Examining changes to frameworks, direct awards and dynamic markets under the new Procurement Bill

In our previous article titled "Examining changes to competitive tendering procedures under the new Procurement Bill", we explored some of the key changes to competitive tendering brought about by the new Procurement Bill (the Bill). In this article, we will provide analysis on the changes to frameworks, direct awards and dynamic markets as compared to the current procurement regime. 

At the time of writing, the Bill has passed through the House of Lords (HL) and has just passed through the Committee Stage in the House of Commons (HC). The next stage in the HC is the Report Stage; the date for this stage has yet to be announced but is anticipated to be in May. The report stage will give MPs an opportunity to propose and vote on further amendments to the Bill.

Frameworks

A "framework" is a defined as "a contract between a contracting authority and one or more suppliers that provides for the future award of contracts by a contracting authority to the supplier or suppliers" (section 45(2), the Bill). As set out in section 45(5) the following information must be set out in a framework:

• A description of goods, services or works to be provided under contracts awarded in accordance with the framework
• The price payable, or the mechanism for determining the price payable, under such contracts
• The estimated value of the framework
• Any selection process to be applied on the award of contracts
• The term of the framework (as set out in section 47 – see below)
• The contracting authorities entitled to award public contracts in accordance with the framework
• Whether the framework is awarded under an open framework (see section 49 – see below).

For the purposes of the Bill, and in line with current practice, frameworks may allow for the future award of a public contract following either: (1) a competitive selection process (section 45(3)) (Further Competition); and/or (2) without competition, subject to certain conditions (Direct Award). The conditions for Direct Award are:

• Only one supplier is a party to the framework
• The framework sets out:
  • The core terms of the public contract
  • An objective mechanism for supplier selection.

The rules relating to Further Competition are set out in section 46 of the Bill. This sets out that conditions of participation may only be applied if the contracting authority is satisfied that the conditions are a proportionate means of ensuring that suppliers have the legal and financial capacity, or technical ability, to perform the contract. In addition, a Further Competition may provide for the assessment of proposals, but only by reference to one or more of the award criteria against which tenders were assessed in awarding the framework (which can be further refined for the purpose of the Further Competition). This creates a link and constraint on the award criteria to be used for the Further Competition; this is not something featured in current procurement law.

If conditions of participation are applied, in respect of:

• Legal and financial capacity to perform the contract, those conditions may not:
  • Require the submission of audited annual accounts (except from those suppliers who are or were required to have accounts audited in accordance with Part 16 of the Companies Act 2006 or an overseas equivalent)
  • Require insurance in relation to performance of the contract to be in place before the award of the contract (section 46 (3))
• Technical ability to perform the contract, those conditions may relate to a supplier's qualification, experience or ability, but may not:
  • Require suppliers to have been awarded a contract under the framework, or by a particular contracting authority
  • Break the rules on technical specifications in section 56
  • Require certain qualifications without allowing for equivalents (section 46(4)).

A framework may not permit the award of a public contract to an excluded supplier or prevent contracting authorities from requesting additional information from suppliers prior to awarding the contract (section 45(6)).

The Bill permits fees to be charged at a fixed percentage of the estimated value of any contract awarded to a supplier in accordance with the framework (section 45(7)). This therefore allows the continued practice of commercialising the provision of frameworks by contracting authorities. 

Section 47(1) sets out the maximum term for a framework. As with the current regime, the maximum term for a general framework is four years. This is eight years for defence and security frameworks (an increase from seven years under the current regime) or utilities frameworks (aligned with the current regime). However, the maximum term may be disregarded if the contracting authority believes the nature of the goods, services or works to be supplied under contracts in accordance with the framework require a longer term (section 47(2)). If this is the case, the contracting authority must set out its reasons for disregarding the maximum term in the tender, or via a transparency notice for the framework. Although worded more softly than previous references to "exceptional circumstances" (and therefore arguably giving greater flexibility), the principle to permit longer frameworks aligns with the current regimes.

Section 48 sets out that there is an implied term in every framework that contracting authorities may exclude suppliers, who are either excluded suppliers or become excludable suppliers after the framework is awarded, from participating in any selection process run in relation to the award of a contract under the framework. 

