A common question for procurement lawyers is to what extent a contracting authority can switch from a competed procedure to a direct award if the outcome was not of a suitable standard, or little interest is received from the market? Section 43 of the Procurement Act 2023 (PA23) seeks to clarify this point by creating a specific ground for when contracting authorities can switch from a competed process under Section 19 PA23 to a direct award. This article explores how useful Section 43 PA23 is in practice.

What does Section 43 PA23 say?

Where a contracting authority is looking to enter into a public contract (as defined in Section 3 PA23), they will be in a "covered procurement" scenario (defined in Section 1 PA23 as the award, entry into and management of a public contract). For any covered procurement under PA23, the contracting authority must follow a competitive tendering procedure under Section 19 PA23. The procedures are either an open procedure or a competitive flexible procedure. 

However, for an open or competitive flexible procedure to succeed and result in the award of a public contract, there needs to be interested bidders and the submission of appropriate tenders. Where this is not the case (a Failed Procurement), a contracting authority is usually forced to abandon the procedure and explore alternative options to obtain the required goods, services or works.

Under Section 43(1) PA23, if the following conditions are met, a contracting authority facing the abandonment of a Failed Procurement could switch to a direct award. The conditions are:

1. The contracting authority invited suppliers to submit tenders or submit requests to participate in a competitive tendering procedure;
2. No suitable tenders or requests were received in response to the invitation; 
3. The contracting authority is of the view that an award under Section 19 PA23 is impossible; and 
4. The supplier who is awarded the contract is not an excluded supplier.

When would Section 43 of the PA23 apply in practice?

The following section considers how Section 43 PA23 may or may not be applied and how useful it really is to contracting authorities. For the purposes of this article, it has been presumed that the open procedure is used. The analysis may be different in a competitive flexible procedure context.

Tender notice issued and no suitable tenders are received

Has an invitation to tender been issued?

Working through the requirements for relying on Section 43 PA23, in a situation where a tender notice has been issued, but the contracting authority thinks there are no suitable tenders, the first condition of Section 43(1) PA23 is met. The tender notice will have invited tenders from the market.

Are the tenders suitable?

The next question is whether it is the case, as is required by Section 43(1) PA23, that all tenders submitted were unsuitable. Section 43(2) PA23 sets out the following grounds as reasons why a tender will not be suitable for the purposes of Section 43 PA23:

1. It would be disregarded for being from a non-UK or treaty state supplier (or intended to be subcontracted to such a supplier);
2. It would be disregarded for being an abnormally low tender;
3. It does not meet the award criteria or contracting authority's requirements when assessed by reference to the assessment methodology and relevant weightings;
4. There is evidence of corruption or collusion between suppliers or suppliers and the contracting authority itself; or 
5. It materially breaches a procedural requirement in the tender notice or associated tender documents.

In practice, what a contracting authority deems unsuitable, and what the legislation deems unsuitable may be different. Often a contracting authority will want to abandon a procurement and switch to a direct award where the bids have come in as more expensive than anticipated or because the quality responses do not match what the contracting authority was expecting from the market/ the expectations of operational colleagues.

However, these are not failings of the tenders to meet the award criteria or procedural requirements, these are consequences of unclear tender documentation or failed pre-market engagement. 

Section 43 PA23 is not a fix for failing to follow best practice in engaging with the market to understand what it can deliver and ensuring clarity in tender documents. It is a mechanism for contracting authorities to save a Failed Procurement where the absence of suitable tenders is a result of bad behaviour or poor preparation of tenderers or the absence of tenderers altogether.

Is a competitive award impossible?

The third condition for a switch to a direct award is that the contracting authority believes a competitive award under Section 19 PA23 is impossible.

PA23 does not provide any legislative guidance on this point, but looking at the guidance on Direct Awards published by Cabinet Office (Guidance), it notes that: "the contracting authority should consider whether the reason for not receiving any suitable tenders or requests is because the documentation was not clear or there was an error, which if corrected and time still permitted, could result in a successful award." Therefore, the onus is on the contracting authority to consider, among other things, whether steps could be taken to save the competitive tendering procedure or re-run it by addressing failings which the contracting authority created itself. Where this can be done, Section 43 PA23 is not available.

As noted above, in practice, most Failed Procurements can be avoided entirely, saving contracting authorities expense and legal uncertainty in switching to a direct award by observing best practice and giving sufficient time to draft clear and unambiguous documents.

The Guidance clarifies that this expectation extends to any draft contract for the procurement, as it states that Section 43 PA23 is only available to justify a direct award of the particular contract which was the subject of the competitive award. Whilst the Guidance is not statutory, this clarification is helpful as it indicates that there was no intent to excuse Failed Procurements caused by contracting authorities presenting badly drafted or uncommercial terms. If a contracting authority has failed to offer terms to the market which are market-acceptable, the appropriate procurement route is not a direct award, but the commencement of a new competitive tendering procedure with refreshed, market-tested terms.

Who do you award to?

The final challenge with Section 43 PA23 is deciding who to award to. If a competitive and transparent procurement procedure has been run and yet no suppliers have provided a suitable tender, how can a contracting authority award to one supplier, whilst still giving proper consideration to the procurement objectives in Section 12 PA23 (and in particular, having regard to the need to act, and be seen to act, with integrity)?

The Guidance advises caution when considering whether a direct award to a supplier involved in the Failed Procurement should happen, and suggests that it will be a fact-sensitive decision. The examples provided are that it would not be suitable to award to a supplier whose tender was unsuitable because of collusion, but an award to a supplier with only one failed award criteria would be better than an award to a supplier with multiple failed award criteria.

Practically, this is the biggest hurdle for contracting authorities considering the use of Section 43 PA23, and is likely to mean that Section 43 PA23 is treated as a route of last resort than an instant resolution to Failed Procurements.

So how useful is Section 43 PA23?

In practice, Section 43 PA23 will have limited utility for contracting authorities. From our experience, Failed Procurements are more likely to be caused by a misunderstanding of the market when preparing specifications or badly drafted tender documents which tenderers are unable to follow. Whereas Section 43 PA23 is drafted to fix the less common scenario where the fault lies with the preparation and behaviour of tenderers. 

Key takeaways

1. Section 43 PA23 is not a fix for badly prepared procurements. Procurements need to be conducted with the benefit of time and proper market engagement to ensure the tender responses received deliver what contracting authorities need.
2. Section 43 PA23 is always likely to carry risk given the lack of legislative direction on when a contracting authority can conclude with confidence that a Section 19 PA23 procedure is impossible, and who may be a suitable supplier to award to. 
3. Contracting authorities should keep in mind the objectives in Section 12 PA23 when making decisions on how to progress with a Failed Procurement, including the appropriateness of any Section 43 PA23 decision.
4. Consider taking legal advice around your options in the event of a Failed Procurement. 

For more information on conducting compliant procurement processes, contact Rebecca Rees or Jade Divers.