Webinar Q&A – The Procurement Bill becomes an Act
Thank you to all who attended our recent webinar on the Procurement Act 2023 and the key changes it will introduce to public procurement. During the webinar we asked attendees to pose questions for us to answer. We have responded below:
Public sector investment
Please say more about the future of private investment models, such as PFI, NDP or MIM.
Nothing in the Procurement Act 2023 would prevent or restrict these types of private investment model. We expect the use of those models to continue for larger infrastructure projects under the Procurement Act 2023. The new competitive flexible procedure will be particularly helpful here. It allows contracting authorities to plan and design bespoke procurement processes to fit and facilitate the chosen funding model/structure. In practice, these are highly likely to resemble existing competitive dialogue procedures with various stages of down-selection and negotiation with bidders.
Coverage and principles
How should contracting authorities treat a tender from a non-treaty state supplier?
A contracting authority has a discretion to (but does not have to) disregard any tender that comes from a non-treaty state supplier pursuant to section 19(3)(b) of the Procurement Act 2023. It should also be noted that for the purposes of bringing a claim and being able to enforce remedies against a contracting authority in the courts, the duty of a contracting authority to comply with its obligations under the Procurement Act is only owed to suppliers in the UK and treaty states, and not to non-treaty state suppliers. We would therefore suggest that if a non-treaty state supplier does tender for a public contract and passes the exclusion grounds, the contracting authority can take a purely commercial decision as to whether to evaluate that tender and allow the non-treaty state supplier to remain in the procurement process. In doing so, the contracting authority should have regard to its duty to other bidders from the UK or treaty states and its general obligations to ensure equal treatment of suppliers and deliver value for money.
Do you have any further information on the definition of ‘maximising public benefit’? We assume it implies the need to deliver social and sustainable benefits within contracts, but can’t find anything at this point that explains this further?
The concept of “maximising public benefit” is not defined in the Procurement Act. We anticipate that the Cabinet Office may in due course provide more information on its interpretation. In the absence of further guidance from the Cabinet Office, the best interpretation of the phrase is that it refers simply to social value, as that concept is currently understood.
The Green Paper setting out the Government’s plans for procurement law reform, proposed that the principle of “public good” would be incorporated into the Act. This would reflect the idea that public procurement “should support the delivery of strategic national priorities including economic, social, ethical, environmental and public safety”, and was connected to the idea of the National Procurement Policy Statement. In its follow-up response to the consultation on the Green Paper, the Government said that “The concept of ‘public good’ will be framed as an objective of maximising the ‘public benefit’ to support wider consideration of social value benefits”. During the passage of the Procurement Bill through Parliament, the Labour Party proposed amendments that would have given more definition to the concept, but these were defeated by the Government.
Pre-procurement
What is the consequence of failure to public a pipeline notice? Is it a technical breach only, with limited consequence?
A failure to publish a pipeline notice where this is required is theoretically enforceable through civil proceedings under to section 100(1) of the Act. However, a supplier can only bring a civil claim where it suffers or is at risk of suffering loss or damage in consequence of the breach. It is very difficult to envisage where such loss or damage could arise in the case of a failure to publish a pipeline notice.
However, the Minister for the Cabinet Office (or Welsh Ministers or the relevant Northern Ireland department) could, under section 108, launch an investigation into a contracting authority’s compliance with the Act, and publish recommendations. The contracting authority concerned must have regard to the recommendations, and prepare progress reports about their implementation of the recommendations. Where wider guidance is published following an investigation, all contracting authorities must have regard to it.
So, there is limited prospect of direct legal liability for not publishing a pipeline notice, but it could be subject to an investigation and recommendations.
Selection criteria
Does the Procurement Act 2023 contain significant changes to selection criteria relating to regulatory matters, such as health and safety or insolvency?
The Procurement Act 2023 will not significantly change current selection questionnaire processes. For example, the conditions of participation referred to in section 22 of the Act are largely the as existing selection criteria: they require a proportionate means of ensuring that suppliers have the legal and financial capacity and technical ability to perform a contract.
Given that wording, the approach to selection/participation will remain broadly the same and the existing principle of proportionality will continue to apply. The UK Government only relatively recently (PPN 03/23) published an updated standard Selection Questionnaire for use by contracting authorities in England and those exercising wholly or mainly reserved powers in Wales and Northern Ireland. It will be interesting to see whether this questionnaire continues to apply (there is no clear reason why this could not be the case), or whether a new updated standard form questionnaire is published next year in time for the Act coming into force.
Frameworks, dynamic markets, etc
After the Procurement Act 2023 comes into force, will a direct award under a framework awarded under the current regulations be subject to the Act, or the current regulations?
