Thu, 19 Jan 2023
No5’s Jorren Knibbe provides an update on the Procurement Bill and the changes that have been made during its passage through the House of Lords.
The Procurement Bill is designed to reform public procurement law in England, Wales and Northern Ireland, replacing the Public Contracts Regulations 2015 (“PCR15”) and the similar Regulations for concessions, utilities and defence procurement.
A House of Commons Library briefing has been published, providing an explanation of the Bill and amendments made in the House of Lords. The House of Commons Public Bill Committee is now calling for written evidence in relation to the Bill.
The House of Lords process has resulted in numerous changes to the Bill since it was first published in May 2022. Some of the changes can perhaps be described as largely political, but others may be of interest to practitioners involved in day-to-day procurement and procurement litigation. This article provides a brief overview of some of the “nuts and bolts” points which may interest procurement professionals and lawyers.
NHS Procurement
When it was originally introduced, Part 13 of the Bill contained a power for Ministers to exempt NHS purchasing activity (in England) from the procurement regime created by the Bill (cl. 108). Amendments made by the House of Lords (“HL amendments”) have removed that power, so that NHS procurement in England would in principle be fully subject to the new regime (see cl. 116 in the version of the Bill passed to the Commons in December 2022).
The Government opposed this change, so it will be interesting to observe its fate in the House of Commons (see section 4.5 of the Library briefing mentioned above).
Breaches of procedural requirements in a tender process
The Bill as introduced provided that a contracting authority “must disregard any tender which materially breaches a procedural requirement set out in the tender notice or associated tender documents” (cl. 18(3)(c), emphasis added). It also specified that a breach of procedural requirements would be material “if the contracting authority considers that ignoring it would put the tender at an unfair advantage”.
This has now been replaced with a provision to the effect that the contracting authority “may disregard any tender which breaches a procedural requirement set out in the tender notice or associated tender documents” (cl. 19(3)(c), emphasis added). This seems likely to be easier to work with in practice, but might also incentivise contracting authorities to explain in the procurement documents what they will do if procedural requirements are breached.
Mini-competitions under framework agreements
HL amendments have introduced a new clause 46 to the Bill, addressing “competitive selection processes” for the award of contracts under framework agreements. Most importantly, under clause 46(8) a contracting authority carrying out a “mini-competition” of this nature can assess proposals “only by reference to one or more of the award criteria against which tenders were assessed in awarding the framework”.
Under the current law, regulation 33(11) PCR15 permits the contracting authority to apply other award criteria in a mini-competition, so long as the criteria were “referred to” in the procurement documents when the framework was established. In other words, contracting authorities are currently free to make appointments to the framework agreement based on one set of award criteria, then to use other criteria for the award of a contract as between the appointed suppliers. As currently drafted, the new Bill would remove this freedom.
If this provision becomes law, authorities establishing framework agreements may try to circumvent the new restriction by instead putting in place “an objective mechanism for supplier selection” under the framework, in reliance on clause 45(4)(b). This would avoid the need for a “competitive selection process” for the award of contracts under the framework, but may plausibly give rise to litigation as to whether an “objective mechanism” can involve the contracting authority assessing solutions by reference to evaluation criteria.
“Public authorities” and the “in-house” exemption
The definition in clause 2(2) of a “public authority” (which is one kind of “contracting authority” caught by the Bill) has been changed in the House of Lords to add that a body meeting the definition must “not operate on a commercial basis”. This is accompanied by new “examples of factors to be taken into account” when deciding whether a body “operates on a commercial basis”, in clause 2(4).
The effect of these changes is to bring the definition of a “public authority” relatively close to the definition of “bodies governed by public law” in regulation 2(1) of the PCR15 (which replicates Article 2.1(4) of Directive 2014/24/EU).
The Bill would also maintain the current position whereby a contracting authority can award a public contract to an entity which it “controls” (individually or jointly with other contracting authorities) without needing to conduct a regulated procurement process. This “in-house” exemption, which broadly reflects the Teckal jurisprudence of the EU Court of Justice, is captured in paragraph 2 of Schedule 2 to the Bill (see also cll. 3(2) to 3(6), together with the definition of “covered procurement” in cl. 1(1)(b) and the basic rule in cl. 11(2)).
HL amendments have added new requirements for “joint control” situations in paragraph 2(2)(d) to Schedule 2. First, sub-paragraph (i) specifies that each of the controlling authorities must be “represented on the [controlled body’s] board, or equivalent decision-making body”. This is accompanied by a new paragraph 2(7) which clarifies that “one representative may represent more than one contracting authority”. These provisions replicate the existing requirements of regulation 12(5)(a) and 12(6) PCR15 (mirroring Article 12.3(c) of the Directive).
