Procurement reform: key points to know about the Procurement Act

The four existing pieces of legislation – comprising the Public Contracts Regulations 2015, Utilities Contracts Regulations 2016, Defence and Security Public Contracts Regulations 2011 and Concession Contracts Regulations 2016 – will be revoked and these separate regimes brought together into one new Act.

The Act introduces a radical overhaul of the law governing public procurement in England, Wales and Northern Ireland, with a host of new rules, procedures and processes. Building on the key principles and objectives discussed in the first article in our 'changing landscape' series on the Act, it will answer to a range of aims around equality, value for money, public benefit and transparency. The aim here is to make it easier for procurers and suppliers to determine what parts of the legislation apply to them, in their situation and sector. Notably, some areas will also now fall outside of the Act i.e. delivery of healthcare services is now covered by separate legislation.

The range of new procedures and transparency measures the Act brings in will have implications for procurers as they look to let new contracts. The legislation will require authorities to publish various types of notice to make public the decisions they have made in procurement procedures, as well as show how effectively contracts are being performed and managed. In all, the Act will bring in fourteen new forms of notice; the result is likely to mean that an average procurement run under the Act will require about five notice publications in all, as opposed to the two or three that are typical at present. This excludes notices published during the period of the contract to show performance and payment information.

Both authorities and suppliers may find some of the new notices radically different from the types of notices used in procurement to date and, in some cases, unsettling. For example, authorities will eventually be required to publish data on payment under large public contracts, so that there is visibility on how promptly suppliers are being paid.

This is an important change in line with the principles the Act seeks to establish around increasing fairness, greater competition and more value for money. It should help open up more competition in public sector procurement and see greater involvement from SME suppliers, as well as larger organisations getting involved in multiple tenders.

Under the existing regime, authorities are encouraged to consider dividing large contracts into smaller lots (and have to explain any decision not to), but are not under any duty to consider doing so. The Act changes this, placing on authorities a legal duty to consider lotting as part of the wider objective of considering the barriers faced by SMEs to participating in public procurement, with a view to those barriers being reduced or removed.

This brings new reporting requirements both in terms of the procurement process, but also from an ongoing contract management perspective. In line with the aim around ensuring value for money, there will be more responsibilities on suppliers to publicly share details of the key performance indicators (KPIs) related to public contracts and supplier performance against those measures.

Among the new notices introduced by the Act, there are a number that explain how well contracts are being performed (including against specified KPIs), and also when contracts are terminated – as well as when a procurement exercise is terminated without ever getting as far as contract award. These notices could make uncomfortable reading – not only for authorities but also for suppliers, whose breach of their contractual obligations could be laid bare to their competitors, resulting in reputational fall-out and possibly impacting on their prospects of winning future public contracts.

The Act is focused on ensuring suppliers get paid quickly, from the lead contractor right through to each sub-contractor in the supply chain.

To achieve this, the Act implies into every public contract (with certain specific exceptions) a term requiring that any sum due to be paid by the authority must be paid within 30 days from the day the authority receives an invoice in respect of the sum, or, if later, the day on which the payment falls due in accordance with the invoice.

Terms mirroring this are also implied into every public subcontract, to ensure that suppliers right down the supply chain are also paid promptly.

The Act sets up a new body tasked with overseeing public procurement practice. The role of this body will be to identify any areas of systemic failure within public bodies and procurement procedures in reference to the new legislation.

The new body will be able to conduct investigations into poor procurement practices, and to make recommendations following procurement investigation. The body will also be able to publish guidance following an investigation. It will have the power to require an authority to provide relevant documents for the purposes of the procurement investigation and otherwise to provide reasonable assistance in connection with the investigation.

The oversight body's recommendations may include the action the authority should take with a view to ensuring that it complies with the Act's requirements, together with timings. The authority may then be required to follow up the recommendations by providing progress reports to the oversight body to show how it is complying with them. If the action taken by the authority differs from the recommendations, the authority must explain why.

The provisions here ensure that legal tests are more developed than under the existing regime – so if a claim is brought before the courts, then a new set of tests will be applied under the Act to determine whether the grounds for the claim are justified.

As in the current regime, suppliers have a right to challenge decisions made in public procurement. They will be able to do this by bringing a claim in the High Court for breach of an authority's statutory duty.

The range of redress available includes pre-contractual and post-contractual remedies. Pre-contractual remedies include automatic suspension of the authority's award decision (if the challenge is made during a standstill period), or interim remedies of various kinds – for example, an order suspending an authority's decision or action taken in the course of a procurement; an order suspending the procurement or any part of it; or an order suspending entry into a contract. Damages can also be awarded. As in the current regime, an authority can apply to the court to lift an automatic suspension.

