Contract management: The Procurement Act 2023

The Procurement Act 2023 (the Act) has introduced enhanced rules around contract performance and management. We have set out below the areas of the Act that assist contracting authorities (CAs) during the life of a public contract.

Supplier performance

Under the Act, where key performance indicators (KPIs) are set, the CA must assess the supplier’s performance against the KPIs at least once in every twelve-month period during the life-cycle of the contract, as well as on termination of the contract. In relation to the assessment, the CA must also publish information specified in regulations under section 95.

If a supplier is in breach and this has led to damages, termination, or a settlement agreement; or if a CA finds the supplier is not performing, and has given them an opportunity to improve, but they have failed to do so, then the supplier must publish information.

Termination of the contract

Under section 78 of the Act, CAs have an implied right to terminate public contracts where the contract was awarded or modified in breach of the Act; a supplier has become excluded or excludable since the award; or a sub-contractor is excluded or excludable. The CA is required to give notice of termination, provide an explanation as to why the termination grounds apply, and allow the supplier to make representations. The termination rights are limited in section 79 and where a supplier is excluded or excludable on the basis of threat to national security, a CA may not terminate unless the CA has notified a Minister of its intention, and the Minister agrees.

Where a contract is terminated by any means a termination notice is required under section 80. The notice must be published within 30 days of termination and set out that the contract has been terminated plus include information set out in regulations.

Payment and invoicing

Within 30 days from the end of March and September, for the duration of the contract, a CA must publish a payments compliance notice. The payment compliance notice must include information about the CA’s compliance section 68(2) (payment within 30 days) and any other specified information. Under section 70, the CA must publish specified information about any payment of more than £30,000 made by the CA under a public contract.

Subcontracting

Where a CA has awarded a public contract on the condition that certain goods, services or works are sub-contracted, the CA may require the supplier to enter into a legally binding agreement with the subcontractor. If the supplier fails to do so, the CA may choose not to enter into a contract with the supplier, direct the supplier to enter into a contract with another appropriate subcontractor, or terminate the contract. Section 72 also applies where a supplier indicates they would subcontract during the tender process, and they rely on the subcontractor to satisfy the conditions of participation. Where a subcontract is entered into, the implied payment terms in section 68 are included.

Contract modification

Under sections 74 – 77, public contracts can be modified under specific circumstances. Modifications are allowed if they align with Schedule 8, are not substantial, fall below certain thresholds, or apply to “light touch” contracts.

A substantial modification is one that changes the contract term by more than 10%, alters the contract’s scope, or shifts the economic balance in favour of the supplier. Scope changes refer to goods or services not originally covered in the contract. Contracts cannot be modified to change the supplier unless Schedule 8 permits it.

Below-threshold modifications must not increase or decrease the contract value by more than 10% for goods or services, or 15% for works, and cannot materially change the scope.

A contract change notice must be published for modifications that increase or decrease the contract value by more than 10% for goods or services, or 15% for works, or that change the contract term by over 10%. The notice must justify the modification, and a voluntary standstill period of at least eight days may apply.

Summary

The Act strengths contract management and transparency by requiring annual performance assessments, publishing breach information, and allowing contract termination for non-compliance or supplier exclusion. It mandates timely payments, regulates subcontracting, and permits contract modifications only if within specific limits, including changes to scope or value. These are achieved through the four key post-award notices – contract performance notice; contract change notice; contract termination notice; and payment compliance notice.