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SMEs to miss out on £33.5bn worth of government contracts by 2020

houses-of-parliament

Small businesses could miss out on over £33 billion worth of UK Government contracts in the ten years to 2022, according to procurement specialists Millstream.

The Government has set itself a target of spending £1 in every £3 ‎on SMEs by 2022 through both direct and indirect spending as part of a drive to re-balance the economy. It procures around £50 billion worth of products and services a year.

However, according to Millstream analysis*, in the last five years direct government spending on SMEs has only grown by one percentage point from 10% to 11%.

The firm estimates that, if spending on SMEs increases at its current rate, the SME community is likely to have missed out on £33.5 billion worth of government contracts in the ten years to 2022 – at precisely the time that the government is hoping to attract more tenders from them.

‎Penny Godfrey, General Manager of Millstream, said: “This could be a real missed opportunity for the SME community. Despite a major push to redistribute spending amongst a larger number of smaller firms, current trends suggest that not enough SMEs are tendering for and winning government business.

“This is not itself a criticism of government: the target is there to encourage smaller businesses to apply for contracts. Doing so would spread risk for the government and improve its access to specialist businesses. Of course, it should also redistribute investment around the UK.”

According to Millstream, it’s not all doom and gloom, the UK government is on track to double the proportion of funds it spends directly on SMEs by 2022. In 2009, just 6.5 per cent of total government expenditure went to SMEs, but Millstream predicts it will hit 13% by 2022.

However, the government’s target is not exclusively based on the direct contracts it offers to SMEs, but on the total overall benefit to SMEs, which includes indirect contributions to the SME supply chain. By this definition, government spending on SMEs is actually decelerating.

Penny Godfrey added: “More must be done to encourage tender submissions from SMEs. Businesses must appreciate that the process needn’t be arduous. Buyers really want to see more small businesses getting involved. It is vital that we stimulate tendering for government work – SMEs must understand that the opportunities outweigh the risks.”

 


* UK government official data on SME spending available here (2009-14) and here (2014-16). 2016/17 data not yet available.

Millstream made the following presumptions in its calculations:

  • YoY increase of 3% on total procurement spending by the UK government 2016-2022
  • Improvement in the % of total (direct & indirect) SME spending follows the direct spending trend of the UK government from 2011-2015 onwards (=growth of 1% every four years)
  • To make the most conservative estimate possible, we used the highest % spent on SMEs available as starting point for projected spend from 2016 to 2022

Comment on De La Rue taking steps to appeal against passport decision

UK passport

With the recent news* that British company De La Rue are looking to initiate appeal proceedings against the government’s decision to award the contract to make UK passports to French-Dutch company Gemalto, Penny Godfrey, General Manager of Millstream, comments:

 

“There are great benefits to British companies that have the opportunity to bid for European contracts and our public sector has to reserve the right to invite bids from outside the UK – these principles could shape how competitive our economy will be after Brexit. In this instance we must be aware that this display of political or domestic preference could be riding roughshod over fair market principles.

 

“De La Rue has the right to appeal the Government’s decision, but will have to base that appeal on a breach of wider procurement rules. There is no clear definition of what constitutes an abnormally low tender offer, but the risks to the contracting authority of an unsustainably cheap offer are clear: poor performance, the potential for hidden costs, and, ultimately, incurring the additional cost of re-tendering if things go awry.”

 

*Related article: http://www.bbc.co.uk/news/business-43623750

Free Webinar: ESPD for Suppliers

ESPD for Suppliers

There has been a lot of talk about the European Single Procurement Document (ESPD) but what is it, what do you need to know about it and why are there so many versions of a ‘single’ document?

Join our webinar on Wednesday 18 April from 1.00pm to 1.45pm where you’ll find out:

• What the ESPD is and why is has been created
• How it is implemented across the UK
• How to create an ESPD
• What impact Brexit will have on the ESPD

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Free Webinar: Frameworks and Dynamic Purchasing Systems

Frameworks and DPS

The use of frameworks and dynamic purchasing systems (DPS) in the public sector is on the rise. They reduce the amount of work for procurement teams and simplify the tendering process for suppliers.

Make sure you’re prepared to bid for this type of work – join our free webinar to find out what a framework or DPS is, how they operate and what work needs to be done once you are on them.

