The Procurement Bill 2022 Key Areas of Change

On 11 May 2022, the Procurement Bill 2022 was introduced in the House of Lords. The Bill is the next step in the Government's plan to reform procurement policy in the UK following Brexit, as set out in its December 2020 green paper "Transforming public procurement" (see our December 2020 update) and follows the Government's response to the accompanying consultation (see our December 2021 update). It is designed to introduce a simpler, more flexible and more commercial system.

Key takeaways:

• The Bill aims to establish a single legal framework for the award of public contracts, utilities contracts, concession contracts, and defence and security contracts by contracting authorities.
• Many of the features of the new regime will be substantially the same as the current regime, but a number of significant changes are proposed.
• Contracting authorities will be subject to broader transparency obligations under the new regime, which should mean that it will be easier to find out information about planned and completed procurements.
• Contracting authorities will also have enhanced powers to exclude suppliers from procurements with key changes including: the introduction of a central list of debarred suppliers and broader rights to exclude suppliers for prior poor performance (including failure to meet KPIs).
• The Bill still needs to pass through the Houses of Parliament and the Government has indicated that there will be a period of at least six months between the Bill becoming law and the new regime entering into force, which will be at some point in 2023 at the earliest.

Background

As set out in the December 2020 green paper, the Government believes that the current regime is too restrictive and complex. Following Brexit, the Government has the opportunity to overhaul the current public procurement regime which is derived from a patchwork of EU directives. The Government is therefore aiming to create a regulatory framework which simplifies procurement processes, places value for money at the heart, and generates social value.

The reforms have also been shaped by:

• the UK's obligations as a member of the World Trade Organization's Agreement on Government Procurement;
• the UK's commitments under bilateral trade agreements, including the EU/UK Trade and Cooperation Agreement; and
• feedback from over 500 stakeholders.

A simpler regulatory framework

Currently, the UK has a complex body of public procurement legislation, much of which is derived from EU law. The main legislation governing the award of public sector contracts comprises:

• the Public Contracts Regulations 2015;
• the Utilities Contracts Regulations 2016;
• the Concession Contracts Regulations 2016; and
• the Defence and Security Public Contracts Regulations 2011.

The Bill repeals these regulations and introduces a single framework. However, some of the differences applicable to each of the procurement of utilities, concession, and defence and security contracts will be maintained.

While the Bill introduces a number of important reforms to the current regime (see below for further details), many features of the new regime are substantially the same as the current regime. In particular the following features have been maintained:

• the concept of contracting authority, with some tweaks to the definition;
• the types of contracts that must be advertised and competitively tendered; and
• the rules on financial thresholds.

An expanded list of key principles and objectives

EU public procurement law is based upon general principles derived from the Treaty on the Functioning of the European Union: transparency, equal treatment, non-discrimination and proportionality. The Government has chosen to maintain the principles of transparency, equal treatment and non-discrimination in the new regime. However, contracting authorities will also be required to have regard to a number of ambitious objectives when awarding public contracts, including value for money, maximising public benefit and integrity.

To enable procuring authorities to take these new objectives into account during procurements, the Bill introduces subtle changes to terminology and existing concepts. For example, the Bill requires contracts to be awarded to the Most Advantageous Tender, rather than the Most Economically Advantageous Tender.

In addition, the Bill provides Ministers with the ability to publish a statement setting out the Government's strategic priorities in relation to procurement, to which contracting authorities must have regard.

Fewer, more flexible award procedures

The current regime provides procuring authorities with a choice of five procedures to carry out competitive procurement exercises. This can cause confusion as different rules apply under each of those procedures with respect to matters such as minimum time limits, the structuring of the award phase, and the extent to which discussions and negotiations with bidders are permitted.

The Bill provides for two types of competitive tendering procedure:

• a single-stage tendering procedure without a restriction on who can submit tenders; or
• such other competitive tendering procedure as the contracting authority considers appropriate, which may involve limiting the number of participants across multiple stages.

