Practical impact of the Procurement Act 2023 Act – the challenges, the benefits and the legal lacunas

Choosing the right regime

The Act was planned to be “one source of truth” but the challenge for some authorities is to know what law applies, because at present it is not only the Act. Authorities need to be familiar with the Act and well as the regulations that applied to them before it came into force. The Act also has the Procurement Regulations 2024 sitting alongside it, together with number of Procurement Policy Notes and the Playbooks.

The Healthcare Services (Provider Selection Regime) Regulations 2023 (PSR) may also apply when commissioning public health care services, with examples including substance misuse treatment services and school nursing services. Authorities therefore need to be aware of the PSR regime as well.

The Act or the Public Contracts Regulations 2015?

The regulations have not disappeared yet. Ongoing procurements that started under one of the sets of regulations (the Public Contracts Regulations 2015 (PCR) or Concession Contracts Regulations 2016) continue under those regulations. The old regime continues to apply when using a framework or a dynamic purchasing system procured under the old regime. (It is important to note that the PSR applies to call-offs from frameworks procured under the PCR where the purchase is subject to the PSR, so compliance with both the PCR and PSR is required).

When modifying a contract, an authority needs to continue the regime under which it was procured. However, which regime applies if the call-off or modification is challenged? If a challenge is made, and it is asserted that a contracting authority cannot rely on the original procurement, is the claim under the PCR (as per the original procurement) or the Act (because the PCR procured contract cannot be relied upon)? 

The Act or the PSR?

An authority cannot choose to apply the Act or the PSR because it prefers one regime over the other. In the majority of cases the regime that applies will be easy to identify. However, it isn't always clear.

Case 10 from the Independent Patient Choice Panel – which concerned an adult and paediatric orthotics and wheelchair service – is a good example. On first glance this service is not under the PSR due to it not being listed in the PSR. However, the panel found the service was a PSR service, taking into account matters such as how referrals were made and CQC registration.

Another complexity involves contracts that are a mix of in‑scope healthcare services and services/goods subject to the Act. The PSR may only be used where the main subject matter of the contract is in-scope healthcare services and the authority is of the view that the out-of-scope elements could not be reasonably supplied under a separate contract. The main subject matter is determined by splitting the healthcare services from the non-healthcare services and determining which is greater. When considering the value split, an authority must be mindful of everything that is being delivered.

If uncertainty remains, is it safer to comply with the Act rather than the PSR on the basis the Act has a more robust regime? This sounds like a good idea but it raises many questions about enforcement and limitation periods for aggrieved suppliers. If the PSR is used and a supplier exhausts remedies under that first, it is likely to be too late to bring a claim under the Act. If a supplier wants to argue the Act should have been used and not PSR, that supplier will need to bring a protective claim under Act.  

Tackling notice requirements

The Act places an emphasis on transparency and there are now 17 notice types available to authorities. Authorities need to be aware of publication requirements and be conscious of what notice needs to be published, and when.

Not all notices are mandatory, for example the Planned Procurement Notice (UK3). This can be used to reduce timescales, much like a PIN under the old regime, but a Tender Notice (UK4) will still be required, meaning it may not have any significant benefit – especially if the opportunity has already been published in a Pipeline Notice (UK1). While a Contract Details Notice (UK7) is required for qualifying below-threshold contracts, a Below Threshold Tender Notice (also UK4) is not mandatory for all below-threshold contracts.

Directly awarded contracts now require at least four notices (a Transparency Notice (UK5), a Contract Award Notice, a Contract Details Notice and at least one manage stage notice). This is a significant shift away from the position in the PCRs where only the old-style Contract Award Notice was required and an authority would potentially also issue a Voluntary Ex-Ante Transparency Notice.

A Transparency Notice, according to Government guidance, is published before the contract is negotiated with the proposed supplier. We are aware of some Contract Award Notices following very quickly after the Transparency Notice – so quick there was no time for negotiation. Would a Transparency Notice ever be appropriate if an authority has not negotiated with the proposed supplier already? We would assert that an authority would want to know the deal before publicly stating it was considering entering into a contract with the supplier named in the notice.  

