Last December the Government published its eagerly-anticipated Green Paper, entitled Transforming Public Procurement, setting out its proposed changes to the public procurement regime in the UK. At the time of writing, the Cabinet Office is considering the feedback it has received through the consultation period and is due to report on next steps.
The Green Paper makes clear that the Government sees Brexit as an opportunity to reshape UK procurement law. It promotes a streamlined regulatory regime, simpler processes, fostering of innovation and greater flexibility for public bodies. At the same time, scandals relating to urgent Covid-related procurement seems to have attuned the Government to the need to maintain a level of rigour and transparency in the new regime. It is particularly interesting that the Government appears to want to use the new procurement regime to drive through a policy agenda: the Green Paper specifically advocates for a “golden thread” between procurement and Government priorities, such as boosting growth, post-pandemic recovery and tackling climate change.
If adopted, the proposals set out in the Green Paper would have significant implications for suppliers bidding for and entering into IT and outsourcing contracts with public bodies. In this article, we summarise the key themes for suppliers arising from the Green Paper and draw out some potential implications for suppliers’ public sector business units.
A new regulatory framework
Firstly, it should be noted that while Government ministers have talked of “slashing red tape”, the intention is still that the UK will operate a regulated public procurement regime. It is likely this will be significantly streamlined, however, as under the proposals the current regulations (including the Public Contracts Regulations 2015, the Utilities Contracts Regulations 2016, the Concessions Contracts Regulations 2016 and the Defence and Security Public Contracts Regulations 2011) would be condensed into a single regulatory framework with sector-specific parts. Another point to note is that the Green Paper does not cover the procurement of healthcare services and it is thought the Department of Health and Social Care is going to consider that as part of the procurement section of the NHS Long Term Plan.
Simplified procurement processes
The Green Paper proposes to replace five of the existing well-known procurement procedures (restricted, competitive dialogue, competitive procedure with negotiation, and innovation partnerships) with three simpler procedures.
- A new flexible procedure that gives buyers freedom to negotiate and innovate to get the best from the private sector
- An open procedure that buyers can use for simple, “off the shelf” competitions
- A limited tendering procedure to be used in certain circumstances such as a crisis or extreme urgency
Suppliers will be encouraged by the proposal for a flexible procedure allowing for more negotiation. While a level of negotiation is permitted under some of the current procedures (e.g. negotiated, competitive dialogue), these can be fairly prescriptive in length and scope. Also, as public bodies must justify its choice to negotiate, they tend to take a cautious approach. In practice this means authorities often avoid negotiation at all even where it would be helpful to all parties, and even when they select a procedure that enables negotiation it is often limited in a way that frustrates suppliers.
If this proposal is implemented, we can expect public sector buyers to make more use of negotiation. Equally, bidding suppliers can try to influence their potential customers towards doing more negotiation by suggesting the use of the new flexible procedure at the outset of a new procurement or during a pre-market engagement phase. It may be up to the bidding supplier to shift the public body’s behaviour so that it makes use of its new freedom to negotiate, and we can imagine on more complex procurements the body being asked by the market to permit negotiation to ensure suppliers gain a better understanding of the buyer’s requirements. We suspect this may lead to more outcome-based specifications to allow the market to come forward with innovative solutions but suppliers will need to be aware that committing to outcomes may require greater delivery assurance and confidence and/or a greater risk appetite. Importantly, elimination of suppliers through negotiation would still need to be in accordance with the stated evaluation criteria.
The new flexibility is not without potential downsides for suppliers. Behaviours are likely to take time to bed in, and when they do, procurement timescales may become prolonged, increasing bid costs as a result. Buyer behaviour may become less predictable as public bodies may diverge more in their procurement processes. Some suppliers may choose to “keep their powder dry” in early stages, knowing they will have increased opportunity to negotiate towards the end of the process, disadvantaging suppliers that propose “BAFO”-type positions earlier on.
Framework agreements and DPS
Use of framework agreements will be encouraged in a range of ways. The government plans to legislate for new options in traditional frameworks, including an option for an ‘open framework’ with multiple joining points and a longer maximum term of 8 years. In addition, we have already seen the introduction of Dynamic Purchasing Systems (flexible, electronic-based frameworks that suppliers can apply to join at any time and bid to provide ‘chunks’ of services or in lots to encourage more diversity of suppliers and SMEs), but the government plans to go further by creating a “DPS+” – a DPS that may be used procuring all types of goods and services, rather than specific types (e.g. IT, digital, people, etc.).
