This article was first published in LexisPSL on 19/10/2016.
The Crown Commercial Service (CCS) has issued new guidance on the social and environmental aspects of the Public Contracts Regulations 2015 SI 2015/102 (PCR 2015). The guidance outlines how contracting authorities may incorporate criteria for compliance with social environmental and labour law in the public procurement process and when assessing the performance of public contracts.
1. What prompted the guidance? What is the policy background?
The new EU Directive 24/14 on public procurement was implemented in England and Wales by the Public Contracts Regulations 2015 (PCR 2015) in February last year. This was the biggest shake up of the public procurement regime in a decade. The PCR 2015 contain greater flexibilities around using public procurement to promote supplier (and supply chain) compliance with social environmental and labour laws as well as wider scope for evaluating social environmental and labour law issues as part of the award criteria. That said the government's interest in using public procurement as a vehicle for the promotion of these (and other) policy considerations long predates the PCR 2015 - see for example the introduction of the Public Services (Social Value) Act 2012 which requires contracting authorities to have regard to economic social and environmental well-being when commissioning public services contracts.
At around the same time that this guidance was issued the Crown Commercial Service also released an updated Selection Questionnaire to replace the old Pre-Qualification Questionnaire. The SQ is mandated for use in over-threshold procurements and contains the 'exclusion' criteria required by the Directive including those around social environmental and labour law compliance and as such there is a relationship between these two documents which have both been published recently.
2. What are the key issues addressed by the guidance?
There are two core issues: (1) how can contracting authorities ensure their supply chain is compliant with social environmental and labour law and (2) how can these factors be lawfully evaluated in the context of a public procurement exercise?
3. What should contracting authorities do in order to ensure compliance with relevant social environmental and labour laws in delivering public contracts? Is the guidance helpful in clarifying the law in this area?
- The guidance puts the onus onto contracting authorities to decide how they ensure suppliers are compliant and that the approach adopted may vary on a case by case basis. However it makes the following suggestions:
- Do ensure enough information is obtained from the successful bidder to check it satisfied the exclusion criteria (which amongst other things assess compliance with social environmental and labour laws); and
- Consider the risks of breaches as present within the particular supply chain and carry out checks to an appropriate level of sub-contracting (this will vary depending on the contract value and type).
Also the guidance requires contracting authorities to use the standard wording provided at Annex B giving the contracting authority a right to terminate a contract if breaches of social environmental or labour law come to light.
4. What practical guidance is provided in relation to exclusion specification award and contract lifecycle?
In relation to exclusion the guidance helpfully sets out how exclusion grounds may be used to further social policy goals. Where a supplier is convicted of terrorist child labour or human trafficking offences they must be excluded. Where the offence is a violation of social labour or environmental conventions then the contractor may be excluded. The guidance helpfully also references the new Regulation 71 obligation to ensure that sub-contractors who breach these exclusion criteria are indeed replaced and contains an FAQ around how far down the supply chain the contracting authority is expected to probe. Interestingly the guidance does not mention the new 'self-cleaning' mechanism set out at Regulation 57(13) onwards. This mechanism allows a supplier who has breached one of these criteria to provide evidence of measures it has taken to address the issue. The contracting authority can then decide whether it views these measures as adequate and whether to exclude the supplier.
Around specification the guidance highlights how labelling requirements could be used to allow a contracting authority to further environmental goals (for example labels to certify energy efficiency standards). There is a reminder of the conditions the label concerned must meet in order to be acceptable under the PCR 2015 (particularly the requirements for use of the label must be based on objective and non-discriminatory criteria and be established by an authority not linked to the contracting authority 'equivalent' labels must also be accepted and there must be a clear with the subject matter of the contract in question.). The guidance also notes the requirement at Regulation 42(8) to actively include accessibility criteria where the end result of the procurement is product or service destined for use by individuals.
In terms of award criteria attention is drawn to the fact that Regulation 67(2) now expressly states that award criteria may include environmental or social aspects as long as a clear link with the subject matter of the contract can be demonstrated. So where products are being acquired the criteria could take into account not only price and operating cost but also social/environmental issues such as recyclability and the involvement of disadvantaged persons in the manufacturing process. Other examples might include fair trade requirements such as the requirement to pay a fair price to producers. The new provisions at Regulation 68 on life cycle costing allow the assessment of the cost over the whole lifecycle of a product and allow scope to consider environmental factors such as disposal costs.
The guidance reminds readers that the Directive does not permit contracting authorities to require suppliers to have corporate social responsibility or environmental responsibility policies in place in a generic sense. This is because award criteria (including social or economic award criteria) need to be linked to the specific contract being procured.
Finally there is a new provision expressly requiring contracting authorities to reject tenders that are abnormally low where the reasons for the low tender is because the supplier is not compliant with national or international labour social or environmental law.
Once the contract has been signed social and environmental factors can still play a role. For example Regulation 70 allows special conditions to be included in the contract around its performance provided this has been highlighted in the procurement documents and the condition can properly be linked to the contract. An example might be conditions around recycling of waste or packaging or in relation to fair trade requirements.
5. What are the key overarching policy and statutory requirements that contracting authorities should take account of in delivering public contracts in addition to the environmental and societal impact? Is this expected to change in light of Brexit?
While the general approach of the government is to favour light touch regulation nonetheless it has not shied away from the opportunity to use public procurement regulation as a tool through which to further policy goals. As well as social and environmental goals we have seen other policy objectives. For example:
- Improving access to public contracts for small and medium sized entities (SMEs). This policy goal has led to extra regulation (at Part 4 of the Public Contracts Regulations 2015) around advertising on Contracts Finder and rules around the use of the selection stage to ensure that SMEs are not prejudiced unduly); and
- Increased transparency about opportunities available and contracts awarded. Again the aim of the Contracts Finder site has been to improve the position here although perhaps recent Crown Commercial Service reminders about these obligations suggest that not all contracting authorities are compliant.
Although it looks like we will end up with a 'hard Brexit' and a very British solution to our relationship with Europe nonetheless we are unlikely to see much change in the public procurement regime at least in the shorter to medium term (although longer term it is possible that the regime will be tweaked or recast). Public procurement is unlikely to be high up the agenda of the post-Brexit legislators. In any event as the above shows the government has always had a healthy appetite for regulation in this area often going beyond the core requirements imposed by the EU Directives.
6. What are the key takeaways for public sector lawyers? Are there any grey areas?
Public procurement is notorious for its 'grey areas' and the issues practitioners grapple with are rarely straightforward. Instead we are usually required to apply core principles to a particular circumstance in order to arrive at a view and make a judgment as to how best to proceed. The question of how to introduce social and environmental factors into a public procurement is no exception. The new regime does introduce greater flexibility to evaluate these issues but do bear in mind that:
- Any criteria must be properly linked to the subject matter of the contract and not merely generic; generalised statements about compliance will be insufficient and could open the procurement;
- A contracting authority must not impose requirements that are discriminatory for example requiring an environmental label that is only available in one member state; and
- Transparency is key so for example any contract conditions must be set out in the procurement documents any life cycle costing formula needs to be objectively based and set out upfront in the procurement documents.
7. When is the new guidance effective from? Is further guidance expected?
The new guidance is effective now. Given the CCS? workload it is perhaps unlikely that further guidance in this area will be issued for a while now unless responses to this document indicate a need for this.