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15
CHAPTER 3
Public sector procurement
Objectives of this chapter
Part A
• To appreciate the context and background of public sector procurement
• To recognise the distinctive challenges of government procurement
• To examine the ways in which strategic procurement best practice has been adopted and
adapted within major public sector organisations, such as Police, National Health
Service (NHS) and Ministry of Defence (MoD)
Part B
• To appreciate the EU procurement directives
• To outline the main provisions of the directives
• To outline the main changes introduced in the revised EU directives (2000)
• To outline the main changes introduced in the revised EU directives (2006)
• To outline the main changes introduced in the revised EU directives (2014)
List of Cases, Research Boxes and Figures in this chapter
Case Studies
• How the NHS supply chain works
Research Boxes
Nil
Figures
• Figure 3.1 Variables contributing to the Best Value concept
• Figure 3.2 The defence acquisition environment
• Figure 3.3 Smart acquisition strategy (Source: Adapted from Boyce, 2000)
• Figure 3.4 The EU procurement cycle
• Figure 3.5 Flow chart showing the process of the open procedure
• Figure 3.6 Flow chart showing the process of the restricted procedure
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• Figure 3.7 Flow chart showing the negotiated procedure with prior publication of a
procedure notice
• Figure 3.8 Flow chart showing the negotiated procedure without prior publication of a
procedure notice
Teaching Notes
Government expenditure on non-pay related areas covers a vast range of equipment, goods and
services: weapons systems, stationery, furniture, uniforms, food, capital projects including
consultancy services, banking services, information systems and services, the management of
facilities, as well as medical services, road building and maintenance and utilities.
This requires an insight into the background and context of government procurement and the
changing and challenging nature of such procurement in the light of commercial best practice.
It will also require an overview of EU procurement regulations.
Public accountability
Considerable amounts of money are spent annually in the public sector on goods and services.
The procurement of these is for the good of the population at large, and the expenditure that is
incurred is, in effect, the taxpayer’s money. Public sector buyers are accountable to the public
whose money is being spent, including disappointed tenderers and potential suppliers.
They must produce procedures and practices, which will stand up either to scrutiny during
government audits or to the challenge through the courts of any purchasing decision that has
been made. A primary purpose of public accountability is to prevent abuses of taxpayers’
money. A secondary purpose is to let it be seen that any such abuses have been prevented.
This chapter includes the processes and techniques which seek to achieve these objectives.
Students must be made aware of the key principles which determine how and why public sector
procurement is differentiated from the private sector approaches and the following paragraph
will help in this process of understanding.
General principles of government procurement
The approach that has been taken for many years within the public sector can be summarised as
follows:
• Purchasing should be based on value for money.
• Competition should be used to acquire goods and services (unless there are convincing
reasons to the contrary).
• There should be clear definition of the roles and responsibilities of personnel involved
in specifying the need, giving financial authority, and making procurement
commitments.
• There should be separation of the financial authority and the purchasing authority.
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• There should be separation of duties between personnel who make contracts, those who
receive the goods or services and those who authorise payments.
• Requirements which are above a certain financial threshold are normally required to be
advertised in accordance with EU regulations on public procurement.
In Part A of this chapter, much space and emphasis is given to providing details of the three
case studies mentioned above, namely The National Health Service, The Metropolitan Police
and The Ministry of Defence. These case studies demonstrate how public sector procurement is
evolving within the constraints mentioned earlier.
Students can start to compare these approaches with the case studies within the private sector
included in Chapter 1.
Part B of this chapter concentrates on an explanation of The EU Procurement Directives.
The underlying legal basis for the EU procurement directives are contained in the Treaty of
Rome, March 1957. The main principles of this Treaty which carry through to the procurement
directives aim to:
• Increase the transparency of procurement procedures and practices throughout the
• community.
• Aid the free movement of goods, services, capital and people between member states.
• Develop effective competition for public sector contracts.
• Standardise specifications.
• Provide advance information of procurement needs to the marketplace. The provisions
relating to contracts do vary from directive to directive in some aspects. However, the
following list outlines the main elements of the directives with which students should
become acquainted:
• Thresholds
• Aggregation rules
• Advertisements
• Procurement procedures
• Technical standards and specifications
• Evaluation criteria
• Supplier’s or service provider’s appraisal
• Supplier’s or service provider’s bid
• Contract award
Finally, it is important to highlight the recent changes to these Directives. These are as follows:
Revised EU procurement directives
On 31 January 2006 new procurement directives (public sector 2004/18/EC, often referred to as
‘the classic directive’ and utilities 2004/17/EC) came into force.
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restricted procedure on the opening for competition of contracts to be awarded through a DPS,
or the reopening of competition within a framework.
E-communications
The basis of the new regime is that e-communication mechanisms should be available to
participants in procurement processes on a par with traditional communication mechanisms.