The eagerly anticipated introduction of "open" frameworks is dealt with by section 49. An open framework is a "scheme of frameworks that provide for awards of successive frameworks on substantially the same terms"; the open framework is therefore an overarching scheme under which multiple frameworks may be awarded. Open frameworks must provide:

• For the award of a framework at least once during:
  • The period of three years after the award of the first framework in the scheme
  • Each five-year period following the award of the second framework in the scheme
• For the expiry of a framework on the award of the next
• For the final framework to expire eight years after the first framework under the scheme is awarded (section 49(2)).

Open frameworks therefore cannot last longer than eight years and must be awarded at least three times (first iteration at the outset, second iteration no later than three years after the first iteration and third iteration within the final five years). There is flexibility to award more frequently than this if required. For open frameworks with only one supplier, the duration is reduced from eight years to four years.

Each iteration of the open framework must be awarded on "substantially the same terms"; this means that an award could be made "by reference to the same tender or transparency notice without substantial modification" (which is further defined in section 31(3) and aligns with current principles that changes should not impact on the participating/permitted suppliers, otherwise they will be considered to be substantial).

Unless there is no limit to the number of suppliers that can be a party to the open framework, places may only be awarded based on a tender relating to an earlier iteration of the open framework, or a tender relating to the current award. For open frameworks with an unlimited number of suppliers, places can also be awarded by reference to the fact that the supplier has already been party to a previous iteration of the framework (section 49(4) and (5)). 

Direct awards

The justifications for directly awarding a public contract are set out at sections 41-42 and Schedule 5 of the Bill. This allows a contracting authority to award a contract directly to a supplier without following either an open or competitive award process. The “direct award justifications” include:

• Where the contract concerns the production of a prototype, or the supply of other novel goods or services, for the purpose of:
  • Testing the suitability of the goods or services
  • Researching the viability of producing or supplying those goods or services
  • For other research, experiment, study or development.

• Where only one supplier is capable of performing the contract due to:
  • The contract relating to the creation or acquisition of a unique work of art or artistic performance
  • A particular supplier has intellectual property rights, or other exclusive rights, where only that supplier can supply the goods, services or works required and there are no other reasonable alternatives
  • An absence of competition for technical reasons, again where only a particular supplier can supply the goods, services or works and there are no other reasonable alternatives.

• Additional or repeat goods, services or works are required by an existing supplier in circumstances where a change in supplier would result in incompatible goods, services or works which would create disproportionate technical difficulties

• Similar goods, services or works are required by an existing supplier and the existing goods, services or works are supplied under a contract that was competitively tendered within five years of the new requirement and the transparency notice confirmed the intention to rely on this direct award justification at a later date

• The contract concerns goods purchased on a commodity market

• There are particularly advantageous terms for the contracting authority due to the supplier undergoing insolvency proceedings

• The goods, services or works are strictly necessary for reasons of extreme and unavoidable urgency and as a result the contract cannot be awarded pursuant to a competitive tendering procedure (for example when the normal time limits cannot be complied with)

• The contract is for the supply of user choice services (i.e., light touch contracts specified in section 9 and those for the benefit of a particular individual or required under an enactment to have regard to the views of the individual) subject to conditions

• The contract being a "defence and security contract" relating to the supply of air or maritime transport services to the armed forces or security services relating to deployment subject to conditions including that the contract would be a "qualifying defence contract" under section 14(2) Defence Reform Act 2014.

The above justifications broadly align with existing "safe harbours" under the current regime, albeit they are now drafted in slightly different terms. In particular, there is no longer reference to the absence of an artificial narrowing of the competition where there is only one supplier and the ability to directly award a public contract where no suitable tenders or requests to participate etc have been received is now dealt with by section 43 of the Bill (switching to direct award). This now includes an additional limb to confirm that the contracting authority considers "that award under section 19 (competitive tendering procedure) is not possible in the circumstances". In addition, section 43 does not include the previous requirement to submit a report to the Cabinet Office (or equivalent), if requested. We look forward to further guidance on what the differences in the drafting will mean in practical terms.

A Minister can also, if considered necessary to: (a) protect human, animal or plant life or health; or (b) to protect public order or safety, make regulations to provide that specified public contracts may be directly awarded. This is a "new" ground for direct award and will need further clarification. It is currently unclear how this will impact on directly awarded contracts using this justification if, for example, the Minister's decision to issue regulations is successfully challenged.

