Understanding Dynamic Markets Under the Procurement Act 2023

The Procurement Act 2023 introduces dynamic markets, a concept which will provide contracting authorities with greater flexibility when choosing procurement routes. This blog post provides an overview of dynamic markets, detailing their structure and their implications for suppliers and contracting authorities.

 

What Are Dynamic Markets?

Dynamic markets are evolving arrangements of suppliers (ie lists) who have met the specified 'conditions for membership'. In practice, membership of the dynamic market acts as a quasi pre-qualification stage as when assessing tenders submitted during a procurement run by reference to a dynamic market, contracting authorities must disregard (ie not evaluate) tenders from any supplier that is not a member of the dynamic market, or the relevant part. This ensures that only suppliers who meet the necessary criteria can submit tenders, streamlining the procurement process and enhancing efficiency for contracting authorities.

Dynamic markets are available for all types of purchases of goods, services or works, other than those purchased under concession contracts. This provides greater flexibility than the existing regime under the Public Contracts Regulations 2015 which limits the use of Dynamic Purchasing Systems (DPS) to commonly used purchases generally available on the market.

 

Establishing Dynamic Markets

A key feature of dynamic markets is their flexibility. Suppliers can apply to join at any time during the term. Contracting authorities are required to consider these applications within a reasonable period and admit any supplier that meets the conditions for membership. This continuous admission process, which prohibits contracting authorities from limiting the number of suppliers admitted to the market, ensures that dynamic markets remain adaptable and responsive to changes in the supplier landscape.

 

Structure and Operation

Dynamic markets differ from traditional frameworks and dynamic purchasing systems. The key difference is the terminology used by the Procurement Act that refers to contracts being awarded by reference to the dynamic market as opposed to contracts being "based on" or "under" the dynamic market.

Dynamic markets function as a ‘down-select list’ and can only be used where contracting authorities are seeking to award contracts following a procurement run using the competitive flexible procedure. Contracts awarded by reference to a dynamic market are standalone agreements, not bound by the terms of a framework or DPS.

The Procurement Act also allows for the removal of suppliers from a dynamic market if they become excluded or excludable by way of a mandatory or a discretionary ground (including the discretionary ground for poor performance or breach of contract).

If a supplier is removed from the dynamic market it can subsequently reapply for its membership if it can demonstrate that it is no longer an excluded or excludable supplier or it can now satisfy the conditions for membership. This means that the membership of the dynamic market may fluctuate as suppliers are removed and then readmitted as concerns regarding performance are addressed.

 

Setting Up a Dynamic Market

Establishing a dynamic market is relatively straightforward and can be done quickly. The Procurement Act requires contracting authorities to publish certain notices and conduct a conflicts assessment, but it does not prescribe specific timeframes for setting up the market.

The high-level process for establishing a dynamic market includes:

1. Publish Dynamic Market Intention Notice (this sets out the conditions for membership).
2. Suppliers submit application to join the dynamic market.
3. Contracting authority undertakes a conflict assessment for all suppliers who have submitted applications.
4. Contracting authority must consider applications within a reasonable period and accept applications from suppliers who satisfy the conditions for membership and are not excluded.
5. Contracting authorities must consider whether to admit a supplier who is excludable and satisfies the conditions for membership.
6. Inform suppliers of the outcome of their application.
7. Publish Dynamic Market Establishment Notice.

There are rules that apply to the conditions of membership that can be put in place to determine whether a supplier is permitted to join the market:

• Conditions must be a proportionate means of ensuring that suppliers have the legal, financial, and technical capacity to perform contracts awarded through the dynamic market.
• Suppliers cannot be required to provide audited annual accounts unless mandated by the Companies Act 2006 or an equivalent overseas regulation. Similarly, contracting authorities cannot require insurance related to contract performance to be put in place before a contract is awarded.
• Conditions may relate to a supplier’s qualifications, experience, or technical ability but cannot mandate that the supplier has been awarded contracts by a specific contracting authority. They must also comply with rules on technical specifications and allow for equivalent qualifications.

These conditions must remain unchanged throughout the term of the dynamic market to ensure continuity and fairness for all suppliers, regardless of when they join.

Contracting authorities will likely develop their own structures and processes for dynamic markets over time as more contracting authorities begin to run procurements using the Procurement Act. We anticipate that markets will include a central dynamic market establishment agreement between the contracting authority and each supplier. Although this agreement is not considered a public contract under the Procurement Act, it is likely to outline how the market is intended to operate and the terms suppliers must comply with in order to remain members.

 

Awarding Contracts

Contracts awarded by reference to a dynamic market must follow the competitive flexible procedure. This involves publishing a tender notice, conducting the procurement process, and awarding the contract to the supplier that submits the most advantageous tender. Our Competitive Flexible Procedure Toolkit sets out the process to follow for awarding these contracts.

The Procurement Act prohibits the use of dynamic markets for direct awards and below threshold contracts.

 

Fees

Contracting authorities may charge suppliers a fee for their membership to a dynamic market, provided that the documents establishing the dynamic market provide for this. Fees must be set as a fixed percentage of the estimated value of any awarded contract. Charges may only be applied to suppliers who have been awarded a contract by reference to the dynamic market, ensuring that the cost burden is linked to successful procurement outcomes.