The 2023 Procurement Bill has prompted widespread dialogue in diverse sectors, with the drone industry finding itself at a pivotal point. As the drone technology landscape expands, presenting myriad applications ranging from surveillance to parcel delivery, it’s paramount that businesses understand the subtleties of this UK-based legislation.

A Closer Look at the Procurement Bill

The UK Parliament’s newly passed Procurement Bill seeks to enhance transparency and optimise efficiency in governmental and large infrastructure expenditure. Although it encompasses sectors such as health care and digital technology, the drone industry, in particular, could witness a paradigm shift in its operations.

For those involved in drone operations, the Bill presents potential transformative shifts. A notable clause mandates that technology intended for public sector deployment must undergo a competitive bidding process. This ‘competitive bidding’, also known as ‘tendering’, is a rigorous method of determining and procuring the specific drone models or associated services deemed necessary by clients.

Supplier Exclusion and Debarment: A New Layer of Complexity

One of the most noteworthy aspects of the Procurement Bill is its focus on Supplier exclusion and debarment. The bill introduces a more coherent yet expansive framework for supplier exclusion, including a central debarment list. This list poses a considerable risk for suppliers, including drone operators, bidding for government and utility contracts in England and Wales. The grounds for exclusion are both mandatory and discretionary, covering a range of offences from bribery to national security concerns.

Grounds for exclusion

As in the present rules, there are both mandatory and discretionary grounds for exclusion from procurements which applies to procurement by public sector authorities and public undertakings. In the case of private utilities, the mandatory grounds of exclusion are treated as discretionary, but otherwise the same rules apply.

The mandatory exclusion grounds cover:

• Convictions for offences involving:
  • participation in an organised crime group or involvement in serious organised crime
  • bribery and blackmail
  • fraud and fraudulent trading
  • theft, robbery, burglary and stolen goods
  • terrorism
  • money laundering
  • modern slavery and labour market offences
  • corporate manslaughter/corporate homicide
  • tax evasion, civil penalties or HMRC decisions relating to tax evasion, fraud or avoidance
  • the cartel offence under the Enterprise Act 2002
• Decision by the Competition and Markets Authority or another regulator fining the supplier for participation in a cartel
• National security where the supplier has been deemed to pose a threat to national security in relation to a certain description of public contracts and has been placed on the mandator debarment list in relation to that description of public contracts (see further below)
• Failure to provide documents or assistance required by a contracting authority for the purpose of establishing whether a mandatory or discretionary exclusion ground might apply

The discretionary exclusion grounds cover:

• Regulatory enforcement for serious labour misconduct by way of a labour market enforcement order, a slavery and trafficking prevention order or slavery and trafficking risk order or evidence of modern slavery in the absence of conviction
• Conviction of offence relating to incidents causing actual or potential environmental impact which is major or significant
• Bankruptcy, insolvency or equivalent situations
• Professional misconduct which brings into question the supplier’s professional integrity such as dishonesty, impropriety or serious violation of ethical standards applicable to the supplier’s profession
• “Potential” competition infringements where the contracting authority or other relevant decision-maker considers that the supplier has infringed the Competition Act 1998 (or equivalent outside the UK) by entering into an anti-competitive agreement or concerted practice or by abusing a dominant position
• Poor performance where either (i) a previous public contract has been terminated for breach, damages have been awarded or a settlement agreement has been entered into; or (ii) where the supplier has failed to remedy poor performance or breach of a previous public contract having been given the opportunity to do so
• Where a supplier acts improperly in a procurement thereby putting itself at an unfair advantage.  This could for example be by: failing to provide information requested by the contracting authority, providing incomplete, inaccurate or misleading information, accessing confidential information, unduly influencing the contracting-authority’s decision-making
• Where the supplier poses a risk to national security

The exclusions framework applies not only to offences or other misconduct committed in the UK but also to equivalent offences/misconduct overseas.  In addition, most of the exclusion grounds also apply where a “connected person” of the supplier is guilty of an offence or other misconduct giving rise to the ground for exclusion. The Bill substantially clarifies and expands the concept of “connected person” for these purposes.

