Background
The Cabinet Office has published a suite of documents to support the public sector in navigating the Procurement Act 2023 (the “Act”). The guidance documents are helpfully categorised into four phases: Plan, Define, Procure and Manage.
Utilities are entities operating in sectors such as energy, water, and transport. Utilities were previously caught by the Utilities Contracts Regulations 2016 (the “UCR 2016”), but these regulations were revoked and replaced by the Procurement Act 2023. Any new procurements conducted by a utility after 24 February 2025 will be caught by the Act (and not the UCR 2016). Any procurement that commenced before 24 February 2025 will still be governed by the UCR 2016 (please see associated guidance on transitional and saving arrangements).
The Cabinet Office published guidance to support utilities in navigating the change away from the UCR 2016 to the Act.
What does the guidance say?
This guidance sets out the regulatory and legal framework governing utilities contracts in the UK, as defined by the Act.
The Act consolidates previous regulations, streamlining the procurement process and ensuring alignment with international obligations. It defines utility activities and contracts, outlining the specific provisions and exemptions that apply to utilities, including the additional flexibilities available to private utilities.
Key changes include the replacement of the UCR 2016 with the new Act, the introduction of utilities dynamic markets to streamline procurement and the alignment of utility activities with international standards.
Transparency is a key policy intent behind the Act, and the guidance summarises the various new procurement notices that apply to utilities when conducting a procurement. A number of notices do not apply to private utilities (for example, pipeline notices), and the guidance summarises these carve-outs that are included in the Act.
The guidance also specifies the financial thresholds for utilities contracts and the conditions under which certain contracts are exempt from the Act's requirements. In addition, it signposts other guidance of particular relevance to utilities. Annexes A and B to the guidance include summaries of specific utility provisions and utility activites.
What has changed?
Utilities guidance
Exempted contracts are agreements excluded from the Act’s rules associated with covered procurements. Set out in Schedule 2 of the Act, these exemptions apply either due to the nature of the relationship between the contracting parties (e.g. vertical or horizontal arrangements) or the subject matter (e.g. land acquisitions or broadcasting services). They are intended to give authorities flexibility where the Act’s rules would be inappropriate or impractical.
Under Paragraph 6 of Schedule 2 of the Act, a utilities contract awarded to an affiliated person may be exempt from the Act’s procurement rules, provided certain conditions are met.
The updated utilities guidance introduces new content on applying the ‘turnover test’ under Regulation 42C of the Procurement Regulations 2024 (“PR24”), as inserted by Regulation 8 of the 2025 Amendment Regulations.
The turnover test ensures the exemption only applies when serving the utility and its affiliates is a major part of the affiliated entity’s business. It confirms the entity mainly supports its utility owner, limiting the risk of unfair direct awards while competing commercially.
The guidance highlights that pursuant to Regulation 42C of the PR24, this test must be calculated using an affiliated person’s entire affiliated turnover amount and entire total turnover, as generated over a specified relevant period. For clarity:
- The affiliated turnover is the turnover generated by an affiliated person from the supply of goods, services, or works to the utility and other persons affiliated with the utility.
- The total turnover amount is the affiliated persons’ entire total turnover amount, for the supply of goods, services, or works, from any source.
- The ‘relevant period’ is defined in Regulation 42C(5) of the PR24.
Exempted contracts guidance
The updated guidance provides new detail on how to calculate activities for vertical and horizontal arrangements, including specific instructions on the ‘attributable turnover’ and ‘non-attributable turnover’ calculations set out in the PR24.
The vertical exemption applies where a contracting authority awards a contract to a controlled person - an entity over which it exercises a form of control. To rely on this exemption, several conditions must be met, including that the controlled person carries out more than 80% of its activities for, or on behalf of, the contracting authority that owns it, or for other entities also controlled by that authority.
Regulation 42A of the PR24 (inserted by Regulation 8(12) of the 2025 Amendment Regulations) sets out how this activity threshold is to be calculated. Specifically, the controlled person’s attributable turnover (i.e. turnover from activities undertaken for its contracting authority owner(s) or other entities controlled by them) must be expressed as a percentage of its total turnover over a defined relevant period. The ‘relevant period’ is defined in Regulation 42A(9) of the PR24.
The horizontal exemption applies to contracts between cooperating contracting authorities. To qualify, the arrangement must:
- be established to achieve shared objectives related to the authorities’ public functions;
- serve the public interest exclusively; and
- involve no more than 20% of activities that fall outside those public functions.
The updated guidance explains how to calculate this 20% threshold. Regulation 42B(2) of the PR24 (also inserted by Regulation 8(12) of the 2025 Amendment Regulations) provides that the non-attributable turnover - i.e. turnover from activities unrelated to the authorities’ public functions - must be calculated as a percentage of the total turnover generated by the arrangement over the same relevant period. The ‘relevant period’ is defined in Regulation 42B(9) of the PR24.
Conclusion
The updated guidance on utilities and exempted contracts under the Act provides clarity on the application of key exemptions. By setting out calculation methods for turnover and activity thresholds, the guidance supports consistent interpretation and helps contracting authorities apply the exemptions with confidence.
Authorities should familiarise themselves with these changes and ensure that internal procurement processes are aligned with the updated guidance to mitigate legal risk and maintain compliance under the new regime.
Authors: Simon Harris, Heather Brooks and Francesca Parry
