For nearly a year, those involved in public procurement have been awaiting confirmation as to how public procurement legislation may change now that the UK has left the EU. On 6 December, the Government published its long awaited response to its consultation on the Green Paper on Transforming Public Procurement (the “Green Paper”), summarising the Government’s position on the significant issues set out in the Green Paper and how it intends to deal with them in the legislation that will change public procurement. It is fair to say that the Government has shown that it has reflected on concerns expressed by those responding to the consultation and that there are certain areas (around challenges for example) where the Government needs more time to work out an appropriate way forward. 

The Government has confirmed that at least six months’ notice will be provided before the new legislation comes into force so that procurement professionals, contracting authorities and bidders will have time to prepare. We now know that the legislation will not be changing until 2023 at the earliest.

Procurement teams should expect more transparency obligations in the form of publishing procurement pipelines, information to be provided to bidders prior to award, notices to publish and sharing data for various central databases. Bidders and suppliers should expect new grounds for exclusion (for example it may be easier under the new legislation to exclude a bidder for poor performance under a previous contract) and that their performance against key performance indicators (“KPIs”) will be published. Read on for a summary of the most notable changes that we can expect.

A single set of legislation

As set out in the Green Paper, the Government intends to combine the current four sets of regulations dealing with public procurement into one simpler legislative framework, using clear language. Specific points made by the Government in relation to certain types of contracts were:

• Flexibility within the current Utilities Contracts Regulations 2016 and Defence and Security Public Contracts Regulations 2011 may need to remain;
• Concessions will be subject to the new regime but with provisions defining a concession, how a concession contract can be valued and the duration of concession contracts to address some concerns raised by stakeholders responding to the Green Paper;
• Cabinet Office and the Department for Health and Social Care are working together to ensure a coherent procurement regime for health care services and other types of user focussed services;
• A full suite of national security exemptions for sensitive defence, security, and civil procurement will be maintained ensuring that the general provisions on procurement procedures together with defence and security specific parts are flexible enough to meet the needs of urgent operational requirements.

Procurement procedures

The Government will move forward with its proposals for 3 procurement procedures:

1. a new ‘flexible competitive procedure’ that gives buyers freedom to negotiate and innovate;
2. an ‘open procedure’ for simpler, ‘off the shelf’ competitions;
3. a ‘limited tendering procedure’ that buyers can use in certain circumstances, such extreme urgency. 

The Government recognises that the flexible competitive procedure may result in more work upfront for procurement teams to decide on how to run their process but that that time should be well spent. The Government plans to provide guidance on this procedure with case study examples but without being too prescriptive. Contracting Authorities will be required to set out the following in the tender notice in Find a Tender:

• How the procurement process will function;
• The conditions for participation;
• Time limits for responding;
• The evaluation criteria;
• The phases involved where the process is to have multiple stages.

The Government wants public procurement to facilitate innovation. Sufficient time should be given for innovative bids, contracting authorities should adopt a realistic position on intellectual property, contract terms and conditions and there should be a focus on outcomes and broader value considerations. 

The third procedure will be similar to the negotiated procedure without advert under regulation 32(2)(c) of the Public Contracts Regulations 2015 (“PCR”) as well as a limited tendering ground, in the form of a new power for a Minister of the Crown (via statutory instrument) to “declare when action is necessary to protect life” and allow contracting authorities to procure within specific parameters without having to meet all the tests of the current extreme urgency ground. This would be subject to other GPA requirements such as those steps being proportionate and non-discriminatory, and any legislative mechanism such as a power for a Minister of the Crown to be able to declare this ground would only be used extremely rarely and would be subject to parliamentary scrutiny. Contracts awarded under extreme urgency and/or this ground would be notified via a new mandatory transparency notice requirement and therefore may be challenged if the reliance on these grounds is inappropriate.

The Light Touch Regime is here to stay (in a form)

Originally, the Government planned to get rid of the Light Touch Regime (“LTR”) that is available for certain types of services such as health, social care and education.  There was clearly a lot of pushback to this proposal in consultation responses and so the Government has confirmed that the new procurement legislation will allow for certain services to be treated differently similar to the existing LTR but there will be changes allowing for more transparency. The Government will also consider making services where user choice is important, exempt from the requirement to competitively tender.

