Procurement Act guidance on frameworks is out – Buyers beware!

The latest batch of guidance on the Procurement Act 2023 (the Act) released by the Cabinet Office includes the eagerly awaited guidance on frameworks. Dr Steven Brunning looks at the key considerations.

The Act includes a version of the framework purchasing tool that was made available to contracting authorities under the existing Public Contracts Regulations 2015 (PCR 2015). The definition of a framework in the Act is a looser concept, however, and the rules applicable to its set-up and use appear much more flexible than those in the PCR 2015. There are closed and open framework options and increased flexibilities permitted in the call-off procedures that can be used to award a contract under a framework. Contracting authorities will need to be cautious about utilising the new flexibilities and consider whether their use will generate the desired efficiencies, costs savings and achieve value for money. 

Existing practical challenges

Contracting authorities already battle a multitude of issues when seeking to use a framework in practice and some of the new flexibilities may exacerbate these issues. These include, for example; determining whether the framework has been lawfully established by a contracting authority in the first place; whether the framework provides sufficient scope for the contracting authority’s requirements; whether the framework has been established in a way that achieves the best value for money and how to use the call-off procedures and finalise the call-off contract terms lawfully. The provisions in the Act are very high-level and do not address these practical challenges. On the contrary, certain provisions seem to create more ambiguity in terms of what is and isn’t permissible leaving open the door for more legal uncertainty for contracting authorities seeking to use frameworks in practice. Contracting authorities will need to take care to ensure they can award public contracts under the framework in a way that has regard to the importance of the objectives in the Act. For frameworks that are opaque in their setup and operation, contracting authorities may sometimes find it challenging to justify the use of a framework having regard to the importance of such objectives as value for money, maximising public benefit and acting and being seen to act with integrity.

So, what does the guidance offer?

It was hoped that the guidance on frameworks would plug the holes left by the legislation and help support it. Unfortunately, contracting authorities will need to continue to apply their own rigorous due diligence before using a third party’s framework as the guidance has failed to address all the practical issues and is unlikely to assuage existing concerns. There are a few significant points to note, which are outlined below.

A very flexible tool but little guidance on how to set it up effectively

The new framework definition provides for the setup of a framework with a limited or unlimited number of suppliers and the Act is unclear about the extent to which a substantive competition must or should be held to award the framework in the first place. With regard to price, the Act and Procurement Regulations 2024 (PR 24) make it clear that it is sufficient to include a ‘mechanism for determining the price payable’ under a call-off contract rather than the actual prices.

The guidance confirms these points but does not provide any further guidance on the extent of competition required at the framework award stage, the requirements for establishing and using such pricing mechanisms, nor does it provide any examples of what good practice might look like when setting up frameworks.

The guidance highlights that a framework can be set up by way of a direct award (providing an applicable ground for making a direct award can be identified in the Act). It is difficult to envisage many scenarios when a direct award of a multi-supplier framework without any competition to appoint the suppliers would be possible or even desirable! This possibility is likely to be more applicable to single-supplier frameworks though.

Involvement of non-contracting authorities

The guidance does very little to address the phenomenon of non-contracting authorities entering the public sector framework market without any competition to appoint them and is confusing on this point. In paragraph ten, the guidance provides that ‘contracting authorities can only award call-off contracts under a framework established by a contracting authority’. Such a framework can be established by a contracting authority that is a centralised procurement authority in the ‘business’ of carrying out procurements for the benefit of other contracting authorities.

However, in paragraph 14, the guidance provides that ‘if a contracting authority wishes to award a contract under a framework established by a person that is not a contracting authority, the framework must have been set up in the name of a contracting authority or authorities.’ It states that the non-contracting authority entity would have to be acting as the ‘agent’ of the named contracting authority (or authorities) if it sets up and administers the framework.

The guidance does not specify the conditions to be met for such an ‘agency’ relationship and there is no definition of ‘agent’ in the Act or the PR 24. The guidance just provides that the principal contracting authority (or authorities) is responsible for ensuring that the framework complies with the Act, as it will be acting as a centralised procurement authority. Whilst some genuine agency relationships may exist, if a contracting authority is just being used ‘in name only’ and is not carrying out any centralised procurement activity itself, it is not clear how such a contracting authority can be said to be ‘in the business’ of carrying out procurements for the benefit of other contracting authorities if the ‘business’ is always being carried out by a separate entity albeit in the contracting authority’s name.

The guidance also does not address the expansion of ‘neutral vendor frameworks’ which can involve the appointment of a managed service provider to run a framework-type arrangement for an excessive scope of requirements at the sub-contract level. 

Identifying eligible contracting authorities

Much uncertainty arises in practice with respect to the degree of precision required in the advert for a framework to identify the contracting authorities eligible to use the framework. It is not uncommon to see adverts for frameworks that refer to ‘all contracting authorities in the UK’. Such adverts lack transparency and usually concern speculative, pan-public sector frameworks with poorly defined scopes and excessively inflated estimated values.

The Act and the PR 24 specify the information that will need to be included in the framework and the various notices that need to be published. The guidance highlights these requirements but provides little further guidance other than to give a few examples such as listing the names of those authorities, or by describing categories of authorities, for example ‘all local authorities within Norfolk’, or ‘all central government authorities as defined in the Procurement Act 2023’, or ‘all NHS Foundation Trusts’.

