Procurement Act ‘goes live’ – a summary guide for the construction sector

The new Act is set to shake up the tendering and delivery of public sector construction projects, providing a revised blueprint for mapping out public sector procurements and promising a new era of transparency, efficiency and opportunity for the construction sector.

Public sector employers, together with their appointed contractors and the wider construction supply chain, must now navigate the new procurement processes for any public sector procurements commenced after 24 February 2025. Any public sector procurements which commenced prior to this date will still be governed by the previous procurement regime laid down by the Public Contracts Regulations 2015. 

In this article, we provide detail on the aspects of the Procurement Act 2023 most relevant to the construction sector and explore their potential impact on construction contracts and appointments.

How can contracting authorities and contractors align their contract terms with the Procurement Act 2023?

The Act has been designed to provide a shorter, simplified set of rules that offer contracting authorities greater flexibility to undertake procurement activities which are fit for purpose and meet local and national objectives. It also aims to provide greater transparency throughout the entirety of the project, streamline the procurement process and provide greater opportunities for small and medium-sized enterprises within the construction sector.

From a contractual perspective, this ultimately translates into a new set of legally binding requirements which must be reflected in publicly procured construction contracts and appointments moving forward. It's therefore important that both contracting authorities and contractors are alive to the impact of the new procurement regime and have appropriate legal support in place to ensure that their contracts, and their day-to-day administration of those contracts, are compliant with the Act. 

If the Act is applicable on any given construction project, the following items in particular are likely to require further consideration when it comes to drawing up the contracts and appointments:

• The relevant contract’s payment terms must align with sections 67 and 68 of the Act. These provide, in summary, that:
  
  • The contracting authority must accept electronic invoices from suppliers.
  • Any sum due from the contracting authority must be paid within 30 days of the date of receipt of a valid and undisputed invoice. The supplier must be notified without undue delay if the contracting authority considers the invoice is invalid or disputed. These  payment requirements must also be flowed down to the contractor’s supply chain.

The 30 day payment requirement can be contrasted with the previous position under the Public Contracts Regulations 2015, whereby the 30 days didn't start to run until the invoice was actually considered ‘valid and undisputed’. This resulted in ambiguity and confusion as to how the Public Contracts Regulations 2015 should be reconciled with the additional payment requirements of the Housing Grants, Construction & Regeneration Act 1996, which themselves envisage the serving of various notices to determine the crystallised sum payable at the end of the agreed payment cycle. Against this backdrop, when exactly did the prescribed 30 day timeframe under Public Contracts Regulations 2015 start to run? Was it at the date of the ‘payment notice’, or ‘default payment notice’ where applicable, or on the last date for the payer to serve a ‘pay less notice’? The industry never received a firm answer. 

Perhaps partly as a result of this previous uncertainty, the new Act provides that the 30 day clock starts to run at the date of receipt of the invoice. This in itself, however, raises separate questions over exactly when an ‘invoice’, which is not a defined term in the Act, is treated as having been received. In the UK construction industry, it's standard practice for the contractor to submit an ‘application for payment’, which is typically followed up with a VAT invoice once the employer has responded to the initial application via a payment notice and it's clear what sum will actually be paid. So, does the 30 days start to run with effect from receipt of the application or the follow-up VAT invoice? In the absence of clear and express governmental guidance on this point, we would suggest that contracting authorities should err on the side of caution and assume that the maximum permitted 30 day timeframe starts when the initial payment application is received.   

• Transparency is described as the ‘golden thread’ throughout the new Act, with contracting authorities now obliged to publish certain notices throughout the entire lifespan of a project and also following contract expiry or termination. Contracting authorities may therefore wish to consider expressly caveating any confidentiality provisions within their contracts, to ensure that the requisite notices under the Act can be published without inadvertently breaching those provisions.
  
  Another point worth exploring on the transparency front is whether contractual clarity can be added around when a contract performance notice will be published. Contracting authorities are now obliged to publish a contract performance notice where:
  1. The supplier is in breach and the breach results in contract termination, an award of damages or a settlement agreement or
  2. The contracting authority considers that the supplier:
     1. Isn't performing to the authority's satisfaction
     2. Has been given a proper opportunity to improve performance and
     3. Has failed to do so. 

Limb (b) in particular is subjectively worded and we therefore expect contract performance notices issued on this ground to be fiercely contested by suppliers, with any such notices to their name attracting probable and very public reputational damage. Contracting authorities may be able to mitigate the risk of this kind of litigation if the underlying contract clearly and unambiguously sets out what specific run of events will result in a contract performance notice being published, thereby removing scope for the supplier to object if and when it happens.  

• The Act implies certain rights of termination into relevant contracts, such as where the contract was awarded or modified in contravention of the Act, or where a supplier has become excluded or excludable from public procurements since contract award. Moving forward, relevant contracts should include express termination provisions mirroring the implied rights under the Act, not least so that the contractual consequences of such a termination can be properly thought through and catered for in the drafting. It's also advisable for contracts to include express warranties from the supplier, confirming that neither they nor their supply chain are excluded or debarred from participating in public procurement exercises under the Act.
  
  
• If the value of a relevant contract is more than £5 million, then it must include at least three key performance indicators. Historically, key performance indicators in a construction context have been largely confined to frameworks and term contracts, as opposed to one-off projects which do not naturally lend themselves to performance indicators around response times and the like. It will be interesting to see how contracting authorities approach this new requirement for such projects. Contractors will need to carefully consider the key performance indicator requirements, to ensure that they are realistic, achievable and objectively measurable.    
  
  
• Other aspects of the Act include a new emphasis on social value and SME engagement. Contractors may therefore need to give further consideration to their procurement strategies, such as how they deliver community, economic and environmental benefits and their approach to collaboration with SMEs.

What's next?

The Act signals a new era for public procurement, with an emphasis on transparency, efficiency and equal opportunities. Whilst the spirit and ethos behind the Act is to be applauded, navigating the extensive changes will invariably be a challenge for the construction industry. 

It remains to be seen whether the likes of the JCT and the NEC will release contract addendum sheets to cater for the new rules. In the meantime, contracting authorities and contractors alike should ensure that their contracts and appointments are suitably tailored to align with the requirements of the Act. 

If you require further information about the matters raised in this article, please contact the construction team.