In this article on the Procurement Act, we look at the scope, principles and objectives of the procurement regime under the Act and highlight key areas of difference from the current EU-based rules and areas where the rules will remain broadly the same.
A particular theme that runs throughout the Act is that the shift from rules based on EU law to a purely domestic system of law is liable to lead to challenges of interpretation and potentially significant shifts in the way that procurement is approached in England, Wales and Northern Ireland.
Scope
The Act applies to most contracts for goods, services or work
awarded by the public sector, including central and local
government and health bodies. It also covers utilities contracts in
the water, energy and transport sectors, concession contracts and
defence and security contracts. The Act brings the current Public
Contracts Regulations 2015, Utilities Contracts Regulations 2016,
Concessions Contracts Regulations 2016 and Defence and Security
Public Contracts Regulations 2011, under one all-encompassing
Act.
Whilst the Act generally applies to all "contracting
authorities" in England, Wales and Northern Ireland, most
Scottish authorities are not captured due to Scotland's
decision to retain its existing procurement regulations. The
Security Service, the Secret Intelligence Service, the Government
Communications Headquarters and the Advanced Research and Invention
Agency are all excluded authorities under the Act.
The concept of a "contracting authority" is defined,
somewhat counterintuitively, as including not only public
authorities but also public undertakings and private utilities,
which would not, especially in the latter case, be considered to be
contracting authorities under the current rules. However, this
appears to be a function of the combination of the current separate
sets of regulations into a single statutory code: "contracting
authority" is the catch-all term used to refer to all
bodies/entities that are covered by the Act. The underlying
definitions of "public authority", "public
undertaking" and "private utility" are not
materially different from those in the current rules. It is
therefore unlikely that any bodies/entities that are covered by the
current rules will not be covered by the Act and vice versa.
Financial thresholds
The financial thresholds in the Act are the same as those that
currently apply in the various sets of procurement regulations,
which in turn reflect the financial thresholds under the GPA, with
the power for the Government to update those thresholds from time
to time.
Rules requiring contracting authorities to aggregate the value of
contracts that could reasonably be procured together are retained
though considerably slimmed down and simplified.
Exemptions
As with the current rules, there are a number of types of contract
that are exempt from the application of the Act. The exemptions are
broadly consistent with the current rules but with some different
nuances.
Vertical and horizontal arrangements
As in the present rules, which derive from the well-known
Teckal case, contracts between public authorities and
entities that they control, either solely or jointly with other
authorities, are exempt contracts under the Act. The Act preserves
the essential features of the present exemption including the
requirement that, in additional to being controlled by one or more
public authorities, the controlled entity must carry out more than
80% of its activities within the controlling parent or parents.
Furthermore, the rule any level of private participation in the
controlled entity excludes controlled on the part of the public
authority/-ies is preserved, and hence the exemption will not apply
in those circumstances.
Similarly, the Act preserves the exemption for so-called horizontal
arrangements between public authorities, deriving from the EU
Hamburg Waste case, which enables public authorities to
enter into arrangements with each other with the aim of achieving
objectives in common.
Equivalent exemptions in relation to utilities are also preserved
in somewhat modified/clarified form. Thus the following are exempt
in the case of utilities contracts:
- Contracts awarded for the purpose of resale or lease to third parties where the utility does not have a special or exclusive right in relation to those goods, services or works
- Contracts awarded by water and energy utilities for, respectively, the purchase of water and energy or fuel
- Contracts between a utility and certain joint ventures or affiliated undertakings
Land and buildings etc
The exemption for contracts for the acquisition of land,
buildings or any other complete work is preserved in the Act. This
important exemption forms the basis on which many public
authorities and developers seek, with varying degrees of success,
to avoid the application of the public procurement rules to
development agreements which involve the transfer of publicly-owned
land to the developer.
However, beyond re-stating the exemption for these types of
agreement, the Act leaves at large the sometimes difficult question
of where to draw the line between an exempt land agreement and a
regulated public works contract. A definition of "works
contract" is included in the Act – albeit difficult to
find since it is buried in the Schedule setting out the financial
thresholds for the application of the tendering rules in the Act
and is not used other than in that Schedule and in one other
limited instance. The definition of "works contracts" in
the Act carries forward some of the features of the definition of
"public works contract" in the present rules. It is, for
example, not limited to contracts for the carrying out of
construction works but includes contracts that facilitate the
carrying out of construction works in compliance with
specifications set out in, or determined under, the contract (i.e.
development agreements). However, the language used and some of the
concepts are different. It is therefore unclear whether the
Government intends to carry across in substance the concept of
"public works contract" under the present rules or
whether something different is envisaged.
This is liable to create uncertainty in relation to local authority
development agreements and regeneration projects in which it is
often important to know whether a particular arrangement is subject
to the procurement rules or not. Under the present EU-based
procurement rules, the question of whether an arrangement amounts
to a public works contracts or an exempt land agreement had been
the subject of extensive and detailed case law at both the EU and
domestic levels (e.g. Auroux, Flensburg,
Helmut Mueller, Midland Co-operative, and
Faraday). While complex in some respects, this case law is
generally well-understood. Since the Act once enacted as a
standalone Act of Parliament will no longer constitute
"retained EU law" for the purpose of the European Union
(Withdrawal) Act 2018, it follows that the courts will no longer be
bound to interpret the concept of a "public works
contract" and the scope of the exemption for land etc
agreement in accordance with the applicable EU case law. Presumably
the courts could use that case law, where appropriate, as an aid to
the interpretation of the relevant provisions of the Act. However,
the door seems to be open to developing an entirely new
jurisprudence in this area.
