Research Trends and Conclusions: Public Procurement 2009
Richard Woolley -
This book is a response to the increasing volume of public procurement work being done internationally in recent years and its growing importance to lawyers and firms.
As one of the few reliable sources of funding in the current economic climate, competition for government contracts is high, as is the demand for adequate and timely project delivery. Lawyers, like those featured in this edition, are central to their clients' success in navigating the complex regulatory frameworks of procurement processes and must be on hand to represent their clients in increasingly high-stakes challenges.
Public procurement rules first made their way into international trade policy during the Tokyo Round of trade negotiations in the 1970s, having been expressly omitted from the 1947 General Agreement on Tariffs and Trade. The first Agreement on Government Procurement (GPA) entered into force in 1981 and underwent several amendments and extensions before arriving at its present version, signed in Marrakech in 1994 and included in the agreement establishing the World Trade Organization (WTO). The GPA was initiated in an effort to open national procurement markets to international competition amid growing concern about the restrictive effect discriminatory procurement practices had on trade.
Similar concerns have been raised in recent months. When the US stimulus package was unveiled in January the business press around the world was quick to condemn what it saw as an emergent trend towards protectionist policies. Addressing these concerns, delegates at the G-20 summit in London reaffirmed their commitment "to refrain from raising new barriers to investment or to trade in goods and services," stating that "falling demand is exacerbated by growing protectionist pressure and a withdrawal of trade credit." The reality of this fall in demand and lack of trade credit has re-emphasised the importance of fairly tendered contracts for bidders, and with it the role of the public procurement lawyer has become more important than ever, for both advisory and dispute resolution work.
"Public procurement was formerly a minor part of the competition practice," says Oliver Black of Linklaters in London, "but recently the level of sophistication has jumped." A reduction of private-sector spending, coupled with the UK Chancellor's recent commitment to improve access to public contracts - particularly for small and medium sized enterprises - has seen interest in public procurement grow among UK companies. At the EU level - where public procurement accounts for roughly 16 per cent of Community GDP - to "tackle the financial crisis" measures have been implemented under the procurement Directive 2004/18/EC to speed up procedures, introducing a temporary presumption of urgency for all major public projects, which should reduce the time for most procedures from 87 to 30 days. Peter Elliot of Bird & Bird in London also notices "a rise in big law firm interest" in the area alongside a "higher concentration of bids" for contracts compared with previous years, all of which place greater demand on the skills of the procurement lawyer.
LITIGATION, TRANSPARENCY AND VALUE FOR MONEY
By far the most discussed development in EU public procurement law, however, is the new EC Remedies Directive. Formally adopted on 20 December 2007, the directive gives member states until 20 December 2009 to implement its tenets into national law. Traditionally contractors were only made aware of the decision to award a contract to a particular bidder once that contract was finalised and unchallengeable. The new directive increases the transparency of the process by establishing a "standstill period" before the conclusion of a public contract, which is intended to allow rejected bidders the chance to start effective review procedures. If the requirement for a standstill period is not met during a procedure it falls to the national courts to set the contract aside.
The practical fallout from this legislation is an increase in unsuccessful bidders' willingness to challenge the awards made by contracting authorities. As a result, public procurement lawyers throughout Europe have seen a marked rise in litigation work over the past year. In the UK, where competitors were traditionally less inclined to bring challenges against the government, bidders have become subject to what David Marks of CMS Cameron McKenna calls the "deeper culture of administrative challenge" of mainland Europe. Austria, Denmark and the Netherlands stand out as particularly litigious jurisdictions for procurement proceedings, and while the UK has seen an increase in challenges, a small proportion of these actually make it to court. "The remedies directive will give a lot more strength to contractors," says Marks, "though in some cases the best a disputing party can hope for is the chance to lose again."
