Public procurement parameters shift with Covid-19 pandemic

Guidance has been issued to help contracting authorities understand when the usual protocols on public procurement do not need to be followed.

EU guidelines

On 1 April 2020 welcome guidance was published by the European Commission clarifying the application of the public procurement framework during the Covid-19 outbreak.

In particular, the guidance sets out a range of options for awarding public contracts as quickly as possible within the framework of European public procurement law. In short, the guidelines provide that:

• In cases of urgency, the deadlines for each procedure may be shortened considerably;
• There are no requirements concerning the minimum number of candidates to be consulted;
• If this flexibility is not sufficient, contracts may also be awarded directly;
• The rapid satisfaction of the immediate needs of hospitals and health care facilities in particular falls within the scope of urgency;
• In order to speed up their procurements contracting authorities can contact potential contractors in and outside the EU by phone, e-mail or in person, hire agents that have better contacts in the markets, send representatives directly to the countries that have the necessary stocks and can ensure immediate delivery and contact potential suppliers to agree to an increase in production or the start or renewal of production.

The Commission's guidelines followed separate announcements made by policymakers in both the UK and Germany regarding the application of public procurement rules during the Covid-19 crisis. In the UK, guidance was issued by the Cabinet Office on 18 March in respect of the position in England, Wales and Northern Ireland, and by the Scottish government on 20 March to account for the separate public procurement regime that applies in Scotland.

Together, the collective guidance clarifies the parameters on when it is possible for contracting authorities to deviate from the usual regulated procurement procedures as a result of the Covid-19 outbreak, according to Dr Totis Kotsonis and Dr Anke Empting, public procurement law experts at Pinsent Masons, the law firm behind Out-Law.

Accelerated procedures under the Public Contract Regulations

The Public Contract Regulations 2015 (PCRs) apply in England, Wales and Northern Ireland and are a central plank of the overall framework of public procurement rules that apply in each of the three countries.

The guidance confirms that Covid-19 can be a sufficient reason to justify an accelerated open or restricted procedure under the PCRs where the standard timescales are rendered impracticable as a result of the outbreak.

Using an ‘accelerated’ open or restricted procedure complies with the principles of equal treatment and transparency and ensures competition even in cases of urgency. It is likely that this method of awarding public contracts will be used frequently in the coming weeks and months.

The Cabinet Office guidance provides useful template wording that UK contracting authorities are advised to include in their OJEU (official journal of the EU) notices when advertising an accelerated procedure.

Direct awards under the PCRs

Where goods or services are needed more urgently than within the 15-25 days envisaged under the accelerated procedures, contracting authorities can directly award public contracts, but only in very limited circumstances.  

Regulation 32(2)(c) of the PCRs allows an authority to directly award a public contract "insofar as is strictly necessary, for reasons of extreme urgency brought about by events unforeseeable by the contracting authority".

The guidance makes it difficult to justify direct awards in all but the most urgent of circumstances brought about by the Covid-19 outbreak.

The circumstances in which Regulation 32(2)(c) is likely to be available will inevitably depend on whether the subject matter of the contract is required urgently to meet an immediate need caused by the Covid-19 outbreak. For example, contracts for personal protective equipment (PPE), critical care services and the construction of temporary hospitals are much more likely to meet these tests compared to contracts for services, supplies and works that are required in the near future but where the health and safety of individuals is not endangered if the contracts are not awarded immediately.

When applying these tests, contracting authorities should consider the likely consequences of delaying the award of the contract until a competitive procedure, accelerated or otherwise, has taken place.

These considerations should be recorded in a robust audit trail demonstrating that the relevant tests have been satisfied. Contracting authorities are also required to keep a written report of every contract awarded under the PCRs, often known as a Regulation 84 report. This obligation applies without exception to contracts that have been directly awarded under Regulation 32(2)(c).

Direct awards must be published in the OJEU and can potentially be challenged for ineffectiveness up to six months from their award in cases where the extreme urgency ground is misused – contracting authorities must exercise caution in ensuring that valid grounds exist for a direct award.

In particular, it is likely that it will be more difficult to rely on Regulation 32(2)(c) in the future as contracting authorities are expected to consider their future needs and carry out sufficient forward planning to ensure that they can meet the consequences of the Covid-19 outbreak. The guidance reiterates this and highlights that what might amount to unforeseeable now, may not do so in future.

A contracting authority can also make a direct award under Regulation 32(2)(b) of the PCRs where goods or services can only be supplied by a particular supplier by virtue of the protection of exclusive rights or an absence of competition for technical reasons.

The Cabinet Office guidance acknowledges that in some sectors, there may only be a single supplier that can perform the contract as a result of the Covid-19 outbreak. This could occur where, for example, employee sickness or excessive demand has resulted in there being only one supplier that has the capacity to perform the contract. Again, these provisions will be interpreted strictly and contracting authorities must provide sufficient justification in the award notice published on OJEU.

Contracting authorities should be cautious when relying on this direct award ground as they may not be aware of the precise number of suppliers across the EU that would be able to perform the contract. Without running a regulated tender process, it is not possible to say with certainty how much interest is likely to be generated by the market.

The PCRs and modifying existing contracts

Regulation 72(1)(c) of the PCRs enables contracting authorities to amend existing contracts caused by circumstances that a diligent contracting authority could not have foreseen. The Cabinet Office guidance states that this ground may be relied upon where the contracting authority is able to demonstrate that the decision to extend or modify the particular contract(s) was related to the Covid-19 outbreak with reference to specific facts.

The examples cited include where staff are diverted to procure urgent requirements to deal with Covid-19 consequences or staff are off sick so they cannot complete a new procurement exercise. The extension or other modification must be limited to what is absolutely necessary to address the unforeseeable circumstances.

Contracting authorities seeking to rely on this provision should also note that as with direct awards, Regulation 72(1)(c) requires them to publish a notice on OJEU confirming reliance upon this ground. The notice will inevitably draw the market’s attention to the modification so it is vital that the reasons provided are sufficiently justified.

The position in Germany

In Germany, the Federal Ministry of Economics and Energy explained in its circular of 19 March 2020 that for the purchase of services for the containment and short-term management of the corona pandemic and/or the maintenance of public administration services, the strict conditions for urgency awards are considered to be met.

On the basis of that circular, the Ministry of Finance and the Ministry of Economic Affairs, Innovation, Digitisation and Energy in North Rhine-Westphalia adopted a joint circular with further information.

Below the EU thresholds, the value limit for the direct award in Germany has been raised to €3,000.

For the purchase of goods and services for the containment and short-term management of the corona pandemic and/or the maintenance of public administration services, the Regulation on sub-threshold procurement, known as Unterschwellenvergabeverordnung, is suspended until 30 June 2020. However, the principles of economy and thrift must still be taken into account.