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Dynamic purchasing systems and below threshold contracts

Can dynamic purchasing systems be used for below threshold contracts? Emily Heard sets out the key considerations.

The information in this article applies to contracting authorities based in England. Note that the position in other devolved authorities (including Wales) may be different. We are intending to provide a Welsh-specific perspective in the near future.

The Procurement Act 2023 (the Act) will come into force in October 2024 [1] and introduces Dynamic Markets as a new commercial tool. Dynamic Purchasing Systems (DPS) (a creature of the Public Contracts Regulations 2015) may continue under the Act, but under the Transitional Provisions [2] DPS must expire by 27 October 2028 at the latest.

One of the main differences between Dynamic Markets and DPS is that a new Tender Notice is required each time an authority wishes to award a contract with reference to membership of a Dynamic Market. This is intended to provide transparency to the market, but does lose the flexibility which authorities have in being able to simply issue an Invitation to Tender to all suppliers on a DPS. This is very useful in particular for frequently recurring low value contracts. For example, many authorities will use DPS for services such as taxi services which are put out to suppliers on a weekly if not daily basis. It would be very burdensome to procure this type of service via a Dynamic Market as a Tender Notice would be required each time. In actual fact however, this type of service is usually below threshold, and it is clear that below threshold contracts cannot be awarded with reference to a Dynamic Market.

In this article, we address two points (1) Why can’t below threshold contracts be awarded under a Dynamic Market (2) Does this mean that the common practice of awarding below threshold contracts under a DPS is also unlawful.

Does the Act prohibit the award of below threshold contracts under a Dynamic Market?

Yes

The Act does prohibit the award of below threshold contracts under a Dynamic Market.

Why?

Awarding a below threshold contract with reference to membership of a Dynamic Market is a restriction on who can submit a below threshold tender, and this is prohibited by Part 6 of the Act on the award of below threshold contracts:

  • Section 85(1) [3] provides that where an authority invites the submission of below threshold tenders it may not restrict the submission of below threshold tenders by reference to an assessment of a supplier’s suitability to perform the contract.
  • Section 85(2) provides that reference to a supplier’s suitability to perform a contract includes reference to a supplier’s legal and financial capacity, and technical ability.
  • Section 36 of the Act enables a contracting authority to set conditions for membership of a dynamic market as a means of ensuring that members have the legal and financial capacity and technical ability to perform contracts. 
  • Section 34 of the Act allows for suppliers who are not members of an appropriate dynamic market to be excluded from participating in or progressing as part of a competitive flexible procedure.

Inviting submissions of tenders with reference to a dynamic market which had conditions of membership would therefore infringe Section 85(1) as it would restrict who is able to submit a tender.

This position is confirmed by paragraph 21 of the Technical Guidance on Dynamic Markets [4] published by Cabinet Office [5] which provides that: 

Setting conditions for membership for admittance to a dynamic market is an assessment of suitability that is prohibited by section 85(1) for the award of regulated below threshold contracts. More information can be found in the guidance on below-threshold contracts. 

Paragraph 29 of the Technical Guidance on below threshold contracts  contains a similar provision as the above, and paragraph 8 simply provides that: 

Section 85(1) sets a similar restriction on assessing suppliers’ suitability as the PCR, which provided that a contracting authority may not include a pre-qualification stage in a procurement for a below-threshold contract. However, whereas under the PCR, contracting authorities were required to have regard to guidance issued by the Minister for the Cabinet Office in complying with the restriction on a pre-qualification stage, and report any deviations, the Act does not make similar provision.

Do the PCR prohibit the award of below threshold contracts under a Dynamic Purchasing System?

No

The PCR do not prohibit the award of below threshold contracts under a Dynamic Purchasing System.

Question:

But the PCR does have a Chapter on below threshold contracts (the Lord Young Reforms) which suggests that pre-qualification stages cannot be used for below threshold procurements. This wording appears quite similar to the restriction in the Act, so why is it that an authority can use DPS for below threshold contracts under the PCR but authorities cannot use Dynamic Markets for below threshold contracts under the Act?
  • Regulation 111(1) of the PCR provides that:

“A contracting authority shall not include a pre-qualification stage in a procurement” [7]. 

  • Regulation 111(4) of the PCR defines “pre-qualification stage” as a stage in the procurement process during which the contracting authority assesses the suitability of candidates [8] to perform a public contract for the purpose of reducing the number of candidates to a smaller number who are to proceed to a later stage of the process. 

So, in the Lord Young provisions of the PCR, "pre-qualification stage" means short-listing?

Yes

Under the PCR, short-listing is not possible for below threshold contracts, but checking suitability is possible.

