How the New UK Procurement Act will Affect the Public Sector & SMEs

What is the Procurement Act 2023?

Every year, one in every three pounds of public money is spent on public procurement exercises. This amounts to roughly £300bn spent annually to fund public procurement projects, including those within central government departments and their arm’s-length bodies, local government and health authorities, utilities companies operating in the water, energy, and transport sectors, and more.

However, the current system for managing and coordinating these movements is convoluted and outdated, comprised of over 350 individual regulations derived from several different sets of EU Directives from different years (e.g. the Defence and Security Public Contracts Regulations 2011, Public Contracts Regulations 2015, Utilities Contracts Regulations 2016, etc.).

As such, the UK Government have decided to capitalise on some of the flexibility left by Brexit by repealing these existing regulations, and consolidating them into one single act, the Procurement Act 2023. Having received Royal Assent on the 26^th October 2023, the Act puts forward a revised matrix of rules, clauses, and criteria regarding public procurement provisions that is set to take effect throughout England, Wales, and Northern Ireland in October of this year. Thus, the Act is set to make public procurement ‘quick, simpler, more transparent and better able to meet the UK’s needs while remaining compliant with [its] international obligations’.

In this article, we will highlight and dilate the differences between the new act and its predecessors, why these changes matter and how they will affect and, hopefully, improve the processes of public procurement, and how we can help you prepare for ‘one of the largest shake ups to procurement rules’ in the history of UK legislation.

What is Different about the Act?

The primary difference attached to the Act, and the main repository for the accessibility and transparency promoted by the consolidation of the previous regulations, is in the updated procedure surrounding a covered procurement. Differentiated from a regular procurement, the Act introduces a covered procurement as ‘the award, entry into, and management of a public contract’, exclusively within the public sector.

This process is described by the Act as a competitive tendering procedure, and can be understood by breaking it down into before, during, and after.

Before: Objectives

Before beginning a competitive tendering procedure, it is important that the contracting authority enters the process with the correct narrative and intentions in mind in order to make an informed decision when selecting suppliers. In order to assess this, the Act contains a list of objectives that the authority must internalise and adhere to when evaluating applicants for a procurement exercise. Outlined in Part 2, Section 12, these objectives dictate that a contracting authority ‘must have regard to the importance of’:

a. delivering value for money;

b. maximising public benefit;

c. sharing information for the purpose of allowing suppliers and others to understand the authority’s procurement policies and decisions;

d. acting, and being seen to act, with integrity.

These objectives and principles encourage and ensure that the contracting authority will select their suppliers openly and judiciously, with ‘regard to the fact that small and medium-sized enterprises may gave particular barriers to participation, and consider whether such barriers can be removed or reduced’.

During: Competitive Tendering Procedures

‘Competition is at the heart of the regime’, and, once these objectives have been understood, the contracting authority must apply them to the subsequent selection process by conducting a competitive tendering procedure. This is described in Part 3, Chapter 2, Section 20 as:

a. single-stage tendering procedure without a restriction on who can submit tenders (an “open procedure”), or

b. such other competitive tendering procedure as the contracting authority considers appropriate for the purpose of awarding the public contract (a “competitive flexible procedure”).

It is this second option, the ‘competitive flexible procedure’, which differentiates the procurement legislation outlined in the Act from its predecessors, writing flexibility into the very fabric of the law. Section 20 proceeds to ensure that ‘the procedure is a proportionate means of awarding a public contract, having regard to the nature, complexity and cost of the contract’. As the anticipatory policy paper explains, this is unique as it allows contracting authorities to ‘design a competition to best suit the particular needs of their contract and market’.

After: Awarding Public Contracts

Once applications and proposals have been entered into a competitive tendering procedure, Part 3, Chapter 2, Section 19 simply dictates that the awarding of the public contract may be granted to the ‘most advantageous tender’ offered, by which it refers to the tender that ‘best satisfies the award criteria’. Aside from permitting the contracting authority to disregard suppliers from outside the UK, or those that offer a price that they consider to be ‘abnormally low for the performance of the contract’, the Act is otherwise open in its criteria, leaving much of the selection to the discretion of the contracting authority and the assurance that they will do so democratically and unbiasedly.

That being said, the Act does include provisions for the direct award of a contract which bypasses the competitive tendering procedure. There are two cases for this, as delineated in Chapter 3: Direct Award:

• Direct Award in Special Cases: This allows for a contracting authority to override the usual competitive tendering process if there is an ‘overriding public interest’ in the selection of a particular supplier; this may be if they require the public contract to construct or maintain critical national infrastructure, ensure the proper functioning of a crucial sector, or if it would otherwise disrupt military or security operations.

• Direct Award to Protect Life: Similarly, a contracting authority is free to select a particular supplier over others if it contributes to the protection of ‘human, animal or plant life or health’, or otherwise ‘protect public order or safety’.

