Procurement Bill Byte 7: Contract management under the Procurement Bill 2022

The Procurement Bill was introduced on 11 May 2022 and is currently going through the parliamentary process. In this series of Procurement Bill Bytes we take a detailed look at some of the issues and draw out some of the key changes that contracting authorities and suppliers need to get to grips with. 

It should be noted that any of the provisions of the Procurement Bill might change as a result of the process of parliamentary approval. If changes occur to the provisions described in this article, we will update it on our website at the appropriate time. 

We are really interested in your thoughts on how these reforms will affect you and are particularly keen to hear any questions you may have on the topics covered in our Procurement Bill Bytes. Please send any questions to jessica.boardman@bevanbrittan.com and our procurement team will endeavour to answer as many as we can in our Procurement Bill Bytes Q&A Webinar later this week.

 

In this article, we explore the contract management provisions in the Procurement Bill (the Bill).

The existing Public Contracts Regulations 2015 (PCR) are mainly concerned with the procurement and award process, and only contain very limited obligations around the rest of the contract lifecycle (such as modifications to existing contracts). In its publication “Transforming Public Procurement; our transparency ambition[1]” the Cabinet Office has stated that making information on the actual costs and performance of public contracts available to the public is a key part of its transparency agenda.

This article details the provisions that contracting authorities will need to comply with over the life of the contract and how these link in with the procurement and planning stages.

WHERE ARE THESE PROVISIONS FOUND IN THE BILL?

The provisions covering the life-cycle of the contract are set out in Chapter 5 in Sections 62 – 73 and Schedule 8. Sections 50 and 51 relate to the tender and award stage rather than the contract management stage, but have a key interface with the contract management side.

WHICH CONTRACTS ARE COVERED?

Unlike the current regime, the Bill covers public contracts, utilities contracts and concession contracts under a single statute. Therefore, in order to preserve the less interventionist approach for contracts made by private utilities and concession arrangements, not all of the provisions in the Bill apply to those contracts. There are also other exemptions, such as for light touch contracts.

KEY CHANGES

Key changes for the life of the contract are focused on:

• publication of information throughout the life of the contract;
• ongoing performance monitoring;
• implied terms to deal with invoicing and payment issues
• implied term giving a right of termination

Implementing these requirements successfully will require joint effort and buy-in from both the procurement and contract management teams within contracting authorities. This is particularly the case for provisions that start life in the procurement team but in practice will be implemented by the contract management team, for example monitoring of performance.

PUBLICATION OBLIGATIONS

Many commentators have noted that the Bill does not currently include an overarching duty of transparency in procurement. However, in practice the requirement to publish a number of notices during the life of the contract will open public contracts up to a degree of public scrutiny without there needing to be a Freedom of Information request. In summary, the publication obligations relate to details of modifications and details of payments made (and, for contracts with a value over £2m, the obligation to publish copies of the contract and at least 3 KPIs, as well as ongoing performance against those KPIs), For further detail on notices, please see Byte 1.

Key points for contracting authorities to consider:

• Who is responsible for publishing which notices? Will this be the Procurement team or the Contract Management team? If information is needed from other teams, how and when will this be provided?
• The Contract Management team should be involved in drawing up the KPIs to be used to assess contract performance to ensure that these will be practically measurable, will provide a useful indicator of actual performance and will encourage the right behaviours
• Where there is a requirement to publish a copy of the contract, Section 85 allows Contracting Authorities to withhold “sensitive commercial information” and there is an “overriding public interest” in it being kept confidential. Detailed pricing information is likely to fall into this category, as may some intellectual property.

Key points for suppliers to consider:

• There will be many more notices being published, potentially creating a deluge of information. At present it is not clear where the information will be published or whether there will be a single point of reference for the market but this is likely to be the intention.
• Winning suppliers for high value contracts need to be alert that the contracting authority is required to publish a copy of the contract, and will want to be sure that the parts of the contract that are truly commercially confidential are properly redacted. At the point the contract is published suppliers should ensure that they check the published copy for confidential information in order to agree or require the information to be removed as soon as possible.

ONGOING PERFORMANCE MONITORING

As the PCR came out of EU legislation, it focuses on proper award procedures, not on whether what was procured actually delivers the promised benefits. However, under S66 of the Bill, contracts with a value over £2m will be subject to annual performance monitoring, with the requirement to publish information about the review.

In addition, there is an obligation to publish information where a supplier is in breach of contract, leading to damages, termination or a settlement agreement, or where the supplier has been given an opportunity to remedy poor performance but has not done so.

Key points for contracting authorities to consider:

• Contracting authorities are not obliged to use KPIs where the supplier’s performance cannot be appropriately assessed that way. However, a decision not to use KPIs should be carefully considered and supported with written records of the decision and reasons, and ideally how the contracting authority is ensuring value for public money otherwise, in the event that queries are raised.
• Contract Management teams will need to be comfortable applying the agreed KPIs to the contract so these should be developed in consultation with them (and the technical teams if separate).
• Consider, will the KPI drive the behaviour the contracting authority wants to encourage or will it distort the focus?
• The KPIs need to be published before the contract is entered into. In simple contracts this is likely to be possible from the outset of the procurement process, but for more complex contracts the KPIs may need to be developed during the process. If the KPI has consequences attached to it (whether positive or negative) these should be clear to the bidders by the point that the contracting authority calls for tenders (or final tenders).

