UK government maps post-Brexit shake up of public procurement

Immediate changes to public procurement regulations kick in from 1 January 2021 to reflect the end of the Transition Period and the move to the UK being a member of the World Trade Organisation's (WTO) Government Procurement Agreement (GPA).

With the UK no longer bound to comply with the European Union's directives on public procurement, there is scope for the government to make wide-ranging changes to the rules that public bodies must follow when choosing with whom to contract. On 15 December 2020, the government published the Green Paper "Transforming Public Procurement", setting out its proposal for a major overhaul of the legislation in England that regulates how public bodies run tender competitions and the rights that suppliers have for challenging the process and contracting decisions.

This is the start of the consultation process, with the next stage for anyone interested to respond to the questions in the Green Paper by 10 March 2021. After the government has considered the responses to the consultation, it is likely that a White Paper would be published, containing the draft new legislation.

The government has also published a Procurement Policy Note (PPN) 11/20 on the same day as the Green Paper, setting out information and guidance for central government departments on how to "reserve" low-value contracts to suppliers in geographical regions from 1 January 2021. This PPN sits alongside the policy changes proposed in the Green Paper, to pull back from the prescriptive rules of the EU directives, using the greater flexibility that the WTO GPA rules permit.

Alongside the requirement to have a 10% weighting for social value in evaluation criteria for central government (including the Crown Commercial Service) procurements from 1 January 2021, the short- and medium-term changes to the UK's public procurement regime are the most significant for decades.

Immediate changes from 1 January 2021

Changes to the current plethora of legislation that regulates public and utilities procurement have been made via statutory instrument and address the practical changes that must be made because the UK is becoming a member of the GPA in its own right and we have reached the end of the Transition Period (for example, no longer having access to the EU's electronic procurement journal (the OJEU – Official Journal of the European Union). The current regulations will remain, but amended to deal with these changes (Public Contracts Regulations 2015; Utilities Contracts Regulations 2016; Concession Contracts Regulations 2016; Defence and Security Public Contracts Regulations 2011).

The PPN 10/20 note "Public Procurement after the Transition Period ends on 31 December 2020" and helpful frequently asked questions document set out the detail. The significant points are:

• For all UK public procurements commencing after 1 January 2021, all adverts and notices must be published in the new UK e-notification Service, Find a Tender (FTS). This has the same procurement notices as exist in the OJEU.
• The requirement for contracting authorities to publish on Contracts Finder remains unchanged (details of the requirements are set out in PPN 08/20 and PPN 07/16).
• If a public procurement was commenced and not finalised before 1 January 2021, the regulations as they applied at the time the contract was advertised must be followed and any notices for those procurements must be published in the OJEU.
• If a framework agreement (FA) was awarded before the end of the Transition Period, all call-off contracts under that FA will be subject to the public procurement regulations as they applied at the time the FA was awarded, not as they are drafted after 1 January 2021.
• As the UK will be a member of the WTO GPA from 31 December 2020, UK companies will still be able to bid for substantially the same opportunities advertised by EU Member States in the OJEU that they did before the end of the Transition Period. UK companies can also continue to bid for the same public sector opportunities in other WTO GPA countries. Similarly, companies registered in EU Member States (and, indeed, any other country that is a member of the WTO GPA) can bid for UK public sector contracts that are advertised on the FTS.
• The scope of the WTO GPA is slightly less generous than the EU directives, so some public contracts that UK companies could previously bid for will no longer be available to UK companies with the same rights / remedies as when the UK was a member of the EU. The GPA "coverage schedules" are complicated and we suggest you seek advice in relation to questions on which public/utilities/defence contracts are not caught.
• The minimum value of a contract that must be procured under the regulations will in the future be set by the minister for the Cabinet Office, rather than the EU Commission. The thresholds will be changed next in January 2022 and will remain aligned to those in the WTO GPA.
• The sterling thresholds from January 2021 will be: Public Contracts Regulations 2015 for works: £4,733,252 for everyone; for central government goods and services: £122,976; for sub-central government goods and services: £189,330. In the light-touch regime the threshold will be £663,540 for all bodies; Utilities Contracts Regulations 2016 for works: £4,733,252 for everyone; supplies and services: £378,660 all sector; the thresholds in the Concession Contracts Regulations 2016 will be £4,733,252.
• After the end of the Transition Period, should a contracting authority consider that a bid appears to be abnormally low there is still a duty on the contracting authority to require the bidder to explain its price or costs, and for that explanation to be assessed applying the principles of fairness, equality of treatment, objectivity, transparency and proportionality. Although the facility to reject a tender solely because the bidder has obtained incompatible state aid has been removed, bidders can still be asked to explain the abnormally low bid. Further detailed guidance will be provided on state aid and the UK subsidy framework.