Frameworks are usually a quicker route-to-contract for buyer and supplier than a new procurement process, so their increased use may be seen as a win-win. Certainly, savvy suppliers looking to create stable relationships with buyers may be best placed to win more work through direct awards, and there may be more work available to bid for as public bodies are less put off by going to market. However, for incumbent suppliers, there is risk in the opening up of frameworks to a more diverse range of suppliers and also in an increased number of flexible frameworks and DPS. Suppliers currently on large strategic frameworks (such as CCS Technology Services) may find that work is procured under other frameworks and DPS, meaning those suppliers must apply to and manage more framework vehicles and compete among a wider range of suppliers, some of which will be smaller companies specialising in a particular type of technology or service. This may require a rethink of a supplier’s public sector strategy; for example, framework approvals may need to permit entry into certain types of common directly-awarded call offs to avoid a need to revisit or renegotiate the framework terms, and ensure the supplier is well placed to win work through direct-award.
The Green Paper makes proposals for how bids will be evaluated at down-selection and award stages.
The headline change is to widen the grounds on which a bidder can be excluded based on its past performance. Currently, public bodies can only take into account a bidder’s past performance on very limited grounds, which has frustrated them in situations where they do not think a bidder has the capability to deliver. The Green Paper proposes to enable exclusion where a bidder has shown “significant or persistent deficiencies” in performing another public contract, and dropping the current requirement for the poor performance to have led to early termination, damages or a comparable sanction. This change holds risk for suppliers as it is not clear what data or metrics a public body would refer to in exercising the exclusion ground. The Green Paper mentions a performance database so such decisions are data-driven but if that is not implemented well we would expect disgruntled suppliers to complain loudly. We can also imagine the simplified ground being open to abuse and its use being disputed by suppliers, potentially resulting in more legal challenges.
In another change, and in line with driving Government policy through regulation, the Green Paper argues that what can be evaluated under a “Most Economically Advantageous Tender” (MEAT) are too narrow, and proposes bids are evaluated on the basis of “Most Advantageous Tender” (MAT) so buyers can take a broader view, including social value, suppliers’ green agenda and value for money in a broader sense. However, it is not clear whether individual buyers will seek to deviate from the MEAT basis in practice, given the increased pressure on departmental finances and IT programme budgets. In that sense, this change may be more a case of “style over substance”. Otherwise, as now, evaluation criteria must be linked to the subject matter of the contract.
There is mention of requiring authorities to publish more information about bid evaluation before making an award decision; however, details on this are thin. A clue might lie in a new requirement on buyers to comply with the international Open Contracting Data Standard, under which a body would need to publish details of the award, the bid evaluation and “transparent feedback”. It is not clear how much more disclosure this would require than the approach to feedback that buyers already typically take. In fact, as the Green Paper recommends removing the mandated requirement to provide an individual debrief letter to each bidder at the end of a process, the proposals could lead to suppliers receiving less feedback overall.
Challenges and remedies
The Green Paper characterises the current process through which procurement decisions can be challenged as cumbersome and expensive. It proposes several changes to the court process, including the creation of new Civil Procedure Rules to deliver an expedited process. It also anticipates the establishment of a separate tribunal system to hear certain categories of challenge.
A key objective of these reforms is to speed up procurement challenges. If this can be achieved, the Green Paper notes that remedies could more often take effect before the contract is signed, giving complainants the opportunity to continue bidding for the contract rather than seeking damages after the event. Where damages are awarded, Government proposes that, as a matter of public policy, they should be capped in most instances to legal fees and one-and-a-half times bid costs. This will offer little comfort to a supplier that has missed out on a lucrative contract due to a public body’s errors during the procurement process. Where a supplier may already be reluctant to pursue procurement challenges all the way to court, there should be an increased focus on participating in pre-market engagements and supplier briefings (including with input from Legal) to attempt to influence the procurement before it is formally opened.
The Green Paper sets out the most significant change to procurement law in the UK for decades. It is driven by a desire to deliver a Brexit dividend, improve cost efficiency of the public realm and reduce barriers to entry for UK businesses.
We think that much of what is being proposed should be attractive to suppliers in terms of streamlined processes, increased scope to negotiate, framework agreements lasting longer and suggestions about greater transparency. Bidders are also likely to benefit from quicker and cheaper routes to challenge, although some are unlikely to be keen on proposals around the limits to damages in certain circumstances. Also, suppliers may need to rethink their approach to frameworks to ensure agility to win new work, and consider how best to deploy a greater ability to negotiate.
Ultimately, much will depend on the implementation of the proposals. Reform of the regulations means replacing a system that is widely-understood and is backed by legal precedent with a new, more flexible approach with new ways of working. It will certainly be interesting to see how the proposals make their way into that new regime and how it operates in practice.