Post-contractual remedies include set-aside of a contract, as well as damages.

The time limit for bringing most procurement claims (other than set-aside) is 30 days beginning with the day on which the supplier first knew, or ought to have known, about the circumstances giving rise to the claim.

In line with the move towards greater transparency, authorities will be required to publish notices not only of new contracts awarded, but also in relation to modifications to existing contracts, termination of contracts and abandonment of procurement exercises.

The Act will regulate key aspects of the management of public contracts to an extent not seen before in a UK public procurement rulebook. The new notices that authorities will have to publish include contract performance notices (detailing how well suppliers are performing contracts and any breaches being committed), contract termination notices (showing when and why contracts are being terminated), procurement termination notices (giving notice of procurement procedures that have ended without an award), and payment compliance notices (giving data about prompt payment).

All of these notices will make it easier for government to harvest much more real-time data about procurement activity, which will increase visibility of public spending – not just for suppliers interested in what opportunities are being advertised, but also for authorities who will have more visibility of what their counterparts in other authorities are procuring; and for anyone interested in seeing how well suppliers are performing, and how quickly they are getting paid.

The introduction of these implied terms seeks to promote compliance with the Act across the supply chain involved in delivering a contractual arrangement – it addresses issues around prompt payment and fosters a commitment to best practice in a number of areas. In relation to payment of suppliers, for example, the new rules make it clear that any sum a contracting authority is due to pay under a public contract must be paid within 30 days of receiving an undisputed, valid notice; as long as the invoice doesn't stipulate a later payment date.

In addition, this condition doesn't just relate to contracting authorities: if a sub-contractor is employed, then the very same term is also implied into these sub-contracts. This goes further than the existing regime being replaced, as discussed in issue 10 of our 'changing landscape' series on the Act, which also looks at the grounds for terminating contracts.

The Act also introduces an implied right to terminate a contract in certain circumstances. There are three termination grounds implied into every public contract. Contracts can be terminated if: (a) the authority considers that the contract was awarded or modified unlawfully; (b) a supplier has, since the award of the contract, become an excluded supplier or excludable supplier (the same goes for a supplier's "associated person"); and (c) a sub-contractor, who is performing all or part of the contract, is an excluded or excludable supplier. This goes significantly further than the current regime, which contains no equivalent provisions.

In a radical new move, the Act will see the introduction of a public debarment list. This list will contain the names of suppliers who are barred out of tendering for public contracts.

Suppliers can end up on the debarment list if their name is added to the list by a Minister, as a result of either: (a) an investigation which establishes that the supplier meets one of the Act's exclusion grounds; or (b) a supplier is guilty of a serious failure to comply with investigation (thereby placing it within the mandatory exclusion grounds).

Suppliers will be given notice ahead of their names being added to the list, and they can make representations by way of appeal. There is provision for a debarment standstill period (eight working days) following that notice. In addition, suppliers can apply to a court for "interim relief" (whereby the court suspends the Minister's decision to include the supplier on the list) until the matter is resolved.

The list is to be kept under review – suppliers can appeal decisions and apply to be removed from the list (with supporting evidence e.g. changed circumstances, or new information).

The Act introduces a new regime governing contract variations – again, to inject greater transparency around changes to public contracts. This is an area that has long been fraught with questions over the legitimacy of some contract changes, and the new regime attempts to provide better clarity on when variations can lawfully be implemented without it triggering a requirement for a new procurement. The range of situations in which this can be done is also expanded under the Act, to ten in total.

Before varying a contract, authorities must first be transparent about it – by publishing a contract change notice. After that, there is an opportunity to observe an eight-day standstill, just in case any suppliers wish to question or challenge the decision to vary the contract without a new procurement exercise. For the more valuable contract variations (that is, those valued at £5m+), the Act will require authorities to publish the contract as varied, or the variation itself.

Situations where variations are allowed without a new procurement include: (i) where there are unambiguous clauses already in the contract which allow the variation to be made; (ii) the situation where economic or technical reasons compel additional work or services (but with a 50% limit on contract value increase); (iii) unforeseeable circumstances (ditto); (iv) new suppliers acceding to the contract in particular circumstances, for example a corporate restructuring; (v) urgency and the protection of life (where direct award grounds are established); and (vi) a situation involving the materialisation of a known risk (but with a limit of 50% increase in contract value).