Out-Law News 5 min. read

Procurement Bill secondary legislation consultation opened

Contracting authorities, regulated utilities, and suppliers should seize the opportunity to help shape new regulations on procurement, an expert has said.

Dr. Totis Kotsonis of Pinsent Masons, a specialist in procurement law, was commenting after the UK government opened a consultation on 19 June on draft regulations that clarify and supplement certain provisions in the Procurement Bill.

The Bill, which will replace existing procurement regulations that are based on EU procurement directives, is currently passing through the UK parliament and is expected to be enacted later this summer. At the same time, the government has made it clear that the new regime will not come into force until October 2024 so as to allow time for regulated bodies and their suppliers to familiarise themselves with it.

The government’s latest consultation is the first part of two on the proposed secondary legislation, the Procurement Act 2023 (Miscellaneous Provisions) Regulations 2024, which will form an integral part of the new regulatory regime.

Kotsonis said: “Contracting authorities, regulated utilities and suppliers should take this opportunity and participate in the government’s consultation and help shape the new legislative framework.”

“The draft regulations seek to bring greater clarity to several aspects of the Bill, including in relation to the calculation of certain so-called activity thresholds which are in fact also relevant under existing rules but the correct basis for their calculation has been unclear,” he said.

For example, in line with current rules, the new Act will continue to exempt from its scope contracts that are made between a public authority and a person controlled, solely or jointly, by the public authority – i.e. vertical arrangements. The question of “control” is partly determined by reference to the “activity threshold”: more than 80% of the activities carried out by the person must be carried out for or on behalf of the public authority or authorities or other persons controlled by them.

The draft regulations clarify that the 80% figure must be calculated by reference to the controlled person’s average turnover amount over the previous three years. Where this information is not available because the person has been undertaking the relevant activities for less than three years, it may be supplemented by credible business projections. However, where the public authority reasonably believes that turnover is not a suitable measure, one of three alternatives may be used: costs, time spent, or the value of the controlled person’s output to customers.

The draft regulations provide for the application of the same rules to horizontal arrangements: those being arrangements for the provision of goods, works or services that are concluded exclusively between contracting authorities. Here, no more than 20% of the activities under the arrangement may be carried out other than for the purposes of the authorities’ public functions, with the 20% figure again calculated by reference to the average three-year turnover of the cooperation or one of the three alternatives.

Separately, the Bill exempts certain utility activities provided they do not exceed a certain level. This includes situations where the primary purpose of the production of gas, heat, electricity or drinking water is for some activity outside the scope of the Bill and the operator sells the excess. This sales activity is exempt provided the excess is not more than 20% of the operator’s turnover in the case of gas or heat, or not more than 30% of the electricity or water produced. Under the draft regulations, the same average three-year turnover test would apply to the gas and heat exemption and an average three-year production amount test to the electricity and water exemption. Again, under the latter, credible business projections may be used where the operator has been running for less than three years.

The existing Public Contracts Regulations 2015 (PCR) provide for a “light touch regime” of public procurement, which contracting authorities can benefit from in certain circumstances. The light touch regime is to be retained under the Bill and the draft new regulations set out which types of contracts will be subject to the regime. No change is proposed in this regard, with the draft regulations providing that the exact same common procurement vocabulary (CPV) codes that currently apply under the PCR will also apply under the Bill. The list of codes provided for also includes those that are currently treated as “Part B services” under the Defence and Security Contracts Regulations 2011 – these would continue to apply only to defence contracts under the proposed new regime. The list of “reservable light touch services” is also identical to the current list under the PCR.

The draft regulations also seek to address ‘cross-border’ procurement within the UK. Kotsonis said: "This is quite important, given that Scotland will continue to have its own separate procurement legislation which, following the enactment of the Bill, will be in many respects quite different from the rules that will apply to the rest of the UK. Accordingly, it could make a big difference to the way in which a procurement is conducted depending on whether the Scottish legislation or the new Act will apply.”

The draft regulations provide that the new Act will apply to cross-border procurements, and in addition, grant devolved Scottish authorities – which are otherwise excluded from the Bill’s scope – access to frameworks and dynamic markets established by English, Welsh or Northern Irish contracting authorities, provided that the Scottish authority has been named as a “user” of that framework or dynamic market.

The Scottish government would also have to introduce reciprocal legislation to disapply the Scottish procurement rules in the same circumstances, allowing UK-wide joint procurement to continue even as the procurement regimes in Scotland and the rest of the UK diverge.

Since Brexit, central government departments and their executive agencies and non-departmental public bodies have been able to reserve certain below-threshold contracts to suppliers in a single UK county or London borough. However, local government authorities and others have been prevented from doing the same owing to the duty in section 17(5)(e) of the Local Government Act 1988 to disregard supplier location when exercising their functions in relation to public contracts. The draft regulations propose the disapplication of this specific restriction.

Bespoke procurement rules applicable to NHS and other healthcare bodies are anticipated under the forthcoming Health Care Services (Provider Selection Regime) Regulations 2023 (the PSR Regulations). The latest draft regulations pave the way for this new legislation by disapplying the Bill to any procurements covered by the PSR Regulations.

The proposed new regulations also set out the definitions of “central government authority” and “works”. The government said it has chosen to provide these definitions in regulations rather than the Bill since these definitions change on a regular basis and because it is easier to update regulations than an Act of parliament.

The definitions include government departments that no longer exist, such as the Department for International Trade, to align with the UK’s current schedules to the Government Procurement Agreement (GPA), which are also out-of-date. When the UK government updates its GPA schedules it also plans to update the regulations. Both definitions are unchanged from the current definitions under the PCR, apart from certain wording differences to reflect the different drafting styles between the UK and EU – the PCR being based on EU legislation.

The consultation runs until 28 July 2023.

The second part of the consultation, on the provisionally titled Procurement Act 2023 (Online Systems and Notices) Regulations 2024, will focus on the new and existing transparency provisions and notices under the Bill, and is expected to be opened next month.

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