European community law is not concerned with the purchaser obtaining value for money, but with suppliers and contractors having equal opportunities to secure contracts. The directives are based on the assumption that, in their absence, purchasers will discriminate in favour of firms from their own country or firms with which they have trading relationships. The concept that purchasers will adopt a professional attitude to secure the best deal, taking long-term interests into account, is notably absent. In fact many of the directives’ provisions make this objective difficult if not impossible.

Although the directives only apply to contracts over certain values, there is no limitation when it comes to Articles 30, 52 and 59 of the EC Treaty. The combined effect of these articles is to prevent a government or public purchasing authorities from discriminating against imported products or their suppliers by favouring national firms. Purchasers often fail to recognise that the requirements of equality of treatment and non discrimination apply regardless of the value of the contract.

There are four directives applying to public procurement which make life difficult for purchasers wanting value for money. They have been implemented by the UK in three statutory instruments. These directives are:

• Works Directive 93/97, implemented by the Public Works Contract Regulations (SI 1991 no 2680);
• Supplies Directive 93/36, implemented by the Supply Contracts regulations (SI 1995 no 201);
• Services Directive 92/50, implemented by the Services Contracts Regulations 1993 (SI 1993 no 3228);
• Remedies Directive 84/665, implemented in each of the above regulations.

Exclusion of firms from tendering

The directives provide that a contracting authority may use either the open or restricted procedure for tendering - under the latter the authority only invites tenders from a selected list. However, there are limits on the authority’s ability to exclude firms from the list of bidders. The authority can only require information on a firm’s economic and financial standing in the manner laid down in reg 15 or to discover a firm’s technical capacity to perform the contract as specified in reg 16.

It was decided in General Building and Maintenance v Greenwich Borough Council that technical capacity included having carried out contracts safely. But it is not clear that technical capacity includes, for example, the contractor’s quality assurance system or its project management system, since neither are mentioned in reg 16. What is clear is that authorities may not introduce criteria not directly related to those listed in regs 15 and 16.

Provided that all the bidders appear competent to complete the contract the authority cannot take their relative financial or technical capacities into account when establishing a shortlist. How the list can be shortened when, for instance, 30 firms are all qualified is unclear. Commercially the answer would be to select, say, the five most likely to meet the award criteria, but we doubt if this is allowed.

Evaluation of competing offers

When evaluating competing offers only the merits of the bids can be taken into account, and if the award is being made to the most economical offer then only criteria relevant to the project can be considered. Yet commercially, the financial and technical capabilities of the firm, relative to its competitors, are relevant when making the purchasing decision.

Non-responsive bids

The assumption of the directives is that firms will all tender in accordance with the invitation. So any form of post tender negotiation which would distort competition is ruled out, as is asking firms to price out their qualifications. Amendments to any aspect of the bid relevant to evaluation are excluded. But purchasing methods using performance specifications make this assumption unreal. Negotiations are inevitable on technical aspects and commercial issues such as performance guarantees and damages and limits of liability.

Partnering

This is not dealt with in the public sector directives. If the partnering agreement is a legally binding contract then it needs to be advertised and awarded in accordance with the relative directive. However, the criteria for awarding a partnering agreement are not the same as those for a one-off contract - issues of compatibility and mutual confidence need to be taken into account, and post tender negotiation is inevitable.

If the agreement only sets out the framework for co-operation, and there are individual contracts for specific work, then each contract must be advertised and placed according to the relevant regulations. This makes such partnership agreements impractical under the directives. The Treasury view is that if a non building framework agreement is advertised and let as a contract then the procedure need not be repeated for contracts placed under the framework agreement. The issue is unclear, which is unsatisfactory given the importance of partnering in modern procurement.

These are only some of the difficulties posed by the procurement directives, but they illustrate their incompatibility with the freedom to exercise commercial initiative in accordance with best purchasing practice. At present the commission had issued a Green Paper on the directives and is inviting comments.

SM

Peter Marsh and Frank Griffiths are associates at project strategy and contract management consultancy FGA Ltd (0116 279 3383)