New European ideas about public sector procurement could spell big trouble for anyone with an interest in PFI projects
In May 2000, the EUROPEAN Commission adopted a proposal to consolidate and rationalise its three public-sector procurement directives. The aim was to introduce much-needed clarity, simplicity and transparency to outdated procurement rules. Unfortunately, considerable concern has been aroused in the UK that the new rules could damage the PFI.

One of the most controversial of the proposed changes is the introduction of a "competitive dialogue" procedure for "complex" projects.

The idea of the dialogue is a response to contracts such as those for many PFI and public-private partnership projects, where the public sector client cannot tell bidders what it thinks the best financial or technical solution is.

The proposal is controversial because the commission has in the past insisted on open and transparent tendering. Negotiated procedures between bidder and client can be used "only in very specific circumstances". You may recall the furore surrounding the Pimlico school project, which was disapproved by the commission because it was adjudged that negotiations had been used to avoid competitive tendering.

The original intention of the commission was to allow a "consultation phase", during which the client could establish the specifications of a contract with the pre-selected candidates.

This would be followed by the submission of bids and the award of the contract to the best bidder (the "selection and award stage") without further negotiations.

Under this procedure, a contract would be classified as complex if the client was not objectively able to say how its project should be built, or if it was not objectively in a position to assess what the market could provide by way of technical or financial solutions.

The client would then seek tenders setting out the relevant personal, technical, financial and capacity information. This would usually come with an outline solution, including an estimate of costs. After receipt of tenders, the client would shortlist the candidates for negotiations. The client would then consult with each of the tenderers, while respecting individual tenderers' intellectual property rights.

The above step will be familiar territory to anyone who has been involved in PPP or PFI bids. However, following consultation, the client would determine its final technical specifications on the basis of one or a combination of several of the tender proposals. Tenderers (at least three, if possible) would then be invited to submit bids.

The evaluation of those bids, without any further discussions or negotiations, will be the final stage leading to the award of the (agreed form) contract with the successful tenderer. In other words, any negotiations to finalise the detail of the bid and the exact form of the documentation with a preferred bidder are not acceptable to the commission.

Not surprisingly, this revised procedure has caused considerable concern in the UK, in the public and private sectors. Some see it as threatening the continuation of PFI procurement, because of the inevitable sharp increase in overall bidding costs.

Industry concerns included the fact that originally there were no provisions to protect the confidentiality of the "solutions" and no reward for the contributions. Most importantly, the procedure does not allow the client to discuss with preferred tenderers the details of their bids after their submission and prior to the award of the contract, which they can in UK's private finance model.

Strong representations have been made to the commission with effect that the only way to deal practically and efficiently with the complexity of bids required for PFI/PPPs projects is to allow the client and preferred bidder to "clarify" and elaborate the best and final offer, as currently happens using the negotiated procedure. The UK government has made it clear to the commission that it will insist on this point, and has threatened that the directive will not be adopted unless it is amended to allow this flexibility.

The commission is currently considering these representations and talks continue, with the directive expected to come into force in the second half of 2002. It remains to be seen how far the commission is willing to go.