Public Procurement & Government Contracts 2022

The UK Government’s Response to the Public Consultation on Public Procurement Reform – a Step Closer to the Transformation of the Public Procurement Regulatory System

In December 2021, the UK government published its response to the public consultation that it had initiated with the publication of a Green Paper in December 2020 (the “Response”), setting out proposals for the reform of domestic procurement legislation in light of the UK’s exit from the European Union.

Whilst the UK was a member of the EU, domestic procurement legislation consisted primarily in the implementation of EU procurement directives, the key aim of which was to ensure that public (and, in some cases, private sector utility) contracts were opened up to competition across the EU single market and awarded on the basis of certain principles, including those of transparency, non-discrimination and equality of treatment.

The post-Brexit procurement legislation is being designed with UK priorities in mind and with a view to simplify, streamline and introduce greater flexibility, where possible. The publication of the Response has provided greater clarity as regards various aspects of the new law – confirming which of the Green Paper’s proposals will be taken forward, revised or abandoned, in response to the feedback that had been received and as a result of further government reflection. At the same time, certain aspects of the revised regulatory framework, such as review procedures and remedies, are still taking shape – a reflection of the complexity of these issues and the difficult choices that need to be made in ensuring that the new regulatory framework is also balanced and, ultimately, effective.

This Introduction provides an overview of key aspects of the Response and comments on issues that require further consideration and that might yet prove challenging, in seeking to transform the UK public procurement regulatory regime.

Overarching Principles and Objectives

The Green Paper had proposed incorporating into the new regulatory framework a set of principles with which contracting authorities would have to comply in carrying out regulated procurements. These included the principles of transparency, non-discrimination and fair treatment of suppliers. In its response, the government confirmed that these specific principles will be incorporated into the new law. At the same time, a number of other concepts that had originally been put forward in the Green Paper as principles will, in fact, be incorporated into the new legislation as “statutory objectives”. The difference between the two appears to be that whilst contracting authorities will be required to comply with the principles in carrying out regulated procurements, they will only need to have regard to the statutory objectives whilst doing so, suggesting a lesser obligation.

Concepts that will be established as statutory objectives include the public good, value for money and integrity, as well as the objective of “promoting the importance of open and fair competition”. Separately, the Response acknowledged that at least some consultation participants expressed concerns as to the likelihood of doing away with the EU law principle of proportionality. The Response confirms that the new law will introduce the concept of proportionality “where it is required”; for example, in relation to setting timescales for the carrying out of a procurement procedure.

The clarifications that the Response provides in this regard are useful. At the same time, this is an area that will benefit greatly from regulatory guidance to ensure that contracting authorities understand how specific regulatory provisions, overarching principles, statutory objectives and the new National Procurement Policy Statement, setting out the government’s strategic priorities for public procurement – to which contracting authorities must also have regard when carrying out public procurements – interact with each other when formulating procurement-related decisions.

Establishment of a Unit to Oversee Public Procurement

The Response confirms that the government intends to establish a “Procurement Review Unit” (PRU) within the Cabinet Office with the primary focus of addressing “systemic or institutional breaches” of procurement legislation; that is, breaches that are common amongst contracting authorities or that a particular contracting authority commits regularly. The unit will be made up of a small team of civil servants and will be advised by a panel of experts. It will have investigative powers as well as the power to make formal recommendations aimed at improving compliance, which contracting authorities under investigation will have a duty to implement.

The Minister for the Cabinet Office will also have powers to act on the results of the unit’s investigations by issuing reports and recommendations, as well as statutory guidance to which contracting authorities will have a duty to have regard when exercising procurement functions.

There is an argument that a procurement regulator, with stronger powers of investigation and the ability to intervene by issuing binding directions with a view to addressing non-compliance or practices that have the effect of restricting competition unnecessarily, would have been preferable. Nonetheless, the decision to establish the PRU should be welcomed. Whilst its functions might be more limited than those of a fully fledged procurement regulator, it should still provide an important new mechanism that should contribute to the improvement of UK-wide procurement law compliance, a goal that at the moment is principally reliant on contracting authorities understanding and applying correctly relevant legislation, and, ultimately, interested parties taking action in the courts.

Regulatory Framework – Keeping It Flexible

The Response confirms the government’s intention to consolidate the various distinct sets of procurement regulations, applying to the public, utility and defence sectors, and concession contracts, respectively, into a single, uniform regulatory framework. At the same time, in response to concerns that this approach would mean doing away with the additional flexibilities or exemptions that are currently available under the utilities and defence sector regimes, the Response clarifies the intention to retain at least some of these.

In addition, the original proposal to do away with the “Light Touch Regime” that currently applies to social, health, education and certain other types of services has been abandoned. Whilst bringing these services contracts within the scope of a uniform regulatory framework, by removing the current special regulatory regime, would have provided for a simpler approach, it was ultimately accepted that many of these services contracts have special features that merit the continuation of a lighter form of regulation.