Below threshold contracts

From 1 January 2021, PPN 11/20 comes into force. The PPN sets out information and guidance for central government departments on how to "reserve" low-value contracts to suppliers in certain geographical regions from 1 January 2021. This PPN sits alongside the policy changes proposed in the Green Paper, to pull back from the prescriptive rules of the EU Directive, using the greater flexibility that the WTO GPA rules permit. As part of its drive to "level up" the UK economy, the government is looking to use this change to stimulate "local" markets. If adopted by contracting authorities, this approach to procuring below threshold contracts will support small and medium-sized enterprises (SMEs) by opening up new opportunities to them and making it easier for them to win contracts.

The value of these contracts has to be below the WTO GPA thresholds (in summary, for contracts for supplies and/or services £122,976 and for works £4,733,252). In-scope contracting authorities may consider, where appropriate, the following options for the procurement of below threshold contracts:

• Reserve the procurement by supplier location –that is, running a competition and specifying that only suppliers located in a geographical area can bid. This could be UK-wide to support domestic supply chains and promote resilience and capacity, or where appropriate, by county (metropolitan or non-metropolitan) to tackle economic inequality and support local recruitment, training, skills and investment. It is not permitted to define by nations of the UK (England, Scotland, Wales, Northern Ireland) and where a county reservation is to be applied, only a single county may be reserved. Supplier location should be described by reference to where the supplier is based or established and has substantive business operations and not by location of corporate ownership;
• Reserve the procurement for SMEs and voluntary, community and social enterprises (VCSEs) – this means being able to run a competition and specify that only SMEs and VCSEs can bid.

Moves to transform public procurement law

The policy proposals in the Green Paper if implemented will have a significant and longer-term impact on those involved in public sector contracting. The government's ambition is stated as being to "overhaul our outdated public procurement regime" in order to "create a regulatory framework that delivers the best commercial outcomes with the least burden on our businesses and the public sector" (Lord Agnew, minister of state for the Cabinet Office).

These ambitions are limited by the rules of the WTO GPA, which do, however, allow for considerable more flexibility than the EU directives. The Green Paper does commit to enshrine into UK law the principles of public procurement under the GPA: value for money, the public good, transparency, integrity, efficiency, fair treatment of suppliers and non-discrimination. However, with a much looser legal framework than the EU directives that the UK government was bound to adhere to, the Green Paper is evidence that the government is committed to driving a radical change to the laws that apply to how public sector money is spent.

Significant proposals

The most significant proposals, all of which will require a change to primary legislation, are:

