Last edited 15 Jan 2015

Competitive dialogue procedure for construction contracts

The European Union Procurement Directives establish public procurement rules throughout the European Union and apply to any public purchases above the defined thresholds. The purpose of the directives is to open up public procurement within the European Union and to ensure the free movement of supplies, services and works. The directives are enacted in the UK by The Public Contracts Regulations. Public projects must comply with the regulations if the value of contracts is above specified thresholds.

The Public Contracts Regulations allow four procurement procedures:

  • Open procedure. There is no pre-qualification process or short-listing process. Anyone that responds to the OJEU notice is issued with the full contract documentation.
  • Restricted procedure. There is a pre-qualification process, and only short-listed candidates are invited to tender.
  • Competitive dialogue procedure. There is a pre-qualification process. Short-listed candidates are invited to take part in a dialogue process during which the nature of the project may be discussed and possible solutions may be developed. When the dialogue process is complete, final tenders are invited.
  • Competitive negotiation procedure. There is a pre-qualification process. Short-listed candidates are invited to take part in a negotiation process. The negotiation process does not have to follow any particular rules, and has no formal ending. This means that negotiations can continue even after the preferred bidder has been appointed.

Use of the competitive negotiation procedure has been questioned as it is thought that extended negotiations with a preferred bidder may impact upon the competition. It is for this reason that the competitive dialogue procedure was introduced and guidance was issued by the Office of Government Commerce (OGC) stating that the competitive negotiation procedure should only be used under ‘...very exceptional circumstances’ (ref OGC: Guidance on the competitive dialogue procedure in the new procurement regulations, 2006).

The regulations state that the competitive dialogue procedure should only be used on ‘particularly complex contracts’ where:

  • The client cannot define the technical means for satisfying their requirements.
  • The client cannot define the legal or financial make-up of the project.
  • Using the restricted or open procedure would not be possible.

Where a competitive dialogue procedure is to be followed, it is recommended that the reasons for adopting the procedure should be formally recorded. The procedure that will be followed should then be described in the contract notice, after which that procedure must then be followed.

This process of dialogue is intended to identify the solution most likely to satisfy the clients needs. This process is likely to require a considerable commitment of resources by both the client and the bidders.

The dialogue process can be used to progressively reduce the number of bidders.

As changes to the nature of the project are restricted after the dialogue process, the client may wish to request a fully-developed draft bid from bidders before they formally conclude the dialogue process and invite final tenders.

Concerns have been raised about the cost and time required to take part in such a procedure, as proposals have to be developed more fully before the award of the contract than they would have done under a competitive negotiation procedure. There are also concerns about the difficulties of protecting intellectual property and other confidential information during the dialogue process.

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