Procurement Procedures – Fewer and Simpler

Taking full advantage of the flexibilities that the WTO’s plurilateral Agreement on Government Procurement (GPA) provides, procurement procedures will be simplified and their number reduced from the current six to three, namely:

• the open procedure, for simpler “off the shelf” purchases where all interested suppliers can submit a tender;
• the competitive flexible procedure, which, subject to certain conditions, will allow contracting authorities to structure a procurement process in a manner that meets their needs, including by providing for negotiations; and
• the limited tendering procedure, which, much like the current negotiated procedure without prior publication, will permit direct awards in certain circumstances.

In addition to the current set of grounds that permit negotiations and the award of a contract without first advertising the opportunity to the wider market, the new legislation will also introduce an additional ground that will permit limited tendering in the event of a crisis. Although the government is still considering how best to implement this new provision, the Response indicates that this ground is likely to be made available in cases where a Minister declares, by means of a statutory instrument, that (urgent) action is necessary “to protect life”, thereby allowing contracting authorities to procure within specific parameters certain related purchases directly.

It is worth noting that whilst this approach is permissible under the GPA, subject to complying with certain requirements such as proportionality and non-discrimination, it is not available under EU procurement legislation, given the latter’s stricter approach designed to facilitate the opening up of the public procurement markets of member states to competition.

Streamlining Selection and Award Criteria

The Response also confirms that the new law will introduce a number of changes in the way the selection process and tender evaluation are carried out. Amongst other things, it is intended that the selection process will be made easier for suppliers with the introduction of an online registration system. By submitting their credentials for participation in a public procurement process via a centralised online portal, suppliers can then keep and update, where necessary, the information that they have submitted, so that it may also be used in future public procurements.

In line with GPA requirements, selection will continue to be based on the legal and financial standing of suppliers, as well as their commercial and technical abilities. At the same time, the type of information that may be submitted as evidence of a supplier’s credentials will be broadened.

Separately, there will be some changes and additions as regards the grounds that permit or require a contracting authority to exclude a supplier from a public procurement. The period for exclusion on the basis of a discretionary ground will be extended from three to five years, bringing this period into line with the rules that apply to exclusions on compulsory grounds. Also in line with the latter, discretionary grounds for exclusion will be triggered not only as a result of the actions of the bidder but also those of individuals and entities to which the bidder has a close connection.

In addition to the case-by-case assessment of whether the grounds for exclusion apply to a supplier expressing an interest in a particular competition, the new law will provide for the setting up of a centrally managed debarment list on to which the government will have the power to add suppliers that meet a ground for exclusion. Contracting authorities would not need to assess whether the grounds for exclusion are made out in relation to suppliers that are already on the debarment list. Instead, they would be obliged to exclude listed suppliers to which a mandatory ground for exclusion applies and consider the appropriateness of excluding suppliers that are on the debarment list because of the application of a discretionary ground.

As to the evaluation of tenders, in a departure from current rules that require the award of the contract to the bidder that has submitted the “most economically advantageous tender”, under the new legislation, the contract must be awarded to the bidder that has submitted the “most advantageous tender”. The change will bring domestic legislation into line with GPA terminology and is designed to make it clearer that contracting authorities have the right to take into account a broader set of factors, other than price, in their evaluation of tenders.

In another departure from the current rules, the new legislation will provide explicitly for the possibility of a contracting authority carrying out tender evaluation not solely from its own point of view but also a broader perspective. For example, tender evaluation need not be limited to taking into account the costs and benefits of a services contract for the contracting authority alone, but also that contract’s costs and benefits for other likely users.

Separately, although the final scope and shape of this provision is subject to further consideration, the Response confirmed the government’s intention to incorporate a power in the new legislation that will allow the government to issue statutory guidance setting out the circumstances where it would be permissible to disapply the requirement for the award criteria to be linked to the subject matter of the contract.

More Flexible Framework Agreements and a Revamped “Dynamic Market” Tool

Under current rules, public sector framework agreements must normally be limited to a period of four years and competition for individual contract awards under such frameworks must be opened only to suppliers that have been appointed when the framework agreement was initially set up. The new law will provide for greater flexibility in this context with the introduction of the concept of open frameworks, which can last for a period of up to eight years. These must contain at least two suppliers, whilst new suppliers must be given the opportunity to join an open framework that lasts over three years, at least once during its term. In addition, in seeking to ensure that longer frameworks do not lead to the wider market being shut out of these arrangements for a substantially longer period, open frameworks cannot be closed to new entrants for more than five years.

Currently, a dynamic purchasing system, which effectively functions as an online-based open framework agreement that suppliers can join at any point, may only be used for commonly used purchases. The new law will permit the use of this mechanism – renamed “Dynamic Market” – for the purchase of all types of goods, works and services within the scope of the legislation.

