The Procurement Bill: direct awards
What you need to know if contracting with the UK Government
In June 2022, Freshfields and Monckton Chambers co-hosted an event on how the Procurement Bill proposes to reform public procurement law in the UK. Since the event we have published a series of briefings to provide a summary of the key topics discussed and track the development of the Bill as it passes through the legislative process.
In this briefing, Tom Hutchison (Freshfields) and Ewan West (Monckton) address the provisions in the Bill relevant to direct awards and their likely effect. For information about the current status of the Bill, and what it would mean for contract performance, modification of contracts and exclusion and debarment, see:
- The Procurement Bill: contract performance
- The Procurement Bill: modification of contracts
- The Procurement Bill: exclusion and debarment
What is a direct award?
The starting position under both the current regime (principally, the Public Contracts Regulations 2015 (PCRs)) and the Bill is that public contracts must only be awarded following a competitive tendering procedure. However, under certain circumstances, it is permissible for a contracting authority to award a contract to a supplier without such a procedure – this is known as a direct award.
It’s also worth noting that, in certain scenarios, a contracting authority might be able to make a modification to an existing contract without following a competitive tendering procedure, the effect of which in reality can be similar to the making of a direct award. The changes proposed in relation to modifications are considered in more detail in our previous briefing.
What are the key changes?
Direct awards have their own chapter in the Bill (Chapter 3) and the proposal is to make direct awards more straightforward and more transparent.
The circumstances in which a direct award may be made are largely the same under the Bill as under the current regime. However, and as considered in more detail below, the Bill introduces two key changes:
- a contracting authority will be obliged to publish a transparency notice in advance of making a direct award; and
- Ministers will be empowered to designate specific contracts or categories of contracts which can be awarded directly in certain identified areas, such as in order to protect life and for public security.
When can a direct award be made?
The circumstances under which a contracting authority may award a contract without a competitive tendering procedure are broadly the same under the Bill as they are under the current regime. There was some speculation around whether the Government might take the opportunity to increase the ability to make direct awards under the new Bill, but in general terms this seems not to have transpired.
Under the Bill, a direct award may therefore be made where:
- a direct award justification exists (clause 40 and Schedule 5), e.g.:
- the contract concerns a prototype for research or similar purposes;
- there is only one suitable supplier;
- the contract concerns additional or repeat goods, services or works;
- in case of extreme urgency; or
- the authority did not receive any suitable tenders in response to a competitive tendering procedure (clause 42).
In addition, there are various contracts that are exempted under Schedule 2 of the Bill including:
- contracts between public sector entities where there is a “vertical arrangement” between them (e.g. the authority controls the supplier) or a “horizontal arrangement” (being an arrangement entered into to achieve shared objectives);
- defence and security contracts;
- certain utilities contracts (these are addressed in the Bill rather than in a separate instrument as is the current position);
- agreements relating to land; and
- contracts for electronic communications services.
A key change proposed in the Bill is that, subject to a few exceptions, in advance of making a direct award (i.e. under clause 40 or 41) an authority must publish a transparency notice setting out its intention to do so (clause 43).
Under the current regime, an authority can issue a voluntary transparency notice in order to mitigate the risk of a claim of ineffectiveness (regulation 99(3)(b) of the PCRs), and to start time running for a claim for breach of the PCRs. However, as the name indicates, this is not mandatory.
The 10-day standstill period for a voluntary transparency notice set out in regulation 99(3)(b) is not replicated under the Bill. Instead, the Bill simply requires the transparency notice to be published before the contract is awarded. For recipients of direct awards this is likely to give some certainty as to when a contract is ‘safe’ from challenge. Conversely, the lack of a standstill period may make it more difficult, or even practically impossible, for a party to challenge a direct award before it is entered into.
The obligation to give a transparency notice forms part of a patchwork of transparency obligations in the Bill, which lacks a standalone general duty of transparency (as currently set out in regulation 19(1) of the PCR).
Protection of life and public security
Another key change is that clause 41 of the Bill provides an express right for Ministers to specify contracts or categories of contracts which can be awarded directly under clause 40 as if a direct award justification applied. This would be achieved by way of secondary legislation.
The Minister must consider it “necessary” to do so in order to protect:
- human, animal or plant life or health; or
- public security or safety.
This is new and is driven by the learning from the COVID-19 pandemic. How widely this provision is interpreted, however, remains to be seen. An amendment to clause 41 is currently being considered that would require Ministers to comply with the principles of transparency, integrity, fairness and non-discrimination when making regulations.
There are safeguards, as Ministers must keep the regulations under review and revoke when they consider it to be no longer needed. There are no more detailed provisions for how that duty is to be discharged.
In practice this may make it more difficult to challenge direct awards made pursuant to such regulations or to challenge the regulations themselves (or their continued existence); although in principle the making of regulations and their review and revocation are matters that would be subject to the normal obligations arising in public law and to judicial review.
It’s also worth noting that another proposed amendment to clause 41 is to include a sunset clause to provide that regulations automatically expire 60 days after being made. The effect of this would be that Ministers would be required to seek explicit approval from Parliament under the made affirmative procedure to continue uncompetitive tendering during a crisis period.
The Bill has some relaxations over the existing regime both for direct awards and exempt contracts. The exemption for national security, for example, is no longer subject to an obligation to consider less intrusive means (Schedule 2, paragraph 21).
Contracts with subsidiaries
Conversely, there are some areas where the Bill narrows the existing regime, most notably in relation to ‘Teckal’ (or in-house) arrangements which provide an exemption for "vertical arrangements” with a subsidiary controlled by the authority (or utility). As noted above, these are exempted under Schedule 2 of the Bill (paragraph 2).
However, the test for whether a subsidiary is “controlled” by the authority is tightened under the Bill, as it requires that 80% of the subsidiary’s turnover to be derived from the authority. Currently, the test is whether at least 80% of the activities of the subsidiary are undertaken for the authority or for other entities controlled by the authority.
The Bill therefore potentially excludes group arrangements from the exemption. However, it should be noted that the Bill retains exemptions for ‘affiliates’ of utilities, under paragraph 32 of Schedule 2, which provides an exemption for contracts awarded by utilities to its affiliates provided that 80% of the affiliate’s turnover derives from the utility or its affiliates (i.e. group companies).
The changes proposed by the Bill in relation to direct awards and exempted contracts are not radical, and the inclusion of a designated chapter and schedules makes things more straightforward.
However, the introduction of a requirement for a contracting authority to give a transparency notice may, counterintuitively, make it more difficult to challenge a direct award in advance of it being made, due to the fact that there is no standstill period provided in the Bill.
As for the power for Ministers to designate specific contracts or categories of contracts which can be awarded directly, the impact of this will largely depend on how and how widely it is used in practice.