LAW: DAVID REWCASTLE Words: David Rewcastle T
he full detail of the “significant technical flaws” in the InterCity West Coast competition are not in the public domain. However, we can be confident that, in some shape or form, they will relate to non-compliance with procurement law.
The current disarray surrounding West Coast and franchising may be particularly high profile but it is hardly the first time that procurement law has frustrated the punctual delivery of a rail project.
It’s timely, then, to remind ourselves of what procurement law is for, why it’s so important to the UK’s largely privatised railway and what the rules are.
The objective
One of the founding objectives of the European Union is the creation of an internal market where competition is free and undistorted.
Relevant principles of the EU Treaty are equal treatment, a freedom to establish a business or to provide services in a member state, transparency, mutual recognition and proportionality.
In short, public bodies, which of course spend tax-payers’ money, should award contracts fairly. In the long run, then, we all share in the benefit of an open and functioning market economy.
So far, so good. The concept is at least simple and laudable.
The relevance
EU rules on public procurement are contained in the EU Treaty and EU directives. They are often implemented into UK law by statutory instruments.
However, the application of them to UK rail is not always straightforward. Perhaps understandably, the legislators did not have the unusual structure of the UK rail industry in mind.
The Public Contracts Regulations 2006 (the PCR) apply to the procurement of certain contracts by public bodies. As you would expect, the Department for Transport and Passenger Transport Executives are covered by these rules. However, there are different views as to whether the letting of a rail franchise by the DfT amounts to a contract for so-called ‘Part B services’ or a ‘service concession contract’ for the purposes of the PCR. The significance is that a ‘service concession contract’ falls outside the scope of the PCR. Regardless, though, there is
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an argument that principles of equality and transparency under the EU Treaty apply in awarding a rail franchise.
The Utilities Contracts Regulations 2006 (the UCR) apply to ‘utilities’. These are defined as undertakings performing a specified utility related activity over which, in theory, the State exercises a dominant influence. The legislation also applies to private companies carrying out these activities if they have ‘special and exclusive rights’ granted by a competent UK authority (limb 1) in relation to the relevant activity (limb 2).
Following the decision earlier this year in Alstom Transport v Eurostar International Limited, we can be confident that Eurostar and ‘open access’ operators are not ‘utilities’ and so are not subject to the UCR. We can also be confident that a franchise train
The current disarray may be particularly high profi le but it is hardly the fi rst time that procurement law has frustrated the efforts of the rail industry to deliver a project to programme.
operator does meet limb 1 of the utility definition but, despite interesting comments from the Judge, we can’t yet be certain that it does not meet limb 2.
On this basis, the application of the UCR to franchise train operators remains an open question. That’s perhaps a little embarrassing with John Major’s Government and railway privatisation now a fading memory. A resolution, however, may be in sight because the latest draft of the European Commission’s new Utilities Directive strongly suggests that franchise train operators will not be categorised as utilities under any new regime.
We can at least be confident that Network Rail is subject to the UCR.
It’s also clear that private sector rolling stock manufacturers and maintainers, rolling stock leasing companies and other private sector suppliers to the rail industry are not subject to the UCR.
However, even they can’t afford to be ignorant of procurement law. With so many players in the industry subject to (or at least under the threat of being subject to) procurement law, there’s every chance that, one way or other, procurement law affects their business.
The rules
For the PCR and UCR to apply, contracts being awarded must be in writing, for some form of consideration and fall under one or more of the following categories: works (like construction), supplies (like purchasing goods) or services. Contracts may include more than one category, in which case the dominant category generally prevails.
Services are broken down into Part A and Part B. Part B services have the benefit of lighter regulation. Rail transport services are listed in Part B.
Whether the rules apply is also dependent on the value of the contract. The contract must exceed a certain threshold value, with that threshold depending on the type of contracting authority and the category of contract. Central government departments have the lowest threshold whilst other public bodies and utilities enjoy higher thresholds. The current thresholds for utilities are £347,868 for supplies and services and £4,348,350 for works.
If the contract exceeds the threshold, then there is a choice of four tender procedures to follow: open, restricted, competitive dialogue (not available to utilities under the UCR) and negotiated.
Each tender process has certain minimum timescales to comply with. However, broadly the same principal phases apply to each procurement as follows:
• a notice advertising the contract;
• a ‘shortlisting’ stage (usually using a pre-qualification questionnaire);
• a tender stage (followed by evaluation); and
• award.
Each phase has its own distinct requirements but the basic premise is that the process is fair, and seen to be fair.
The tool-kit for enforcement action under both sets of rules is varied and potent. Remedies include automatic suspension, injunctive relief, damages and ineffectiveness.
There are strict and relatively short limitation periods for bringing proceedings. Proceedings once brought, however, can have the most catastrophic impact. But you don’t have to take my word on this. Just ask the DfT…
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