A further measure to improve transparency in EU public procurements came in June 2008 with the case of Pressetext Nachrichtenagentur GmbH v Austria. Here Pressetext challenged the Austrian government's retention of the Austrian Press Agency (APA) as a provider of press agency services, arguing that the original public contract had been amended to such an extent since it was first agreed (prior to 1994) that it in fact constituted a new award and should be put out to tender accordingly. Consequently the European Court of Justice decided that "In order to ensure transparency of procedures and equal treatment of tenderers, amendments to the provisions of a public contract during the currency of the contract constitute a new award of a contract [...] when they are materially different in character from the original contract." In this definition, a "material" change is one that "introduces conditions which, had they been part of the initial award procedure, would have allowed for the admission of tenderers other than those initially admitted or would have allowed for the acceptance of a tender other than the one initially accepted." Such measures will make it difficult for contractors and service providers to amend contracts without first proving that all necessary competitive requirements have been satisfied.
In the United States, transparency is high on the agenda. President Obama gave a speech in March to announce reforms to the "broken system of government contracting" in the US. The measures, which are due to be implemented in September 2009, will "stop outsourcing services that should be performed by the government and open up the contracting process to small businesses." The President also promised to "end unnecessary no-bid and cost-plus contracts", and "strengthen oversight to maximize transparency and accountability." To support transparency, the government has introduced a requirement that government agencies submit updates of their spending and performance data to the centrally maintained website www.recovery.gov, which aims to keep taxpayers updated on how stimulus money is being distributed.
A key area the president focused on was overspending in defence projects, stating that a 2008 investigation by the Government Accountability Office discovered a total of $295 billion in wasteful spending across 95 projects, including investment in unproven technologies and uncompleted buildings. "The days of giving defence contractors a blank cheque are over," he said, vowing to scrap the "indefensible no-bid contracts" - which imply that only one company or source can effectively satisfy the criteria of the government contract - and to cultivate greater competition.
OTHER TRENDS
Green public procurement is another key issue affecting the international marketplace at the moment. In the EU, proposals have been published requiring that 50 per cent of public procurement nationally should be environmentally sustainable by 2010. As one notable example of the greening of procurement in the EU, the German ministry of the environment and the Austrian ministry of forestry, environment and water have committed themselves to purchasing 100 per cent green electricity. Lawyers in New Zealand identified a comparable increase in environmental considerations there, with one observer commenting that "public sector procurements essentially mandate all suppliers to deliver to the public sector agency through a sustainable supply chain."
Lawyers we spoke to highlighted the recession-resistant nature of government contracts work, illustrated by a series of upcoming sporting events. Claire Barclay of Cliffe Dekker Hofmeyr in Johannesburg says South African projects lawyers "are not feeling the effects of the global financial crisis", particularly with the abundance of government-funded infrastructure developments leading up to the 2010 football world cup finals: "The South African government has over the years allocated a large portion of the national budget to infrastructure spend, and partnerships with the private sector ensure that targets are met most expeditiously." The outlook is also positive for lawyers in Poland and Ukraine, where new road and stadium developments are being rolled out in preparation for the European football championships in 2012. In the UK, the department of culture, media and sport's 2007 pre-budget spending review allocated £7.15 billion of central and local government money for infrastructure and other developments prior to the London 2012 Olympics.
***
Market observers around the world envisage that public procurement, in the wider context of government spending, will play a central role in any economic recovery. In a speech in March, UK Business Secretary Lord Mandelson underlined the importance of public projects in supporting firms through the downturn: stating that the government "should never make a major regulatory or public procurement decision - on transport, energy or anything else - without asking whether there are supply chain opportunities for UK-based companies to compete for." Procurement lawyers can expect to be kept busy. Competition for public tenders is fierce and the lawyers in this edition continue to find themselves in high demand. As Peter Elliott notes, recent decisions of the ECJ "really increase the amount of information authorities have to give bidders in procurement processes about evaluation criteria and how they will mark bids - lots of authorities are finding this difficult to comply with or are not complying, and it is creating work both in the procurement phase and in disputes."