Direct awards get post-pandemic overhaul under the new UK Procurement Act

The new UK Procurement Act 2023 gives government greater flexibility to make direct awards to "protect life". However, this is balanced with greater transparency and disclosure burdens in respect of direct awards in other circumstances. 

The new legislation maintains the ability of public authorities under the previous rules to award public contracts without competition in certain narrow circumstances (urgency, exclusive rights, technical reasons), with some significant changes.

New 'safety valve' powers

The Procurement Act 2023 makes a range of changes to the rules for awarding contracts without following a full procurement process. One of the most significant changes is a new "safety valve" for government to specify contracts that may be awarded by direct award, in the aftermath of the raft of PPE procurement litigation against the government in 2021 following the Covid-19 pandemic.

The new regulation-making powers are set out in section 42, and can be used where a minister considers it "necessary" to protect human, animal or plant life or health, or to protect public order or safety. These regulations are subject to very minimal parliamentary oversight (section 121(5) – they simply have to be laid before Parliament after being made). 

A transparency notice and contract award notice must be published prior to award and a contract details notice post-award; however, no mandatory standstill period will apply for section 42 awards.

Awards without procurement process

The full range of circumstances in which a supplier can be awarded a public contract without a procurement process are listed in schedule 5. For example, these include the following:

• where necessary to protect life, and subject to further regulations (exceptional category provided in section 42 – see below);
• prototypes or novel goods or services (as defined) to a limited scale of production;
• single suppliers (unique work of art, exclusive rights in place ( for example, intellectual property) or technical reasons and no reasonable alternative);
• further goods, services or works (in addition to as replacement) where there are interoperability issues;
• extreme and unavoidable urgency;
• defence and security contracts, where:
  • the contract relates to the supply of air or maritime transport services to the armed forced or other security services while they are deployed outside of the UK or in order for them to be deployed; and
  • no reasonable supplier would be able to guarantee that all of the terms in a tender submitted for the supply of those services would remain in effect for the period of 10 days from the day of submission.

Information disclosure requirements

In most circumstances, both a transparency notice and a contract award notice (triggering a standstill period) must be published before an authority makes any direct award, and a contract details notice must be published after the contract has been entered into. Contract award and contract details notices have similar content requirements.

As with all other public contracts, directly awarded public contracts will be subject to additional disclosure requirements. These obligations include requirements to publish:

• information regarding any payment over £30,000 (subject to some limited exceptions) within the period of 30 days after the end of the quarter in which the payment was made;
• a notice within 30 days of termination of any public contract (with limited exceptions); and
• a notice where a contracting authority considers that a supplier is not performing a public contract to the authority's satisfaction and has failed to improve performance.

Decisions to make direct awards will therefore be subject to far greater market scrutiny than under the previous regulations.  

Transparency notices: what to include

A transparency notice must be published prior to any direct award (apart from "user choice contracts", where an individual requires a specific provider; for example, in a medical context). 

The draft Procurement (Transparency) Regulations 2024 set out the full content requirements for a transparency notice, which include:

• the direct award justification being relied on and "an explanation of why the contracting authority considers that it applies";
• a description identifying any risk that the contracting authority considers could jeopardise the satisfactory performance of the public contract, but because of its nature, may not be addressed in the public contract as awarded, and may require a subsequent modification to the public contract;
• confirmation that a conflicts assessment has been prepared and revised as necessary (a new requirement under the Procurement Act);
• the date on which the contract will be entered into.

There is no minimum period of time between publishing a transparency notice and making a direct award; however, it is expected that guidance will encourage these to be published as early as possible.

Contract award notices: what to include

Most direct awards will also be subject to a standstill period prior to the contract being entered into.  The only exceptions are: extreme and unavoidable urgency, awards under section 42 powers (to "protect life"), private utilities switching to direct award, framework call-offs, dynamic market awards, and "light touch" contracts.

These are still required to publish a transparency notice, and a contract award notice (save minor exceptions).  In such cases, the authority can also voluntarily submit to an eight working-day standstill period to flush out any challenges.

This means that direct awards for further goods or services, or where there are technical reasons, will be subject to the eight working-day standstill period following publication of the contract award notice. 

Equality, transparency and non-discrimination

The principles of equality, transparency and non-discrimination will need to be applied to direct award processes. A direct award is a "covered procurement" (defined as including a reference to any step taken for the purpose of entering into or managing a public contract).

Therefore, if an authority chooses to seek short-form submissions from suppliers, or conducted any type of quasi-procurement process (like the "call to arms" to PPE suppliers in March 2021), the process conducted by the government could be challenged for falling foul of those principles, even when a direct-award justification arose.

Osborne Clarke comment

Despite criticism from the Labour government of the direct award processes available in the new legislation, Labour MPs were generally very supportive of the broadening of the transparency obligations, meaning that even if there is a change of government, the increased disclosure burden is here to stay.

The dramatic expansion of transparency obligations, coupled with the retention of all the existing rights to challenge public authorities in the case of breach, may result in an increase in litigation in respect of direct contract awards in the longer term. 

The risks may, however, be factored into public authorities' risk assessments – and may change their approach and behaviour as regards direct awards. We may see an increase in caution, given the extent of market notification that will be required.

Any resulting litigation may raise difficult questions around the persuasiveness of pre-Brexit case law, and whether there should be any change to the interpretation of the direct award provisions on the basis that they are no longer treaty derogations but rather free-standing domestic law rights granted to public authorities.

In the shorter term, we are likely to see authorities grappling with the increased risk profile and complexity of direct awards.

There is an opportunity for suppliers to raise issues of compliance directly with authorities, where there is any suspicion of non-compliance with the obligation to open procurement opportunities to the market.  We therefore recommend that suppliers familiarise themselves with these provisions and closely monitor the Find a Tender platform in respect of any direct awards in their respective market.

Jessica Sawford, a trainee in Regulatory Disputes at Osborne Clarke, contributed to this Insight