Novelties and ‘Needs Work’: The Draft EU Public Procurement Regulation

By Abby Semple – Principal Consultant, Public Procurement Analysis and Senior Consultant, Greenville Procurement Partners

Last week a draft of the European Commission’s proposed new Public Procurement Regulation was leaked – official publication is scheduled for September. While the objectives of the reform had already been set out by the Commission, the draft proposes some major changes to the legislative regime, not least the replacement of the three Procurement Directives with a single Regulation. We are still at an early stage of the legislative process – Member States (via the Council) and the European Parliament will have the chance to shape the draft, and there is scope for significant change prior to adoption. That said, we might expect the legislative process to be somewhat shorter than the previous reform (2011-2014), given the political importance attached to the ‘Made in Europe’ agenda as well as the urgency associated with implementing climate objectives in particular more effectively in public procurement.

This article highlights some of the novel provisions set out in the draft, commenting on how they might work in practice. Readers are invited to share their thoughts below. I look forward to exploring further aspects of the draft Regulation when it makes its official appearance.

1.Pre-procurement
Pre-procurement, in the form of needs assessment and market consultation, is the dental flossing of public procurement: everyone agrees that it’s a good idea, but few do it consistently. This looks set to change under Article 31 of the proposed draft, which requires all contracting authorities to publish advance indications of their needs, effectively a mandatory PIN. This bears some resemblance to the requirement under the 2023 UK Procurement Act to publish Pipeline Notices, although in that case the requirement only applies in respect of higher value contracts. In principle this is a welcome addition to transparency and forward planning in procurement. The impact of Needs Plans will depend on whether contracting authorities see them as an opportunity to build market interest in upcoming tenders, or a bureaucratic necessity. Samples of UK Pipeline Notices show both approaches being taken.

Article 32 on Market Consultations is more detailed and prescriptive than the current Article 40 of Directive 2014/24/EU. While market consultation remains voluntary, there is a new requirement to publish a notice where such consultations are undertaken. For the Innovation Challenge procedure (see below) there is also a requirement to ‘consult the general public widely’ for a minimum of two months. Unfortunately, these requirements may result in a net decrease in the amount of market consultation undertaken, if the perceived administrative burden is higher. One welcome feature of Article 32 is its affirmation that market consultation can include verbal exchanges, as some contracting authorities remain of the view that conversations with potential bidders at the pre-procurement stage are forbidden.

2.Changes to Procedures
The draft proposes a radical overhaul of the procedures available to contracting authorities and entities, reducing the total number of procedures from the current eight (if you count design contests and dynamic purchasing systems) down to four. While this might have been expected as part of the ‘simplification’ drive, not a single one of the existing procedures remains in anything similar to its current form. Aside from any arguments regarding the merits of the new or old procedures, this degree of change implies a major challenge in terms of skills and competences for Europe’s 100,000+ contracting authorities. The changes to procedures adopted in 2014, which were much less radical, took a significant amount of time to be implemented in practice – and uptake of the ‘new’ procedures (competitive procedure with negotiation and innovation partnership) remains low. Again, the UK provides a point of comparison with the reduction in the number of available procedures under the 2023 Procurement Act, but the Competitive Flexible Procedure can in fact take numerous forms.

Regarding the new procedures themselves, the ‘Open-Negotiated’ procedure offers the ability to negotiate with bidders, but only if the contracting authority indicates its intention to do so at the outset. Aside from a lack of confidence and negotiation skills in some public bodies, there is a widespread perception that opting for negotiation simply encourages tenderers to increase their initial prices. For this reason, the ability to decide whether to negotiate after receiving bids is a valuable feature of the current competitive procedure with negotiation.