This means that contracting authorities will have considerable leeway to design procurements in a way that suits their needs, subject to ensuring consistency with the procurement principles and objectives.

Focus on greater transparency in procurement

The Bill proposes a number of measures to ensure greater transparency to make it easier to scrutinise procurement decisions. In particular, contracting authorities will be required to publish:

• a "pipeline notice" where contracting authorities consider that they will spend more than £100 million on certain types of procurement in the next financial year;
• a tender notice at the commencement of the procurement procedure;
• more detailed information about the evaluation to unsuccessful bidders;
• a contract award notice before (instead of after) entering into a public contract;
• information about contracts after they have been concluded;
• a copy of any public contract with a value exceeding £2 million within 90 days of it being entered into;
• information about payments under public contracts to enable scrutiny by the general public;
• a contract implementation notice to update on performance against KPIs (see below);
• a contract change notice in advance of implementing amendments; and
• a contract termination notice ahead of the expiry or termination of a contract.

Excluding suppliers

Similar to the current regime, the Bill includes rules on excluding suppliers from procurements. Before allowing a supplier to participate in multi-stage procurements, the contracting authority is required to determine whether a supplier is:

• an "excluded supplier": a supplier which meets a mandatory exclusion ground and where the contracting authority considers that the circumstances giving rise to the ground will reoccur; or
• an "excludable supplier: a supplier which meets a discretionary exclusion ground and where the contracting authority considers that the circumstances giving rise to the ground will reoccur.

Similar to the current regime, there will be a duty on contracting authorities to give suppliers an opportunity to make representations as to whether the exclusion grounds apply and to submit evidence relating to the reasons why the circumstances are not likely to reoccur.

The Debarment List

A key change is the introduction of new rules relating to the debarment of suppliers. The debarment list is intended as an additional means of protecting against the risk of contracts being awarded to unfit suppliers.

The Bill requires contracting authorities to notify the relevant Minister when they exclude a supplier, or when a subcontractor is replaced due to being an excluded or excludable supplier. The Minister will then consider whether that supplier should be considered for addition to the "debarment list".

An entry on the debarment list must:

• state which of the relevant exclusion grounds the Minister has decided to apply to the supplier; and
• indicate, in respect of each ground, whether it is a mandatory or discretionary ground and when the Minister expects the ground to cease to apply.

The Minister must give notice to the supplier before adding its name to the debarment list and the Bill provides an express right for a supplier to appeal the decision to enter its name.

A supplier can also apply to a Minister to have its name removed from the debarment list at any time. In its application, the supplier must:

• show that there has been a material change in circumstances since the supplier was added to the list; or
• include significant information that has not previously been considered by a Minister.

The Bill also contemplates the possibility of a Minister launching an investigation into whether a supplier is an excluded supplier or an excludable supplier. If such an investigation is launched, it will have powers to request documents and assistance from contracting authorities and the supplier under investigation for the purposes of preparing a report. An investigation may result in a supplier being added to, maintained on or removed from the debarment list.

Supplier registration

All contracting authorities will be required to use a single digital platform for supplier registration. Businesses will only have to submit certain types of information to demonstrate their credentials once to be considered for a public sector procurement. This is expected to include declarations in relation to the exclusion grounds and any supporting evidence relating to self-cleaning, as well as standard form information relating to financial standing.

Other changes to the rules on exclusion of suppliers

Other key changes to flag in relation to the exclusion of suppliers include:

• contracting authorities which are private utilities will have the flexibility to treat the mandatory exclusion grounds as discretionary;
• where one of a supplier's proposed subcontractors is an excluded or excludable supplier, the contracting authority must give the supplier an opportunity to replace the subcontractor with a suitable alternative before an exclusion decision is taken;
• contracting authorities will have enhanced powers to exclude suppliers on the basis of prior poor performance (see further below);
• a supplier may be excluded if a contracting authority determines that the supplier poses a threat to the UK's national security, subject to obtaining Ministerial consent;
• suppliers may be excluded where they have acted improperly in the procurement and have obtained an unfair advantage: for example, through providing information that is incomplete, inaccurate or misleading; or accessing confidential information; and
• the right to exclude a supplier from a framework or from their right to compete for contracts under the framework will be an implied term where the supplier becomes an excluded or an excludable supplier after the framework is awarded.

