Written by Stephen C. Tupper

The European Commission has published proposals for modernising the EU public procurements rules with a suite of new directives including:

• a new directive on public procurement to replace Directive 2004/18 (“New Procurement Directive”);
• a new directive on procurement by entities operating in the water, energy, transport and postal services sectors to replace Directive 2004/17 (“New Utilities Directive”); and
• a new directive on the award of concession contracts.

The Commission’s intention behind this round of revisions is to simplify, and bring up to date, the EU public procurement rules with a central objective of rendering the process of awarding contracts more flexible. In doing so, they intend to relax the negotiation-based procedures and mandate a transition to electronic communication.

The proposed New Utilities Directive will contain a number of procedural amendments to mirror the changes as envisaged in the New Procurement Directive. In addition to those changes, the following amendments are proposed which are specific to the utilities markets:

• Special and exclusive rights: Rights which have been granted by way of a procurement procedure with enough publicity so as to ensure that the award was based on objective criteria will not constitute “special and exclusive rights” and will therefore fall outside the scope of the New Utilities Directive. So for example, where a private entity has the right to operate utilities as a result of an open and advertised procurement procedure, the Commission will recognise that there is enough competitive pressure in that market so as to negate the need for the extra protection for consumers which would exist otherwise had these rights been designated “special and exclusive”.
• “A” and “B” services: The distinction between these types of services will be abolished. This will be replaced by a system whereby all services (which pass the thresholds), will be subject to the full application of procurement legislation.
• Scope: The scope in terms of sectors which fall under the umbrella of the New Utilities Directive will, for the most part, remain the same apart from activities with the purpose of exploring oil and gas. These activities will no longer be included as there is sufficient competitive pressure in this sector.
• Procedures: The three basic procedures will continue to be available to contracting entities – the open procedure, the restricted procedure and the negotiated procedure – in addition to a new procedure, the innovative partnership procedure. This is aimed at encouraging innovation in the European market by making it easier for contracting authorities to purchase products which are to be newly developed and produced, provided that they can be delivered to agreed performance levels and costs.
• “Article 30 Decisions”: The procedure for determining whether contracts are being awarded in arenas which are already sufficiently competitive, such that they should no longer be covered by the procurement rules, will be streamlined. At present it seems unlikely that an application to exempt the water sector in England and Wales would succeed. The position might, however, change should all of the reforms set out in the recently published water White Paper be adopted.
• Framework Agreements: Under the current regime there is no time cap on the length of framework agreements concluded in the utilities sector. The New Utilities Directive proposes to amend this to limit the length of these arrangements to a maximum of four years in a move to encourage competition and improve accessibility to public contracts by SMEs.
• Contracts with affiliated undertakings and joint ventures: The New Utilities Directive also clarifies the rules providing an exemption for contracts awarded to affiliated undertakings or joint ventures. The New Utilities Directive proposes that any contract which is awarded to another legal person, which fulfils all of the following criteria, will be deemed to fall outside its scope:
  • the contracting authority exercises over the legal person a similar level of control to that which it exercises over its own departments; and
  • at least 90% of the activities of the legal person are carried out for the contracting authority; and
  • there is no private participation in the legal person.

In addition to the above, an agreement which is concluded between two or more contracting authorities will not be considered a “public contract” if:

• • the agreement establishes genuine cooperation between the participating contracting authorities; and
  • the agreement is governed only by considerations relating to the public interest; and
  • the participating contracting authorities do not perform on the open market more than 10% in terms of turnover of the activities which are relevant in the context of the agreement; and
  • the agreement does not involve financial transfers between the participating contracting authorities, other than those corresponding to the reimbursement of actual costs of the works, services or supplies; and
  • there is no private participation in any of the contracting authorities involved.

The bulk of the changes envisaged by the Commission will have only a limited effect on day-to-day procurement activities for water companies. For example, the rules proposed regarding joint ventures and inter water company arrangements are, in reality, simply legislative confirmation of law established by the European Courts in the Teckal case. That said, water companies should find, once the new Directives have been adopted, and implemented, that the law in this area will have become a degree or two less bureaucratic. Any move in that direction will, as always, be welcome by all.