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Public Procurement

‘It is unwise to pay too much but it is also unwise to pay too little.’

‘The common law of business balance prohibits paying little and getting a lot - it can’t be done. If you deal with the lowest bidder, it is well to set aside something for the risk you run and if you do that, you will have enough to pay for something better.’ (John Ruskin (1819-1900)

Procurement is the act of obtaining, acquiring or securing a product or service. It is something we carry on repeatedly in our lives outside of work and for many on occasions as part of our work. The essential difference to our approach is that when acting on our own behalf we may engage with the market as we wish, without recourse to procurement regulation. However, when obtaining a product or service for or on behalf of the State, Regional/Local Authorities, bodies governed by public law or public undertakings, we are required to adhere to the regulations.

Public Procurement Regulation

Generally this comprises of EU regulation and /or national regulation. There may also be, as with the Sligo Local Authorities, own organisation policy, complimenting the above, which also requires adherence. In any event when acting on behalf of the type of bodies listed above and with or without a formal contract we are always subject to regulation.

The detail and complexity of the regulation is, however, less prescriptive and restrictive for the more minor transactions.

Generally our commitment as a nation to standards of public procurement arises from our membership of the European Union (EU) but also from the General Agreement on Tariffs & Trade (GATT), our membership of the European Economic Area (EEA) and the World Trade Organization (WTO). A quick scan of the list of countries party to the organizations abov indicates membership to be entirely the ‘developed’ nations. The ‘non-developed’ nations deem it necessary to impose restriction on trade as they fear flooding of their markets by products from the developed countries, while the later aim to promote improved and expanding access to world markets to enable the continued growth and development of their economies. Regulation of public procurement promotes competition and at EU and WTO level proscribes national bias, subtle or otherwise, as would favour suppliers or manufacturers of an individual nation.

Principles that always apply

There are basic principles that apply to all public sector contracts regardless of value. These principles emanate from the Treaty of Rome and various court cases.

' When you pay too much all you lose is a little money.

When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing that which you bought it to do.’-John Ruskin (1819-1900)

Transparency

  • All aspects of procurement to be open
  • Advertise your intentions
  • Provide all necessary and appropriate information
  • Advertise your decisions

Example of a breach here would be failing to let the market know how you assess tenders.

Equal Treatment

  • Same rules to apply to all
  • Same rights of access to all
  • Objectively fair decisions

Examples of breach here include allowing amendments to a tender offer, changing the award criteria etc.

Proportionality

  • All measures used must be both necessary and appropriate

Examples of breach here would be requiring tenderers wishing to be included in a competition to have excessive levels of turnover, provide bonds/guarantees etc as are not necessary or appropriate etc.

Mutual Recognition

  • To professional qualifications
  • Nationality
  • Standards and Specifications
  • Performance capability

Examples of breaches here would be to exclude a person on the basis of being from a particular country, or requiring compliance with a particular standard eg EN 124, IS 1 etc.

It is important to have a sense of the above principles as fully setting the environment in which we always operate. There is sometimes a tendency to see the public procurement issue as being the matter of compliance with EU Directives and the terms thereof. Directives on procurement were introduced as a subsequent intervention to give effect to the requirements of the Treaty, this was not being achieved (national restrictions were proving difficult to break down) and to bring about an awareness of the Treatyís requirements. An example of a revision to the new Utilities Directive helps demonstrate this point. As it is now accepted that there is effective competition in the telecommunications sector, the new directive excludes that sector from the scope of its provisions. Treaty principles will of course continue to apply, but a detailed enforcement instrument, as a directive, is no longer considered necessary. The new directives will also include a mechanism for the exclusion of other sectors as liberalization and effective competition become a reality.

Courts tend to look at procurement in terms of Is there a ‘serious and manifest’ disregard (or lack of regard) to EU Treaty requirements? (Sometimes called the ‘Hands-off Approach’). A technical breach of a directive requirement such as failure to advertise in a particular organ is viewed by the courts as far less serious than a breach of a Treaty principle.

Viewing the public procurement environment in which we operate on the basis of Treaty principles rather than on exact interpretation of exact words and their literal interpretation enables us achieve fuller understanding and implementation as matches the intent. The following quotes from Lord Denning illustrate this point:

‘.... the Rome Treaty brings a new approach - English courts must now apply European Principles....’

