‘Plenty to cheer about’ for contractors in UK Procurement Act

The Procurement Act 2023, which will come into force on 24 February 2025, introduces a number of innovations, including greater flexibility in the conduct of procurements, “open” framework agreements and additional transparency obligations on contracting authorities, which are likely to be welcomed by the construction industry.

At the same time, certain aspects of the Act, including the revamped grounds for exclusion, the process for assessing supplier poor performance, the introduction of key performance indicator (KPI) assessments and the debarment list, are likely to give rise to concerns.

Contractors will already be familiar with the need to demonstrate that none of the grounds for mandatory or discretionary exclusion apply to them when expressing an interest in the award of a public contract. Under current rules, once the contract is signed, these grounds largely cease to be of any consequence from a regulatory perspective. This is all changing under the Act which provides for an implied right for contracting authorities to terminate public contracts where, following their award, the supplier becomes an “excluded or excludable” supplier, in that it meets the grounds for mandatory or discretionary exclusion respectively.

The general expectation is that contracting authorities will use this right in a proportionate manner, not least in light of the likely disruption that may ensue in contract delivery if the termination rights were to be exercised.

The Act also introduces additional grounds on the basis of which suppliers may or will be disqualified, including in relation to the cartel offence, an abuse of dominance, aiding and abetting the commission of certain offences, and where a supplier is deemed to constitute a threat to national security. Under the new law, the grounds for exclusion, both mandatory and discretionary, will also be triggered where the offence has been committed by a “connected person”, that is a person that controls or is controlled by the supplier.

Another important change relates to the provisions that allow a contracting authority to disqualify a supplier as a result of poor performance. Current rules permit the disqualification of a supplier for poor performance only in very limited circumstances: namely, where the supplier has shown “significant or persistent deficiencies” in the performance of a “substantive requirement” under a contract, which led to that contract’s early termination, damages or similar. In practice, this power was rarely exercised. However, this might change with the Act, which lowers the threshold that triggers this discretionary disqualification ground in two ways.

First, the poor performance ground will be triggered where, amongst other things, there was a breach of contract which led to the contract’s termination (or partial termination), the award of damages or a settlement agreement. In such circumstances, the contracting authority must publish a so-called “Contract Performance Notice” providing relevant details. Like all other notices under the Act, this will be publicly available. 

Second, “poor performance” may now also be established where the contracting authority considers that the supplier has not performed the contract to its satisfaction, it has given the supplier a “proper” opportunity to improve performance, and the supplier has failed to do so. A key criticism of this new test is that it is both subjective and ambiguous. Where poor performance has been established, a contracting authority must again publish a Contract Performance Notice.

Poor performance will constitute a ground for discretionary disqualification in public procurements for the next three or five-years (depending on the type of poor performance).  This can then lead to the termination of the contractor’s other public contracts, in addition to the obvious reputational concerns.

Contractors should seek to identify risks that relate to the performance of existing public contracts as early as possible and seek to address any issues before they escalate. Where appropriate, they should also seek to agree with the relevant contracting authority a reasonable period within which appropriate remedial steps may be taken.

Related to the question of poor performance are also the Act’s provisions which generally require contracting authorities to set at least three KPIs in respect of contracts with an estimated value of more than £5m. Contracting authorities will have an obligation to publish the three KPIs that are most material to the contract’s performance at the time when the notice is published and, if different, the three KPIs that are most material to performance throughout the term of the contract. Contracting authorities must then assess and publish the contractor’s performance against the KPIs at least once a year and on the termination of the contract.

The Procurement Regulations 2024, which supplement the Act, provide a mandatory model for contracting authorities to use for KPI assessment. This model sets out four substantive rating levels, namely “good”, “approaching target”, “requires improvement” and “inadequate”. Crucially, only the top rating level is defined as meeting the KPI.  Accordingly, it would be important to seek to negotiate KPIs that are realistic, proportionate and ultimately, deliverable.

The introduction of a debarment list has also caused concern amongst government suppliers, but it is important to recognise that debarment will be expected to be a last resort. The list will provide details of suppliers who are barred, or may be barred, from participating in a public procurement over a certain period as a result of having been found to meet a mandatory or discretionary exclusion ground, respectively.

Given the serious repercussions of this new provision, government suppliers should identify early on any risks of being found to meet a ground for mandatory or discretionary exclusion and take effective remedial steps that should render disqualification disproportionate and unnecessary. Legal advice should also be sought as soon as possible.

Ultimately, whilst there is a lot for government suppliers to cheer in terms of the greater flexibilities which the Procurement Act will introduce, there is no doubt that certain of its aspects also require careful consideration and could create new risks that would require careful and effective handling.