The Procurement Act: briefing for suppliers

The market to supply the UK public sector is worth at least GBP300 billion each year, creating a significant opportunity for businesses.

To succeed in this market, businesses need to understand the public procurement rules applying to all public sector bodies. These rules will change from 1 October 2024 in three main ways:

• new flexibilities;
• greater transparency; and
• greater risks around exclusion and contract termination.

New Flexibility in Procurement Processes

The Act introduces the new competitive flexible procedure, which applies to most competitions. This allows public bodies to design their own procurement process rather than follow processes set by law. When planning a procurement, public bodies must act proportionately and obey certain time limits. They must also satisfy themselves that the documents contain sufficient information to allow suppliers to bid. Other than that, however, they can develop the process in the way that best suits what they want to buy.

What this means for suppliers

We do not expect that public bodies will change their current processes significantly – at least to begin with. The key questions for suppliers will be the flexibility public bodies give themselves to accept variant bids/alternative contracting terms, and the extent to which they allow post-tender negotiations with the successful bidder. The Act is likely to provide significantly more flexibility in these areas, which is good for suppliers.

Greater Transparency of Opportunities and Performance

A defining feature of the Act is the number of notices that public bodies must publish. These start with a pipeline notice setting out the body’s plans for the coming year and end with a contract termination notice when every contract ends, covering most steps in between. On the one hand this will give suppliers greater insight into public sector contracting opportunities. On the other, it will shine a greater light onto the management of public contracts and suppliers’ performance under them.

Before entering into a public contract valued at more than GBP5 million, public bodies must set and publish three key performance indicators. Then, at least once each year, the public body must assess the supplier’s performance against the KPIs using a specified rating mechanism. The lowest rating is likely to be “inadequate”, meaning that performance is significantly below the key performance indicators. Public bodies must also publish notices where suppliers are not performing a contract to their satisfaction and have not fixed the situation after a being given the chance to do so.

Further, whenever a supplier and a public body agree to change a public contract, the public body must publish a contract change notice, and possibly observe a standstill period, before entering into the contract change. It must also publish either the change note or the changed contract within 90 days of the contract change.

What this means for suppliers

The Act provides for much greater transparency around suppliers’ performance under contracts and changes to contracts during their life. As this will be the law applying to all contracting authorities, suppliers will to a large extent need to get comfortable with this approach. However, suppliers will need to engage with public bodies over the KPI assessments (for the reasons set out below) and payments information and contract changes (to prevent the inadvertent release of commercially sensitive information).

Exclusion from procurements and termination of existing contracts

Under the Procurement Act, suppliers do not want to be classified as an “excluded” or an “excludable” supplier. An excluded supplier cannot participate in procurements or win public contracts (except in very limited cases). An excludable supplier can be excluded from procurements at the discretion of the public body concerned. Public bodies can also terminate existing contracts with excluded or excludable suppliers. Suppliers can also become excluded or excludable through their sub-contractors, parent companies and subsidiaries, and individuals that exercise significant influence or control.

Public bodies will assess this on a case-by-case basis, looking at:

• whether the mandatory (for excluded suppliers) or discretionary (excludable suppliers) grounds for exclusion apply; and
• whether those circumstances are continuing or likely to occur again.

Public bodies can make this judgement at any time during the contract lifecycle. The most likely triggers are either:

• another public body has published a notice saying a supplier has:
  
  – breached a public contract sufficiently seriously, meaning that the contract has been terminated, the supplier has paid damages, or there has been a settlement agreement; or
  – not performed a contract to the public body’s satisfaction, despite having been warned and given the chance to improve. A poor KPI assessment makes it more likely that a public body will reach that conclusion; or


• the Minister for the Cabinet Office has added a supplier to the debarment list following an investigation.

What this means for suppliers

Suppliers that have more than one contract across the UK public sector will need to manage their performance under those contracts closely. There is a plausible path from poor performance – as judged by the public body concerned – under one contract making it much more difficult to win future contracts and even to the termination of existing ones. Where performance issues are raised, suppliers will need to act swiftly to remedy these and to be able to explain why those issue are unique to that contract and will not occur with other customers.