The general message of the moment is that the UK public sector must spend less to get more. Last year in the context of the government’s ’Comprehensive Spending Review’, Sir Philip Green concluded that the overall central government procurement function is run badly and with gross inefficiencies occurring repeatedly. He adds that with the government’s buying power, the public sector should get better deals all round and save lots of money, (or at least, Top Shop would if given that level of spend)!
Many public authorities tie themselves in knots over this and particularly concern themselves with public procurement (otherwise known as “OJEU”) laws that require mandatory open advertising of contracts over certain values and respect of a variety of tendering procedures.
These laws are complex and compliance in itself can tie up a lot of resource in ensuring everything is done right. To make matters worse, the last two to three years has seen successful legal challenges (on OJEU infringements) against local authorities rocket upwards.
On top of that, the law has even changed now to heighten the risk if the OJEU process is not run correctly. The consequences of procurement breach by local authorities now include the possibility of authorities being fined and contracts being declared ineffective even after they have been entered into (not to mention damages to third parties).
Many authorities feel caught between a rock and a hard place – they want to make savings via flexible procurement, but feel trapped and paranoid about breaching OJEU rules. In this edition of Public Procurement Matters, we consider a “top ten” list of cost saving ideas for procurement that do not breach the law. A procurement audit and review programme (possibly with training included) may analyse the state of a given authority’s various procurements and with some of the ideas below in mind determine routes forward for saving money in future.
1. Buy together – a bigger spend drives a better price, but beware of improperly formed framework agreements
The simple message from Sir Philip Green is use buyer power better. This is simple and obvious and the procurement rules do not prevent it. Provided it is plain from the OJEU notice and/or supporting documents exactly who is purchasing, and the estimated spend matches this, there should never be a difficulty associated with such leveraging. Where difficulties can arise is careless use of so-called framework agreements, particularly where purchasing authorities seek to “piggy back” against past procurements run by others that appear to have secured a good deal. The point of a framework agreement is to create a mechanism by which multiple contracts can be “called off” without having to go through the trouble of individual OJEU competitions. This is great if done correctly, but does not offer legal protection if done incorrectly. Some common mistakes include:
- buying from a framework panel that was not originally procured envisaging you as one of the authorities entitled to purchase from it;
- using a framework that may have named groups of purchasing authorities – perhaps “local authorities in the north” or “RSLs in the Midlands” for example – that whilst arguably describing you within a class of buyers set out from the outset, never had your authority to buy on your behalf; or
- using a framework but not following the procedures set out in the original framework agreement for handling call offs (eg. mini competitions between suppliers on the panel).
Any of the above mistakes can lead to exposure to legal challenge, but a bit of thought and planning beforehand can avoid all of them. NB. The OGC has recently issued a practice note addressing these exact points vis-à-vis framework agreements.
2. Use a pre-existing framework that is available to you
As noted above frameworks can be a great cost saver and harnessed without risk if used correctly. Look for frameworks that do not infringe the above principles and obtain the leverage these frameworks (should) offer. Consider OGC Buying Solutions if necessary, albeit experience suggests this is not the ideal solution for everyone.
3. Terminate bad contracts and renegotiate others
Many existing contracts allow termination under certain circumstances that need not entail breach or fault on any side. If a particular contract is delivering thoroughly bad value for money, for whatever reason, then consider terminating it and starting again. A new procurement involves a degree of time and effort but this may be more than worth it in eventual savings, and in any event there may be an easy framework with which you can legitimately ally yourself without having to run a formal OJEU, or other partner organisations having a similar need with whom you can join together to share the burden and increase buying power at the same time. Some contracts may be beyond redemption but others might be tweaked to provide a better deal, without incurring a legal need for a new OJEU procedure.
Contracts do not normally require re-advertising if what in effect happens is that the deal is renegotiated to the benefit of the purchasing authority. Liability to readvertise typically only occurs when there is a material change in contracts to the advantage of suppliers, and which had they been known at the outset would have caused bidders to behave differently. Accordingly, suppliers that are particularly anxious to retain business may be open to reconsidering their terms and prices, particularly in markets where it is self-evident that prices have gone down and that better terms might public procurement matters be available. They are likely to think a drop in price is worthit to secure the business in the short term rather than face competition again.
4. Don’t use complex and drawn out procedures if you don’t have to
When the OJEU rules were revamped in 2006 they included a new procedure – competitive dialogue – which was heralded as a great innovation in complex procurements allowing greater flexibility, particularly when purchasing authorities were less sure at the outset of exactly what they wanted or how they wanted it delivered. Indeed, the competitive dialogue has been very successful in some cases but what has also happened is that it has become almost de rigeur in many ‘simpler’ cases when it is not necessary (and legally questionable).
