2020 EU / OJEU Procurement Thresholds
Procurement thresholds for public sector tenders are updated for 2020. Associate Consultant, Carl Rogers, is an expert on public procurement. In this post he explains the changes, the importance of contract values and the effects of Brexit.
The new procurement thresholds affect new tenders from 1st January 2020 to 31st December 2021.
Why are Procurement Thresholds Important?
Public sector buyers must be aware of these thresholds. These are the values above which a European (OJEU) advert must be placed to ensure competition. Failure to do so can result in legal action being taken against the contracting body.
The procurement thresholds are applicable to public purchasing. This includes government departments, local authorities, NHS Trusts, utilities, housing associations etc. They cover the following:
- The Public Contracts Regulations 2015
- The Concession Contracts Regulations 2016
- The Utilities Contracts Regulations 2016
- The Defence and Security Public Contracts Regulations 2011
What has changed
The actual thresholds have increased slightly. This might be due to the fluctuating exchange rates compared to the last threshold renewal. The new thresholds are net of VAT and are as follows:
For full details, see the Government’s Procurement Policy Note 06/19: New Thresholds 2020.
How to Find Public Sector Tenders
Read our guide on finding public sector tenders. It explains how to use TED, Contracts Finder and other public-sector procurement portals to find tenders.
How are Contract Values Calculated and What are the Problems?
This is a simple enough question but one which some struggle with. Many people look at contracts in annual terms; that is logical as we budget annually. But, in the past, this has been used, whether intentionally or not, as a ploy to get around complying with the requirements of the regulations. See the example of the NHS manager who manipulated contract values to fraudulently award contracts to a friendly ICT supplier.
Therefore the rules have been tightened to cover this and now contract values are based on the whole-life cost.
For example, some have said that a contract for goods or services with an annual spend of £50k is below the EU threshold. Arguing that minimum procurement timelines do not apply. And an OJEU advert does not have to be placed. But this contract, for say 5-years, has a potential total contract value of £250k. Making it within scope of the EU procurement directive for goods and services.
Public sector buyers must try and calculate the maximum potential contract value and use that. Where there is no contract in place, an estimation of annual value needs to be created. It is then multiplied by the maximum contract length (including any extensions). This may be based on past purchases or spend over a number of years so that if questions are asked, the estimate can be justified.
Concessions contracts are where the supplier makes money from the right given by a Contracting Authority to provide, rather than the Authority paying. For example, bailiff services where the enforcement agency collects penalties on behalf of a council. Concession contract values are based on what it is worth to the supplier or the cost an authority would incur to provide the contract.
If putting a figure together proves difficult, a range can be applied with a lower and upper-value banding.
Why are Contract Values Important?
Failure to get it correct can lead to the requirement of having to re-tender the contract early. This is due to the stated value having already been reached. With stretched resources, this is hassle that public authorities can do without. Let alone the potential unfavourable publicity and risk to potential supplier relations.
Another pitfall is where a supplier challenges the contract on the basis that if they had known the contract value was going to be higher, they would have put in a bid. Importantly, they don’t have to prove that they would have been awarded the contract, only that there has been a procedural breach.
So, public sector procurement professionals must pay attention to the thresholds and get contract values correct. Or at least have a transparent methodology for their estimate.
You may ask how these thresholds will be affected by Brexit? In theory, from 31st January 2020, they will not apply as the UK will no longer be subject to the EU procurement directives regime. However, at the time of writing, the Government has agreed an 11 month transition period ending 31st December 2020. This may mean that EU thresholds will continue to be applied until 2021. Any move away from the EU Procurement directives may have an impact on the minimum timelines and processes for tenders. (e.g. advertising, response times etc.).
However, the Government has transposed the EU procurement Directives (2014/24/EU) into UK law in the form of the Public Contracts Regulations 2015 and others. The rules will still apply but the thresholds are in question as the UK will be deciding these from 1st January 2021.
Don’t forget Contracts Finder. The rules state that anything over £10k (central Government) or £25k local government needs to be published on contracts finder unless local rules or use of a framework allow for the market to be restricted. This requirement will remain after the UK leaves. The potential loophole of simply increasing local thresholds may be closed by the Government in time to come.
Public sector procurement threshold levels have increased slightly for 2020 for EU tenders. This relates to tenders advertised across the EU (OJEU tenders).
Procurement thresholds are driven by correctly calculating contract values over the typical contract term. Failure to get this right has serious consequences.
For the moment, Brexit doesn’t look like it will have an immediate effect on tenders.
If you have any questions on public sector procurement, you can contact Carl or use the comments box below.