Management of public contracts

Implied terms around prompt payment and payments under public contracts

The Act contains new obligations here, which will be implied if not expressly set out in the contract.

First, there is an obligation to publish a Payments Compliance Notice (see section 69) detailing the authority's compliance with the requirement to pay invoices within a 30 day period. 

Second, there is an obligation (section 70) to publish a Contract Payments Notice detailing payments under contracts over £30,000.

Assessment of Contract Performance

Section 71 sets out a new requirement to publish a Contract Performance Notice at least once in the first 12 months of the contract, each year following that, and on termination. 

The Contract Performance Notice has three functions:

• to report regularly on supplier performance against KPIs where the contract is valued at over £5 million; and
• to report on any supplier breach of contract which leads to termination or partial termination of the contract, an award of damages to the authority or a settlement agreement between the parties; and
• to report on any aspect of supplier performance which the authority considers to be unsatisfactory and which, despite an opportunity being given, remains unremedied.

Government guidance on Contract Performance Notices is available here. 

For more on contract management, see our webinar and FAQs here.

Contract modifications

Section 74 sets out the instances when a modification may be made:

• Where the contract is a light touch contract
• Permitted modifications set out in Schedule 8
• Modifications which are not substantial
• Modifications which are below-threshold modifications 

The permitted modifications are set out in Schedule 8 and reflect those previously used in Regulation 72 PCR 2015. In addition, there is:

• A new safe harbour for modifications required due to the materialisation of a known risk
• A new safe harbour in situations where section 42 would also apply to allow the contract to be awarded directly (due to urgency and the need to protect life). 

The old safe harbour for transfer to a new supplier on insolvency etc. is retained but interestingly there’s now no requirement that the succeeding supplier meet the original selection criteria. Section 74(3) now clearly defines substantial modifications:

• Increase or decrease of the term by more than 10% of the maximum term provided for at award
• Changes overall nature or scope
• Materially changes the economic balance in favour of the supplier

Section 74(4) clearly defines below-threshold modifications.

A new concept of convertible contract is introduced, a contract that will become a public contract as a result of the modification, and it is clarified that the rules on modifications do apply to these contracts.

Government Guidance on contract modification is available here. 

For more on contract changes, see our webinar and FAQs here.

Terminating a public contract

The section 78 right allows termination where the authority considers that the contract was awarded in material breach of the Act, or where a supplier, associated person, or sub-contractor has become an excluded or excludable supplier since the date of contract signature. This includes termination due to a supplier becoming excludable by reference to the national security discretionary exclusion ground at Schedule 7(14). 

In addition, section 80 brings in a new obligation to publish within 30 days of termination, a Contract Termination Notice. This will provide much more transparency about why a contract was terminated (the notice must give details of the reasons for termination: eg expiry, discharge, early termination by a party, contract set aside, and so on).

Where an authority terminates a contract due to a supplier breach, this triggers an obligation to report this in a Contract Performance Notice. It also means that, for the purposes of any future procurements, that supplier will need to declare that it is an excludable supplier on the Supplier Information Service website (part of the Central Digital Platform). This then requires the new authority in the new procurement to consider whether or not to exclude the supplier. Termination for breach is therefore a serious issue for suppliers under the Act and one around which there is likely to be significant commercial negotiation. 

Government guidance on contract termination is available here.