The problem with it is that it is inherently much more complicated and costly to run, with much greater scope to challenge. It therefore takes longer, costs more and ties up more resource. The simple message is – save it for when absolutely necessary only and use the simpler procedures (open or restricted) when you can.
5. Note when full OJEU rules do not apply
Many authorities use a full OJEU contest whether or not the law obliges them to. A detailed understanding of the rules combined with a quick procurement audit should allow you to recognise from amongst your various purchases where the OJEU rules do and do not apply. Typical examples of contracts falling outside the OJEU rules include:
- sub threshold contracts – remember the general value threshold for services and supply contracts (above which the OJEU rules apply) is currently £156,442, whereas for works contracts it is £3,926,260;
- Part B services – remember that services contracts are split into two sections, the second segment of which (classified as “Part B”) may not require a full OJEU process (including initial OJEU advert) to be run;
- services concessions – where the remuneration for delivery of a service lies in its exploitation to the market (i.e. risk predominantly with the supplier) then the OJEU rules do not apply;
- defence contracts – contracts that are clearly for military and defence applications are exempt (subject to new rules to be enacted later this year); and
- land development agreements – buying and selling land does not create an OJEU obligation, but where land deals are complicated by associated development plans confusion can arise as to when OJEU obligations follow, with conservative approaches often take to prevent any possibility of legal challenge. However, land developments can be structured to avoid creating OJEU issues in some cases, which may be helpful depending on the facts.
In all of the above cases and more there is no need to follow the full OJEU process if it will not add value. We should note for completeness that the above exceptions all contain various nuances and often require careful consideration. For bigger contracts of certain cross-border interest there
may also be legal obligations flowing from EU law which require at least some form of open competition even in the absence of OJEU, but this will not apply in every case.
6. Embrace the concession model – shift the risk on to the suppliers
As mentioned above in respect of services, a “concession” model to a public contract involves the supplier being paid (completely or in the majority) not by the authority engaging it, but through taking its chances to derive income through the efficiency with which it is able to deliver the contract and pass on the charges to the public.
In short, shifting the risk on to the supplier – if possible – can deliver savings through lack of up front payment as well as less administration.
7. Don’t contract out at all – deliver the contract yourself
In some cases contracts may be delivered through existing staff, or by employing extra staff or temporary pro bono secondments. Employment contracts do not create OJEU procurements. Whilst adding to headcount may sound counter-intuitive in times of general cuts it may be that such a method would in fact deliver savings – you may cut out another business’ profit margins for a start. If using a secondment model beware any suggestion that it is a procurement by another name by offering tangible rewards in kind in return for secondments.
Another form of achieving this same effect is by delivery through an “in house” subsidiary organisation within your authority group. The “Teckal” rule states that an authority may engage a subsidiary (without incurring an OJEU issue) that it owns and controls in the same way as it does its known departments, and which performs the bulk of its activities for that authority.
8. Empower community groups – they may get things done without being procured
The Big Society includes the notion that properly empowered and facilitated forms of social and cooperative enterprises can deliver all sorts of benefits to society at large that previously were the domain of local authorities. Local authorities are currently considering stopping various services offered to their communities that are not obligatory by law. Some carefully targeted grant funding or other encouragements to community groups that deliver various services may, if structured correctly, fall short of creating procurement obligations, and may see services delivered effectively for very little cost.
This is not an idea for green procurement – which in itself is a live issue with various OJEU implications – but simply a commitment to make better use of standard forms and documents, to prevent “reinventing the wheel” so frequently in procurement documents and precedents. It sounds simple but it is remarkable how much time is committed to rewriting documents that are profoundly similar.
10. Use e-procurement
Last but not least – automate. The European Commission has gone on record to say it wishes to encourage more wholescale use of e-procurement methods (which may be perfectly OJEU compliant) across the EU.
E-procurement so far does not lend itself to anything which requires any degree of subjectivity of assessment but for standard commodity procurement – where effectively price is the only real criterion once product standards are set – e-procurement may be the most effective procurement method. Setting up the hardware and software necessary to run such competitions may require an initial investment but after that the savings should manifest themselves over time.
All the above have one major theme in common – which is that if a bit more thought is applied to the procurement function generally, and in particular towards planning effective procurements at the outset, then significant savings should be possible.
Clearly the OJEU rules are not always user friendly but they need not be a constant liability either. They may be safely navigated with appropriate forethought and training, and thereby work side by side with increased efficiency and value.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.