One regulation to rule them all. Or…? A look at the leaked proposal for a new EU public procurement regulation

Author: Lina Svensberg

A draft of the new EU procurement regulation had leaked in the middle of July, and some people were quick to post analyses, comments and opinions. In an attempt to avoid disappearing into that particular rabbit hole during my holidays, I waited until this week to properly read through the proposal. And there are some quite exciting things in there. You can find it here, marked with “sensitive until adoption”, the formal proposal is expected on the 9th of September.

As always when it comes to EU policy, there is a risk of sounding like a very not-interesting person when claiming that 170 pages of EU legal text is “exciting”. But once you have the patience to decode the bureaucratic lingo, in this case it actually is, and I’ll get back to why.

The process has been going on for a while already, with consultations of various kinds, and there are several years of negotiations ahead. Basically, the only thing we know at this point is that the final text will not look like this one. So why bother?

Because a draft shows direction. It shows what the Commission thinks the problem is, and what it thinks the answer looks like, and that direction tends to survive the negotiation even when the wording does not.

First things first – directive or regulation, what’s the difference?

First we need to understand the difference between the two instruments, directive and regulation. (I saw a post earlier this year saying something like “Directive or regulation — the super-hot topic everyone is discussing”, and, well… I may not call it super-hot, but it is quite important.)

A directive binds Member States to achieve a result, but leaves the “how” to them, so it has to be translated into national law. That is why we have a Swedish procurement legislation (LOU etc), just as every EU country has its own national procurement legislation. Similar, built on the same principles of equal treatment, non-discrimination, mutual recognition, proportionality and transparency, but still with differences between them. A regulation, by contrast, is binding and directly applicable.

The 2014 rules were directives, three of them: 2014/24/EU (the classic one), 2014/25/EU (utilities: water, energy, transport, postal services) and 2014/23/EU (concessions). In Sweden they correspond to LOU, LUF and LUK. This proposal would repeal all three and replace them with a single directly applicable regulation.

That is a fundamental shift. Countries would still need some national rules of their own, for the more housekeeping-like parts: who supervises what, how you appeal a decision etc. And there is a transition period before the regulation would apply. But the core rules would become articles of an EU regulation, identical in every Member State.

The proposal argues quite strongly for why this is needed, and the argument is fragmentation: differing national legislation creates obstacles in the internal market. Will the regulation form survive the negotiations? That is an open question, and it will be debated.

But what does it actually say?

There are already several good analyses of this, which I’ll list at the end. Here is a very brief teaser.

Today, the directives give us a number of procedures: open, restricted, competitive procedure with negotiation, competitive dialogue, innovation partnership, and so on. None of them survive in their current form. Instead we get:

• an open-negotiated procedure as the default, where any interested economic operator may express interest and where the buyer may negotiate all characteristics that are not essential
• a dynamic simplified procedure for recurring purchases of off-the-shelf solutions
• an innovation challenge procedure for cases where the buyer is addressing a societal challenge for which no solution has been identified on the market
• and a special procedure allowing a buyer to request a solution directly from an economic operator, in the specific circumstances set out in Articles 50 and 51

The familiar core principles (equal treatment, non-discrimination, mutual recognition, proportionality and transparency) remain.

The proposal is clear about wanting to see more public contracts for SMEs. The approach is not special treatment for SMEs, but to make it more difficult for buyers to require a certain turnover, or similar experience, criteria that often, in practice, exclude SMEs. In other words, equal treatment reinforced rather than set aside.

Also, best price-quality ratio becomes the standard award approach, with quality criteria carrying at least 30% of the weighting—and at least 50% for labour-intensive contracts.

There are also provisions on European preference in strategic sectors. Not as simple as “Buy European”, but a set of options built on the distinction between covered and non-covered suppliers under the GPA and the EU’s trade agreements. Then there are grounds for excluding suppliers for security reasons, and a whole chapter on digitalisation. That one goes for interoperability rather than centralisation: harmonised standards and a common interoperability network connecting national eProcurement systems, rather than one shared EU platform. Promising, if it works.

So what about innovation?

Most of the comments I have read have been about the new innovation challenge procedure. Understandably, it is new, and it has “innovation” in the name. (The procedure is also referred to in the proposal as the innovation procedure, I assume they will decide on one of them before the 9th of September)

It does look interesting. The buyer starts by publishing a preliminary description of a societal challenge, along with the value assessment framework that will later be used to judge the solutions, and invites feedback from concerned stakeholders, including the general public. That consultation runs for at least two months, and only then does the buyer publish the actual call, including the minimum functional requirements a solution would have to meet, and all the cash and in-kind contributions the public side can make available during the process.

