Procurement competition types cause confusion for many businesses. Recent conversations that I have had with business owners and public figures interested in supporting small businesses and helping them grow highlighted a number of issues for me. The issues are:
- The degree to which procurement competition types are understood;
- The degree to which competition criteria are understood and addressed in bids;
- The impact that pre-qualification and other technical criteria can have on SME chances of competing with larger organisations.
I intend on addressing these issues over the coming months. This article is going to focus on procurement competition types, what the procurement competition types mean for SMEs and what kind of tactical responses SMEs should consider when they become aware of a public tender emerging in a target organisation they have a relationship with.
The are four key procurement competition types allowed for under the 2014 procurement directives. This article was updated on 23/05/2016 following the implementation of the 2014 procurement directives. These are open, restricted, negotiated and competitive procedures. We outline below what in involved in each of the procurement competition types.
Procurement Competition Types: Open Procedures
This quite simply means that the public tender competition is open to any supplier in the European Union (and potential suppliers from third countries).
The value of the contract provides an indication as to whether larger companies are likely to be bidding for the same business as interested small or medium-sized businesses. There are two kinds of open procedure – with notice and without notice.
Open procedures without (OJEU) notice
Contracts with a value below the relevant threshold for the Contracting Authority are simply advertised and placed up on e-tenders in Ireland. E-tenders is the government’s website for purchasing goods & services.
Open procedures are open to all suppliers. Circular 10/14 is worth reading as it emphasises a commitment by Government to seriously consider bids from small and medium sized businesses for Public Sector business.
Unless a SME is a global leader in a niche field or deeply specialised in some other kind of way, open procedures without notice are where most SMEs stand their best chance of winning Public Sector business.
Open procedures with (OJEU) notice
As these are larger contracts, they also appeal to suppliers beyond Ireland and have criteria that can increasingly favour larger businesses as the contract value goes up. Certain derogations (higher thresholds) now apply to social and health services reflecting the fact that contracts in sectors like health services can be routine but relatively high value in nature.
There is a best practice trend to break large contracts into lots to ensure that there is greater competition, a better appreciation of relative strengths (i.e. it would be rare set of circumstances where one supplier offers the most compelling solution across all areas of a contract) and that (under/non) performance risk is spread across several suppliers rather than concentrated in one. The use of lots recognises this trend and seeks to identify the best provider for each service being sought.
Breaking larger contracts into lots is a requirement under the 2014 directives. Where this does not happen (with only a few exceptions), there is a duty to explain why this has not taken place. This is to assist SMEs obtain greater access to public contracts.
Procurement Competition Types: Restricted procedures
Restricted procedures follow a different process with different timelines to open procedures but in substance differ in only one respect. The Contracting Authority must be of the view that only a limited number of suppliers can satisfy their specific needs.
While any supplier can request to participate in a restricted competition, the Contracting Authority is not obliged to issue the public tender documentation to all who express an interest. The Contracting Authority is entitled to restrict the issuing of the public tender to the suppliers it wants to receive a bid from. Unless there are substantive grounds to justify a very small pool of suppliers, at least five bids from five different suppliers are expected in a restricted procedure.
The same thresholds apply for notification purposes as for open tender competitions.
SMEs that have expertise can compete successfully in these tender competitions but they should consider:
- the relative strength of their relationship with the Contracting Authority compared with potential competitors (nationally and internationally);
- their past experience of bidding for business with the Contracting Authority and the feedback they have received on their previous bids; and
- how strong their product or service is by comparison with the leaders in their field nationally and internationally.
In some cases, SMEs may need to enter public tender competitions to earn the right to bid for work (with no guarantee that they will subsequently get any business). SMEs may need to become a member of a Supplier Framework Agreement to get a chance to bid for some restricted tenders. Pre-qualification criteria can make this difficult if the criteria defined to become a member of a supplier framework are onerous.
