Competitive Dialogue

Definition and aims

Competitive dialogue was introduced as a new type of negotiated procurement procedure by Directive 2004/18/EC which defines it as “a procedure in which any economic operator may request to participate and whereby the Contracting Authority conducts a dialogue with the candidates admitted to that procedure, with the aim of developing one or more suitable alternatives capable of meeting its requirements, and on the basis of which the candidates chosen are invited to tender” (Art. 1(11)(c)). Competitive dialogue is thus suitable for purchasing innovative market concepts as it allows procurers to define their needs and finding adequate solutions with the help of expert knowledge provided by interested economic entities. However, this procedure may only be applied if the contracting authority faces the objective impossibility of defining technical specifications or extraordinarily complex technical or financial/legal contract subjects (Article 29 specifies the conditional requirements). Integrated infrastructure projects or large IT networks both allowing innovative solutions can be cited as examples for such contract matters. Generally, competitive dialogue aims at facilitating innovative procurement by bringing more flexibility and certainty to the legal framework.

Reasons for introduction

As stated in its explanatory note about the competitive dialogue, the EU Commission found that “the ‘old’ Directives […] 92/50/EEC, 93/36/EEC and 93/37/EEC did not offer sufficient flexibility with certain particularly complex projects due to the fact that the use of negotiated procedures with publication of contract note is limited solely to the cases exhaustively listed in those Directives”. Contracting authorities engaging for complex contracts awards thus often had to cope with legal uncertainty since the negotiated procedure was basically conceived as exemption (Burnett 2009). Instead of widen the scope of the negotiated procedure the Commission decided to introduce the competitive dialogue to ease the award of complex contract awards.

Differences to standard procedures


Public authorities are not free to choose the tendering procedure for their contract award; they have to stick to legal requirements which prescribe a so called award hierarchy attributing priority to the standard public tender/open procedure. Other tendering procedures may therefore only be conducted if certain requirements are met.

In the context of particularly complex/innovative contract matters both the restrictive and the negotiated procedure proved ineffective for practical implementation. With the restricted procedure companies are called to hand in their tenders after taking part in regular public competitions. Yet, this type of contract award requires authorities to know the contractual terms and conditions in advance while prohibiting negotiation after the start of the process. At the same time the negotiated procedure allowed such negotiation but was often too difficult to justify under the former EU Procurement Directives (Art. 11, Directive 92/50 and Art. 7(2)(c), Directive 93/37) (Burnett 2009).

The Commission summarises the competitive dialogue “as a particular procedure which has features in common with both the restricted procedure and the negotiated procedure with the publication of contract notice. The dialogue mainly distinguishes itself from the restricted procedure by the fact that negotiations concerning every aspect of the contract are authorised and from the negotiated procedure by the fact that, essentially, negotiations are concentrated within a particular phase in the procedure” (EC 2006, explanatory note for Directive 2004/18/EC).

Application and significance for public private partnerships


After Directive 2004/18/EC came into force more than 3,000 tenders based on the competitive dialogue were launched across the EU until 2009 (Burnett 2009) covering a great variety of projects and employing different approaches (HM Treasury 2008). However, the rate of application varies significantly between the Member States (Burnett 2009). With its aim of purchasing innovative solutions on large scale the competitive dialogue turned out to become very important for and broadly used by public private partnerships (HM Treasury 2008 and Burnett 2009).

Tendering procedure

Preliminary steps, notification and process setting

There are some preliminary steps recommended for a contracting authority willing to initiate a purchase on the basis of competitive dialogue. Authorities should start with a thorough market assessment in order to get a prior understanding of potential solutions to their needs. The more details they have got on how their needs could be satisfied the more authorities will be able to set precise and consistent evaluation criteria as well as their weighting (Burnett 2009). Additionally, procurers are allowed to have pre-dialogue discussions with bidders from the short list as long as they do no distort competition e.g. by providing more detailed information to one bidder as to another (Burnett 2009).

To start the procurement procedure the contracting authority publishes a contract notice containing its “needs and requirements” and defines them in the notice itself and/or in a descriptive document (as the counterpart of the traditional “specifications”). The Commission clarifies that “substantial or fundamental elements of the notice and of the descriptive document may not be modified during the award procedure” (explanatory note about 2004/18/EC). In accordance with Articles 44 to 52 of the Directive the contract notice shall mention minimum capacity levels bidders are to comply with. When competitive dialogue is employed for the reason of technical complexity authorities are allowed to define their technical requirements on the basis of the definition of their needs. The Commission cites the case of an integrated transport infrastructure intended to cover a defined geographic area and a set number of passengers where candidates could prove their capacity employing various means of transports or adequate combinations (explanatory note about 2004/18/EC).

Furthermore, contracting authorities are able to restrict the number of bidders allowed to the dialogue phase (which must be three at least) by setting the tender’s objective, non-discriminatory criteria/rules they intend to apply as well as the minimum and, if appropriate, the maximum number of candidates in the contract notice (Art. 44 (3) and (4)). Another opportunity for authorities is to gradually reduce the number of solutions to be discussed during the dialogue phase which is equally to be stated in the contract notice or the descriptive document (Art. 29 (4)). Those shall indicate that recourse may be had to this option.

