On 6 December 2021, the Cabinet Office published its response to the consultation following the release of the Green Paper 'Transforming Public Procurement' (the 'Government Response'). We provided a 'first glance' summary and reported on the original Green Paper proposals on our Burges Salmon blog.
The publication of the Government Response is a key milestone in the move towards comprehensive reform of the UK public procurement regime. It provides a clear indication of the Government’s direction of travel in relation to reform: highlighting principles and objectives that will be key to procurement decisions going forward, and confirming which elements of the existing system we can expect to stay (either in their current form or reshaped) and to go.
Given the importance of the Government Response paper for both procuring entities and their suppliers, we have taken a deeper dive into the proposals. This is the fourth of a series of updates which will provide further detail on the likely future of:
- procurement policy;
- procurement routes;
- bid challenges; and
- management of publicly procured contracts.
Although these articles use the term 'UK', at present the proposed new procurement regime will only apply to public bodies in England, although the Welsh Government has confirmed that it expects the new legislation to also make provision for Welsh contracting authorities, and we understand that discussions are ongoing with the Northern Ireland Executive. As procurement is a devolved matter in Scotland, it’s not expected that the proposed reforms would apply to Scottish contracting authorities. It remains unclear, however, how the new legislation is intended to interact with the Scottish procurement regime (a concern raised by the Law Society of Scotland in its consultation response but not dealt with in the Government Response).
You can also read our previous articles on this topic here:
What's the future for management of publicly procured contracts?
As procuring entities and their suppliers will already be aware, the public procurement rules reach beyond the procurement process itself and into the full term of the contract. The Green Paper identified that effective contract management is key to successful delivery of a publicly procured contract, and as such proposed a number of measures aimed at ensuring that such contracts are able to flex to meet new demands and opportunities, while still ensuring that the supply chain is treated fairly.
The Government’s response to the Green Paper confirms that the vast majority of the Green Paper’s proposals in relation to contract management will be adopted in the new legislation. The key areas of change will be in relation to:
- prompt payment of the supply chain; and
- amendments to publicly procured contracts during their term.
Prompt payment
The Green Paper identified prompt payment as a key issue, especially in the current uncertain economic context. For most public contracts, the PCR already requires contracting authorities to pay invoices within 30 days and to require this payment term to be passed down the supply chain, and the Government has introduced a number of measures through PPNs aimed at maintaining visibility and enforcing this requirement. The Green Paper however suggested going further by legislating to allow any business to take up payment delays in the supply chain directly with the contracting authority and to allow an authority the right to investigate payment performance at any tier in its supply chain.
There was significant support for the proposals in the Green Paper, and the Government therefore proposes to introduce the following through the new procurement legislation:
- rights for the supply chain to escalate payment delays directly with contracting authorities (provided that sub-contractors can show that reasonable efforts have first been made to resolve the payment delays prior to escalation);
- rights for public bodies to review the payment performance of any supplier in the supply chain; and
- alignment of public and private sector payment reporting requirements, with output published on a single platform.
It is intended that the legislation will be supplemented with guidance to assist both procuring entities and their suppliers in implementing the revised regime. This guidance is likely to cover issues such as how payment complaints will relate to wider functions (such as the new Procurement Reform Unit), what payment information sub-contractors have to provide (and by when) and the metrics that will be used for payment reporting requirements, including the frequency of publication.
Although one of the overarching aims of procurement reform is simplification, our view is that there is clearly potential here for the new payment reporting regime to be more resource-intensive for both procuring entities and their suppliers, particularly if there is the risk of procuring entities becoming embroiled in supply chain payment disputes. Without sight of the accompanying guidance (which it appears will contain much of the detail on implementation of the new regime), it is difficult to assess how much practical difference this change will make, and indeed how onerous the revised regime will be. Clarity will be essential to manage expectations here, taking into account the work that has already been done through PPNs to enhance visibility and monitoring of payment behaviours.
Contract amendments
Another key issue for managing public contracts is how contracting authorities address changing circumstances, particularly for long-term complex contracts. Currently, the PCR, UCR and CCR all allow amendments to be made to public contracts without triggering a new procurement where specific criteria are met.
Going forward, the Government intends to simplify the existing rules by having a single provision governing contract amendments for all types of public contracts. This will be based on Regulation 72 of the PCR, but with some redrafting to make it clearer, and with an additional right for contracting authorities to make amendments in cases of crisis or extreme urgency. The Government is also considering allowing additional flexibility in the following cases:
- complex contracts (for example, through an additional safe harbour allowing changes to deal with circumstances beyond either party’s control);
- utilities contracts (to retain the current position under the UCR where safe harbours are not subject to financial caps, unlike under the PCR); and
- defence contracts (where the Government has clearly stated it intends to 'provide as much freedom as possible' in relation to contract amendments, to ensure maximum flexibility to respond to the MoD’s requirements).
This is a prime example of where the desire for simplification comes into conflict with requests from particular sectors. Simplification would of course advocate for a single mechanism governing contract amendments. Instead, it is likely that separate rules will apply for defence and utilities contracts, and potentially also 'complex' contracts (however that may be defined).
The price for this additional flexibility comes in enhanced transparency requirements. Procuring entities will be required to publish a Contract Change Notice for all contract amendments save where:
- the value is changed by less than 10 per cent of initial contract value for goods/services and 15 per cent for works;
- the term changes by less than 10 per cent, and
- there is no change to the scope of the contract.
It would be helpful for the revised legislation (or accompanying guidance) to provide clarity on how these thresholds will apply to cumulative changes, particularly over the course of a long-term contract or in sectors where amendments are common (for example, construction contracts). There is also the risk that increased transparency of this nature may in fact have the opposite effect to that which it is intending – making it more difficult to ascertain what changes are being made due to the sheer number of notices being published. There is no doubt however that procuring entities will need to update their systems and processes to ensure that a full audit trail is being kept of all changes to allow for assessment of those changes against the thresholds and publication where appropriate.
Procuring entities would also be required to hold a 10-day standstill period following publication of the notice to allow the amendment to be challenged. This rule would not apply to amendments made in cases of crisis or extreme urgency, and it remains to be seen how far these transparency requirements would be applied to defence contracts given the Government’s focus on flexibility. There is clearly a risk that this approach will lead to increased challenges, although the exclusion in cases of crisis and extreme urgency should help to minimise any disruption in contract provision.
Following feedback, the Government has decided not to pursue its proposal in the Green Paper to impose mandatory profit rates on extension periods used to cover contract award suspensions. This is a welcome change given how complex it would be to ascertain profit rates for the broad range of contracts that are publicly procured.
Given the above amendments (as well as the proposal to mandate notices following limited tendering), there is considered to be no need to provide for Voluntary Ex-Ante Transparency notices in the new legislation.
How can we help?
We will be holding workshops on the new regime throughout 2022. Please contact John Houlden, Patrick Parkin, Laura Wisdom or your usual Burges Salmon contact(s) if you would like to receive updates regarding these events, or if you are interested in tailored workshops on issues specific to your organisation.