Competitive procedures with negotiation under Reg. 29 Public Contracts Regulations 2015

Reg.29 of the Public Contracts Regulations 2015 (PCR2015) establishes rules for the conduct of competitive procedures with negotiation (formerly known as negotiated procedures with publication) and transposes the very similar requirements under Art 29 of Directive 2014/24 [although it lengthens and complicates its drafting by including unnecessary repetition of time limit-related rules in regs.29(6) to (10), which could have been minimised by a cross-reference to regs.28(6) to (10)]. 

As mentioned in relation to reg.26 PCR2015, one of the main changes in the new rules is that a lax interpretation of the grounds that justify the use of this procedure may transform it into the default procedure--or, in the case of the UK, as stressed by Pedro, consolidate its widespread use. Hence, the specific rules that are set out in reg.29 PCR2015 regarding the conduct of negotiations are bound to have a very significant practical impact.

The general design of the procedure is a variation of the restricted procedure [reg.28 PCR2015] that allows for two main adjustments: (1) the negotiated procedure does not necessarily have to be two-stage, but it can be multi-stage [reg.29(19) PCR2015]; and (2) the object of the procurement does not need to be completely defined from the time the negotiations start, but can evolve provided some minimum requirements are not subject to negotiation [reg.29(14) PCR2015]. 

These will, in my view, be the two main criteria that can justify resorting to a competitive procedure with negotiation instead of a restricted procedure, given that these are the areas where increased flexibility can provide advantages to the contracting authority [however, the significant flexibility of using rough documents at the first stage and detailed requirements at the second stage of a restricted procedure somehow close this gap as (2) is concerned].

However, contracting authorities need to be mindful of two main risks created by the rules applicable to competitive procedures with negotiation. The first risk is strictly legal and derives from the strange particularisation of the principle of equal treatment [reg.18(1) PCR2015] in connection with reg.29(13) PCR2015, which requires contracting authorities to "negotiate with tenderers the initial and all subsequent tenders submitted by them, except for the final tender, to improve their content". The immediate question is whether they have to negotiate with all tenderers and whether they have to do it simultaneously (if at all possible) and with the same intensity. As Pedro rightly stressed in his entry today, "more negotiations mean as well plenty of scope for unequal treatment" and, in my own view, the key is not whether there is actually more unequal treatment, but whether there is more scope for litigation on that basis.

These are very difficult issues (and proving the underlying issues to any acceptable procedural standard in case of judicial review of award decisions will be even more difficult), but I would not be surprised if tenderers started challenging contracting authorities' negotiating strategy on the basis that they were not negotiating in good faith or with best efforts (should they? must they?), or that there has been more interest in concluding an agreement with a competing tenderer. 

The best way out will be for contracting authorities to disclose more specific rules, such as sequential negotiations whereby they engage with negotiations with one tenderer (eg the one with the highest score for the initial offer) and, failing an agreement within a set deadline, they move on to the next, and so on and so forth--this may be difficult to square with a strictly literal interpretation of reg.29(19) PCR2015 on staging the negotiations, but it seems like the most functional interpretation. Otherwise, they are exposing themselves to significant litigation risks (which can be compounded by the difficulties in the rules on record-keeping under reg.22 PCR2015].

The second risks is not legal, but strategic. Reg.29(15) PCR2015 allows contracting authorities to award contracts on the basis of the initial tenders without negotiation where they have indicated, in the contract notice or in the invitation to confirm interest, that they reserve the possibility of doing so. This does not seem to restrict the options of the contracting authority to the moment prior to engaging in negotiations. 

That is, a literal interpretation supports that contracting authorities, at any point prior to concluding the negotiations [reg.29(21) PCR2015] can decide to go back to the original tender and award the contract. This is a risky strategy, particularly if the negotiations are bound to repeat themselves in time, as it would create a very limited incentive for tenderers to actually engage in meaningful negotiations if the contracting authority can at any point dismiss the process and hence render the transaction costs derived from the negotiations useless. 

Moreover, it is hard to see whether this clause actually makes much economic sense, even if interpreted as limiting the options of the contracting authority to the initial decision. If the negotiation game is one in which the contracting authority can (freely) decide to award or negotiate, tenderers may have an incentive to provide their absolute best conditions as the initial offer to try to deactivate the negotiation bit. However, they will only do that if they perceive the contracting authority as a tough negotiator and a well-informed evaluator of the initial tenders. Otherwise, tenderers will have an incentive to offer non-optimal initial tenders in the hope of keeping some surplus during the negotiations (ie they do not need to offer their absolute best, but just a condition that is slightly better than the next most efficient competitor). 

Hence, it seems obvious that in view of the informational asymmetry and the difficulties that contracting authorities face when it comes to negotiating [see Telles and 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], this clause will rarely result in the initial offers reflecting the absolute best available conditions. If this is true (certainly, a difficult empirical question), then it would always be inefficient to award on the basis of the initial tenders, unless the negotiation costs where very high and could offset any loss of efficiency derived from second-best contract terms. 

In short, I fail to see how the use of this clause can be made economically efficient in the generality of cases, particularly if contracting authorities do not have strong in house negotiation teams or are subjected to (political) constraints that prevent them from developing a credible long-run strong negotiation reputation. And, if its use it carries no clear economic advantage, then contracting authorities may be better off ignoring the clause in reg.29(15) PCR2015, as its weak use would open yet another opportunity to challenge award decisions on the basis of excess of discretion or failure to provide reasons where the contracting authority chooses not to negotiate for undisclosed (or inexistent) reasons.