European Union Legislation and Procurement Reform (Scotland) Act 2014: reference pack

1. Introduction

Legislative Changes

The motivation for updating and augmenting the procurement Directives is that public procurement is seen as having a vital role in the Europe 2020 strategy. Procurement is one of the market- based instruments to be used to achieve smart, sustainable and inclusive growth while ensuring the efficient use of public funds.

The Directives have therefore been revised with the aim of increasing the efficiency of public spending, facilitating the participation of SMEs and enabling procurers to make better use of public procurement in support of smart, sustainable and inclusive growth.

The Procurement Reform (Scotland) Act 2014 is a significant element of the Scottish Government’s strategy for improving public procurement in Scotland. The strategy centres on the Scottish Model of Procurement. It sees procurement as an integral part of policy development and service delivery. It is a simple concept - business friendly, socially responsible, looking at outcomes not outputs. It uses the power of public spend to deliver genuine public value beyond simply cost/quality in purchasing.

The Procurement Reform (Scotland) Act 2014 builds on the work achieved so far in the reform of public procurement in Scotland.

New Procurement Directives

• Public Contracts Directive 2014/24/ EU ^[1] replacing 2004/18/ EC ^[2] .
• Concessions Directive 2014/23/ EU ^[3] .
• Utilities Contracts Directive 2014/25/ EU ^[4] replacing 2004/17/ EC ^[5]

What is a Concession Contract?

Concession Contract

In a concession contract a company is remunerated through being permitted to run and exploit the work or service and is exposed to a potential loss on its investment. A “concession contract” is a contract where the economic operator is allowed to charge the public (i.e. usually not the contracting authority) for using the service or asset that the contractor provides. For example, a private company builds and manages a leisure centre and is remunerated through entrance fees, running the risk that the revenue generated will not cover its investment and other costs incurred.

A key element of a concession contract is that the contractor must bear some element of risk that the revenue it earns may not cover its investment and other costs incurred.

A common example of a concession contract is where a public body contracts with a firm to build and maintain a new motorway or bridge and (rather than being paid an agreed sum by the contracting authority on completion of various stages), the contractor is granted the right to exploit provision of the asset by charging for its use - e.g. collecting tolls (charging motorists) to drive on the motorway/bridge.

In a public contract, a company is paid an agreed amount for completing the required work or providing a service. For example - a private company builds and manages a leisure centre for a fixed price.

Contracts containing both Payment and the Right to Exploit the Concession

Where a contract includes a mix of payment and the right to exploit the concession (where the concessionaire is subject to risk regarding recouping its investment/costs) the Public Contracts (Scotland) Regulations 2015 must be applied.

The only exception to this is where the different parts of the contract are objectively not separable. In which case the main subject matter of the contract shall determine which regime applies.

The Concessions Contracts (Scotland) Regulations 2016 provides for a relatively light touch regime when compared with the Public Contracts (Scotland) Regulations 2015.

Duration of the Concession

How long should a Concession last?

A concession contract must be limited in time but the Regulations do not set out a maximum duration.

However, for concessions lasting more than 5 years, the maximum duration of the concession shall not exceed the time that a contractor could reasonably be expected to take to recoup the investments made in operating the works or services together with a

return on invested capital, taking into account the investments required to achieve the specific contractual objectives.

How is the duration established?

The maximum duration must be estimated and referred to in the concession documents, either as a matter subject to negotiation (may be part of the award criteria and so be fixed through competition) or as part of the fixed conditions.

Changes to Scotland’s Public Procurement Legislation

The new legislation introduced four new legal regimes, across different contract values. See below:

EU Regime	OJEU value contracts	Public Contracts (Scotland) Regulations 2015	Procurement Reform (Scotland) Act 2014
Reform Act Regime “slice”	Goods/ service contracts ≥ £50,000 Works contracts ≥ £2,000,00	Procurement (Scotland) Regulations 2016
Concessions Regime	OJEU value contracts	Concession Contracts (Scotland) Regulations 2016	The 2014 Act introduces cross-over provisions which apply in the EU Regime and the Reform Act Regime. The Act does not apply in the Concessions or the Utilities Regime.
Utilities Regime	OJEU value contracts	Utilities Contracts (Scotland) Regulations 2016

Key changes introduced by the Public Contracts (Scotland) Regulations 2015

• Shorter minimum procedural timescales
• New innovation partnership procedure
• Mandatory use of electronic communication
• New light touch regime for social and other specific services
• A presumption in favour of lotting contracts
• Clarification of shared service exemptions
• Supplier self-declaration
• Yearly turnover requirement should be limited to twice the contract value (unless justified)
• Suppliers can be excluded on the basis of poor performance
• Contract award criteria cannot be lowest price or lowest cost alone
• Contract award criteria may include social characteristics and staff experience
• Wider scope for reserved contracts

Key changes introduced by the Concessions Contracts (Scotland) Regulations 2016

• Under the Public Contracts (Scotland) Regulations 2012 public works concession contracts were covered but service concessions were not.
• Under the Utilities Contracts (Scotland) Regulations 2012 neither works or service concessions were covered.
• Now the Concessions Contracts (Scotland) Regulations 2016 covers works and service concession contract awards for both the public and utilities sectors.
• The new Concessions Contracts (Scotland) Regulations 2016 also sets out the processes and procedures to be applied to the award of concession contracts with a value equal to or greater than £4,104,394.

Key changes introduced by the Procurement Reform (Scotland) Act 2014 and the Procurement (Scotland) Regulations 2016

• New General Duty and Sustainable Procurement Duty
• Procurement Strategies and Annual Reports (£5,000,000 threshold)
• Community benefits requirements in contracts equal to or over £4,000,000
• Notices must be published on Public Contracts Scotland
• Public bodies must maintain a contracts register
• No fees to be charged for taking part in a procurement process

Procurement legislation now also applies to public contracts which equal or exceed the £50,000 threshold for supplies and services and the £2,000,000 threshold for works.

The Reform Act covers certain elements of public procurement including:

• Exclusion grounds
• Selection criteria
• Technical specifications
• Supported businesses
• Dynamic Purchasing Systems
• Debriefing
• Remedies

QUIZ

Question 1

When must contracting authorities apply the new legislation to their procurements? (please select one answer):

a) When the authority decides it is ready for the new legislation

b) If a procurement commences on or after the date that the new Regulations enter into force

c) There is no date as the new Regulations are optional.

Question 2

Under the new Concessions Contracts (Scotland) Regulations 2016 (which cover works and service concession contracts for public and utilities sectors) a concession contractor is remunerated by?
(please select one answer):

a) Completing the work or service that you require for an agreed amount

b) Being permitted to run the work or service, exploiting it for financial gain while accepting risks of potential loss on their investment

c) Where the main purpose of the contract is a concession activity which is objectively inseparable from an element of the contract where the public body makes a payment to the concessionaire.

Question 3

The Procurement Reform (Scotland) Act 2014 introduces which of the following obligations on public bodies in respect of procurements above the Reform Act thresholds? (select all the apply):

a) Contracts Register

b) The Sustainable Procurement Duty

c) Preparation and publication of Procurement Strategies and Annual Reports by contracting authorities

d) Advertising of contract opportunities

e) Consideration of Community Benefits requirements

f) Prohibition on charging a supplier a fee for participating in any part of a procurement process.