Public Contracts Regulation 2015 - Regulation 6

Regulation 6 - Methods for calculating the estimated value of procurement

We ended last week talking about the threshold values under the Directive 2014/24/EU. Eagle-eyed Albert found something I missed out on my post, namely the fact that the sterling value is actually set by the Commission "for the time being considered" as indicated in Regulation 5(4). The most current one is as linked by Albert from late 2013 and that remains in force today. However, I would say that four lines of text without a single comma, or sub-paragraphs as common elsewhere in the Regulations, does not make for easy reading or interpretation. Try saying it out loud on one go. In fact, when I read it I assumed the Regulations implied the Commission's power was transitory (ie, "for the time being"). A comma or a couple of sentences/phrases would have been preferable.

We solve the legal issue, but leave the economic intact: currencies diverge over time and setting the exchange for 2 years is simply too long a period. I am not saying there is a easy way out of this conundrum, but as things stand, the forex risk is being borne by the internal market. What would happen if the euro depreciated 50% for example? Or vice-versa?

19 different ways of skinning an estimated value cat (Albert's entry is here)

Regulation 6 offers us a whole cornucopia of different ways to calculate the price of a procurement, which in consequence means they determine the applicable law. Although the first 5-6 paragraphs are straightforward and will be relevant for most cases, most of the time, they do not generate particular difficulties and the overall approach is to ensure that contracting authorities do not game the system by sub-dividing contracts or exclude VAT to avoid applying the Directive. I remember a talk back in 2010 by a scholar from another Member State who had access to procurement data and could pin point a "clustering" of contracts immediately below the thresholds which made no sense other than being an artificial cap to avoid applying more onerous rules.

Paragraph 7 tells us that the moment to define the procurement value is the start of the procurement procedure. Interestingly enough, this paragraph defines that moment not the moment the decision of procuring is taken, but any activity that indicates a procurement procedure will happen even if it indeed does not happen at all. The example of "contacting economic operators" indicates that the start of these preliminary activities will trigger the obligation of defining the procurement value and in consequence the application of Part 2 rules or not. I think this makes sense as it forecloses the possibility of the contracting authority going on fishing expeditions or blatantly lying to potential suppliers by indicating the procedure would be say a Request For Quotes (below-thresholds) when it knows that is not the fact.

Trainwrecks waiting to happen

My biggest concerns regarding Regulation 6 come from the following paragraphs 8 and 9, when the Regulation tries to determine the procurement value for procurement "things" which are not contracts and are hard to measure: framework agreements and innovation partnerships. Particularly the first is a case for deep consideration of how it can be gamed and abused by contracting authorities to avoid applying Part 2 or Part 3 of the Regulations. As mentioned by email by a friend of mine (who's attribution I will give if authorised), below thresholds contracts are now more regulated than in the past but framework agreements are not subject to the same transparency requirements. This creates a perverse incentive for contracting authorities to establish framework agreements with procurement values below thresholds to avoid any sort of transparency. Now let's marry this idea with a short initial term of the framework (say, one year) which coincidently justifies a below-threshold calculation value and that the framework then gets extended to the maximum 4 year period afterwards.

The methods to calculate the innovation partnership values are not much better though and in effect it does not make a lot of sense to do it. If the purpose is really to generate innovation, well then in advance is hard to estimate the determine the R&D and final procurement costs as there are simply too many variables. I suspect, however, that when contracting authorities really want to use the innovation partnership they will just assume a contract value above-thresholds and apply the appropriate rules. Having said that, I have devised at least a way to use the innovation partnership (or something like it) which would be great to run below-thresholds.

The ideas above expose the limitations of using procurement value as a proxy for determining the existence of internal market relevance and applying the Directive and Part 2 of the Regulations.

What about the rest?

The remaining paragraphs of Regulation 6, however detailed, do not offer so much scope for comment. Lots get some attention and detail as they should do to the Directive's preference for division into lots (which will be very welcome in cartelised markets...) and for the most part I agree with the provisions. I do have reservations identical to Albert's about Regulation 6(14)(a) and (b) which exclude the applications of Part 2 in case a supplies or services lot is smaller than €80,000 or €1,000,000 in the case of works. This paragraph does not have a specific cross-reference from this particular thresholds to the Commission's exchange rate calculation role mentioned in Regulation 5(4). Furthermore, Regulation 5(4) restricts the field of its own application to the values "mentioned in this regulation" and not "in these Regulations". Therefore, it seems we may have a gap in the law that will have to be filled in via interpretation. We can probably assume that the Commission will have identical power as this would be the harmonising interpretation and the overall sense of these threshold provisions, but this could have been easily avoided with some more care. As I said at the start, some more time to consider the transposition would have been preferable as this inconsistency is easy to solve. In the meanwhile, I can picture creative contracting authorities using small lots and/or exchange rates fluctuations to exclude procurements from Part 2.