Choice of procedures under Reg. 26 Public Contracts Regulations 2015

Reg.26 of the Public Contracts Regulations 2015 (PCR2015) transposes Art 26 of Directive 2014/24 and establishes rules on the choice of procedures for the tendering of public contracts, which have now been increased to a total of 6 options: open, restricted, competitive with negotiations, competitive dialogue, negotiated without prior publication and innovation partnership. This is a topic that Pedro discussed in detail in his paper with our colleague and common friend Luke Butler ["Public Procurement Award Procedures in Directive 2014/24/EU", in F Lichere, R Caranta and S Treumer (ed) Modernising Public Procurement: the new Directive (Copenhagen, Djof Publishing, 2014) 131-184], so I expect him to provide us with interesting insights in his comment today (as he actually has).

Reg.26(1) and (2) PCR2015 depart significantly from the drafting of Art 26(1) Dir 2014/24 and, in my view, improve their drafting significantly by establishing that contracting authorities shall apply procedures that conform to this Part and that they can only award contracts if a call for competition has been published, except where reg.32 PCR2015 permits contracting authorities to apply a negotiated procedure without prior publication. This establishes a clear link to Art 2d(1)(a) of Directive 89/665 on remedies (as amended), according to which Member States shall ensure that a contract is considered ineffective if the contracting authority has awarded a contract without prior publication of a contract notice in the Official Journal of the European Union without this being permissible in accordance with Directive 2014/24. And, in general, it comes to require Member States to resort to a specific procedure within the catalogue foreseen in Dir 2014/24, unless they can dispense with a negotiated award without prior publication.

Reg. 26(3) conflates Arts 26(2) and 26(3) Dir 2014/24 and establishes two redundant rules, whereby contracting authorities can apply open or restricted procedures or innovation partnerships as regulated in its Part 2.

Regs.26(4) to (7) PCR2015 then go on to establish the grounds for the use of either a competitive procedure with negotiation or a competitive dialogue. They reorder the content of Art 26(4) Dir 2014/24, but they do not deviate therefrom. In my view, this is one of the criticisable novelties of Dir 2014/24, which has created a scenario where it can almost always be justified to resort to a procedure involving negotiations. This is in line with the main goals of the 2011 reform proposal, but it creates significant issues. I provide my comments below.

Regs.26(8) to (10) establish precise rules on the way in which the call for competition needs to be carried out for the procedure to comply with the requirement of reg.26(2) PCR2015, and establishes a primary rule (need to publish a contract notice) and a secondary rule (concerning the publication of prior information notices). 

It is worth stressing that reg.26 PCR2015 does not transpose Art 26(6) Dir 2014/24, which establishes the unnecessary and redundant rule that "In the specific cases and circumstances referred to expressly in Article 32, Member States may provide that contracting authorities may apply a negotiated procedure without prior publication of a call for competition. Member States shall not allow the application of that procedure in any other cases than those referred to in Article 32". Economising this paragraph is a positive contribution to simplification of the rules on choice of procedures.

Going back to the issue of the increased scope for the use of procedures involving negotiations, ie competitive procedures with negotiation and competitive dialogue, I consider the rules in Art 26(4) Dir 2014/24, and those in regs.26(4) to (7) PCR2015 by implication, very unsatisfactory. The following is extracted from Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 272-278, where I provide a fuller account of my views on the rules on choice of procedures. I am only focusing on Art 26(4) Dir 2014/24 here, and only from the perspective of the impact on competition that resorting to negotiated procedures can have, particularly if they become the norm.

Recourse to Competitive Dialogue and Competitive Procedure with Negotiation. Directive 2014/24 establishes common grounds for the contracting authorities to resort to either of these two procedures and, consequently, to engage in significant negotiations with candidates.[1] The European Commission has clarified that ‘the competitive dialogue has been simplified and made more practicable. It is now accessible under the same conditions as the competitive procedure with negotiation giving the contracting authority full choice’.[2] According to article 26(4) of Directive 2014/24, there is a numerous clausus of situations that justify recourse to these procedures. However, in view of the lack of precision of some of the grounds, it is hard to argue that contracting authorities are actually constrained not to resort to them.

