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Utilities Contracts Regulations 2016
These are in force from 18 April 2016, replacing the 2006 regulations of the same name for all in-scope procurements commenced on or after that date.
Historically, the procurement regime for Utilities has included more procedural flexibility than the standard public procurement regime. In particular, there have been few restrictions on the use of framework agreements and no barriers to a Utility using the negotiated procedure with notice route. The UCR 2016 increase flexibilities in some respect but in other areas they bring an increase rather than a decrease in regulation. While the UCR 2016 do represent a major change for the Utility sector, as many of their provisions flow from the Public Contracts Regulations 2015, which have already been in force for over a year, to that degree at least, the trail has already been blazed and some custom and practice established. Utilities seeking to understand the UCR 2016 therefore benefit from some of the guidance, expertise and consensus around the practical application and interpretation of some of these new provisions which has built up over the last twelve months or so in the public procurement context.
As under the UCR 2006, the UCR 2016 apply to the award of contracts by “Utilities” as part of, or ancillary to, its carrying out one of the one of the relevant utility “activities”.
Unlike the UCR 2006, which contained a list of named Utilities, the UCR 2016 simply relies on the definitions of a Utility (at Regulation 5) to determine whether a body is caught. A Utility may be:
- a “contracting authority” (i.e. broadly speaking, a public body);
- a public undertaking (i.e. a body over which a contracting authority exercises a dominant influence); or
- an entity that carries out the relevant activity by virtue of being granted “special and exclusive rights” to do so. Where an operator is selected and granted the right to carry out the activity following a procedure which involved adequate publicity and based on the application of objective selection criteria then it is not within scope the UCR 2016. A compliant process run under any of the UCR 2016, the Public Contracts Regulations 2015 (“PCR 2015”) or the Concession Contracts Regulations 2016 will be sufficient for these purposes.
These include energy, water, transport, ports, airports, postal services and fuel extraction (see Regulations 9-15).
As under the UCR 2006, certain types of contract are excluded from the scope of the UCR 2016, and the regime will only apply if contract values exceed certain thresholds. From 1 January 2018, these thresholds are (1) over £363,424 (for supplies or services contracts); (2) over £4,551,413 (for works contracts); or (3) over £820,370 (for social and other services contracts falling within the "light touch regime").
Regulation 21 sets out various types of services contracts that are excluded from the scope (e.g. employment contracts, public passenger services contracts, contracts for the acquisition of land, and so on).
A new feature in the UCR 2016 are the exemptions for so called “in-house” contracts and for contracts involving joint co-operation between public bodies; the UCR 2016 have written into statute the Teckal and Hamburg cases. Note, in particular, that these provisions only apply to Utilities which are also contracting authorities.
- So called “in-house” contracts – the UCR 2016 do not apply where a contract is awarded to an entity which is controlled by the contracting authority Utility (or a number of Utilities) and which does more that 80% of its business with that controlling contracting authority Utility(s). The same principle applies in reverse for contracts awarded by the controlled entity to its controlling Utility(s); or
- Joint co-operation between contracting authority Utilities – the UCR 2016 do not apply where the contract is being awarded exclusively between two or more contracting authority Utilities and which implements co-operation between those Utilities with the aim of ensuring the public services they have to perform are provided. The co-operation must be governed solely by considerations in the public interest and the participating Utilities cannot perform more than 20% of the activities concerned on the open market.
For (private sector) Utilities the existing exemption for affiliated undertakings (i.e. in-group companies) also applies under the UCR 2016; a contract awarded by a Utility to an ‘affiliated undertaking’ is not covered by the UCR2016 if at least 80% of the affiliated undertaking’s turnover (in the preceding 3 years) derives from provision of works/services/supplies to the Utility or other companies within its group. ‘group’ companies. Likewise, the existing exemption for the award of a contract by a Utility to a joint venture the members of which are all Utilities (or vice versa) continues (subject to certain conditions) to be available in the UCR 2016.
It has always been open to Utilities to engage the market prior to making a call for competition, but this possibility is now expressly set out at Regulation 58. Provided that the general principles of transparency, equality of treatment and non-discrimination are respected, information gained as part of a pre-market engagement exercise may be used in the design of the subsequent procurement process.
Given the application of the general EC Treaty principles, there has always been a duty on a Utility to take steps to prevent conflicts of interest and prevent unfair advantage (to the extent possible) when running a procurement process. The UCR 2016 now give express voice to these obligations.
Regulation 42 (relating to conflicts of interest) - requires a Utility to take steps to prevent, identify and remedy conflicts of interest.
Regulation 59 (prior involvement of bidders) – requires the Utility to take appropriate measures, to “level the playing field” and ensure competition is not distorted, where a bidder has had prior involvement in the preparation of the procurement or its strategy (e.g. through the pre-market engagement permitted under Regulation 58). Such measures to include: the provision of information which was available to those previously involved and fixing adequate time limits to allow others not involved to catch up. Note that exclusion of a bidder, based on its prior involvement, is only possible as a final resort where no other remedial measures suffice.
Utilities continue to have a choice of three different ways to call for competition: (1) the individual contract (OJEU) notice, (2) the periodic indicative notice or (3) the qualification system notice. The rules for using qualification systems have changed slightly; Regulation 77(10) makes it explicit that “any charges that are billed in connection with requests for qualification or with updating or conserving an already obtained qualification pursuant to the system shall be proportionate to the generated costs”.
The new format OJEU notices and forms to be used are all available on the simap
website and e-senders of notices should, by now, have converted their systems to reflect the new standard forms.
