This LexisPSL Public Law analysis by Peter Ware and Jennifer Grigg of Browne Jacobson LLP examines the opportunities and risks of consortium bidding in public procurement.
What is consortium bidding? What are the policy drivers for allowing consortium/joint bidders to tender for public contracts?
Consortium bidding is the term used to describe the situation where two or more economic operators come together to submit a bid for a contract in a public procurement process. This may either be through an already established consortium or a group of bidders who come together for a specific contract. The latter will often bid under loose arrangements which become formalised structures (such as a special purpose vehicle (SPV) or subcontracting arrangement) after the award of a contract.
Consortiums have been part of public procurement law since the Public Services Contract Regulations 1993, SI 1993/3228 (now repealed). They are of benefit where a public contract requires different areas of expertise. They also allow suppliers to compete where they may otherwise not have the scale, equipment, geographic reach or expertise to take the contract on individually, or they would not meet the minimum turnover requirements etc to bid individually.
Consortium bidding has been brought to the fore in recent years as part of the change in the UK’s commercial landscape. As noted in Lord Young’s report on Small Firms from 2010–2015, we have seen a huge increase in small and medium-sized enterprises (SMEs) which represent improved local service provision and innovation. There is a clear desire to harness this through changes in law and attitudes to public contracting, to capitalise on what Lord Young described as the ‘quarter of a trillion pound opportunity’.
How does the public procurement legal regime in the UK (in particular the Public Contracts Regulations 2015 (PCR 2015)) treat consortium bidding?
The following provisions of the PCR 2015, SI 2015/102 are relevant to consortium bidding:
The PCR 2015 simplified the approach to qualitative selection (PCR 2015, SI 2015/102, reg 107) and the government has since issued a standard selection questionnaire (SQ) for use by all contracting authorities. The SQ questions include options which can be tailored for consortia bidding.
The PCR 2015 deals specifically with groups of economic operators who are submitting bids (PCR 2015, SI 2015/102, reg 19). Groups of economic operators, including temporary associations, may participate in public procurement procedures and shall not be required by contracting authorities to have a specific legal form in order to submit a tender or a request to participate.
However, contracting authorities may require consortiums to assume a specific legal form once they have been awarded the contract, to the extent that this is necessary for the satisfactory performance of the contract.
Contracting authorities may clarify how groups of economic operators are to meet the requirements as to economic and financial standing or technical and professional ability referred to in PCR 2015, SI 2015/102, reg 58, and may clarify any conditions for the performance of the contract by a consortium (such as certain critical tasks being undertaken by the tenderer themselves in a works or services contract) provided that these are justified by objective reasons and is proportionate.
Much of the case law on consortia bidding is incorporated in PCR 2015, SI 2015/102, reg 58, which confirms that a bidder can rely on the capacities of others for the SQ criteria relating to economic and financial standing and technical and professional ability and the educational and professional qualifications, or relating to relevant professional experience providing the bidder can show that they have these resources available at their disposal. This is often proved by providing a contract or other written commitment from those entities to that effect.
Where an economic operator relies on others for criteria relating to economic and financial standing the contracting body may require all entities to be jointly and severally liable for the execution of the contract.
Each economic operator who is relied on as part of a bid must complete parts 1 and 2 of the SQ to prove they do not fall into either the mandatory or discretionary grounds for exclusion. If an economic operator does come within either of these categories the contracting body may ask that a substitute economic operator is appointed as part of the bid/consortium.
What are the advantages of allowing consortium bids?
Under the PCR 2015, all contracting bodies must allow consortium bids, however they may choose how far they go to encourage these.
The key benefits of encouraging consortium bids all stem from the joining of services to create innovation and consistency. Where consortium bids are encouraged, SMEs are more likely to be able to join together to provide the service.
The use of small or local companies to provide local services, provided a properly rigorous public procurement is carried out, can often bring a sense of goodwill and local pride to a service. Concerns about financial backing and capacity can easily be assessed at the SQ stage of the process to ensure the provider has the necessary ability to fulfil the contract.
In addition, small companies can be very adaptable and innovative in their service provision, which allows a contracting body to receive a truly bespoke service rather than an ‘off the shelf’ package as might be received from larger bidders.
For a contracting authority looking to run a large, multifaceted project, consortium bids allow the authority to appoint and deal with just one supplier, while having the comfort that all other suppliers are equally committed to the bid. This reduces the contract management and procurement time for the authority because they are only required to procure and manage one contract.
What issues can arise in public tenders involving consortium bids?
Following on from the benefits, running a single procurement for a large project can become very complex and time consuming, requiring almost as much officer time as running several small procurements.
The financial assessment of consortium suppliers can be very complicated, if each supplier is offering a different service or different commitment to the consortium. This assessment must be carried out in a flexible, proportionate and not overly risk averse manner while ensuring that taxpayer value and safety is protected and that the approach complies with the applicable regulations. All suppliers, whatever their size or constitution (including a consortium) should be treated fairly and with equal diligence.