Indeed, on the one hand, article 26(4)(a) sets out grounds based on project complexity or the existence of special needs of the contracting authority, and makes both procedures available if (i) the needs of the contracting authority cannot be met without adaptation of readily available solutions; (ii) they include design or innovative solutions; (iii) the contract cannot be awarded without prior negotiations because of specific circumstances related to the nature, the complexity or the legal and financial make-up or because of the risks attaching to them; or (iv) the technical specifications cannot be established with sufficient precision by the contracting authority.[3] These grounds absorb the justification for the use of the competitive dialogue in article 29 of Directive 2004/18, but expand it significantly (partially, in line with the interpretative case law) and, more importantly, extend it to the use of a competitive procedure with negotiation that under its form of ‘negotiated procedure with prior publication’ was much more limited in article 30 of Directive 2004/18. Such an expansion in the availability of procedures involving negotiation can potentially give rise to significant restrictions of competition and will be assessed in detail below.

On the other hand, article 26(4)(b) makes these procedures available where, in response to an open or a restricted procedure, only irregular or unacceptable tenders are submitted. The Directive further clarifies both concepts indicating that irregular tenders will, in particular, be those that do not comply with the procurement documents, which were received late, where there is evidence of collusion or corruption, or which have been found by the contracting authority to be abnormally low. On its part, unacceptable tenders will in particular cover those submitted by tenderers that do not have the required qualifications, and tenders whose price exceeds the contracting authority’s budget as determined and documented prior to the launching of the procurement procedure. This possibility was already present in article 30(1) of Directive 2004/18 and it seems fundamentally in line with the interpreting case law.[4]

Consequently, from a competition perspective, the analysis needs to focus fundamentally on the potential expansion in the use of competitive dialogue and competitive procedure with negotiation in situations justified on the basis of project complexity or the existence of special needs of the contracting authority (art 26(1)(a) dir 2014/24).

(a) Consolidation and expansion of the criteria authorising the use of competitive dialogue.As mentioned in passing, the aim of the competitive dialogue procedure introduced by Directive 2004/18 and now regulated in article 30 of Directive 2014/24 is to allow for a close cooperation between undertakings and public agencies in the definition of particularly complex projects and serves the primary objective of guaranteeing that the undertakings involved in the phase of project definition will not be excluded from the subsequent tender for the implementation or construction of the same on grounds of equal treatment.[5]

It is important to note that this objective was warranted by recent developments in the case law of the EU judicature, which prevented the automatic exclusion of undertakings that had been instructed to carry out research, experiments, studies or development in connection with public works, supplies or services from the subsequent tender procedure for those works, supplies or services; and limited the cases for exclusion from the subsequent tender to those in which, under the specific circumstances, the experience acquired by those undertakings is capable of distorting competition[6] (which is now regulated in art 41 dir 2014/24, see below §II.B.ii). In this regard, and taking the argument further, the EGC held that if the exceptional knowledge acquired by a tenderer as a result of work directly connected with the preparation of a tendering procedure by the contracting authority itself could not lead to its automatic exclusion from that procedure, there is even less ground for excluding that tenderer from participating where such exceptional knowledge derives solely from the fact that it participated in the preparation of the call for tenders in collaboration with the contracting authority.[7]

Therefore, on hindsight, the need for the competitive dialogue procedure in order to allow for pre-tender involvement of undertakings that are potentially interested in participating in the subsequent procedure can be put in doubt.[8] Nevertheless, the procedure was adopted in Directive 2004/18 and probably constitutes one of the fields where the main developments in public procurement practice and jurisprudence are taking place.[9] It is indeed one of the procedures that has attracted significant discussions during the recent reform of the rules leading to the approval of the 2014 Directives.

