Procurement Processes

The impact of COVID-19 on businesses is significant, with many forced to suspend operations or even become insolvent. While public sector contracting authorities are working hard to minimise the disruption to services, they will need to be able to move quickly to respond to the changing pressures on their contractors.

At the same time, contracting authorities must continue to adhere to the Public Contracts Regulations 2015 (the “PCR 2015”), and utilities to the Utilities Contracts Regulations 2016 (the “UCR 2016”) (together, the “Regulations”) for current and future contracts.

This article explores the issues which may arise on existing contracts, new procurements, and on-going procurements, and some of the tools available within the legislative framework to address those.

Existing contracts: Modification of contracts during their term

Not substantial and ‘de minimis’ modifications (Regulation 72 PCR 2015 / Regulation 88 UCR 2016)

In response to the impact of COVID-19, a contracting authority may wish to modify an existing contract, for example to extend it or tailor it to respond to current needs.

The Regulations permit making modifications which are not “substantial” within the meaning of Reg 72(8) PCR (Reg 88(7) UCR), for example they:

• are not materially different in character from the original contract; do not introduce conditions that, had they been part of the initial award procedure, would have changed who bid or won the contract.
• do not extend the scope of the contract considerably to encompass services not initially covered.
• do not alter the economic balance in favour of the supplier in a manner not provided for in the original contract.

The Regulations also permit modifications whose value is below the thresholds and percentages described in Reg 72(5) PCR (Reg 88(4) UCR), and where a change of contractor cannot be made for economic or technical reasons (Regulation 72(1)(b) PCR / Reg 88(1)(b) UCR).

Express Review Clauses (Regulation 72(1)(a) PCR / Reg 88(1)(a) UCR)

When considering varying a public contract in response to an impact caused by COVID-19 the first action should be to consider the contract wording.

If the contract includes a review clause which provides for the extension of the contract in clear, unequivocal and precise terms in the initial procurement documents this can be invoked to avoid undertaking a new procurement procedure. A general variation clause will not be sufficient.

Changes due to unforeseeable circumstances (Regulation 72(1)(c) PCR / Reg 88(1)(c))

Has the need for the modification been brought about by unforeseeable circumstances?

The Cabinet Office’s Procurement Policy Note (PPN) 01/20 (18 March 2020) recognises that the COVID-19 situation is so novel that its consequences are not something that authorities should have predicted. Consequently, it is likely but not guaranteed that this limb of the requirement will be satisfied in a modification necessitated by COVID-19.

PPN 02/20 (20 March 2020) provides suggestions for modifications and other measures which may need to be taken in respect of contractual payment provisions, to address COVID-19 financial consequences for suppliers.

Our notes on the PPNs can be found here.

Does the modification alter the overall nature of the contract?

Authorities should consider each specific case and whether the suggested contract modification will render the contract significantly different overall to its original form.

Is the increase 50% or less than the original price?

This requires a simple comparison of the cost of the modification against the original contract price. There is no 50% threshold in Reg 88 UCR.

Where a Council relies on Regulation 72(1)(c) (or Reg 72(1)(b)) they must publish a notice in the official journal setting out the details of the modification and the justification for so doing.

Where a new award is required urgently:

Part 1: Negotiated Procedure without prior publication of a notice (Regulation 32 PCR 2015 / Regulation 50 UCR 2016)

• This permits the contracting authority to negotiate a contract with one or more providers without any advertisement or competition.

Of particular relevance to the COVID-19 crisis is the application of Regulation 32(2)(c).

• Is the direct award strictly necessary?
• The effects of COVID-19 are far-reaching but the use of this procedure may still not be justified on the specific facts, and other means– such as an accelerated procurement – should also be considered.
• PPN 01/20 advises that the authority must be reacting to a genuine emergency; not planning for one.
• Is there extreme urgency which was unforeseeable, and which is not attributable to the authority?
• PPN 01/20 expressly recognises the severity of the COVID-19 crisis and that Regulation 32(2)(c) may be relied upon.
• However, the use of the negotiated procedure without notice will be rejected if, regardless of the unforeseeable nature of COVID-19, the urgent requirement for a contract was in fact foreseeable. For example, where a contract will be required but not for a few months.
• Time limits cannot be complied with
• Case law guidance suggests that if there is sufficient time to act using an accelerated procedure, the use of Regulation 32(2)(c) will not be permitted.
• Practical Guidance from PPN 01/20
• Authorities should keep a written justification that satisfies these tests and continue to carry out a separate assessment of the tests before undertaking any subsequent or additional procurement to ensure that they are all still met. They should also limit requirements in these procurements to only what is absolutely necessary both in terms of what is being procured, and the length of contract.
• There are also further alternative options under Regulation 32 PCR 2015.
• Part 2: Urgent Procedures
• The procurement procedures under the Regulations can be accelerated where compliance with the normal time limits are rendered impractical for reasons of urgency. As set out above the current facts of the COVID-19 pandemic are likely to satisfy this requirement. However, the need for the urgency must be directly related to the crisis, for instance a procurement for stationery which is not related to the COVID-19 outbreak would not justify an urgent procedure just because it is being procured at the same time as the outbreak.
• The table below sets out the accelerated timescales.

Current procurement processes

Robust procurement documents will contain wording which provides the authorities flexibility to respond to the changing circumstances during the course of their procurements.

Where procurement documents are now being prepared, it would be prudent to:

• Permit the authority to abandon the procurement;
• Allow for temporary suspension of the procurement for any reason without cost to the authority;
• Permit change in procurement timetables;
• Permit a reduction of stages (e.g. where there is a three-stage gradual reduction of tenderers, some authorities may find that they now only have sufficient applicants to run two stages);
• Permit a reduction of the minimum number of tenderers (subject to complying with the Regulations on minimum numbers and requirements); and
• Include clauses in proposed contracts to reflect the parties’ agreement on allocation of risks arising from COVID-19 and its consequences.

Summary

While contracting authorities and utilities find themselves having to deal with ever-changing scenarios and urgent requirements, they can take comfort in the measures available in the existing Regulations, as well as the additional guidance provided by the Cabinet Office in its PPNs.

This note only covers PPN 01/20 and PPN 02/20. For further information on public procurement law and other topics please see our dedicated COVID-19 webpage. Authorities should also be aware that the Cabinet Office is constantly updating its guidance in respect of public procurement law.

This article is for general awareness only and does not constitute legal or professional advice. Law and guidance relating to the COVID19 pandemic is continually being updated and the law may have changed since this page was first published. If you would like further advice and assistance in relation to any issues raised, please contact us today by telephone or email  covidhelp@sharpepritchard.co.uk.