Procurement in a Nutshell – Procurement Act 2023 Guidance: Direct Award
9th August, 2024
This Nutshell will evaluate the recently published guidance on when and how contracting authorities may award a contract without a competitive tendering procedure under the new Procurement Act 2023.
The Procurement Act 2023 is expected to come into force on 28th October 2024.
The Act will, in particular, revoke the following:
- Public Contracts Regulations 2015 (PCR)
- Concession Contracts Regulations 2016
- Utilities Contracts Regulations 2016
When may a direct award be utilised?
Schedule 5
A contracting authority may award a public contract directly to a supplier, that is not an excluded supplier, if a direct award justification applies. The direct award justifications are set out in Schedule 5. These justifications include (among others):
- The public contract concerns the production of a prototype, or supply of other novel goods or services;
- The guidance stresses that a public contract awarded under this ground must be limited to the early stages of design and development and aimed only at testing the suitability of the goods or services. Therefore, the contract must not include quantity production to supply the contracting authority with the goods or service on a commercial basis.
- The goods, services or works to be supplied under the public contract are strictly necessary for reasons of extreme and unavoidable urgency;
- The urgency is unavoidable if it is not attributable to any act or omission of the contracting authority, and could not have been foreseen.
- The reference to the goods, services or works being ‘strictly necessary’ means that the contract awarded must only be used to cope with the urgency of the situation and not for long term use.
- The guidance also suggests that a contracting authority should consider conducting an informal competition before awarding the contract under this ground. An example provided is that a contracting authority could require a number of suppliers to demonstrate how they would satisfy the contractual arrangements and provide a price.
- It must be noted, however, that the decision to conduct an informal competition does not fetter in any way the contracting authority’s discretion to rely on this direct award ground.
A direct award may be awarded to an excluded supplier if the contracting authority considers that there is an overriding public interest. There is an overriding public interest in awarding a public contract to an excluded supplier if it is in relation to:
- the construction, maintenance or operation of critical national infrastructure;
- defence or security issues or economic stability;
- military or security operations; or
- a matter of extreme and unavoidable urgency.
Section 42
Section 42 provides that if a Minister considers it necessary, they may by regulation allow specified public contracts be awarded under section 41 as if a direct award justification applies. “Necessary” means necessary to:
- protect human, animal or plant life or health; or
- protect public order or safety.
The guidance states that the purpose of this provision is to ensure procurements can be carried out quickly and in full knowledge of emergency circumstances, even if the circumstances leading to the event are foreseeable (which would rule out the extreme urgency justification for direct award contained in Schedule 5).
The guidance is clear that direct awards by this means will be a rare occurrence, and should secondary legislation be made, contracting authorities will be alerted through a Procurement Policy Note (PPN).
Section 43
Section 43 also allows a contracting authority to switch to a direct award if they have not received any suitable tenders following a competitive tendering procedure. A tender is not suitable if the contract authority considers that:
- it would be disregarded in an assessment of tenders;
- it does not satisfy the award criteria;
- there is evidence of corruption or collusion between suppliers; or
- it materially breaches a procedural requirement in the tender notice or associated tender documents;
- The guidance considers a material breach to be where ignoring it would result in treating the supplier more favourably than other suppliers.
In these circumstances, a direct award cannot be made to an excluded supplier and the public interest test outlined above does not apply.
When deciding to switch to direct award, the contracting authority should consider whether the reason for not receiving any suitable tenders is because the documentation was not clear and whether this could be corrected to result in a successful contract award.
If a supplier submitted an unsuitable tender prior to switching, the contracting authority is not required (under section 50) to provide an assessment summary to the supplier. However, the guidance stresses that in this circumstance, the contracting authority must still inform the supplier in writing that its tender is unsuitable and the guidance advises that the assessment summary structure be used.
What is the process for utilising a direct award?
Before awarding a contract without undertaking a competitive tendering procedure a contracting authority must publish a transparency notice.
The guidance stresses that a “transparency notice” must include the following:
- The supplier to whom the contract is to be awarded, if known at the time of publication;
- The guidance does make clear that there may be exceptions to this requirement, for example, in the case of extreme urgency where the contracting authority may be publishing the notice without having yet determined to whom the contract is to be awarded.
- Information about whether it is an excluded supplier to whom the contract is being awarded, including what exclusion ground applies;
- The grounds relied upon for utilising a direct award and why the contracting authority believes this is justified;
- Where the contract is being awarded in reliance on secondary legislation made under section 42, the title and registration number of the regulations made; and
- Where the contracting authority has switched to a direct award under section 43, the reason it considers there were no suitable tenders or requests to participate.
The guidance recommends that the transparency notice is published as soon as the decision to directly award the contract is made. The guidance suggests that publishing the transparency notice as early as possible will mean that any challenge to the use of a direct award will be made when it is less disruptive to the procurement. This is because a supplier has only 30 days (under section 106) to make a claim from the point at which it knew, or ought to have known, of the circumstances of the direct award.
Following the publication of a transparency notice, a contracting authority must publish a contract award notice to notify the market to the fact that a contract is about to be entered into.
The guidance makes clear that a contracting authority is permitted to publish a contract award notice at any point after the transparency notice when it is directly awarding a contract under the Act.
It should be noted that a contract award notice is mandatory for all direct awards except when the direct award is based on the justification for user choice contracts.
The contract award notice will initiate a mandatory standstill period except when a direct award is made due to extreme and unavoidable urgency under Schedule 5 or under regulations made through section 42. However, where an exception to the mandatory standstill period applies, the contracting authority may still choose to implement a voluntary standstill period.
What does this mean?
Ultimately, the direct award justifications in Schedule 5 are similar to those justifications outlined in Regulation 32 of the PCR. As such, it is expected that the use of direct awards will remain limited under the new regime. Even with the introduction of section 42, which ensures that the Government can award a public contract directly to protect human life, the guidance has made clear that this will be a rare occurrence.
However, contracting authorities should note the additional transparency requirements under the Act, particularly that it is now mandatory to publish a transparency notice.
For further information please contact Melanie Pears or Tim Care in our Public Sector Team.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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