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Procurement Issues in Construction

Paper Type: Free Essay Subject: Construction
Wordcount: 4086 words Published: 23rd Sep 2019

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Contents

Table of Figures

List of Tables

1. Introduction; Analysis of the relationship between EU and UK Regulations

2. Analysis of grounds for application of UK regulations to the case study project

3. Selection of the most appropriate procurement procedure and justification.

4. Analysis of the quickest time frame possible for the selected procurement procedure

5. Analysis of the consequences for Mr Argent of ignoring the UK regulations

References

Table of Figures

 

Figure 1 – Amended thresholds for Procurement. (OJEC, 2018)

Figure 2 – Selection of most appropriate Procurement Procedure. (Graff, 2016)

List of Tables

Table 1 – Comparison of OJEU Advertising timelines. (Graff, 2016)

1.     Introduction; Analysis of the relationship between EU and UK Regulations

The realm of public procurement is governed by law with in the European Union. Primarily, the European Parliament and the Council of the European Union, in 2014 issued two directives regarding public procurement within construction which “…establishes rules on the procedures for procurement by contracting authorities with respect to public contracts as well as design contests whose value is estimated to be not less than the thresholds laid down …” (Public Contracts Directive)

There are two EU directives relating to Public Procurement within construction;

  1. Public Contracts Directive (2014/24/EU)
  2. Utilities Directive (2014/25/EU)

These substantial directives can be viewed as somewhat conceptual, but the EU procurement regime is based on the European Union Treaty Principles of transparency, non-discrimination, equal treatment and proportionality, (Davis et al, 2008), this is so that all member states of the EU can have a common platform from which to build their own legislation that detail the requirements and outcomes specific to each individual member state. The European parliament decreed that each member state had to have these directives into national law by 18th April 2016.

In the case of the UK, parliament have taken both the afore mentioned EU directives and transposed them into two UK Statutory Instruments;

  1. The Public Contract Regulations 2015.

These were laid before parliament on the 5th February 2015 and came into effect on 26th February 2015.

  1. The Utilities Contracts Regulations 2016.

These were laid before parliament on 17th March 2016 and came into effect on 18th April 2016.

The EU directives came about so that the public procurement market could be opened up across all member states of the EU which would ensure free movement of supplies, services and works (HM Government, 2016).

In turn, this reflects and reinforces the focus of the UK Governments procurement policy of Value for Money (HM Government 2015). This requires that all public procurement must be based on Value for Money.

In Northern Ireland, the Construction & Procurement Delivery (CPD) is part of the Department of Finance and governs public procurement for Northern Ireland. This department provides expert advice to public bodies who wish to deliver successful public projects.

The services they provide act as enablers to the Programme for Government outcomes, impacting on the lives of NI citizens. (Finance, 2018) This would prove a crucial point of contact for Mr Argent throughout the procurement process as they can assist him in being compliant with UK public procurement law by helping him to define exactly what is required from the project, advising on the best method of finding a supplier and taking it to the marketplace to find best value.

The department has issued a number of Procurement Guidance Notes (PGN’s) which provide guidance at the commissioning stage, during delivery of the contract and during the procurement.

2.     Analysis of grounds for application of UK regulations to the case study project

The Public Contracts Regulations 2015, applies to all contracts awarded by a “Contracting Authority”, where a contracting authority is defined as;

“The State, regional or local authorities, bodies governed by public law or associations formed by one or more such authorities or one or more such bodies governed by public law, and includes central government authorities, but does not include Her Majesty in her private capacity.” (Public Contract Regulations, 2015)

As the funding of the new Students Union is completely funded by the Northern Ireland Department for Learning, the contracting authority in this case is an association with a body governed by public law as outlined above.

Also, Part 2, Chapter 1, Regulation 3 of the regulations states:

Regulation3. – “(1) This Part establishes the rules on the procedures for procurement by contracting authorities with respect to public contracts and design contests which-

(a)   Have a value estimated to be not less than the relevant threshold mentioned in regulation 5.

(b)   Are not excluded from the scope of this Part by any other provisions in this section.”

In turn Regulation 5 states;

Regulation 5. – “(1) This part applies to procurement with a value net of VAT estimated to be equal to or greater than the following thresholds: –

(a)   For public works contracts, the sum specified in Article 4(a) of the Public Contracts Directive;”

Article 4(a) of the Public Contracts Directive (2014/24/EU) states;

(a)   “EUR 5 186 000 for public works contracts.”

Where Public works contracts are defined as:

“…Public contracts having as their object one of the following;

(a)   The execution, or both the design and execution, of works related to one of the activities within the meaning of Annex II;

(b)   The execution, or both the design and execution of a work;

(c)    The realisation, by whatever means, of a work corresponding to the requirements specified by the contracting authority exercising a decisive influence on the type or design of the work;

Annex II lists off such activities as Construction, Site preparation, Demolition, Test drilling and building etc.