The Cabinet Office has not yet published detailed transitional provisions for the Procurement Act 2023. However, it has indicated that any contract – including a framework – awarded under the current regulations will continue to be subject to those regulations, and not the Act, for its lifetime. This means that any award of a contract under a framework entered into under the current regulations will be under the current regulations, even after the Act comes into force.
Can a framework subject to current regulations be changed to an open framework under the Procurement Act 2023?
The Cabinet Office has not yet published detailed transitional provisions for the Procurement Act 2023. However, it has indicated that any contract – including a framework – awarded under the current regulations will continue to be subject to those regulations, and not the Act, for its lifetime. This means as things currently stand that existing frameworks will not be able to become open frameworks under the Act.
Is the transparency notice for direct award also applicable to awards under a framework?
No. The transparency notice is, for direct awards, the broad equivalent of tender notices for the open or competitive flexible procedures: it indicates the contracting authority intends to award a contract, but does not say to which supplier. (That information is contained in the contract award notice)
There is no requirement to publish any notice before commencing an award procedure under a framework. There is, however, the requirement to publish a contract award notice before awarding a contract to an identified supplier. The contract award notice may (but is not required to) include a voluntary standstill period of at least eight working days. If the contracting authority includes a voluntary standstill period in the contract award notice, it must not enter into the contract before it ends.
Do the modification rules apply to call-off contracts from frameworks/dynamic markets?
Yes. The provisions on modification of public contracts under section 74 and Schedule 8 of the Procurement Act 2023 do not exempt/carve out call off contracts under a framework or dynamic market. They apply to all public contracts, other than light touch contracts. So, they will apply to call-off contracts under frameworks or dynamic markets, unless the individual call-off contracts are also light-touch contracts.
Do the provisions on excluded and excludable supplier apply to contracts awarded under frameworks? If so, is it clear how that would operate?
Yes, the exclusions do also apply to call-off contracts awarded under frameworks. It is an implied term of every framework that a contracting authority may exclude a supplier that is or has since the award of a framework, become an excluded or excludable supplier from taking part in any call off processes under that framework. Similarly, a framework cannot permit the award of a public contract to an excluded supplier.
Will qualification systems for utilities be allowed under the new rules?
The Procurement Act 2023 does not expressly provide for qualification systems, but the new utilities dynamic markets will operate in much the same way. Utilities will set conditions for membership of a dynamic market, by reference to legal and financial capacity and/or technical ability of suppliers to perform certain types of contract.
Modifications to contracts
Compared to the approach of the Court of Justice in Pressetext, do you believe the new Act limits the scope for modifications, or will it be dependent on the approach of the courts in interpreting the clauses?
Many of the “safe harbours” for modifying contracts are similar under the Procurement Act 2023 to the existing legislation. However, there are some subtle differences in the language used which may change the scope for modifications under the Act. For example, the language around review clauses in the Act (unambiguously provided for) is arguably less specific than the “clear, precise and unequivocal” criteria in the current legislation and could extend the application of that safe harbour. Conversely, for additional goods, works and services, there is now a requirement for there to be both “significant inconvenience” and “substantial duplication of costs”, rather than one of these, which has potential to narrow the use of this safe harbour.
Looking specifically at the Pressetext principles and what constitutes a “substantial” modification, the language used in the Procurement Act is noticeably more precise than currently. The express requirement for changes to term to be greater than 10% removes existing uncertainties (and flexibilities) as to when term changes would trigger a “considerable extension of scope” or render a contract “materially different in character”. The Act gives greater clarity around what is a “material change in scope” by defining it as the provision of goods, services or works of a kind not already provided. Similarly, it adds a qualifier to the “economic balance” limb of the test, saying that any change must now be “material”. Together, these will mean that some changes that are not permitted today might be permitted under the Act, and vice versa. So, we do not think it is as straightforward as saying that the Procurement Act is more restrictive (or less restrictive) than the PCRs. But, the precise nature of these changes will require binding decisions from the courts.
The table below sets out the key differences between the approach to substantial modifications under Pressetext and the Act:
What is the exposure of a supplier if a contracting a does not comply with the variation/modification notice requirements?
Suppliers face exposure to having a modification set aside or their contract terminated if contracting authorities do not comply with the notice requirements for contract changes.
Contracting authorities have a duty under section 75 to publish a contract change notice before modifying a public contract. That duty is enforceable under section 100, by another supplier that suffered or risked suffering loss or damage. Section 104 states that the set aside remedy (ie ineffectiveness) can apply to modifications of contracts that have already been made where a set aside ground in section 105 applies.
Where a contract was modified without the publication of a contract notice, the breach of the duty to publish would only become apparent after the contract was modified, and so the set aside ground in section 105(1)(f) would appear to apply. Under section 106, set aside claims must be brought within 30 days of the date the challenger knows, or ought to have known, they have a claim, with a longstop date of 6 months. So, the publication of a retrospective notice will start the limitation period running.