It is worth recalling that the circumstances and conditions under which a contracting authority could use the competitive dialogue procedure remained largely unclear, both as a result of the broad (and to a certain point, inconsistent) terms used in Directive 2004/18 and of the complete lack of case law on this issue.[10] In a preliminary approach, recourse to competitive dialogue might have seemed to be relatively straightforward. Article 29 of Directive 2004/18 expressly established that Member States could allow their contracting authorities to resort to this procedure when dealing with particularly complex contracts, but only if they considered that the use of the open or restricted procedure would not allow the (proper) award of the contract (which has now been suppressed as a requirement under art 26(1)(4) dir 2014/24). According to article 1(11)(c) of Directive 2004/18, particularly complex contracts were those where the contracting authorities were not objectively able to define according to the relevant rules (arts 23(3)(b), (c) or (d) dir 2004/18) the technical means capable of satisfying their needs or objectives, and/or were not objectively able to specify the legal and/or financial make-up of a project. Further interpretative criteria could be found in recital (31) of Directive 2004/18.[11] However, the joint reading of these provisions generated significant doubts as regards the threshold of technical, legal or economic complexity (or complexity test)[12] that had to be met to justify recourse to this procedure under the 2004 rules, as well as the degree of discretion that the contracting authority enjoyed to assess these circumstances in the context of a specific tender.[13] Unfortunately, these issues are not fully resolved by the drafting of article 26(1)(a) of Directive 2014/24, which (iii) and (iv) indents basically replicate and consolidate the scant guidance available under the previous rules. The fact that the use of the competitive dialogue is now a free alternative to the use of a competitive procedure with negotiation also comes to undermine the need for the maintenance of the competitive dialogue as a separate procedure—given that the creation of this special process was strongly reliant on the prevention of abusive resort to negotiated procedures[14] (as well as to overcome the mentioned issue of the exclusion of undertakings involved in the design stages of the procurement cycle).

Regardless of the specific bounds that practice and future developments in the case law of the EU judicature[15] impose on the exercise of discretion related to recourse to competitive dialogue procedures, the decision should be informed by the likely effect that recourse to this procedure could generate on competition (even if that means limiting the flexibility generally provided to the contracting authorities, as they continue to be bound to respect the general principles of the TFEU, as well as the principle of competition embedded in art 18 dir 2014/24, also in relation with this special procedure). Directive 2014/24 seems to provide a clear interpretative argument along these lines, given that article 65(3) requires that the number of candidates invited to participate in the competitive dialogue (with a minimum of three) be sufficient to ensure genuine competition. Therefore, recourse to competitive dialogue might be banned when, under the circumstances of the case, the public authority finds itself in a situation where competition cannot be preserved or is likely to be altered or distorted. An analogical argument can be found in articles 30(6) in fine and 30(7) in fine of Directive 2014/24 as regards the prohibition of running the competitive dialogue in a such a manner that competition is likely to be distorted. It is hereby submitted that contracting authorities must refrain from having recourse to any of the procedures or other instruments and institutions regulated in the Directive—and, particularly, the competitive dialogue procedure—if doing so would prevent, restrict or distort competition.[16] In those instances, alternative arrangements could be required in order to pursue the specific project. As regards the case of competitive dialogue, breaking down the project into smaller parts, or the internalisation of certain functions or phases by the contracting authority, could sometimes dissipate the potential distortions of competition likely to arise from the conduct of a competitive dialogue.

(b) Flexibilisation in the Scope and Availability of the Competitive Procedure with Negotiation (former Negotiated Procedure with Prior Publication of a Notice). It is important to stress that the 2014 rules have transformed the nature and availability of the traditionally labelled as negotiated procedure, now competitive procedure with negotiation. Under the applicable rules in Directive 2004/18 (art 30), this was clearly a special procedure that could only be used in the numerus clausus of situations expressly foreseen (ie, had exactly the same treatment as negotiated procedures without prior publication, discussed below). Remarkably, the ECJ had repeatedly stressed that the derogations from the rules intended to ensure the effectiveness of the rights conferred by the TFEU in relation to public contracts are exhaustive[17]and must be interpreted strictly.[18] Indeed,

awarding contracts without a prior call for tenders may harm not only potential tenderers but also the public, which pays for procurement projects through taxation, and may distort the competitive nature of the public procurement market, undermining the effectiveness of the Treaty rules on fundamental Community freedoms. For this reason, a provision which allows a contracting authority to dispense with a call for tenders should be narrowly construed.[19] (emphasis added)

