Public Contracts Regulations 2015 - Regulation 58

Regulation 58 - Selection criteria

Regulation 58 defines the rules under which contracting authorities may proceed to select economic operators during a public procurement procedure. Under this Regulation, contracting authorities may undertake the selection of economic operators according to their suitability to pursue a professional activity, economic and financial standing and technical ability.

Contrary to the Public Contracts Regulations 2006, a potential selection criterion must pass a double legality/validity test: first, it must be appropriate (paragraph 3) and second it must proportionate and related to the subject-matter of the contract. Although it can be argued that both the appropriateness and proportionality would arise from other areas of the Regulations, it is important (though not strictly necessary) to show contracting authorities the need to comply with them. Personally, I find the link with the subject-matter of the contract surprising but in a good way.

Professional activity (paragraphs 5 and 6)

For the purposes of establishing the professional activity of an economic operator, contracting authorities may require the economic operator to be enrolled in a professional or trade register mentioned in Schedule 5 (Companies Registrar for the UK) or to comply with its requirements. According to Schedule 5, in the UK it is possible as well to provide a certificate (by whom?) stating "that the person concerned has declared on oath that he is engaged in the profession in a specific place under a given business name." However, for other countries the Schedule only makes reference to the Registries and not an alternative way of generating the professional activity information that may be required.

For services, contracting authorities may require proof of a particular authorisation or membership of an organisation.

Economic and financial standing (paragraphs 7 to 10)

Contracting authorities may require economic and financial information to prove the standing of an economic operator and indicate its capacity to perform the contract. These can be related to minimum yearly turnovers, asset/liability ratios or appropriate levels of professional risk insurance.

In the past financial requirements (particularly turnover) have been used by contracting authorities in the UK to weed out suppliers during the selection stage. This might have been due to a desire to limit the total number of bids the contracting authority assesses, but it affected SMEs the most. The higher the turnover requirement the least likely a SME will be able to hit it. There was no indication either of the proportionality or appropriateness of such requirements, but they were quite common.

Paragraph 9 establishes a cap in the minimum turnover requirements: they cannot exceed twice the estimated value of the contract except for contracts generating special risks. I am personally in favour of capping the turnover requirements, but the way this was undertaken is problematic in contracts where the contract value is not disclosed. In these situations the market will know what is the maximum value of the contract (half the turnover cap), forcing contracting authorities to indicate a lower cap unless they are prepared to disclose the contract value indirectly.

The turnover cap is problematic for another reason. Imposing this cap targets the symptom (high turnover requirements) but not the root cause (why contracting authorities did it in the first place). Furthermore, because the root cause remains untreated what will happen is that contracting authorities will now use insurance requirements to achieve the same objective of weeding out weaker economic operators. In fact, this is already happening in the UK, where professional risk indemnity insurance requirements have been going up over the last few years.

Application to lots, framework agreements and dynamic purchasing systems (paragraphs 11 to 14)

The requirements can also be applied to lots, framework agreements and DPS. In the case of lots, the cap on turnover requirements can be calculated based on either the value of each lot or on the value of the lots a single economic operator may win.

For framework agreements, then the turnover requirement cap will be based on the expected maximum size of specific contracts that will be performed or the estimated value of the framework agreement, which is also the rule for dynamic purchasing systems.

Technical and professional ability (paragraphs 15 to 19)

The rules on technical and professional ability do not raise any significant issues. Contracting authorities may impose requirements about technical and human resources which are necessary to perform the contracts (paragraph 15), and these may be expressed as minimum levels of ability (paragraph 19). Contracting authorities may require as well references from past contracts, something that is quite common here in the UK but not elsewhere (paragraph 16).