Under present European Commission rules for public procurement, contracts above a certain financial threshold are put out to competitive tender in the Official Journal of the European Communities (OJEC). With regard to the PFI in the UK, these rules allow Government to chose a preferred bidder from the tenders they receive on the basis that they offer the most economically advantageous bid. The preferred bidder then negotiates the detailed proposals for a specific project, with two reserve bidders also chosen in case negotiations with the preferred bidder break down before a contract is signed. Under proposals for a new European public procurement directive, the public sector will no longer be able to select a preferred bidder. At least three bidders will be required to continue negotiations until the finalised PFI contract is signed.
The debate on public procurement rules in the EU was facilitated by the European Commission Green Paper entitled Public Procurement in the European Union. Exploring the Way Forward.76 After consideration of the responses to the Green Paper, the Commission published its plans for future action in the Communication Public Procurement in the European Union.77 The main theme to emerge from the Green Paper was "the need to simplify the legal framework and adapt it to the new electronic age while maintaining the stability of its basic structure"78 in order to create a genuine single European market.
The proposed Directive79 on the co-ordination of procedures for the award of public supply contracts,80 public service contracts81 and public works contracts82 aims to consolidate the three existing Directives. With respect to the selection of tenderers for PFI projects, the proposals strengthen the legal framework in two respects. The first strengthens the legal framework for "combating organised crime, corruption and fraud" while the second "introduces an obligation, in restricted and negotiated procedures, to apply objective criteria announced in advance so as not to limit the number of candidates invited to tender".83 It is the second of these proposals that has caused the most worry amongst those involved with the PFI.
Article 45 of the proposed Directive (consolidating Article 27 of Directive 92/50/EEC, Article 19 of Directive 93/36/EEC and Article 22 of Directive 93/37/EEC) proposes that:
Where contracting authorities award a contract by restricted procedure and by negotiated procedure with publication of a contract notice, namely in those cases referred to in Article 29, they may prescribe the minimum number of candidates which they intend to invite to submit a tender or negotiate. This minimum number shall be five candidates in restricted procedures and three in negotiated procedures. They may also set a maximum number of candidates which they intend to invite to submit a tender.84
Concern has been raised in the UK by PFI contractors and others, who are worried that public sector managers will no longer be able to select a preferred bidder to negotiate contract details on an exclusive basis if the Directive goes ahead. Instead, three bidders will be asked to produce completed schemes in an effort to reduce 'anti-competitive behaviour'. This could lead to the cost of bidding becoming prohibitive for the private sector, who are already worried about the high cost presently incurred by preferred bidders.
The chief executive of the Association of Consulting Engineers (ACE) Nicholas Bennett has said: "[the directive] may mean that firms will be unwilling to bid for PFI work, as they may have to spend £5 million or more on projects which they are ultimately not awarded."85 In a recent article in The Independent 86 the Construction Confederation's European affairs director John Bromley also expressed concern "…the directive would deter many contractors from working on public sector deals. You couldn't risk losing £6m on a bid. This [he said] is a serious problem". Arthur Moore of the John Mowlem construction group said:
This is not good news at all. If it goes through unamended we would have to completely reconfigure the PFI initiative in the UK. The PFI initiative would come to a halt… Clients and contractors would have to spend huge amounts designing projects up front. It would move us back in procurement terms 10 years.87
In the same article, Robin Herzberg, chairman of the CBI Committee on European Public Procurement is quoted as saying:
We are extremely concerned about the adverse implications of this for the PFI. It would slow the initiative down and make it far more expensive, no doubt about it at all. It would make it unworkable.
The Government commented about the consequences of the Directive for the PFI in reply to a recent WPQ in the Lords:
Lord Dixon-Smith asked Her Majesty's Government: What impact the ruling by the European Commission in Brussels that "preferred bidder" status should not be awarded until a full and open tender process has been completed will have on the private finance initiative process. [HL391]
Lord McIntosh of Haringey: The Commission has not made a "ruling" in this respect but has made proposals for revising the EC public procurement directives. The proposals are the subject of continuing discussions in the Council and the European Parliament and the Government are optimistic that the final version will make express provision for best practice in the award of PFI and other major contracts.88
The exact timetable of the new public procurement directive is as yet unknown. However, there appears to be a general expectation amongst the press and the construction industries that the directive will become law by 2003. The EU Parliament Committee on Legal Affairs and the Internal Market adopted the Commission's report on the directive at first reading on 16 October 2001. The report was scheduled for debate at the November 2001 plenary session in Strasbourg.89 However, the Internal Market Council has failed to reach agreement on the draft proposals on time. The committee will now report to the parliament in plenary session later in 2002.
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76 Com(96)583 final, 27 November 1996
77 Com(98) 143 final, 11 March 1998
78 ibid.
79 COM(2000)275 final
80 Implemented in the UK by: The Public Supply Contracts Regulations, SI 1995/201
81 Implemented in the UK by: The Public Services Contracts Regulations, SI 1993/3228
82 Implemented in the UK by: The Public Works Contracts Regulations, SI 1991/2680
83 COM(2000)275 final
84 ibid.
85 Paul Newton, "Pan-Utility Brussels' Costs a Threat to PFI", Utility Week, 20 July 2001
86 "Brussels Threatens to Scupper Blair's Private Finance Schemes", The Independent, 14 July 2001
87 ibid.
88 HL Deb 24 July 2001 c197WA
89 Europarl News Release, 17 October 2001 available from their web site as at 13 December 2001:www.europarl.eu. int