Procurement Act 2023 changing landscape, issue 2: utilities contracts

This is the latest bulletin in our changing landscape series where we look at the changes soon to be made to the public procurement regime in England, Wales and Northern Ireland by the Procurement Act 2023 (the "Act").

As mentioned in our previous changing landscape article, the Act will serve to replace four separate pieces of legislation which represent the overarching regimes currently regulating public procurement in the UK. One such piece of legislation is the Utilities Contracts Regulations 2016 (the "UCRs").

Summary of the Act's coverage of utilities procurement

The Act will apply to the awarding of "utilities contracts" by public authorities, public undertakings or private utilities.

A “public authority” is a body wholly or mainly funded out of public funds, or subject to public authority oversight, and does not operate on a commercial basis. A “public undertaking” is a body that is subject to public authority oversight, and operates on a commercial basis. A “private utility” is any organisation that is not a public authority or public undertaking, and carries out a utility activity.

A "utility contract" is a contract for the supply of goods, services or works wholly or mainly for the purpose of a "utility activity".

A “utility activity” is an activity that (a) is specified in Part 1 of Schedule 4 to the Act^[1], (b) is not specified in Part 2 of Schedule 4^[2] , (c) is not carried out wholly outside the United Kingdom, and (d) in the case of an activity carried out by a that is not a public authority or public undertaking, is carried out pursuant to a special or exclusive right.

If a utility activity is carried out by an organisation that is not a public authority or public undertaking, it has to be carried out pursuant to a "special or exclusive right" in order for the Act to catch it.  This will be the case if (a) the organisation has been granted a right to carry out the activity pursuant to any statutory, regulatory or administrative provision, and (b) that provision also substantially limits the ability of anyone not granted the right to carry on the activity.

A right to carry out a utility activity will not, however, be a “special or exclusive right” if it is granted following a competitive award, or pursuant to a procedure in which (i) the opportunity to be granted the right was publicised widely enough to avoid an artificial narrowing of competition, and (ii) the grant of the right was based on criteria that did not favour or disadvantage certain organisations.

The Act brings with it limited changes that will impact the scope of utilities procurement activity caught by the procurement regime. However, the definitions in the Act that are summarised above are clearer than those under the current UCRs and should help clarify which contracts are consequently caught.

Various utilities contracts are exempt from the new regime. The exemptions are set out in Schedule 2 of the Act, and include:

• a utilities contract between a utility and a relevant joint venture for the purpose of carrying out a utility activity for at least 3 years^[3] ;
• a utility contract awarded by a utility to an affiliate^[4]; and
• certain utilities contracts awarded for the supply of goods, services or works including for the supply of water and the supply of energy or fuel to a utility^[5].

Other key features

Thresholds

The Act applies in full where the value of a procurement exceeds the threshold as set out in Schedule 1 of the Act. As mentioned in our previous changing landscape article, the value thresholds that apply to utilities contracts under the Act, will continue to apply as they do under the UCRs. Utilities procurements under the Act will be subject to higher thresholds than for other public contracts.

As of 1 January 2024, the utilities procurement threshold for works contracts is £5,372,609, and for public services and supply contracts is £429,809 (in each case VAT-inclusive).

Applicable utility activities

The list of in-scope utility activities under the Act largely mirrors the utility activities listed in Chapter 2 of the UCRs. However, under the Act, this list no longer includes postal services.

Procurement procedures and routes to market

• Term: The maximum term for utilities frameworks let by either a public authority or public undertaking will be 8 years, as is the case under the UCRs. There is no maximum term specified under the Act for frameworks awarded by private utilities.
• Timescales: No minimum timescales will apply for tenderers that are already members of a utilities dynamic market, where a shorter tendering period has been agreed. Otherwise, the minimum timescale is 10 days. This is similar to the position under the UCRs.
• Assessment and award: Private utilities will have a wider discretion than under the UCRs to exclude suppliers. In the context of the Act, references to "excluded" suppliers are also to be interpreted as "excludable" suppliers.
• Tender notices: Under section 40 of the Act, there will be limitations on the duty to publish tender notices. The duty will not apply where there is to be an award of a contract and the supplier is a member of a utilities dynamic market, established by a qualifying utilities dynamic market notice. In that situation, a contracting authority must provide a tender notice to members of the dynamic market, or to the relevant part of it. This is broadly aligned with the position under the UCRs.

Further considerations

In some respects, there will be no material change to the position under the UCRs. However, the following features are noteworthy:

• Pre-procurement requirements: The Act will require publication of pipeline notices and preliminary market engagement notices. However, these requirements will not apply to private utilities.
• Contract governance: The Act will also require greater contract governance, e.g. a requirement to publish contract change notices and to set and publish KPIs. The various contract governance requirements will not apply to private utilities.
• Assessment and award: The requirement to observe a standstill period will not apply to private utilities making a direct award in special cases (under s.41 of the Act). The subsequent requirement to publish a contracts details notice or a copy of the contract (for contracts over £5 million in value), will similarly not apply to private utilities.

The existing rules under the UCRs will remain in place until the Act comes into full force, expected in February 2025. The Government plans to provide a six-month familiarisation period before that date. This also means that the UCRs will continue to apply to any utilities procurements started prior to the Act entering full force.

If you have any questions or need support with navigating these latest developments, get in touch with Christopher Brennan, Alison Richards, Alexi Markham or Robert Breedon.