Can the Procurement Act 2023 stem rising insolvencies in the construction sector?

In January 2024, the BBC reported that rising costs and interest rates had led to more than 25,000 company insolvencies in 2023, a 30-year high.  A significant proportion of the insolvencies (4,000+) registered with the Insolvency Service last year were building firms.  Whilst insolvencies will continue to have a domino effect across the supply chain, we foresee the Procurement Act 2023 may assist construction companies to deliver prudent procurement processes for contracting with public authorities and allow them to stay solvent. 

Background and key changes

The Procurement Act 2023 (“the Act”) received Royal Assent on 26 October 2023.  The Act represents a significant change to procurement rules.  It will streamline over 350 different procurement regulations concerning different types of procurement including defence and security, and spread over numerous separate regimes into a single regime that is “quicker, simpler and better meets the needs of the UK”.

The Act has a number of benefits including:

• creating a simpler and more flexible commercial system that better meets the UK’s needs while remaining compliant with our international obligations
• opening up public procurement to new entrants such as small businesses and social enterprises so that they can compete for and win more public contracts
• taking tougher action on underperforming suppliers and excluding suppliers who pose unacceptable risks and
• embedding transparency throughout the commercial lifecycle so that the spending of taxpayers’ money can be properly scrutinised.

Key adjustments include the replacement of the current six procurement ‘principles’ with four new ‘objectives’ set out in Section 12 of the Act which contracting authorities must have regard to during the various stages of the procurement process:

• delivering value for money
• maximising public benefit
• sharing information for the purpose of allowing suppliers and others to understand the authority’s procurement policies and decisions and
• acting, and being seen to act, with integrity.

In addition, the Act provides for a competitive tendering procedure before awarding a public contract.  In doing so, the Act aims to ensure that contracting authorities “have regard to the fact that small and medium-sized enterprises may face particular barriers to participation” and “consider whether such barriers can be removed or reduced”.  As such, the Act represents a shift away from the current prescriptive procurement regime and provides that contracting authorities can design their own competitive flexible procedure according to what they consider to be relevant to the specific contract being procured. It remains to be seen, however, if the inherent flexibility means that aspects of the former, administratively burdensome procedures are retained in practice – and, if so, what the impact of this will be.

While the focus of the current regime is on the procurement process up to and including the award of the contract, the Act requires contracting authorities to publish new notices at all stages of the procurement process, including:

• Pipeline Notices
• Transparency Notices
• Procurement Termination Notices
• Contract Details Notices and
• Contract Award Notices.

The Act also places an emphasis on effective contract management, including introducing a greater focus on supplier performance, requiring contracting authorities to publish a minimum of three key performance indicators (KPIs) for public contracts that are valued over £5 million. 

Further, Section 71 of Act requires that once in every 12 months during the lifecycle of a contract and on termination of the contract the contracting authorities must “(1) Assess [Supplier] performance against the [KPIs] and (2) Publish information specified in regulations Under Section 95 in relation to that assessment”. These requirements are consistent with the commitment of the Act to transparency in the procurement process, however, may lead to public scrutiny of suppliers of eligible contracts as other contracting authorities will be able to monitor their performance.

In addition, contracting authorities will need to consider the national strategic priorities set out in the National Procurement Policy Statement, which could include issues such as job creation, enhancing supplier resilience and fostering innovation.

Latest developments

On 25 March 2024, the draft Procurement Regulations 2024 were laid in Parliament (“the Regulations”).  This  marked an important milestone on the road towards commencement of the Act.  The Regulations are a statutory instrument  that combines two sets of regulations, consulted on in Summer 2023, and applies a broad range of powers within the Act.  The Regulations also provide additional detail about various aspects of the new procurement regime, including the various notices that contracting authorities are now required to issue throughout the procurement lifecycle. The Regulations provide clarity as to the content of:

• Assessment Summaries (which replace the contract award notification document as the main debrief document for bidders), including that the summary must state the score the bidder achieved for each award criterion and “an explanation for that score by reference to relevant information in the tender”
• Contract Award Notices, including that the requirement for such notices to identify unsuccessful suppliers individually by name is limited to where the contract value is over £5 million and
• Planned Procurement Notices (which are notices announcing an authority’s intention to commence a specific procurement in the future), including that they must state whether the planned procurement will utilise an open or competitive flexible process.

On 22 April 2024, the Government announced that the Act would “go live” on 28 October 2024.  The Government confirmed that while the Act will apply to all agreements created on or after 28 October 2024, it is not retroactive and the Public Contracts Regulations (PCR) 2015, will continue to apply to any contracts created prior to the commencement of the Act.

Comment

The Act represents a significant change from the current EU-focussed procurement regime and has re-set procurement rules in the UK. How the legislation will be interpreted is untested and so watch this space!

It will be important for contracting parties to familiarise themselves with the Act both to ensure compliance and to get the most benefit from the changes to the procurement regime when they take effect on Monday, 28 October 2024.  The Government has published guidance and support documents on its  Transforming Public Procurement webpage, with a second tranche of official guidance published on 12 April and all guidance documents expected to be available by the end of June.

Read other items in Construction Brief - June 2024