Good Governance - effective use of IT

Written evidence submitted by Olswang LLP (IT 58)

SMARTER PUBLIC PROCUREMENT IN THE UK

1. In his speech to the Tory conference in early March 2011, David Cameron directed his ire at government bureaucrats and public sector procurement managers saying:

"…we are taking on the enemies of enterprise. The bureaucrats in government departments who concoct those ridiculous rules and regulations that make life impossible, particularly for small firms. … The public sector procurement managers who think that the answer to everything is a big contract with a big business and who shut out millions of Britain's small and medium sized companies from a massive potential market."

2. It is not unusual for politicians to attack the public procurement regime in the UK. However, it is very important to be particular in terms of what should be criticised. Is it (i) the regulatory regime, namely the Public Contracts Regulations 2006 as amended (the "Regulations"), the majority of which simply brings into domestic law the UK's obligations under the EU public procurement Directive (2004/18/EC) or is it (ii) the manner in which that regime is interpreted by UK policy makers – at central and local level?

3. Having worked in the area of public procurement law for over a decade, we are firmly of the view that the regulatory regime is not as inflexible from a commercial perspective as is commonly made out by the press and others. More often that not, restrictions arise because those who interpret the rules in central government either adopt an overly restrictive approach – for fear of European Commission infringement proceedings against the UK – or simply do not provide guidance on an issue and thus leave small, less expert, individual public authorities to find their own way through the Regulations.

4. Whilst there are moves afoot at European level – namely the European Commission's ongoing consultation on its Green Paper on the modernisation of EU public procurement policy, 'Towards a more efficient European Procurement Market' (dated 27 January 2011) - this will take some years and will face difficulties due to the need to align the different demands and current practices of the 27 EU Member States. So, what can be done now in order for UK public authorities to procure, particularly IT, in a smarter fashion?

5. We would propose that serious consideration is given on a more frequent basis to the use of two procurement routes. Namely,

a. the use of the negotiated procedure (regulations 13,14 and 17 of the Regulations); and

b. the use of multi-party framework agreements (regulation 19 of the Regulations).

6. Negotiated procedure: It is important to remember that there are two versions of the negotiated procedure – with or without a contract advert in the Official Journal of the EU ("OJEU"). Clearly, in relation to the version without an advert, which is pure direct tendering, there are limited circumstances where the procedure can be used as this is a radical departure from the main aim of public procurement law – to open up public contracts to cross-border competition. However, the key point which should be borne in mind is that both versions of the procedure are on the face of the legislation, permissible and should be used where appropriate.

7. The reality is that, for policy as opposed to legislative reasons, UK public authorities very rarely consider the applicability of the negotiated procedure. This is a real shame and is an area where we are out of step with other EU Member States such as Germany. We would advocate a more robust, confident approach to the interpretation of these provisions to cut UK procurement red tape.

8. Since the UK introduced the Regulations the official OGC policy steer has been that the "new" Competitive Dialogue procedure should be used for complex contracts (e.g. PPPs) as opposed to the negotiated procedure (which, prior to 2006, had been used for complicated procurements such as PFIs). In the new order, the negotiated procedure is to be reserved for 'exceptional circumstances' such as the London Underground PPP deal – i.e. on very few occasions (see paragraph 2 of the OGC Guidance on the Competitive Dialogue Procedure dated January 2006).

9. However, in Germany for instance, such a rigid interpretation of the EU public procurement Directive has not been taken. There, seemingly concerned about the new and untested nature of the Competitive Dialogue procedure, the negotiated procedure continues to be used for complicated procurements and it appears from the list of infraction cases against Member States that the European Commission is not overly concerned about the legality of this approach.

10. Obviously, the negotiated procedure without an advert is a very easy procedure to use, with minimal red tape, but even the version with an OJEU advert has significant advantages over the other three procurement procedures (i.e. Competitive Dialogue, Restricted and Open). The only mandatory time scale with this procedure is the minimum 37 days – normally reduced to 30 days as authorities send their OJEU adverts to Luxembourg electronically - which must be allowed between the publication of the OJEU advert and the deadline for receipt of requests to be selected to negotiate (this deadline does not apply to the use of the negotiated procedure without an advert). Provided that the process which is then adopted is run in a fair and proper manner - and respecting the EU Treaty principles as far as possible in the circumstances is a good way of achieving that – there should be limited procedural complexity.

11. Thus, we would advocate that public authorities should not be fearful of legitimately using the negotiated procedure and should routinely give some thought to whether an individual procurement fits within one of the justifications for using either version of the negotiated procedure. As ever, support from central government in this regard would be welcomed by the myriad of smaller, regulated public procurers.

12. If this is not done, the risk is that UK public authorities will be needlessly held back compared to their Continental neighbours, whose current practices may well have been picked up by Professor Mario Monti - no less than a former European Commissioner in the Directorate-General which handles EU public procurement law - who in his May 2010 report on the single market to the European Commission posed the question of whether the negotiated procedure with an OJEU advert should become the standard procedure for the public procurement regime.

13. Framework agreements: Since their introduction into UK legislation in 2006 there has been a massive uptake of this very convenient procurement mechanism for making repeat purchases over a period of time – up to 4 years (longer in exceptional circumstances). Whilst these structures have faced criticism, largely on the basis that they exclude SMEs from participating (at least at the prime contractor level), they can be a means of innovative, smart procurement provided that the general tenets of the EU Treaty – notably transparency – are respected.

14. The framework provisions require that there is an open, competitive procurement for the appointment of framework places, which can go to a number of providers. The overarching framework agreement needs to be broad enough to cover all of the potential phases of the particular programme which is to be undertaken – for example an IT programme of work – so that the market players can make a sensible decision as to whether they want to bid for a place or not. Thereafter, each time a particular work stream arises, the public authority can select one of the framework providers to undertake the work without the need for another full public procurement process commencing with an OJEU advert. Ideally, in order to ensure that the agreement is as pro-competitive as possible, the authority would run a mini-competition between the framework providers for the award of a particular tranche of work and may well insist upon certain key sub-contracts being openly competed by the successful provider in order to open up opportunities for smaller firms.

15. Provided that sufficient procurement planning takes place and there is sufficient transparency so that the market knows what is to happen over the years, multi-party framework agreements can be used in an innovative and flexible manner to ensure that evolving, medium-term requirements - such as IT infrastructure - can be delivered over time by different providers. Instead of offering a single provider a very long term contract for services, which may not deliver optimal flexibility and value for money over the life of the contract, a more agile procurement process can be devised using the framework agreement model.

16. Such a model would require sensible, commercial thinking on behalf of both public authorities and market providers alike. Gone would be the days of large, long-term deals so advantageous to the companies which win – which frequently, through scope creep, end up morphing into even larger beasts which lock-out the SMEs referred to by David Cameron. A public authority would not have the crutch of one service provider to satisfy its every need but would have the opportunity to operate in a more fluid manner, testing the market to obtain the optimal offering for each increment of work. Whilst issues such as ownership of IPR would need to be addressed (i.e. it should remain with the public sector), the framework agreement model would have the benefit of harnessing the skills of a relatively broad range of service providers with minimal procurement administration.

March 2011