Regulation 73 requires the procurement documents (a broad definition that would include the OJEU notice, technical specifications, PQQ, ITT, evaluation scheme, draft terms and conditions) to be made available electronically (free of charge, on an unrestricted, full direct access basis) from the date of the OJEU notice. Given that Utilities have historically tended to prepare procurement documents in a linear fashion (e.g. to publish the call for competition and then prepare the ITT documentation while awaiting expressions of interest) this represents a step change in practice. A similar provision appears in the public procurement context, and the Crown Commercial Service has issued guidance suggesting that, in some circumstances at least, there may be some latitude around how this obligation is interpreted. Further detail on this is available at our blog post here
In the Utilities context (contrasted with the public procurement context) there are no restrictions as to which procurement procedure may be used, meaning that historically the Negotiated procedure (with notice) has been a popular choice for Utilities (with the Open and Restricted procedures also having been available). These options all remain, and with shorter timeframes too.
Also, two extra procedures are now available; the Competitive Dialogue process and the Innovation Partnership:
- The Competitive Dialogue process is available to Utilities for the first time (see Regulation 48). It allows a Utility to have dialogue with short-listed bidders (which can be carried out in stages) to identify the solution(s) which will best meet its needs; and thereafter to invite final tenders based on these. It is possible to negotiate with the preferred bidder provided that this does not materially modify the nature of the procurement or distort competition; and
- The Innovation Partnership (Regulation 49) is a very new procedure, intended to allow for both the research & development and also the eventual purchase of an innovative product or service to take place within the same single procurement process, during which the number of partners may be reduced in stages (with transparency and other safeguards built in).
Broadly speaking, services that were previously classed as Part B Services under the UCR 2006 (including, for example, legal services and certain transport services) are now listed at Schedule 3 of the UCR 2016 and will fall under the so-called “Light Touch Regime” where they are procured as part of the carrying out of a relevant utility activity.
The significant change here is that, where these service contracts exceed the threshold of £785,530, they must now be advertised in the OJEU and a fair and transparent procurement process followed (although the regulations do not prescribe a particular process). The Crown Commercial Service has issued (in the public procurement context) this guidance
on its view of the design of a light touch procurement, including the recommendation that a standstill period be held. We presume it would recommend a similar approach in the Utilities context.
This is an area where the UCR 2016 have increased the level of regulation. Previously, frameworks were subject to very limited regulation and the UCR 2006 was silent on the rules for making call offs. Under the UCR 2016, however, there is for the first time a limit on the maximum term of a framework agreement (8 years, unless exceptional circumstances justify a longer term). There are also express requirements on the method for making call offs from frameworks and the holding of mini-competitions. These are set out in Regulation 51.
Utilities that are contracting authorities must include the up to date mandatory exclusion criteria as set out in Regulation 57(1)-(5) of the PCR 2015 (note that from 18 April this is itself updated to include reference to offences under the Modern Slavery Act 2015). Private sector Utilities may include this but need not.
All Utilities may, but are not obliged to, use the discretionary exclusion criteria and other selection criteria available under the PCR 2015 but note must take care that where these are used they must be used under the same conditions as the PCR 2015 (including the new provisions on “self-cleaning”). So, for example, where turnover is used as a measure of financial capacity this must not exceed twice the value of the contract except in justified cases (e.g. where the contract is considered high risk). These justifications must be declared in the procurement documents or in the utility’s reports under Regulation 99 (see below). Subject to the point above, it remains the case that Utilities enjoy much more flexibility in the design of selection criteria than do contracting authorities in the public procurement context and, for example, are not required to adopt the use of the Crown Commercial Service standard form pre-qualification questionnaire.
Under the UCR 2016, all contracts must now be awarded on the basis of the most economically advantageous tender (MEAT) which takes on a new meaning i.e. this could be price or cost alone (adopting a cost-effectiveness approach e.g. life-cycle costing) or based on a best price-quality ratio (the latter being the old interpretation of MEAT). If using life-cycle costing there are specific rules to follow (as set out in Regulation 83
). There is also greater flexibility in the interpretation of criteria linked to the subject matter as this can now include any stage of the product, service or works’ life-cycle. Further, the experience of staff to be engaged in delivering the contract can be used as a valid award criteria if the quality and experience of the staff proposed will have an impact on the performance of the contract.
As under the UCR 2006 there is a requirement to publish Award Decision Notices and to hold a standstill period; the regime parallels that in the Public Contracts Regulations 2015. You can read more about this in our mirror content on the PCR 2015 here
. If you need help working out when the standstill period should end, do use our handy standstill calculator
The UCR 2016 codify and clarify the previous case law on permitted variations to contracts that will not trigger the requirement to re-run the procurement. Under Regulation 88, modifications may be made to the extent that they are clearly, unequivocally and precisely set out in the original contract, provided that the conditions for making the modification, and the scope and nature of permitted modifications are included and there is no overall change to the nature of the contract. Of course many desirable changes may well not fall into this category, and a Utility may need to fall back on one of the other “safe harbours” set out in the remainder of Regulation 88
All contracts awarded by a Utility must now include provisions allowing for termination in certain circumstances including where there has been a substantial modification (not falling within a safe harbour under Regulation 88). If not expressly included, a power to terminate in these circumstances is deemed to apply.
Regulation 99 requires Utilities to draw up a report containing the information it specifies at Regulation 99(1). In addition, Regulations 99(7) and (8) state that the progress of all procurement procedures must be documented, keeping sufficient documentation to justify decisions taken in all stages of the procurement, including communications with bidders, drafting of the procurement documentation, negotiations with bidders, selection and award of the contract (suggesting contemporaneous record keeping). This documentation must be kept for at least 3 years from the date the contract is awarded.
The remedies regime is essentially unchanged from that in the UCR 2006, and mirrors that in the public procurement context. You can read more detail about the requirements in our parallel content on the Public Contracts Regulations 2015 here
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