The Procurement Act 2023 received royal assent on 26 October and the indication is that it will apply in England, Wales and Northern Ireland from October 2024 (for any contracts out for procurement after that time). Will bringing the different procurement regimes into one new statutory framework be good news for real estate developers?
Under the present regime, procurement processes are often criticised and developers keen to engage with the opportunities that working with the public sector generates are faced with a lengthy, time-consuming, costly and rigid process. No wonder that a complicated body of case law has evolved out of a wish to structure development deals so as to fall outside the procurement regime in the first place. With the rewrite of legislation into a post-Brexit form, developers and their advisers will have to look again at established deal structuring to determine whether lessons learned from previous case law survive the change in language around public works.
What does the Act aim to do?
One acknowledged aim of the new Act is to introduce more flexibility into the procurement process as a whole: the provisions of the Act do this by allowing contracting authorities to tender opportunities through the “competitive flexible procure”. This new CFP alternative sits alongside a familiar single-stage procedure without any restriction on who can submit tenders, akin to the current open procedure. The “design-to-suit” possibility would allow contracting bodies to streamline for smaller schemes or, for significant and complex schemes, to demand more from those developers submitting tenders.
This new flexibility extends to the terms of the procurement even after the process has started, and to the award criteria themselves which can be refined before tenders are received. There are limitations to this area of flexibility, so we would expect most contracting authorities to settle their award criteria before procurement launch. Contract awards are now to be based on the “most advantageous tender” rather than the “most economically advantageous tender”, emphasising that a wider range of factors, including sustainability, need to be taken into account when deciding who is awarded the contract. While this new flexibility is welcome it is unlikely to be an immediate benefit, as contracting authorities will have to evolve suitable procedures and make careful judgments to avoid litigation challenge.
A second aim of the Act is to provide greater transparency before, during and after the procurement process. The Act’s requirements for publication of numerous notices will be of benefit to developers looking ahead to plan their stream of schemes. Planned procurement notices, preliminary market engagement notices and pipelines notices may place a greater administrative burden on the contracting authorities, but will bring welcome advance notice to real estate developers, who look ahead on a scale of multiple years or even decades. Transparency is intended to last throughout the life of a procurement with follow-on notices in relation to contract changes and on contract termination. Similarly, where a direct award of a contract is made, a contracting authority is required to publish a transparency notice before awarding the contract.
Alongside the advantages of the new Act, developers will have to stay on the right side of the legislation if they can hope to be awarded a public works contract. Those who hope to win a contract must be careful not to fall into the new or reframed exclusion grounds, including discretionary grounds that the awarding authority might use to justify exclusion from the process. Examples of this include, poor performance of a contract (which is wider than the current exclusion ground) or acting improperly in relation to any procurement which results in unfair advantage (such as where a bidder fails to provide information requested by an authority).
Many of the grounds for exclusion now clearly extend to connected persons (including persons with significant influence, parent companies, subsidiaries or predecessor companies) and associated persons (those the developer is relying on to meet conditions of participation). There will be a new centrally managed debarment register, listing those who have been excluded from participating in procurement processes for a specified period by virtue of a mandatory or discretionary exclusion ground. The very best of behaviour is expected from developers (and wider family and bidding friends) so as to not be labelled an excluded (for mandatory grounds) or excludable (discretionary grounds) supplier.
Those high expectations continue throughout the life of an award with the Act’s new requirements around key performance indicators. Not all schemes will fall within the KPI requirement, but where a contract does, the contracting authority must set and publish at least three KPIs, judge against them annually, and publish those findings (which in turn could then trigger the discretionary ground for poor performance referred to above). Developers should look to work closely with contracting authorities to set those KPIs, as unrealistic targets will reflect badly on the developer.
Almost inevitable consequences
Once the Act comes into operation we may see another round of procurement litigation. There are new definitions contained within the Act. Given that previous definitions have a body of exacting case law behind them, aggrieved but expertly advised developers may see merit in challenging development deals which are not procured under the Act. It may be that judgments to date no longer work under the new regime and vice versa. Developers should look forward with cautious optimism to next October to an overall improved procurement regime, although it is possible that with new legislation comes new legal challenge.
Mukhtiar Tanda is senior partner and international head of the governments & infrastructure sector and Chris Murray is a legal director and procurement law specialist in the competition, EU & trade group at Eversheds Sutherland