Dynamic markets

Dynamic markets will replace the current dynamic purchasing systems. Under the Bill, a contracting authority may establish a dynamic market which can be used for all procurements. This differs from the current position under the Public Contracts Regulations 2015 and Utilities Contracts Regulations 2016, in which dynamic purchasing systems may only be used for "commonly used purchases" i.e. commodity type purchases.

Section 35(1) specifies that a dynamic market is an arrangement established by a contracting authority for the purposes of a contracting authority awarding public contracts by reference to the supplier's membership of that arrangement. There is a distinction made between dynamic markets and utilities dynamic markets, the latter are specifically for the award of utilities contracts by utilities. Concession contracts are excluded from the rules on dynamic markets, unless they are also a utilities contract. In contrast to the current regulations, the Bill does not include any requirement for dynamic markets to be operated electronically.

A dynamic market notice must be published before establishing a dynamic market stating the contracting authority's intention to do so. Dynamic market notices must also be published after the market is established, after modifying the market and after the market ceases to operate. The position is different for qualifying utilities dynamic markets where a tender notice only needs to be provided to members of the market, or part of the market (section 40 of the Bill).

The authority may set conditions for membership (see section 36) but only if it is satisfied that the conditions are a proportionate means of ensuring that members have the legal and financial capacity and the technical ability to perform the contracts. When considering if a condition is proportionate, a contracting authority must have regard for the nature, complexity and cost of contracts to be awarded. Conditions cannot be modified during the term of the market, so it is important that the contracting authority clearly sets out the conditions at the outset. When establishing a dynamic market, a contracting authority must:

• Accept applications for membership at any time during the life of the market
• Consider applications for membership of the market within a reasonable period
• Admit suppliers which satisfy the conditions for membership and are not excluded/excludable suppliers as soon as reasonable practicable
• Consider whether to admit suppliers which are excludable suppliers but nonetheless satisfy the conditions for membership
• Inform suppliers of the outcome with reasons for the decision as soon as reasonably practicable.

The number of suppliers in a dynamic market cannot be limited, however there are circumstances where a supplier must/may be removed. It is mandatory to exclude a supplier if it is on the debarment list. However, the contracting authority has the discretion to exclude a supplier from a dynamic market if:

• The contracting authority considers the supplier is an excluded supplier because mandatory exclusion grounds exist (where the supplier is not on the debarment list)
• The supplier does not satisfy the conditions of membership
• The supplier has become an excludable supplier since becoming a member or the authority has only just discovered the supplier was an excludable supplier.

A contracting authority must inform the supplier that it is going to be removed with the reasons for the decision prior to removing them.

Contracts awarded by reference to the dynamic market are awarded in accordance with the competitive flexible procedure in section 19 of the Bill, which permits the exclusion of suppliers that are not a member of the relevant dynamic market, or part of the relevant dynamic market. However, before excluding suppliers or disregarding tenders, any applications for membership of the relevant market from those suppliers must be considered (except where exceptional circumstances arise due to the complexity of the procurement which mean that the contracting authority cannot consider the application for membership before the deadline for receipt of either a request to participate or tender).

The Bill introduces the scope to charge fees to suppliers unlike the current regime (see section 38). There is a different approach to fees, depending on whether the dynamic market is a utilities dynamic market or not:

• For 'standard' dynamic markets, the documents establishing the dynamic market can provide for fees to be charged to suppliers that are awarded a contract by reference to their membership – the fees must be a fixed percentage applied to the estimated value of the contract (i.e. a fee based on the value of any contract(s) awarded)
• For a utilities dynamic markets fees may be charged to suppliers in connection with obtaining and maintaining membership of the market (i.e., a fee based solely on membership).

Next steps

This concludes our commentary on the Bill during its passage through Parliament. We await the final form to be passed as legislation and any accompanying guidance and statutory instruments. We will comment on those as they are available. Please keep an eye on our website and social media channels for further commentary.

If our expert procurement lawyers can be of assistance in the meantime, please do not hesitate to get in touch.

Note: references to sections of the Bill were correct at the time of publication but may change during the passage of the Bill through Parliament.