Defence and security
The application of the present rules in the field of defence and
security is complex (probably needlessly so). A contract involving
defence and security aspects might fall within the Public Contracts
Regulations 2015 or the Defence and Security and Public Contracts
Regulations 2011, or it might be so sensitive that it is exempt
from both. There is a complicated and inter-locking set of
exemptions in both sets of regulations that need to be considered
in each case.
The Act does away with much of this complexity. Defence and
security contracts are in general covered by the Act. However,
there are exemptions for:
- Contracts that the contracting authority determines should not, in the interests of national security, be subject to the provisions of the Act
- Contracts for the purposes of intelligence activities
- Defence and security contracts:
- Where the supplier is located in an area outside the UK in which the armed forces are deployed and the operational needs of the armed forces require the contract to be awarded to that supplier
- Where the supplier is located in a state or territory outside the UK in which the armed forces maintain a military presence and that state or territory requires that the supplier supplies the goods, services or works in question
- Where the supplier is the government of another state or territory
- Awarded under a procedure adopted by an international organisation of which the UK is a member
- Awarded under an arrangement between the UK and one or more other states or territories, where the purpose of the arrangement is, or is in connection with the joint development of a new product by or on behalf of the parties to the arrangement, or the exploitation of that product once developed
Whilst many of the above replicate exemptions that exist under
the present rules, the general exemption for contracts that the
contracting authority determines should not be covered on the
grounds of national security represents a significant broadening of
the government's power to take contracts outside the scope of
the public procurement rules on national security grounds.
When the UK was a member of the EU it was always the case that
under the EU Treaties matters of national security remained the
sole responsibility of Member States (Article 4.2 of the Treaty on
European Union and its predecessors). However, although Member
States would be given a wide margin of appreciation to determine
what amounted to national security, this was not unlimited and was
ultimately subject to review by the European courts. Furthermore,
it is clear from the European Commission's efforts to open up
defence procurement within the EU to competitive tendering (which
resulted in the Defence and Security Public Contracts Regulations
2011) that certain contracts that governments might have claimed to
fall outside the rules on the grounds of national security did not
necessarily do so – hence, the rather complicated set of
exemptions in the current rules.
The general power to determine that a contract should be exempt on
national security grounds sweeps away such constraints. If a
contracting authority determines that a contract is
security-sensitive it is hard to see a court gainsaying that
determination if the decision were subject to judicial review.
Other exemptions
Other exemptions contained in the present rules are carried across into the Act in similar or somewhat clarified form including exemptions for:
- The acquisition of broadcast content
- Contracts facilitating the provision of electronic communications services or networks by contracting authorities
- Certain legal services and ADR
- Contracts in the financial services sector for lending, investment services in relation to financial instruments and the provision of services by the Bank of England
- Employment contracts
- Contracts for the provision of emergency services by not-for-profit organisations
- Contracts for the provision of public passenger transport services (to be specified in regulations)
- Research and development services for the benefit of the public, not involving the provision or goods or services
- Contracts awarded pursuant to international agreements
- In relation to concession contracts:
- Certain concession contracts in the water sector
- Concession contracts for air services provided by a qualifying air carrier (to be specified in regulations)
- Concession contracts for the provision of public passenger transport services
Principles and objectives of the Procurement
Act
Under the EU procurement rules, contracting authorities are
required to treat economic operators equally and without
discrimination and to act in a transparent and proportionate
manner. This is in pursuit of the overriding objective of opening
up public procurement markets within the Single Market to
cross-border competition.
The Single Market objective is of course no longer relevant in the
UK, but the Act nevertheless requires contracting authorities when
carrying out a covered procurement to have regard to the importance
of:
- delivering value for money;
- maximising public benefit;
- transparency and the sharing of information; and
- acting, and being seen to act, with integrity.
Equal treatment is retained in perhaps more hard-edged form:
contracting authorities must treat supplies "the same"
unless a difference between the supplies justifies different
treatment.
Contracting authorities (except private utilities) must also have
regard to the National Procurement Policy Statement published from
time to time by the Government (or in Wales by the Welsh
Ministers).
These principles and objectives under the Act have some resemblance
to the principles underlying EU procurement law (although, notably,
proportionality as an overriding principle is omitted). With that
said the Act primarily, choses to express principle and objectives
as matters to which contracting authorities must "have
regard", rather than hard-edged obligations or objectives that
authorities must seek to achieve. Therefore, while at present
contracting authorities are required to act in a transparent manner
when conducting procurements, that being fundamental to ensure that
procurements are run in a fair and objective way, under the Act
authorities will merely have to "have regard to the importance
of" transparency. This implies that transparency over and
above the express transparency obligations that appear throughout
the Act (e.g. obligations to publish various form of notice) is not
an overriding objective in the EU sense that would allow the Courts
to fill in gaps left by the legislation. Rather, it is a sort of
"nice to have" that has to be considered but, having been
considered, can be discarded. The one principle, however, that
remains mandatory is equal treatment: contracting must treat
suppliers "the same" unless a difference in treatment is
justified.
This shift of emphasis, in particular the different legal approach
to equal treatment compared to 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 to be hoped that this does not end up leading to
less transparency in procurements than is currently the case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.