The 2015 Regulations on the aggregation of contracts and the use of Lots
Posted by Kim Postlethwaite on November 23, 2015
The aggregation of contracts refers to the grouping together of similar contracts. The requirement to aggregate contracts is not a new obligation however has been the subject of much confusion in the past. This blog post will aim to clarify when requirements are to be aggregated for the purpose of calculating the value of a contract and, more importantly, when specific Lots can be exempt from the rules.
The current rules simplified:
In simple terms the current rules are:
- A procurement opportunity should not be sub-divided for the purpose of reducing the total value of the contract. For example, if the estimated total value of the project was £200,000 then the organisation cannot split this into four opportunities of £50,000 quite simply to bring the procurement exercise under the EU thresholds and therefore exempt from the more stringent publication rules applicable to above threshold notices. This provision stands regardless of whether the purpose was intentional or not.
- Similar and regular contracts must be aggregated for the purpose of calculating the total value. For example, a Works contract must include the cost of the supplies and services also encompassed within the project.
- Lots can be used to break contracts up and separate Lots can be advertised in separate notices. However, the value of all these Lots must be aggregated when calculating the total value to be compared to the thresholds.
- Individual Lots can be made exempt from the procedure rules under certain circumstances however they must still be included when calculating the total value.
- Contracts from ‘Separate Operational Units’ will have to be aggregated. However, under certain circumstances (discussed below in more detail) this obligation can be circumvented and some separate units may be able to avoid aggregation.
The current rules in more detail:
Regulation 6 of the Public Contracts Regulations 2015 sets out the methods for calculating the estimated value of procurement. This calculation is particularly important in determining whether an opportunity falls within the rules of the 2014 EU Directive (i.e. above the EU thresholds).
Restrictions on sub-dividing contracts:
Regulation 6(6) of the Regulations states the following:
“A procurement shall not be subdivided with the effect of preventing it from falling within the scope of this Part, unless justified by objective reasons.”
It is important to clarify that this does not restrict the use of Lots. In fact the use of Lots is encouraged within the Regulations (please see this blog post for more information). The above restriction on subdividing is only applicable for the purposes of calculating the total value.
The inclusion of “objective reasons” has caused a quandary for many. This added wording is a direct transposition of Article 5(3) of the 2014 EU Directive. Rulings in EU cases have demonstrated that it is worth treading carefully when using “objective reasons” for not aggregating contracts. For example, it was ruled in case C-574/10 that a motive of avoiding the Directive does not have to exist for the non-aggregation to be unlawful. In this case Germany argued that the splitting of contracts was for the purpose of encouraging SMEs. The Court of Justice of the European Union (CJEU) rejected this justification stating that this could have been achieved through the use of Lots. A similar justification on the grounds of encouraging SMEs was also rejected in the case C-360/89.
Aggregating of similar and regular contracts:
Regulation 6(16) stipulates that supply or service contracts which are regular in nature or which are intended to be renewed within a given period must also be aggregated. The Regulation proceeds to explain how this is to be calculated:
- The total actual value of the successive contracts of the same type awarded during the preceding 12 months or financial year adjusted, where possible, to take account of the changes in quantity or value which would occur in the course of the 12 months following the initial contract; or
- The total estimated value of the successive contracts awarded during the 12 months following the first delivery, or during the financial year where that is longer than 12 months.
It is also worth noting that Regulation 6(10) states the following:
“In the case of public works contracts, the calculation of the estimated value shall take account of both the cost of the works and the total estimated value of the supplies and services that are made available to the contractor by the contracting authority provided that they are necessary for executing the works.”
The use of Lots
Although contracts of the same type or for the same work are to be aggregated this does not mean that the contracts all have to be advertised together; separate Lots can be advertised in separate contract notices (which will help encourage the involvement of SMEs) but if the total aggregated value of these Lots exceeds the various thresholds then they must all comply with the applicable rules.
When can a Lot be made exempt?
There are provisions under Regulation 6(14) to 6(15) for individual Lots to be exempt from the procedure rules under certain circumstances. These circumstances are:
- For Supplies or Services, the value of the individual Lot concerned is less than €80,000;
- For Works, the value of the individual Lot concerned is less than €1 million;
- The total value of the Lot or Lots to be excluded does not exceed 20% of the total aggregated value.
Subject to the above circumstances more than one Lot can be excluded. However, these excluded Lots will still need to be considered when calculating the total aggregated value.
What about ‘Separate Operational Units’?
Regulation 6(3) advises that where a contracting authority is comprised of Separate Operational Units, account shall be taken of the total estimated value for all those units. However, Regulation 6(4) proceeds by declaring that where a Separate Operational Unit is independently responsible for its procurement, or certain categories of its procurement, the values may be estimated at the level of the unit in question. Therefore, contracts from Separate Operational Units will not always have to be aggregated.
Where to publish your different opportunities?
Millstream, the providers of the Tenders Direct Blog also run mytenders. mytenders offers a publication service to contracting authorities and allows notices to be published to OJEU, Contracts Finder and directly to specified suppliers. The portal enables authorities to carry out all required procurement procedures, regardless of the thresholds applicable to them, in one place. For further information on how the mytenders portal can help you carry out your fully compliant procurement procedures please contact 0844 561 0670 or visit www.mytenders.org.