I will certainly look at the figures, which I am very interested in, but this Bill obviously represents something of a step change. The key thing is how we can make it work effectively. I also highlight that suppliers already have the ability to claim interest on late payment under the Late Payment of Commercial Debts (Interest) Act 1998, which has been referenced. A reference to it in our Bill therefore seems unnecessary.
The proposed amendment would also significantly alter the remit of the Small Business Commissioner. Under current legislation, a small business may complain only about a large business. As such, it would not be appropriate to reference the Small Business Commissioner in this context; it is a slightly different type of system.
The noble Lord, Lord Mendelsohn, has also tabled Amendment 356A, which would place a duty on contracting authorities to report payment performance under regulations made under Section 3 of the Small Business, Enterprise and Employment Act 2015. These regulations currently place a duty on the UK’s largest companies to report on a half-yearly basis on their payment practices, policies and performance. We are thinking about what we can do to open up more contractual opportunities to SMEs and will come back to that on Report. We recognise the need for alignment with the private sector so that we can have a bit more comparison of performance.
However, we do not, for example, want to constrain the Government in the future from pursuing the reporting of higher payment standards for the public sector should we wish to do that, nor can we add new requirements to the private sector without some form of consultation, especially at this difficult time. I am happy to look at the possibilities on publishing payment performance information for private companies alongside those in the public sector and at trying to make the results more easily comparable. It may take a little time, but I hope that noble Lords will find that assurance helpful. We will see what we can do.
Turning to Amendment 361A, tabled by the noble Lord, Lord Aberdare, this amendment would enable contracting authorities to pay subcontractors in their supply chain directly where a prime contractor does not pay within agreed terms. The contracting authority would then be able to reclaim the outstanding amounts from the prime contractor, either by discounting the sum owed or by reclaiming the money as a debt. This amendment would, of course, utilise public money as a method of resolving such disputes. Where insufficient money remained, this would introduce risk and liquidity pressure to public sector accounts, with financial implications that are extremely difficult to countenance, especially in current circumstances.
The noble Lord, Lord Aberdare, asked whether we could introduce the “step-in” right, as suggested by Amendment 361A, as a right rather than an obligation. This could lead to confusion for contracting authorities about when they should step in. It would also expose them to unnecessary challenge when they decided not to step in. However, suppliers in public sector supply chains can, as we have noted, use the Public Procurement Review Service to help unlock late payments where existing contractual routes fail. Further, there are some other mechanisms available, for example, project bank accounts, which may work in some cases and allow protected sums to be distributed to those in the supply chain.
Turning to contract modifications, my noble friend Lord Lansley has tabled Amendment 364 to substitute a 10% term threshold with a threshold of one-sixth of the contract term. Noble Lords will wish to note that the Bill does not say that contracting authorities cannot extend a contract’s duration by more than 10%. They can do so, but they must use other grounds within the contract modification rules. They are set out in Clause 69 and Schedule 8. These other grounds, in the majority of cases, will oblige them to publish a contract change notice, which will set out why they are making that modification.
We do not think that contracting authorities should be given greater leeway by increasing the 10% to one-sixth. Under the current regime, we have seen contracting authorities extend contracts by substantial periods time and time again without the public or the market being aware of the situation and therefore able to challenge it. We hope Clause 69(3)(a) will change that behaviour.
Amendment 370ZA, tabled by my noble friend Lady McIntosh, the noble Baroness, Lady Hayman, and the noble Lord, Lord Coaker, proposes that we insert a provision in the Bill that contract reviews should be held by both parties every three months. The Procurement Bill covers a huge variety of contracts—that is one of the challenges—and suppliers and contracting authorities are in frequent contact. A legal obligation that contract reviews must be held every three months is overly prescriptive. Contracts are kept under review by contracting authorities and suppliers as appropriate. One size does not fit all.
I see from Amendment 370B that the proposition that contract reviews should be held every three months has arisen from current concerns over inflation. Prices may be index-linked, and contracts may contain review clauses related to inflation. In those circumstances, modifications under the ground of Schedule 8(1) are already permitted.
My noble friend Lady McIntosh raised an important point relating to the context of rising food prices, caused, ultimately, by the situation in Ukraine. Complex public contracts, including large outsourcing contracts which cover food provision for public bodies, generally do account for inflation. Obviously, coming from a farming and retail background, I understand some of the issues that my noble friend described. I particularly agree about the importance of SMEs, as we all say again and again, and trying to get them a bigger share of procurement. However, her approach is too prescriptive and could lead to yet more inflation, and would put costs on the public sector at a particularly difficult time.
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Contracts may also contain other relief mechanisms that can help address the impact of inflation. In addition, Clause 69(1)(c) permits a modification to be made if it is a “below-threshold modification”—that is to say, it does not increase the estimated value of a contract by more than 10% for goods or 15% for works.
Amendment 370B, if accepted, could be misinterpreted or even be open to abuse. The term “disproportionately affected” is imprecise. Moreover, contracting authorities should not be automatically expected to shoulder inflationary costs. Such costs would be borne ultimately by the taxpayer, so I am afraid that I must resist that amendment.
My noble friend Lord Lansley tabled Amendments 397 and 400 on the implied right to terminate public contracts. The implied term at Clause 72(2)(a) permits contracting authorities to terminate a contract in circumstances where they are required to because they have breached the provisions of the Act. This is necessary to ensure that contracting authorities can mitigate their liability and the cost of the breach to the taxpayer, and fix that breach of the rules.
We are very grateful for my noble friend Lord Lansley’s other suggestion on force majeure, and recognise his experience in working with SMEs, but the effect of his amendments would be to insert the additional circumstances of force majeure into the list at Clause 72(2). The contracting authority would then have to pay the supplier
“such costs as have been necessarily incurred in relation to the contract up to the point of notification under subsection (4).”
Clause 72 is not intended to be a definitive list on contract termination. If referenced as a termination right, force majeure would need to be defined in the Bill, whereas we found that, in practice, parties agree what will constitute a force majeure event—I know this, having been involved in small government contracts—and negotiate clauses on the effect of the event, if it occurs, of an appropriate kind.
We would not want to mandate that a force majeure event always triggers an immediate right of termination or that contracting authorities must always bear the costs. Obviously, that would substantially increase the cost of public contracts to the taxpayer. Moreover, neither should suppliers always bear the costs, as this could lead to additional costs being priced in to deal with what may be an exceptional occurrence. So we feel that this is one for the terms and conditions rather than for the Bill, to answer the noble Lord’s question.
My noble friend Lady Noakes also spoke to Amendment 486, tabled by my noble friend Lord Moylan to ensure that the treatment of intellectual property rights will not prevent the private sector spreading innovative solutions. They are right to raise the link between the intellectual property generated by public procurement and the opportunities for economic growth. However, I have been glad to discover that this is an area where the Government have carried out significant work to facilitate innovation.
In December 2021, they published The Rose Book: Guidance on Knowledge Asset Management in Government, which highlights the need for decisions on the ownership of intellectual property to be made on a case-by-case basis. Depending on the nature of the public contract, either the contracting authority, the supplier, or indeed both, might be best placed to exploit the intellectual property rights. This has been accompanied by the establishment of the Government Office for Technology Transfer within BEIS to provide specialist support within government. The Cabinet Office has this year updated its model services contracts, so there are now five different options on intellectual property rights.
This amendment suggests that the supplier is always best placed to maximise the public benefits of intellectual property rights. That is obviously not right, but we are making progress in this area, which I hope will satisfy my noble friend.