Contract management under the Procurement Act 2023

What are the important changes?

It is instructive to read through the Act, substituting wording about the management of contracts for use of the terms “procurement” and “covered procurement”. Simply by looking at some of the introductory provisions of the Act the implications of this important change become clear:

• Section 11(1) provides that a contracting authority may not manage a public contract except in accordance with the Act.
• Section 12(1) provides that contract management must be carried out having regard to the procurement objectives of (i) delivering value for money, (ii) maximising public benefit, (iii) sharing information so that suppliers can understand procurement policies and decisions and (iv) being seen to act with integrity.
• Sections 12(2) and (3) provide that in managing a public contract a contracting authority must treat suppliers the same unless a difference in treatment can be justified, and even then all reasonable steps must be taken to avoid unfair advantage or disadvantage between suppliers.

The impact of procedural requirements

The overall effect is that the law of public contracts has been significantly expanded to introduce a range of procedural requirements for the performance management of such contracts. The consequences may be far reaching as discussed below.

Previously the courts have been reluctant to import principles derived from public law into contractual relationships between contracting authorities and their suppliers. A notable case is that of Krebs v NHS Commissioning Board [2014] EWCA Civ 1540, where it was argued by a dental practitioner that the NHS commissioning body with which he held a contract for services had public law obligations when deciding about the management and ultimate termination of that contract. This argument did not find favour with the Court of Appeal, which held that the dentist was confined to his contractual (private law) remedies and could not seek relief through public law remedies^[1]. The terms of the contract exhaustively defined the relationship between contracting authority and supplier, so it was not open to a supplier to argue that contract management measures had to comply with public law concepts of reasonableness or procedural fairness, unless such concepts had been expressly incorporated into the relevant contract.

The Act appears to take us in a different direction. Suppliers have the right to bring an action for breach of statutory duty where “procurement”, including contract management, has been undertaken otherwise than in accordance with a contracting authority’s duties under the Act. Therefore, irrespective of the express terms of a public contract, a contracting authority would need to be able to show that it had regard to the procurement objectives, that it was treating that supplier in the same way as others in an equivalent position and had otherwise complied with its duties under the Act. Although a supplier might not ultimately succeed in showing that it had suffered loss or damage in consequence of the contracting authority’s breach (as opposed to their own defective performance), the option of bringing proceedings and seeking interim remedies under the Act is likely to be attractive to suppliers if they can identify a relevant flaw in the contracting authority’s conduct. The fact that the implications of the new Act for contract management may not be immediately obvious means they could be overlooked.

This has a number of practical implications:

• Keep contractual performance management provisions simple: This is easier said than done given the complexity of goods and services purchased by the public sector. At least contractual provisions should not unnecessarily elaborate on, or clash with, the Act’s requirements for performance management. Overly elaborate contractual provisions about performance, combined with the requirements derived from the Act, is a recipe for confusion and frustration when trying to address under-performance.
• Systematically consider whether the Act’s requirements are being taken into account: The use of checklists can meet with resistance from professionals who consider they represent a “paint by numbers” approach which devalues their professional knowledge and skills. However, at least until the idea of doing performance management in accordance with the Act becomes well established, some kind of prompt for contract managers is likely to be valuable.
• Gather the information needed to meet “have regard” obligations: If contracting authorities are required to have regard to factors such as maximising public benefit this implies an understanding of the benefits likely to result from different options. Authorities may need to draw on information they already hold or seek out information for this purpose.
• Record decisions and the basis on which they are made: The Act’s objective of sharing information with suppliers so that they understand procurement decisions would seem to entail providing reasoned decisions to suppliers where contract management measures are taken.
• Act in a consistent way when dealing with suppliers or justify disparities: Suppliers can argue that they are unjustifiably targeted once they find themselves on the “naughty step”, with authorities relying on instances of under-performance which are overlooked in the case of other suppliers. It is likely to be particularly important for authorities to carry out performance assessments under the Act in a consistent way. Unequal treatment will quickly become apparent given the obligation to publish these assessments.

Looking at these changes in the round, it’s clear that the Act calls for a consistent and effective approach to contract management. Such an approach will mitigate the risk of legal challenge, but more positively a culture which promotes transparency and clarity of decision-making about contractual decisions can support a partnership approach between parties.

Blake Morgan’s team of public contracting experts are supporting a wide range of both contracting authorities and suppliers in various sectors to understand the implications of the Procurement Act 2023. You can visit our Procurement Act Hub here to sign up for events and see our public procurement services here.

¹Incidentally, a contract of the kind which the Court of Appeal was concerned with in Krebs would now be awarded under Health Care Services Provider Selection Regime Regulations 2023.