Therefore, the list of circumstances contained in article 30 of Directive 2004/18 constituted a numerus clausus of exceptions to the general rule of recourse to open or restricted procedures (see above), which must be interpreted strictly in order to prevent competitive distortions.However, as mentioned in passing, this is no longer necessarily the case. Despite the fact that article 26(4) of Directive 2014/24 presents the rules in a similar manner and tries to set up a revised numerus clausus of grounds determining the availability of the procedure, a cursory look at them clearly indicates that their drafting is too open-ended to achieve such a goal. Indeed, this competitive procedure with negotiation will be available for complex projects (as discussed for the competitive dialogue) but, most importantly, also where ‘the needs of the contracting authority cannot be met without adaptation of readily available solutions’ (art 26(4)(a)(i)) or ‘they include design or innovative solutions’ (art 26(4)(a)(ii)). Recital (43) of the Directive provides some limited additional guidance indicating that

For works contracts, such situations include works that are not standard buildings or where [the] works includes (sic) design or innovative solutions. For services or supplies that require adaptation or design efforts, the use of a competitive procedure with negotiation or competitive dialogue is likely to be of value. Such adaptation or design efforts are particularly necessary in the case of complex purchases such as sophisticated products, intellectual services, for example some consultancy services, architectural services or engineering services, or major information and communications technology (ICT) projects. In those cases, negotiations may be necessary to guarantee that the supply or service in question corresponds to the needs of the contracting authority. In respect of off-the-shelf services or supplies that can be provided by many different operators on the market, the competitive procedure with negotiation and competitive dialogue should not be used. (emphasis added)

However, even if interpreted narrowly, these are two new grounds that make procedures involving negotiations available and that, in our view, come to destroy the logic of the limited availability of these procedures (and, equally, of the competitive dialogue), unless a very restrictive objective assessment of the actual need to procure not-readily available or innovative solutions is carried out by the European Courts[20]—which seems an almost impossible exercise.[21] In that regard, it is submitted that an effects-based approach should be undertaken on the basis of article 18 of Directive 2014/24, so that resort to the competitive procedure of negotiation is not possible if that would artificially narrow competition. This is partially supported by the further clarification offered by recital (45) of the Directive, which stresses some obvious requirements to the effect that

The competitive procedure with negotiation should be accompanied by adequate safeguards ensuring observance of the principles of equal treatment and transparency. In particular, contracting authorities should indicate beforehand the minimum requirements which characterise the nature of the procurement and which should not be changed in the negotiations. Award criteria and their weighting should remain stable throughout the entire procedure and should not be subject to negotiations, in order to guarantee equal treatment of all economic operators. Negotiations should aim at improving the tenders so as to allow contracting authorities to buy works, supplies and services perfectly adapted to their specific needs. Negotiations may concern all characteristics of the purchased works, supplies and services including, for instance, quality, quantities, commercial clauses as well as social, environmental and innovative aspects, in so far as they do not constitute minimum requirements. It should be clarified that the minimum requirements to be set by the contracting authority are those conditions and characteristics (particularly physical, functional and legal) that any tender should meet or possess in order to allow the contracting authority to award the contract in accordance with the chosen award criteria. In order to ensure transparency and traceability of the process, all stages should be duly documented. Furthermore, all tenders throughout the procedure should be submitted in writing (emphasis added).

It is submitted that this additional guidance misses the point, given that it basically foresees an only partially-negotiated procedure that would not diverge significantly from an open or restricted procedure with the acceptance of variants (see below §II.B.iv). In that regard, it is important to stress that contracting authorities will still need to respect the conditions of the tenders they publish, which can significantly limit their ability to engage in technical negotiations with tenderers in a way that resorting to variants would not. In that regard, the ECJ has recently stressed that

even though the contracting authority has the power to negotiate in the context of a negotiated procedure, it is still bound to see to it that those requirements of the contract that it has made mandatory are complied with. Were that not the case, the principle that contracting authorities are to act transparently would be breached … [the applicable EU rules do] not allow the contracting authority to negotiate with tenderers tenders that do not comply with the mandatory requirements laid down in the technical specifications of the contract.[22]