It covers, among others:

• Beneficial owners of the suppliers (“persons with significant control” for the purposes of Companies Act 2006)
• Directors (including shadow directors) of the supplier
• Parent or subsidiary undertakings of the supplier

Whilst many of the exclusion grounds appear in similar form in the current procurement rules, of particular note is inclusion for the first time of mandatory and discretionary grounds in relation to competition law infringements and national security. These amount to significant expansion of the circumstances in which suppliers must or may be excluded from public procurements.

A supplier may also be excluded from a procurement if it proposes to sub-contract all or part of the contract to a sub-contractor that is subject to a mandatory or discretionary exclusion ground. However, the (prime) supplier must first be given the chance to replace the excluded/excludable sub-contractor before itself being excluded.

Exclusion on competition law grounds

The inclusion of cartel fining decisions as a mandatory ground, when combined with the broader definition of “connected persons” and the extension of the regime to equivalent conduct outside the UK, means that a UK supplier whose non-UK parent company had been fined by the European Commission for engaging in a cartel in breach of EU competition law would potentially be subject to mandatory exclusion from UK public procurements, even if the UK subsidiary had nothing to do with the cartel behaviour.  It is also to be noted that the subject matter of the cartel fine need not have any relationship or relevance to the subject matter of the contract being procured.

Authorities will be able to (and need to) look back at cartel fines imposed up to three years before the Act comes into force (and in any event no more than five years). Thus, when the Act comes into force, bidders for UK procurements are likely to need to disclose any cartel fines to which they or their parent company have been subject worldwide and in relation to any goods or services in the previous three years in order to enable contracting authorities to assess whether they may be subject to mandatory exclusion (though see below re self-cleaning).

The inclusion of “potential” competition infringements as a discretionary ground of exclusion is even broader.  This encompasses not only decisions where the supplier has been fined for cartel behaviour but also:

• where the supplier has been subject of a CMA or other regulator’s decision that it has infringed competition law more widely – such as non-cartel anti-competitive agreements (resale price maintenance would be an example)  and abuse of dominance, and
• where the contracting authority considers that the supplier has infringed competition law (i.e. without any need for there to be a prior regulatory decision)

Exclusion on national security grounds

The Bill provides for two bases on which a supplier could be excluded on national security grounds:

• a discretionary basis in relation to individual procurements, and
• a mandatory basis where the supplier has been determined, following an investigation, to pose a risk to national security in relation to particular types of contracts and has been included on the debarment list in relation to those contracts.

In common with other legislation, such as the National Security and Investment Act 2021 (NSIA) , the Bill contains no definition of national security, thus conferring a broad discretion on the Government to determine whether to exclude suppliers who may be perceived to pose national security concerns.

Where a supplier is not included on the mandatory debarment list on national security grounds, it is in theory possible for any contracting authority (e.g. a local authority) to exclude a supplier for national security reasons. In order to avoid inconsistent or capricious decision-making in this respect the Bill provides that any non-central Government authority that proposes to exclude a supplier on national security must first  notify a Government Minister and seek their approval to the exclusion. In order to manage such notifications and to conduct investigation into whether suppliers should be debarred from certain procurements on national security grounds, the Government intends to set up a National Security Unit for Procurement in the Cabinet Office (to sit alongside the Investment Security Unit which handles NSIA notifications).

Procedure for exclusion (mandatory and discretionary)

Save where the supplier has been included on the debarment list, before determining whether a mandatory or discretionary exclusion ground applies, the contracting authority must consider whether the circumstances giving rise to the ground for exclusion are continuing or likely to occur again, having regard to:

• any evidence that the supplier, associated supplier or connected person has taken the circumstances seriously
• any steps taken to prevent the circumstance from happening again (e.g. staff training)
• any commitments to take such steps
• the time that has elapsed since the circumstances last occurred, and
• any other appropriate evidence.

Suppliers must be given a reasonable opportunity to make representations and provide evidence as to the above factors before being excluded either on the mandatory or the discretionary grounds. This is fairly similar to the “self-cleaning” provisions in the current rules.

The central debarment list

The Bill includes provisions for the Government to operate a centrally-managed and published debarment list of suppliers. This is an entirely new feature of the Bill that has not existed previously in UK procurement law and which would arguably be precluded under the EU-based procurement rules.

Inclusion on the debarment list could be either on the basis of a mandatory ground of exclusion or on the basis of a discretionary ground.