We expect that health care services for the NHS should be subject to a separate regime – the NHS Provider Selection Regime.  In its response to the Green Paper consultation, the Government confirmed that it is also taking forward reforms through the Health and Social Care Bill, recognising the need for integration between local authorities and the NHS and a coherent procurement regime for these and other types of user focussed services.

Meet MAT and say goodbye to MEAT

To promote innovation, the Government  will change the award criteria terminology from the use of the term “Most Economically Advantageous Tender” (“MEAT”) to “Most Advantageous Tender” (“MAT”), to reinforce the message to contracting authorities that they can take a broader view of what can be included in the evaluation of tenders when assessing MAT, such as social value.

In the new legislation, the Government also aims to include a power for a Minister of the Crown to make secondary legislation to reflect policy priorities that may have the effect of award criteria not being related to the subject matter of the contract.  All award criteria will still need to be proportionate and comply with the principles of transparency, non-discrimination and fair treatment and contracting authorities will not be able to apply award criteria that is not related to the subject matter of the contract without secondary legislation permitting them to do so.

Procurement Review Unit (PRU)

The Government intends to set up the PRU to sit within Cabinet Office, made up of a team of civil servants with a main focus of addressing systemic or institutional breaches of the procurement regulations (i.e. breaches common across contracting authorities or regularly being made by a particular contracting authority). The PRU will:

• primarily act on the basis of referrals from other government departments or data available from a new central digital platform;
• have the power to make formal recommendations aimed at addressing these unlawful breaches which contracting authorities would be under a duty to comply with and to provide progress reports on the implementation of those recommendations;
• provide statutory guidance where common patterns of non-compliance across a number of contracting authorities are identified.

New grounds for exclusion, including making it (potentially) easier to exclude a bidder for previous poor performance

The Government recognises the current grounds for exclusion under the PCR need a refresh to make them clear and consistent including the relevant time periods from which they should apply. The Government has confirmed that the concepts of mandatory and discretionary grounds for exclusion will remain and that the new grounds will be simpler, clearer and better suited to the UK’s commercial and legal landscape.

Focus: suppliers that pose an unacceptable risk to public confidence in procurement, effective competition for contracts or reliable delivery and on protection of the public, the environment, national security interests, public funds or the rights of employees.

Timeframe: there will be a 5 year time limit for both mandatory and discretionary exclusion grounds.  The trigger point for the 5 year period for mandatory grounds is the date of conviction or regulatory decision, and for discretionary grounds is the point at which the authority knew or ought to have known about the relevant event or misconduct or, if later, the date of a subsequent conviction or ruling.

Cross-border: the exclusions framework will be blind as to whether the misconduct happened in the UK or overseas meaning the exclusion grounds will apply where there has been a conviction or regulatory decision for a similar offence or conduct overseas or where the relevant conduct occurred overseas.

Coverage: the exclusion grounds will cover the actions of the bidder and those of individuals and entities to which the bidder has a close connection. These will include beneficial owners of the supplier (to be defined as “Persons of Significant Control” within the meaning of the Companies Act 2006); directors of the supplier, including shadow directors; parent and subsidiary companies of the supplier; insolvent companies where the company’s business has been transferred to the supplier and where one or more of the supplier’s directors was a director of the predecessor company when it ceased to trade.

Subcontractors: there will be separate provisions for how the exclusions will apply to subcontractors and to other entities on which the supplier is reliant to meet the selection criteria. These will largely maintain the current approach, under which contracting authorities may decide at their discretion to apply the exclusions to subcontractors, but must apply the exclusion grounds with regard to entities on which the supplier is reliant to meet the selection criteria.

Overruling the grounds: there may be specified exceptional circumstances in which there is an overriding public interest which means the contracting authority may allow a supplier to participate in a procurement even if it has met a mandatory ground.

Amendments: the Government will provide for a power to amend the exclusion grounds, if and when deemed necessary, by secondary legislation.

Statutory guidance: will be published to assist contracting authorities in applying the exclusion grounds.