New rules on KPIs and monitoring performance

Key Performance Indicators

Contracting authorities will be required to set and publish at least three KPIs before entering into any contract with a value exceeding £2 million. However, this obligation will not apply "if the contracting authority considers that the supplier's performance under the contract could not appropriately be assessed by reference to key performance indicators".

Where a contracting authority has set key performance indicators, it is required to:

• assess the supplier's performance against those KPIs at least annually during the lifetime of the contract; and
• publish certain information about the supplier's performance.

Publication of information about contract performance

The Bill also introduces a requirement for the contracting authority to publish information about contract performance if:

• a supplier has breached a public contract and the breach results in: (i) termination of the contract, (ii) the award of damages or (iii) a settlement agreement between the supplier and the contracting authority; or
• the contracting authority considers that a supplier is not performing a public contract to its satisfaction and has failed to remedy the breach or improve performance after being given a proper opportunity to do so.

The circumstances triggering publication of information about a supplier's performance are the same as the circumstances which trigger the discretionary exclusion ground for breach of contract and poor performance, as set out in Schedule 7 to the Bill.

Direct awards

The Bill largely retains the existing grounds permitting contracting authorities to award contracts without first running a competitive procurement procedure. However, there are some important changes.

First, the procuring authority must determine whether the supplier is an excluded supplier before making a direct award. A direct award may only be made to an excluded supplier where there is an overriding public interest to do so, or where the justification for direct award is extreme and unavoidable urgency.

Second, a direct award can now be made where necessary to protect life or public safety during an emergency situation, even where the circumstances leading to that situation were foreseeable. This new ground has been created in recognition of the fact that the existing extreme urgency ground did not provide sufficient latitude to contracting authorities to make direct awards during the COVID-19 pandemic.

Third, contracting authorities must observe a standstill period after making a direct award, unless the direct award is made on the grounds of extreme and unavoidable urgency or to protect life. The standstill period is triggered through the publication of a contract award notice.

Modifying public contracts

The Bill retains rules on when modifications may be made to an existing contract without triggering a requirement to carry out a new procurement exercise. In particular, the Bill introduces the following changes:

• the definition of a "substantial modification" has been simplified. In particular, changes to the term of a contract will only be substantial where greater than 10%;
• a contract may be modified where its purpose could otherwise be achieved through a direct award;
• contracting authorities will generally be required to publish a contract change notice before modifying a public contract;
• a requirement to observe a standstill period between the publication of a contract change notice and implementing a modification; and
• modifications may trigger an obligation on the part of the contracting to republish the contract.

Fine-tuning the remedies rules

The Bill retains many of the features of the current remedies framework. The main focus of the reforms is certain court processes that apply to the determination of procurement disputes, including expedition measures aimed at speeding up challenges and making the regime more accessible.

New rules on standstill period

The mandatory standstill period will be eight working days, instead of ten calendar days. While this may seem like a minor change, it should reduce the current incentive to issue standstill letters on Fridays and before bank holidays with a view to limiting the number of working days that unsuccessful bidders have to consider whether to bring a challenge during the standstill period.

Interim remedies

Similar to the current regime, an automatic suspension will apply preventing a contracting authority from entering a contract if it is notified of a claim before it has entered into the contract. However, there are several important changes to highlight:

• the automatic suspension will also apply to planned modifications to contracts and certain direct awards;
• the automatic suspension does not apply if the contracting authority was only notified of the claim after any applicable standstill period has expired. Under the current regime, the automatic standstill is still available outside the standstill period if the authority has not concluded the contract; and
• a new test will apply when the court is required to determine whether to lift the automatic suspension.