Exclusion & Debarment

The Act also expands the criteria for the exclusion of suppliers by contracting authorities. As well as adding new violations such as theft, corporate manslaughter, and competition law infringement, the Act notably introduces the ‘ability to exclude suppliers based on the status of their associated suppliers and subcontractors, and not solely on their own performance’. This is significant for the way it prevents larger companies from operating on the unfair approach of winning businesses first before sourcing subcontractors to fulfil their contract.

Furthermore, the Act also introduces several changes to what constitutes ‘discretionary grounds for exclusion’, with a significant addition being ‘Contractual performance relating to contracts where the bidder has underperformed against KPIs and failed to rectify performance following an opportunity to do so’. This speaks to a major issue with previous procurement processes, which is public bodies being met with unsatisfactory contracts due to (a) poor KPIs or a lack thereof, (b) KPIs being unreflective of the buyer’s expectations, or (c) suppliers twisting the definitions or loopholes surrounding their KPIs. As such, using KPIs as a possible exclusionary tool encourages suppliers to take their inclusion and adherence much more seriously. (For guidance and advice on the definition of a reasonable KPI, contact our Procurement & Commercial experts here.)

On the increased stringency for debarring suppliers, which also includes more scrutiny on those suspected of modern slavery, Minister for the Cabinet Office Jeremy Quin explained: “We have taken the long-term decisions that will increase our powers to protect our security in our supply chains and procurement.

“This has included radical steps such as creating a National Security Unit for Procurement and giving Ministers the power to prevent suppliers from bidding for certain products where there is a risk to national security. It will deliver lasting change which protects the UK for generations to come.”

Changing the Face of Procurement

As aforementioned, the primary purpose and design of the Act is to promote transparency, simplicity, and accessibility; as the Cabinet Office explains in their green paper, the revamp is directed toward ‘reinforcing and adding clarity rather than changing scope’. In particular, this is intended for the benefit of small businesses and social enterprises, so that they have the opportunity to compete for and win more public contracts. There are several ways in which this philosophy is being implemented, such as:

• The creation of a central digital platform, on which suppliers can register and enter their details. This allows them to apply for multiple bids more directly, as well as have a more holistic overview of what tenders, projects, and opportunities are upcoming and available.

• The inclusion of numerous regulation-making powers which will maintain a ‘modern procurement structure’, by which the Government defines as concurrent with ‘technological advances, new trade agreements and ahead of those who may try to use procurement improperly’.

• The encouragement of contracting authorities to assess the boundaries which challenge or inhibit SMEs throughout the procurement lifecycle, and work to consider how they can be resolved and removed.

Also within reach of these changes is the Defence Sector, whose procurement activities will also benefit from the increased simplicity and flexibility and a more strategic relationship with the government, catalysing the development of the Defence and Security Industrial Strategy.

However, the main emphasis is on SMEs. For example, as discussed, the enhanced criteria for excluding suppliers is not only intended to prevent larger companies from operating on unfair means, by winning bids and putting the pressure on downstream suppliers to fulfil them, but to inversely make it more accessible for smaller and local businesses to bid directly. Cabinet Office Minister Baroness Neville-Rolfe said: “These new rules will help grow the economy and deliver better and simpler public sector procurement.

“I am particularly pleased to help small and medium sized businesses secure a greater share of nearly £300 billion worth of government contracts.”

How to Prepare for October

The Procurement Act 2023 is set to take full effect in October of this year, and though it is designed to make procurement simpler and more streamlined, it is still important for your organisation to understand and anticipate in breadth the nature and extent of the changes it will initiate.

For example, the new regulations are not retroactive, meaning that any procurement activity begun under the Public Contracts Regulations (PCR) 2025 will continue to operate within its remit. However, you will still need to consider which of those contracts will expire after the introduction of the new regulations, and form contingencies in advance for reprocuring as early as possible, if this is your intention.

The Crown Commercial Service (CCS) has delineated the process of preparing for these new regulations into five workstreams:

1. Commercial activity: review all current and planned commercial opportunities.
2. Standard operating procedures and policies: ensure they are robust and future-proofed for the new regime.
3. Guidance and information: review the documents that your teams and suppliers use and ensure they are current.
4. Systems: consider the readiness of your organisation’s systems and what changes may be needed.
5. People: ensure your people understand Transforming Public Procurement and undertake the necessary training.

In addition to this, the CCS has also produced a substantial list of commercial agreements that they expect to be awarded under the new legislation. This is a useful resource to read and internalise in advance of their introduction so as to ready your organisation for their application.

How Can Cambridge MC Help?

The last of the CSS’ five workstreams refers to a Government initiative paced to make the transition into the procurement activity under the new Act easier and smoother, by releasing intermittent ‘Knowledge Drops’ covering all changes and their effects. However, if you prefer a more hands-on and human-centric approach, our Procurement & Commercial experts possess the real-world experience and expertise to walk you through the new legislation, and prepare your organisation for the shift that it will bring.

Furthermore, if you are interested in securing projects and clients in the public sector, speak to our Public Sector team for guidance and support.