The Procurement Bill - implied terms in public contracts

By Katherine Calder, Sarah Foster & Stephanie Tones

Published 27 September 2022

Overview

In our previous article on the Procurement Bill, we summarised the key commercial and contract management implications to be considered pursuant to the Procurement Bill (the “Bill”). This alert considers the commercial terms that will be implied into public contracts by the Bill.

The Public Contracts Regulations 2015 (the “PCRs”) already imply a number of commercial terms into public contracts and contracting authorities will be aware of these - particularly as they are often expressly included in government and NHS standard contract forms. The Bill retains these implied terms and, in some cases, goes further to extend the scope of those terms.

An implied term cannot be contracted out of by the parties and any term which attempts to restrict or override the implied term is of no effect. It is therefore essential that contracting authorities, and the organisations that contract with them, are aware that these will form part of the terms and conditions to which they are party. For this reason, we would always advise setting these out explicitly for transparency and certainty (particularly when contracting with the private sector, including SMEs, who might not be familiar with the relevant legislation).

	Procurement Bill	Position in the PCRs	DACB comments
Electronic invoicing	Section 62 - Contracting authorities must accept and process for payment any electronic invoice issued to the authority for payment under the contract which is: (a) in the required electronic form, and (b) not disputed by the authority.	This is not a new obligation - regulation 113A of the PCRs already requires contracting authorities to accept and process electronic invoices where the invoice is undisputed and complies with the standard on electronic invoicing.	We expect contracting authorities will already have systems in place to process electronic invoices but this should be addressed if not.
30 day payment terms	Section 63 - Contracting authorities must pay undisputed and valid invoices within 30 days. On receipt of an invoice, contracting authorities must notify the payee without undue delay if they consider the invoice is invalid or they dispute the invoice.	This is not a new obligation - regulation 113 already requires contracting authorities to ensure that every public contract they award contains an obligation to pay undisputed and valid invoices within 30 days. Contracting authorities must consider and verify invoices in a ‘timely fashion’.	Contracting authorities need to ensure they have robust systems in place to process invoices to avoid late payment interest and to support suppliers with prompt payment down the supply chain. They should ensure that they provide PO numbers etc. to suppliers to enable them to submit compliant invoices.
30 day payment terms in sub-contracts	Section 68 - The above terms are implied into every public sub-contract (meaning a contract substantially for the purpose of performing (or contributing to the performance of) the whole or any part of a public contract).	This is a slight deviation from the position in regulation 113 of the PCRs which currently requires the contracting authority to include an obligation on its suppliers to flow-down the 30 day payment terms to sub-contractors.	This term will now be automatically implied into sub-contracts, rather than relying on the supplier to include this, but we’d recommend retaining the obligation on suppliers to include this in their sub-contracts for transparency.
Termination grounds	Section 72 - Contracting authorities have the right to terminate a public contract where: they consider the contract was awarded or modified in material breach of the Procurement Act or any regulations under it; a supplier has become an excluded supplier or excludable supplier; or a supplier’s sub-contractor becomes an excluded or excludable supplier - this ground is only available where a contracting authority requests information about subcontractors in relation to the award of the contract AND before awarding the contract did not know that the supplier intended to sub-contract the performance of all or part of the contract to an excluded or excludable supplier. An excluded / excludable supplier is one that: on the basis of a discretionary exclusion ground that: (a) did not apply before award of the contract OR (b) applied before award of the contract by reference to different circumstances; and a contracting authority discovering that, before award of the contract, the supplier was an excludable supplier. To terminate on these grounds, the contracting authority must first: notify the supplier of its intention to terminate, specify the termination ground explaining why it will terminate and give the supplier a reasonably opportunity to make representations about the proposed termination; and when terminating due to a sub-contractor being excluded or excludable, provide the supplier an opportunity to cease sub-contracting and find an alternative supplier to which to sub-contract.	Regulation 73 of the PCRs requires contracting authorities to terminate the contract where: the contract has been subject to a substantial modification which would have required a new procurement procedure in accordance with regulation 72(9); or the contractor has, at the time of contract award, been in one of the situations referred to in regulation 57(1) (mandatory exclusion grounds) and should have been excluded from the procurement procedure.	The termination grounds in the Procurement Bill go further than the PCRs. Going forward, if a supplier or sub-contractor becomes excludable after contract award, the contracting authority will have grounds to terminate which it previously didn’t. Suppliers will want to ensure that they have the right to terminate sub-contracts where their sub-contractors become an excluded or excludable supplier and should carry out a similar level of diligence on sub-contractors as a contracting authority would at SQ stage. Contracting authorities and suppliers will want to consider compensation on termination provisions in the event of such termination.

Should you require any advice on the practical or commercial implications of any of the existing or new implied terms, please get in touch with one our experts.