Transitional regime to introduce new grounds: to mitigate the impact of retrospective effect of the new exclusions regime, there will be a transitional regime for the introduction of the new exclusion grounds. This will mean that only grounds which are the same as, or substantially similar to, exclusion grounds under the current regime will have retrospective effect i.e. suppliers may be excluded on the basis of events which occurred prior to these new grounds coming into force;

Central debarment list: the draft legislation will provide a power for a Minister of the Crown to add suppliers to a public debarment list if they are assessed as meeting a mandatory and/or discretionary ground for exclusion and there is insufficient evidence of self-cleaning.  Both UK and overseas suppliers will be eligible for addition to the list. It is proposed that contracting authorities must exclude suppliers on the list to which a mandatory exclusion ground applies, but will retain their discretion in respect of suppliers to which a discretionary ground applies. Contracting authorities will continue to be able to exclude suppliers not on the list on a case by case basis.

Exclusion due to poor performance

One proposal that we see as quite significant for both contracting authorities and bidders/suppliers relates to prior performance and the Government’s aim to simplify and broaden the discretionary ground for exclusion relating to performance under previous public contracts. Currently, a contracting authority may only exclude a bidder (subject to an assessment of any self-cleaning) where they have had a previous public contract terminated or damages or comparable sanctions have been imposed. This has proved difficult to apply in reality and some contracting authorities have found it frustrating that they were unable to exclude a bidder who was consistently performing a contract poorly but the contract had not been terminated. The Government has set out that this ground could now be applied in either of the following circumstances: 

1. where a previous public contract has been terminated due to breach of contract, where damages were paid for breach or where a settlement agreement has been entered into in relation to poor performance or breach; or
2. where the supplier has failed to remedy poor performance or a breach in accordance with contractual measures invoked under a previous public contract (such as rectification or improvement plans, breach notices or other mechanisms).

The new mandatory and discretionary grounds for exclusion

Below is a list of the mandatory and discretionary grounds for exclusion that the Government intend to specify in the new legislation. The Government will further define these grounds in the draft legislation by reference to specific criminal offences or specific circumstances or behaviours, as appropriate. The exclusion grounds will also cover inchoate offences relating to the offences listed, such as convictions for conspiracy to commit the offence, for assisting or encouraging the offence or for attempting to commit the offence.

Mandatory grounds for exclusion 

• Conviction of offences relating to participation in an organised crime group or involvement in serious organised crime 
• Conviction of offences of bribery and blackmail 
• Conviction of offences related to fraud and fraudulent trading 
• Conviction of offences related to theft, robbery, burglary and stolen goods 
• Conviction of offences related to terrorism 
• Conviction of offences related to money laundering 
• Conviction of modern slavery offences and labour market offences (including offences relating to carrying out of an employment agency or employment business, offence of refusing or wilfully neglecting to pay the national minimum wage, offences relating to gangmasters and failure to comply with a labour market enforcement order) 
• Conviction of the offence of corporate manslaughter/corporate homicide 
• Conviction of offences related to tax evasion, civil penalties or HMRC decisions relating to tax evasion, fraud or avoidance 
• Decision by the Competition and Markets Authority or another regulator relating to the most serious breaches of competition law 
• Failure to provide a complete and accurate list of individuals and entities in respect of which the exclusion grounds are to be considered (where requested by an authority on a particular procurement)

Discretionary grounds for exclusion

• Regulatory enforcement for serious labour misconduct by way of a labour market enforcement order, a slavery and trafficking prevention order or slavery and trafficking risk order or evidence of modern slavery in the absence of a conviction 
• Conviction of offences relating to incidents causing potential or actual environmental impact which is major or significant 
• Bankruptcy, insolvency or equivalent situations 
• Professional misconduct which brings into question the supplier’s professional integrity, such as dishonesty, impropriety, or serious violation of ethical standards applicable to the supplier’s profession 
• Poor performance, comprising either:
  • where a previous public contract has been terminated due to breach of contract, where damages were paid for breach or where a settlement agreement has been entered into in relation to poor performance or breach; or
  • where the supplier has failed to remedy poor performance or breach in accordance with contractual measures invoked under a previous public contract (such as rectification or improvement plans, breach notices or other mechanisms) 
• Conflict of interest which cannot be appropriately mitigated by other means, which does or could cause unfair advantage 
• Conduct which constitutes a breach of competition law, including in the absence of a regulatory decision 
• Where the supplier may be at an unfair advantage due to prior involvement in preparing or planning the procurement which cannot be effectively remedied without exclusion 
• Where the supplier has made a serious misrepresentation in supplying the information required for the assessment of the exclusion grounds or the conditions for participation or has provided incomplete, inaccurate or misleading information that may have a material influence on decisions concerning the procurement 
• Unduly influencing a contracting authority or obtaining confidential information that may affect the fairness of the procurement 
• Where the supplier poses a risk to national security

