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Wed February 28 2024

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Procurement Act marks evolution, not revolution

23 Nov 23 Solicitor Stephen May, partner at the Birmingham office of law firm Fieldfisher, discusses the implications of the new Procurement Act 2023.

The new Procurement Act, which received Royal Assent on 26th October 2023, is designed to modernise and streamline procurement rules in the UK and is expected to come into force in October 2024.

Forming part of the government’s ‘post-Brexit’ strategy, the Act aims to reform and reset the current EU-based laws on public procurement of goods and services, with a focus on “value for money, public benefit, transparency and integrity”.

In its structure, the Act has much in common with the current procurement rules. However, moving from EU-based legislation to a purely domestic system is likely to lead to challenges in interpretation and potentially significant shifts in the way that procurement is approached in England, Wales and Northern Ireland.  

Under current EU procurement rules, ‘contracting authorities’ must treat economic operators equally and without discrimination, and act in a transparent and proportionate manner. This was designed to open up public procurement markets within the EU single market to cross-border competition which is, of course, no longer relevant in the UK.

The new Act now requires contracting authorities, when carrying out a covered procurement, simply to “have regard” to the importance of:

  • delivering value for money
  • maximising public benefit
  • providing transparency and the sharing of information, and
  • acting, and being seen to act, with integrity.

So there is a shift in the obligations around transparency as arising under existing EU rules.  That obligation has always been fundamental to ensuring a fair procurement process, and lack of transparency has been a frequent ground of challenge against contract awards.

One principle that remains mandatory is equal treatment for suppliers, unless a difference in treatment is justified.

This shift of emphasis, which seems to prioritise equal treatment over transparency, could have a significant impact on how procurements are designed and run, especially given the much greater flexibility afforded to contracting authorities under the Act in the design of competitive procedures. It is hoped that this shift in approach does not lead to less transparency in the procurement process than is currently the case.

Direct award and land agreements

An issue that has, over the years, presented difficulties in the area of development and construction is the circumstances in which public authorities are able to enter into development agreements on the basis of direct awards, without the need for competitive tendering under the public procurement rules. 

A complex case law has grown up under the EU rules, which seeks to distinguish between agreements having as the principal purpose the transfer of rights in land (which are exempt) and public works contracts for the benefit of public authorities. Development arrangements that are not intended to be competitively tendered need to be carefully structured to avoid falling the wrong side of the line (as in the well-known Faraday case).

The new Act also contains an exemption for land agreements but, being a new, purely UK domestic piece of legislation, is unsupported by the case law that interpreted the EU-based rules.  Whilst that case law might be used as an aid to interpretation of the new Act, the Courts will not be bound by it, so it is possible that the Court may develop an entirely new legal approach in this area. 

This is liable to present both opportunities and risks for suppliers looking to enter development agreements with local authorities: opportunities if a more flexible approach is adopted; risks because the absence of a firm and binding case law might bring a greater likelihood of challenge. 

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Supplier exclusion & debarment

One of the most significant areas of change under the Act, which is likely to be of particular interest to those tendering for contracts in the public and utility sectors, is the question of supplier exclusion and debarment.

Following concerns that the current legal framework for mandatory exclusion of suppliers is unclear and confusing, the Act will implement a wider refresh of the rules on supplier exclusion. This includes the introduction of a new central debarment list, which presents potentially significant risk for suppliers bidding for government and utility contracts in England and Wales, with the possibility of legal challenges in this area.

While many of the exclusion grounds appear in similar form in the current procurement rules, of note is the inclusion – for the first time – of mandatory and discretionary grounds in relation to competition law infringements and national security risk matters. This amounts to a significant expansion of the circumstances in which suppliers must or may be excluded from public procurements.

Whilst the Act appears to achieve the government's aim of setting out a much clearer and more consistent code for supplier exclusion than in the current procurement regulations, there is a broader and more extensive framework for supplier exclusion, which requires careful consideration.

Considerations for future tendering

Under transparency regulations, suppliers will have to register on a central digital platform in order to participate in contracts covered by the Act. Registration will include submitting information about the application of any exclusion grounds that may be applicable to the supplier, its “associated persons” or “connected persons”.

Although many may welcome this measure, suppliers who may be subject to exclusion grounds will have to declare such grounds upfront on the central platform. Suppliers may quickly find themselves the subject of debarment investigations by the Cabinet Office, so having a strong case on "self-cleaning" is likely to become ever more important in the next 12 months.

Elsewhere in the Act, some wider updates have been made to terminology and procedures which, despite aiming to ultimately increase flexibility and streamline the procurement process, risk creating uncertainty for suppliers and could hinder the outcome of a tender. For example, there is greater flexibility for contracting authorities to introduce non-economic criteria into procurements.

For public contracts, there is also a potential reputational risk from the publication requirements of performance against key performance indicators, which competitors could use as an opportunity to gain advantage in future procurements.

To ensure that they are in the best position to continue winning (and avoid losing) contracts, suppliers are advised to invest time and resource in educating themselves on what these changes will mean when the Act comes into effect next year. Now is the time to conduct due diligence of sub-contractors, associated persons and connected persons, and get up to speed on what the new tendering process means, to allow for a straightforward and, hopefully, successful project pipeline.

About the author:  Stephen May is a dispute resolution lawyer with Fieldfisher representing clients in complex commercial litigation and arbitration.

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