“We are generally told that gigantic organizations are inescapably necessary; but when we look closely we can notice that as soon as great size has been created there is often a strenuous attempt to attain smallness within bigness…” (E.F.Schumacher in ‘Small is Beautiful’)
In this week of our “Countdown to Law-nch” series, we’re looking at the government’s attempts to use the draft Public Contracts Regulations 2015 (the “Draft Regulations”) to attain “smallness within bigness”; or to put it another way, the employment of policy and legislation as a vehicle for the encouragement of smaller players in the procurement markets.
We’ve been assessing the impact of the Draft Regulations on small- and medium-sized entities (SMEs), and in this blog post, we focus in particular on how those operating in the construction sector may be affected. That said, the new measures, which aim to remove potential barriers to SME participation, are certainly not specific to the construction industry and will apply across the board. They will therefore be of more general interest too, both to SME bidders who may find that they present new opportunities, and to contracting authorities, who will need to familiarise themselves with the new measures and ensure procurement processes are compliant.
Keep calm and pre-qualify. On the whole, straightforward public works contracts are procured using the restricted procedure, which has two stages; pre-qualification and tender. The purpose of pre-qualification is to see that potential bidders are capable of delivering the works in terms of their experience, capability, financial strength and that they have the resources to complete the job. The pre-qualification stage has to date been cited as a barrier to entry for SMEs who often find it too time consuming and costly to respond with the rafts of documentation and information requested or simply cannot satisfy turnover requirements. The Draft Regulations make a new distinction between contracts which are under the relevant value threshold and those which exceed it. Where the contract value is under that threshold, the Draft Regulations will prohibit the use of a separate pre-qualification stage (effectively a ban on the use of pre-qualification questionnaires or use of a restricted procedure). It is intended that this will make access to below threshold contracts easier for SMEs. For above threshold procurements there will be a cap on turnover requirements of twice the contract value.
Cabinet Office Guidance and PAS 91. Our construction industry readers will be aware that the Cabinet Office has already mandated that central government departments use the standardised pre-qualification questionnaire (PAS 91) when procuring public works contracts, but failure to use PAS 91 when seeking a shortlist of bidders for public works contracts used to carry little or no consequence under the current Regulations. However, the Draft Regulations will now require contracting authorities to have regard to any guidance issued by the Cabinet Office on the selection of bidders. Contracting authorities must also report to the Cabinet Office any conduct which amounts to a “reportable deviation” from the guidance (and we assume that bidders may have no hesitation in doing that too if they have concerns). This is almost certain to cement the status of PAS 91 and its use. Outside of the construction sector, the Cabinet Office has already mandated a set of core PQQ questions for central government bodies (with other contracting authorities also advised to consider using it). We presume these will also be further updated to ensure that they reflect the Draft Regulations and, no doubt, Cabinet Office guidance to cement their use.
To Lot or not to Lot? The division of contracts into lots is also seen as a method of increasing SME participation. In the brave new world of public procurement, contracting authorities will be encouraged to split public contracts into lots where possible, but the Draft Regulations do not make it mandatory. It remains a choice for contracting authorities to make on a case by case basis. But what is new is that contracting authorities will be required to give reasons if they choose not to split a contract into lots. Bids for combined lots will be allowed and so too the ability to limit the number of lots that any one bidder can win; this will leave contracting authorities with something of a challenge around how, as required by the Draft Regulations, they explain with the necessary degree of transparency, the mechanism to be used in their evaluation if a decision is made to adopt either option.
Focussing on the construction industry in particular, lots could potentially be used where a contracting authority wants to tender for an entire project under a single contract notice but then break that down in to separate lots for perhaps site remediation, demolition, construction, or perhaps where specialist works packages are required and the contracting authority wants to contract directly to retain control. Similarly with consultancy contracts the contracting authority may wish to procure all of its professional team under one contract notice and then split each discipline into lots for the architect, surveyor, engineers, project manager etc. At this early stage, it seems unlikely that the Draft Regulations on the use of lotting will encourage an employer to alter the way it procures construction projects.
A byrd in hand - is worth ten flye at large. Payment in the construction industry is always the subject of a new policy initiative and it is a key concern for smaller suppliers across all sectors. The Draft Regulations intend to make 30 day payment terms a legal requirement (across all sectors) in a bid to encourage SMEs. It is a positive step, but in order to benefit from it, SMEs first have to navigate and conquer the pre-qualification and tender process. If more SMEs are awarded public contracts then speeding up payment to them and increasing cash flow will help to maintain their business and make life easier for them to deliver successful projects (thereby growing their experience, turnover and, hopefully, balance sheet).
Next time in our Countdown to Law-nch series, our procurement litigators will be blogging about the potential effect (or otherwise) of the Draft Regulations on remedies available to bidders who feel that a procurement has not been conducted properly, as well as making a forward survey of the potential impact of the Public Contracts Regulations 2015 on procurement litigation more generally.