• Removing all the current regulations (as set out above) and replacing them with a single set of rules for all contract awards. There will be sector specific parts for utilities and defence. The intention is to adopt most of the greater flexibilities in the Utilities Contracts Regulations and Concession Contracts Regulations.
• A major change leaving only three procedures that can be used by a contracting authority or utility:
  • a flexible procedure that allows negotiation with bidders, with minimal-rules, only those needed to comply with the principles of public procurement and the GPA. Contracts currently caught by the light-touch regime (that is, contracts for certain types of services, for example, social services, catering services and social security services) will be procured under this procedure;
  • an open procedure for "off the shelf" competitions where no negotiation is allowed;
  • a limited tendering process where there is no advertisement of the contract (that is, a direct award is permitted) but a standstill period has to be run; and an extension of this procedure where there is a crisis or extreme urgency. The latter is in response to the Covid-19 crisis and the legal challenges that have been brought against the government in relation to its procurements during the crisis.
• The evaluation of bids will be based on the Most Advantageous Tender (MAT), not the Most Economically Advantageous Tender, emphasising that contracting authorities should take a broader view of what can be included in evaluation criteria assessing value for money, including social value.
• Building on PPN 06/20, which requires all central government departments to include in their procurements a social value award criterion weighted at 10% of the overall score, the government intends to legislate to require this in all public procurements and have regard to the new national procurement policy statement (which has not yet been published). Significantly, the government proposes to allow contracting authorities to include social value evaluation criteria that go beyond the subject matter of the contract, with statutory guidance from the minister for the Cabinet Office.
• Use of a single digital platform for suppliers to complete selection questionnaire data once to qualify for any public procurement. In order to be compliant with the GPA, the supplier registration system will limit the types of selection criteria contracting authorities can apply to those which are provided for by the GPA, that is, limited to ensuring that the supplier has the legal and financial capacities and the commercial and technical abilities to perform the contract.
• The Green Paper acknowledges that there is currently no common strategy for digital in public procurement and transparency by contracting authorities is inconsistent. In order to embed the principle of transparency, the government proposes to require contracting authorities to disclose procurement and contract data as soon as practically possible, declaring in their tender documents what information will be disclosed and justifying what, if any, information is commercially sensitive. Removing the need for standstill letters, there will instead be an obligation to publish basic disclosure information with the contract award (including call offs under framework agreements and dynamic purchasing systems) before initiating contract awards and starting the 10 day standstill, including: bidder identities; basis of the award decisions; basic disclosure of tenders submitted; evaluation reports; basic evaluation disclosure information. Only data that would be required to be disclosed under the Freedom of Information Act 2000 would be publishable. The government will publish guidance on what would reasonably not be disclosable (including protected intellectual property, profit margin and overheads), but the default will be to disclose all information.
• The Open Contracting Data Standard (OCDS) is a free, non-proprietary, open data standard for public contracting implemented by over 30 governments globally. The OCDS describes how to publish data and documents at all stages of the contracting process. It is the only international open standard for the publication of information related to the planning, procurement, and implementation of public contracts. The government proposes to legislate to require all contracting authorities to publish procurement and contracting data throughout the commercial lifecycle in a format compliant with the OCDS.
• Creating a new type of dynamic purchasing system that can be used for all types of contract.
• New "open" eight-year framework agreements, which are closed for an initial three-year period, then continually reopened over the next five years to allow new suppliers to join.
• It has been a major bugbear of the government that the EU directives restricted its ability to exclude suppliers who have previously failed to deliver. These proposals would allow for exclusion rules to take account of a bidder's past performance. There will be a new mandatory exclusion ground relating to the non-disclosure of beneficial ownership meaning that bidders who do not state their beneficial owner(s) will be automatically excluded. There will also be an explicit discretionary exclusion ground covering deferred prosecution agreements. The government also proposes that a supplier could be excluded, where it had shown significant or persistent deficiencies in the performance of a substantive requirement under a prior public contract. This would explicitly allow poor performance to be considered even if it had not led to termination, damages or comparable sanctions. Decisions in relation to past performance would need to be made in an evidence-based manner and could be taken with reference, for example, to poor performance notices or persistent failure of key performance indicators (KPIs). There is also a mention for the first time of exploring the introduction of a centrally managed debarment list.
• The government proposes requiring contracting authorities to record and publish key performance information on contracts including KPIs and contract amendments’ prices and volumes. This could be completed directly by the contracting authority, or passed on to the supplier to complete as part of the contract, however, the contracting authority should remain responsible for the timely and accurate completion of the data.
