Back to Basics: Public procurement law

Since the Procurement Act 2023 received royal assent in October last year, there has been a lot of discussion around what impact it will have on public procurement law. The new Act only comes into force in October 2024 and the current regime will apply to all procurements started before then. So what exactly is public procurement law, who is affected by it and what does it require? What is procurement law? Public procurement law regulates the spending of public money. The current legislation is EU-derived but wholly retained in national law. Outside of defence procurement, there are three sets of regulations governing procurement in England, Wales and Northern Ireland. Each set governs a different area of procurement but reflects the same overarching principles. These are: The Public Contracts Regulations 2015, which apply to procurement of goods, services and works by the public sector. The Utilities Contracts Regulations 2016, which apply to procurements by utilities. The Concession Contracts Regulations 2016, which apply to procurements of concessions for works and services. Concessions involve the transfer of some of the income risk to the supplier providing the service, for instance the outsourcing of leisure centres or projects such as the Mersey Gateway Bridge, where the contractor will recoup the project cost through tolls as well as local authority payments. For the purposes of this article, we largely focus on the 2015 regulations, as they govern most procurements. Why do we have it? The aim of procurement law is to encourage competition in the market and get value for (public) money. When used correctly, procurement law serves as an important way of preventing suppliers from being locked out of markets. Why am I hearing about it? The main reason procurement law is being mentioned currently is that a new Act – the Procurement Act 2023 – will come into force later this year. The Act will be the first fully domestic piece of procurement legislation for decades and is intended to transform public procurement in the UK post-Brexit. Who does it apply to? The 2015 regulations apply to public sector entities, known as “contracting authorities”. These include central government, non-departmental public bodies (such as Homes England), local authorities and various other bodies including “bodies governed by public law”, such as registered providers of social housing. The Utilities Contracts Regulations 2016 apply to utilities. These are entities which have been granted special or exclusive rights for certain activities such as running a port or providing electricity. The Concessions Contracts Regulations 2016 apply to both contracting authorities and utilities. These are the lightest touch of the three sets of regulations. Financial thresholds applicable from 1 January Public Contracts Regulations 2015 Services/supplies: £139,688 (central government bodies) Services/supplies: £214,904 (other contracting authorities) Works: £5,372,609 Utilities Contracts Regulations 2016 Services/supplies: £429,809 Works: £5,372,609 Concession Contracts Regulations 2016 All sectors: £5,372,609 The thresholds are inclusive of applicable VAT Each set of regulations applies only to those contracts where the estimated value of the contract exceeds certain financial thresholds. Such thresholds are reviewed every two years by the Cabinet Office. The thresholds under the current regime, as applicable from 1 January 2024, are set out in the box above. The regulations will apply to the award of contracts that meet or exceed these thresholds. There are several limited exemptions to the application of the regulations, including genuine purchase/rental of land and certain financial and legal services. Given the importance of complying with the regulations, it is often advisable to seek advice on whether a contract falls within an exemption or not. One of the more famous procurement cases (R (on the application of Faraday Development Ltd) v West Berkshire Council [2018] EWCA Civ 2532; [2019] EGLR 3) dealt with a council that genuinely thought it was using an exemption but the structure of the development agreement meant it was, in fact, caught by the 2015 regulations. What must contracting authorities and utilities do to comply? Procurement law governs the relevant contracts before procurement, during the tender stage and throughout the life of the resulting contract. Key to compliance with the law is observing the four overarching principles in the legislation. These are: Equal treatment of bidders. Non-discrimination. To act in a transparent manner. To act in a proportionate manner. To this end, the legislation contains a number of mandatory requirements and steps to be complied with. Using the 2015 regulations (which have the least flexibility) some key requirements are as follows. Measures must be taken to avoid conflicts of interest (real or perceived) and to ensure any market testing does not later prejudice the tender competition by giving anyone an advantage. The shape of the procurement must be decided. This includes what process is being followed. The regulations set out certain mandated procurement procedures. A direct award is only allowed in the most limited of circumstances. Most procurements are relatively simple and either follow the open (one-stage) procedure or the restricted (two-stage) procedure. More complex procurements – including many developments and town centre regenerations – meet the necessary criteria for one of the more complex multi-stage procedures such as the competitive dialogue process. These can be time-intensive and costly to all parties. Each process has certain minimum requirements and timescales to be adhered to. The complexity and time required means that many contracting authorities and utilities will seek to make use of frameworks. Frameworks allow for the call-off of services and goods contracts from a pre-approved list that has been procured in a compliant manner. This reduces time and cost and should address compliance with the law. If one of the procedures is chosen over a framework, tender specifications, proposed contracts and award criteria must be prepared and set out in advance of the procurement. Procurement law only allows for the award of tenders on the basis of “most economic advantageous tender”. This can be split by price and quality sub-criteria. Award must be on an objective basis and a short debrief letter issued to unsuccessful bidders. This letter has certain mandatory requirements, including setting out the score of the recipient, the score and name of the winning bidder and why that bid was better than that of the recipient’s. A compliant letter is needed for the mandatory 10-day standstill period to commence before entering the resulting contract. Procurement law does not stop there. There are rules encouraging prompt payment down the supply chain and limiting the extent to which the parties can modify the resultant contract. What happens if there is a breach of the law? If a contracting authority or utility fails to comply with the regulations, there are a number of remedies available to a party seeking to challenge the alleged breach. Any such “challenger” must have the necessary standing to do so. They must be an economic operator (ie a company) and generally must be either a bidder or a party that would have bid but for the breach of procurement law. The time to challenge is very short — 30 days (generally) from the date of knowledge of the breach or the date when they should have known about the breach. The courts are very unlikely to extend this. The point at which the bidder seeks to challenge the procurement will influence the remedies available. Challenges before a contract is entered into can involve: Automatic suspension — this prevents the conclusion of the contract (the courts may lift the suspension but this comes with additional cost and delay). Damages — if the breach is deemed to be “sufficiently serious”. Setting aside of the procurement decision. Challenges after a contract is entered into can involve: Damages – if the breach is deemed to be “sufficiently serious”. A declaration of ineffectiveness – in limited circumstances. The declaration of ineffectiveness is quite unusual and draconian for English law. If a contract has been entered with the successful bidder, this remedy unravels the contract at such date the court decides. The contracting authority is left with no contract (and probably the winning bidder suing for breach of contract), a need to reprocure, a mandatory fine and most likely damages payable to the challenger. Given that such declarations can be made up to six months into the contract term, the contracting authority could have a building come out the ground before the contract is ended, causing more headaches. Thankfully, this remedy is rarely used in the UK. Why is it relevant? Public procurement law governs public sector and quasi-public sector spending above a certain level. It is, however, designed to ensure fair competition for suppliers. Private sector developers and service providers wishing to enjoy some of the £300bn annual public spend will need to engage with these rules and understand how they should be applied in order to tender for contracts, spot potential issues and ultimately protect themselves and/or raise a challenge. Michael Winder is a partner and Samantha Thompson is a graduate solicitor apprentice at Brabners Image © Priscilla Du Preez/Unsplash