How the Procurement Act 2023 (“PA23”) will shape the contract terms

What should I do?

Contracting authorities seeking to run a procurement under PA23 will need to ensure that each of the relevant requirements in PA23 are appropriately addressed in the contract terms. This will include: (i) ensuring that there is no conflict between the contracting authority’s contractual obligations of confidentiality and its statutory obligation to publish information where required by PA23; and (ii) alignment with any implied contract terms and consideration of any ancillary provisions necessary where there are implied contract terms. 

Suppliers bidding for contracts that are procured under PA23 will need to understand any impacts for them. This includes, in some cases, additional protection for the supplier (e.g. prompt payment terms) but in other respects exposes a supplier to additional risks (e.g. termination rights for the contracting authority). Suppliers will also want to consider their position and approach to KPIs and performance monitoring, and whether pre-market engagement or any opportunity to discuss these with the contracting authority during the competitive award process can be used to shape the contract terms on these issues in the supplier’s favour. 

The obligation to comply with the majority of the requirements of PA23 will commence on 24 February 2025. However, the requirements regarding payments made under a public contract and assessment of contract performance (Sections 69-71 PA23) will not come into effect at the same time as the other requirements.  The Cabinet Office has indicated that these will follow in later phases of the central digital platform being developed but no dates for this have yet been confirmed. Nevertheless, contracting authorities and suppliers are advised to start their preparations now (if they have not already done so).

What are the key requirements in PA23 that will impact the contract terms from 24 February 2025?

The key requirements that impact the contract terms (subject to any applicable exemptions) are summarised at a high level below. 

KPIs 

Before entering into a public contract with an estimated value of more than £5million the contracting authority must set at least 3 KPIs, which must be published in the contract details notice (Section 52 PA23).  This requirement does not apply if the contracting authority considers that the supplier’s performance under the contract could not appropriately be assessed by reference to KPIs.

The requirement regarding inclusion and publication of KPIs is not entirely new. The Cabinet Office’s Commercial Playbooks and their accompanying guidance notes (which central government and their associated arms length bodies have to comply with) already set out government policy on reporting requirements for KPIs, in line with the government’s transparency agenda. The Government’s Guidance Document on KPIs, published in August 2024, makes clear that these existing requirements continue to apply alongside the requirements in PA23. However, this is the first time that KPIs will be a requirement in public procurement legislation and apply to all contracting authorities, so it will be a big change for many. Additionally, when Section 71 of PA23 comes into force, the requirement to assess performance against and publish information about contract performance (including KPIs) will be much broader than under the Commercial Playbooks (as discussed below).  

New discretionary exclusion grounds for poor performance

Two new discretionary exclusion grounds in PA23, which permit exclusion on the grounds of poor performance (Schedule 7, paragraphs 12(3) and (4) PA23), give particular focus to the setting of KPIs and performance assessment.  These apply if:

• a contracting authority has published information under Section 71(5) PA23 (this will not in practice arise until after Section 71 is in force – see below); or
• the supplier has not performed a relevant contract to the authority’s satisfaction, has been given proper opportunity to improve and has failed to do so.  

If a discretionary exclusion ground exists in respect of the supplier itself or a person on which the supplier is relying in order to satisfy the conditions of participation (i.e. “an associated person”), a contracting authority may have the discretion to exclude the supplier from its procurement process. So, the consequences for contractual non-performance are potentially huge.

Government guidance recommends that contracts include clear performance requirements, such as KPIs, by which its performance will be assessed.  A supplier will be particularly keen to ensure that these performance requirements (and indeed any other obligations under the contract) are appropriate to the subject matter of the contract and clearly defined, and that the standard which it is required to meet is clear and achievable.  In addition, it is recommended that the contract includes clear thresholds for when performance is not satisfactory, procedures for notification of poor performance and how rectification and improvements plans will be implemented.  This is important not only to ensure good contract performance but also to reduce the risk of uncertainty over whether a discretionary exclusion ground has arisen in the context of future procurements.  

Implied terms in relation to payment and electronic invoicing

The requirements in relation to payment terms (both in the public contract and any subcontract(s)) are very similar to the existing requirements under the Public Contracts Regulations 2015. These are, very broadly, that contracting authorities consider and verify invoices in a timely fashion, that valid invoices are paid within 30 days and that the contracting authority can accept and process e-invoices. There is no requirement under PA23 to include express terms in the contract on these issues in order to be compliant, as the relevant terms will be implied in any event. However, contracting authorities and their suppliers will want to ensure that the contract terms at least comply with these requirements so as to ensure that the invoicing and payment processes are clear. Any contract terms purporting to restrict or override the terms implied by PA23 will be without effect so it will be important to ensure that the contract terms do not conflict with what is implied by statute. 

Implied termination rights

It is an implied term of every public contract that the contract can, if a termination ground applies, be terminated by the contracting authority in accordance with Section 78 of PA23. These termination grounds are that: 

• the contracting authority considers that the contract was awarded or modified in material breach of PA23 or regulations made under it; or 
• that the supplier has, since the award of the contract, become an excluded or excludable supplier; or 
• that a subcontractor is an excluded or excludable supplier, provided that the contracting authority requested information about sub-contractors as part of the procurement process and was not aware that an excluded or excludable sub-contractor was to be used. 

