Comments on Clause 38 of the 'SBEE Bill'

Posted by Simon McCann on
The Cabinet Office has published its policy statement together with a number of draft illustrative regulations following its consultation on clause 38 of the Small Business, Enterprise and Employment Bill (“SBEE Bill”).

Clause 38 contains a new power to enable the Government to assist small business to gain better access to public sector contracts. The consultation ran from 16 October 2014 until 13 November 2014, and the Government received 75 responses. These responses have assisted in the development of the Government’s policy measures and in respect of two of these areas, the detail of the policy is settled to such an extent that illustrative regulations have now been published. Nonetheless, the Government intends to undertake further consultation to refine its policy choices.

Clause 38 of the SBEE Bill provides an enabling power, which allows the Government to make secondary legislation relating to public procurement.

Extent

The SBEE Bill applies to contracting authorities as defined in the Public Contract Regulations 2006 (“PCR 2006”) but clause 38 excludes from this definition public bodies whose functions are wholly or mainly devolved functions (see clause 38(4)). Regulation 2 of the illustrative regulations also makes this exclusion clear. Note, therefore, that the draft illustrative regulations would not apply to a contracting authority whose functions are wholly or mainly “Welsh devolved functions” (i.e. functions conferred by provision falling within the legislative competence of the National Assembly).

Procurements to which the 2014 EU Directive states it does not apply are also excluded from illustrative regulations 4 and 5. Similarly, procurements for health care services for the NHS which are regulated by the National Health Services (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 and contracts awarded by maintained schools and Academies are excluded.

Illustrative regulations

The illustrative regulations cover two areas and would oblige contracting authorities for procurements above the financial thresholds in the PCR 2006 to:

“Where pre-procurement market engagement has taken place, demonstrate that it has been carried out in a manner calculated to increase awareness of, and interest in bidding for public contracts, by relevant SMEs and other economic operators;

Have due regard to Lean sourcing principles when carrying out a procurement, to make doing business with government more efficient and cost effective for buyers and suppliers.”

Pre-procurement market engagement

The illustrative regulation (regulation 4) provides examples of what pre-procurement market engagement might involve. While the illustrative regulation does not oblige a contracting authority to engage in any pre-procurement market engagement, it does place duties on those contracting authorities that do carry it out. However, contracting authorities are not obliged to do anything that is disproportionate to either the value or complexity of the procurement. Illustrative regulation 4(3) outlines provisions which mirror Article 40 of the 2014 EU Procurement Directive, allowing the outcome of the pre-procurement market engagement to be used in both planning and conducting the procurement provided it does not violate the principles of transparency and non-discrimination, or distort competition. Illustrative regulation 4(4) reserves for the Minister for the Cabinet Office the ability to issue guidance to which contracting authorities must have regard in relation to meeting this duty.

Lean sourcing

Illustrative regulation 5(1) provides that “a contracting authority, when exercising its functions relating to procurement, must have due regard to the following principles (“Lean sourcing principles”) applying them in a way proportionate to the complexity and value of the contract”. The Lean sourcing principles are set out at paragraph (1)(a) to (f):

 “(a) obtaining a clear understanding of the business outcomes required by the procurement;

(b) ensuring that the contracting authority’s needs are agreed and clearly stated through structured engagement with business stakeholders;

(c) effective and proportionate pre-procurement market engagement with prospective suppliers;

(d) effective planning and management of the procurement process and of any contract awarded;

(e) ensuring through information supplied before or at the time the procurement opportunity is advertised, that suppliers are given sufficient information for them to make informed decisions about whether they wish to tender for the contract; and

(f) monitoring and measuring performance of procurement and contract management processes in order to continuously improve them.”

The Cabinet Office has expressed its intention to consult, later in 2015, on these principles to ensure that this wording remains consistent with best practice prior to the enactment of final regulations.

Reporting

Illustrative regulation 6 obliges contracting authorities to report on their compliance with the regulation 4 and 5 duties each financial year by publishing a freely available report online. The Minister for the Cabinet Office has the ability to provide further guidance on this reporting obligation.

Other areas which could be the subject of regulations

  1. The use of electronic invoicing – The Government wishes to ensure that all public authorities are capable of accepting electronic invoices in public procurement to ensure both greater efficiency and improved payment performance.
  2. Obliging procurement advertisements to be made accessible to potential bidders without charge – The Government has identified paid-for access to public procurement opportunities and barriers as a potential barrier to SMEs accessing public procurement opportunities. The Government intends that the Public Contract Regulations 2015 (“PCR”, which are due to be made later this year) will include provisions obliging contracting authorities which choose to advertise certain public procurement opportunities to do so by a medium which is accessible both electronically and free of charge.
  3. Consideration of SMEs within procurement strategies – The enabling power in clause 38 could be invoked by the Government to make further regulations to require contracting authorities to have due regard to if and how it could promote effective participation of SMEs in its procurements. The Government proposes outlining in these potential regulations a non-exhaustive list of examples of how a contracting authority can demonstrate that due regard to facilitating SME access had been given (for example, through the use of smaller lots, pre-procurement engagement, and consideration of whether existing practices act as a barrier to effective SME participation).
  4. Timescales (minimum and/or maximum) for below-threshold procurements – Although the PCR 2006 detail minimum timescales for above-threshold procurements, they do not impose any minimum timescales for below-threshold procurements. The Government intends for the PCR 2015 to ensure that below-threshold procurements are open for sufficient periods of time. This is in response to concerns that short timescales disadvantage SMEs, which may not have the resources available to large competitors to prepare a bid in a short timescale.
  5. Debrief for unsuccessful bidders – The enabling power could be used to oblige contracting authorities to provide debrief information to unsuccessful bidders in below-threshold procurements. The Government considers that such debrief opportunities will enable SMEs to become more competitive when bidding for public sector contracts. The Government intends to consult further to establish the level of detail such debriefs should contain.
  6. Ensuring appropriate use of standard terms and conditions – During the consultation, the Government received some responses which suggested introducing standardised terms and conditions for major service and/or low value goods and services contracts. It should be noted, however, that the Government has already developed (a) a set of model terms and conditions for major services contracts and (b) short form terms and conditions for low value goods and services contracts, which is strongly encourages contracting authorities to use. The Government believes that the promotion of such standard terms and conditions presents an opportunity to “present a united front to industry and potential suppliers, and promote improved standards of procurement across the public sector”.

Further consultation is likely before the illustrative regulations are implemented.

 

About the Authors

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Simon specialises in public and utilities procurement and major projects including construction, development, IT, energy saving partnerships, joint ventures and other vehicles.

Simon McCann
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Photograph of Charlotte Cheetham

Charlotte is a Solicitor, currently sat in our Commercial team, based in Wales.

Charlotte Cheetham
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