It sounds like a dream come true for anyone working in utilities procurement. After the biggest shake-up in a decade, a raft of European directives look set to speed up, simplify and reduce the cost of utilities procurement. The new rules are also aimed at creating a level playing field for suppliers of all sizes while clarifying “gaps” in legislation
In reality, the changes could be something of a double-edged sword. While they provide real opportunities for suppliers (particularly smaller companies), they introduce potential risks for buying authorities.
It is no secret that there is an abundance of investment going into utilities. But with a pipeline of high value contracts on the table, and a raft of new rules about to be incorporated into British law, regulated utility buyers must act now to ensure suppliers of all sizes are given access to opportunities – or they face being challenged.
Achilles operates the UVDB – the pre-qualification and accreditation system for the UK utilities industry. In total, 1,000 buyers from more than 80 utilities use the UVDB to find suitably qualified suppliers. Several buying organisations also use the community as an approved mechanism for tendering for contracts above and below EU threshold contracts – streamlining the procurement process. In addition, Achilles runs a consultancy for EU procurement, offering practical training courses, workshops and specialist advice.
There are three important steps that public sector buyers can undertake to protect themselves from a potential increase in the number of supplier challenges.
The first is simply to understand the main changes, of which there are seven that utility buyers need to be aware of:
• utility buyers will only be able to demand a minimum supplier turnover figure of up to two times the value of the contract, to give transparency to suppliers and certainty to buyers;
• there will be a greater onus on utility buyers to explain why they have not split large contracts into smaller lots, to further encourage participation from smaller suppliers;
• utility buyers will have greater power to exclude underperforming suppliers;
• timescales have been shortened to speed up the buying process for all parties;
• utilities’ frameworks will now be restricted to a maximum of eight years;
• the full force of OJEU regulations will apply to significantly more contracts. Only in exceptional cases can buyers use the lighter regime, formerly known as part B, for procuring nominated services;
• there is greater clarity about what constitutes a “material change” of a contract to give greater certainty.
The second thing utility buyers can do to protect themselves is to understand the risks.
The UK government has said it aims to implement the new directives into law within the next six months, ahead of the 24-month deadline. Therefore it is critical that utilities and suppliers act now to incorporate changes in time, or they risk costly mistakes.
With mounting scrutiny about financial decisions, utility procurers should get to grips with the new rules now to avoid spending time and money on legal challenges later.
The third protective step is to take action. Buyers should act now to check that all their procedures and contracts are watertight and in line with expected legislative requirements. It is likely that the courts may take a view that they should be moving in the direction of expected legislation.
Utility buyers should also engage with their contract management teams to ensure agreements do not change substantially over time. That can be challenging, particularly when those responsible for setting the contract, ensuring compliance and managing arrangements on an ongoing basis are from different departments.
We would recommend that utilities invest a relatively small amount in gaining specialist training now because a little will go a long way in terms of reducing the long-term risk of financial penalties.