A legal revolution is taking place in the rules and procedures governing the award of contracts by public authorities and utilities.

A series of EU Directives on public procurement, and their transposition into UK law, is now virtually complete.

This complex legislation presents new opportunities and possible dangers for public bodies and their suppliers, as well as a novel area of practice for their legal advisers.

The opening up of public procurement to EU-wide competition was given top priority in the EU single market programme.

The huge public sector supply market had traditionally been split very much along national lines, with fewer than 2% of contracts being awarded cross-border.

The necessary legislation has only recently been completed, with the last of the Directives put forward by the Commission being adopted in June 1993.

The rules are designed to ensure that all public contracts over a certain value are subject to EU-wide publicity and awarded in an open and non-discriminatory manner.

The aim is to establish a level playing field, where potential contractors or suppliers throughout the EU are given the opportunity to compete for such contracts on equal terms.

That playing field has recently been widened to cover the EFTA countries (minus Switzerland), by virtue of the EC/EFTA agreement creating a European Economic Area as from 1 January 1994.The only comparable rules on public purchasing already found in English law are those requiring local authorities to put out certain services to competitive tender, as laid down, primarily, in the Local Government Act 1988.

While those provisions exhibit some of the features of the EU rules (and occasionally overlap with them), the EU regime covers a far wider range of bodies and contracts, and regulates the procurement process in much greater detail.The EU Directives governing public contracts for works, supplies and services each apply to procurement by central and local government, as well as other bodies governed by public law.

Identifying whether a body is public in the UK is not always straightforward, given the lack of clear distinction between public and private law.

By way of assistance, the Directives set out non-exhaustive lists of bodies which are covered.

Further clarification is given by the UK regulations which implement the Directives.

These confirm that the rules will apply to various quasi-public entities, such as universities, urban development corporations and the fire, police and national health services.

It is clear, therefore, that a wide definition of the state is to be taken.

However, the public sector Directives expressly excluded bodies operating in the utility sectors of water, energy, transport and telecommunications.

Such entities, whether public or private, are now subject to a parallel set of procurement rules for utilities.

The utilities covered in the UK include:-- the privatised water and electricity companies;-- British Gas;-- airport and port authorities;-- British Rail and London Underground Ltd; and-- British Telecom.The Utilities Directive sets out detailed rules concerning its precise scope of application.

Telecommunications services, for example, are excluded if offered in an area of open and unrestricted competition.

The way in which the UK regulations have implemented this exclusion has been challenged by British Telecom by way of judicial review.

British Telecom objects to the fact that its telecom services are specifically covered, whereas those of its smaller rivals, such as Mercury Communications, are excluded.

The case has recently been referred to the European Court of Justice for a preliminary ruling (OJ C 287/6, 23 October 1993).All types of contract awarded by a public authority or a utility are subject to the procurement rules, unless within one of the specific derogations.

Certain categories of services, including legal services, are exempt from the main procedural requirements.

A public body requiring outside legal advice does not therefore have to advertise that requirement EU-wide, whereas the services of other professions, such as accountants and architects, are subject to the rules in full.The rules only apply, however, where the value of a contract exceeds specific thresholds.

For example, construction contracts are only covered if worth more than £3.5 million, while the threshold for most supplies and services contracts is £140,000 (or double that amount if awarded by a utility).

Furthermore, aggregation rules are laid down to ensure that large contracts may not be split into smaller units with the intention of avoiding the rules.

For example, where contracts for a particular type of product are regular or renewable, their aggregated value over a one-year period has to be taken for the purpose of the threshold.

Consequently, the EU rules may apply even to contracts which, viewed individually, are not of substantial value.The fundamental requirement of the EU procurement rules is that all contracts awarded by public authorities or utilities, where the value exceeds the relevant threshold, must be publicised throughout the union by way of a notice in the EU Official Journal Supplement (OJS).

Consequently, scores of large contracts across the EU are being advertised every day.

This information is accessible by subscription to the OJS in hard copy or via the Tenders Electronic Daily database.In the public sector, the published notice will call for tenders directly (if the open procedure is used) or for interested parties to apply to be invited to tender (restricted procedure).