Selection is based on the innovation potential of the proposal, the supplier’s capacity to address the challenge, and the feasibility and scalability of what they are proposing, and may be done through interviews, in person or online, rather than on paper alone.

Those selected go into a testing and validation phase of max two years unless duly justified. Payments are milestone-based and made upfront. And during this phase suppliers may adjust and enhance their proposals. The thing is allowed to change while it is being developed. Intellectual property rights remain with the supplier by default.

It ends not in a single winner but in a published ranking, and the buyer may purchase from the suppliers in that ranking for up to five years.

It may be a bit over-specified, which Abby Semple also points out in her excellent analysis here, but I think it’s quite forward-thinking, and I would be happy to see something along these lines in the final regulation.

But there is a second thing, which I think is just as interesting, if not more.

Article 61 introduces a definition of public procurement of innovation. A buyer shall qualify a procurement as public procurement of innovation when its objective is to purchase a solution with one or several new characteristics that deliver better performance or added value compared to alternatives with the same primary function. “New characteristics” then means either characteristics not yet available on a large-scale commercial basis, or characteristics already on the market in a first deployment, defined as not adopted, at the time of the market consultations, by more than 20% of the market compared to alternatives with the same primary function in the Union. And the article adds that new characteristics may include new or improved ways of using existing characteristics, such as using existing characteristics in a new sector or a new context.

Worth noticing: the operative text consistently says “public procurement of innovation”. The term “innovation procurement”, long debated and criticised, survives only in the explanatory memorandum, and is not treated as a defined legal term anywhere.

But the most interesting article, if you ask me, is article 62. (This is what really makes you popular at dinner parties: “what is your favourite article of the procurement regulation? Sure, article 44 is cool, but have you read article 62?!”)

Anyway, article 62 lists techniques that buyers may use “to pursue innovation objectives”, and it says explicitly that they may be used in preparing and designing any procurement procedure:

• seeking, analysing and implementing advice specifically on the availability of innovation in market consultations
• using only functional requirements and, where not feasible, explicitly allowing variants
• limiting selection criteria to what is necessary and proportionate, where appropriate without requirements on turnover and past performance
• requiring a concept for innovation as a qualitative award criterion, including the feasibility and scalability of that concept
• designating specific lots for innovation, with clear, precise and unambiguous conditions for additional purchases based on that contract if the solution proves successful
• combining multiple phases of a works contract into a single integrated contract
• aggregating demand for innovative solutions and distributing testing and validation between buyers
• allowing for experimentation, testing, validation, development, enhancement and reinvestment in the procurement procedure or in contract implementation

So, to me this is a clearly described, and very useful toolbox that can be used to, in different ways, drive innovation processes with public procurement, something that is not at all limited to the proposed innovation challenge procedure.

Owning a toolbox is one thing, using it another

In my store room I have some carpentry tools. However, being the least practical person on the planet, owning a few tools doesn’t mean that I ever use them. Which brings me to article 135.

Article 135 says that Member States shall designate at least one competence centre for public procurement, providing guidance, advice and support on, among other things, procurement planning and needs assessment, market engagement and dialogue with suppliers, sustainable, innovative and strategic procurement, contract management, and the collection and dissemination of good practice. 135 (4) adds that the measures shall, where relevant, also support other actors in the procurement system, including in particular SMEs. 135 (5) requires Member States to monitor the development of procurement capacities and competencies, and to periodically assess whether the measures actually work.

And it does not stop there: under Article 134, Member States would also have to designate a national coordinating authority to oversee implementation.

This is not an encouragement to do more training. It is an obligation. To designate at least one competence centre, to set up a coordinating authority, to monitor procurement capacity and competence, and to periodically assess whether any of it works. And it makes a lot of sense. To put things in perspective, the 2014 changes were far less radical, and they still took years to work through into practice, and the flexibility in the directives is still underused.

And perhaps that combination is the real story here. Better tools only help if buyers have the capacity to use them, and the proposal is unusually explicit about both sides of that equation: it opens up what procurement can be designed to do, and at the same time obliges Member States to build the competence needed to do it.

But maybe this total makeover of the procurement legislation is also the way to properly deal with what Warren Smith calls “procurement folklore”: the informal, often unquestioned narratives that reinforce risk-averse behaviour and keep things as they are. Things everyone knows you cannot do, which turn out not to be in the legislation at all.

So, if none of the existing procedures survives the shift, the “this is how we have always done it” argument kind of falls, once and for all.

At least until we create a whole new set of procurement folklore around the new regulation 😉

Bring the popcorn, and let’s see how things turn out!