Briefing
The Procurement Bill: contract performance
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. We are now publishing 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, Alexia Millett (Freshfields) and Azeem Suterwalla (Monckton) address the provisions in the Bill relevant to contract performance and their likely effect.
Status of the Bill
The long-awaited Bill was introduced to the House of Lords on 11 May 2022, setting out the UK Government’s proposed reforms to public procurement rules in a post-Brexit world. While the Bill has dropped a number of the more drastic suggestions from the Government’s Green Paper on Transforming Public Procurement, it still proposes a number of significant changes which aim to simplify and improve the UK’s public procurement regime.
The Bill has had its first and second readings in the House of Lords. It is currently at “committee stage”, during which it undergoes a line-by-line examination. This is expected to run through to September, following which the Bill will be referred to report stage and a third reading before it starts its journey in the House of Commons.
Contract performance under the Bill
Procurement, and particularly good procurement, does not end at the point at which the contract is awarded. Parties will reap the benefits of good procurement well into the lifetime of the contract itself, particularly during the contract performance stage. This briefing looks at the provisions of the Bill that deal with contract performance.
There are three key sections of the Bill particularly relevant to contract performance:
1. The procurement objectives (clause 11): these are a new set of overarching principles that the parties must take into account in public contracts. They are outcome-focused objectives (such as delivering value for money), which parties will be under a duty to have at the forefronts of their minds when contracting and when performing their obligations under the contract.
2. Assessment of contract performance (clause 66): this new provision requires contracting authorities to publish notices if a supplier has breached a public contract resulting in termination, award of damages, or settlement; or is not performing to the authority’s satisfaction and has not remedied the breach or improved performance.
3. The key performance indicators (clause 50): linked to clause 66, a contracting authority must set key performance indicators (KPIs) measuring a supplier’s performance of a government contract.
These provisions and their effect are addressed in detail below:
Procurement objectives
The procurement objectives are set out in clause 11 of the Bill and are relevant to contract performance in the broad sense of setting out criteria for what the contracts ought to be seeking to achieve. These objectives are supposed to span the whole life of the procurement, including the contract’s performance. In this sense, they are relevant not only to parties at the time of contracting but will need to be met right the way through the contract performance stage.
Under clause 11(1) of the Bill, a contracting authority must have regard to the importance of:
- delivering value for money;
- maximising public benefit;
- sharing information for the purpose of allowing suppliers and others to understand the authority’s procurement policies and decisions;
- acting, and being seen to act, with integrity.
These procurement objectives will need to be taken into account when measuring successful performance of the contract, and it is likely that the new KPI regime that parties are required to establish (discussed further below) will link into these procurement objectives.
The Bill also introduces various different notification requirements (which are a recasting of the existing EU ‘transparency’ principle). There are many new requirements to publish transparency notices, which may mean that suppliers and competitors who are not party to a government contract are likely to have greater access to information regarding an incumbent supplier’s performance.
KPIs and assessment of contract performance
In addition to the overarching procurement objectives, there are two key clauses that go hand in hand, which are directly relevant to actual performance of contract: clause 50 on key performance indicators and clause 66 on assessment of contract performance. These are new provisions and are an important change: they are emphatic of the government’s focus on procurement outcomes and ensuring good performance of contracts.
In summary:
- Clause 60 requires that, before entering into a public contract with an estimated value of more than £2m, a contracting authority must set and publish at least three KPIs. A KPI is defined in clause 50(3) as a “factor or measure against which a supplier’s performance of a contract can be assessed during the life-cycle of the contract.” Clause 50 does not apply if the contracting authority considers that the supplier’s performance under the contract could not appropriately be assessed by reference to KPIs; or if it falls into one of the exceptions (these are set out in clause 50(5) - for example, if it is a framework contract.)
- Clause 66(2) requires that, where a contracting authority has set KPIs, at least once every 12 months during the life cycle of the contract and on termination of the contract, it must:
- assess performance against the KPIs; and
- publish information to be specified in regulations in relation to that assessment.
Separately, a contracting authority must publish certain information (clause 66(5)) if it considers that a supplier:
- has breached a public contract resulting in termination, award of damages, or settlement; or
- is not performing to the contracting authority’s satisfaction and has not remedied the breach or improved performance despite having been given an opportunity.