Where a supplier is included on the mandatory debarment list, it must normally be excluded from all procurements (i.e. there is no opportunity to “self-clean). The sole exception is where a supplier is included on the mandatory debarment list on national security grounds. In that case, the debarment list must specify particular types of contract from which the supplier is mandatorily debarred, leaving the supplier free to bid for contracts not falling into those types.

Where a supplier is included on the discretionary debarment list, it may be excluded from particular procurements at the discretion of the contracting authority without any opportunity to make representations prior to exclusion or any right to be given reasons for the exclusion. For practical purposes therefore inclusion on the discretionary debarment list may appear very similar from a supplier’s perspective to inclusion on the mandatory list. That said, if a decision to exclude a supplier that was on the discretionary debarment list was made irrationally, that could be amendable to challenge before the Court.

Procedure for inclusion on the debarment list

Prior to entry of a supplier’s name on the debarment list, a Minister of the Crown must have conducted an investigation and be satisfied that the supplier is either subject to a mandatory ground or a discretionary ground of exclusion.

Suppliers will have an opportunity to make representations in the course of the investigation.

If the Minister decides to enter a supplier’s name on the debarment list, they must notify the supplier in question and then apply a debarment standstill period of eight working days before entering the supplier’s name on the list.

The debarment standstill period provides a window in which the supplier can issue legal proceedings for interim relief preventing the Minister from entering the supplier on the debarment list until such time as the supplier’s appeal against debarment is determined (see below).

The Court will have a discretion as to whether or not entry on to the debarment list should be suspended pending outcome of the supplier’s appeal, having regard to a newly-introduced test which requires consideration of the interest of the supplier (and likely financial impact of non-suspension) against the public interest and any other matters the Court considers appropriate.

Suppliers will be able to apply to have their name removed from the list at any time and have a right of appeal against their inclusion on the list (or a refusal to remove them from the list) – see next section.

Appeals against exclusion and debarment

Challenges to exclusion under the general rules on remedies

A supplier who is not on the debarment list that has been excluded from a procurement on either a mandatory or discretionary ground would have a right to challenge that decision under the general rules on remedies for breach of statutory duty.

As is the case under the present procurement regime, a supplier would have to establish that the authority had made an error or law or a manifest error of judgment or assessment in its decision to exclude. This may be particularly difficult in the case of mandatory exclusion as the grounds for mandatory exclusion predominantly relate to offences which the supplier either has or has not committed, which leaves an extremely limited scope for a mistake of law, or even errors of assessment or judgment, although the authority’s assessment of the supplier’s self-cleaning measures could be open to criticism.

Appeals against debarment decisions

A supplier that is faced with inclusion on the debarment list will have a specific right of appeal against a debarment decision.  An appeal must be issued within 30 days from notification of the decision. However, appeals may be made only on the very limited ground that in making the decision to debar, the Minister made a “material mistake in law” (section 65 (2)(b)). Further, damages are severely limited, and a successful appellant will only be awarded the wasted costs they had incurred in tendering for the contract from which they were subsequently excluded from.

It is unclear whether suppliers will, in reality, enjoy the prospect of arguable appeals against debarment decisions either in relation to the discretionary or mandatory grounds of exclusion. The use of ‘material’ as a qualification to the generally well understood concept (from conventional judicial review claims) of a “mistake of law” suggests that the government is aiming to place further limitation on the grounds of appeal against a debarment decision, by precluding any challenges on procedural grounds in circumstances where a minister adopted incorrect procedure, but where the decision to debar would ultimately have been made had correct procedure been adhered to.

The Evolving Role of Drones in National Security

The role of drones in national security is undergoing a significant transformation. While the Procurement Bill hints at amplified surveillance potential, it simultaneously surfaces important questions about regulatory adaptability.

Given the heightened geopolitical tensions in areas like Israel and Ukraine, there’s a pressing need to strengthen supply chain assurance for drones in the national security context. Amidst these global challenges, the emphasis is on solidifying the dependability of drone sourcing and distribution mechanisms. Such measures are crucial not only for maintaining operational preparedness but also for alleviating concerns about the acquisition and deployment of drones in sensitive geopolitical zones.

Furthermore, drone producers are poised to address demands for superior performance standards, be it in relation to state-of-the-art sensors or augmented payload capacities. Concurrently, the sector may foresee the development of drones focused on stealth capabilities, innovations in autonomous navigation, or models boasting unparalleled endurance and reach.