In 2018, the threshold amounts were amended within the directive and the new threshold relating to Article 4(a) of the Public Contracts Directive (2014/24/EU) has changed as per the table below. These were effective from 1st January 2018.

Figure 1 – Amended thresholds for Procurement. (OJEC, 2018)

These figures were also issued in the UK via an Information Note (PPN 04/17) issued by HM Government, Crown Commercial Services and supplement the 2015 Public Procurement Regulations.

Therefore it can be seen that as the expected value of the Student Union construction of £25M is in excess of the £4.551M (€5.548M) outlined within both the directive and the regulations, also as per Article 13(a) of the directive, concerning subsidised contracts, more than 50% of the funding for the project is subsidised.

Furthermore, out of the activities identified in Annex II, the vast majority apply to the works being undertaken at the Students Union; construction, site preparation, demolition etc., so item (a) is satisfied and therefore the works are indeed classified as a public works contract in accordance with the regulations.

On the basis of all the above criteria being applicable to the case study project, it is quite clear that the UK regulations are applicable and indeed mandatory for the procurement of an appropriate Economic Operator by the Contracting Authority.

3.     Selection of the most appropriate procurement procedure and justification.

The Public Contracts Regulations 2015 provide for five types of procurement procedure that are available to a contracting authority. It is incumbent on the contracting authority to select the most appropriate procedure for the works and apply the requirements of the selected procedure. These are detailed in Chapter 2, Section 3 of the regulations and are listed below;

  1. The Open Procedure – a process by which all interested the parties submit bids to be considered for the contract. Evaluation and subsequent selection is carried out after the receipt of tenders. This procedure provides the broadest scope for competition as anyone can bid, but risks a large number of tenders and can therefore result in higher administration costs for the contracting authority.
  2. Restricted Procedure – this is a two stage process where the selection and short-listing is carried out on the basis of the submission of a pre-qualification questionnaire (PQQ). The resulting responses to the PQQ are assessed by the contracting authority and then candidates are invited to submit a full tender from which an overall successful bidder will be selected.
  3. Competitive Procedure with negotiation– this process allows for tenders to submit an initial tender, then open negotiations are initiated between the contracting authority and all the tenderers. Following negotiation on the submitted tenders, there is a formal end to negotiations and tenders will submit a revised final tender.
  4. Competitive Dialogue Procedure – this is a process for situations where the solution is not defined at the start of the procurement process. After tenderers respond to the advertisement, dialogue is permitted between the contracting authority and tenderers to develop the most suitable solution to satisfy the project requirements before competitive tenders are invited from chosen bidders.
  5. Innovation Partnership – this process allows a tenderer to enter into negotiations with a contracting authority to develop innovative works and meets a need for which there is no existing supplier or product on the market. Under this process the contracting authority may award partnerships to more than one tenderer.

In selecting the most suitable method of procurement, the following figure can assist in the decision making.

Figure 2 – Selection of most appropriate Procurement Procedure. (Graff, 2016)

Given the brief of the case study project and the facts known at the current stage, the author feels that the Open Procedure is not a suitable method of procurement for Mr Argent and the design and build of the students union. Due to the sheer volume of stakeholders, complexity of the project, public profile of the university and the union, inviting tenders from any organisation without pre-qualifying them to ensure they would be suitable candidates for carrying out the project would not be advisable.

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Likewise, it is felt that the Innovation Partnership is not applicable to the case study because although the project is vast and complex in some instances, it is not anything that hasn’t been done before in the UK and indeed European construction field, there are no innovative methods prescribed or intensive architectural designs that cannot be realised without he employment of any specialists.

It could be said that the Competitive Dialogue Procedure or the Competitive Procedure with Negotiation might suited to the procurement of a design and build economic operator selection for the case study project as the open dialogue can result in tailoring a solution where it is not fully specified.

Assuming that all the relevant feasibility studies have been executed prior to the decision to pursue a design and build economic operator, it would appear that the most suitable method of procurement would be the restricted procedure as the solution for the students union has been established and there is a full brief in place that can be tendered for. Mr Argent can then review and select from those who respond to the advertisement and invite the “chosen Few” to submit tenders. It is important to note that a minimum of 5 economic operators must tender for the process to be deemed fair (Gachanja, 2012)

Mr Argent and the Estates department of the University of Belfast, can demonstrate carrying out due diligence and also encouraging competition between tenderers in order to award the contract on the basis of the most economically advantageous to the authority (MEAT). (HM Government, 2014),

4.     Analysis of the quickest time frame possible for the selected procurement procedure

The Restricted Process is essentially a two stage process. The first stage is selection, where the tenderer’s capability and experience are assessed. The second stage is when the Invitation to Tender (ITT) is issued and the resulting tenders are assessed in line with the regulations to select the Most Economically Advantageous Tender (MEAT).

