In our second ebriefing on commercial purchasing tools in the Procurement Bill, we look at the provisions on dynamic markets and their likely practical implications. These will replace the rules in the Public Contracts Regulations (PCR) 2015 that apply to dynamic purchasing systems (DPS).
A reminder of the key distinguishing features of a DPS
Under the current rules, a DPS can be set up for any duration using a modified version of the restricted procedure. It is established by admitting all suppliers who meet conditions for participation in the DPS and it must remain open to suppliers to join throughout its duration. Contracting authorities may not limit the number of suppliers that can join a DPS. When a contracting authority wishes to procure a contract under a DPS, it must invite all suppliers on the DPS (or the relevant category within the DPS) to bid for each contract to be awarded. The contract is awarded to the supplier that submitted the best tender, evaluated based on award criteria set out in the notice advertising the DPS. Unlike a framework agreement, direct awards are not permitted under a DPS.
What did the green paper propose?
The green paper highlighted that a DPS is currently only available for ‘commonly used goods and services’ that are generally available on the market. It proposed legislating for a DPS+. This would replace the DPS model (and qualification systems under the utilities rules) and its use would not be limited to commonly used goods and services. It envisaged that procurements could be undertaken within a DPS+ using the new competitive flexible procedure.
In its response to the green paper consultation, the Cabinet Office replaced the name of the tool with ‘dynamic market’. It stated its intention to provide guidance to help contracting authorities understand the type of requirement that can best be met through using a dynamic market and the mechanisms that could be used to categorise and filter suppliers.
Who will be able to set up a dynamic market?
Any contracting authority, including a ‘centralised procurement authority’ (CPA), will be able to establish a dynamic market for the purpose of awarding public contracts. Utilities (including CPAs) can also establish a dynamic market, but solely for the award of utilities contracts.
What conditions can be applied to admit suppliers to a dynamic market?
Any conditions set for admitting suppliers to a dynamic market must be a proportionate means of ensuring they have sufficient legal and financial capacity and technical ability to perform contracts awarded under it. Membership of a dynamic market must be kept open at all times and applications must be considered ‘within a reasonable period’. A supplier meeting the conditions for membership must be admitted unless one of the grounds for rejecting a supplier based on it being an ‘excluded’ or ‘excludable’ supplier applies. The Bill also sets out when a contracting authority must or may remove a supplier from a dynamic market based on exclusion grounds – we will save an analysis of the provisions on exclusions in the Bill for another ebriefing!
As with the current rules, it is not possible to limit the number of suppliers that can be admitted to a dynamic market or any part of it. It is also not possible to change the membership conditions during the term of the dynamic market.
Awarding contracts using a dynamic market
The key question arising out of the Bill is how contracts are to be awarded using a dynamic market.
Under the PCR 2015, the first part of the restricted procedure is used to admit suppliers to the DPS. The award of contracts is through a modified version of the second part of the restricted procedure, involving the issue of an invitation to tender. All suppliers admitted to the DPS must be invited to submit a tender for a specific contract. However, this can be limited by reference to the categories of works, goods or services (if any) the suppliers have been pre-qualified for. The contract is awarded based on the award criteria set out in the original contract notice for the DPS.
A dynamic market as described in the Bill is conceptually different from this. The starting point is that a competitive tendering procedure (other than an open procedure) can be limited to suppliers that are members of a particular dynamic market (or part of one). The process for admitting suppliers to a dynamic market appears to be a standalone procedure that sits outside of any competitive procedure used to award a public contract. This is very different to how a DPS works under the current rules.
Before excluding a supplier’s tender in a competitive tendering process run by reference to a dynamic market, the contracting authority must consider any application for membership of the relevant dynamic market (or relevant part of it) by that supplier. There is an exception to this for ‘exceptional circumstances arising from the complexity of the particular procurement’. It is not clear whether the reference to the ‘contracting authority’ here is to the contracting authority conducting the procurement (who would be assessing tenders) or the one running the dynamic market and managing the application process for suppliers to join. How each of these contracting authorities (where different) are supposed to liaise with each other is not clear.
As the dynamic market is not a procurement procedure by itself, a contracting authority that runs a competitive procedure by reference to a dynamic market (or part of one) could conceivably carry out another shortlisting process within its competitive procedure to reduce further the number of suppliers invited to tender. This might be attractive where there are large numbers of suppliers who are members of the market. In such a case the dynamic market would be nothing more than an ‘approved list’.
Under the PCR 2015, contracting authorities are prohibited from imposing any charges on suppliers prior to or during the period of a DPS.
The Bill proposes explicitly to permit the charging of fees as a percentage of the estimated contract value to suppliers that are awarded a contract by reference to their membership of the market (note different rules on fees will apply to utilities). This aligns with the charging provisions in the Bill that apply to frameworks.
This new flexibility is likely to encourage CPAs to set up dynamic markets as revenue generating tools in the same way that buying club frameworks are currently used. With a dynamic market being not much more than an approved list and with the competitive tendering procedure being carried out independently (albeit by reference to the dynamic market), we can envisage multiple different dynamic markets in competition with each other. If a CPA does not have to set out the award criteria and tender process to follow for awarding a public contract by reference to its dynamic market, the set-up and operation of a dynamic market should be very straightforward. The ability to charge fees to suppliers for this starts to look very attractive commercially!
A ‘dynamic market notice’ must be issued both before a contracting authority establishes a dynamic market and as soon as reasonably practicable after establishing one.
A notice must also be issued as soon as reasonably practicable after a modification is made to a dynamic market and after it ceases to operate. It is not clear whether all modifications are caught by this requirement or whether a level of materiality will be required.
Further regulations can be expected which will set out the detail that will need to be included in such notices.
We are aware of many current DPS that are not limited to the procurement of commonly used, readily available purchases. It is unsurprising, therefore, that the Government is relaxing this requirement to allow dynamic markets to be used for all types of requirements.
The most striking feature of the new dynamic market is how it is intended to sit as a separate tool that can be invoked for any competitive procurement. This was not mentioned in the green paper. Conceptually, this is very different to the current DPS model, which places more onus on the contracting authority setting up the DPS to establish the procedures for awarding contracts under the DPS.
The Bill appears to switch the control of the procurement procedure through a dynamic market away from the contracting authority managing the dynamic market and towards the contracting authority awarding each public contract through it. It is not yet clear how the new rules will work in practice. This is the case particularly where the contracting authority managing the dynamic market is different from the contracting authority awarding the public contract.
The Bill permits any competitive multi-stage procedure to be run by reference to a particular dynamic market. We will have to see how commercial practice develops and whether a ‘market for dynamic markets’ emerges, similar to what has occurred in practice with framework agreements in the UK. This is certainly an area of the Bill that will require some very clear guidance from the Government.
For more information
If you would like to find out more about the Procurement Bill, please contact Steven Brunning.
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