The Procurement Bill: Key changes as it leaves the House of Lords

We analyse the most substantive amendments to the Procurement Bill following completion of its passage through the House of Lords

10 January 2023

The Procurement Bill (the “Bill”) has now completed its passage through the House of Lords and had its First Reading in the House of Commons. It is therefore on course to receive Royal Assent during 2023. The Bill has been subject to a number of interesting amendments during the various stages of its progress through the House of Lords. This article outlines some of the most important proposed changes approved by the Lords, which will now need to be carefully considered in the Commons.

Covered Procurements

The Section 1 concept of a “covered procurement” is a key definitional change. A “covered procurement” is the award, entry into and management of a “public contract”, which is a contract with an estimated value greater than the relevant threshold and not otherwise exempt. This ‘threshold’ distinction is a retained concept from the current regime, and indeed the GPA. By contrast, a “procurement” relates to any contract (including a public contract) falling within the scope of the Bill.

The majority of the Bill will apply to both above and below threshold procurements. However, some of the Bill’s most consequential provisions will only apply to “covered procurements”. These provisions most notably include Section 11 which prescribe the 4 types of procurement award procedure which can be utilised (being: competitive award; direct award in special cases; direct award after switching procedures and award under frameworks) and the much discussed “procurement objectives” at Section 12 (see below). However, it also includes sections limiting the ability to modify live procurements (Section 31), and the duty on contracting authorities to take all reasonable steps to identify actual or potential conflicts of interest and keep them under review (Section 80).

The concept of different levels of regulation for above and below threshold procurements is part of the current regime and international obligations (notably the GPA) create certain levels of regulation which must be applied to above threshold procurements. However, the distinction demonstrates the limitations on the ability to apply greater deregulation to above threshold or “covered procurements”.

SMEs

The Bill proposes that, for all “covered procurements” (Section 12(4)) and “regulated below threshold contracts” (Section 85), contracting authorities be required to “have regard” to the fact that small and medium-sized enterprises may face particular barriers to participation and “consider” whether these can be removed or reduced. Although this wording appears woolly at first sight, this is a significant inclusion as it creates a new procedural hurdle as contracting authorities will actively need to demonstrate that they have discharged this duty before proceeding with a procurement. This might create a potential ground for judicial review if, for example, an SME challenged whether a contracting authority had failed to give sufficient or given incorrect consideration to the reduction or removal of such barriers, to the alleged detriment of that SME and its ability to compete for relevant work. The fact this change has found its way into a focal provision of the Bill – the Section 12 ‘Objectives’ – is particularly notable. This SME focus can also be seen in the Government’s latest update: Benefits for Prospective Suppliers to the Public Sector (9 January 2023).

Preliminary Market Engagement

The provisions relating to Preliminary Market Engagement (“PME”) have been further amended since our previous article. As noted previously, the Bill already appears to provide more clarity than its predecessors on the role which PME should play in the procurement process. Rather than a broad reference to contracting authorities having a right to conduct PME with “a view to preparing the procurement and informing economic operators of their procurement plans and requirements” (as in the existing rules), the current draft of Section 16(1) of the Bill proposes a more targeted set of objectives of PME which may provide both authorities and bidders comfort when engaging in PME.

Section 17 of the Bill needs further debate. As outlined in our previous article, the Bill was amended to include “comply or explain” wording, meaning that a contracting authority must either (1) issue a PME notice prior to issuing a tender notice; or (2) provide reasons in the tender notice for why it elected not to do so. However, this wording has been amended since the Committee stage in two relevant respects, both of which are likely to lead to debate. The first change is the inclusion of mandatory language (“If a contracting authority carries out preliminary market engagement, the authority must…”) which appears inconsistent with the current drafting of limb (b) which still reads “…provide reasons for not doing so in the tender notice”. This raises the important question of whether (and the extent to which) PME is intended to be mandatory.

The second change is to allow the contracting authority to issue a PME Notice after conducting PME rather than before. This may be of benefit to contracting authorities as it is likely to allow them to limit the number of entities who are involved in PME, preventing a situation of “too many cooks”, but it runs the reverse risk that a PME process will not be advertised to some relevant market participants (who may have good ideas) until after the PME is complete. Also, contracting authorities will need to be careful to ensure that use of a narrower field does not result in one entity being treated more favourably than others.

Participation Criteria

A key change to the use of financial accounts and insurance as selection criteria (a.k.a qualification or participation criteria) has been made to Section 22(3) for covered procurements, and can also be seen in Section 36 regarding setting conditions of membership for a dynamic market, and Section 46 regarding admission to a framework. As drafted, contracting authorities will not be able to require (by way of selection/participation criteria) the submission of audited annual accounts except from suppliers who are, or were, required to have the accounts audited in accordance with the Companies Act 2006 or an overseas equivalent. Nor will they be able to require insurance relating to the performance of the contract to be in place before the award of the contract.

These changes are clearly intended to reduce barriers for SMEs, which has been a long-standing policy objective in public procurement.

