Public procurement: negotiating public contracts

Public procurement: negotiating public contracts

Published:

Author: Michael Rainey

The public procurement rules are changing. Here, in the first of our series of articles, we look at the changes to the circumstances in which bids can be negotiated and suggest some helpful tips for making bid negotiations work.

On 28 March 2014, the 3 new procurement directives were published in the EU's Official Journal. The UK Government will implement the directives as soon as practicable, potentially before the end of 2014.

The 3 directives cover:
1. public contracts
2. utilities contracts
3. concessions

This article focuses on the public contracts directive.

Flexibility

One of the EU's main objectives in introducing the new directives is to make procurement processes more flexible. A key element of flexibility is the ability of procurers and bidders to negotiate the terms of bids after those bids have been submitted.

Under the current public procurement rules, bids for public contracts may only be negotiated in limited circumstances. But, in consultation on the new directives, interested parties agreed that the ability to negotiate more would be beneficial and would lead to better value for money. In a procurement context, negotiations may relate to the technical offering, the contractual terms, the financial proposals, or a combination of these.

Negotiations under the current rules

The current rules permit bid negotiations under the negotiated procedure and competitive dialogue. But the availability of those procedures is tightly limited to exceptional contracts where "prior overall pricing" is impossible (negotiated procedure) or "particularly complex contracts" (competitive dialogue).

Negotiations under the new directive

The new public contracts directive retains competitive dialogue and introduces a new "competitive procedure with negotiation" to replace the negotiated procedure. Both procedures will be widely available for almost all contracts where a procurer believes that negotiations would be beneficial, for example because there are no suitable "off the shelf" solutions.

The procedures

In practical terms, competitive dialogue remains unchanged in the new directive, subject to some alterations in terminology.

Competitive dialogue is generally unpopular, with a reputation as a complicated and clumsy procedure. So it is likely that procurers will welcome an alternative and that the new competitive procedure with negotiation will be widely used.

The new competitive procedure with negotiation is subject to detailed procedural requirements, unlike the current negotiated procedure. One notable requirement is that remaining bidders must submit "final tenders" for evaluation at the end of the negotiations. Those final tenders cannot be negotiated; the award decision must be made on the basis of what is submitted. One attractive feature of the new procedure is that it allows the procurer to reserve the right to negotiate bids, but does not require negotiations if the procurer considers that it can make an award decision based on the initial bids.

Making the negotiations work

As negotiations become more usual in procurement processes, procurement guidance and bid strategies will need to be adapted to make the most of the opportunities this will bring. While both procurers and bidders will regularly negotiate contracts and other arrangements as a routine part of commercial operations, negotiations in the context of a public procurement process are slightly different to the norm and should be approached with care and conducted by an appropriately skilled and experienced team.

Where the new competitive procedure with negotiation is used, bidders should ensure that they:

1. Submit their best offer in their initial bid and do not wait for the negotiations to fill gaps in their response or to tailor it to the procurer's specific requirements. The procurer may choose to base its award decision on the initial bids, skipping the negotiations.

2. Do not wait until the end of the process to finalise their offer. If the "final tenders" provisions are applied restrictively, final tenders will need to contain a fully detailed offer, including contract drafting that reflects all the proposals.

Procurers using the new competitive procedure with negotiation should ensure that:

1. The availability of negotiations is not treated as a substitute for pre-procurement market testing and/or pre-bid clarification meetings with bidders. Used correctly, these can reduce the need for lengthy bid negotiations.

2. The procurement process is planned in full before it is commenced. Certain options will need to be preserved in the contract notice, including the right to award a contract based on the initial bids and the option to have staged reductions in the number of bidders.

3. All bidders are treated equally and without discrimination and the process is transparent.

4. Adequate safeguards are implemented to protect confidential information disclosed during the process.

5. They maintain control of the negotiations. It is up to the procurer to determine which aspects of each bid are to be negotiated, or if negotiations are required.

6. There is a clear procedure for documenting the negotiations. This is already good practice, and it will become a legal requirement under the new directive that oral communications with bidders are sufficiently documented.

Summary

The wider availability of the new competitive procedure with negotiation will be welcomed by procurers and bidders. Negotiations are a staple feature of commercial life. The opportunity to negotiate bids will give both sides more flexibility, and introduce a much needed dose of commercial reality into the procurement rules. But procurers and bidders should be aware that this flexibility does come with an additional layer of rules with which they will need to comply.