Excluded supplier or excludable suppliers are essentially those to whom mandatory or discretionary exclusion grounds apply (which continue to apply or are likely to occur again) or are on a new debarment list for such reasons.  Suppliers may also be treated as excluded for improper behaviour which can include failing to provide requested information or providing misleading information, accessing confidential information or unduly influencing the contracting authorities’ decision making. Full details are outside of the scope of this briefing.

These termination grounds are an expansion of the termination rights currently implied by the Public Contracts Regulations 2015 as they now go further than just focussing on the status of the supplier at the time of the contract award, and look at what has happened since.

Although these termination rights are implied into the contract (and so are binding even without express provision) PA23 perhaps anticipates that the contract terms would include these rights expressly, as it also provides that the contract can contain additional provisions regarding ancillary matters. We anticipate that contracting authorities and suppliers will want to do this, so that all termination rights and the process for exercising them are set out clearly in the contract. It will also mean that any ancillary matters can be more easily addressed (e.g. any entitlement to termination or compensation payments). 

Transparency requirements

PA23 includes a number of notification and publication of information requirements relevant to contract terms. From 24 February 2025 these will include the publication of information in relation to contract modifications and contract termination.  The contracting authority will need to ensure that there is no conflict between the contracting authority’s contractual obligations of confidentiality and its statutory obligation to publish information where required by PA23. The concept of a “Transparency Report” and the ability to disclose information in line with the government’s transparency agenda is not new for central government contracting, but the requirements in PA23 significantly extend and formalise these requirements.

What are the key requirements of PA23 that impact the contract terms which will apply at a later date?

The following requirements of PA23 (Sections 69-71) are to commence at a later date which has not yet been set.  Once in force, these will further impact the approach contracting authorities and suppliers take to the contract terms (subject to any applicable exemptions).

Transparency requirements

Once Sections 69 and 70 PA23 come into force, additional publication requirements relevant to the contract will apply. These require publication regarding compliance by the contracting authority with is payment obligations (including payments within thirty days) and publication of information about payments of more than £30,000. The same considerations set out in the transparency requirements section above will apply in relation to these requirements.

Assessment of contract performance: performance against KPIs

Once Section 71 PA23 comes into force, the contracting authority will have to assess and publish, in the form of a Contract Performance Notice, performance against any KPIs set in accordance with Section 52(1) of PA23 (as described above) at least once every 12 months and on termination of the contract (Section 71(2) PA23).   Such performance must be measured against the standardised rating system in Regulation 39(5) PR24 when completing the Contract Performance Notice, which is as follows: 

Good	Performance is meeting or exceeding the key performance indicators
Approaching target	Performance is close to meeting the key performance indicators
Requires improvement	Performance is below the key performance indicators
Inadequate	Performance is significantly below the key performance indicators
Other	Where performance cannot be described as good, approaching target, requires improvement or inadequate

Government guidance recommends that where an alternative scoring methodology is used for assessing a contract’s KPIs, contracting authorities should consider including within their contracts how that methodology will align with this standardised rating system to allow for publication to the central digital platform.  We recommend that appropriate wording is included in the contract performance mechanism for KPIs so that this is clear for both parties. 

Assessment of contract performance: general

Additionally, contracting authorities must publish information under Section 71(5) PA23  (even where no KPIs are required to be set under Section 52 PA23), again in the form of a Contract Performance Notice, if:

1. a supplier has breached a public contract and the breach results in termination (whole or part), award of damages, or a settlement agreement (Section 71(3) PA23); or 
2. it considers that a supplier is not performing to the authority’s satisfaction, it has been given proper opportunity to improve and it has failed to do so (Section 71(4) PA23).

Guidance stresses that these provisions are intended to capture the most serious and persistent performance failures.  The Contract Performance Notice in the circumstances outlined in (1) and (2) above must be published before the end of the period of 30 days beginning with the day on which the publication information requirement first applies in relation to the particular breach or failure to perform (Section 71(5) PA23).  Guidance reminds authorities that because publishing a Contract Performance Notice could result in a supplier being excluded from a future procurement, they must ensure that they provide accurate information.

For completeness, we note that if, however, the breach or failure to perform leads to full termination, a Contract Termination Notice is published instead of a Contract Performance Notice. 

What else do I need to know about PA23 contract requirements?

PA23 will not apply retrospectively so these obligations relating to contract terms and performance assessment will only apply to contracts awarded under PA23.  Contracts awarded under the current procurement regimes are not impacted by the new rules, although the existing rules (some of which are referred to above) will of course need to be met. 

Finally, the Government has published a number of PA23 guidance documents to provide technical guidance and aid understanding of the new regime, with more to follow. These provide further helpful practical guidance, including in relation to some of the matters in this article. 

For more information on PA23

Please contract Joanne Veitch, Nick Blane or Madhulika Kanaujia in relation to the contract elements or Elizabeth Marshall, Chris Murray, Richard Pitt or Lucy Griffiths in relation to the procurement elements. 

Further reading on PA23