Procurement in a Nutshell – Procurement Act 2023 Guidance: Contract Termination

Introduction

The Procurement Act 2023 is expected to come into force on 24^th February 2025.

The Act will, in particular, revoke the following:

• Public Contracts Regulations 2015 (PCR)
• Concession Contracts Regulations 2016
• Utilities Contracts Regulations 2016

Key terminology

The guidance explains that an  ‘associated person’ is someone who the supplier is relying upon to satisfy the conditions of participation (that is not a guarantor), for example, a key sub-contractor.

Section 57 defines an “excluded supplier” as a supplier which a mandatory exclusion ground applies (as set out in Schedule 6) AND the circumstances giving rise to the application of that exclusion ground are continuing or likely to occur again; OR the supplier is on the debarment list by virtue of a mandatory exclusion ground.

An “excludable supplier” is a supplier to which a discretionary exclusion ground applies (as set out in Schedule 7) AND the circumstances giving rise to the application of that exclusion ground are continuing or likely to occur again; OR the supplier is on the debarment list by virtue of a discretionary exclusion ground.

Implied termination grounds

The Act implies into every public contract grounds on which the contracting authority may

terminate the contract. These grounds will apply to all public contracts, whether or not they

are expressly replicated in the contract. Any attempt by the contracting authority and the supplier to restrict or override the implied terms will have no effect and the implied term will remain valid.

Contracting authorities should note that the Act does not imply terms relating to compensation on termination on one of the implied grounds, and so it is advised that such matters are expressly included in the procured contract.

For clarity, contracting authorities remain able to provide for termination on other grounds than those implied by Section 78.

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The three implied contract termination grounds, as set out in Section 78(2), are:

1. The contracting authority considers that the contract was awarded, or modified, in material breach of the Act or regulations made under it;
2. Since the contract was awarded, the supplier has become an excluded or excludable supplier (including by reference to an associated person);
3. A sub-contractor (other than an associated person) is an excluded or excludable

Section 78(11) clarifies the circumstances in which a supplier could become an excludable supplier, which are:

1. A discretionary exclusion ground did not apply before the contract was awarded, but applied afterwards (section 78(11)(a)(i));
2. A discretionary exclusion ground applied both before the contract was awarded and after, but the exclusion ground applied to different circumstances. For example, a different incident of professional misconduct arose before and after the contract was awarded (section 78(11)(a)(ii)); and
3. The contracting authority only discovers after awarding the contract that the supplier was an excludable supplier before the contract was awarded (section 78(11)(b)).

The circumstances outlined in Section 78(11) ensures an implied termination ground does not apply where the supplier is excludable throughout the procurement process but the contracting authority exercised their discretion to not exclude them. As such, contracting authorities are prevented from reversing their decision to not exclude a supplier without there being a change in circumstances.

Utilising an implied term

Prior to terminating a contract by reference to an implied term, Section 78(7) requires that a contracting authority:

1. Notify the supplier of its intention to terminate;
2. Specify which of the grounds in 78(2) applies and why it has decided to terminate the contract; and
3. Give the supplier reasonable opportunity to respond to the contracting authority on whether a termination ground applies and its decision to terminate.

Contract Termination Notice

The Act provides, at Section 80(3), that ‘termination’ for the purpose of the publication of a Contract Termination Notice includes:

1. Discharge (termination by mutual agreement);
2. Contractual Expiry;
3. Termination by a party (either through a contractual or implied right to terminate the contract);
4. Rescission; or
5. Court order.

Contracting authorities should note that the list provided above is non-exhaustive.

Publication of a Contract Termination Notice is used to inform stakeholders that a public

contract has been terminated and the reason for that termination (for example contractual expiry or the utilisation of an implied termination ground).

Where a termination has resulted from a supplier breaching a contract, the termination notice must also provide information about that breach, including any steps taken by the contracting authority to notify the supplier of the breach and any opportunity given to the supplier to rectify the breach. Contracting authorities must also provide details of any settlement agreement or award of damages, if this occurred prior to the deadline for publishing the Contract Termination Notice.

The notice must be published before the end of the period of 30 days beginning with the day on which the public contract is terminated.

To be clear, in instances where procurements are terminated before a contract is entered into, the publication of a Procurement Termination Notice is required instead.

What does this mean?

The Act introduces a mandatory transparency requirement obligating contracting authorities to publish a Contract Termination Notice following termination of a contract, including termination under one of the implied termination grounds. The guidance stresses this requirement will allow greater scrutiny of public contracts, enabling interested parties to seethe reasons behind termination of a contract.

It is advised that contracting authorities note the additional transparency requirements introduced by the Act, and prepare to incorporate into public contracts the consequences of termination under an implied ground (such as the payment of compensation, and the transfer of assets). This will provide clarity to suppliers, and ensure that any early termination is conducted as smoothly as possible.

For further information please contact Melanie Pears or Tim Care in our Public Sector Team