Anyone involved in procuring construction works and services for the public sector will be aware by now that the cabinet office published the new draft Public Contracts Regulations 2015 (the “Draft Regulations”) in September 2014 as part of a consultation paper. The Draft Regulations are intended to replace the existing Public Contracts Regulations 2006. Current expectation is that they will come into force in early 2015, although no date has been published. So what potential changes do consultants, contractors, sub-contractors and employers need to be aware of?

  1. Computer says no. Subject to certain savings for specialist technical and security needs all communication and information exchanged under the Draft Regulations when procuring works and services should be performed using electronic means of communication.
  2. Innovate? “Innovation partnership” is a new procurement procedure with some similarities to competitive dialogue. The idea is to bring together the public and private sectors to tackle big issues such as climate change, energy & food security, health and an ageing population. This new initiative is designed to be used to develop an innovative product, service or works that are not already available on the market. This new process provides a little more flexibility than the competitive dialogue process as it allows a contracting authority to award a contract based on ideas and then develop the solution in partnership with the tenderer. The key features are that a contracting authority can appoint one or more partners to conduct separate activities organised into phases, with the ability to terminate the appointment at the end of each phase. It also allows the contracting authority the option to purchase the product, services or works that have been developed as a result. At this early stage it is difficult to see how the industry will embrace this new procurement route, although one area that could benefit might be green energy and energy solutions in general. In light of this you may want to read this article [link to:] written by Simon Crane. If you have any other ideas as to how Innovation Partnership might be utilised in the construction and engineering industries then please do get in touch.
  3. SME participation. SME participation has been championed in the Draft Regulations by a number of measures designed to remove barriers to entry for SMEs:
    • 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 pre-qualification questionnaires or any other selection mechanism. 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.
    • 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. 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, and this is almost certain to cement the status of PAS 91.
    • 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. 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. The Draft Regulations intend to make 30 day payment terms a legal requirement. 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 works 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).
  4. Fix up look sharp. Draft Regulation 28(7) will allow sub-central contracting authorities to set shortened timescales for receipt of tenders by mutual agreement between the contracting authority and the bidders. So, as a bidder, do you risk agreeing a shorter timescale that you can’t deliver against? Or do you object to a shorter timescale and risk blotting your copybook with the contracting authority? In keeping with the above SME theme, it occurs to the authors that allowing sub-central contracting authorities to set shorter periods for return of tenders could go against all of the Cabinet Office’s hard work and effort put in to increasing SME participation because a short tendering period could put SMEs off bidding for all but the most straightforward works contracts.
  5. In the BIM? BIM has well and truly landed in the construction industry but it is not yet mandated in the procurement process. The compulsory use of BIM was one of the policy areas in the new procurement Directive, which was left up to Member States whether or not to implement. The UK government has decided against making BIM mandatory in the Draft Regulations.
  6. Termination of contracts. The Draft Regulations require that public contracts contain a clause allowing for termination of the contract if there is a substantial modification that constitutes a new contract award, if it is discovered after contract award that the contractor should have been excluded on mandatory grounds or if the European Court has declared a serious infringement by the contracting authority of its obligations meaning the contract should not have been awarded. Contracts that do not include these provisions will have them implied. We suggest that when the Draft Regulations become law, it would be wise to expressly include these grounds for termination in all building contracts and professional team appointments including provisions to address the consequences of termination (ie, will the contractor/consultant be entitled to claim lost profit on the terminated contract?).
  7. Electronic availability of procurement documents. Contracting authorities will, under the proposed new Draft Regulations, be required to offer to candidates and tenderers, free of charge, unrestricted and full direct electronic access, to the procurement documents from the date of publication of the contract notice.
  8. Abnormally low tenders. The current procurement regulations say that where an abnormally low tender is received the contracting authority may reject it. The new Draft Regulations will make interrogation of abnormally low tenders mandatory and allows the contracting authority to reject the tender if, after investigation and clarification with the bidder, the prices still do not stack up.
  9. Keep it fair. Contracting authorities are expressly required by the new Draft Regulations to treat economic operators equally and without discrimination and to act in a transparent and proportionate manner.