New Procurement Rules Begin This Month– Are You Prepared?

New procurement rules begin this month– are you prepared?

Mark Coates, Vice President, Infrastructure Policy Advancement, Bentley

Graeme Young, Partner, CMS UK

New procurement rules for the U.K. water sector begin this month and will affect the whole sector, from water and sewerage companies to contractors, consultants, and the entire supply chain.

As of Monday, February 24th, the water companies in England, Wales, and Northern Ireland will be subject to new rules and regulations as laid out by the Procurement Act—a single rule book covering all public sector procurement.

The new rules aim to make things simpler by creating a single, uniform set of rules and regulations covering all public sector procurement, making things simpler, easier, and more consistent for contracting authorities.

As water companies operate as regional monopolies and are not exposed to competitive forces in the market, there were also concerns that they may not procure as efficiently as they would if they are subject to some form of regulated procurement.

Being governed by the same rules as the public sector means that the U.K. water market can be selectively opened up to other countries as part of international trade negotiations—a concept of market access which is well known in international trade.

The new rules will apply to all water and sewerage companies, even those that are privately owned or traded on the stock exchange.

The sector had a total expenditure of around GBP 10 billion per year and GBP 6 billion of capital expenditure per year between 2015 and 2020, but this is set to increase in the coming years.

The new rules will affect billions of pounds of spending.

However, GBP 104 billion is set to be invested in water and sewage infrastructure between 2025 and 2030—a near-doubling of current levels, meaning even more money is going to be subject to the new rules going forward.

Ahead of it going live in February, the Cabinet Office has published 47 pieces of guidance for the sector.

One of the main changes is the creation and operation of a new, fully integrated digital platform for public sector tender notices, which water tenders will be part of.

When this central digital platform is open for business, all British Water members should register to make sure that they’re part of it.

For British Water members engaged in other forms of utility procurement and public sector procurement, this new central digital platform will also be used for procurement in those sectors.

The threshold for contracts for goods and services to be part of the new procurement rules is GBP 429,000.

For capital projects and services, the thresholds are GBP 5,372,609 and GBP 884,000, respectively.

All these thresholds are inclusive of VAT.

In the water sector, long-term capital delivery frameworks and other contracts can last for a considerable number of years.

Any contracts that are awarded prior to the new regulations coming in force will continue to be subject to the current regulations, which governs procurement in the sector.

The existing grounds for direct awards (i.e., awards without any form of open competitive tendering) are generally replicated within the act.

In addition, direct awards can now be made where necessary to protect life or public safety during an emergency situation, even where the circumstances leading to that situation could be regarded as foreseeable.

This seems intended to enable utilities to respond to extreme situations similar to those that arose during the pandemic.

As we mark five years since the start of the pandemic, let’s hope that these rules are not needed to tackle a national health emergency for quite some time.

British Water is keen to hear from members on their experience with the new procurement rules, and will continue to discuss the implementation of the new act over the coming months.