Date: Thursday 22 March
Time: 1.00pm to 1.45pm

During the webinar we’ll cover:

  • A description of what a framework is and how it operates
  • A description of a DPS and how it differs from a framework
  • An explanation of how to find these opportunities
  • Examples of ‘call-off’ mini competitions from frameworks and DPSs
  • An overview of how to write great bid responses

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Free Webinar: Finding and Winning Low Value Tenders

Low value tender webinar

Low value tenders can prove to be a great business development tool for public sector suppliers.

However, as low value tenders do not have to adhere to the full raft of procurement regulations, the challenge is knowing where to find them and how to win them.

Join our Head of Training and Consultancy, Gemma Waring BA (Hons), for this free 45 minute webinar where we’ll outline what rules and regulations govern low value tenders, advise how to win these tenders, plus lots more.

Date: Wednesday 21 March
Time: 1.00pm – 1.45pm

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Free Webinar: Social Value in Procurement

16.02_Millstream_1200x628_Training_Social

Calling all buyers! Social Value has been part of procurement legislation since 2013, but what is it? And, more importantly, how should these types of questions appear in your procurement documents?

If you would like a firmer understanding of the topic then join our Head of Training and Consultancy, Gemma Waring BA (Hons), for this FREE webinar.

Wednesday 28 February, 1.00pm til 1.45pm

The webinar will cover:

• A high level overview of the Social Value Act 2012

• An explanation of how it can be implemented in procurement documents

• Examples of Social Value questions

• Advice on how to evaluate them objectively

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Free Webinar: Social Value in Tenders

Millstream Social Value Webinar

Social Value has been part of procurement legislation since 2013 yet it is just starting to filter down into tender documents on a regular basis – sometimes accounting for up to 20% of the total evaluation.

But what is it? And, more importantly, how can you prepare for it?

If you would like a firmer understanding of the topic then join our Head of Training and Consultancy, Gemma Waring BA (Hons), for this FREE webinar.

Tuesday 27 February, 1.00pm til 1.45pm

The webinar will cover:

• A high level overview of the Social Value Act 2012
• An explanation of how it is being implemented in the public sector
• Examples of Social Value questions that have been seen in recent tenders
• Advice on how to prepare for answering social value questions in tenders

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Guest Legal Blog: Are regulations making procurement easier for SME’s?

Suzanne Hardie_Morton Fraser

Suzanne Hardie is a partner at independent law firm, Morton Fraser and advises on procurement matters. Here she looks at how procurement regulations are seeking to make the process easier for SMEs.

  1. How effective are the most recent procurement regulations in levelling the playing field for SMEs?

Greater access for SMEs to public contracts was one of the policy aims sitting behind the 2014 EU Directive on Public Procurement, which has now been implemented into national legislation. The CBI’s second report on Procurement Reform (published before the latest round of legislative changes) stated that half of UK Central Government’s £40bn spend was placed with just 39 suppliers, so it is not surprising that this issue received the attention of legislatures. The main barriers to SME involvement have traditionally been seen as a lack of transparency, complexity of procurement process and the size of advertised contracts.

So, how much progress has been made since the latest round of legislative changes came into force?  Before considering the effectiveness of those changes, it is useful to remind ourselves of what they were:-

  • Under the new Regulations, Contracting Authorities now have to actively consider splitting larger contracts (those above the EU threshold) into smaller lots and have to justify their decisions if they choose not to do so. It is also open to Contracting Authorities to limit the number of lots that a single contractor can be appointed to, provided they do so in an objective and non-discriminatory way.
  • Contracting Authorities have to evaluate bids based on the tenderer’s “capacity and ability” to perform the contract, which means that excessive requirements, not linked to the type or value of the contract, are not permissible. In particular:-
    • minimum turnover requirements for bidder qualification cannot be more than twice the contract value, unless there is a justifiable reason for doing so. The previous thinking on this was for 3 times the contract value, so there has been a reduction there in favour of SMEs.
    • minimum PI levels required for bidder qualification need to be objectively justifiable based on the type and value of the contract.
  • The new Regulations introduced the amended qualification process, which brought in the standardised European Single Procurement Document (ESPD) and the ability for bidders to self-certify the information provided. Now only the winning bidder is required to provide the documentation supporting their statements in the ESPD. The European Commission estimated that the change in the qualification procedure would reduce the administrative burden on companies by over 80%.  Scotland has introduced the new Scottish ESPD but it has not yet been implemented in any meaningful way in England, NI or Wales.
  • More generally there has been a drive to further improve transparency through better record keeping and auditing of procurement processes.

