The PA23 intends to consolidate and streamline the current procurement regulatory framework, which is currently based on legacy EU law, and in doing so simplify the procurement process to better meet the UK’s needs.
This article, which is part of a series of ‘deep dives’ into the new procurement lifecycle, will focus on management of contracts procured under the PA23.
KPIs and Contract Performance Notices
The PA23 has an increased emphasis on transparency, as evident from the introduction of a wide range of reporting and notice requirements that contracting authorities will be required to comply with throughout the procurement lifecycle (including the term of the contract itself).
Although it has commonly been best practice to set and publish KPIs for public contracts (see the Sourcing Playbook [The Sourcing Playbook - GOV.UK (www.gov.uk)]), the PA23 now requires contracting authorities to set at least three KPIs for any public contracts valued at over £5 million. Given that these KPIs, and performance against them, will be published through a Contract Performance Notice, there is likely to be greater scrutiny of KPIs to ensure that they are sufficiently well defined and capable of being achieved.
Going forward, failure to achieve KPIs will also be published, creating both a reputational risk for suppliers, and a significant business risk given that unsatisfactory performance against the KPIs brings with it the risk of debarment.
Contract modifications
The PA23 retains the existing position that modifications to public contracts are not permitted unless they fall within a specific justification (often known as a “safe harbour”). The existing safe harbours are retained, albeit reframed with updated wording:
- Modification provided for in the contract
- Unforeseeable circumstances
- Additional goods, services or works (in specific limited circumstances)
- Transfer on corporate restructuring
- Not a substantial modification
The PA23 also introduces new grounds for permitted modifications:
- Necessary for reasons of extreme urgency or the protection of life
- Where a risk has materialised that was known about before the contract but could not be mitigated in advance
- Defence authority contracts where it is necessary to take advantage/mitigate adverse effects of developments in technology
The intention expressed by the Government is for these new grounds to “provide for greater flexibility that stakeholders have indicated is needed, and to give greater legal certainty to contracting authorities than the existing grounds currently afford”.
As under the existing regime, some subjectivity remains as to when reliance on these safe harbours will be appropriate, and the reasons for reliance on a safe harbour will need to be clearly documented.
Prior to modifying the contract, a contracting authority is required to publish a contract change notice detailing the modification that is to be made to the contract and the relevant justification. This is a significant change to the existing regime, where notices are only required for a subset of the safe harbours. In addition, the PA23 introduces the concept of a “voluntary standstill period”, allowing contracting authorities to notify the market of proposed changes, wait a period of no less than eight working days, and then – assuming no challenge has been raised - benefit from greater protection against the modification being set aside.
It is possible that this revised regime may prove to be one of the biggest practical changes under the PA23, particularly in relation to long-term contracts for complex projects where modifications are necessary to adapt to changing requirements. It will be crucial for contracting authorities to take time to consider the likely changes (or categories of changes) anticipated during the contract term when preparing the procurement process and the draft contract documents, to have the best ability to justify the implementation of future changes during the term.
Notice requirements
The general duty of transparency under the PCR has been replaced with express transparency requirements throughout the PA23, and as such there has been a significant increase in the number of notices that contracting authorities will be required to publish. The notices that are relevant during the term of the contract, include:
- Contract Details Notice: this notice informs the market that the contract has been entered into, as well as details of the procurement process used and the details of the successful bidder.
- Contract Performance Notice: the purpose of this notice is to report on the supplier’s performance against any KPIs that have been established or where the contracting authority considers that the supplier is not performing to its satisfaction. This notice is also to be used where the supplier breaches a public contract and the breach results in termination (or partial termination), award of damages or a settlement agreement.
- Contract Change Notice: to be published to provide details of most modifications (save for lower value modifications) that have been made to the contract during its term. Contracts with a value of over £5m must publish a copy of the whole modified contract or the modification.
- Payment Compliance Notice: to be issued detailing the contracting authority’s compliance with the PA23’s requirement to pay invoices within 30 days of receiving such invoices from suppliers.
- Contract Termination Notice: the contracting authority is required to issue a notice publicising that a contract has come to an end, regardless of how the contract concluded – i.e. expiry, termination, discharge, court order, rescinded. Contracting authorities will at the same time need to provide details around the reason for the termination.
Any public contract with an estimated value of over £5 million must also be published within 90 days of the contract having been entered into (or 180 days under the light touch regime).
The content to be included in the notices detailed above are to be set out in secondary legislation, with the most recent draft here Procurement (Transparency) Regulations 202X.
Implied terms
The PA23 has carried over (and in some cases expanded) existing requirements for certain contractual terms to be implied into public contracts. However, in each case we would recommend that these terms are expressly provided for to ensure that all relevant parties are aware that such terms will form part of the contract, thereby assisting with contract management.
Termination
The PA23 has expanded the scope of termination rights being implied into public contracts, with contracting authorities entitled to terminate any public contract where a “termination ground” applies:
- unlawful award or modification
- excluded or excludable supplier
- a supplier to which the supplier is sub-contracting the performance of all or part of the public contract is an excluded or excludable supplier
This right cannot be restricted, fettered or negotiated away.
The broad principles for such termination grounds remain the same from the PCRs but the scope of these grounds has been expanded under the PA23. A key change is that the right to terminate due to a supplier or subcontractor becoming an excluded or excludable supplier applies throughout the term of the contract, whereas, this equivalent termination right under the PCRs only applied where the contractor had “at the time of contract awarded” been in a mandatory exclusion ground situation. Further, the right to terminate would arise where the contract was awarded or modified in material breach of the PA23, giving contracting authorities more flexibility to terminate the contract where there was a risk of a successful legal challenge.
Payment terms
All public contracts must include the following implied payment terms:
- Electronic invoicing must be accepted
- Payment must be made within 30 days of an invoice (unless invoice is considered invalid or disputed)
- Invalid or disputed invoices must be notified without undue delay
- Third party payment can be relied on to satisfy 30-day payment term
How can we help?
We will be releasing further updates on other aspects of the PA23 shortly and holding workshops on the new regime throughout 2024.
Please contact Laura Wisdom or another member of our procurement team if you would like to receive updates, including if you are interested in tailored workshops on issues specific to your organisation.
Read previous articles in the series here >>>