In-house Insights: Property Disputes
Mar 1 2024
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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:
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:
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:
The proposals will be taken forward as set out in the Green Paper.
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 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 proposals will be taken forward as set out in the Green Paper, with some amendments and additions.
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.
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.
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.
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.