Public Law: James Falle, partner in our commercial team and head of the firm's procurement, competition and state aid practice, considers how the Concession Contracts Regulations 2016, SI 2016/273 (CCR 2016) have affected the procurement regime since their introduction six months ago.This article was first published on Lexis®PSL Public Law on 19 October 2016. Click for a free trial of Lexis®PSL.
In brief, what is the background to the CCR 2016?
Most procurement of goods and services by public authorities and regulated utilities has long been subject to EU and UK procurement law, including, most recently, the Public Contracts Regulations 2015, SI 2015/102 (PCR 2015) and the Utilities Contracts Regulations 2016, SI 2016/274 (UCR 2016).
By contrast, until the CCR 2016 came into force:
- procurement of public works concession contracts were regulated only to a limited extent by the Utilities Contracts Regulations 2006, SI 2006/6 (UCR 2006), the Public Contracts Regulations 2006 SI 2006/5 (PCR 2006) and the EU Treaty principles. An example of a works concession contract is a contract to build a new toll road and operate it for 15 years, with the contractor’s remuneration coming from the toll charges. In this case the contractor takes the risk of demand from motorists being insufficient to repay the contractor’s investment
- procurement of public service concession contracts were regulated only by the EU Treaty principles, and then only if the contract was of cross-border interest to contractors from other EU Member States. The EU Treaty principles include the obligations of non-discrimination, equal treatment, transparency and proportionality. An example of a services concession contract is a contract to operate the toll road and receive remuneration from the toll charges, where the contractor does not also build the road. As with the works concession contract, the contractor takes the demand risk
Many important high value public concession contracts are awarded by contracting authorities every year. To ensure a level playing field, the European Commission included concessions in their modernisation proposals for the EU procurement rules, which led to the Concessions Contracts Directive 2014/23/EU being adopted.This Directive was implemented in England, Wales and Northern Ireland by the CCR 2016.
How has the CCR 2016 changed the public procurement process in the UK?
Most concession contracts for either works or services must now be procured following a competitive tendering process. This process is started by placing an advertisement in the Official Journal of the European Union (OJEU). Previously service concessions could be advertised less formally (for example on the contracting authority’s website). Although significantly more flexible than the processes under the UCR 2016 and PCR 2015, procurements under the CCR 2016 must comply with the EU Treaty principles as well as with many new requirements such as obligations to:
- verify the standing of bidders (by asking pre-qualification/standard selection questions typical of those used in other procurement processes)
- publish all contract documents at the start of the procurement procedure
- limit the duration of the concession contract to five years or (if longer) the period necessary for the contractor to expect to recoup its investment
- publish the award criteria in descending order of importance (a less onerous obligation than under the PCR 2015/UCR 2016
Additionally, disgruntled bidders who are prejudiced by breaches of the CCR 2016 have access to a full range of remedies. These remedies mirror the procedures under the PCR 2015 and the UCR 2016. If court proceedings start before contract signing, this automatically suspends the contracting authority’s/utility’s right to sign the contract, the courts can set aside the contract award decision and it can award damages. If court proceedings start after the contract is concluded, the courts can declare a contract ineffective (void) and it can fine the contracting authority/utility.
What are the key challenges for contracting authorities and practitioners operating under the CCR 2016?
Contracting authorities will be familiar with the procurement processes under the UCR 2016 and PCR 2015 and can, if they wish, mimic or adapt their procedures them to suit their needs when procuring concessions. This may make compliance with the CCR 2016 relatively ‘familiar’ and straightforward.
However, a practical challenge will be to avoid this temptation in cases where it is not necessary and could discourage good providers from coming forward. A particular risk group will be SMEs, which often struggle to win contracts that are awarded following a formal public procurement process.
Contracting authorities and utilities will also continue to find it difficult to identify the boundary between whether a contract should be treated as a concession (now under the CCR 2016) or a services contract/works contract (under the PCR 2015 or the UCR 2016). The distinction is still important given the very different levels of regulation.
Have there been any significant UK/EU public procurement court cases in the last six months? What should contracting authorities and practitioners learn from those cases?
The most significant EU case concerns an agreement to settle litigation—case C-549/14 Finn Frogne A/S v Rigspolitiet ved Center for Beredskabskommunikation. As part of the settlement the parties made changes to the public contract. The Court of Justice held that settlement agreements which vary public contracts must be dealt with in the same way as other changes to public contracts: the fact that there are objectively justifiable reasons for agreeing the changes to the contract is not relevant.
The Court of Justice also made clear that this applies even where the settlement resulted in a reduction in scope and price of the contract. The logic is that the smaller contract could have been accessible to smaller firms that were not able to bid for the original, larger contract.
The case is potentially relevant to procurements under both the PCR 2015, UCR 2016 and the CCR 2016. It demonstrates to authorities the importance of considering whether changes to the contract are permitted under the procurement rules, even when the changes are agreed in an attempt to settle litigation in order to ensure continued performance or to avoid termination of the contract. Changes can be made to contracts if the change control provisions are sufficiently robust. In particular, they should be clear and precise, anticipating the specific scope and nature of the possible changes and (preferably) the impact on price. This case highlights the increased importance now for authorities to carefully consider the change control clause on a case by case basis when drafting the original contract, rather than treating it a standard boilerplate clause.
Are there any significant grey areas or aspects of the CCR 2016 that you would like to see further reviewed or clarified?
As is the case under the PCR 2015, it is not clear whether declarations of ineffectiveness are available for certain types of public procurements. This relates to procurements of certain social and other services that can be started by publication of a prior information notice (PIN) rather than a contract notice.
What do you consider to be the key practical implications of Brexit for concessions contract procurement in the UK?
For the time being, the CCR 2016 continue to apply despite the Brexit vote. In the longer term, there could be changes, depending on the outcome of the Brexit negotiations. However, since regulation of concession contracts is light touch, it is possible we will only see minor changes such as a requirement to advertise on Contracts Finder rather than in the OJEU. Additionally, many works concession contracts are regulated under World Trade Organization rules, and this will limit the ability to repeal the CCR 2016.
In practical terms, how can contracting authorities and practitioners prepare for further change?
Beyond monitoring government policy and progress in Brexit negotiations, contracting authorities should continue to deliver best value through good practice competitive tendering. Complying with the current CCR 2016 should assist in this.
Is there any particular government guidance on concessions contract procurement you would recommend?
For an introduction to the rules on concessions, it is worth reading Crown Commercial Service’s Handbook for the Concession Contracts Regulations 2016.
Learn more on this topic by contacting James on +44 (0)1392 411221 or email firstname.lastname@example.org