By not providing more prescriptive guidance on these requirements, the door has been left open for more generic, poorly scoped and defined frameworks to be set up in the future. Contracting authorities will need to continue to be wary about using such frameworks the set-up of which is not tailored to their specific requirements.

Fees

The Act confirms that fees may be charged in respect of a framework but that they can only be charged to suppliers that have been awarded a call-off contract and must be set as a fixed percentage of the estimated value of the call-off contract awarded to the supplier. Whilst the Green Paper indicated that such fees must be ‘proportionate and used solely in the public interest’, this wording did not make its way into the Act and has failed to make its way into the guidance also.

The guidance does clarify, however, that it is not permissible to charge suppliers to gain access to a framework or any other fees associated with the management of the framework. Also, the fees can only be charged if the details are set out in the framework and tender or transparency notice.

Open frameworks

An open framework is a scheme of successive frameworks awarded on substantially the same terms which means that it is not permissible to make any substantial modifications to the tender or transparency notice for the successive frameworks in the scheme. The guidance confirms this includes the award criteria for the award of the framework. It refers to section 31 of the Act to determine whether a change is substantial which means, it seems, that a modification would be substantial if, had it been included in the original framework, it would have permitted other suppliers to submit a tender or would result in a different group of framework suppliers being appointed. It is not yet clear how this test sits with the more general rules on substantial modifications set out in section 74 of the Act.

Contracting authorities should consider whether there are any benefits to be gained by setting up an open framework for a particular set of requirements over a series of closed frameworks that do not need to be on substantially the same terms. The guidance provides an example of an open framework awarded to only one supplier which would mean that the maximum term of the open framework would be four years (instead of eight years) even if more than one supplier is awarded a subsequent framework in the scheme. It is not clear that such a construct would be workable or even desirable in practice.

Call-off procedures

Call-off contracts under a framework may be awarded by way of direct award or by running a competitive selection process between suppliers on the framework. The selection process for awarding call-off contracts must be set out in the framework but the guidance provides that there is some flexibility in that whilst the selection process must be set out, the level of detail is not specified in the Act and this may be in high level or more detailed terms.

It states that a framework may allow contracting authorities using the framework to include conditions of participation to assess suppliers’ technical ability to perform the contract as part of the competitive selection process for call-offs and leave it up to the contracting authorities to determine these, taking into account their own particular circumstances.

Alternatively, high-level conditions of participation may be set out in the framework and contracting authorities using the framework may only add further detail to those already set out. Whilst this latter option would seem sensible from a transparency and commercial perspective, the prospect of allowing contracting authorities to determine their own conditions of participation at the call-off stage without reference to those used at the framework award stage is concerning from a transparency perspective and may cause concern amongst suppliers considering whether to join the framework as it could result in additional criteria being introduced through the back door. 

The rules for making direct awards of call-off contracts have been relaxed. For multi-supplier frameworks, a contracting authority can only award a contract without competition when the framework sets out an objective mechanism for supplier selection and the core terms of the call-off contracts to be awarded.

The guidance gives examples of core terms such as the contract deliverables, warranties, charges and pricing mechanism, record keeping, indemnities, termination provisions and variation mechanism. This is not an exclusive list however and so it is unclear what else might be required to meet the definition of ‘core terms’ thereby allowing direct call-offs to be made.

With regard to applying an objective mechanism for determining which supplier should be awarded a particular call-off contract, the guidance is silent other than referring to two examples that have emerged in practice i.e. a ‘taxi-rank’ system where call-off contracts are awarded on a rotational basis, or a ‘highest ranking’ system with a limitation on the number or value of call-off contracts to be awarded to any one supplier. This is not helpful and is a missed opportunity to provide a guide on how to configure a mechanism that supports contracting authorities in identifying the most advantageous tender for their specific call-off requirement.

General advice and transparency

The Green Paper indicated that the guidance would provide suggestions on selecting the best tool for different requirements and advice on designing frameworks so that they contain all of the relevant terms and, where appropriate, mechanisms for direct award.  This has not made its way into the guidance on frameworks.

The Green Paper also alluded to the commercial purchasing tools register that would be set up to provide a list of all available frameworks and dynamic markets and help increase transparency and reduce overlap. This register is not mentioned in the guidance but may be forthcoming in the guidance due to be issued on ‘Publication of Information and the Central Digital Platform’. If so, it could usefully be cross-referenced.  Ideally, such guidance should confirm that some due diligence will have been carried out to determine the lawfulness of a framework before it is entered on the register but this is doubtful now given the approach taken in the guidance on frameworks. 

Summary

Contracting authorities will need to exercise a significant amount of discretion in their decision-making when setting up and using frameworks. Whilst some may welcome this additional flexibility, it poses a challenge for contracting authorities seeking to use the framework tool as a clear, cost-effective and resource-efficient way of procuring aggregated requirements over the long term.

For multi-user frameworks, contracting authorities should be able to rely on the expertise of centralised procurement authorities to establish well-informed, accurately scoped frameworks that meet their needs. Contracting authorities using a third-party framework will essentially bear the risk of challenge when making decisions on using the framework, however. The increase in transparency generated by the Act will throw such decision-making in the spotlight and so contracting authorities will need to continue to apply much rigour when using frameworks. They will need to check that they have been set up lawfully and the contracting authority can use them effectively and lawfully for their specific requirements in a way that achieves value for money and, for public contracts, has regard to the importance of the objectives in the Act. 

Dr Steven Brunning is a partner at Anthony Collins.