Finally, it is important to note that contracting authorities have a right under section 78 to terminate public contracts where they think they were modified in material breach of the Act. A material breach is one that the contracting authority considers could reasonably result in a successful challenge. Contracting authorities and their suppliers cannot contract out of or restrict this right of termination.
Notices
Will it be acceptable to publish redacted contracts under contract detail notice for contracts with an estimated value of over GBP5m?
Section 94 of the Procurement Act 2023 sets out general exemptions from contracting authorities’ duties to publish or disclose information. A contracting authority does not need to publish (and therefore in our view will be permitted to redact) information (i) where necessary to safeguard national security or (ii) where the information is sensitive commercial information and there is an overriding public interest in it being withheld. Where information is withheld from publication, the contracting authority will need to disclose this and clarify which limb of Section 94(1) applies.
It is not clear how this exemption interacts with the provisions of the Freedom of Information Act 2000 that are currently relied upon to redact information from published contracts. Section 43 of the 2000 Act has similar, but not identical wording, to section 94 of the 2023 Act.
Where will all the notices be published?
Under draft regulations published by the Cabinet Office, notices will be published on the ‘central digital platform’, an online system provided by the Cabinet Office on www.gov.uk. We understand that this platform will build upon the current Find a Tender service.
Will it be possible to publish KPI notice and payment notice at an organisation level as appose to on a contract-by-contract basis?
Under section 52 of the Procurement Act 2023, KPIs must be set and published on a per contract basis for contracts with an estimated value of greater than GBP5 million (note this does not apply to frameworks, concessions, light touch contacts or contracts awarded by a private utility).
Payments compliance notices under section 69 of the Act are published every 6 months and will apply on a per contracting authority basis ie a notice will cover the previous 6 month reporting period at an organisational level.
Could we (simplistically) characterise the ‘poor performance notice’ as having the effect of ‘naming and shaming’? Will that really make that much difference in practice?
The poor performance notice will have a significantly wider effect than simply naming and shaming suppliers.
Where a contracting authority has published a poor performance notice under regulation 71(5) of the Procurement Act 2023, a discretionary ground of exclusion will apply in respect of the supplier concerned: see paragraph 12(4) of Schedule 7. This means that the supplier is potentially an excludable supplier if a contracting authority considers that the circumstances giving rise to the exclusion ground are continuing or likely to occur again: see section 57(2) and 58, on making that assessment.
Contracting authorities must assess whether a supplier is excludable before allowing it to participate in the competitive flexible procedure and before assessing any tenders received: see sections 26(2) and 27(1). Where the contracting authority concludes that is the case, it it has a very broad discretion to disregard its tender or exclude the supplier from the procurement: see sections 26(2) and 27(3). Similarly, contracting authorities can assess whether existing suppliers are excludable suppliers and terminate existing contracts with them: section 78(2). In each case, these assessments can be made where the excludable supplier is a sub-contractor or an associated person of the supplier concerned.
Where the contracting authority disregards a tender from an excludable supplier, or excludes that supplier from a procurement, then it must inform the Cabinet Office within 30 days of doing so: section 59. This report may then trigger an investigation by the Cabinet Office, a published report and a decision that supplier should be added to the central debarment list. If that occurs, the supplier becomes an excludable supplier and contracting authorities can exclude them from procurements, disregard their tenders or terminate their existing contracts without undertaking any further assessment.
So, the publication of a poor performance notice will have a significant potential impact on the ability of suppliers to win new contracts and even retain their existing ones.
Does the Cabinet Office have any plans to mitigate the additional administrative burden on contracting authorities arising from their increased transparency obligations?
We understand the Cabinet Office intends to create a central digital platform that builds upon the current Find a Tender services. However, we are not aware of what functionality this platform will have or whether any specific measures are planned to ease administrative burden on contracting authorities, in respect of the various notices and transparency obligations. This may yet be the subject of further guidance from the Cabinet Office.
Legal challenges
Do you have a feel for any new potential ‘hot spots’ for legal challenge against an authority?
The main new ‘hot spot’ for challenge risk is in the context of contractual performance. Suppliers may feel it is necessary to escalate a contractual dispute to establish there is no issue with their performance. If a contracting authority is dissatisfied with a supplier’s performance – even where it has not breached the contract – it can publish a poor performance where the supplier has not improved performance after being given proper opportunity to do so. A poor performance notice can have significant implications for suppliers, as set out below.
The new language and additional rules in the Act (eg contract modifications) are also likely to lead to an increase in challenges. Finally, the fact that the remedy of automatic suspension is only available if a claim is issued within the new 8 working day standstill period (rather than before the contract is entered into) may result in suppliers feeling the need to file a protective claim form sooner rather than later.