The ’Dynamic Simplified Procedure’ appears to be a replacement for dynamic purchasing systems, with a similar proviso that it applies only to ‘off-the-shelf solutions’. Again, the work which has been done by many contracting authorities to understand and implement DPSs will need to be redone – and the advantages of the new procedure over the existing one are not immediately apparent to this commentator. Significant changes include the selection of tenderers based on a random indiscriminate algorithm where there are more than five expressions of interest, and the ability to negotiate tenders. The key feature of the current DPS, that it remains open to new entrants, appears to be gone. However, there is reference to public buyers ‘reusing the competition information’, suggesting that an iterative admission process may still be possible.

One of the aims of removing the restricted procedure may be to increase levels of competition for public contracts. But analysis of OJEU data indicates that the average number of tenders in restricted procedures is close to or even exceeds the number in open procedures. This can be partly explained by the typically higher value of restricted procedures, but the average number of bids in open procedures remains very low – suggesting that despite its name, it often does not attract competition effectively. The reasons for this probably include the amount of work involved in submitting a full tender, as opposed to an expression of interest. With no selection of bidders, it is difficult for a firm to judge its chances of success, and the perception (and sometimes reality) of a strong incumbent advantage often applies. Of the proposed procedures under the new Regulation, only the Innovation Challenge has a separate selection stage prior to the submission of tenders.

As drafted, the Innovation Challenge procedure seems rather over-defined. It includes the prescription that the testing and validation phase lasts a maximum of two years. This may be sufficient for most needs, but a longer period might be needed if the challenge relates to complex geoengineering solutions or advanced medicines, for example. Use of the new term ‘value assessment framework’ in place of the familiar ‘award criteria’ will inevitably raise questions about the applicability of CJEU and national case law relating to award criteria. Article 46.2 tells us that “The value assessment framework shall consist of objective performance indicators aiming to evaluate the extent to which the solution addresses the societal challenge in a[n] objectively measurable manner.”

The role for human judgment in areas such as user experience, aesthetics or social value seems to be elided. As procurement processes become more dominated by AI, there is in my view a heightened need to acknowledge and defend the role of human judgment (which is always subjective, but need not be arbitrary) in important decisions. Article 93 introduces a new requirement for award criteria to be ‘objective and measurable’, potentially opening grounds for disputes over criteria based on human judgment.

3. Framework Agreements
Article 98 of the draft proposes to change the maximum duration for framework agreements to three years where they are with a single operator, and five years for multi-operator frameworks. This makes sense as a way of promoting greater competition, however in the case of utilities it represents a significant reduction from the current maximum of eight years. The rules on reopening competition (mini-tenders) and supplementary tenders have been removed, while Article 38.3 indicates that contracts under frameworks may be directly awarded. It is not clear whether Article 98 may be missing some content, as there is no reference to an intention to remove mini-tenders in the recitals or explanatory memorandum, and this seems contrary to the objective of promoting greater competition.

4. Selection and Award Criteria
Building on the competition theme, the draft envisions significant changes to selection criteria – which are often seen as a barrier to participation in procurement, particularly by SMEs. Significant reliance is placed on a new EU-wide electronic eligibility platform and digital business credential tool, which will be wonderful, if they work. Changes have also been made to the substance of selection criteria, notably a reduction in the maximum possible turnover requirement from two times the value of a contract to 50% of the value of a contract. This makes sense for multi-year contracts, but for a short-term contract of say 6 months, it is potentially problematic. It will also no longer be possible to insist on previous experience within the public sector, which would benefit new market entrants.

Award criteria have also been rethought, with the concept of ‘most economically advantageous tender’ being replaced by ‘best quality for money’ (effectively, BPQR). As a default, tenders must include qualitative award criteria, and the draft sets minimum percentages for these: 30%, rising to 50% for labour-intensive services.[1] This change will be welcomed by many who feel that price remains too important in the majority of tenders. But Article 93.4 in fact preserves the possibility of lowest price award or lower weightings for qualitative criteria, provided this is justified in the contract notice.