• The proposals around reviewing and challenging public procurement processes are that, in conjunction with the Technology and Construction Court (TCC), the government explores the remodelling and formalisation of the current TCC guidance through the creation of new Civil Procedural Rules and practice directions for reviewing and hearing procurement legal challenges, which will deal with the specifics of procurement challenges. The High Court will, however, remain the forum for challenges. The government would like to see: a tailored fast-track system; a move to challenges being heard in writing, without the need for oral hearings; rules for disclosure of documents that relate to the type of challenge; rules on how to set up confidentiality rings quickly. The government also intends to continue working with the courts on the potential to transfer a subset of procurement challenges to a tribunal-based system (for example, challenges that a specification is discriminatory or a bidder has been wrongly excluded).
• The government proposes amending the test to be applied by the courts when determining whether to lift the automatic suspension so that it is no longer based on the test applied when granting an injunction, but is a more appropriate, procurement-specific test. The aim is for this test to balance public interest, urgency, the upholding of the regulations and the impact on the winning bidder against the right for the claimant to be able to participate in the contract and the alternative available remedies. The government considers the introduction of a fast-track procedure, where required, should reduce the need to rely on this test as the reduction in court timescales will allow more contracts to remain suspended while the case is heard.
• Furthermore, the government proposes capping the damages that can be awarded for breaches of the procurement rules to legal fees and 1.5x bid costs (with some exemptions set out below). The government's view is that this would recompense the supplier for monies spent on a flawed competition and in pursuing the claim and would stand as a deterrent against poor procurement practice (but not at so high a level as to create inefficiencies and stifle innovation). The government is still investigating how to calculate bid costs in a fair and transparent manner and, in order to achieve this, plan to develop a "should cost" modelling tool. The exemptions proposed include where a supplier may not have the opportunity to challenge a procurement before award (such as with illegal direct awards, crisis procurements, where there has been a failure to publish a required notice (for example, in advance of use of the new limited tendering procedure, for contract amendments or as required when using commercial tools such as frameworks), and where malfeasance has been demonstrated. The government's view is that the focus of the new remedies regime is on improving the ability of the review system to make faster decisions on procurement challenges, and relying more on pre-contractual remedies, so that very few challenges require damages judgments to be made.
• A hugely significant change, linked to the proposals on transparency, is the proposal to remove the requirement for standstill letters. The Green Paper is light on detail, however, the government's proposal is to remove the requirement to provide the characteristics and relative advantages of the successful bidder to unsuccessful tenderers at contract award, given that the intention is that all bidders will be able to access the information on the evaluation of each bid under the new transparency provisions and clearly be able to see why they were unsuccessful and the relative advantages of the winning bid. The aim is to reduce the burden on contracting authorities, especially in competitions with large numbers of bidders. It will be covered in government guidance that the production of debrief letters is best practice but will suggest a reframing from the current approach; providing more detailed information relating to that individual bidder’s proposal using the information from the evaluation process. This will help suppliers improve their bids in future competitions, allow them still to assess the performance of the procurement process, and will be simpler and less time-consuming for contracting authorities to draft.
• The government proposes establishing a new unit – supported by an independent panel of experts – to oversee public procurement with powers to monitor and intervene (for example, powers to issue improvement notices) to improve the commercial capability of contracting authorities. If a debarment register were introduced, this unit could be responsible for centrally managing mandatory and discretionary exclusions of affected suppliers. The unit will not, however, be responsible for procurement challenges by unsuccessful bidders.
• The government proposes providing for greater visibility on payment throughout a public sector contract supply chain and ensuring all suppliers in a public contract supply chain are paid within 30 days by: legislating to provide clear access for any business to take up payment delays in the supply chain directly with the contracting authority; legislating to provide a specific right to the contracting authority to investigate the payment performance of a supplier of any tier in its supply chain; and aligning public and private sector reporting requirements and publishing payment performance all in one place on gov.uk to allow greater scrutiny.
• With the exception of amendments where there is a crisis or extreme urgency, a standstill period of ten days will apply to all contract amendments that require the publication of a contract amendment notice. The government proposes that that contracting authorities will only be exempt from publishing a contract amendment notice if the amendment(s): increase or decrease the value by less than 10% of the initial contract value for goods and services or 15% for works; increase or decrease the initial contract term by less than 10% of the original contract term; and do not change the scope of the contract. This means that contracting authorities and their incumbent suppliers would need to wait ten days after publishing the contract amendment notice before they can enter into the amendment. The remedies regime will apply to breaches in relation to making contract amendments and the notice requirements (including automatic suspension and ineffectiveness).
• It is important to note that the Department of Health and Social Care is continuing to consider proposals to change procurement legislation for healthcare services, so this is not within the scope of the Green Paper.

Behaviour shift

The Green Paper throughout recognises that many of the proposed changes will only lead to the desired benefits if there is a shift in the behaviours of public sector commercial teams, alongside an extensive training programme for contracting authorities. One of the risks to the approach of such a radical change is that there will, at least in the short term, be an increased number of legal challenges, in particular as the new procedures are tested.

The Osborne Clarke public procurement team will be running a webinar on all the issues in this note in early January 2021.