Utilities Contracts Regulations 2016

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Unlike 18 April 1930, when the BBC reported there was no news and played out with piano music, 18 April 2016 is an important date for utilities and their suppliers. Today the Utilities Contracts Regulations 2006 will be replaced by the Utilities Contracts Regulations 2016, transposing the Utilities Directive 2014/25/EU into law in England, Wales and Scotland. The new regulations extend the principles that have applied to public bodies since April 2015 under the Public Contracts Regulations 2015 to utilities and concession contracts.

These changes have been introduced to codify case law, simplify procedures, provide additional flexibility and facilitate the market participation of small and medium sized enterprises (SMEs) and start-ups.

So what do we need to be aware of? Here are some of the key changes and messages to consider.

Part A and Part B distinction is abolished: compliance may now be required where before it was not

The distinction between Part A and Part B services, which placed less onerous requirements on the procurement of services that were not considered to have a cross border interest (for example hotel and restaurant services, transport by rail, transport by water, legal services, education and health and social services) has been removed. In its place there is a “light touch” regime for a more restricted list of the current Part B services, above a threshold of €1 million. In short, some of the current Part B services will become subject to the full regime.

Procurement documents must be available online from the date of publication of the relevant contract notice: utilities must plan ahead and be prepared

Procurement documents must be available online from the date of publication of the relevant contract notice. This is the date of publication of the OJEU notice or, where a qualification system is used instead of an OJEU notice as the call for competition, the date of the ITT or ITN.

The definition of “procurement documents” is very broad, covering commercial, legal (terms and conditions) and technical requirements. This suggests a need for utilities to undergo a productive period of market consultation prior to issue of a contract notice.

Whether this requirement only applies where the relevant documents already exist or constitutes an obligation actually to produce all of the documents with the contract notice, is the subject of debate. On the latter interpretation, we must consider how complete the documents need to be. There has been conflicting advice on this point but the practical assumption should be that all procurement documents do need to be provided, though not necessarily in final form; particularly where competitive dialogue or the competitive procedure with negotiation is used.

Eight year term limit on framework agreements: call off evaluation criteria must be set out in the procurement documents and the framework agreement

The evaluation criteria, both for awarding entry onto a framework and also for placing orders under it, must now be set out in the procurement documents and in the relevant framework agreement. This is a huge departure for many utilities that are used to setting the criteria for mini-competitions at the time of call-off and reserving complete discretion when choosing to make direct awards. Framework agreements have long been a way for utilities to avoid numerous procurements on the same subject matter but the new regulations place an eight year term limit on the use of framework agreements by utilities. While direct awards are allowed as well as mini-competitions, the applicable criteria to determine how a direct award is to be made must also be provided from the outset.

“Substantial” variations will require a new procurement: utilities should build in flexibility on initial procurement or risk having to re-procure on variation

Variations to existing contracts valued at more than 15% of contract value for works contracts or more than 10% of contract value for services or supply contracts will require a new procurement where that variation is “substantial”. In line with existing case law, a modification will be considered to be substantial where it renders the contract materially different in character from the one initially concluded. A modification with a value below the procurement threshold or which is contemplated in some way in the contract will not require a new procurement. Utilities will therefore need to consider whether the intended contract is flexible enough to accommodate potential future requirements at the commencement of a procurement exercise.

Market participation of SMEs is facilitated: utilities are encouraged to look out for the “new kids on the block”

While there is no obligation on utilities to divide contracts into lots, the new regulations now recognise the potential benefits of doing so. The regulations seek to encourage utilities to think about SMEs from the outset by providing them with a discretion in applying a lotting strategy. Utilities may award more than one lot for a contract to the same supplier and may limit suppliers to one lot. The increased transparency provided by additional upfront information, a limit on using a turnover test so that the minimum required should not exceed twice the value of the contract (except in justified cases) and shortened timeframes all seek to make the procurement process quicker and less costly, enabling SMEs to compete more effectively.

For utilities, this means that pre-procurement preparation will become obligatory and no longer just best practice. Rushing into a procurement exercise without thorough preparatory work on key issues could be commercially disadvantageous and will also now put a utility at risk of challenge. Those bidding for utility contracts should similarly be prepared and resourced to take advantage of the information and documentation that should, under the new regulations, be available to them at an earlier stage.

This blog post has first appeared on the PLC Construction Blog, 18 April 2016

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