International Perspectives on Drone Security: Insights from INTERPOL, the US, and Australia (The Wider 5 Eyes Intelligence Community)

INTERPOL’s Global Approach

INTERPOL’s Drone Expert Forum, supported by the FBI and the Netherlands Police, highlighted the dual nature of drones as both security threats and valuable tools for law enforcement. The forum emphasised the need for global collaboration in developing strategies to counter drone-related security threats while also leveraging their potential in police work. Key focuses included enhancing forensic capabilities, balancing the threat and utility of drones, and fostering a coordinated security focused response globally.

US Department of Homeland Security’s Initiatives

The US Department of Homeland Security (DHS) has implemented new cybersecurity requirements for critical pipeline owners and operators, reflecting a heightened focus on protecting vital infrastructure from drone threats. These measures are part of a broader strategy to strengthen the resilience of critical infrastructure against emerging threats, including those posed by drones. The DHS’s approach underscores the importance of cybersecurity in the context of national security and the evolving landscape of threats from unmanned aerial systems foreign and domestic.

Australia’s Comprehensive Drone Security Policy

Australia is advancing a holistic suite of policies to address the risks of negligent and malicious drone use. This includes enhancing law enforcement capabilities, establishing the National Drone Detection Network for monitoring drone activity, and developing a Drone Rule Management System for managing security risks. The Australian approach is characterized by a focus on both physical and cyber risks, law enforcement empowerment, and the development of technological solutions to counter drone threats.

Combined Insights and Implications

• Global Collaboration and Coordination: The efforts of INTERPOL, the US, and Australia highlight the importance of international collaboration and coordination in addressing drone security threats.
• Balancing Threats and Benefits: There is a global recognition of the need to balance the security threats posed by drones with their potential benefits, particularly in law enforcement and public safety.
• Enhancing Legal and Technological Frameworks: These international efforts underscore the necessity of enhancing legal frameworks and technological capabilities to effectively manage the risks associated with drone technology.
• Focus on Critical Infrastructure Protection: The initiatives, especially from the US and Australia, demonstrate a strong focus on protecting critical infrastructure from potential drone threats, emphasizing the need for robust cybersecurity measures.

These international perspectives and efforts reflect a growing awareness of the complexities surrounding drone technology and the need for a multifaceted approach to ensure security while harnessing the benefits of this rapidly evolving technology.

Deciphering the Procurement Bill for Drone Operators

For drone practitioners, the Procurement Bill essentially serves as a revised set of guidelines. The directive for competitive bidding on public sector use of technology merely scratches the surface. It’s imperative for operators to remain vigilant about the unfolding regulatory landscape, encompassing privacy directives and safety measures.

Compliance is paramount. Ignoring these freshly minted regulations might culminate in severe penalties or potential legal repercussions.

Yet, it’s not solely about regulatory adherence. Astute operators should also scout for potential regulatory grey areas, ensuring optimal operation whilst adhering to the overarching legal structure.

Projecting the Drone Sector’s Trajectory

The repercussions of the Procurement Bill are comprehensive. It could introduce hurdles for industry but also has the potential to refine operations, ushering in a phase of clarity and standardisation. Established operators must remain forward-thinking, aligning with all extant rules. At Coptrz, we pledge to keep our operators abreast of regulatory shifts via web and email. For real-time updates, consider subscribing to our communications [link here].

Furthermore, the bill’s influence isn’t confined to drones. Sectors like health care and IT must gear up for modifications in their procurement protocols. The fiscal ramifications, both on home turf and globally, are monumental. With the possibility of heightened fiscal judiciousness, investment strategies may undergo transformation.

To sum it up, the drone sector is at an inflection point. While the Procurement Bill could usher in challenges, it also lays out a discernible roadmap, contingent on the willingness of operators and manufacturers to innovate and adapt.

In Summary: Navigating the Future with the Procurement Bill

The introduction of the Procurement Bill in the UK is a rallying cry for the drone community to brace for imminent evolution. Keeping abreast of the bill’s progress, grasping its intricacies, and strategising for its outcomes are vital. By doing so, stakeholders can not only shield their vested interests but also champion an industry on the cusp of revolutionary transformation.

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