Laying down the law

Laying down the law Martin Fleetwood

Get ready for changes to procurement practices

Alongside the state opening of Parliament last month, a number of new pieces of draft legislation were launched which will affect the rail industry

Aconsultation document has been produced for the Railways Bill and all industry stakeholders are recommended to respond to it. However, more concrete is the new Procurement Bill (the Bill) which has already received its first reading in the House of Lords.

Taking control of the procurement process The Bill follows on from the UK leaving the European Union and is part of the Government's objective to ‘take back control’ of how goods and services can be procured. While there is a change in the form of language used in the Bill compared to that in the EU Directives, expect some legal arguments as to how much that actually changes some of the substance.

Where there will be real change is in how parties can manage a procurement competition and subsequently deal with the management of the contract once awarded. A whole section of the Bill deals with contract management and current proposals include the ability to increase or decrease the duration of a contract by up to ten per cent without the need to run a fresh procurement.

Use of performance measures Some of the most important issues for bidders and suppliers to the public sector, and the main focus of this article, are proposals for the use and publication of contract performance measures and the extra jeopardy around exclusion from future procurements. Key aims of the Bill include improving the quality of delivery of services and holding suppliers to greater account for their performance. The government is also subjecting itself to greater transparency on how it runs procurements and manages contracts.

Changes which flow from these proposals are: • Publication of key performance indicators (KPIs) and supplier performance against them. • Exclusion grounds for poor performance. • Greater due diligence on supply chains. • Pipelines of future procurement activity.

How will performance measures affect future procurements? Contracts over £2 million in value must be published within 90 days of being entered into. KPIs must also be published and the supplier's levels of performance in meeting them reported at least once a year. If a supplier is underperforming or there has been a breach which has resulted in termination/damages/settlement, this must be reported (although this does not apply to private utilities). As a result, suppliers are publically held to account for living up to their promises.

Failure to meet those promises can have significant impact, including exclusion from future procurements. A new discretionary ground for exclusion has been introduced which gives contracting authorities the ability to exclude a bidder. This ground applies when a supplier has: • Breached a relevant contract in a sufficiently serious way; or • Not performed to the authority's satisfaction (and has failed to improve after notice was given).

With underlying performance data being made public, it will be much harder for the bidders to pick and choose their best contract experiences. The worst performances will be available for all to see. The Bill also proposes that a central debarment list will be created, detailing those poor performing suppliers who can be excluded from applying for public contracts. Until it becomes clear how this list will be managed, this will be a major concern for bidders.

Information provided by bidders will be subject to greater scrutiny. If a bidder fails to provide information requested by the procuring party or provides incomplete, inaccurate or misleading information, the bidder can be treated as an ‘excluded supplier’. In such case, the awarding authority will have the ability to terminate a contract where a supplier has, since the award of the contract, become an excluded supplier or excludable supplier. This would include a situation where a supplier is subcontracting work but did not state this in its bid.

In addition to bidders themselves, their supply chains will be more closely scrutinised. Whole supply chains and not just ‘key’ or ‘essential’ suppliers will also need to satisfy the mandatory and

discretionary exclusion grounds. Bidders will therefore need to take more care over their supply chains, ensure they meet the required standards and be able to fully answer relevant questions about them.

One positive is that bidders should be getting better warning that a procurement is due to be launched. Contracting authorities (but not private utilities) expecting to pay more than £100 million under relevant contracts in the coming financial year are required to publish a pipeline of those contracts having an estimated value of more than £2 million.

What should bidders do and when? While the requirement to publish performance data is likely to only apply to contracts entered into under the new rules, contracting authorities may seek to publish performance data on all contracts. Care will be needed to ensure that confidential data in contracts is not published as part of performance metrics.

Bidders should take time now to: • Review commercial and technical information used in performance management to indicate which data should be redacted if the contracting authority wishes to publish performance data. • Ensure that KPIs used in current contracts are drafted appropriately and there are sufficient warnings if a metric is likely to be missed. Failures to meet current KPIs could have an influence on future contract bids. • Review the list of exclusion grounds in the Bill. Bidders should take steps so that they avoid falling into any ahead of them coming into effect. This goes for the bidder's supply chain as well. • Take stock of their supply chains and ensure that they do not represent a risk to winning (and keeping) a contract.

Consider including policies governing behaviour in sub-contracts, particularly relating to standards which (if breached) could lead to exclusion from public contracts.

Reporting and ongoing due diligence will also be key. Bidders will need to be alive to the health of their supply chains and putting forward the best teams for public contracts. If not already there, reporting obligations should be built into these subcontracts.

Better opportunities for diligent bidders The obligation on contracting authorities to publish pipelines of contracts should allow diligent bidders to identify opportunities and allocate resource to projects which align with their strategy. It may result in procurements being more competitive and challenged more regularly as most bidders will be better prepared and more specifically targeting relevant contracts, so this should be anticipated.

Bidders should look to have a firm understanding of their business, ensure their supply chain is strong and healthy and their contracts are realistic in terms of performance requirements. Plan to allocate the resource needed to manage the company's public sector activity to give it the best chance of success.

Martin Fleetwood is a Consultant at Addleshaw Goddard’s Transport practice. The Rail Team has over 30 lawyers who advise clients in both the private and public sectors across a wide range of legal areas. As well as contractual issues, the team advises on operational matters, franchises, concessions, finance, regulatory, property, employment, environmental and procurement issues.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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