providing goods / services –distorts competition

Key Cases – New and Old Altmark Trans [2003] ECR , Case C- 280/00 Leipzig – Halle [2012] Case C-288/11P R (SkyBlue) v Coventry City Council (2014) EWHC 1747 Konsum Nord v Commission (2011) Case T- 244/08 The “German Incubator” Case

GBER 2014/3292 Adopted 21 May 2014 Simplifying “aid compatible with internal market” Examples: –Research and development support – fundamental, industrial and experimental –Innovation aid for SMEs –Training aid –Culture and heritage conservation

BUT ! New requirement for Member States to disclose all exempt State Aid: –Legal basis –Budget –Type of support

Key Advice Consider loans > 1.99% Review payments carefully Keep DCLG “on side”

Conclusion Increased fear of State Aid Interventional approach by HMG More awareness required !

Q&A