The Procurement Bill moves house

Steven Brunning reviews the latest developments in relation to the Procurement Bill.

The Procurement Bill (the Bill) has completed its journey through the House of Lords. It moved into the House of Commons on 14 December 2022 where it received its first reading. It is scheduled to have its second reading debate on 9 January 2023.

The Cabinet Office’s latest update anticipates that the Bill should receive Royal Assent in the spring, following which the necessary subsidiary regulations will be developed. There will still be a six-month notice period before the new regime goes live, but we suspect this will be six months from when the Bill is passed rather than from when the regulations and guidance are issued.

There have been many changes to the Procurement Bill since it was first published back in May 2022. We highlight below just some of the most significant amendments.

SMEs

Both when carrying out a covered procurement and when inviting tenders for regulated below-threshold contracts (except below-threshold contracts under a framework), a contracting authority will need to have regard to the fact that SMEs may face particular barriers to participation and consider whether such barriers can be removed or reduced. This is an interesting addition that speaks to the Government’s SME agenda but it is not clear how far this duty extends. Presumably, it will require a proportionate approach but this is not explicit. Also, if this duty is not more clearly defined, it will be difficult to enforce in practice and may not result in any changes in contracting authority behaviours.

Other SME-friendly provisions have been inserted in the Bill including, for example, not requiring insurance relating to the performance of the contract to be in place before the award of the contract. Whether the Bill will be effective in enabling better access to public procurement for SMEs at the same time as addressing the financial and other risks faced by contracting authorities is a difficult question that we intend to pick up in a separate briefing.

Definition of contracting authority

In the definition of a ‘contracting authority’, a ‘public authority’ now means a person that:

• is either:
  • subject to public authority oversight, and
  • wholly or mainly funded out of public funds including the NHS, or
• does not operate on a commercial basis.

Examples of factors to be considered in determining whether a person operates on a commercial basis include:

• whether the person operates on the basis that its losses would be borne, or its continued operation secured, by a public authority (whether directly or indirectly)
• whether the person contracts on terms more favourable than those that might reasonably have been available to it had it not been associated with a public authority; and
• whether the person operates in a market that is subject to fair and effective competition

The application of the test of whether an organisation operates on a commercial basis to registered providers of social housing is still unclear. However, this new test makes it more likely that registered providers will continue to be regarded as contracting authorities than the previously proposed test as to whether they exercise functions of a public nature.

Teckal subsidiaries now covered

An organisation that does operate on a commercial basis but which, as a controlled person (commonly known as a Teckal subsidiary under the current rules), is awarded an exempted contract (relying on the vertical Teckal exemption) is to be treated as a public authority in relation to any relevant sub-contract. This appears to confirm the current legal position that a Teckal subsidiary is to be treated as a contracting authority (in accordance with the LitspecNet case [1]). However, the addition of the words ‘in relation to any relevant sub-contract’ introduces some ambiguity as to whether it will be a contracting authority for all of its activities or only some of them i.e. what is meant by a ‘relevant sub-contract’? The explanatory notes to the Bill do not help, just stating that this is ‘an anti-avoidance mechanism’. Hopefully, guidance will clarify the application of this provision.

National Procurement Policy Statement

Before publishing this statement, the Government will be required to have due regard to the principles of public good, value for money, transparency, integrity, fair treatment of suppliers and non-discrimination. These are familiar concepts some of which overlap the list of objectives that contracting authorities must have regard to when carrying out a covered procurement under the Bill. The statement must now also include certain strategic priorities including meeting climate change reduction and environmental targets, meeting requirements set out in the Public Services (Social Value) Act 2012, promoting innovation amongst suppliers and minimising fraud, waste or abuse of public money. Note that the duty to have regard to the statement is not enforceable under the Bill but may still be actionable by way of judicial review.

Conflict of interest assessment

Before publishing a tender or transparency notice for a covered procurement and before publishing a dynamic market notice to establish a dynamic market, a contracting authority will need to prepare a conflicts assessment and keep this under review. The original drafting provided that if the contracting authority is aware of circumstances that might cause a reasonable person (wrongly) to believe there to be an actual or potential conflict of interest, the contracting authority must include details of any steps taken or to be taken to demonstrate that no actual or potential conflict exists. This now needs to be included only where the contracting authority considers it likely to cause a reasonable person to make this erroneous belief. Whilst this is a welcome reduction on the burden on contracting authorities in relation to perceived conflicts of interest, it may still be tricky to apply in practice.

Frameworks – conditions of participation

A contracting authority will now be able to apply minimum conditions of participation (pre-qualification requirements) at the call-off stage. The contracting authority must be satisfied that the conditions are a proportionate means of ensuring that framework suppliers have the legal and financial capacity and technical ability to perform the contract. It is not clear whether these conditions can differ from those that applied at the award of the framework itself.

Frameworks – award criteria

The permitted award criteria in a mini-competition will be limited to one or more of the award criteria used to award places on the framework, albeit those award criteria may be refined. This raises the question as to what is meant by ‘refined’. The new drafting is unlikely to challenge the current practice of using very high-level award criteria (i.e. price and quality) to appoint suppliers to a framework. The revised explanatory notes to the Bill simply provide that this ‘prevents the use of new or different award criteria or substantially altered award criteria’.

Frameworks from frameworks

Finally, on the subject of frameworks, the Bill has been amended to clarify that it will not be permissible to award a framework under a framework. The previous drafting had unintentionally created this possibility, which some may have thought useful in certain situations but which others have rightly feared could lead to the abuse of this commercial purchasing tool based on past experiences.

Compulsory KPIs threshold raised

The financial threshold requirement to set, monitor and report on at least three key performance indicators has been increased from £2 million to £5 million. This is a very welcome change. The threshold can be changed by regulations.

Publishing a copy contract on award and after modification

The increase from a £2-million to a £5-million threshold has also been applied to the transparency obligations to publish a copy of the public contract on award or modification within 90 days of when a contract has been entered into or a modification made to one.

Online portal

Finally, there is now an explicit obligation on the Government to establish an online system for publishing notices, documents, and other information under the Bill. This will be built out from the Find a Tender platform. The Cabinet Office has already begun building the new notices into Find a Tender. Contracting authorities will be able either to create notices directly on the platform or to have them sent through automatically by their existing e-procurement portal provider.

Many other amendments have been made to the Bill. Most of these seek to clarify certain provisions and ensure consistency of language across the Bill. We may see some more amendments as the Bill makes its way through the House of Commons but it looks like the Bill is expected to make its way swiftly through this stage of the legislative process. Let’s hope the necessary regulations and guidance follow quickly to address the many questions arising from the Bill! In the meantime, do head over to the Cabinet Office’s landing page [2] to track the progress of the Bill and to sign up for one of their open-access update webinars.

Steven Brunning is a partner at Anthony Collins Solicitors.

[1] LitSpecMet UAB v Vilniaus lokomotyvu remonto depas UAB, Case C-567/15

[2] See Transforming Public Procurement