Public Contracts Regulations 2015 - Regulation 77

Regulation 77 - Reserved contracts for certain services

Regulation 77 allows contracting authorities to reserve [certain] contracts for [certain types] of organisations. In other words, it is legally possible to foreclose the some markets to suppliers of a specific nature, referred to in the Regulation as "qualifying organisations".

This is an enormous Rubicon being crossed in what concerns equal treatment a non-discrimination and a first for the Public Sector Directive. It is true that Directive 2004/18/EC already had a provision in Article 19 for sheltered workshops, but this is a completely new playground for discrimination. Like Han Solo would say "I have a bad feeling about this" and so does Albert.

The Regulation operates based on a positive list of contracts where discrimination - sorry, reservation - is admitted. These contracts have to exclusively target one or more of those services. To save you the headache, I have converted the CPV codes on the regulation to the corresponding names so that we can have idea of the kinds of services that can be reserved:

Administrative Educational Services

Administrative Healthcare Services

Administrative Housing Services

Supply Services of Domestic Help Personnel

Supply Services of Nursing Personnel

Supply Services of Medical Personnel

Pre-School Education Services

Higher Education Services

E-Learning Services

Adult-education Services at University Level

Staff Training Services

Training Facilities

Tutorial Services

From Health and Social Work Services (85000000-9) to Community Health Services (85323000-9)...[that's one long list of medical services contracts...]

Library, Archives, Museums and Other Cultural Services

Sporting Services

Services Furnished by Social Membership Organisations

Services Provided by Youth Associations.

The list is quite long but one must not forget that the NHS procured health care services are not subject to reservation (paragraph 6). From the way paragraph 2 is drafted it appears that mixed contracts are not admitted (thankfully!) unless all the different services are covered in the list.

What is a "qualifying organisation"?

For the purposes of this regulation a qualifying organisation needs to comply with a cumulative list of requirements. First, it needs to pursuit a public service mission linked with any of the contracts mentioned above. It does not appear though that they are precluded from bidding for other reserved contracts.

Second, their profits need to be reinvested in that social objective and "any distribution of profits is based on participatory considerations" (emphasis mine). What are participatory considerations?! I have no idea. I also do not understand why it appears that profit-based models are authorised as long as they comply with the "participatory considerations" requirement. Call me a cynic but this smells of socialwash, or at least leaves the door wide open for it.

Third, the management and ownership structures need to be "based on employee ownership or participatory principles" (emphasis mine) or, in alternative "require the active participation of employees, users or stakeholders". Am I the only one at loss for words here? Maybe this makes sense in Germany where employees of companies tend to have a say in management, which would explain why I was puzzled profit motives were not banned outright.

I can totally see an exam-type question like "Can John Lewis bid for a contract covered by Regulation 77?" about this.

The fourth and final requirement is that the organisation has not won a contract under Regulation 77 for the same services and by the same contracting authority in the last 3 years. Therefore they can win contracts with other CPV codes awarded by the same contracting authority or win contracts with the same code but awarded by other contracting authorities.

What will happen?

The market will adapt to the incentives. If plenty of contracts are reserved I can see a booming trade on front organisations which comply with the requirements but that are in reality controlled by for profit entities.

Furthermore, I will go out on a limb here and predict a reduction in efficiency in the contracts subject to the reservation clauses, on average. On average, contracts will be more expensive or quality will suffer. Looking into this makes for fascinating research and I will be adding the idea to my ever growing binder of research ideas.

PS: I am somewhat surprised lawyers were unable to include Legal Services into the list as they appear to have had no problems in lobbying to keep legal services within the generic scope of this Part 7. Oh wait...

PS2: For the promoters of this new regime on the run to the publication of the Directive: do not even think about complaining about the complexity that this brings and that the rules end up being bent in practice and not achieving the original objectives. The road to hell is paved with good intentions after all.