Second, sub-paragraph (ii) of the new paragraph 2(2)(d) imports the requirement (currently contained in regulation 12(5)(c) PCR15 and Article 12.3 of the Directive) that the controlled body must not “carry out any activities that are contrary to the interests of one or more of the [controlling] contracting authorities”. There is ambiguity as to what this requirement means in the existing law, but there are plausible indications that contrary interests will be pursued if the controlled body becomes “market oriented”, in the sense that its provision of services (etc) in the market becomes more than “merely incidental” to activities carried out for the controlling authorities.[1]
However HL amendments have also added clause 2(9) to the Bill, which envisages that a controlled body may “operate on a commercial basis” but still be awarded contracts under the new in-house exemption. This suggests that the Bill will introduce greater leeway for jointly-controlled entities to pursue commercial interests than exists at present. If this is the intention, paragraph 2(2)(d)(ii) of Schedule 2 is perhaps an unfortunate inclusion and might usefully be removed or clarified.
Modifications of public contracts
The House of Lords process has resulted in amendments to clause 73, which governs modifications of existing public contracts. Clause 73(1) allows a modification if it is of a kind listed in Schedule 8, if the modification is not substantial, or if it is a “below threshold” modification. In each of the two latter scenarios, one condition (among others) is that the modification must not “materially change the scope of the contract” (cll. 73(3)(b), 73(4)(c)). This derives from the existing regulation 12(8)(d) PCR15, which states that, in order to be permitted as an insubstantial modification, the modification must not “[extend] the scope of the contract […] considerably”.
HL amendments have also inserted a new clause 73(5) clarifying that a modification will change the scope of a contract if it “[provides] for the supply of goods, services or works of a kind not already provided for in the contract” (emphasis added). This is notably different from the interpretation of regulation 12(8)(d) PCR15 in the existing case law.
In relation to regulation 12(8)(d), Lord Hope in Edenred v HM Treasury said that “the question is whether the [new] services were covered by the [original] contract […], including its provisions for amendment of the contract”; if a modification introduced services that were not covered by the existing contract in this way, it would extend the scope considerably ([2015] UKSC 45 at [36], emphasis added). In contrast, the new clause 73(5) would apparently permit the introduction of new services (etc) which are not covered by the existing contract, so long as they are of a similar kind. On its face, this has the potential to allow much broader modifications of existing contracts under the umbrella of insubstantial (or “below threshold”) changes.
In one important respect clause 73(5) is perhaps unfortunate: it provides a definition of changing the scope of a contract, whereas clauses 73(3) and (4) in fact turn on whether the scope of the contract has been changed materially. This suggests that insubstantial contract modifications can in fact introduce services (etc) of a new kind, so long as their extent is not material – which would potentially introduce significant uncertainty.
Voluntary standstill periods
A new clause 51(5) now provides that, where a contracting authority implements a voluntary standstill period (in situations where a mandatory standstill period is not required), the voluntary standstill must be at least as long as a mandatory standstill – namely 8 working days.
Voluntary standstills (during which a contract is not signed) can be advantageous to contracting authorities in certain limited situations, where they may preclude orders setting aside the contract – see clauses 102(2) and (3).
Conclusions
The above are some of the most noteworthy changes made in the House of Lords to the “nuts and bolts” provisions of the Bill. There are numerous other examples:
- HL amendments have increased the thresholds above which KPIs must (in principle) be adopted for the purposes of a public contract, and the contract must be published (cll. 52(1) and 53(3)). These provisions would now apply where the contract has an estimated value of more than £5 million (increased from £2 million).
- Any tender procedure other than an open procedure is now described as a “competitive flexible procedure” (see cl. 20(2)). This affects the drafting of the Bill in numerous places, but does not on its own seem to bring about any substantive change.
- A series of technical changes have been made to the rules on dynamic markets (clauses 34 to 40).
The House of Commons is not bound to accept any of these amendments, and further changes are likely before the Bill becomes law. As noted previously, the UK Government has also said that it will provide contracting authorities with an adjustment period after the Bill is enacted but before it comes into force.
Jorren Knibbe is a barrister and mediator practising in public contracts and procurement.
[1] See Case C-324/07 Coditel Brabant (EU:C:2008:621) at [36]-[38]; Case C-573/07 Sea SRL (EU:C:2009:532) at [73], [79]-[80]