DPS+ will become “Dynamic Market”

In the Green Paper, the Government proposed changes to the Dynamic Purchasing System, proposing the “DPS+”. Instead, the new tool will be called the “Dynamic Market”. The aim is that managing a Dynamic Market should not result in unnecessary burdens for the contracting authority or suppliers and the Government intend to provide guidance on Dynamic Markets to ensure contracting authorities understand the type of requirement that is best met via a Dynamic Market, and the mechanisms that could be used to categorise suppliers. This new tool will:

• be fully electronic;
• be available for use with all types of works, services and goods procurements within the scope of the legislation - it will not be limited to commonly used purchases;
• be capable of being established and operated by bodies within the scope of the new regime for the benefit of themselves and others;
• only be set up using the competitive flexible procedure;
• have a first stage where suppliers who meet the qualification requirements are admitted – this will be continuous throughout the lifetime of the agreement so that new suppliers can be admitted at any time (this is different to the proposed changes to framework agreements where in an open framework agreement, new suppliers can be added but at specific times – see below);
• have a second stage where a competition is undertaken and a specific contract is placed via the Dynamic Market. There can be multiple second stages as contracting authorities award contracts under the Dynamic Market;
• require the publication of contract award notices for over threshold awards under a Dynamic Market;
• permit the charging of suppliers when they are awarded a call-off as long as the charges reflect a percentage of the maximum estimated value of the call-off and are set out in the Dynamic Market. Any charges recovered by the contracting authority must be proportionate and used solely in the public interest.

Open and closed framework agreements

Under the current regime, framework agreements are limited to a maximum of four years (unless there are exceptional reasons for them to be longer) and they are closed – suppliers cannot usually be added to the framework agreement during their term.

The new regime will provide for two types of framework agreements – open and closed:

• Under closed framework agreements (as the name suggests), suppliers not appointed at the start of the framework agreement cannot join during its term;
• Open framework agreements will be opened at certain points to new suppliers.  Specifically:
  • open framework agreements must not be closed to the market for longer than 5 years;
  • for open frameworks lasting over 3 years, new suppliers should be given the opportunity to join the framework agreement at least once during its term;
  • the maximum duration of an open framework agreement is to be 8 years, and it must contain at least two suppliers.
• For all types of framework agreements:
  • a longer term than the relevant maximum term can be set provided the justification is published in the tender notice and is related to the framework agreement itself;
  • where there is more than one supplier, contracting authorities are to be allowed to award call-off contracts either directly to a supplier or following a mini-competition. Where mini-competitions are used the contracting authorities will need to evaluate the mini-competition on the same basis as was applied for the award of the framework agreement, including the evaluation criteria, but they can set out more detailed terms such as detailed sub-criteria within an existing criterion, if they wish;
  • contracting authorities will be able to impose their own maximum limit on the number of suppliers on the framework agreement provided this is made clear in the tender notice;
  • Charging suppliers when they are awarded a call-off will be permitted provided the charges reflect a percentage of the maximum estimated value of the call-off and are set out in the framework agreement. Any charges recovered by the contracting authority must be proportionate and used solely in the public interest;
  • it will be a requirement to identify in the tender notice or in the procurement documents the nature, scope and overall maximum estimated value of the contracts that may be awarded under the framework agreement (to discourage broad framework agreements);
  • the Government plans to issue guidance that will provide suggestions on selecting the best tool for different requirements. The guidance will also provide advice on designing framework agreements so that they contain all of the relevant terms and, where appropriate, mechanisms for direct award.
    

Transparency obligations – a few game changers including the sharing of evaluation records upfront

The Government will require more transparency at each stage of the procurement process.  The new proposals around transparency include a few “game changers” in our view. Firstly, the Government has confirmed that it will not be requiring the publication of tenders (as was suggested in the Green Paper). The Government received feedback that publishing tenders could prejudice future competitions that may run if the initial one is aborted and re-run for any reason, as bids will have been disclosed to the competition.  In our experience, this is a completely valid argument and we are pleased the Government has responded to the feedback in this way.

