Public Contracts Regulations 2015 - Regulation 30

Regulation 30 - Competitive Dialogue

After our short Easter break (yes, it was short for academic standards...) myself and Albert are back to our running commentary on the Public Contracts Regulations 2015. Today we will be talking about Regulation 30 which transposes Article 30 of Directive 2014/24/EU on competitive dialogue. Competitive dialogue is one of my favourite procurement topics to talk or write about. After all I did my Ph.D thesis on it!

Competitive got an unfair reputation over the last few years in the UK. From being commonly used between 2006 and 2010 ('the default procedure for complex contracts') to being branded by guidance as a procedure to avoid from 2011 onwards due to its limitations and perceived shortcomings (complexity, duration, cost, etc).

The truth is competitive dialogue was never conceived as a default procedure for all "complex" contracts and, in fact, no other Member State bar France used the procedure as often as the UK over the last decade. I will leave the responsibility for its overuse at the feet of the commentator(s) who argued back in 2004-2006 that competitive dialogue was a standard procedure and could be use almost freely. A lot of damage to the procedure was done by experts passing off their ideas as "best practice". It is a shame, as when well used (as I saw in Spain) it is a really useful tool for contracting authorities. Therefore the question is, can we rely on the new Regulations to improve the legal regime up to a point that it makes possible for contracting authorities to routinely use well the procedure?

The more things change...

As many other regulations, the draft of Regulation 30 is slightly different from the Directive in terms of structure but not really on content. In effect, this Regulation sets the rules under which the competitive dialogue procedure is to be run. We saw that the grounds for use are set on Regulation 26, leaving Regulation 30 to deal exclusively with procedural matters. For all intents and purposes the structure of the procedure has not changed (start, dialogue, final tenders, preferred bidder) significantly and the novelties are essentially surgical.

I will focus my commentary on a couple of points. One, the ban on general confidentiality waivers and the confidentiality hard line. Second, the possibility of "negotiations" with the preferred bidder.

Confidentiality, oh confidentiality!

It is no secret I have never been a fan of the way confidentiality has been applied to competitive dialogue under Directive 2004/18/EC. It is one sided binding only the contracting authority and conveniently it is not extended to suppliers. "But they are already under the obligation of not colluding!" you argue. Sure, so is the contracting authority subject to the principles of equal treatment and non-discrimination. What does this tell you about who/whom pushed for confidentiality to be included as it was?

But my biggest gripe with the "enhanced" confidentiality of Regulation 30 is that it actually forecloses the possibility of contracting authorities legally adopting a structure for the competitive dialogue that actually makes sense for them: the "crowd-sourced model" I described in my Ph.D in 2010. In this model of competitive dialogue, suppliers compete to influence the contracting authority in the design of common technical specifications which are then used by all candidates to base their final tenders on. Under this model passing information around is no longer a zero sum game and the more a supplier can persuade a contracting authority about the merits of its idea, the more likely it is it will have a slight advantage at the tender stage. If the new rules allow for suppliers involved in drafting technical specifications in other procedures, why bar it on competitive dialogue with an ultra-orthodox view of confidentiality?*

Most of the time, the differences expressed by participants will be variations of the same theme and not really completely different ideas. If anyone ever saw a competitive dialogue where the textbook example provided by the Commission in 2005 of crossing the river using the bridge, tunnel or ferry service, please let me know. Until then it remains a unicorn for me.

The alternative is to force contracting authorities to use competitive dialogue as it was originally conceived: whereby each supplier develop their own ideas completely in separate and without benefiting from information coming from other suppliers (the zero sum game of the "own solution model"). Well, that never happens in practice because it is pretty much impossible to do at all, let alone efficiently. Even the sequence of meetings has an effect on equal treatment. If you go first, you can influence immediately the contracting authority but then risk that information leaking out even indirectly by influencing how questions are posed subsequently. There is no equal treatment when suppliers are interviewed separately in a sequence and believing otherwise is a fallacy. As usual, my reading recommendations on this is Kahneman.

But the traditional own solution model has other drawbacks. If indeed the ideas are separate and distinct, then pretty soon the contracting authority will know what is the best solution. Therefore, any time or effort with and by other suppliers is being wasted. That supports the argument that is preferable to whittle down the field to two suppliers as soon as possible. However, the underlying problem remains: the second supplier is and will always be a dead horse in this race. It has no chance whatsoever of winning and effectively is being used as a dupe (for free) to fool the other supplier into thinking that competition exists. In continental legal systems this constitutes a gross violation of the good faith principle. However, as far as I know, good faith is not really a contract law principle in England and Wales.

Another serving of negotiations please?

One example of practice passing off as "best practice" with competitive dialogue in the UK has been the race to award and the idea that is more efficient to leave the financial commitments to confirm only with the preferred bidder. The fact that the law provides for this is moot. It does, but that does not mean is a great idea. Having said that, the fact Regulation 30 (16) states that "tenders shall contain all the elements required and necessary for the performance of the project", so I do not know how a contract can be performed without a price or financial make up of a contract to be defined.

Yes, I am aware of the usual "oh, but the banks will not be involved during dialogue/tender stage, they just want to deal with winner" defence for PFI contracts. Again, my experience in Spain with similar structure contracts tells me otherwise: if you define clearly the rules of the game and force that discussion during the tendering stage, all interested parties will be drawn into it, including banks if appropriate.

Leaving the door open for negotiations and discussions with the preferred bidder, particularly over money and financial commitments is foolish. By the time a preferred bidder has been chosen and financial matters start to be discussed, there is no longer any competition leverage in the hands of the contracting authority. The supplier knows it can drag the discussions out for as long as necessary to get what it wants as the reputational risks lies squarely in the contracting authority's court and particularly with the procurement officers allocated to that project. Therefore it is easy for the supplier to extract concessions at this stage, even with all the legal safeguards included in Regulation 30. After all what is the likelihood that any of this will leak and an aggrieved bidder challenging it in the courts? Especially in a jurisdiction where "commercial bid secrecy" is so important, something that does not happen in other Member States like Portugal.

The second problem with negotiations with the preferred bidder is time, or the lack of it. Without any competitive pressure these things drag for a long time. It is no surprise then that in 2010 or 2012 the target for a "good" competitive dialogue was something along 18 months. In Spain, where contracting authorities never entered into discussions with the preferred bidder, almost all were conducted in less than 12 months and most under 9 months. In my research, contracting authorities were happy with the outcomes achieved in general, although my research was conducted too early for most contracts to actually have been performed.

My bottom line is this: the race to select a preferred bidder at the expense of discussing some important matters during the dialogue stage is a false economy. It is a shame that neither the Directive nor the Regulations solved this. I am glad that the competitive procedure with negotiation does not have such failings.

* Before I am accused of having my cake and eating it (I am not a fan of Regulation 41), let me just say that is one thing having all interested parties involved in drafting technical specifications (as I propose with competitive dialogue), another that only one or a few are given the privilege.