Procurement in a nutshell – lots and lotting
25th August, 2017
The issue of lotting seems to be a continuing source of confusion in public procurement. This update outlines the rules for "lots" and "small lots" and explains how contracting authorities (CAs) may benefit from the provisions on lotting in the Public Contracts Regulations 2015 (PCRs 2015).
The option to subdivide contracts
The PCRs 2015 do not mandate the division of contracts into lots. Rather, it is expressly encouraged in regulation 46, which states in paragraph 1 that:
“Contracting authorities may decide to award a contract in the form of separate lots and may determine the size and subject matter of such lots.”
The second paragraph goes further, requiring CAs to state their reasons for a decision not to subdivide a contract into separate lots in either the procurement documents or the regulation 84 report.
Restrictions on the subdivision of contracts
The process of determining the estimated value of a procurement project is set out in regulation 6 and places restrictions on CAs regarding the valuation and subdivision of contracts:
No avoidance of the PCRs 2015
Subdivision of a public contract must not have the aim of circumventing the application of the procurement rules. For example, a public contract worth £300,000 cannot be divided into four lots of £80,000 to bring the procurement exercise under the EU threshold. (Paragraph 6).
Aggregation
CAs must aggregate contracts which have similar characteristics or are intended for renewal within a given time period, in the following way:
Contracts of the same type
The calculation of the estimated contract value should be based on the total value of successive contracts of the same type, awarded during the preceding 12 months. This should be adjusted, where possible, to take account of changes in quantity or value which would occur in the course of 12 months following the initial contract.
Contracts for renewal within a certain time period
The calculation of the estimated contract value should be based on the total estimated value of successive contracts which are awarded:
- during the 12 months following the first delivery; or
- during the financial year, where this is longer than 12 months.(Paragraph 16)
Works contracts
In relation to a works project the values of any services and supplies contracts, which are necessary for the completion of the works, must be included in the calculation of the estimated contract value. (Paragraph 10)
“Separate operational units”
Where there are “separate operational units” within a CA, the total estimated value of contracts for all those units must be taken into account unless any of those units has “independent responsibility” for its procurement. (Paragraphs 3 and 4)
What are “small lots”?
Regulation 6 also contains provisions on “small lots”. The rules create an exemption from the requirement for CAs to follow the full EU procurement rules for particular procurement exercises where the following applies:
- The individual lot for supplies or services has a value of less than €80,000; or
- The individual lot for works has a value of less than €1 million; and
- The aggregate value of the lot(s) is less than 20% of the aggregate value of all contracts for the relevant works, services or supplies.
(Paragraphs 14 and 15)
The benefits of using lots
The potential advantages of subdividing contracts into lots include:
Fostering social value in procurement
The rules relating to the use of lots in the PCRs 2015 have been designed to enable CAs to encourage small and medium-sized enterprises to bid for public contracts by improving accessibility. This ties in with the need for CAs to factor social value considerations as the use of lots can facilitate support for local firms. As an alternative to requiring a contractor to subcontract a small portion of the whole contract, the use of lots also has the benefit of allowing the CA to maintain control of the separate contract.
Assisting supply chain management
As we mentioned in our previous update, as Brexit uncertainty continues to reign, this is a time where CAs should pay close attention to the management of supply chains. Lotting is a potential tool to spread risk and help build resilience into procurement systems.
Encouraging innovation
The creation of a more diverse marketplace through the use of lots can lead to increased competition and, in turn, greater innovation. The ability for CAs to test a variety of solutions then offers the potential for enhanced delivery of public services.
Why is this important?
Despite the possible benefits, some CAs are not taking advantage of the provisions on the use of lots.
This might be due to preference for an off-the-shelf solution or as a result of a lack of awareness of the option. Lotting does, however, carry possible risks and drawbacks such as increasing the cost of the procurement and contract management.
The division of contracts into lots is a consideration which CAs should include in the development of their contracting strategies. What’s essential is that each procurement exercise is assessed individually, with appropriate regard for any particular complexities or peculiarities, and any necessary advice should be sought in the early stages to ward off the risks.
How can I find out more?
If you have any queries on the issues raised or on any aspect of procurement, please contact us via our procurement hotline on 0191 204 4464.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
This page may contain links that direct you to third party websites. We have no control over and are not responsible for the content, use by you or availability of those third party websites, for any products or services you buy through those sites or for the treatment of any personal information you provide to the third party.
