One of the government's stated aims in pursuing procurement reform was to make the procurement regime more flexible for contracting authorities. Ever since the original Green Paper on procurement reform, "Transforming Public Procurement", published in December 2020, the Cabinet Office has identified section 17 as limiting flexibility in procurement. In particular, the government has identified this legislation as preventing contracting authorities from encouraging Small and Medium-Sized Entities and local businesses from taking part in procurement processes.
This article explores:
- What s17 of the Local Government Act 1988 says;
- How it is currently implemented by local authorities;
- What the Procurement Act 2023 says about it; and
- And what reform looks like under the new regime.
Restriction on considering non-commercial matters
Section 17 of the Local Government Act 1988 (LGA 1988) prohibits consideration of a wide range of "non-commercial matters" in procurement processes. The core restriction is contained in section 17(1), providing that with respect to certain procurement functions local authorities must act without reference to non-commercial matters.
This prohibition applies to all tiers of local government – that is district, county and unitary councils as well as combined authorities. It also extends to the more niche local government arrangements such as joint committees, development corporations and waste disposal authorities – as well as some further specified public bodies such as the Homes England and National Park Authorities.
Non-commercial matters
The "non-commercial matters" that cannot be taken into account can be broadly grouped into three categories:
- Employment matters such as
a. Workforce Ts&Cs:
b. Use of sub-contractors, including using self-employed individuals rather than employed staff: and
c. Involvement in industrial disputes.
2. "Political" matters such as:
a. Disagreement with wider government policies;
b. Location of the supplier (readers might recall the cases arising from Leicester City's boycott of goods manufactured in Israel); and
c. Affiliations of the supplier or their customers.
3. The contracting authority's wider relationship with the supplier. For example, a procurement for works cannot specify that the bidder must use the Council's in-house building control team for the relevant inspections and approvals – when bidders could have their own arrangements in place with Independent Assessors.
The overarching theme of Section 17 of the Local Government Act 1988 is that it is not for individual contracting authorities to use their procurement processes to penalise or reward suppliers based on their workforce arrangements, political views, geographic location or other interactions with the Council.
In short, those issues are not for the realm of procurement and should remain purview of broader law and policy.
Existing relaxations of section 17
Before exploring how the Procurement Act 2023 impacts on section 17, it is worth noting that the strength of the "non-commercial matters" prohibition has already been watered down in recent years.
The Equality Act 2010 introduced the Public Sector Equality Duty which imposes a general duty on public authorities to have due regard in the exercise of their functions to the need to eliminate discrimination, to advance equality of opportunity, and to foster good relations between persons who share characteristics protected by the Equality Act and persons who do not.
Further, the Public Services (Social Value) Act 2012 imposes a general duty on contracting authorities to consider how they might use their procurements – of above-threshold services contracts – to improve the economic, social and environmental well-being of their area.
Both of these Acts inserted new subsections into section 17 of the Local Government Act 1988 providing that section 17 does not prevent an authority from considering non-commercial matters in their procurements to the extent that the authority considers it necessary or expedient to do so to enable or facilitate compliance with the relevant duty.
So, when awarding their contracts, contracting authorities are already used to applying their own judgement as to whether they can take a broader view than section 17 originally allowed. This brings us neatly on to the further reforms proposed in the Procurement Act 2023.
Section 116 Procurement Act 2023
Section 116 of the Procurement Act gives ministers the power to make regulations that dis-apply section 17 in a variety of ways. Ministers can dis-apply Section 17:
- From particular authorities or types of authorities;
- From particular functions – e.g. for procurements by particular council services/departments;
- From particular types of contract – e.g. in particular industries; and/or
- From particular non-commercial matters.
Restricting below-threshold procurements by supplier location
It is in this last area that the government has decided to act. Regulation 17 of the Draft Procurement Act 2023 (Miscellaneous Provisions) Regulations 2024, which were published for consultation in June 2023, identify geographic location as a non-commercial matter that can be taken into account for below-threshold contracts.
Regulation 17 allows a below-threshold contract to be limited to suppliers that are:
- Based within the UK; or
- Based within a particular County or London Borough.
"Based within" has a broad definition. Regulation 17(3) says that "based within" refers to where a supplier has based or established substantive business operations, not taking account of the location of the corporate ownership or control of the supplier. This means that a supplier does not need to be solely based in the specified region – or even have its head office there – but it does have to have an established presence there. This broad definition might limit the effectiveness of supporting SMEs into procurement processes because large businesses with local outlets will still qualify for tender processes.
The consultation that accompanied the Draft Miscellaneous Provisions Regulations is worth noting because it summarises the policy intention clearly:
"The purpose of this regulation is to use [the new power to dis-apply Section 17] so that local government and other authorities subject to the LGA 1988 can take advantage of the policy for below-threshold contracts and boost UK or local suppliers and SME/VCSE participation in public procurement. The provisions are drafted to disapply section 17(5)(e) of the LGA 1988 in particular, which is the part that prevents contracting authorities from taking into account a supplier’s location when awarding contracts. This will only apply to below-threshold contracts that are procured under Part 6 of the Procurement Act 2023 or entered into after the new regime takes effect."
Once the Procurement Act come into effect this autumn, it will be over to contracting authorities to consider whether this policy initiative is one they want to take advantage of.
If you have any queries on this or any other aspect of the Procurement Act 2023, please contact Louis Sebastian or Rebecca Rees.