These new requirements are burdensome, and parties are now likely to be openly scrutinised during the lifetime of the contract because of these measures.
The Government has indicated that there will be a central digital platform on which the contracting authorities will be required to publish their information.1 While this will ensure greater transparency, it will undoubtedly lead to greater availability of information in the public domain about a party’s contract performance during the life span of the contract. This is evidently designed to incentivise the supplier into good performance, but may also invite public scrutiny. The fact that a contracting authority can publish information about the supplier’s performance, where it considers it is underperforming or is in breach, is arguably akin to a sword hanging over the supplier throughout the contract lifetime.
It will be interesting to see how this proposed regime interacts with the award criteria (now in clause 22) Under the current rules the award criteria are not supposed to take into account past performance, however greater scrutiny of contract performance and an increase in publicly available information about how a contractor is faring presents a risk for parties contracting with government – this information about a party’s performance may inadvertently be taken into account in future procurements.
While it is not clear from the Bill itself what the KPIs are required to cover (although they will likely need to link in with the procurement objectives) clause 50 establishes a mechanism of measuring contract performance against the contract’s aims right from the start.
This change reflects a general trend in the UK towards outcome-based procurement, as seen in other models such as that of World Bank procurements and social impact bonds.2 The Bill reflects this trend towards looking at what the contract practically achieves. Parties contracting with government will need to be alive right from the start as to whether they are meeting the objectives of the contract and delivering the required outcome.
What is the effect of these new provisions?
The new procurement objectives in clause 11 will provide a benchmark against which parties ought to be measuring their performance – it is likely that these objectives will be linked to the KPIs and so these objectives frame how successful a party’s contract performance is. Additionally, the various new notice requirements introduced throughout the Bill will provide greater available information about how an incumbent supplier is faring during the lifetime of the contract.
The requirement for authorities to assess contract performance is arguably a positive step in seeking to ensure that parties carry out their obligations under public contracts well. It appears that the Government is actively seeking to guarantee successful performance of contracts in the wake of the collapse of firms such as Carillion.
However, the practical reality is that this increased monitoring and reporting is likely to be onerous for the parties and is a shift towards a more US-style of procurement, in which suppliers’ performance information is held on a national government database.3 Depending on how successful performance of a contract is, this could have positive or negative ramifications for suppliers.
The requirement to set and monitor KPIs is also likely to be more labour intensive and possibly expensive for the parties. However, it may also give them some flexibility as to how successful performance of a contract is measured if the KPIs are set with careful consideration. Provided that the KPIs are realistic and objectively measurable, this might suit suppliers better.
What are the risks and opportunities for parties contracting with the Government?
1. The requirements under clauses 50 and 66 may bring more flexibility as to how successful performance of the contract is measured. However, the new monitoring requirements may increase expense and be more time consuming for the parties.
2. Parties are unlikely to want to sign up to KPIs they cannot realistically meet, and so there is a risk that these KPIs become overly broad or standardised and are not in fact appropriate or workable for the contract in question. Parties will need to give careful consideration to KPIs and how deficiencies are addressed in the contract documentation.
3. The increased publication requirements might result in parties’ performance being scrutinised not just during the contract performance stage but also for future procurements which may inadvertently prejudice parties later down the line.
Conclusion
There are notable changes across the Bill in some of the relevant provisions discussed above, some of which represent a departure from the existing European position. For example, clause 11, is a notable departure from traditional EU principles of ‘transparency’ and ‘fair and equal treatment’, and this is likely to cause wide-ranging issues across the piece. However, we have only addressed in this briefing the key changes in relation to contract performance.
Many of the provisions in the Bill regarding performance of contract are ripe for litigation – whether actively seeking to bring proceedings or defending claims against bid challenges. The draft legislation’s more nebulous transparency requirements and increased emphasis on monitoring contract performance may bring many benefits, however, they will likely need testing in practice before these provisions are “bedded in”. It is possible that this may, at least in the short term, present fertile ground for disputes. To avoid this, parties contracting with government will soon need to ensure that they give proper consideration to the contract objectives right from the start – careful consideration of the KPIs and whether they are achievable, as well as how they ought to be monitored, will be crucial at the contracting stage,. Parties will also need to ensure that they have a clear and sustainable way of monitoring their KPIs and information requirements.
This briefing is part of a series. See also:
