Contract Management under the Procurement Act 2023: What should I know?

The Procurement Act 2023 (the Act) introduces a greater focus on supplier performance, including new rights to terminate existing contracts. Contracting authorities need to understand their new rights and obligations. Equally, suppliers need to understand the potential impacts on their existing contracts and their ability to compete for future contracts.

Contracting authorities and suppliers have some time to adjust to the new approach. The Act will not apply to contracts let under the existing rules and will apply to contracts awarded under procurements that start after the Act comes into force, expected to be October 2024.

 

Supplier Performance

For public contracts valued over GBP5 million, the Act will require contracting authorities to set and publish a minimum of three key performance indicators (KPIs). Contracting authorities will then publish an assessment of the supplier’s performance against those KPIs at least once every twelve months and again at the end of a contract.

In addition, contracting authorities must publish a poor performance notice where the supplier has:

• breached a public contract and that breach has resulted in termination, partial termination, award of damages, or a settlement agreement; or
• the contracting authority considers that a supplier:
• is not performing a public contract to the authority’s satisfaction (even if the supplier is not in breach of the contract); and
• having been given a proper opportunity to improve performance has failed to do so.

The failure to meet KPIs is a clear example of a supplier not performing the contract to the contracting authority’s satisfaction, even where this does not breach the contract.

The publication of a poor performance notice is a discretionary ground allowing all contracting authorities to potentially exclude the supplier from future procurements and terminate existing contracts. We explore the new exclusion regime further in The New Procurement Act 2023 Exclusion and debarment of suppliers: What’s new?.

 

Termination

Contracting authorities can terminate public contracts if:

• the contracting authority considers the contract was awarded in material breach of the Act or regulations;
• the supplier becomes an excluded or excludable supplier; or
• a sub-contractor becomes an excluded or excludable supplier (subject to certain limitations).

Both contracting authorities and suppliers must note that the mandatory and discretionary exclusion grounds under the Act are significantly wider than the current rules. They include the publication of a poor performance notice by any contracting authority or threats the supplier poses to national security. Where a contracting authority considers that the exclusion ground is continuing or likely to apply in the future, then it can exercise the termination rights.

To exercise those rights, contracting authorities must notify the supplier of its intention to terminate setting out the relevant ground(s) and reason for termination. It must provide the supplier with an opportunity to provide representations and where termination is due to a sub-contractor, allow the supplier time to replace the sub-contractor.

 

Payment and invoicing

The Act also implies a clause into all public contracts (excluding concession contracts, utilities contracts awarded by private utility and contracts awarded by schools) that contracting authorities must:

• dispute invoices “without undue delay”; and
• pay undisputed invoices within 30 days of the date the invoice was submitted or the date for payment specified in the invoice, if later.

This clause cannot be contracted out of, except where the Parties agree shorter payment terms. These terms are also implied into every sub-contract.

 

Subcontracting

Contracting authorities may require suppliers to enter into legally binding sub-contracts where:

• it requires the sub-contracting of part of the contract; or
• the supplier has relied on the capacity of the sub-contractor for meeting the conditions of participation.

If the supplier does not do so, the contracting authority may:

• decide not to award the contract;
• require the supplier to enter into a binding subcontract with another appropriate supplier; or
• terminate the contract where it has already been entered.

 

Modifications

The Act also sets out a detailed modification regime, including assessment criteria and notification obligations. This shall be explored in more detail in a separate blog.