Traditionally, newer Member States have been more reluctant to apply qualitative award criteria and award a high percentage of contracts based on price alone. This reflects differences in administrative traditions and, in some cases, a perception that qualitative award criteria are less transparent and confer discretion on evaluation panels which may be abused. Clearly, award based on lowest price is also open to many forms of abuse (not least failure to deliver for the stated price), but it remains a popular option in many parts of the EU.

The risk with removing this option is if it is replaced by formulaic or poorly defined qualitative award criteria which in fact contribute nothing to the competition. Even in countries where qualitative award criteria are almost always used, such as Ireland, the outcome of procedures is often determined by price or cost, due to clustering in qualitative marks. In some cases, this reflects genuine proximity in the quality of tenders, but in others it reflects a lack of confidence on the part of evaluation panels to use qualitative marks to distinguish between bidders. The point is that mandating use of qualitative criteria is unlikely to have the intended impact unless it is accompanied by clear guidance and training on how to use these marks effectively.

5. Green, Social and Geopolitical Aspects

The draft strengthens the environmental and social aspects of procurement, including a requirement to consider resource efficiency and circular economy as part of the Needs Plan. It also imports the requirements currently set out in the Energy Efficiency Directive, Ecodesign Regulation, Batteries Regulation and other sectoral legislation – this is the ‘coherence’ agenda touted by the Commission and potentially represents a valuable consolidation of existing obligations (which many contracting authorities remain unaware of). Interestingly, the draft indicates that mere compliance with legislation cannot be considered green or socially responsible procurement, but it is not clear what legal effect this will have as the use of GPP and SRPP criteria in tenders (other than those mandated by sectoral legislation) remains optional.

Article 55 entitled ‘Requirements for green public procurement for certain products’ is a bit of a dog’s breakfast as drafted.[2] Its aim seems to be to increase harmonisation in green public procurement, but does it effectively set a ceiling for environmental requirements as well as a floor? If so, this may well be seen by some Member States as overreach by Brussels. It also potentially undermines more outcome-driven approaches, such as specifications or award criteria based on life-cycle emissions which do not prescribe the specific materials, products or processes to be used.[3]

While harmonisation of product-specific GPP criteria is valuable in directing the market towards more sustainable solutions, many contracting authorities are already going further and the process of developing and updating criteria is slow. For example, the revised EU GPP criteria for Buildings, a draft of which was published in 2023, appear to have fallen into a black hole. If EU harmonisation is the preferred route to spur market investment in the green transition, it needs to be quicker. Otherwise, a focus on the outcomes of green procurement should be more clearly built into the Regulation, allowing contracting authorities or Member States to find their own paths to emissions reductions, circular economy, nature protection and other important goals.

Chapter 5 sets out the new ‘European Preference’ rules, a response to the shift away from free international trade and towards protectionism. But ‘Europe’ is defined to include members of the WTO Government Procurement Agreement as well as countries which have a bilateral or multilateral trade agreement with the EU giving access to public procurement – currently this amounts to over 20 countries outside of the EU/EEA. It’s a bit like having a sign which says ‘no animals’ when really only tigers, bears and elephants are disallowed. For those outside of this not-so-exclusive club, public buyers may choose to restrict access to tenders or apply price preferences. This is optional, although the possibility exists for the Commission to enforce restrictions or preferences. It seems that the economic and geopolitical arguments for restricting market access, which are by no means universally accepted in Europe, have not been fully tested against the practicalities and costs of doing so. A fuller debate on this would be welcome as part of the reform process.

[1] Defined as contracts where the cost of labour is normally at least equal to 50% of the total contract value.

[2] In fairness to the drafters, this version was not intended for publication, so perhaps Article 55 will improve over the summer!

[3] In contrast, Article 83 on Specifications stipulates that functional specifications should be the default. However sectoral legislation such as the Ecodesign and Batteries Regulations includes many non-functional specifications. There is a role for both in pursuing green outcomes.

This article was original published by Abby Semple on linkedin. Comment on the original Linkedin post here.