Circular 10/14 encourages the use of open procedures where possible but Supplier Frameworks (that can last up to four years) are a barrier that SMEs can have difficulties surmounting. The 2014 directives have allowed for shortened tendering timelines for companies that are successful in getting onto a framework. Increasingly, these frameworks should be either regional or sector or regional and sectoral in nature to facilitate maximum openness and competition.
Procurement Competition Types: Negotiated procedures
This procedure is only permissible in certain circumstances. The term implies what happens under this procedure. When it is being used direct communication and negotiation takes place between the contracting authority and the prospective suppliers.
SMEs may be able to compete against bigger companies where they have specific intellectual property or offer a product that has characteristics that give them an advantage. SMEs with expertise in niche areas stand a good chance here but should weigh-up possible sources of competition and any criteria that may mitigate against success before entering a negotiated procedure competition.
SMEs contacted directly by a Contracting Authority to go through a negotiated procedure are being seriously considered as a possible supplier. The list of conditions that may be favourable to SMEs and ones which are more unusual or demonstrably favourable to Contracting Authorities (i.e. buying cheaply from a Receiver) are outlined below.
Negotiated procedures may be employed where:
- Using a different procedure produced irregular tenders that make it too difficult to compare the bids relative to the public tender requirements. Changing to this new procedure cannot alter the original terms of any contract published;
- Where no bids are received from an open or restricted tendering process. SMEs contacted under these rules may be the only one in the process.
- The nature of the contract or the risks attached to a contract prevent prior pricing due to a set of exceptional circumstances;
- Intellectual services (e.g. the design of works like an energy plant) do not permit the level of precision necessary to be able to use an open or restricted procedure;
- Where works are being performed solely for research or testing purposes.
- Where due to unforeseen events and a case of extreme urgency the timelines for an open, restricted and negotiated procedures cannot be met. SMEs contacted under these rules may be the only one in the process.
- Where a supply contract involves products that are manufactured for research and technological development purposes. SMEs contacted under these rules may be the only one in the process.
- For new works or services that need to designed/developed by an initial economic operator. Such contracts can be awarded for up to 3 years. This specifically plays to niche operators that design and operate a service for the first time.
- For works / services contracts that are worth up to 50% of the value of an original contract for services not included in the original contract but have become necessary through unforeseen circumstances.
- For public service contracts that follow on from a design contest. In these scenarios the winner of the contest has the right to enter negotiations to agree a contract for the services sought from the design contest. This could benefit smaller engineering firms that are successful.
Applications that are potentially more rare or buyer friendly
- For deliveries of supplies for up to three years where changing supplier would oblige the contracting authority to buy material that has different technical characteristics (i.e. not sufficiently fit for purpose).
- For supplies quoted and purchased on a commodity market.
- Where for technical or artistic reasons (including the protection of exclusive rights) a contract can only be executed by a particular operator.
- Where a supplier is in receivership / winding up and supplies can be purchased under particularly advantageous conditions.
Procurement Competition Types: Competitive dialogue
This process is used for complex contracts where a Contracting Authority has difficult defining the technical solution it is seeking to go to market on. Typically, this is used for large infrastructural projects like PPPs but this is not always the case. Complexity is the key word. As this article is being written in January 2015, this process is being used to procure a provider to develop a genealogical service to be run out of the National Archives. The proposed (genealogical) service is highly specialised and requires very specific skills and so this process is being used. Notwithstanding this, it is most frequently used for infrastructure projects.
The Contracting Authority must publish a contract notice that includes award criteria and invite at least three candidates to conduct a dialogue. A discussion ensues with the selected candidates until all technical, economic, legal and other requirements to define a solution have been determined. Once the dialogue is concluded, the selected candidates can submit their bids.
Contracts are awarded in accordance with the award criteria and on a MEAT basis.
Paying attention to the procurement competition types will help SMEs maximise their chances of success with the buyers they know best. If you would like to discuss how Keystone can assist your business with its public sector plans, get in touch. Our details are at the bottom of this page.
Our summary of the procurement competition types is outlined in further detail in this video.