The Procurement Act 2023 (the Act) received Royal Assent on 26 October 2023 and, from October 2024 at the earliest, will replace the existing regulations, which govern the public procurement regime in England, Wales and Northern Ireland.
In its Green Paper in 2020, the Government proposed that the principles of the new regulatory framework for public procurement should be consistent with the seven principles of public life as set out by the Committee on Standards in Public Life. Two of the interdependent principles that the Government proposed should be included in the new legislation:
- Integrity, for example, good management, prevention of misconduct and control in order to prevent fraud and corruption; and
- Fair treatment of suppliers where decision making by contracting authorities should be impartial and without conflict of interest.
When conflicts of interest are not properly identified and mitigated, there can be far-reaching consequences, which can lead to accusations of fraud, bribery and corruption, legal challenges and the undermining of public confidence in the integrity of public institutions.
Managing conflicts of interest within the public procurement framework is fundamental to strengthening trust between buyers and suppliers and combatting corruption as well as ensuring that suppliers receive fair and reasonable treatment before, during and after the contract award procedure and contracting authorities can ensure the overall fairness of the procurement process.
Regulation 24 of the current Public Contracts Regulations 2015 (PCR) goes some way to tackle conflicts of interest. Part 5 of the Act, however, goes into more detail in respect of what comprises a conflict, including a duty to excluding a supplier if it cannot be managed and a more onerous requirement to prepare a conflicts assessment prior to publishing a Tender Notice or transparency notice.
When does a conflict of interest arise?
A conflict of interest can arise in respect of a person (or Minister) acting for or on behalf of a contracting authority in relation to a procurement. Such person is "acting in relation to a procurement" if they influence a decision made by or on behalf of a contracting authority in relation to a procurement (section 81(3) of the Act).
An "interest" is defined as a personal, professional or financial interest and may be direct or indirect (section 81(4) of the Act).
What do contracting authorities need to know?
With less than a year until the 'go live' date in October 2024, there are key duties that contracting authorities need to be aware of in respect of identifying and managing conflicts of interest in order to adapt to the new regime:
- Section 81 of the Act (Conflicts of interest: duty to identify) provides that a contracting authority must take all reasonable steps to identify and keep under review any conflict of interest or potential conflict of interest in relation to a procurement.
- Section 82 of the Act (Conflicts of interest: duty to mitigate) provides that a contracting authority must take all reasonable steps to ensure that a conflict of interest does not put a supplier at an unfair advantage or disadvantage in respect of a procurement. This may include the contracting authority asking a supplier to take reasonable steps to ensure that it is not put at an unfair advantage (section 82(3) of the Act).
- Section 83 of the Act (Conflicts assessment) provides that before publishing a tender or transparency notice or publishing a dynamic market notice, a contracting authority must prepare a conflicts assessment in relation to a procurement.
What does "all reasonable steps" mean in terms of identifying and mitigating conflicts of interest?
The duties to identify and mitigate conflicts of interest are mandatory (given the use of 'must'). Section 82(2) of the Act states that reasonable steps may include requiring a supplier to take reasonable steps.
No further guidance has been provided yet on what constitutes "all reasonable steps". Such steps will depend on each conflict of interest. As a minimum, however, contracting authorities should have an internal framework of procedures and guidance, including appropriate checks and balances to identify and manage conflicts of interest such as guidance and training, declarations of interest, conflict identification and resolution, audit and sanctions and supply side requirements so that supporting behaviours and procedures are adopted by suppliers.
What is a conflicts assessment?
Reading between the lines, the duties on contracting authorities in relation to conflicts assessment are designed to ensure compliance with the duties to identify and mitigate conflicts of interest (sections 81 and 82).
A conflicts assessment must include details of any actual or potential conflicts of interest the contracting authority has identified and any steps that the contracting authority has taken to mitigate such conflicts in accordance with Section 82. Details must also be included where a contracting authority is aware of circumstances that might cause a reasonable person to wrongly believe that there is an actual or potential conflict of interest and the steps it has taken to address such a perception.
A contracting authority must keep any conflict assessment under review, revise such assessments as necessary and when publishing any notices, confirm that a conflicts assessment has been prepared and revised (section 83(5)). This is a new duty on contracting authorities, which is designed to strengthen the existing requirements relating to conflicts.
There is, however, no duty on contracting authorities to publish the actual conflicts assessment – just to publish confirmation that a conflicts assessment has been prepared and revised.
There is no further guidance on the format of a conflicts assessment so, unless further provisions come through in secondary legislation later this year, it will be for contracting authorities to prepare a useful template document to use in order to meet the requirements of sections 81 to 83 of the Act. Consider whether some legal advice may be useful to assist you with this and whether your teams may need training on conflicts of interest and the new requirements under the Act.
Exclusion of suppliers.
If a contracting authority considers that a conflict of interest puts a supplier at an unfair advantage in relation to the award of a contract, and either the advantage cannot be avoided or the supplier will not take steps that the contracting authority considers necessary, the supplier must be treated as an "excluded supplier".
Section 26 of the Act introduces various rules regarding "excluded suppliers" and "excludable suppliers".
Excluded suppliers are those who must be disregarded from a procurement process. Excludable suppliers are those who may be disregarded at the discretion of the contracting authority.
Conflicts of interest are serious enough that a supplier must be treated as an excluded supplier and disregarded from a procurement process i.e. excluded from participating in a procurement procedure.
The Act addresses various situations in which a supplier could be excluded. One provision that is particularly relevant to conflicts of interest is section 30, which applies if a contracting authority determines that a supplier has acted improperly in relation to the award of a public contract (and is put at an unfair advantage in relation to the award, which cannot be avoided other than by excluding the supplier.
What do suppliers need to know?
Although contracting authorities are subject to the duties set out in sections 81 to 83 of the Act, suppliers need to be aware of those duties and that they could be called upon by contracting authorities to take certain steps in relation to an actual or potential conflict of interest.
Suppliers should obtain practical and accessible training for their bid teams and account managers to increase awareness of the risk of conflicts of interest and misconduct in general including fraud, bribery and corruption, particularly given the risk of being excluded from participating in the procurement process (and the associated risk of reputational damage).
Suppliers also need to ensure their own procurement policies and procedures align with the Act and identify where improvements could be made. Engaging with their clients will also help suppliers understand what is required of them going forward in respect of conflicts of interest.