With the competitive dialogue the contract is awarded to the most economically advantageous tender which is not obligatorily the offer with the lowest price (Art. 29(1)). Award criteria and their weighting have to be laid down in the contract notice or the descriptive document and may generally not be changed during the award procedure for reasons of equal treatment.

Opening the dialog phase

The legal provisions for the dialogue phase are laid down in Article 29 (3) of Directive 2004/18/EC: "contracting authorities shall open, with the candidates selected […] a dialogue the aim of which shall be to identify and define the means best suited to satisfying their needs. They may discuss all aspects of the contract with the chosen candidates during this dialogue”. Therefore, technical aspects must not be the only issue in the dialogue phase, economic (prices, costs, revenues etc.) and legal (distribution and limitation of risks, guarantees etc.) considerations can be subject to discussions as well. In order to reduce the number of possible solutions by applying award criteria the dialog phase can be divided into successive stages (Art 29 (4)). This is also admissible when ultimately there is just one remaining candidate. In practice the duration of the dialogue phase usually varies from one to eight months while there are mostly a minimum of two sub-phases (Burnett 2009). Contracting authorities should ensure that there is sufficient clarity about the objectives of each sub-phase among all participants (Burnett 2009).

More importantly, the dialogue is to be carried out individually with each participant and on the basis of the respective concept proposed (Art. 6). Only with the participants’ agreement authorities are allowed to provide confidential information to others (Art. 29 (3)). The problem of illegitimate transfer of know-how to third parties is therefore limited. Yet, contracting authorities should be very careful when dealing with confidential information even if competitive dialogue is the only award procedure in the 2004 directive providing protection for ideas not subject to intangible property rights. Generally, bidders should be remunerated appropriately for their efforts if they are to deliver plans, calculations etc. for the purpose of the tender.

Terminating the dialogue phase, call for tenders and post-tender phase


To conclude the dialogue phase the contracting authority informs the participants accordingly and asks them to submit their final tenders based on the individual solutions specified during the dialogue (Art. 29 (6)). Tenders should comprise all elements required and necessary for the performance of the project. Only if bidders agreed to that in the dialogue phase contracting authorities may ask them to base their final tender on a solution common to all. In its explanatory note the Commission specifies that “once these final tenders have been received, the contracting authority may […] ask for them to be to be "clarified, specified and fine-tuned” (Art. 29 (6)). Yet, such refining “may not involve changes to the basic features of the tender or the call for tender, variations in which are likely to distort competition of have a discriminatory effect”. Possible changes that authorities can bring to the contract after the submission of the final tenders are thus fairly limited. Especially when these terms are interpreted restrictively, the post-tender phase can be completed rather quickly in comparison to the negotiated procedure where this phase lasts up to 18 months (Burnett 2009).
Legal framework

The Directive 2004/18/EC on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts introducing the competitive dialogue (Art. 29, Art. 1 (11)(c) and Recital 31) was translated into national law in 2006. The new award procedure was designed to bring more flexibility for the procurement of particularly complex contracts and should to some extent replace the use of the negotiated procedure except for the most exceptional projects (HM Treasury 2008). In application, the most important principle is equal treatment without violating confidentiality; bidders may not be discriminated by providing different quality of information.

To apply the competitive dialogue procedure contracting authorities have to justify the objective impossibility of defining technical specifications or extraordinarily complex technical or financial/legal contract subjects (Article 29). In order to prove objective impossibility the best way for public purchasers is ensuring to have attempted to define how their needs could be satisfied without the competitive dialogue procedure. Authorities should document these efforts as well as projected expenses in a way which, at least, demonstrates the “objective impossibility” insofar as it is defined “as not possible without disproportionate effort” (Burnett 2009). Where competitive dialogue is justified by technical complexity authorities are required to demonstrate that they are not able to define the technical means to be used in order to achieve the prescribed solution or, as it would occur more often, that they are not able to determine “which of several possible solutions would be best suited to satisfying their needs” (Commission’s explanatory note). Given the possibilities of establishing technical specifications in terms of functionality and performance the first option would be fairly rare to employ. For the latter justification the Commission gives the example of a river crossing which could be realised by various means (tunnel, different kinds of bridges). The provision also applies when authorities “are not objectively able to specify the legal and/or financial make-up of a project” e.g. when encountering volatile market conditions at the time of the launch of the procedure (Commission’s explanatory note).

Generally, purchasers should elaborate a proper documentation of their decisions in case those are legally challenged or assessed by third parties or auditors. In this context it is also advisable to get robust legal support.

Sources:

Explanatory note about Competitive Dialogue by the European Commission from 2006

Burnett 2009: Using Competitive Dialogue in EU Public Procurement - Early Trends and Future Developments" in EIPASCOPE 2009/2

Burnett 2010: "Competitive Dialogue – What is a “particularly complex” contract?"

HM Treasury 2008: "Competitive Dialogue in 2008 - OGC/HMT joint guidance on using the procedure"

www.hm-treasury.gov.uk

BMWi: "Impulse für Innovationen im öffentlichen Beschaffungswesen" (2010)














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