Most Advantageous Tender

As noted in our previous article, Section 19(2) of the Committee Stage draft of the Bill introduced a dual assessment for determining the most advantageous tender by requiring authorities to award the contract not only with regard to which tender scored highest in accordance with the award criteria (as is the case under the current procurement regulations), but also which tender best meets the authority’s requirements. This has now been extended to any intermediate assessment which a contracting authority decides to include in any competitive flexible procedure (Section 20(6)).

Whilst this appears to be pursuing a laudable aim – given that the real object of the procurement is to procure the good or service which best fits the authority’s requirements – there is a risk that the objective (i.e. procuring something which meets the authority’s requirements) and the mechanism for doing this (assessment against award criteria) have been conflated, and now have the potential to be at odds with each other. For example, it is not clear what an authority should do if the tender that best meets its requirements, and the tender that scores highest against the award criteria, are not the same tender. This places additional importance on the need for authorities to accurately and comprehensively identify their requirements at the outset of a process and to properly configure the award criteria to align with those requirements.

Debarment and Sub-Contractors

One of the most significant changes proposed by the Bill is the concept of the debarment list. Being on the debarment list will prevent a supplier from being awarded any public contracts until such time as they are removed from the list. A supplier may be placed on the debarment list where a contracting authority excludes them from a procurement on the basis it is:

  • an “excluded” supplier (i.e. a supplier to whom a mandatory exclusion ground applies and the contracting authority considers there is a likelihood of reoccurrence) or
  • an “excludable” supplier (i.e. a supplier to whom a discretionary exclusion ground applies and the contracting authority considers there is a likelihood of reoccurrence)

and, following a referral to the appropriate authority, it is determined that they should be placed on the debarment list.

Section 30 of the Bill has been amended at Report stage so that a supplier who has acted improperly can only be an “excluded supplier” if this improper conduct was in relation to a “covered procurement” (i.e. an above threshold procurement). The rationale for this amendments is not clear as improper conduct in relation to a below threshold contract is still likely to be relevant when considering whether or not a particular supplier should be considered for the award of a higher value contract. It therefore seems likely that this amendment has only been introduced to avoid this process becoming overly cumbersome given the large number of below threshold procurements carried out.

Changes/modifications

The Bill as introduced included a number of enhanced transparency requirements for contract modifications when compared with the current regime. However, as part of the Report stage, the contract value at which a number of these requirements apply has been increased from an estimated value of more than £2 million to £5 million, in particular the Section 52(1) obligation to set and publish KPIs, and the Section 53(3) obligation to publish the awarded contract itself.

This reduced burden may be a welcome amendment for contracting authorities and suppliers who contract at values under £5M. The professed intent of the amendment being to ensure a more proportionate approach in focussing on the larger contracts and hopefully lower the risk of contracts being challenged during their term – although this risk is likely to still be higher than under the current regime, particularly given that the ‘safe harbours’ under which modifications are permitted often contain elements of discretion/subjectivity that may be applied differently by different contracting authorities (and indeed within contracting authorities). It might be asked how many high value contract there are in the ‘greater than £2m but less than 5m’ category.  On this, the UK Anti-Corruption Coalition Briefing on the Procurement Bill estimates that for c.1000 contracts (with a collective value of £4billion) the relevant contract authorities would not have been required to publish this data had this proposed approach (of a £5m threshold) been applied in the 2022 calendar year. They have raise the concern that this amendment therefore appears likely to significantly limit transparency of this data.

Another interesting change which has been made which impacts on utilities is that, like the other entities captured by the Bill, they are prevented from “materially” changing the scope of a contract. However, the requirements to publish a contract modification notice and to publish a copy of the modified contract (or the modification) do not apply to them (Sections 52(5) and 53(6)). This is perhaps reflective of the desire to only regulate private utilities’ procurement to the extent necessary under government’s international obligations rather than imposing an unnecessary burden. However, without the need to publicise these notices, it is hard to see how anyone would know if a utility were in breach of the prohibition on materially amending contracts.

What next?

The Bill is now in the House of Commons and had its first reading on 14 December. Starting in January, it will go through the same stages as in the House of Lords: a Second Reading debate covering the general principles of the Bill; several days of Committee, where the Bill’s provisions are debated clause by clause; followed by Report and Third Reading. Royal Assent is anticipated in the Spring, following which, the necessary Statutory Instruments (regulations) will be developed. Our P.A.T.H (Procurement Act Training and Help) webpage is regularly updated to providing insight and assistance to those preparing for its implementation, presently scheduled for late 2023.

This update was authored by Laura Wisdom and Greg Fearn in Burges Salmon’s Procurement Team, with input from Lloyd Nail. For a range of resources and to subscribe to our Procurement Newsletter, please visit Burges Salmon’s P.A.T.H. (Procurement Act Training & Help) website.

Key contact

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Laura Wisdom Partner

  • Public Sector
  • Defence
  • Procurement

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