More generally, in practice, it is unlikely that contracting authorities will respect those requirements and implement effective safeguards that prevent excesses in the scope of the negotiations and the way in which they are carried out. More importantly, the use of these procedures should not be solely assessed against the principles of transparency and equal treatment, but most importantly, against the requirements of the principle of competition (as further elaborated below). Generally speaking, it would not be surprising if competitive procedures with negotiation became the most used procedure after the implementation of the 2014 rules. However, it would also be equally unsurprising that old problems linked to an abusive use of these procedures were to be revived and constitute the object of significant litigation in the coming years. In that regard, the regulation of negotiated procedures without prior notice may become less relevant, given the permissibility and flexibility that the competitive procedure with negotiations seems to come wrapped in.

[1] For a critical view of this development and the underlying rationale, see L Chever and J Moore, ‘Negotiated Procedures Overrated? Evidence from France Questions the Commission's Approach in the Latest Procurement Reforms’ (2012) European Procurement & Public Private Partnership Law Review 228.
[2] European Commission, Public Procurement Reform Factsheet No. 3: Simplifying the Rules for Contracting Authorities (2014) 1.
[3] Such impossibility of drafting precise technical specifications should be assessed with reference to a standard, European technical assessment, common technical specification or technical reference within the meaning of points 2 to 5 of Annex VII of Directive 2014/24.
[4] Indeed, the definitions are fully in line with the European Commission’s long standing interpretation, see eg the Guide to the Community rules on public supply contracts other than in the water, energy, transport and telecommunications sectors, Directive 93/36/EEC (1997) 23 et seq.
[5] See: A Rubach-Larsen, ‘Competitive Dialogue’ in R Nielsen and S Treumer (eds), New EU Public Procurement Directives (Copenhagen, DJØF Publishing, 2005) 67, 68; S Treumer, ‘Competitive Dialogue’ (2004) 13 Public Procurement Law Review 178, 179; and Bovis (n 23) 171 and 239–43. The basis for this finding can be found in the positions of the Green paper of the Commission—Public procurement in the European Union: “Exploring the way forward” [COM(96) 583] (at 5.23); and Communication from the Commission—Public procurement in the European Union [COM(98) 143] (at For a fuller discussion of the justification see S Arrowsmith and S Treumer, ‘Competitive Dialogue in EU law: a critical review’ in ibid (eds), Competitive Dialogue in EU Procurement (2012) 3, 16–25.
[6] Joined Cases C-21/03 and C-34/03 Fabricom [2005] ECR I-1559 36. However, an alternative and broader reading of this finding has been conducted by the EGC, that has considered that the ECJ ‘held that a candidate or tenderer cannot automatically be excluded from a tendering procedure without having the opportunity to comment on the reasons justifying such exclusion’; Joined Cases T-376/05 and T-383/05 TEA–CEGOS [2006] ECR II-205 65. Along the same lines, using the findings at Fabricom to ban general clauses that impose the automatic exclusion of potential tenderers on the basis of their shareholding structure or their affiliation with other undertakings, see Case C-213/07 Mikhaniki [2008] ECR I-9999 45–48 and 62.
[7] Case T-345/03 Evropaïki Dynamiki v Commission (CORDIS) [2008] ECR II-341 72.
[8] Contra: Rubach-Larsen, Competitive Dialogue (2005) 71–72. See also A Brown, ‘The Impact of the New Procurement Directive on Large Public Infrastructure Projects: Competitive Dialogue or Better the Devil you Know?’ (2004) 13 Public Procurement Law Review 160, 161.
[9] Arrowsmith and Treumer, ‘Competitive Dialogue in EU law’ (2012) 3–143.
