Public Contracts Regulations 2015 - Regulation 5

Albert served a nice ammorti for me to talk about EU thresholds and that is the focus of today's post. Thresholds is a topic I have a lot to say about and will do so in June at the Global Revolution VII in Nottingham. You can find the gist of my ideas in this article from late 2013.

Public Contracts Regulations 2015 - Regulation 5 Threshold Amounts

Regulation 5 keeps it simple by cross-referencing to the application of Article 4(a) and (c) of Directive 2014/24/EU. The only major difference is the inclusion of threshold rules related to defence procurement  which naturally were not included directly in Directive 2014/24/EU.

Article 4 establishes the current thresholds applicable to EU public procurement for contracts/contracting authorities covered by Directive 2014/24/EU:

  • Works contracts - €5,186,000
  • Supplies and Services (central contracting authority) - €134,000
  • Supplies and Services (sub-central) - €207,000

This direct cross-reference to the values in the Directive strikes me as strange. In the past the UK (or at least England, Wales and Northern Ireland) would set in a Procurement Policy Note the conversion into sterling of the euro value for a certain period. It seems we moved from a system controlled by Central Government to a casuistic approach where for every procurement with a value close to the thresholds, contracting authorities will have to calculate the conversion in the days before launching the procedure to assess what if the value is above or below the thresholds. The GBP/EUR exchange rate as fluctuated a lot over the last few weeks due to the Greek crisis and in effect the real thresholds in England, Wales and Northern Ireland have gone down significantly from the Directive's 2014/24/EU original date (26.02.2014):

26.02.2014

  • Works contracts - £4,273,160
  • Supplies and Services (central contracting authority) - £110,0413
  • Supplies and Services (sub-central) - £170,564

21.02.2015

  • Works contracts - £3,832,959
  • Supplies and Services (central contracting authority) - £99,039
  • Supplies and Services (sub-central) - £152,993

The biggest problem I see with the current approach is that Central Government decided to trade certainty in practice for lawmaking simplicity. It can be argued that the new way is the correct one to ensure sterling values do not deviate from the original euro ones as it happened in the past, but the price to pay is to force every single public procedure close to those values to be manually checked by the contracting authority before tender. Furthermore, for really close call cases it is not clear what is the correct approach to determine the exchange rate applicable: is it the mid-market value? The end of day? Is it the value from the day before launching the procedure or when the decision of launching a procedure is being taken?

Lets remember that this provision as with most of the rules in the Regulations will come into force next week, indicating another rocky point that could have been avoided with a longer vacatio legis. Are contracting authorities aware of this change? I will be pinging a few over the next few days.

Unintended consequences

So far the effect of this new methodology has been one of effectively reducing the threshold values by close to 10% in England, Wales and Northern Ireland. For me this is good news. As per my 2013 article mentioned above, my view is that contracts currently below thresholds actually make part of the internal market and are artificially excluded from it by the arbitrary value of thresholds. But what about the cross-border interest test created by the CJEU? Well, every time that the CJEU looks into the test it tweaks (see C-388/12 Comune di Ancona and Albert's comment on it) but the reality is that this is a test impossible to undertake reliably in practice. It consists of an hypothetical question posed by the contracting authority before launching the procedure: is it likely this contract will generate cross-border interest? That is pretty much impossible to reliably do in practice other than running prior information notices quite often which then defeats the purpose of the test itself. It does not help that every time the CJEU has been asked to clarify matters since the original Telaustria decision the test gets changed ever so slightly. The CJEU appears to either have a difficulty in sorting this mess or enjoys the exercise of defining new ways to skin this proverbial cat.

There is no reason why the threshold values are what they are, other than being close to the Government Procurement Agreement (GPA) threshold values, effectively equating the public procurement internal market to the GPA, which does not make a lot of sense as the GPA is a multilateral agreement with parties outside the EU!

Current threshold values are an historical oddity. The current values made sense in a time where there was no Internet and transaction costs were high. European integration has grown leaps and bounds over the last 30 years and cross-border transaction costs have fallen down significantly. Furthermore, we are finally discussing an internal market for digital services which tend to be cheap, much cheaper than the current thresholds. Somehow the message in procurement is that we have first class and second class industries subject to different rules, not due to nature but solely on price of contract.

Imagine for a moment that the same twisted logic applied to EU freedoms. Looking at freedom of movement, imagine that this freedom would only be applicable if the employment contract had a value above €40,000/year. Below that employment contracts would not be deemed of cross-border interest in first instance but depend on a subjective and unreliable test. I hope I am not giving eurosceptics any ideas for "reforming" freedom of movement here.

 

PS: Apologies for the lateness of this entry as I spent yesterday dealing with Spanish bureaucracy, never an easy thing to do.