Local authorities should be wary of reserving contracts for local suppliers, as recommended by a recent Procurement Policy Note, writes Andrew Millross. Other contracting authorities may want to maximise their use of this guidance.
Procurement Policy Note (PPN) 11/20 was issued towards the end of last year. It suggests that contracting authorities can reserve contracts valued below the public procurement tendering thresholds for suppliers based in their local area.
United Kingdom Internal Market Act 2020
My first reaction on seeing this PPN was to wonder how it was possible to reserve contracts for suppliers from a particular area in the light of the UK Internal Market Bill 2019-21 (now the United Kingdom Internal Market Act 2020 ("the Act")). Surely this legislation was intended to prevent provisions that stopped suppliers from one part of the UK from being excluded from procurements in another part of the UK?
The guidance in the PPN does, in fact, say that procurements should not be reserved on a “country” basis. However, it appears that the Act applies only to statutory restrictions which prevent cross-border supply, and not to a procurement decision to do so.
Whilst it would not be popular with the UK Government, there is nothing in the Act to prevent a devolved administration issuing guidance to contracting authorities that, in line with the PPN, below threshold procurements can be reserved for suppliers within the country. If this were to be done through legislation, it would be unlawful, but if it is done by guidance then there appears to be nothing to stop it being issued and implemented.
Section 17 Local Government Act 1988
Whilst most contracting authorities are able to take advantage of the guidance in PPN 11/20, there are legal restrictions which make it unlawful for local authorities to do so, other than in relation to services contracts.
Section 17(5)(e) Local Government Act 1988 (LGA 1988) prohibits a local authority from taking into account in their procurement decisions “the location in any country or territory of the business activities or interests of contractors”.
This legislation was passed by Margaret Thatcher’s government to stop local authorities from boycotting businesses trading with the South African apartheid regime. However, it is drafted in such a way as to make it unlawful for local authorities to reserve contracts for local suppliers. A breach of this section would open up a local authority to a judicial review challenge or a claim for damages from a supplier outside the specified area.
The only exception to this section is for services contracts where local economic growth is part of the social value a local authority is looking to secure under the Public Services (Social Value) Act 2012. In an inspired section of this Act (section 2), section 17(5)(e) LGA 1988 is overridden to the extent “necessary or expedient” to secure the social value the local authority has decided to secure through a services contract it is procuring. Unfortunately, though, this applies only to services contracts and not contracts for works or supplies.
The fact that section 17 LGA 1988 is not mentioned in PPN 11/20 suggests that it may have been overlooked in the PPN. In its recently issued Green Paper on Transforming Public Procurement, the Government is proposing to leave section 17 LGA 1988 unamended in its procurement reforms. The fact that local authorities are unable to take advantage of an initiative so recently promoted by the Government illustrates clearly why this legislation needs to be considered along with other public procurement reforms.