National Audit Office: lessons learned in public procurement and the legal implications

The National Audit Office (NAO) published a report on 19 July 2023, on the lessons learned in procurement and competition and provides key insights into public sector best practices, the government’s understanding and oversight of competition and maximising the benefit of competition throughout the commercial lifecycle. Juli Lau and Zena Stephenson take a glance at the NAO’s consolidated key insights and offer their thoughts on procurement legal implications.

The NAO’s report at a glance

Determining requirements:

The report suggests that authorities should use knowledge of the market to streamline their requirements, by clearly specifying what they are seeking to achieve in order to avoid pointlessly excluding potential suppliers through unachievable approaches. Identifying requirements and setting out benefits and costs early ensures that authorities and suppliers make well informed decisions. From a legal perspective, authorities should ensure that the NAO’s suggestions are balanced against ensuring the rules under the Public Contracts Regulations 2015 (‘PCR’) on equal treatment are still complied with when determining requirements.

Sourcing:

The report suggests that when sourcing, authorities should identify the best route to secure the requirements. Consider whether the requirements can be fulfilled in-house or through the market or a combination of both. In addition, they are encouraged to think about the delivery of products, processes, or services and how the risk of supplier failure will be managed. Authorities are also advised that using frameworks to simplify the competitive process can affect how wide the supplier pool could be, for example potentially excluding other suppliers who are not on the framework.

Under the PCR, authorities also need to think about which tender procedure is suitable prior to starting the procurement process. Authorities should note that before using a framework it is important to consider the fine print, for example call-off rules, to ensure that the chosen framework offers expediency, route to market and commercial arrangements that meet the authority’s requirements. Regulation 41 of the PCR provides rules on this.

Monitoring and engaging with suppliers:

The report suggests that when monitoring and engaging with suppliers, authorities should collect detailed information about the market (including from existing suppliers), understand where collective buying arrangements can be best used to strengthen purchasing powers and engage with suppliers in the market to understand their capabilities and circumstances.

In terms of compliance under the PCR, authorities can undertake research or direct engagement with a pool of suppliers as part of the early market engagement to get a good sense of the level of interest and ensure genuine competition. Whilst carrying out the market engagement, authorities need to make sure no preference is shown to any one supplier or no conflicts of interest are created which would distort competition in any way or violate the principles of non-discrimination and transparency.

During the contract award process:

The report suggests that at the contract award stage, authorities should make sure they select the appropriate contract model and pricing mechanisms, ensure that there is enough time to follow the process correctly and provide detailed feedback to both successful and unsuccessful suppliers.

In terms of the PCR, authorities should ensure that they keep full records of the tender process, documentation (including detailed records of the evaluation and moderation sessions) and fully document all decisions made and the reasons for it. The requirement to keep records is legislated for in Regulation 84 of the PCR.

The requirement to notify successful and unsuccessful suppliers of an award decision, and to provide certain prescribed information before entering into contract, is clearly prescribed under Regulation 86 of the PCR.

Managing a contract or market:

Once a contract has been entered into, the contract management stage begins. The report suggests that when managing a contract or market, authorities should ensure there is an appropriate deployment period to allow relationships and contract processes to settle down, consider other enablers of the contract in question (such as sub-contractors in the supply chain or commitments the authorities must fulfill for the suppliers to succeed), and ensure they collect appropriate data to assess the outcomes achieved.

Although the management of the contract is not covered under the PCR, the Cabinet Office’s Sourcing Playbook (Sourcing Playbook) does provide guidance and suggests that authorities at the outset of a procurement, should consider how the contract will be managed and ensure that it is reflected in the contract. It is also worth noting that the Procurement Bill currently being considered by Parliament includes provisions on contract management.

Before the end of the contract:

The report suggests that before the end of the contract, authorities should use available mechanisms to collect data on supplier health and the market, to use to inform future procurements, ensure they have visibility of costs and other information, which is needed to support the transition process, and maintain contingency plans for supplier failure and consider the options for making changes where this is likely to be beneficial.  The report also found that a review, transition and exit phase of a contract helps authorities make informed decisions on the extension or re-tendering of a contract. The Sourcing Playbook notes that authorities should already have considered their expectations for exiting or any transitional arrangements and should be covered in the contract.

When navigating the end of a contract, it is important to look at exit provisions and any resolution planning documents contained in it. Further, when considering extending the scope or term of a contract the PCR require authorities to consider if the proposal falls within the permitted grounds under the regulations. The new Procurement Bill also includes legislative requirements around contract termination.

Key takeaway for authorities

Although the NAO’s report focuses on the commercial aspect of procurement, the above key insights overlap with the PCRs as they cover the entire procurement lifecycle. Therefore, authorities considering these insights, should be mindful that there are statutory requirements which complement and, in some cases, should be carefully balanced against these recommendations.

We advise contracting authorities on all manner of issues relating to public procurement and our experts are on hand to guide authorities through the intricacies of running a procurement and responding to procurement challenges.

For further insight and resources on local government legal issues from Sharpe Pritchard, please visit the SharpeEdge page by clicking on the banner below.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email This email address is being protected from spambots. You need JavaScript enabled to view it.