A new procurement landscape for Scotland - PCRs come into force

From 18 April 2016, contracting authorities in Scotland are subject to significant changes in the way in which contracts for services, goods and/or works are procured. The Public Contracts (Scotland) Regulations 2015 (“PCRs”) and the majority of the provisions of the Procurement Reform (Scotland) Act 2014 (the “Act”) came into force on 18 April 2016. The new regime applies to all procurement exercises commenced on or after 18 April 2016, otherwise the Public Contracts (Scotland) Regulations 2012 (“2012 PCRs”) will still apply.

The definition of “contracting authority” remains the same so housing associations and third sector organisations covered by the 2012 PCRs will be required to comply with the new regime. That being said, there are some new flexibilities for housing associations and third sector organisations as “sub central authorities”. These include the use of prior information notices (“PINs”) and the ability to set their own time limits for certain procedures.

This article contains some top tips for contracting authorities to comply with the new regime.

The Public Contracts (Scotland) Regulations 2015

The PCRs implement EU Directive 2014/24/EU (the “Directive”) on public procurement in Scotland and effectively replace the 2012 PCRs. Some of the changes brought about by the PCRs are mandatory under the Directive, whilst others the Scottish Government (“SG”) has taken it upon itself to implement.

The key changes under the PCRs are:

• new minimum time limits for procurement exercises – for example, the open procedure time limit has been reduced from 52 to 35 days and the restricted procedure time limit has been reduced from 37 to 30 days;
• new procurement procedure called the ‘innovation partnership’ for the development and purchase of innovative goods, works or services in a single awards process;
• the minimum level of annual turnover required for a tenderer is limited to no more than two times the estimated value of the contract, apart from in exceptional circumstances;
• new light touch regime for procurement of social / other services, which replaces the distinction between Part A and Part B services under the 2012 PCRs, with a higher threshold of £589,148;
• new grounds for exclusion – for example, mandatory grounds for failure to make tax and social security contributions and discretionary grounds for previous poor performance under a contract resulting in termination, damages or equivalent;
• “self-cleansing” for tenderers who may be excluded to present evidence about remedial measures taken to prove reliability;
• contracts can no longer be awarded on the sole basis of lowest price or cost and contracting authorities must strike a balance between price and quality to identify the most economically advantageous tender;
• communication by electronic means (18 April 2017 for central purchasing bodies and 18 October 2018 for all other contracting authorities) and all tender documents now require to be published at the same time as the contract notice;
• introduction of the European Single Procurement Document (“ESPD”) – an electronic self-declaration document submitted by tenderers that contracting authorities are obliged to accept to self-declare that they meet the necessary regulatory criteria or commercial capability requirements without needing to submit evidence unless awarded the contract;
• in relation to contracts:
  • changes which are “substantial” may create a new contract which must be re-procured (codification of previous case-law); and
  • express rights of termination on particular grounds must be included, otherwise implied by the PCRs.

In addition to the changes to contracts, some other key principles arising from EU case law include the codification of the “Teckal” and “Hamburg Waste” principles. These principles provide an exemption for contracting authorities with wholly owned subsidiaries and co-operation with contracting authorities without the need to undertake a procurement process.

Whilst the PCRs do implement a number of important changes for contracting authorities when procuring contracts, the biggest changes will undoubtedly be introduced by the Act.

Procurement Reform (Scotland) Act 2014

The Act introduces a new procurement regime in Scotland to sit alongside the European rules transposed by the PCRs and also applies to housing associations and third sector organisations as “contracting authorities”. The Act applies to “regulated procurements” which are services/goods contracts with an estimated value of more than £50,000 and works contracts with an estimated value of more than £2 million. The Act also provides for guidance to be published by the SG and contracting authorities “must have regard” to any such guidance.

The key changes under the Act are:

• sustainable procurement duty – this will apply from 1 June 2016 and will require contracting authorities to consider and carry out procurement exercises with a view to securing:
  • improvement of social, economic and environmental wellbeing of the authority’s area;
  • facilitation of the involvement of SMEs, third sector bodies and supported businesses in the process; and
  • promotion of innovation;
• a procurement strategy must be prepared and published online by a contracting authority should its expected regulated procurement expenditure be £5m or more in the coming financial year. If no strategy has been prepared but the contracting authority becomes aware during the year that regulated procurement expenditure is likely to be £5m or more then that contracting authority must prepare a strategy – the first strategy should be published by 31 December 2016 to cover at least the remainder of the financial year and the whole of the next;
• contracting authorities will also be required to prepare and publish online an annual procurement report within 3 months of their financial year end. The Act sets out what the report must cover, including but not limited to a summaries of regulated procurements for the year and of any community benefit requirements imposed;
• for any regulated procurement of £4m or more, contracting authorities must consider whether to impose community benefit requirements as part of the procurement exercise from 1 June 2016; and
• contracting authorities must comply with any guidance published by the Scottish Government on selection of tenderers and award of contracts.

Whilst a number of the introductions under the Act will only apply to larger contracting authorities procuring high value contracts, all contracting authorities will need to take into account the thresholds for “regulated procurements”. In particular, any contracts for supplies and services with an estimated value of more than £50,000 will be subject to regulation by the Act, which is a much lower threshold than the previous EU threshold of £172,514. The Act makes provision for remedies where contracting authorities are found to have breached their duties under the Act. This creates an additional layer or risk for contracting authorities.

Preparation for the new regime

All contracting authorities should now be in the process of reviewing and updating their policies, procedures and standing orders; standard form tender documentation and standard form contracts. This review should be undertaken with both the PCRs and the Act in mind.

If you procure services or goods to the extent that you fall under the new rules, now is the time to review and update your policies, procedures and standing orders; standard form tender documentation and standard form contracts.

Get in touch

If you’d like to find out more detail about both the PCRs and the Act, and what they mean for your organisation, please get in touch.

• Kelly Fraser   |   0141 227 9306