The Procurement Act 2023: Poor contract performance – naming, shaming and exclusion of suppliers

A long-standing bugbear of the UK Government is the spectacle of suppliers who have performed, or been perceived to perform, poorly on public contracts nevertheless bidding for and winning further public sector work. 

Ministers have long coveted the power to exclude from procurements, or otherwise sanction, those suppliers that were perceived to be profiting from the public purse whilst providing an inadequate level of service. 

Ministers' wishes have however been thwarted over the years by the public procurement rules.  Given that the reasons for poor or perceived poor performance may be multifarious, and will vary from case to case, and that the circumstances giving rise to poor performance on one contract might not necessarily read across to another contract, the EU procurement rules for a long time precluded (or did not permit) exclusion on the grounds of poor performance. 

Despite this, during the negotiation of the 2014 EU Directive underlying the Public Contracts Regulations 2015 and other current procurement regulations, the UK Government successfully lobbied for the inclusion of a power for contracting authorities to exclude suppliers who had shown significant or persistent deficiencies in the performance of a prior public contract, leading to early termination of that prior contract, damages or other comparable sanctions. This exclusion power has not been heavily relied on in practice.

As with other aspects of supplier exclusion and debarment (see our blog Supplier exclusion and debarment under the Procurement Act), the Procurement Act 2023 (PA 2023) takes a sweeping new approach to poor contract performance, empowering contracting authorities to name, shame and ultimately exclude suppliers who have failed to perform prior public contracts.

The PA 2023 provides for two circumstances in which contracting authorities (excluding private utilities) must publish a contract performance notice (CPN):

• Assessment against key performance indicators (for contracts over £5m); and
• Breach/failure to perform.

The content of the CPN is specified the Procurement Regulations 2024 (Procurement Regulations).  

Key performance indicators

For contracts with an estimated value of more than £5m, contracting authorities must set at least three key performance indicators (KPIs) before entering into the contract.  The KPIs must then be published.  A KPI is defined as a factor or measure against which a supplier's performance of a contract can be assessed during the life cycle of the contract.

Contracting authorities must then, at least once in every 12-month period of the life cycle of the contract and on termination of the contract, assess the supplier's performance against the KPIs and publish their assessment in a CPN.  The Procurement Regulations set out a matrix against which KPIs are to be assessed ranging from 'Good' (performance meeting or exceeding KPIS) to 'Inadequate' (performance is significantly below the KPIs).

Breach/failure to perform

Contracting authorities are obliged to publish a CPN:

a) Where a supplier has breached a public contract and the breach results in termination of contract, an award of damage or a settlement agreement;

b) Where the contracting authority considers that a supplier is not performing a public contract to the authority's satisfaction, has been given a proper opportunity to improve performance, and has failed to do so.

The notice must contain details of the breach/ failure to perform, any steps taken by the supplier to mitigate the impact of the breach or failure to perform and why those steps were not sufficient.  Where there has been an award of damages following the breach or failure to perform a public contract, whether pursuant to the contract itself (e.g. a payment of liquidated damages), a decision of a court or tribunal or a negotiated settlement, the notice must set out the amount of damages paid.  Where there has been a negotiated settlement, the terms of the settlement must also be published.

If publication of such matters, which typically would remain highly confidential in a commercial context, seems extreme (which it is), the PA 2023 provides some respite by way of a general exemption from publication if the authority is satisfied that the information is commercially sensitive and there is an overriding public interest in its being withheld from publication or other disclosure.  It is to be noted, however, that the second element of there being an overriding public interest in withholding information from disclosure, is liable to render this exemption somewhat limited, since the purpose of the publication regime in the PA 2023 is precisely to pursue the public interest, as set out in the Government's ambition for full transparency in procurement.   In those circumstances, it may be a tall order for a supplier to persuade a contracting authority that there is a public interest in withholding from disclosure information about its (alleged) poor performance merely because it could harm the commercial interests of the supplier. 

Where a breach/ failure to perform notice has been published, the supplier can be excluded from future procurements on a discretionary basis if the contracting authority (in that future procurement) considers that the circumstances giving rise to the breach/ failure are continuing or likely to occur again.  Suppliers who are subject to a breach/failure to perform notice may also be at risk of inclusion on the debarment list (following investigation).

Conclusions

As mentioned above, perceived or actual under-performance by suppliers to the public sector, particularly of larger contracts, has long been a concern of Government and the wider public.  High profile examples of failures of public contracts abound.  Equally, many contracts rub along with greater or lesser degrees of dissatisfaction on the part of public sector buyers (and suppliers) without tipping into full contract failure. 

Whatever the reasons for under-performance of public contracts, the provisions of the PA 2023 and Procurement Regulations on contract performance notices will add a new dimension to monitoring and assessment of contract performance (in particular for larger contracts).  The obligation on contracting authorities to set and assess KPIs for larger contracts and to publish the outcomes on the central digital platform will impose a burden, but also a discipline, on contracting authorities to engage in active contract management. 

As for suppliers, the threat of being "named and shamed" for perceived poor performance - which need not have led to sanctions under the contract, merely that the supplier is not performing to the authority's (subjective) satisfaction - is likely to significantly focus minds on maintaining good relationships with Government customers, but may also increase the risk (and possibly the cost) of public contracts.