­­The Road To Reform Section 10

Introduction

On 6 December 2021 the government published its response to the Green Paper on proposed reform to public procurement. A link to the response can be found here.

This is the tenth (and last) in a series of articles which the procurement law team at Bevan Brittan LLP have produced on what the proposed reforms will mean for the public sector and suppliers.

Here is a menu of what we will be covering, with links to each Part which will become live once each Part is published:

• Section 1 - An overview
• Section 2 - Principles and objectives, the National Procurement Policy Statement and the PRU
• Section 3 - Single set of Regulations with exemptions, interface with health procurement, light touch regime and concessions
• Section 4 - New procedures, including for urgent procurements, emphasis on pre-market engagement and planning
• Section 5 - Evaluation (MAT not MEAT), links to NPPS and other legislation, risk of challenge on these wider policy objectives
• Section 6 - Exclusion: grounds for exclusion, debarment register, past performance and supplier registration system
• Section 7 - Purchasing tools – new DPS+, new rules for open and closed frameworks
• Section 8 - Transparency – notices, debriefing, what has to be published and Open Contracting Data Standard
• Section 9 - Remedies: reforms to Court process, no independent review up front by the authority, disclosure, new test for automatic suspension, no cap on damages, no tribunal and alternative route via PRU
• Section 10 - Contract Management: prompt payment, amendments to contracts after signature.

Overview

The Green Paper observed that:

Effective contract management is key to successfully delivering a contract following the completion of a procurement procedure. The regulatory regime must support contracting authorities in managing the project through to delivery, ensuring the contract can flex to meet new demands and opportunities while ensuring the supply chain is treated fairly and paid promptly.

The Government therefore proposed:

• legislating to further tackle payment delays in public sector supply chains and give small businesses, charities and social enterprises deep in the supply chain better access to contracting authorities to expose payment delays;
• allowing more flexibility to amend contracts in times of crisis, improving the ability of contracting authorities to adapt quickly in these circumstances;
• introducing a new requirement to publish contract amendment notices so that amendments are transparent and to give commercial teams greater certainty over the risk of legal challenge; and
• capping the profit paid on contract extensions where the incumbent raises a legal challenge.

Prompt Payment

What the Green Paper said...

Prompt payment is a significant problem for many businesses, including small businesses, within public sector supply chains. Long payment terms and late payments can have a damaging knock-on effect on their ability to manage their cash flow and plan for growth. In the worst cases it can threaten their survival.

The Government proposed providing for greater visibility on payment throughout the supply chain and ensuring that all suppliers are paid within 30 days. It would do this by:

• giving suppliers in the chain the right to take up payment delays directly with the contracting authority;
• giving contracting authorities the right to investigate the payment performance of a supplier of any tier in its supply chain; and
• aligning public and private sector reporting requirements and publishing payment performance all in one place on GOV.UK to allow greater scrutiny.

What respondents said...

What will be in the new law?

The proposals will be taken forward as set out in the Green Paper.

• In addition, subcontractors will be required to show that reasonable efforts have been made to resolve a payment dispute before it is escalated to the contracting authority.
• Guidance will be issued on escalating payment complaints.
• Government will set out expectations on contracting authorities to specify clear metrics including frequency of publication for payment reports.

Comment:

This has been a vexed issue for a long time. Regulation 113 of the PCR (payment of undisputed invoices within 30 days) has long been in force. PPNs on prompt payment and reporting were issued in 2015 and 2016. The Cabinet Office’s Prompt Payment Policy was updated in 2019. Yet evidence from suppliers confirms that this remains a significant problem. These reforms – on a statutory footing – will no doubt be welcomed by suppliers (particularly SMEs) further down the supply chain. The issue will be how ready and well-resourced (a) suppliers will be to pursue complaints against customers on whom they rely for business, and (b) contracting authorities will be to investigate and arbitrate disputes. The Guidance will be important, and will be keenly awaited.

Contract Amendments

What the Green Paper said...

Contract amendment provisions in the Regulations (eg. Reg.72 of the PCR) can result in uncertainty for contracting authorities who can find it difficult to confidently determine whether the amendments they want to make would be lawful.

This is unhelpful, particularly when being able to respond quickly and effectively to changes is vital to the successful delivery of a contract. The new regulations need to provide greater clarity while at the same time ensuring maximum flexibility to deal with the many challenges and opportunities that arise during the normal commercial cycle.

• The Government proposed a new provision (based on Reg.72) that would be clearer and easier and understand, and would also permit amendments to be made in cases of crisis or extreme urgency.
• The new provision will set out what is a substantial amendment, rather than what is not.
• The new rules will increase flexibility in defence and security procurements, but could reduce flexibility for utilities.
• “Contract amendment notices” (which will be called Contract Change Notices (“CCN”)) will be required to be published (presumably on Finder a Tender and/or Contracts Finder) unless the amendment:
  • increases or decreases the original value of the contract by less than 10% (good/services) or 15% (works);
  • increases or decreases the initial contract term by less than 10%; and
  • does not change the scope of the contract.
• With the exception of amendments where there is a crisis or extreme urgency, a standstill period of ten days will apply to all contract amendments which require a CCN. The remedies regime (including automatic suspension and ineffectiveness) will apply to breaches of the rules on amendments and CCNs.
• Even if an amendment is unlawful, it would not usually be at risk of challenge after 30 days, provided that a CCN containing sufficient information about the amendment had been published.

What respondents said...

What will be in the new law?

The proposals will be taken forward as set out in the Green Paper, with some amendments and additions.

• The Government is considering:
  • a new provision specifically to deal with the amendment of complex contracts; and
  • the option of excluding utilities from the 50% cap on amendments.
• The intention is to provide as much freedom as possible to amend defence and security contracts (including not requiring the publication of CCNs), because of the need to respond to changing threats and operational demands.
• Ministers will be given power to amend thresholds above which CCNs are required.

Comment:

The proposal that a CCN will afford protection (after 30 days) in respect of an unlawful modification, is welcome in that it will bring certainty, and will address the current situation in which a valid VEAT published in the absence of good faith leaves an amendment vulnerable to ineffectiveness for six months.

Overpayments during suspensions

What the Green Paper said...

Contract suspensions (i.e. where a claim triggers the automatic suspension) often require contracting authorities to extend existing arrangements pending trial (in particular where the court declines to lift the suspension). This might offer a perverse incentive for incumbent suppliers to raise a challenge in order to benefit from higher profits during the suspension.

The Government proposed to reduce that incentive and limit the costs that fall to the public sector by limiting the amount payable under the contract extension to an appropriate rate of profit based on a government standard rate.

What respondents said...

What will be in the new law?

This proposal will not be taken forward.

The level of analysis of profit rates that would be required for each market sector was disproportionate to the scale of the problem.

It would be impractical to establish a set government rate for the range of services commissioned by local authorities.

Comment:

It seems that this may have been somewhat over-stated as a problem in the Green Paper. Certainly, the need to arrange interim provision in response to a challenge is a real concern for contracting authorities. The recent Vodafone case showed that the courts will strive to facilitate that. However, the prospect (and controversy) of seeking to define “acceptable” profit rates for different markets (and sub-markets) rightly led to this going into the “nice idea, too impractical” box.

 

If you would like to discuss this topic in more detail, please contact Trevor Watt, Senior Associate.