Contract Management – a new toolkit for procuring authorities

The Procurement Act 2023 is definitely more than an Act about procurement. In fact, it should really have been called the “Public Contract Management Act” as it includes provisions which require substantive contract management by authorities during the life of an agreement. It also contains some very powerful tools to manage a supplier’s performance. In particular, it introduces a new regime for dealing with poor contract performance, which requires contracting authorities to publish details of poor performance and breaches and ultimately allows them to terminate contracts and exclude the supplier from future procurements. In this article, we look at some of the measures for dealing with supplier performance under the new regime. 

Mandatory KPIs and reporting – for higher value contracts

For contracts valued above £5 million (other than light touch contracts), a contracting authority is required to set at least 3 KPIs by which it can measure a supplier’s performance. The authority is required by the Act to assess and publish the supplier’s performance against those KPIs (section 52(3) of the Act) at least once a year by using a Contract Performance Notice (section 71(2) of the Act). So good, bad or indifferent, every supplier will have its performance of higher value public contracts published for all to see. So far, straight-forward (ish!).

Poor performance of any over-threshold contract

However, the Contract Performance Notice has another purpose, which is to publish information about a supplier’s poor performance (section 71(4) of the Act) at any time and for any over-threshold contract (other than light touch contracts), not just the higher value ones. 

Where a contracting authority considers that the supplier is poorly performing the contract (in its opinion) and has given the supplier an opportunity to rectify this poor performance, if this is not then rectified, the authority must publish a “poor performance notice” under 71(5) of the Act. Contracting authorities should note that Section 71(5) applies to most public contracts, not just those worth over £5 million, including frameworks and concession contracts (but not light touch contracts).

This is clearly a very subjective test as to whether the authority considers there is poor performance (not that an actual breach of the contract is not necessary!). However, the implications of an authority publishing one of these notices are huge – it can lead to termination of the contract and other public contracts the supplier holds and exclusion from future procurements. Keep reading!

Exclusion of suppliers and termination

There are some real implications of poor performance notices for suppliers – it gets a bit technical, but bear with us as we explain why.

As with the current regime under the PCR, the Act imposes mandatory and discretionary exclusion grounds for suppliers if they have experienced various events such as insolvency, convictions for corporate manslaughter etc. An “excluded supplier or excludable supplier” is one to whom the mandatory or discretionary exclusion grounds in schedules 6 and 7 of the Act apply.

Under Schedule 7 of the Act, the contracting authority has the discretion to exclude a supplier where it has had a notice published under Section 71 of the Act for breach or poor performance. The discretionary exclusion grounds, which permit exclusion on the grounds of poor performance, focus on the setting of KPIs and performance assessment. These apply if:

1. a contracting authority has published a Contract Performance Notice under Section 71(5) of the Act in respect of poor performance; or
2. the supplier has not performed a relevant contract to the contracting authority’s satisfaction, having been given the proper opportunity to improve its performance. 

The real catch for suppliers is this - section 78 of the Act gives a public authority an implied right to terminate a public contract where a supplier has become an excluded supplier or excludable supplier during the term of the contract. This means that if a supplier fails to perform the contract to the contracting authority’s satisfaction, the contracting authority can effectively give itself a right to terminate the contract using section 78 by issuing a poor performance notice, thereby making the supplier an excludable supplier during the term of the contract, even if there was never actually a breach of that contract. 

More importantly, because this section 78 right is implied in every public contract, by issuing that poor performance notice, the contracting authority can effectively create a right for each contracting authority with whom that supplier has contracted a right to terminate their contract with that supplier. 

You can see how the threat of a poor performance notice/contract performance notice could, therefore, be a very useful supplier management tool in all public contracts. For suppliers, it is going to be critical to agree up-front achievable and realistic KPIs and manage expectations of performance well. A well-run contract review process with engagement from both suppliers and authorities are going to be critical to long-term contract success and avoiding any of these issues in practice.

For help and advice about anything covered by this article, please contact David Wozniak on 0191 211 7831 or email [email protected]