Key Issues in Procurement

Public Procurement Conference, Irish Centre For European Law

Anna-Marie Curran, PartnerA&L Goodbody28 June 2012

2

Introduction

What are the difficult questions for contracting authorities in Ireland

3

SurveyOver 200 contracting

authorities surveyed - 70 responses

Ranking easy, not difficult, difficult, very difficult

Pre-Procurement

Post-Tender

Contract Characterisation

Conduct of Tender Process

ThresholdsShared Services

Technical specPre-qual criteria

Late submissionsWeightingsExperience eval

Secondary objectivesEvaluation Team

Financials evaluationEvaluationIncomplete

submissionsClarificationsObjectivity

Abnormally low bidsDue diligence on

bidsStandstill letters

ReasonsUnsuccessful bidder

correspondence

FOI Requests Pre-contract

changes Post-contract changes Self-declarations verification

4

5

Survey

6

7

8

Changes

What’s the Problem?

» Post-contract change will result in a new contract if it is material

» Illegal direct award

» Ineffectiveness remedy

What is a material change?

How specific does a variation clause have to be?

What about totality of changes?

What about unforeseeable events?

9

Changes

Pressetext (C-454/06):

» Changes will constitute a new contract when they are “materially different in character so as to demonstrate an intention to renegotiate the essential terms of that contract i.e. changes that:-

» introduce conditions that allow for admission, or acceptance, of different tenderer(s)

» extends scope of contract considerably to encompass services not initially covered

» changes economic balance in favour of contractor in a manner not provided in initial contract

10

Material Changes

Change of Contractor: Substitution of a wholly

owned sub is not material but substitution of a new contractual partner for initial contractor is a change to an essential term unless substitution was in initial contract – see Pressetext, Wall AG, Redwood Health Limited v NHS, draft Article 72(3)

Changes to Price: Price is a fundamental term – minor adjustments permissible - see Pressetext, Suchhi di Frutta, Commission v Spain (C-84/03), draft Article 72(4)

Change of Scope: Extension of scope is generally not permissible but may be able to justify a negotiated procedure for additional works, supplies or services - see Le Mans (C-340/02)

Change to Risk Allocation: Risk allocation is generally fundamental and cannot be changed – see Storebaelt

11

Changes – Risk Mitigation

Include a variation clause that is clear, precise and unequivocal

Consider scope carefully

Include options – e.g. contract extension, price adjustment clauses

Negotiated procedure?

VEAT Notice

Termination rights

12

13

Abnormally low bids

What’s the Problem?

» No definition of what is an abnormally low bid

» Law is unclear on how to deal with suspect abnormally low bid

» Bidder may be loss-leading for various reasons

What the Contracting Authority Wants

» Best deal on the basis of criteria & VfM

What the Contracting Authority Doesn’t Want

» Sued for excluding an abnormally low bid

» Sued for including an abnormally low bid

» Poor performance, contractor insolvency or multitude of contract claims

14

Abnormally low bids

Regulation 69 of SI 329/2006:-

If a tender appears abnormally low, contracting authority shall, by notice in writing and before rejecting the tender, request the tenderer to provide written details of constituent elements of the tender

List of non-exhaustive constituent elements in Regulations

May exclude tender if only reason for abnormally low bid is State aid and bidder hasn’t shown that aid was granted lawfully

Questions:-

» What is “abnormally low”?

» Is there a duty to investigate a suspect abnormally low bid?

» Is there a duty to exclude an abnormally low bid?

1515

the Directive does not define … that is therefore a task for the individual Member States

Impresa Lombardini

Genuine and viable

Sound and viable

SECAP (Court of Justice, 2008) Reliable and

serious

Renco (Court of First Instance, 2003) TQ3 (Court of First Instance, 2005)

Reliable and serious

Renco (Court of First Instance, 2003) TQ3 (Court of First Instance, 2005)

Impresa Lombardini (Court of Justice, 2001)

‘abnormality’ is an indeterminate legal concept which must be substantiated in each case by reference to the particular circumstances of the candidates

Advocate General Ruiz-Jarabo Colomer in SECAP

Identifying an ALB

an offer that, because of its favourable terms, raises a suspicion that the provider will not be able to perform according to the terms offered

Arrowsmith, The Law of Public and Utilities Procurement (2nd ed) para. 7.138

16

Duty to investigate?

Renco v. Council, Case T-4/01 [2003] ECR II-171 –

Contracting authority is under a duty to identify suspect tenders; allow the undertakings concerned to demonstrate their genuineness; assess the merits of the explanations provided; and make a decision as to whether to admit or reject those tenders

Varney v. Hertfordshire CC [2010] EWHC 1404 (16/06/10)

“…there is nothing ... to support the contention that there is a general duty owed by the authority to investigate so-called “suspect” tenders which appear abnormally low...I am quite satisfied that neither the Directive nor the Regulation imposed a duty to investigate so-called suspect tenders generally.

“…the Council was not under a duty generally to investigate so-called “suspect” tenders in circumstances where the Council had no intention of rejecting those tenders.”

“…[a duty] cannot arise save in the case where the relevant authority actually knows or suspects that a tender is abnormally low.”

17

Exclusion of an ALB

Contracting authority has a discretion to exclude under the Regulations

May only exercise that discretion after bid has been investigated and the bidder has been allowed to clarify or explain the characteristics of the bid

Duty/discretion to investigate or exclude may arise from tender documentation

18

Draft Directive

Article 69:-

Contracting authority is obliged to seek an explanation of the price or costs where:-

» bid is more than 50% lower than average bid and

» bid is more than 20% lower than second lowest bid and

» there are at least 5 bids

If bid appears low for other reasons, explanation may be sought

Contracting authority must verify information provided and ‘may only’ (not shall) reject the bid when the evidence does not justify the low level of the bid

Contracting authority must reject a bid that is abnormally low because it does not comply with social, labour or environmental law

Contracting authority may reject a bid that is abnormally low due to illegal State aid

19

Conclusions

Majority of contracting authorities surveyed consider procurement is difficult

Its not all about remedies…

More guidance and legal clarity needed

New Directives are unlikely to make life easier

Key Issues in Procurement

Public Procurement Conference, Irish Centre For European Law

Anna-Marie Curran, PartnerA&L Goodbody28 June 2012