A More Effective Review System – the Search Continues

When the Green Paper was originally published, it contained the somewhat controversial proposal that, in most cases, successful damages awards should be limited to legal and 1.5x bid costs, thereby removing the ability of claimants to seek damages for loss of profit. Behind this proposal lay the concern that the potential for large payouts can encourage speculative claims, and the view that damages awards for loss of profit seemed inappropriate where the breach was the result of unintentional errors in the carrying out of a procurement process.

At the same time, a number of legal commentators, including the author, expressed concerns that the substantial curtailing of the right to seek damages for loss of profit risked weakening compliance incentives, rendering the risk of having to pay legal, and a small multiple of bid, costs to a successful claimant merely one of many considerations that a contracting authority took into account when seeking to assess the costs and benefits of public procurement law compliance. This seemed problematic in that it could have led to a regulatory framework that lacked sufficient checks and balances to enable it to operate effectively.

The government has taken these and other similar concerns into account, indicating in its Response that it no longer intends to pursue the original cap on damages proposal. According to the Response, the capping of damages is, in any event, less relevant in the context of a new review system that would be designed to facilitate greater access to pre-contractual remedies.

At the same time, how best to reform the review system so that it provides for better access and shorter timescales in the determination of legal challenges remains an open question. A number of options have been considered but ultimately discounted, not least due to complexities associated with their implementation. For example, the Response indicates that the government will not pursue the idea of using one of the existing tribunals as a means of providing for a quicker and less costly forum for the hearing of low-value claims. Instead, the government is exploring further the possibility of introducing changes to the current court system, so as to allow, for example, faster court procedures that rely on written pleadings alone, early and more extensive disclosure, and the introduction of a dedicated procurement judge.

Such procedural changes are likely to be combined with changes to the legal test that the courts apply when considering the appropriateness of lifting an automatic suspension in an attempt to simplify this, but also address concerns that the current test seems to favour disproportionally defendant contracting authorities, with the clear majority of applications “to lift” granted by the courts. This has the effect of limiting the remedies available to the claimant to that of damages, which has generally been proven a less effective remedy, not least given the difficulties of demonstrating that the breach has actually caused the claimant to suffer loss or damage.

Concluding Remarks

The Response is in many respects encouraging, providing as it does ample evidence that in reaching a view as to the best way forward, the government has carefully reconsidered its initial proposals, taking due consideration of the public consultation feedback. At the same time, certain aspects of the reform agenda, as they have now crystallised in the Response, might yet give rise to unintended consequences that merit further consideration.

For example, whilst various distinct aspects of the new regime, such as the procedures that will be made available for the award of contracts, will be simpler and more flexible, a number of associated and overlapping obligations for which the new law will provide, when taken together, might yet lead to a new regulatory framework that, although different, is no less complex in certain respects.

An obvious example is the introduction of a requirement for contracting authorities, when designing and carrying out a contract award procedure, to comply not only with certain principles but also take into account a number of statutory objectives, the National Procurement Policy Statement and an increasing amount of government guidance as to how to ensure that public procurements help support a number of wider government policy objectives. These aspects of the regulatory framework might yet prove challenging for many contracting authorities to apply correctly. Equally, the greater emphasis on the ability of contracting authorities to take into account social value and local concerns in tender evaluation, laudable as it might be in itself, may, in practice, increase the risk of contracting authorities inadvertently designing procurements that are discriminatory and limit fair access to the award of public contracts.

Similarly, many of the new flexibilities, such as the right for contracting authorities to structure the competitive flexible procedure in a way that meets their specific requirements or to award longer open framework agreements, might yet mean that these flexibilities increase the risk of contracting authorities designing and putting into effect arrangements that are problematic.

None of these observations should be taken as arguments in favour of maintaining unnecessarily an overly regulated public procurement system. Indeed, if anything, they highlight the risk that greater flexibility, as well as the use of public procurement as a means of achieving wider public policy objectives, might yet lead to a regulatory system that, although different from the current framework, is not substantially simpler to navigate. They also provide further support for the view that it remains paramount that the new regulatory regime is underpinned by a robust remedies system that creates incentives for contracting authorities to consider and apply carefully the new regulatory framework each time they award in-scope public contracts.

The government seems well aware of these challenges. For one, the fact that the reform of the public procurement review system remains under consideration is surely not only a reflection of the undoubted complexity of this task, but also evidence of the seriousness with which the government is approaching it.

Separately, the Response indicates the government’s intention to publish detailed and comprehensive guidance to accompany the new legislation. It also makes it clear that the government will provide for a six-month lead-in period before the new law takes effect, so as to give the opportunity to contracting authorities and suppliers alike to familiarise themselves with the new rules, including by participating in a number of government-sponsored learning and development initiatives.

Ultimately, the Response signifies an important step that brings us closer to the realisation of a reformed public procurement regime and as such it should be welcomed. However, as argued in this note, the implementation of a new regulatory system is not without its challenges. In seeking to ensure that the new regime is both flexible and fair, it is important that the potential ramifications of some of the proposed reforms should be considered further, whilst it remains imperative that the reform of the review system should make access to effective remedies easier, thereby providing robust incentives that encourage public procurement law compliance.