The Procurement Act 2023 and The Procurement Regulations 2024 have now been in effect for six weeks and what an interesting six weeks they have been. Since the Act came into effect, the Chancellor of the Exchequer has presented her Spring Statement to Parliament and President Donald Trump has announced global tariffs with a blanket 10% import tariff being levied on US imports from the UK.
The Spring Statement highlighted government’s plan to use the construction sector as one of its pillars to boost economic growth by announcing an additional £2 billion in social and affordable housing in 2026/2027 (with further announcements to come) and committing £625 million to boosting skills in this sector. This sentiment has been tempered somewhat by the announcements of the US tariffs as the industry assesses both the risks and opportunities that lie ahead for it.
The Government has committed to drive better, faster, greener construction solutions. However whilst the public procurement process has been centralised and streamlined, it is still not simple. Some of the concepts remain the same as those in the repealed procurement regulations and some are similar but not the same.
Given the recent changes, before construction SME’s dive headfirst into the procurement space, they must consider a few crucial factors such as:
- What does the public procurement regime expect from suppliers?
- What types of mechanisms are in place to provide for public procurement?
- Are they ready for the work should it come?
The public procurement regime expects bidders to be compliant and able to do what they say they can. This is the same whether the bidder is an SME or a large company. Although the requirements related to providing audited financial statements (unless otherwise required by law) and proof of insurance prior to having been awarded a tender have been done away with whilst a broader interpretation of technical specifications and qualifications has been introduced, SMEs are still expected to be compliant with legislation and best practice governing their industry. Examples of this include the new and evolving building safety legislation and the net zero carbon target and wider life cycle sustainability issues.
The supplier also needs to be sure that it understands the criteria which the contracting authority will be using to assess the tenders to prevent a scenario where a supplier spends hours preparing a submission only to be knocked out on a preliminary ground.
In order to understand the mechanisms in place for public procurement, we need to look at a few definitions.
There are two main categories of procurement being dealt with in the Act. There is “procurement” which is defined as “the award, entry into and management of a contract” and “covered procurement” which narrows the previous definition down to dealing with a “public contract.”
A public contract is a contract for the supply (for consideration) of goods, services or works to a contracting authority. To qualify as a public contract (which includes a framework or concession contract):
- its value must not be less than the threshold value for a contract of that nature; and
- may not be an exempt contract
A contract which is below the threshold value for a contract of that nature (a below-threshold contract) or is a dynamic market is not a public contract, therefore doesn’t fall under covered procurement, and the regulation of that contract is less stringent than that of a public contract. Where dealing with below threshold contracts in particular, contracting authorities are expected to have consider how to make it easier for SMEs to participate in a tender process.
Considering the above, it may make sense for an SME in the construction industry entering into the public procurement space for the first time to set its sights on below threshold contracts. If this doesn’t make financial sense, then collaborating with another business to submit a joint bid is something to consider. Taking on a project where a business is not ready for it is as dangerous to the existence of a business as a lack of work.
Transparency is a key requirement of the Procurement Act and this cuts both ways. Contracting authorities are required to be transparent at every junction of the procurement process but, in certain circumstances, the must also performance assessment notices and, in severe cases, contract termination notices in respect of contracts where suppliers have not complied with their obligations in terms of a contract.
The Government’s Construction Playbook is a useful reference point for building contractors seeking to understand the approach and dynamics of public sector construction procurement. The Playbook sets out the expectations for future public building works, and the importance of SME’s is highlighted with express recognition that SME’s have experience but not necessarily the capacity to engage to the extent of a national Tier1/2 contractor, therefore encouraging different contracting, scoring and pricing routes, increased collaboration and the acceptance of JVs and bidding consortia.
At an early stage public bodies are encouraged to publish their pipeline to give business certainty, arrange early engagement with the supply chain and define the project based on outcomes including whole life cost, sustainability and social value and a recognition that bidders are entitled to a fair profit, moving away from a cheap, low quality “value engineering” model where SME’s can’t compete financially.
Effective choice of building contract is also important. The officially endorsed public sector contract is the NEC model, currently NEC4 with published updates. SMEs who are not familiar with the NEC contract model may assume it is lump sum fixed price “sort everything out in the final account”. The NEC contract structure is much more about real time decision making and cost control through active decision making. The NEC is considered more of a project management tool, in the sense that if a party forgets to serve a notice within a short deadline, then results are deemed to have occurred. If you are considering bidding for a public project which has proposed NEC, you will need more experienced resource to handle the admin required to run the contract (compared to a JCT final account commercial deal).
Traditional (works only) and design and build methodologies and well known, but public sector bodies are also encouraged to consider delivery models such as Integrated Project Insurance (where everyone collaborates as co insured under one huge policy and creates a single project team so no one can sue the others) and Two Stage Open Book (where bidders put together a consortia that builds up a design and cost solution on an open book basis). When you include other contract concepts such as Target Cost (with gainshare bonus) and Partnering, it is clear that the public sector is encouraged to consider risks up front to developer a longer term collaborative relationship with the construction sector. So if you are considering getting involved in public sector work, you need to consider both the bidding process and the contract that you will be signing, with some reassurance that price should not be the only factor. That might mean joining forces with others to increase your scores on non- financial elements and creating a team that maximises its chances of winning the job.
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
Wright Hassall does not accept any responsibility for any loss which may arise from reliance on any information published here. Definitive advice can only be given with full knowledge of all relevant facts. If you need such advice please contact a member of our professional staff.
The information published across our Knowledge Base is correct at the time of going to press.