A tendering procedure can only be avoided in a number of narrowly defined exceptional circumstances, such as unforeseen extreme urgency, where the public authority may simply negotiate with chosen suppliers.

Case law in the European Court of Justice indicates that these grounds are to be construed very narrowly, with the onus of proof being on the authority seeking to rely on them.Utility purchasers, on the other hand, are given a much wider discretion to use a negotiated procedure, and thereby avoid the need for formal tenders.

They may also publish periodic notices indicating their annual needs for particular types of product, after which there is no obligation to publish a new notice in respect of every individual contract subsequently awarded during that year.

Furthermore, utilities may operate qualification systems in order to establish pre-selected lists of suitable suppliers upon whom they will rely for particular products or services.

The only publicity requirement here is for an annual notice announcing the existence of the qualification system.

The rules for utilities also make a novel provision for 'framework agreements', which are non-binding arrangements made with one or more contractors to establish the terms, especially as regards price and quantity, governing a number of forthcoming contracts.

If the utility publicises and awards that arrangement in accordance with the Directive, it may subsequently 'call off' individual contracts based on that framework without having to go through the Directive's procedures a second time.

Utilities are therefore permitted, within certain limits, to engage in an ongoing 'partnering' relationship with selected suppliers in respect of complex products, whereas such partnership sourcing by public authorities would usually infringe the public sector procurement rules.Once the awarding authority or utility has identified interested suppliers, it may examine their financial and technical capacity with a view to inviting a selection of those who are suitably qualified to tender or negotiate.

The public sector Directives lay down detailed rules as to how candidates may be asked to prove their financial standing and technical ability.

A contract may then be awarded according to pre-stated, objective criteria, according to which the awarding body will identify the most economically advantageous tender.

The award criteria may include factors such as technical merit, time for completion and after-sales service, but must not discriminate (even indirectly) in favour of domestic suppliers.

The EU Directives require national governments to ensure that effective review procedures are available to anyone who had an interest in obtaining a particular contract and who has been, or risks being, harmed by an infringement of the procurement rules.

The UK, like all other member states, has therefore been required to empower its courts to make interim orders (such as an injunction suspending an award procedure), to set aside unlawful decisions and to award damages to aggrieved suppliers or contractors.The UK implementing regulations provide that breaches of the procurement rules are actionable (within three months) in the High Court in England and Wales, and in the Court of Session in Scotland.

These regulations make no attempt to clarify the principles for granting injunctions, although one limitation is that damages are the sole remedy that the court may award if the contract in question has already been concluded.

Although the legal mechanism is now in place for aggrieved tenderers to bring court action, hardly any cases have reached the British courts to date.

A rare example occurred in General Building and Maintenance plc v Greenwich London Borough Council [1993] The Times, 9 March.

In that case, the High Court dismissed an application for an injunction to restrain the local authority from awarding its housing maintenance contract until after the plaintiff had been allowed to tender for it.

The plaintiff claimed, unsuccessfully, that the authority had not been entitled to consider health and safety factors when deciding that the plaintiff lacked the necessary technical capacity.Only time will tell whether such litigation becomes commonplace.

It is likely that many disputes will be settled without recourse to court proceedings, particularly as disgruntled tenderers are required to give the public authority advance notice before bringing such an action.Even if actions in the UK courts remain few and far between, public authorities and utilities, as well as their suppliers, will nevertheless continue to require legal advice on the complexities of the procurement rules.

They are usually keen to comply in order to avoid any risk of liability to compensate rejected suppliers.

There are also potential economic benefits to be gained from compliance.

The requirements for EU-wide publicity should enable public sector and utility bodies to identify new contractors and suppliers who may be able to offer them better value for money.

At the very least, the more open procurement procedures should ensure that existing suppliers become more competitive in order to retain their established business with the public sector.The benefits for suppliers, on the other hand, will be increased access to the p otentially large source of business represented by the public sector.

Many smaller companies may not have previously considered themselves as realistic bidders for such contracts, particularly when seeking to sell cross-border.

While many obstacles remain, lawyers have an important part to play in increasing the awareness of companies on the supply side, whether large or small, as to the opportunities and legal rights created by the procurement rules.