So what will contracting authorities be required to publish under the new regime?  Below is the key list as we see it:

• Instead of standstill letters as we know them at the moment, contracting authorities will be required to disclose:
  • the (redacted) evaluation records concerning the winning bid with all bidders; and
  • each unsuccessful bidder will also be provided with a copy of the evaluation record concerning their bid – this will be sent to them privately. The purpose of this is to strike a balance between preserving commercial confidentiality and competition for the market and providing transparency as to why the winner was selected. It will allow losing bidders to compare the relative advantages of the winning bid against their own, providing sufficient information to permit challenges to the decision. To us, this is the main game changer in the proposals. A number of procurement challenges centre around the scores awarded and request the early disclosure of the evaluation records. Contracting authorities will need to be absolutely certain that their evaluation records demonstrate that the evaluation has been done in accordance with the disclosed evaluation methodology and award criteria otherwise bidders will be provided with the opportunity to challenge.
• How suppliers are performing against KPIs will be published in a contract implementation notice and central register of contract performance;
• All above threshold contracts valued at £2 million and above (with appropriate redactions – the Government will provide guidance on this in accordance with the FOI Act);
• All contract amendments will have to be published so that amendments are transparent and to give commercial teams greater certainty over the risk of legal challenge. Contracting authorities will have to have a standstill period prior to entering into the contract variation – this will be quite significant to contracting authorities in terms of risk decisions on extensions/variations and the market will get more clarity.
  

Changes to challenge routes

As a result of some of the detailed feedback provided through the consultation responses, the Government is continuing to explore feasible options for faster and more accessible routes for valid challenge of procurement decisions. Interestingly, the Government has decided not to pursue a number of its proposals in relation to challenges/available remedies to bidders as set out in the Green Paper.

The Government has confirmed that:

• There are no plans to implement an independent contracting authority review as the cost and resource implications would be too great. The Government will expect and encourage contracting authorities to review the merit of challenges and respond appropriately – how this could look as an obligation in the legislation is not clear at this stage.
• There is no intention to bring in a tribunal for low value claims. Instead, the objectives of a faster and simpler Court process are targeted through the planned introduction of intended reforms to processes such as decisions on written pleadings, early and enhanced disclosure and a dedicated procurement judge. The Government will continue to keep this proposal under review once the impact of the new regulations and Court processes can be assessed.
• The Government will not be introducing the proposal that pre-contractual remedies should have stated primacy over post-contractual damages.
• The Government will not be capping the amount of damages a challenging bidder can claim/be awarded.
• The Government intends to introduce a new test that is procurement specific for applying to Court to lift the automatic stay once a contract is challenged pre award.  The Government is working through the potential options here but are aiming for it to be a simple, single limb test providing for suspensions to be lifted where there are overriding consequences for the various interests concerned. This will include the impact on public service delivery.
• The Government intends to remove the automatic suspension for urgent contracting.  There will be a requirement for a notice prior to (or concurrent with) contract award which will ensure greater transparency and scrutiny of contracts relying on measures for extreme urgency. This will be followed up by the publication of a notice containing details of the contract. Due to the absence of a standstill requirement with these contracts, the remedy of ineffectiveness will remain available where suppliers can show that the grounds have been relied upon inappropriately.

How can Capsticks help?

We appreciate that contracting authorities and suppliers have some breathing space for the time being given that the new legislation is not expected until 2023 at the earliest.  Our procurement team will continue to provide updates so that you’ll have the most up to date guidance at every step of the way. Once the six months’ notice period kicks in for the changes, we will provide regular, bitesize briefings and podcasts setting out what the key changes mean for both contracting authorities and bidders.

Our experts can:

• provide tailored training sessions on the impact of the reforms and what they mean practically on a day to day level for both procurement teams and bidders;
• update templates and policies;
• provide guidance on evaluation and moderation records;
• advise on resource implications for procurement teams.

For more information on the reforms, please contact Mary Mundy, Katrina Day, Dylan Young or Jane Barker.