Public Contracts Regulation 2015 - Regulation 4

Regulation 4 - Mixed contracts

Albert said on twitter he sweated the details today and he surely did. You can find his detailed comments on Regulation 4 here. I agree with the premise that mixed contracts are difficult (at least in part) and pose particular challenges to contracting authorities. By their own nature, mixed contracts possess elements of at least two different contracts

Regulation 4 offers three main ways for contracting authorities to decide how to award mixed contracts, depending on the particular mix of contracts involved: i) mixed contracts entirely covered by Part 2; ii) mixed contracts covered partially by Part 2; iii) mixed contracts covered by defence exceptions.

Mixed contracts entirely covered by Part 2

Regulation 4(1)(a) offers a main rule to solve the situation where all parts of a contract are covered by Part 2. In the scenario of a public works with supplies contract, the rule is simple: the main subject matter of the contract is applicable. It is interesting to note the specific reference to main subject matter but not to value. The exception however are mixed services (where contracts covered by section 7 are included) and mixed supply-services. In that case, the choice of procurement will be dictated by the value of the highest part.

Under this heading there is no obligation to divide the contract into its component parts although one wonders f that should not be the default rule as there is a preference expressed in the Directive for division into lots (bearing in mind however the rules preventing disaggregation of contracts). Dividing a mixed contract into its component parts would effectively be the same thing as dividing it into lots.

Contrary to Albert I do not see this modality of mixed contracts as particularly troublesome in practice and on a day to day basis, these will be the most common mixed contracts occurrences. Having said that, I clearly remember a very creative contracting authority which considered all boiler repairs and installations as works contracts instead of mixed supply/service contracts. I leave you to take your own conclusions regarding the reasons why.

Mixed contracts covered partly by Part 2

Regulation 4(2) tries to solve the problem by allowing divisible contracts to be spun out into different contracts and a “catch all” solution. In this modality, different elements of a contract follow completely different legal regimes. I suppose the textbook example here would be, a services concession which include a works component. The first is not covered by Part 2, whereas the second is. Albert goes into a lot more detail on how and where these things can go wrong with other regimes such as utilities and defence, so I defer to his post here.

Separating divisible contracts allows the contracting authority to follow the appropriate set of rules for each part of the original contract. This is is where problems arise. Sometimes the existence of different elements may not be obvious for a contracting authority nor the need to consider what legal regime to follow. For example, is a software as a service contract (SaaS) a supply or a service? And if it includes some sort of concession? Furthermore, in complex contracts dividing contracts into their component parts may be a recipe for disaster. Even though contracts may be theoretically divisible, there may be good reasons to get them all performed by the same contractor. I would say this is certainly the case in the construction sector, where a main contractor is left by itself to manage any sub-contractor needed. Technically, all those small sub-contracts could have been tendered separately but they would generate risk for the contracting authority if anything went wrong, particularly determining who is responsible for faults and delays.

Crucially, the Regulations offer the contracting authority this possibility, while leaving to its discretion the possibility of still tendering a single “monolithic” contract instead. Regulation 4(2)(iii) states that when a mixed contract which includes procurement elements covered by Part 2 and others not covered by it, then the applicable regime is always the one of Part 2 and not any of the other ones, irrespective of subject matter importance. This is a questionable solution as it effectively extends the legal regime of Part 2 to areas it was not originally intended to cover even if it represents a minority of the contract. Personally, I am not entirely comfortable with the decision taken here although I can understand the underlying logic, as otherwise contracting authorities could simply syphon off contracts that should covered by Part 2 by mixing them with others.

In my view, it would have been preferable however to follow the logic of applying the rules corresponding to the most important or expensive subject matter that we can find in the first paragraph of Regulation 4.

Mixed contracts covered by defence exceptions

Finally, Article 346 TFEU rears its head again. Interestingly enough, myself and more expert comments by Aris and Baudouin concluded yesterday that the reference to Article 346 was not strictly necessary as anyone understanding EU law would reach the same conclusion. Today it comes associated with the Defence Security Regulations (which transposed into the UK the Defence Directive) and any mixed contract involving a procurement covered by Part 2 and either of these defence exceptions will follow defence rules.

But what about multiple contracting authorities?

What Regulation 4 does not solve, however is where the mixed nature is due to multiple contracting authorities being involved and not to the procurement in itself. The solution for this will come later on day 12 (partially) and particularly days 38 and 39 when we will discuss occasional joint procurement. However, it would seem that the Regulations do not foresee a situation where multiple contracting authorities covered either entirely by these Regulations or by different legal regimes. The example that springs my mind is a joint procurement where one of the contracting authorities is a sub-central authority (higher financial thresholds) and the other a central authority (lower financial thresholds). I will leave this hanging in the air for the time being.