One of the most significant areas of change in the Act, which is likely to be of particular interest to suppliers to the public and utility sectors, is the question of supplier exclusion and debarment.
Following concerns raised by respondents to the consultation on
the Green Paper that the current legal framework for mandatory
exclusion of suppliers is unclear and confusing, with a number of
ambiguities and inconsistencies, the Government has taken the
opportunity in the Act to implement a wider refresh of the rules on
supplier exclusion. The result is a much clearer but overall
broader and more extensive framework for supplier exclusion,
including for the first time a central debarment list, which
presents potentially significant risk for suppliers bidding for
Government and utility contracts in England and Wales, with
attendant possibility for legal challenges in this area.
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 Act 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 Act 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 Act 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 Act
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 Act includes provisions for the Government to operate a
centrally-managed and published debarment list of
suppliers. This is an entirely new feature of the Act 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.
Conclusions
The provisions of the Act relating to supplier exclusion appear to
achieve the Government's aim of setting out a clearer and more
consistent code for supplier exclusion than appears in the current
procurement regulations. But they also significantly expand the
scope for supplier exclusion. Together with the introduction of a
debarment list, this could present real new risks for suppliers
looking to bid into the UK public and utility sectors.
Under proposed Transparency Regulations (if adopted in their
presently drafted form), suppliers will have to register on a
central digital platform in order to participate in procurements
covered by the Procurement Act. Registration will include
submitting information about the application of any exclusion
grounds that may be applicable to the supplier, its associated
persons or connected persons. Although many may welcome this as a
simplifying and streamlining measure – suppliers will only
have to submit their qualification information once for multiple
procurements – suppliers who may be subject to exclusion
grounds will have to declare such grounds upfront on the central
platform. Such suppliers may find themselves quickly the subject of
debarment investigations by the Cabinet Office. Having a strong
case on "self-cleaning" is likely to become ever more
important.
Suppliers that are part of larger corporate groups will also need
to conduct due diligence on their corporate groups to ascertain
which members of the group fall within the definitions of
"associate person" and "connected person" and
whether any such group members may be subject to one or more
exclusion grounds.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.