As we have only been working with the new regime for a short while, Contracting Authorities, as well as bidders, are still very much in the learning process and there will, inevitably be a period of time before full compliance is achieved across the sector.  The European Commission is focussing on buyer training as a means to ensure compliance.

Some of the changes are more easily implemented than others.  Contracting Authorities had already been working with guidance on minimum turnover and PI requirements and the new Regulations are more of a codification of existing rules than a step change in that regard.

Other changes may take a little longer to be fully embedded.  A quick review of the tender portals will, for example, show that bidders are not always given reasons for a contract not being split into lots, or if they are, the reasons are not particularly specific.  It is also rare to see a limit being placed on the number of lots that a single contractor can be awarded.  The reason for this could be that there is a perceived conflict in being able to demonstrate best value whilst at the same time splitting a contract so as to lose the economy of scale, or saying that a certain lot has not been awarded to the bidder who submitted the most economically advantageous tender because of a cap on the number of lots that it can be awarded.

There is little doubt, however, that the standardised approach to the qualification process through the ESPD is starting to reap benefits for bidders, from both a time and a cost perspective.  This is likely to be the biggest win for SMEs from the most recent changes in legislation.

 

2. Is there anything more that can be done in a regulatory way to enhance the opportunity for SMEs to engage in public procurements?

It is likely that legislatures would want to give Contracting Authorities a period of time to adjust to the new Regulations, before making further changes.  That said, the EU Commission is keen to make sure that buyers fully understand the new rules and use them in a way to create innovation in the economy, which can be done through greater use of SMEs.  The EU Commission published a consultation on “Guidance on Public Procurement of Innovation” seeking to help buyers feel more confident in specifying more innovative ways of delivering contracts, without fear of challenge.  The consultation closes this month (January) and we can expect published Guidance to follow on from that.

At the moment Contracting Authorities are being “encouraged” to design their procurement processes with SMEs in mind, but they are afforded a fairly wide discretion in how they do that.  Based on their current powers under the EU Directive, there are additional measures that Member States already have in their kit bag, should they feel that the current regime is not achieving the policy aim of increasing SME involvement.

As an example, the Directive allows Member States some discretion on the implementation of the lotting rule, so that Government could at some point make it mandatory that contracts of a certain size or type be split.  Government could also choose to extend these current rules so as to apply to lower value contracts, through separate national legislation.

Speed of payment in the supply chain has also raised concerns for SMEs, especially in the construction industry.  The Directive makes clear that Member States should be free to provide mechanisms for direct payments to be made to sub-contractors (who are more likely to be SMEs).  As an example of how this can be achieved, the Scottish Government has now instructed all Scottish organisations covered by the Public Finance Manual to use Project Bank Accounts in high value construction contracts to allow direct payments to sub-contractors.  If this proves to be successful then we may see a further roll out to other industries or to lower value contracts, but this would have to be weighed against the cost of administration.  There is also statutory in guidance in England & Wales about prompt payment of undisputed invoices within 30 days, with a stated aim of paying 80% of invoices within 5 working days.

The Scottish Government has also introduced the Scottish ESPD as well as standardised statements for use alongside the ESPD which Contracting Authorities must use for routine requirements in the qualification process.  This further standardises the process for bidders and will ensure that the policy aims of making the ESPD a reusable document are better achieved.  It may be that this is something considered by other jurisdictions.

We do have to recognise that any attempt to legislate in favour of a certain groups of providers such as SMEs, almost by definition, prejudices other providers in the sector.  Government therefore has to use its powers with caution so as not to make the process anti-competitive, when the aim of the game is to run an open, transparent and fair process for all.  That said, the measures that have been introduced do help to at least make sure that SMEs are given a fair opportunity to compete in the first place.

New Public Procurement thresholds 2018/2019

New Public Procurement thresholds 2018/2019

New Public Procurement thresholds 2018/2019

The European Commission has confirmed the new financial thresholds to be applied to public procurement. The new thresholds will apply from 1st January 2018 and be in place until the end of 2019.

Could this be my last blog on EU thresholds before Brexit?

Who knows, but here it is…

When procuring goods or services over the financial threshold a public authority must do so under the Public Contracts Regulations 2015 in England, Wales and Northern Ireland and the Public Contracts (Scotland) Regulations 2015. These regulations transposed the European public contracts directive (2014/24/EU) into national law.

