The Procurement Bill - some key commercial and contract management implications to be considered

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The Procurement Bill - some key commercial and contract management implications to be considered

Published 7 junio 2022

On 11 May 2022 the Government introduced the Procurement Bill (the “Bill”) into the House of Lords. The Bill follows on from December 2020’s Green Paper on Transforming Public Procurement and the response to the consultation on the Green Paper, published in December 2021.

The Bill sets out the rules regarding the procurement process itself.  Gone are the myriad of different procedures. These are replaced with the open procedure and the competitive flexible procedure, known in the Bill as a “competitive tendering procedure other than an open procedure”, the latter providing contracting authorities with the ability to design their own process.  The Most Economically Advantageous Tender (MEAT) is replaced with Most Advantageous Tender (MAT) and Dynamic Purchasing Systems become Dynamic Market, with an extended scope that is no longer restricted to commonly purchased goods and services. However, what is often overlooked in the Bill are contract management provisions which could have a significant commercial impact on the available remedies for contract performance. The provisions will also have a day-to-day impact on contract managers.

This article focuses on the areas which need to be considered from a commercial and operational perspective, including what needs to be prepared for now in terms of allocation of time and resources.

KPIs and contract performance

Clause 50 of the Bill requires that every contract with a value of over £2 million has at least 3 Key Performance Indicators (“KPIs”) unless the contract is a framework agreement, a utilities contract by a private utility, a concession contract or a light touch contract, or where performance cannot be assessed by reference to KPIs.

While KPIs may be in many contracts of this value, they are not currently in all such contracts as their inclusion very much depends on the commercial risk profile that has been adopted for a particular contract.  Going forward, contracting authorities will need to ensure any KPI deficiencies are addressed in the contract documentation and, with this, will be essential considerations on the robustness and measurability of such KPIs.  

Linked to the inclusion of KPIs are the new provisions in Clause 66 of the Bill which require that, at least every 12 months, performance against the contracted KPIs is assessed by the contracting authority and the results published. Currently, we do not know what the publication requirements will look like and whether procurement portals will be set up to process KPIs results into the form required.  However, there are a myriad of commercial and contract management issues connected with publicising supplier performance under KPIs due to the potential repercussions of non-achievement. 

KPIs - commercial considerations

No doubt, suppliers will be very concerned to ensure that all KPIs are clearly defined and attainable.  A consequence of this may be on the potential robustness of KPIs and/or commercial remedies that would, otherwise, have been available for failure to meet KPIs.  For example, a supplier that may have been willing to price the risk of failure to meet a particular KPI in lieu of a financial deduction from the contract price, may be less willing to take the risk that any such failure is published which could prevent it from bidding for other projects.  Both contracting authorities and suppliers may move towards having fewer, more standardised KPIs that are easier to assess. 

Whilst standardisation may be seen as an advantage, there is the potential downside that this results in fewer, less robust KPIs due to supplier concerns about the impact of failure to perform.  This could impact, particularly, on innovative new projects where KPIs may not be as tried and tested as elsewhere.  In addition, suppliers will, no doubt, be keen to ensure that their performance is assessed on a “like by like” basis rather than a supplier being penalised inadvertently due to the inclusion of certain KPIs that may not be in other contracts but where, if included, performance would, also, be problematic. 

KPIs - contract management considerations

From a contract management perspective, monitoring and reporting on KPI compliance will demand additional resources.  Currently, some contract managers may only have capacity to manage contracts when performance becomes problematic.  However, going forward, contracting authorities will need to start considering what steps they can take to comply with Clause 66 now and this may mean the recruitment of at least one new role within the organisation, both in terms of developing KPIs and how KPIs are monitored and reported.  Supplier self-monitoring which is reported back to the contracting authority may be a pragmatic solution in some cases and contract managers will need to consider how individual contracts are drafted and operated in each relevant context.

KPI breach - consequences

Clause 66 of the Bill requires that if breaches occur and the result is that there is full or partial termination, an award of damages or a settlement agreement, this also must be published.  This feeds into the new poor performance provisions.

Breach for poor performance

Linked to the above is the revised discretionary ground for exclusion on the basis of “breach of contract and poor performance” contained in Schedule 7 of the Bill. It has long been felt that the bar for the current discretionary ground for exclusion for past poor performance was too high. Contracting authorities were also reluctant to use the ground for fear of challenge from the supplier, especially if the information on which they were relying had been gleaned from another contracting authority.

The Bill permits a contracting authority to exclude a supplier where the supplier has committed a breach that is “sufficiently serious” and that has either been (1) declared by a court as such; or (2) the supplier has committed a remedial breach which has not been remedied. “Sufficiently serious” has been defined as a breach that has resulted in full or partial termination, an award of damages or a settlement agreement.  

Clause 56 of the Bill requires that contracting authorities inform the relevant appropriate authority (the Cabinet Office or Welsh Ministers as appropriate) of an exclusion so that the supplier is added to the central debarment list. This means that contracting authorities will be able to exclude on the basis of poor performance under any relevant contract. While this has benefits, we predict that suppliers who would have otherwise accepted termination and settlement where the relationship between the parties has broken down, may be more inclined to sit tight or litigate in order to avoid meeting the poor performance provisions and ultimately ending up on the debarment list for all future opportunities. Suppliers will not be able to ring fence performance risk anymore; failure under one contract could have significant implications for the business.

Contract management - payment information

There will be a requirement to publish information about any payment of more than £30,000 made under a public contract.  It is not clear what this information will be yet or where it will be published. Further, under Clause 64 of the Bill, contracting authorities will be required to publish regular “payment compliance notices” setting out whether the contracting authority has met the requirement to pay all undisputed invoices within the required 30 day period. 

In short, the combination of the new contract management and publication requirements plus the heightened fear of litigation as a result of the implications for suppliers of publication of their poor performance means that contracting authorities will no longer be able to perform reactive contract management as their resources allow.  Instead they will need to put in place resources for pro-actively managing and reporting on every contract above £2m as well as ensuring they are satisfied with the inclusion of robust KPIs from, both, an operational and commercial perspective.  While one might argue this is what should be taking place anyway, we do not live in an ideal world. 

The Procurement Bill sees a great number of opportunities and improvements for public procurement in the UK. However, as the Bill is likely to become law in 2023, there are measures that contracting authorities should be proactively considering now in order to be able to rise to the challenge.

Authors

Katherine Calder

Katherine Calder

Newcastle

+44 (0)191 404 4060

Oliver Crich

Oliver Crich

Manchester

+44 (0)161 934 3297

Victoria Fletcher

Victoria Fletcher

London - Walbrook

+44 (0)20 7894 6658

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