The issues around assessment can be overcome where the consortium has a very clear structure and agreements in place. However many consortiums, especially those set up to bid for a specific contract or those including smaller firms, will not want to put this work and cost in up front.
Contracting bodies should also be mindful to the implications of competition law, particularly if the consortium members are ‘actual or potential competitors’, or if any of the consortium members could fulfil the requirements on their own.
For instance, competition law may be breached if consortium members share more information than is strictly necessary for the provision of the services, the consortium could gain a dominant market position, or if the consortium members are competitors and each could meet the requirements alone. Contracting bodies should be aware of potentially anti-competitive practices and their duty to report these as well as the practical impact a competition law enquiry could have on a contract.
There have been a number of legal challenges involving consortium bids and subcontracting in public procurement. What are the recent UK/EU case law examples and what issues arose? What are the courts’ approach to these issues?
The decision in Case C-396/14 Højgaard A/S, Zublin A/S v Banedanmark  All ER (D) 206 (May) relates to the change in consortium members during the procurement process. In this case, the railway infrastructure operator in Denmark (Banedanmark) had commenced a negotiated procedure for the construction of a new railway line.
One of the pre-qualified consortium bidders comprised two entities, one of which was subsequently declared insolvent. Banedanmark decided to allow the surviving consortium member (Per Aarsleff) to continue to participate alone and subsequently awarded the contract to it. A competing consortium issued proceedings claiming an annulment of the award decision on the ground that Banedanmark was in breach of the principles of equal treatment and transparency.
The Court of Justice ruled that the principle of equal treatment, read together with Article 51 of the Utilities Directive (2004/17/EC), since replaced by Directive 2014/25/EU), did not prohibit a contracting entity from permitting a member of a bidding consortium (which had been invited to tender) to replace that consortium (following its dissolution) and to tender alone in a negotiated procedure.
However, the Court of Justice also ruled that, in order to do so, the economic operator must meet the bidding requirements and its participation must not place the other tenderers at a disadvantage.
In Case C-406/14 Wrocław-Miasto na prawach powiatu v Minister Infrastruktury i Rozwoju  All ER (D) 124 (Jul) the City of Wrocław initiated a restricted procedure for the award of a public contract relating to the partial construction of a bypass. The tender specification contained a requirement that the economic operator was obliged to perform at least 25% of the works using its own resources and a contract was concluded on that basis. The City was subsequently subject to a claim for a financial correction of approximately €1,960,000 corresponding to 5% of the amount of costs borne by public funds, as a result of the alleged irregularity of that performance stipulation in the light of Public Procurement Directive 2004/18/EC.
The Court of Justice held that Directive 2004/18/EC (since replaced by Directive 2014/24/EU) meant that a contracting authority is not authorised to require, by a stipulation in the tender specifications of a public works contract, that the contractor perform with its own resources a certain percentage of the works. A similar, purely arithmetic approach specification requirements concerning work allocation between joint tenderers was rejected by the Court of Justice in Case C-298/15 'Borta' UAB v Klaipėdos valstybinio jurų uosto direkcijaVĮ.
This can be distinguished from the PCR 2015, because SI 2015/102, reg 63(7) allows certain ‘critical’ tasks to be carried out by the tenderer or a consortium member, whereas Wroclaw only stated a percentage of the work to be carried out. Any tasks designated under this regulation should be objectively reasonable and proportionate to the contract at hand.
Are there any common mistakes/tips for contracting authorities when dealing with a consortium bids? What are the key considerations?
It is easy for contracting authorities to accidentally discourage consortium bids through their procurement processes but this can be addressed.
It is often helpful for contracting bodies to have a consortium bidding policy and to make this widely available to potential bidders. This will allow the contracting authority to make sure they are treating consortiums consistently when difficult issues arise and also give the bidder an understanding of what will happen throughout the process.
Consortium bids will often take longer to formulate than those from a single provider, so running a procurement process to the shortest possible timescales may make it harder for consortiums to submit bids. And if they do submit a bid, it may not contain the clear and precise divisions of responsibility which the contracting authority would like to see.
When asking for evidence of technical and professional ability, a consortium created to bid for a one off contract or a new consortium may not be able to provide these. In this situation the contracting authority should seek examples from the members of the consortium who will be delivering the service, but remember that a maximum of three examples can be sought, and these may each be from different members.
Is there any official guidance available?
There is little official guidance on creating consortiums, however there are many consultants and professionals able to advise on this process.
The following Procurement Policy Notes (PPNs) impact upon consortium bids:
- PPN 03/15 provides background reading on the Lord Young reforms to make public procurement more available to SMEs, including the changes to consortium bidding included in the PCR 2015
- PPN 08/16 replaced PPN 03/05 to provide guidance on the Standard Selection Questionnaire, including how this should be complete and evaluated to ensure consortiums are not disadvantaged
Peter Ware is a partner and Jennifer Grigg is a solicitor at Browne Jacobson.
The views expressed by LexisNexis' Legal Analysis interviewees are not necessarily those of the proprietor.