However, in practice, the new provisions have the result that e-tendering solutions are required
to be purchased by contracting authorities in order to electronically receive requests to
participate and tender.
Revised EU procurement directives (2014)
At the time of publishing this edition of the book, (2014), the European Parliament approved a
new set of public procurement regulations.
‘The simplification of procedures, greater flexibility and their adaptation to better serve other
public sector policies or the possibility of the best quality-price ration will make public
procurement more efficient and more strategic, respecting the principles of transparency and
competition to the benefit of both public purchasers and economic operators’.
The changes are as follows:
The abolition of ‘part B’ services
Experts cite the biggest change to the regulations as the removal of the distinction between parts
A and B services. Part B services, which include education, rail transport and forestry services
provision, will now be subject to a full Official Journal of the European Union (OJEU)
procurement process, when previously they were covered by a lighter form of regulation. Now,
many previously part B above threshold services will need an OJEU procurement.
The ‘simplified regime’
Certain services – those ‘with a limited cross-border dimension’, as the directive terms it –
above a threshold of 750,000 euros will not be subject to the full regime. These services are
broad, but include health and social care services, hotel and restaurant services and postal
services.
‘There is no need to follow one of the detailed procurement routes but, as now, processes should
comply with treaty principles and so be fair with clear published evaluation critical to choose
the winning bidder(s).’
Award criteria
The new directive says authorities ‘shall base the award of public contracts on the most
economically advantageous tender’, removing the opportunity to award on the basis of ‘lowest
price’.
The new directive cites the use of life-cycle costing, and could include the best price – quality
ratio.
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Competitive procedure with negotiation and innovation partnerships
The new directive introduces the new ‘competitive procedure with negotiation’. This is a direct
response to criticism from buyers that traditional procedures do not allow enough discussion
with suppliers. But minimum requirements and award criteria are not up for negotiation and
there are stringent requirements to be followed.
The directive also warns that the process ‘should be accompanied by adequate safeguards,
ensuring observance of the principles of equal treatment and transparency’.
There is also the introduction of ‘innovation partnerships’, where authorities tender for goods or
services not currently available in the market. And there have also been amendments to the
competitive dialogue procedure, which will aid negotiation.
Wider exclusion criteria
The grounds for excluding a bidder from a tender process have been clarified. Bidders can now
be shut out of a process where the supplier ‘has shown significant or persistent deficiencies in
the performance of a substantive requirement under a prior public contract...which led to early
termination, damages or other comparable sanctions’.
Other new grounds for exclusion include involvement in child labour or human trafficking,
collusion with other bidders and attempts to influence or gain an advantage over a tender
process.
Modification of contracts
The new directive has also tried to clarify some of the important case law that has arisen over
the previous decade. One such area relates to whether changes to a contract result in a new
agreement being formed.
Procurement documents should state in ‘clear, precise and unequivocal’ clauses the scope and
nature of potential changes. Another instance would be where the need for changes couldn’t be
foreseen, the modification doesn’t affect the overall nature of the contract and the price increase
is not more than half the value of the original agreement. In this instance, the authority would
also have to post a notice in the OJEU explaining the changes.
Exemptions for ‘sub-central’ bodies
Non-central government bodies will have the opportunity to use a prior information notice as a
call for competition in the restricted or competitive procedure with negotiation – providing it
meets certain criteria – without the need to publish a notice in the OJEU afterwards.
Changes to time limits for tender responses
The mandatory time limits for tenders to be submitted have been reduced. In the open
procedure, this has been reduced from 52 days to 35 (30 if the process is electronic) and in the
restricted process, from 40 to 30 (25 when electronic). And for competitive dialogue, the
minimum requirement for receipt of requests to participate is 30 days. These changes should
speed up the procurement process.
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Changes that benefit supplier
Bidders will be able to self certify their ability to perform on a contract and buyers will only
have to check the credentials of the supplier that wins the contract, reducing administration.
There have also been changes to rules that supposedly block SMEs from accessing public
contracts. Disproportionate requirements for minimum turnover have been revised and it should
now not exceed two times the estimated contract value. This should open up more contracts to
smaller suppliers, but there has been criticism that this remains too high. Purchasers can also
exceed this limit ‘in duly justified circumstances’.
Buyers will also have to explain in either tender documents or award decisions why they
decided not to divide a contract into lots (again to support SME access), potentially creating a
new avenue of challenge for disgruntled losers.
As with the earlier 2006 changes, whether the changes result in the potential benefits cited is
dependent on whether public purchasers on the ground do implement them and take advantage.
Buyers need to be empowered by their organisations to go beyond what they have done before
which means understanding the rules, particularly around the wider use of the negotiated
procedure, shorter procurement timescales and changes to the part B services regime.
A useful task for students would be the analysis of the new procedures in terms of:
1) The ability of buyers to be able to more readily achieve Value for Money
2) Whether or not the new procedures facilitate partnerships and innovation.