The main point of interest from our readers’ perspectives is that buying organisations must advertise any requirement over the new thresholds in the Official Journal of the European Union (OJEU), rather than just advertising it nationally. The calculation of the estimated value of a procurement shall be based on the total amount payable, net of VAT, as estimated by the contracting authority, including any form of option and any renewals of the contracts as explicitly set out in the procurement documents.

Between the 2016/2017 thresholds and the 2017/2018 thresholds we have seen a small increase in the thresholds in both Pounds Sterling and Euros. Due to the relatively small increase it is unlikely that buyers or suppliers will notice much change in the size of contracts advertised at European level.

PUBLIC CONTRACTS

Supply, Services[1] and Design Contracts Works Contracts[2] Social and other specific services[3]
Central Government[4] £118,133

€144,000

£4,551,413

€5,548,000

£615,278

€750,000

Other Contracting Authorities £181,302

€221,000

£4,551,413

€5,548,000

£615,278

€750,000

Small Lots £65,630

€80,000

£820,370

€1,000,000

n/a
[1] With the exception of the following services which have different thresholds or are exempt:
– Social and other specific services (subject to the light touch regime) Article 74.
– Subsidised services contracts specified under Article 13.
– Research and development services under Article 14 (specified CPV codes are exempt).
[2] With the exception of subsidised works contracts specified under Article 13.
[3] As per Article 74. Services are listed in Annex XIV.
[4] Schedule 1 of the Public Contracts Regulations lists the Central Government Bodies subject to the WTO GPA. These thresholds will also apply to any successor bodies.

Social and other specific services are subject to the ‘light touch regime’ as described in a previous blog.

UTILITY CONTRACTS

Supply, Services and Design Contracts Works Contracts Social and other specific services
Utility Authorities £363,424

€443,000

£4,551,413

€5,548,000

£820,370

€1,000,000

DEFENCE AND SECURITY CONTRACTS

Supply, Services and Design Contracts Works Contracts Social and other specific services
Defence and Security authorities

 

£363,424

€443,000

£4,551,413

€5,548,000

n/a

 

 Points of clarification:

CONCESSION CONTRACTS

For the first time Concession Contracts are covered in EU Law under a separate directive and therefore separate regulations in the UK.

The EU Directive is found here: http://eur-lex.europa.eu/legal-content/GA/TXT/?uri=celex:32014L0023

The UK regulations here: http://www.legislation.gov.uk/uksi/2016/273/contents/made

The UK Directive gives instruction on how the value of a concession contract should be calculated: http://www.legislation.gov.uk/uksi/2016/273/regulation/9/made

The thresholds for publication in the OJEU refers to Article 8 (1) of the EU Directive which is:

  1. This Directive shall apply to concessions the value of which is equal to or greater than EUR 5 548 000.

The Sterling equivalent is £4,551,413

CALCULATING ESTIMATED VALUE

The calculation of the estimated value of a procurement exercise shall be based on the total amount payable, net of VAT, as estimated by the contracting authority, including any form of option and any renewals of the contracts as explicitly set out in the procurement documents.

CONTRACTS SUBSIDISED BY PUBLIC FUNDS

All applicable contracts which are subsidised by 50% or more of public funds must be advertised in the OJEU. From time to time a public body may part fund a project and request that the recipient of funding must advertise the procurement in line with public contracts regulations even if their contribution is less than 50% of the overall value. As such any recipient of public funding on a project should verify with the funding body what is expected of them in procuring for the project.

WHAT ARE SMALL LOTS?

My colleague Line recently wrote a blog to clarify this question: https://blog.tendersdirect.co.uk/2017/01/06/procurement-terminology-what-are-small-lots/

HOW DO I KNOW IF A CONTRACT IS CLASSED AS WORKS?

Many contractual requirements are a mixture of works and services. Whichever element is the highest in value should be taken as the contract nature when determining what threshold to apply. If you are unsure whether a specific element is classed as works or services then you can refer to Schedule 2 of the regulations which lists all activities which constitute works by CPV code:

http://www.legislation.gov.uk/uksi/2015/102/schedule/2/made

If the CPV code which fits your requirement is not in that list then it is not classed as a Works contract.

I hope you find this blog useful. If you want more help with understanding thresholds and other public sector tendering procedures, Millstream’s Training and Consultancy team are available to answer any of your questions. Or, leave us a comment below.

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