Considerations around modifications

Notices

Under the PCRs, modification notices were only required in two circumstances – Regulation 72(1)( b) and Regulation 72(1)( c). These were also published after the modification was made.

There is now the Contract Change Notice (UK10). The obligation to publish a Modification Notice is mandatory but does not necessarily match with what might be argued to be a “substantial modification”. It has led to some confusion about what needs to be published. A Modification Notice is not required where the value of the contract increases or decreases by more than 10% for supplies and services contracts, or 15% for works contracts, or where the term increases or decreases by more than 10%. However, does an authority publish for all contract variations for ease? It would help document the history of a contract.

Many contracts include compensation events and there will be a process to claim them. The potential value of compensation events should be within the estimated contract value. When a compensation event occurs it should simply be the operation of the contract, but are these contract modifications and if so, are they justified under Schedule 8 paragraph 1 which allows for changes which are provided for in the contract? Guidance on contract modifications says that anything "provided for in the contract" is likely to be exempt which implies that not everything will be and may need a notice. The short answer is that it probably depends on the type of event and how clearly it is defined. A compensation event may need a notice where it is very broad and simply allows the employer to change the requirements, for example, but it may not be needed if specific to the outcome of a specific survey.

Change of supplier

Under Regulation 72(1)(d) of the PCRs, the entity holding a contract could change following corporate restructuring, provided the new supplier fulfilled the criteria for qualitative selection and there were no other substantial modifications.

Schedule 8 (9) of the Act explains "A novation or assignment of a public contract can be made to a supplier that is not an excluded supplier if it is required following a corporate restructuring or similar circumstance". The Government guidance is that the position from the PCRs has not changed, but there are some important points to note.

Firstly, the Act only mentions novations and assignments but what about a change to the ultimate parent or a material subcontractor as was envisaged by Pressetext? Are these changes now automatically permitted or actually automatically barred?  Novations and assignments of the contract itself were the only things that were arguably not allowed under the PCRs, so why are they now permitted given the opportunity for abuse by allowing suppliers to sell their public contracts.

Further, the Act explicitly states that the novation or assignment "is required" following a corporate restructuring or similar circumstance, but there is currently no guidance on what "corporate restructuring means – is it only intra-group? And what is a "similar circumstance"? Insolvency is not mentioned, like it was in the PCRs. We will need to see how the courts interpret this provision. In the meantime, authorities should ask sufficient questions of any supplier making such a proposal. The motive may be simply to sell an established contract.

Setting and monitoring KPIs

Section 54 of the Act requires that contracts over £5m (excluding light touch, frameworks and concessions) must include at least three key performance indicators (KPIs), unless KPIs are not appropriate for assessing the supplier’s performance. Regulation 39 of the Procurement Regulations 2024 requires the contracting authority to publish a Contract Performance Notice (UK9) detailing the supplier’s performance against the KPIs set in accordance with Section 54 each year and at the end of the contract. Government guidance suggests the Contract Performance Notice only relates to the three most important KPIs (which can change). But what if an authority decides to set more KPIs? The Act itself states that three is a minimum and the KPIs which are chosen must be published.

The contract needs to include a mechanism for the contracting authority to calculate an annual rating. A contracting authority may assess their suppliers against their own internal ratings but must use the ratings contained in the Procurement Regulations 2024 in the Contract Performance Notice (Good, Approaching Target; Requires Improvement; Inadequate; and Other). However, at present, it is unclear if this requirement relates to all KPIs set collectively, the three KPIs that have been determined the most important collectively, or each KPI individually. Authorities should make it clear to potential suppliers what the authority's decision is e.g. publishing one assessment or multiple. Suppliers will have an interest in the content of Contract Performance Notices as these notices will publicly reveal their performance. In our next article we will look at some of the issues relating to bringing challenges or dealing with challenges in the standstill period, and how approaches to dealing with complaints from unsuccessful bidders have changed.

Katherine Calder (partner) and Victoria Fletcher (legal director) – DAC Beachcroft

In the first article from DAC Beachcroft, Katherine Calder and Sarah Foster focused on changes to procurement design at selection and tender stage in three key areas of change that the Act introduced, namely: excluded and excludable bidders; differing approaches to the competitive flexible procedure; and the flexibility to change rules, scope or criteria mid procurement.