Commercial Law – Update 3

PUBLIC PROCUREMENT: NEW GOVERNMENT INITIATIVE TO ASSIST SME PARTICIPATION

In April 2013, the Department of Public Expenditure and Reform (“Department”) issued to all Heads of Departments new guidance in the form of a circular (Circular 10/14) with the stated intention of updating and strengthening measures designed to facilitate SME’s to win business from the public sector through better participation in Public Procurement.

Circular 10/14 (“Circular”) replaces guidance dating back to 2010 and seeks to anticipate changes proposed in the revised EU Public Procurement Directives that are due to come into force by April 2016. The Office of Government Procurement (“OGP”) is tasked with driving forward an integrated approach across the public sector to public procurement and to ensure full engagement by the SME sector.

What are the key features that SME’s should be aware of?

  1. Market analysis

In order to better understand the range of goods and services that are on offer, before tendering buyers should engage in meaningful market analysis. All information that may be supplied by any potential supplier will need (in the interests of transparency) to be shared with any potential supplier.

The OGP has established Category Councils for the 16 broad categories of goods and services bought by the public sector. These categories are set out in Appendix 1 to the Circular.

  1. Consortium Bids

The Circular seeks to encourage SME’s to use consortia where they lack sufficient scale in their own right to tender. Consortia will be allowed in tender documents but the submission of consortia tenders will give rise to certain challenges that single entity bidders will not face. Clarity as to who will have lead responsibility will be an important factor.

  1. “Open” versus “Restricted” tendering

Tenders for the supply of general goods and services below €134,000.00 (excluding VAT) should use the open tendering procedure. Hopefully, this will afford greater opportunities for SMEs to bid for public contracts below this value level.

4. Threshold transparency

All contracts for supplies and services with a VAT exclusive value of €25,000.00 will be advertised on www.etenders.gov.ie

For goods and services contracts below €25,000.00, the website will support quick quotes for tenders.

From 1st August 2014, public sector buyers will be obliged to publish contract award notices for these contracts on the eTenders website.

5. Turnover Requirements

For many tenders, the application of high turnover requirements has been an unintended barrier to participation in tenders for the supply of uncomplicated goods and services. Under the new rules regarding tenders for the supply of routine goods and services the supplier turnover requirements must not be set at more than twice the estimated contract value. Tenders for non-routine goods and service supplies can apply higher turnover requirements.

6. Insurance

The Circular also sets out detailed guidance on the appropriate insurance levels needed for public contracts. As with the high turnover requirements heretofore the setting of excessively high insurance levels effectively put participation in the tender process beyond the commercial reach of many SMEs. Any capacity requirements must be both proportionate and relevant to attract as many responses as possible from the market. Appendix 2 of the Circular sets out insurance level guidance for routine low to medium risk goods and services.

7. Life Cycle Costs

Rather than simply apply the “lowest price” criterion for the award of contracts the Circular encourages buyers (where appropriate) to seek full life-cycle costing solutions when tendering where feasible. This should allow SMEs an opportunity to compete on quality and service excellence as well as price.

8. Innovation

An innovative and welcome feature is the permission granted to buyers to have regard for the prior experience of the individuals involved in a start-up SME. This is helpful because the new company vehicle may not have an established track record.

Hopefully this new approach will result in a meaningful distribution of public contracts at a certain level among the SME sector.