[10] The scope of the provisions regulating competitive dialogue in Directive 2004/18 was unclear and future guidance from the EU judicature was thought to be required to delimit more precisely the field of application of this procedure; see generally S Arrowsmith, The Law of Public and Utilities Procurement, 2nd edn (London, Sweet & Maxwell,2005)Arrowsmith (n 28) 629–67. On the scope of this new procedure, see Treumer, The Field of Application of Competitive Dialogue (2006) 310–15; contra Arrowsmith Law of Public and Utilities Procurement, 2nd (2005) 634. See also MCJ Nagelkerke et al, ‘Competitive Dialogue Abyss or Opportunity?’ in G Piga and KV Thai (eds), International Public Procurement Conference Proceedings—Enhancing Best Practices in Public Procurement (2008) 275. For an update of the discussion, see Arrowsmith (n 28) 859–82.
[11] However, some of the criteria included in recital (31) and not in arts 1(11)(c) and 29 might have reduced value as a legal source when analysed according to relevant ECJ case law (Case 215/88 Casa Fleischhandels v BALM [1989] ECR 2789 31); see Treumer (n 3358) 308 and Arrowsmith and Treumer (n 117) 38.
[12] M Burnett, ‘Developing a Complexity Test for the Use of Competitive Dialogue for PPP Contracts’ (2010) European Public Private Partnership Law Review 215.
[13] Arrowsmith and Treumer (n 117) 36-50. It is important to stress their second proposition that ‘competitive dialogue can be used when contracting authorities cannot define the best technical means for meeting their needs or the best legal or financial make-up for the project’ (id, 43).
[14] Arrowsmith and Treumer (n 117) 37.
[15] So far, the ECJ has considered the nature of the competitive dialogue in several cases, but it has not issued significant guidance as regards its scope of application. See Case C-299/08 Commission v France [2009] ECR I-11587.
[16] See: ch 5, §II (public procurement must not distort competition between undertakings) and, specifically, the proposed interpretation of the principle of competition in art 18 dir 2014/24.
[17] Case C-399/98 Ordine degli Architetti [2001] ECR I-5409 101.
[18] Case 199/85 Commission v Italy [1987] ECR 1039 14; Case C-57/94 Commission v Italy [1995] ECR I-1249 23; Case C-318/94 Commission v Germany [1996] ECR I-1949 13; Joined Cases C-20/01 and C-28/01 Commission v Germany [2003] ECR I-3609 58; Case C-26/03 Stadt Halle [2005] ECR I-1 46; and Case C-480/06 Commission v Germany [2009] ECR I-4747 34–35. See also Opinion of AG Mazák in case C-480/06 Commission v Germany 51. See also SE Hjelmborg et al, Public Procurement Law—The EU Directive on Public Contracts (Copenhagen, DJØF Publishing, 2006) 58.
[19] Opinion of AG Poiares Maduro in case C-250/07 Commission v Greece 12 and 16. See also Case C-394/02 Commission v Greece [2005] ECR I-4713 33.
[20] See Davey, ‘Procedures involving negotiation in the new Public Procurement Directive (n 50) 105–06; and Telles and Butler (n 49) 13, who clearly indicate that although ‘Article 26(4)(a)(iii) appears to be similar to the previous requirement of Article 1(11)(c) of Directive 2004/18/EC, it does not in fact require a degree of particular complexity as had previously been the case’.
[21] Along the same lines, but option for a proposal of an alternative subjective test that could generate significant complications, see Telles and Butler (n 49) 13, who indeed find that ‘Under Directive 2014/14/EU, the test should essentially be subjective in nature: the contracting authority must justify why, in that specific situation, it needs to use either of these procedures. This should not depend on any external unit of measurement or comparison, i.e what the reasonable contracting authority would do in that situation. By “subjective”, it is meant the actual situation being faced at that moment by that specific contracting authority. In any event, the authors are of the view that the availability of broader grounds will enable easier reliance on any of the requirements set forth in Article 26(4)(a)’. It is submitted here that such an approach would be excessively lenient and that a degree of proportionality or reasonableness of the sort included in a reasonable contracting authority test would be preferable. For a similar proposition regarding the competitive dialogue rules in Directive 2014/24, see Arrowsmith and Treumer (n 117) 46, who argued that ‘in deciding whether an authority is “objectively” able to define the technical, financial, or legal composition of the contract it is to be judged against a “reasonable” contracting authority of the same size and nature’.
[22] Case C-561/12 Nordecon and Ramboll Eesti [2013] pub. electr. EU:C:2013:793 37 and 39. Cf. art 29(7) dir 2014/24 for a different approach.