  • Selection questions are used in two different ways: (i) to check suitability of tenderers (ii) to short-list candidates to limit who is invited to submit a tender.
  • Suitability testing is permitted for below threshold contracts, but short-listing is not permitted.  
    • Regulation 111 prohibits a separate pre-qualification stage, but does not prohibit selection questions.  
    • Read as a whole, Regulation 111 permits suitability questions: 
      • Regulation 111(5) provides that suitability questions must be relevant and proportionate “in any event”.
      • Suitability questions are defined in Regulation 111(6) as questions regarding suitability, capability, legal status or financial standing.

Guidance confirms that suitability questions can be asked in below threshold contracts: 

The Procurement Policy Note on the Standard Selection Questionnaire (Action Note 8/26 dated 9 September 2016) [9] as updated in March 2024 makes clear that “In below threshold procurements, questions may be asked to assess the suitability, capability, legal status and financial standing of a potential supplier, provided that the questions are relevant and proportionate” (see paragraph 36). It also provides a helpful distinction between how selection questions can be used (a) to pre-qualify suppliers using the restricted procedure or (b) to test that a supplier meets minimum levels of suitability under the open procedure (see paragraph 39).

Paragraph 16 of the Guidance issued on the Lord Young Reforms (dealing with below threshold contracts in the PCR) confirms that suitability requirements can be assessed for below threshold contracts [10].

So, is how a DPS operates under the PCR consistent with what is allowed by Regulation 111?

Yes

Using a DPS to award a below threshold contract is consistent with the Lord Young reforms:

  • Under Regulation 34(6) a contracting authority may set selection criteria when establishing a DPS but Regulation 34 expressly prevents limiting the number of suppliers qualified to submit a tender.
  • Regulation 34(6) provides as follows:

“All the candidates satisfying the selection criteria shall be admitted to the system, and the number of candidates to be admitted to the system shall not be limited in accordance with regulations 28(4) and 65)”. 

  • Suppliers are admitted to the DPS provided they meet the selection criteria and then the authority must issue an invitation to tender to all suppliers admitted to the DPS or a specific category within the DPS (see Regulation 21).  
  • There is therefore no separate qualification stage when using a DPS. This is a difference to how a standard restricted procedure operates, and this difference when using a DPS is expressly permitted under Regulation 34(5).

Comment

  • DPS can be used to award a below threshold contract provided that there is no separate qualification stage to limit who is invited to submit a tender. Authorities will need to check whether there are any other provisions regarding how they should tender for low value contracts.
  • In practice, where does this leave authorities who will want to continue using structures like existing DPS for services such as taxi services? One option will be to consider existing DPS and whether there are grounds for and the ability to extend them. Note that the Transitional Provisions provide that the period of validity of existing DPS may not be changed after 27 October 2025 [11] once the Act is in force, and for any DPS to expire by 27 October 2028 at the latest.
  • Authorities will want to check their own standing orders regarding the extent to which they need to advertise below threshold contracts. The Act contains similar provisions to the PCR 2015, in that if a below threshold contract is advertised anywhere (e.g. including on a website) then a below threshold Tender Notice must be published. If awarding a below threshold contract, authorities will still be able to check suitability upon receipt of below threshold tenders. What the Procurement Act 2023 prohibits is restricting who may submit a tender in the first place by reference to those suitability questions.

Emily Heard is a partner at Bevan Brittan.

Bevan Brittan LLP has provided this article as a guide to an FAQ which it hopes is a helpful resource (but is not legal advice). It is providing extensive training to clients and resources to help clients prepare for the Act. If you would like to know more about the online and in person support it can provide you, please contact Emily.

Footnotes

  1. The date on which the majority of the provisions in the Procurement Act 2023 will come into force is 28 October 2024, subject to any amending legislation.
  2. The Procurement Act 2023 (Commencement No. 3 and Transitional and Saving Provisions) Regulations 2024 (legislation.gov.uk)
  3. Note that this prohibition does not apply (a) for below threshold contracts awarded under a framework nor (b) for below threshold works contracts not less than £213,477 or £138,760 where awarded by central government.
  4. Guidance: Dynamic Markets (HTML) - GOV.UK (www.gov.uk)
  5. This Guidance does not have a statutory footing but would be likely to be used by the Court to assist with interpretation and understanding of the legislation. 
  6. Guidance: Below-Threshold Contracts (HTML) - GOV.UK (www.gov.uk)
  7. Note that there are de minimis thresholds below which the provisions of Chapter 8 regarding below threshold contracts do not apply. 
  8. Candidates is defined in Regulation 111(10) as an economic operator that wishes to be considered for the award of a public contract.
  9. PPN 03_24 Standard Selection Questionnaire 2024 Update FINAL.docx (publishing.service.gov.uk)
  10. Lord_Young_Reform_FAQs.pdf (publishing.service.gov.uk)
  11. Section 5(4)(b)(i) and (ii) ibid.