When determining whether to lift the automatic suspension, the court will consider:

• the public interest in: (i) ensuring the contract is awarded in accordance with the law and (ii) avoiding adverse consequences caused by delay in performing the contract in question;
• the interests of the winning bidder and the claimant, including whether damages are an adequate remedy for the claimant; and
• any other issues the court may wish to consider.

New set aside remedy

While the types of remedies available to claimants before a contract has been concluded are broadly similar under the Bill and the current regime, some changes have been introduced to the remedies available after a contract has been concluded. In particular, the Bill replaces the ineffectiveness remedy with a similar set aside remedy and there is new set aside condition.

The set aside conditions will be met if the court is satisfied that the claimant was denied a proper opportunity to seek pre-contractual remedies because:

• a required contract award notice was not published;
• the contract was entered into or modified before the end of any applicable standstill period;
• the contract was entered into or modified during a period of automatic suspension or in breach of a court order;
• the breach became apparent only on publication of a contract award notice or a contract change notice;
• the breach became apparent only after the contract was entered into or modified.

The court may still award damages where the set aside conditions have not been met.

The court does not need to set aside a contract or modification if it determines that there is an overriding public interest in allowing the contract to continue. In these circumstances, the court may reduce the duration or scope of the contract instead of setting it aside.

The financial consequences of setting aside a contract can only be taken into account when determining whether an overriding public interest exists in exceptional circumstances. In particular, the court is not permitted to take into account the financial costs associated with re-procurement, differences in price between the contract in question and any replacement, the cost of delays in performance or any legal obligations relating to setting aside the contract.

New procurement oversight regime

The Bill contemplates the possibility of Ministers launching investigations into whether a contracting authority is complying with applicable procurement legislation. This is complemented by information gathering powers and the right to publish the results of its investigations, including any recommendations made. Contracting authorities receiving such recommendations must have regard to them.

Investigations may also lead to Ministers publishing guidance to contracting authorities in the form of "lessons learnt".

Comment

In practice, the Government has limited scope to launch a radical overhaul of the existing public procurement framework because the UK regime must be consistent with the baseline principles set out in the WTO's Agreement on Government Procurement. In addition, the provisions on procurement in the EU/UK Trade and Cooperation Agreement mean that there is a strong incentive to ensure continued alignment with the EU rules.

The focus on greater transparency is welcome, however, it will be interesting to see how these reforms impact the conduct of procurements in practice. In particular, there will be a greater administrative burden on contracting authorities who will need to strike a careful balance between complying with their obligations and respecting the confidentiality of information received from suppliers.

It will also be interesting to see how contracting authorities deal with the new principles and objectives of public procurement. In particular, the need to take into account additional principles and objectives that potentially cuts across the Government's simplification agenda. Contracting authorities may find themselves working out how to balance conflicting objectives when taking decisions or struggling to find a solution to perverse outcomes during procurements.

A key concern for suppliers will be the new rules on exclusion. Two aspects of those reforms stand out:

• First, it is currently unclear how the debarment list will operate in practice. Suppliers will therefore need to wait for further guidance from the Government. In particular, we would welcome guidance on the process for challenging decisions to add or maintain a supplier on the debarment list.
• Second, the wider possibilities for exclusion on the grounds of prior poor performance, including failure to achieve KPIs. It remains to be seen whether in practice contracting authorities will rely on the exception that setting KPIs is too difficult or avoid setting challenging KPIs.

The new regime is expected to enter into force in 2023. Further consultation with stakeholders is expected as the Government develops secondary legislation and guidance to provide the additional detail on how the new regime will operate in practice. Contracting authorities will need to consider the Bill carefully, as well as the secondary legislation and guidance when published. Helpfully, the Government has confirmed that there will be a period of at least six months following the Bill becoming law and the new regime coming into force.