The Government announced in April a new policy requiring main contractors and suppliers under contracts with central government to advertise sub-contract opportunities arising under their head contract.

The policy could have a major impact on procurement timescales and advertisement and tendering requirements throughout the supply chain for large-scale public-funded construction and infrastructure projects.

A Procurement Policy Note (Action Note 01/18) (“PPN”) was issued by the Crown Commercial Service on 10 April 2018 outlining the new measures. The PPN claims that advertisements by lead contractors through Contracts Finder will allow them to access over 25,000 potential supply chain partners, of which 63% are SMEs.

New obligation to advertise opportunities

The policy applies to all contracts let on or after 1 May 2018 worth more than £5 million. The principal supplier/contractor will be required to advertise all subcontract opportunities with above £25,000. Authorities can opt to increase this threshold (albeit never to more than £100,000) if they think it would disproportionately burden suppliers otherwise – it will be of great interest to the sector to see how this is applied in practice.

The new requirements will not apply to sub-contracts arranged or which were in place prior to the award of the main contract. The new requirements may also be waived in case of national security concerns, where the contract is to be performed overseas (and only local subcontractors can feasibly deliver what is required and/or local laws or security issues preclude advertisement) or where there will be no sub-contracted expenditure.

This development will affect central government, primarily, since it is guidance from the CCS and relates to Contracts Finder – that is not to say, though (as with other CCS policies) that this will not filter down to sub-central level by way of best practice in the fullness of time.

Receiving and evaluating bids – like a public body?

Having placed the requisite advertisement in Contracts Finder pursuant to the new conditions of contract, suppliers are expected to allow a “reasonable and proportionate” period of time for bidders to respond. They will then have to consider each of the bids that come in and evaluate their respective strengths and weaknesses before identifying the successful tenderer.

Whilst this ought to promote enhanced value for money by opening up subcontracts to wider competition, it could equally increase the overall cost of procurement itself."

Furthermore, it is also possible that aggrieved unsuccessful sub-contract tenderers will argue that, since the head contract is governed by the public procurement rules, sub-contract tendering exercises must also comply with fundamental procurement principles such as transparency and equal treatment. They might also argue that, as a minimum, contractors are required to treat all bids fairly, in line with the key case of Blackpool and Fylde Aero Club v Blackpool BC [1990] 3 All ER 25. It will be interesting to observe how unsuccessful tenderers for subcontract opportunities are advised in practice.

Additional reporting requirements

In addition, suppliers are required to report separately on the amount they are spending on sub-contracting and, separately again, how much they spend directly with SMEs and VCSEs (Voluntary, Community and Social Enterprises), such as “small local community and voluntary groups, registered charities, foundations, trusts and the growing number of social enterprises and co-operatives”.

Suppliers will have to monitor the number, type and value of subcontract opportunities that are advertised and awarded through Contracts Finder over the duration of their contract, and report to the awarding contracting authority/utility in the manner specified by that authority under a new clause of their head contract.

Authorities are advised to draw these measures to the attention of suppliers and to help them register on Contracts Finder for advertising and monitoring purposes. They are also told to “encourage their large suppliers to proactively use Contracts Finder to provider greater visibility of supply chain opportunities”, including when ‘refreshing’ their supply chain (such as by updating approved supplier lists or conducting early market engagement).

A model clause for contracting authorities to include the requirements in their head contracts is contained at Annex A to the PPN.

So, what do we think this will mean?

Our initial view is that where a head contract is publicly procured so, at least, the procurement of sub-contractors by lead contractors ought to be bound by the fundamental procurement principles and the duty to treat bidders fairly and equally under Blackpool & Fylde. Whilst we await greater clarity, it seems to us best to assume that disgruntled sub-contractors will be advised that these awards could arguably be challenged under these principles, so seeking advice on conducting compliant tenders for sub-contracts will become essential.

This article was written by Paul Henty. For more information please get in touch via paul.henty@crsblaw.com or +44 (0)20 7427 6506