Changes in the Procurement Act 2023 for SMEs in the defence sector

Public procurement has been a hot topic in recent years and remains at the top of the agenda in light of the Procurement Act 2023 which is coming into force on 24 February 2025.

The legal procurement process in the defence sector supply chain when acquiring goods and services for defence organisations means companies must adhere to strict legal frameworks. These frameworks prioritise national security, transparency and compliance, and emphasise the consideration of social value and sustainability.

This will often involve specialised regulations regarding sensitive technologies, classified information, and international trade restrictions, while protecting critical security interests and safeguarding sensitive information surrounding national security concerns. The enforcement of this act will be overseen by designated regulatory bodies and non-compliance can result in significant legal, financial and reputational damage.

Often, legal procurement for small and medium-sized enterprises (“SMEs”) in the defence sector supply chain must follow specific legal frameworks and procedures when bidding for and securing contracts within the defence industry.

This includes adherence to regulations regarding security clearance, export controls, and compliance with strict procurement guidelines set by the Ministry of Defence (“MOD”) to access the supply chain effectively.

At present, a bidder can prevent a contract from being entered outside the 10-day standstill period so long as it has not been executed at the time the contracting authority is notified that a claim has been issued.

Key changes outlined

Changes in the Procurement Act 2023 suggest that automatic suspension will only apply if a claim is issued within the new eight-working-day standstill period. Therefore, it will be even more crucial to ensure that any potential procurement challenges are dealt with promptly.

SMEs within the defence sector supply chain should be aware of the limitation period in respect of public procurement challenges, which is 30 days from when knowledge of the grounds for challenge arose.

It is important to bear in mind that grounds for challenge can arise before the determination of the procurement, and proceedings may need to be issued whilst the procurement is still ongoing. Compliance with timescales and requirements of the Invitation to Tender is crucial, and remember, even small errors can have significant consequences.

A further introduction of the Act is KPI’s – this means that winning a public contract will no longer be the final hurdle. For contracts with an estimated value of more than £5m, suppliers will be assessed on a yearly basis against certain KPIs in respect of which reports will be published.

This of course means that there will be further oversight and scrutiny in relation to the performance of public contracts. Taking early steps will limit the difficulties companies may find themselves up against when you eventually deliver the contract.

Another important introduction means certain suppliers who have been excluded from bidding for public contracts will be visible on a publicly available list called the ‘debarment’ list. Suppliers who are found to pose a threat to national security can be placed on the list. One of the discretionary exclusion grounds relating to the introduction of KPIs applies where a supplier has not performed a public contract to the satisfaction of the relevant authority. It is therefore of upmost importance, if you are using sub-contractors to perform all, or part, of the contract, that they are not on the debarment list.

This list must be kept under review, and the Act confers quite wide powers to revise it. It is important to note that contracts may still be awarded to an excluded supplier where there is an overriding public interest, including defence and security considerations.

Next steps for businesses

Ahead of the commencement of the Procurement Act, and throughout the early stages of its introduction, companies should continue to familiarise themselves with the legislation and associated guidance that has been published by the government.

A key resource to focus on is the ‘Knowledge Drops’ published by the Cabinet Office which provide guidance on the Act and can be found online. They provide a high-level overview of the changes for those that have regular interactions with government procurement.