The stage 1 process dictates that economic operators must be given 30 days from the publication of the contract notice in the Official Journal of the European Union (OJEU), to the deadline for a request to participate, where they will submit information to suppliment their application to take part.

In the stage 2 process, tenderers must be given 30 days to respond to the ITT. This can be reduced to 25 days where the contracting authority has stated they will receive tender submissions electronically.

Subsequently, once a decision has been made by the contracting authority, a standstill period of a minimum 10 days must be implemented between the time that the decision is made to award, to the time that the contract is signed and thus legally binding.

In some cases the timeframes above can be reduced. Contracting Authorities can elect to use a Prior Information Notice (PIN) to reduce the time period for the receipt of tenders. If a PIN is to be used, a minimum time frame of 10 days can be implemented between the ITT and the closing date for tender submission if;

(a)   The PIN includes relevant information required for the contract notice, insofar as that information was available when the PIN was published, and

(b)   The PIN is despatched between 35 days and 12 months before the contract advertisement is sent to OJEU.

Similarly to above, a minimum 10 day standstill period must be implemented. 

It is important to note that all the above durations are mandatory minimums and can be extended but not shortened. When setting the time limits for the receipt of tenders, Mr Argent needs to take cognisance of the complexity, magnitude and timeframes available. Also, if there was a reason to call a state of emergency for the procurement, the minimum time for stage 1 can be reduced to 15 days and stage 2 to 10 days, however, this is not applicable to the case study.

The table below show the difference between the restricted procedure with and without PIN.

 

Applications (PQQ):

(Days)

Tender (ITT):

(Days)

Without PIN

30

30

Without PIN

(Electronic Tender Submission)

30

25

With PIN

(Submitted between 35days and 12 Months prior to advertisement in OJEU)

30

10

URGENT

15

10

Table 1 – Comparison of OJEU Advertising timelines.

5.     Analysis of the consequences for Mr Argent of ignoring the UK regulations

For nonadherence to the Public Contracts Regulations 2015, there are provisions made within the regulations for remedies both prior to contract award and after a contract has entered into. These remedies derive from the Remedies Directive 2007 and are enforceable by the High Court.

In terms of Pre-contract award, the following remedies, in line with Regulation 97 are:

  1. Order of the setting aside or suspension of the procurement procedure (an injunction),
  2. Order the contracting authority to amend any document,
  3. Award damages to an economic operator who has suffered loss or damage as a consequence of the breach.

Post contractual award, the following remedies in line with Regulation 98 are:

  1. The remedy of Ineffectiveness (i.e. cancellation of the contract).
  2. Imply penalties
  3. Award damages to an economic operator who has suffered loss or damage as a consequence of the breach.

Also, the regulations call for a standstill period of a minimum of 10 days, between the time that the decision to award was made and the contract is signed. This requires the contracting authority to inform bidders about their decision to award and allows a window of opportunity for the tenderers to challenge the award before the contract is entered into, it is at this point that other tenderers could seek an injunction. The standstill period has been described as “both a shield for contracting authorities from potential ineffectiveness claims, and as a sword for aggrieved bidders where there has been a failure to properly apply the standstill period” (Graff, 2016). Compliance with the standstill rule will provide Mr Argent with increased protection against post contractual remedies.

The Public contracts directive, supported by the Public Contracts Regulations 2015, outlines that it is the duty of the contracting authority to investigate tenders it considers abnormally low and to disregard those that are based on approaches in breach of international environmental or social law. (HM Government, 2014)

This means that there is a duty of care placed on Mr Argent as the contracting authority to investigate the validity of tender submissions that have an abnormally low price, construction methods that may not be compliant, the possibility of the tenderer to obtain state aid etc.

The New Remedies Directive states that public contracts are “ineffective” if there is any breach of public procurement rules, for example if a contract was awarded without the relevant notification and advertisement in the Official Journal of the European Union (OJEU); or a contract is entered into without having the relevant standstill period, or a conflict of interest arises etc.

Ultimately, should Mr Argent decide to not be compliant with the UK regulations, there are further UK regulations and EU directives that will hold him accountable, deem the contract ineffective and potentially give rise to the payment of fines and/or damages. Further to this, there is the potential to cause harm to the professional reputation or Mr Argent, The University of Belfast and the Northern Ireland Department for Education.

Cases of Breach of contract can also be pursued by the European Commission if a relating EU directive and/or EU treaty or principle has been contravened. These proceedings can, not only apply to the Contracting Authority, but also the Member State.

References

 

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