Key points for suppliers to consider:

• Suppliers delivering contracts with a value over £2m should ensure that they are comfortable that they understand the proposed KPIs and how these will operate, as failure to meet the KPIs is likely to become public knowledge, which may affect the supplier’s reputation or market position. Poor performance is one of the discretionary exclusion grounds listed under paragraph 13 of Schedule 7 and can lead to debarment under S56 – 61 of the Bill.
• Whether there are provisions to adjust the KPIs if appropriate in order to provide a more effective measure of actual performance and / or to accurately capture good performance.
• Whether the KPIs are linked to the payment mechanism under the contract, either as an incentive (such as bonus payments for achieving improvements) or as a threat (deductions if the required standards are not met). In this case suppliers should ensure that they have carefully scrutinised the KPIs, how these are measured, who decides whether these have been met and what dispute resolution mechanisms apply.

IMPLIED TERMS – PAYMENT

In addition to implementing the EU procurement requirements, the PCR were also used to implement the reforms coming out of the Lord Young Review[2], which were intended to open up public procurement to more small and medium sized enterprises, for example provisions aimed at ensuring prompt payment. However, some of these provisions have limited “teeth” and so the Bill has taken a more interventionist approach by providing for statutory implied terms that flow down through the supply chain.

The Bill includes several provisions on invoicing and payment:

• S62 – Electronic invoicing: contracting authorities must accept electronic invoices that comply with specified requirements (provided the invoice is not disputed by the contracting authority). This applies to all public contracts (including concessions and contracts awarded by utilities)
• S63 – Payment terms: contracting authorities must make payments under public contracts within 30 days of the payment becoming due under the relevant invoice. This does not apply where the invoice is not valid or the invoice is being disputed. This does not apply to concession contracts, or to contracts awarded by a private utility, a maintained school, an academy or a sixth form college corporation.
• S64 – Payments compliance notices: contracting authorities (other than private utilities) must publish a payments compliance notice covering all payments under public contracts that the contracting authority makes during each six-monthly reporting period (1 April – 30 September and 1 October – 31 March). The notice must be published within 30 days of the end of each reporting period and must cover the contracting authority’s compliance with the 30 day payment period in s63(2), but the detail of the information required is expected to be covered by secondary regulations.
• S68 – Payment terms in sub-contracts: the requirement to pay valid and undisputed invoices within 30 days of becoming due is also implied into subcontracts used to deliver public contracts. This does not apply to concession contracts or contracts awarded by a private utility, a maintained school, an academy or a sixth form college corporation.

Key points for contracting authorities to consider:

• Whether publication of payments compliance notices sits within the finance team or the procurement team, and ensuring that the necessary information flows are in place to enable the contracting authority to comply.
• Ensure that the contracting authority’s invoicing and payment processes are set up for electronic invoicing and that suppliers (especially SMEs) are aware of the requirements. Contracting authorities may want to consider providing support to SMEs that need to change their processes in order to help support smaller (likely local) businesses.
• The 30 day payment period under S63 and S68 is calculated from the date the payment is deemed to be “due” and contracting authorities should be alive to the risk of suppliers manipulating the definition of when a subcontract payment is “due” in order to delay payment.

Key points for suppliers to consider:

• Although the PCR included a requirement on contracting authorities to pass the 30 payment period down the supply chain contracting authorities had no levers to do so. Now S68 implies the 30 day payment period directly into subcontracts and subcontractors will be able to enforce this provision (including through suspension for non-payment where the contract is a construction contract under the Housing Grants, Construction and Regeneration Act 1996 (as amended)).

IMPLIED TERMS – CONTRACT TERMINATION

Under S72 all public contracts (including concessions and contracts awarded by utilities) include an implied right to terminate the contract where the contract has been awarded or modified in material breach of the provisions in the Bill, or where the supplier or subcontractors are excluded or excludable (see s54 of the Bill). This provision builds on the right to terminate included in the PCR at 73(1).

This right is subject to conditions:

• The contracting authority must give notice to the supplier of its intention to terminate (with the reasons) and give the supplier a reasonable opportunity to make representations.
• Where it is a subcontractor who is excluded or excludable:
• the contracting authority must give the supplier a chance to replace that subcontractor before terminating the contract; and
• the contracting authority must have requested information on subcontractors under S28 as part of the procurement process and not have already known before the award that the subcontractor was excluded or excludable.

Key points for contracting authorities to consider:

• There is a right to include provisions that will cover what happens if the contract is terminated under S72. Although this is not an obligation contracting authorities would be advised to include such provisions in order to provide the parties with clarity, especially where the arrangement involves the transfer of assets.

Key points for suppliers to consider

• Suppliers should ensure that their contracts with the supply chain contain an ability to terminate in a situation where the contracting authority terminates the head contract under S72, as well as arrangements to deal with likely costs incurred e.g. for breaking supply chain contracts (passing the same benefits down the chain in order to help maintain the resilience of the supply chain).
• There is nothing to prevent a contracting authority relying on S72 even if, for example, they initiated the modification that breached the procurement rules. Therefore, suppliers should carry out their own review of the risks associated with any proposed modification to an existing contract in order to ensure the supplier is also comfortable.

CONCLUSION

The expansion of the procurement rules into the contract management phase aligns with the more holistic “life cycle” view of procurement, rather than simply being focused on avoiding discrimination against suppliers from other states. This is likely to be a positive development from the point of view of encouraging whole life value and procurement best practice and supporting the supply chain. However, it means greater administrative burdens for contracting authorities, who will need to adapt to new processes and reporting requirements.

 

[1]              Published 30 June 2022

[2]              “Growing Your Business, A Report on Growing Micro Businesses”, Lord Young, May 2013