Follow-up Q&A: ‘What do you need to know about the Procurement Act 2023?’

The Procurement Act 2023 (Act) applies to ‘contracting authorities’. A social housing association will be a contracting authority if it satisfies the requirements of the contracting authority test, as set out in section 2 of the Act. Generally, a ‘contracting authority’ means a ‘public authority’, and a ‘public authority’ means a person: 

1. wholly or mainly funded out of public funds, or 
2. subject to public authority oversight, and

who does not operate on a commercial basis. 

Under the previous procurement legislation, it was considered that the Regulator of Social Housing exerted sufficient control over social housing associations to meet the ‘public authority oversight’ requirement of the ‘contracting authority’ test. The Contracting Authority definition guidance which accompanies the Act confirms that the position remains the same under the new legislation. As such, social housing associations who are regulated by the Regulator of Social Housing will always satisfy the ‘public authority oversight’ limb of the test. However, even if it is subject to public authority oversight, a social housing association will only be a contracting authority if it does not operate on a ‘commercial basis’ (but note the position is different for utilities contracts). Section 2(4) of the Act sets out some examples of the factors relevant to determining whether or not a social housing association operates on a commercial basis. The position needs to be considered on a case-by-case basis. 

As you may be aware, in relation to the award of utilities contracts, two further categories of organisations are also contracting authorities, namely public undertakings and private utilities. This means that a social housing association will need to consider the position further if it proposes to award utilities contracts (for example, where it proposes to operate a district heat network on one of its estates).

If you would like to discuss the contracting authority status of your organisation, our Procurement specialists can assist.

A utilities contract is a contract for the supply of goods, services or works wholly or mainly for the purpose of a ‘utility activity’, as defined in section 6 and schedule 4 of the Act. 

If you would like to discuss the requirements relating to utilities under the Act, our Procurement specialists can assist.

The position will of course depend on the specific context. If the arrangement is purely a licence for use of land with no obligation to deliver goods, services or works associated with it, it may well be that the exemption for land and buildings applies. This is found in paragraph 8 of Schedule 2 of the Procurement Act 2023, and it exempts contracts for the acquisition, by whatever means, of land or an interest in or right over land, or which otherwise concerns an interest in or right over land.

If the paragraph 8 exemption is not available, it may be worth considering the exemption for horizontal arrangements in paragraph 3 of Schedule 2. There are a number of requirements to be met under paragraph 3 but, in broad terms, the exemption applies where the purpose of the contract is to enable two or more contracting authorities to achieve common objectives relating to the exercise of their public functions. The circumstances in which the licence was being granted would need to be considered to see whether the requirements of paragraph 3 were satisfied.

The publication of the SQ would be sufficient to amount to the commencement of the procurement. It follows that, if the SQ was published before 24 February 2025, it is the old procurement rules which will apply to the procurement exercise.

We will assume the private sector entity is not subject to public sector oversight and so is not a public undertaking.

Based on that assumption, the private sector entity will only be subject to the Procurement Act 2023 (as a private utility) to the extent that its utility activity is carried out pursuant to a ‘special or exclusive right’. This will not be the case if its right to carry out the utility activity is granted pursuant to a competitive tendering procedure under section 19 of the Procurement Act 2023, or else a procedure which was publicised widely enough to avoid an artificial narrowing of competition and which based the contract award on non-discriminatory criteria.

The position will therefore depend entirely on the nature of the competition to award the AZP project. We are aware that DESNZ’s thinking on the delivery models for AZP has evolved. It will be necessary to revisit the procurement aspects of the approaches to zoning once these become clearer.

The majority of the requirements in the Procurement Act 2023 apply only to public contracts which have an estimated value that is not less than the relevant financial threshold for the type of contract concerned (i.e. ‘above-threshold’ contracts). The latest thresholds (which apply between 1 January 24 and 31 December 25) are set out here.

As with the previous legislation, there are some requirements for below-threshold contracts under the Act which must be considered, including specific noticing requirements. These requirements are set out in Part 6 of the Act. 

The contracting authority will also need to consider any additional requirements set out in its internal standing orders or contract procedure rules (if any).

Subject to any additional requirements in the contracting authority’s own internal rules, a direct award is usually permitted where the estimated value of the contract is less than the applicable threshold. 

Poor performance against KPIs will only give rise to a ground for discretionary exclusion if one of the grounds set out in paragraph 12 of Schedule 7 of the Procurement Act 2023 applies and the contracting authority considers that the circumstances giving rise to the application of the exclusion ground are continuing or likely to occur again. The grounds relate (broadly) to circumstances where:

• the supplier has breached a relevant contract and the breach was sufficiently serious, or a court has found there to be such a breach
• the supplier has not performed a relevant contract to a regulated authority’s satisfaction and failed to improve performance despite being given a proper opportunity to do so
• a contracting authority has published a contract performance notice under section 71(5) of the Act in relation to the supplier (concerning either breach or poor performance).

A poor performance against KPIs will only give rise to a discretionary exclusion ground if it falls into one of these three categories.

Unlike most of the other grounds for mandatory and discretionary exclusion, the discretionary exclusion grounds relating to breach of contract and poor performance only apply to a supplier if the supplier itself has been responsible for the breach or poor performance. Any breach or poor performance by one of the supplier’s ‘connected persons’ does not make the supplier an excludable supplier.

However, when it comes to considering whether the supplier can be excluded from a procurement process, the supplier may be an ‘excludable supplier’ if a discretionary exclusion ground applies to one of its ‘associated persons’ or one of its associated persons is on the debarment list by virtue of a discretionary exclusion ground (see section 57(2) of the Act). An ‘associated person’ is someone on whom the supplier is relying to satisfy the conditions of participation in the procurement (other than a guarantor). Please see sections 26 and 28 of the Act in relation to the opportunity which must be given to a supplier to replace an associated person or a sub-contractor who is found to be an excluded supplier.

So, coming back to your question, if the affiliate or investor is an ‘associated person’ of the supplier and they are subject to any of the mandatory or discretionary exclusion grounds, that could make the supplier itself an excluded or excludable supplier. However, the supplier will have an opportunity to substitute a different associated person. (See also section 28 in relation to substituting sub-contractors.) As outlined above, poor performance against KPIs will only give rise to a discretionary exclusion ground if it falls within one of the categories set out above.

The application of the paragraph 8 exemption for land transactions is very context specific. In broad terms, if the contract relates purely to the acquisition or land, buildings or any ‘complete work’, or an interest or right over any of these things, or if it otherwise concerns an interest in any of these things, it will ordinarily fall within the exemption. 

However, it is always necessary to consider to wider circumstances of the transaction. If, either within the same contract or within a linked contract, the contracting authority is placing on its counterparty an obligation to deliver works (or supplies or services), it is possible that the exemption will not apply.

If you would like more specific advice in relation to a particular development, please get in touch.

The debarment list can be found here (available on the Procurement Review Unit website). There are no entries on the debarment list at the time of writing.

This may change once the ongoing debarment investigations into the seven organisations involved in the Grenfell disaster are concluded, as the outcome of those investigations may be the inclusion of suppliers to the register. There has been no indication from Government as to when these investigations will conclude.