5 August 2010 | David Hansom

Knowing what the public sector purchasing processes are is essential to managing risk in procurement effectively. David Hansom explains the issues

Public procurements are often run on the basis of previous experience or common practice. But as the market becomes tougher, and bidders interrogate procurement processes more thoroughly, an incorrect choice of route can expose a public body to risk.

Under the Public Contracts Regulations 2006, there are four main procedures – open, restricted, competitive dialogue and negotiated – and all can be used for one-off contracting or setting up framework agreements.

The open and restricted procedures are freely available for use and are suitable for all routine, repeat or straightforward contracting, where requirements are clearly specified. The procedures are similar, except the restricted procedure allows for a separate pre-qualification stage to limit the number of contractors invited to tender, to a minimum of five (provided five bidders meet the criteria). Bidders are sent a full tender including contract documents, detailed requirements and specification.

Under these procedures, bidders can only reply to requirements, either accepting them or suggesting alternatives. A key issue is there is no ability to negotiate or discuss terms but, in practice, this is common. It is very easy for a disappointed bidder to make a Freedom of Information request for a copy of the completed contract documents, and any amendments bid during tender, and compare to that sent out with the tender. Negotiated terms are obvious.

The competitive dialogue procedure is available for “particularly complex contracts” – those where it is impossible to define the technical means of delivering needs or to specify the legal or financial make-up of a project (or both). Again, a pre-qualification stage is used, and at least three bidders are invited to participate in dialogue through which the authority seeks to identify solutions which can meet its needs. Dialogue is closed when at least one suitable solution is identified. Bidders submit a final tender matching their negotiated solution. After the evaluation stage, the public body can only fine tune the bids and a winner is chosen. No changes can occur post-selection that have an impact on the basic features of the bid, modify substantial aspects of it, affect competition or are discriminatory to other bidders.

The negotiated procedure was commonly used for complex transactions before competitive dialogue was introduced in 2006. Although it remains valid, it is only available where a public body can meet one of the very limited gateways in the regulations. Office of Government Commerce guidance says the procedure should be used “only in very exceptional circumstances”.

Following a pre-qualification stage, there is flexibility around how the process is structured, and authorities can negotiate with one or more bidders.

At the end of all procedures a 10-day standstill period is run. Under the new remedies regime, mistakes in standstill can lead to contract cancellation so the stakes can be very high indeed.

David Hansom is an associate at Eversheds