‘English courts must follow the European pattern. No longer must they look at the words in meticulous detail or confine themselves to the English text.

‘They must look to the purpose and intent. They must deduce from the wording and the spirit of the Treaty the meaning of the Community Rules.’

As our present legislative and judicial system continued from that imposed by the English prior to our independence, Denning’s comments apply equally here. Continental Europe views and interprets legislation and regulation having regard to its purpose and intent. Our conditioning is to express legislation with the ‘... utmost exactness ...’ (Denning). In seeking to comply with procurement requirements it should not be a ‘one solution fits all to comply with regulation’ mindset; rather the task is to devise a procurement solution as meets the needs of the particular endeavour cognisant of and providing for the Treaty principles.

The EU principles governing public procurement existed and required to be complied with prior to issue of the first directive on Works in 1971. It is interesting to note that we were subject to the same procurement regime on joining the EEC in 1973 as we are today although it was not until later that we came to have regard to and take account of the obligations it imposes upon us. That which is additional today is a series of directives and court judgements that assist us towards understanding the purpose and intent of the Treaties thus furthering good implementation.

Outside of EU requirements the most important commitment to which Ireland is party is the Government Procurement Agreement (GPA) of the World Trade Organisation (WTO). The GPA sets rules on non-discrimination and transparent procedures similar to those of the EU. EU and GPA thresholds are now aligned and compliance with EU requirements ensures automatic compliance with the GPA.

Other Treaty Provisions

In addition to the principles discussed above there are a number of express provisions in the Treaty of Rome which apply to public procurement contracts. They are

  • Prohibition on discrimination on the basis of nationality (Art. 12)
  • Prohibition on quantitative restrictions on imports and all measures having equivalent effect (Art. 28). Example of a breach here would be a requirement for a product to bear the Guaranteed Irish Standard.
  • Freedom of movement of workers is guaranteed (Art 39)
  • Freedom of establishment in Member States is guaranteed (Art 43)
  • Companies to receive and enjoy treatment equal to that of natural persons (Art 48)
  • Freedom to provide services across Member States is guaranteed (Art 49)

It is worth noting here the situation with regard to use of standards to specify the purchaser’s requirements. At present purchasers may make reference to various instruments such as standards. However this should not be done as a de facto requirement, rather, only use the standard as a reference, enabling other solutions to be compared to that as would be provided by compliance with standard. The overriding rule is, if essential to refer to a standard then include the phrase ‘or equivalent.’ Similarly use of product/trade names is not prohibited but again only with the inclusion of or equivalent. Future directives will contain further provisions in this.

Some readers will remember the origin of the ‘or equivalent’ phrase as being the so called Dundalk Case. Here the contract specification specified pipes to IS 188. The European Court ruled this an infringement of the Treaty and that Dundalk UDC should have been prepared to accept any product ‘equivalent’ to that specified. This case (1988) was significant in causing us to sit up and have serious regard to procurement considerations.

Remember also that there is no difficulty in having technical dialogue with suppliers. ‘you may seek or accept advice in preparing specifications for a specific procurement, so long as this does not have the effect of precluding competition.’ The new directive makes explicit provision for interrogation of the market and facilitating the offering of designs and solutions to individual projects in advance of commencing a tender competition. Responses from the market would then be used by the promoter to prepare a design and specification for the particular need - armed with knowledge of products, solutions and technologies available in the marketplace. In the new directive this is termed Competitive Dialogue.

Right to Refuse Participation

The right to refuse entry to candidates or tenderers in certain exceptional circumstances is contained in the directives. Right to refuse exists for candidates who are

  • Bankrupt or subject to proceedings in that respect
  • Convicted of offence in respect of professional misconduct
  • Guilty of grave professional misconduct as can be shown
  • Failure to pay social security contributions
  • Failure to fulfil tax obligations. (This is not the C2 issue some readers will be familiar with C2 is only sought after the tenderer is selected and the contract is about to be awarded).
  • Guilty of serious misrepresentation in relation to the above

To avoid awarding a contract to persons who are not eligible because of one or more of the above, tenderers are usually requested to make and present with their tender, a declaration that they are not so affected. It is anticipated that in the future there will be an additional right to exclusion for offences in respect of money laundering.

In the next article (Summer 04 Contact) I propose to outline specific features of the directives and national procurement requirements pertinent to the activities of Local Authorities.

Comments or enquiries to bgavin@sligococo.ie

 
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