Procurement Act 2023: who needs to comply?

This article is part of a series that looks at the impact of the Procurement Act 2023, which is coming into effect on 28 October 2024. For more on the topic, please see Procurement Act 2023: five months until “Go Live” and Preparing for the Procurement Act 2023: transitional arrangements. Other articles will follow in due course.

As procurement advisors, one of the questions we are most regularly asked is whether a particular organisation has to comply with the legislation or not. When tracking the progression of the Procurement Bill (now Act) through Parliament, we have therefore been particularly interested in this aspect of the legislation, and whether it will change which organisations are caught by the regime. 

This article looks at this issue in more detail. 

Contracting authorities

Procurement legislation (including the new Act) defines public bodies that need to comply with the public procurement regime as contracting authorities. 

Under the previous procurement legislation (most notably the Public Contracts Regulations 2015), there were two ways an organisation would be classed as a contracting authority.  Either:

• It was one of the central government authorities listed in Schedule 1 to the Regulations, or
• It fell within the category of “bodies governed by public law”.
  
  

In broad terms, that continues to be the case under the new Act, though the mechanics are slightly different.

The list of central government authorities is now set out in a separate piece of legislation, the Procurement Regulations 2024. The list is at Schedule 2 of these regulations and remains unchanged from the list in the earlier PCRs. The term “central government authorities” has always been something of a misnomer, as it includes arms-length and non-departmental bodies too.

The concept of a “body governed by public law” has been removed and replaced with the not-dissimilar concept of “public authority” (section 2(2) of the Act). The formulation of the public authority test is also easier to understand than the very convoluted “body governed by public law” test. See below for a more detailed assessment of the concept.

Does the new definition change who is a contracting authority?

The Government has recently confirmed that the new definition is not intended to alter who is required to comply with procurement legislation in the UK. Bodies who were subject to the PRCs will be subject to the Procurement Act, and bodies that were not subject continue to be outside scope. 

So, in one sense, the answer could not be clearer: no change here. However, question-marks remain. It has always been the case that European case law has played an important role in shaping procurement law, and indeed when we advise clients on whether they are caught by the rules or not, we have always done so with one eye on European case law: case law does not alter the provisions of the legislation, but it does provide meaningful guidance and practical examples of how the legislation works in practice.    

The Government guidance makes no mention of how European case law on how the definition of “contracting authorities” should be interpreted by UK bodies once the new Procurement Act comes into force, and it is clear from provisions of the Retained EU Law (Revocation and Reform) Act 2023 that UK courts are under no obligation to continue to have regard to EU jurisprudence. This is especially the case in situations such as this where the UK has specifically re-written the legislation to move away from the EU rules. However, the Government’s blanket statement that the new rules do not change who is caught indicate to us that it would be prudent to continue to have one eye on CJEU case law on this point as an aid to interpretation of the UK test, at least until we have our own established body of case law on this point.

Public authority: the definition under the Procurement Act 2023

To be a public authority under the Act (which, in turn, is then a contracting authority required to comply with the legislation), an organisation must be (a) wholly or mainly publicly funded or (b) subject to public authority oversight. It must also (c) not operate on a commercial basis. 

It is a three limbed test. Limbs (a) and (b) are either or: the organisation needs to meet one of these tests only. Limb (c) must always be met. Looking at each in more detail:

• Limb (a): Wholly or mainly publicly funded (section 2(2)(a)): more than fifty percent of the organisation’s funds must come from public sources. Examples of public sources include funding from sponsoring departments or public grants. Income generated by the organisation itself is not considered “public funding” for these purposes, even where it is paid by another contracting authority, as such funding is not considered to give rise to a relationship of dependency. This assessment should be carried out annually, in line with the organisation’s budgetary year. This means that some organisations may be caught by the legislation one year but not the next.
• Limb (b): Subject to public authority oversight (section 2(3)): an entity will be subject to such oversight if that entity is subject to the management or control of one or more public authority or more than half of its board is appointed by a public authority. Either of these are deemed to render the entity dependent on a public authority such that the authority (or authorities) are able to influence their decision making.
• Limb (c): Does not operate on a commercial basis (section 2(2) and (4)): the legislation provides a list of factors that might be relevant to determine whether an organisation operates on a commercial basis. This includes: whether the entity is subject to effective competition in the market it operates in, whether its losses would be borne by a public authority, and whether it contracts on more favourable terms due to its association with a public authority. But the guidance is clear that this list is not exhaustive, and that the entity needs to be considered as a whole. The guidance states that the purpose of the entity (whether it was established to serve a public interest) could be relevant here: this echoes an element of the old test (“meeting needs in the public interest”) that was conspicuously lacking in the new formulation.
  
  

Helpfully, for the types of client we typically advise, there is an express mention to trading subsidiaries being likely to fall outside of scope, because of their inherently commercial natures. This has been our view for a while, but as it has been untested in court, it is a welcome clarification by the Government. 

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, May 2024