On October 26, 2023, the Procurement Act 2023 (the Act) received Royal Assent. The UK government has hailed it as “one of the largest shake ups to procurement rules in this country’s history.” Indeed, once in force (expected to be in October 2024, with a six-month notice period), the Act will bring about fundamental change to the UK’s procurement structure, from the principles and objectives that underpin public procurement to the procurement procedures that contracting authorities may adopt.
The Act also sets out a new exclusions and debarment framework. While the new framework retains the current concepts of mandatory and discretionary exclusion grounds, new grounds have been added, and a five-year time limit for both mandatory and discretionary exclusion grounds will be applied. A central debarment list has also been introduced — a Minister of the Crown may add an excluded or excludable supplier to this list for a specified period of time.
The Act will not affect public contracts currently in place (those contracts will continue to be bound by the current rules). However, there are potential risks arising from these features for suppliers wishing to bid for government contracts in England and Wales from next year onward. We therefore highlight below the mandatory and discretionary exclusion grounds set out in the Act as well as the features of the debarment list and the ways in which suppliers may appeal against, or challenge, exclusion and debarment.
Grounds for mandatory and discretionary exclusion
The list of grounds for mandatory exclusion of suppliers is broadly similar to the current regime, with the addition of offenses including theft, corporate manslaughter, modern slavery, and competition law infringement. They include the following:
- convictions for offenses in the UK or offenses under the law of a country or territory outside the UK that would be offenses if committed in the UK involving
- participation in an organized crime group or involvement in serious organized crime
- bribery and blackmail
- fraud and fraudulent trading
- theft, robbery, burglary, and stolen goods
- money laundering
- modern slavery and labor market offenses
- corporate manslaughter/corporate homicide
- tax evasion, civil penalties or HM Revenue and Customs decisions relating to tax evasion, fraud, or avoidance
- the cartel offense under the Enterprise Act 2002
- a decision by the Competition and Markets Authority or another regulator fining the supplier for participation in a cartel (in circumstances where a decision is made by a foreign regulator, a mandatory exclusion ground will apply if the conduct giving rise to that decision would have given rise to an equivalent penalty or decision in the UK had the conduct been committed there)
- national security where the supplier has been deemed to pose a threat to national security in the United Kingdom in relation to a certain description of public contracts and has been placed on the mandatory 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 labor misconduct by way of a labor 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 an offense (whether in or outside the United Kingdom) relating to incidents causing actual or potential environmental impact that is major or significant
- bankruptcy, insolvency, or equivalent situations
- professional misconduct that 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 decisionmaker considers that the supplier has infringed the Competition Act 1998 (or equivalent outside the UK) by entering into an anticompetitive 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; for example, this could 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 in the United Kingdom
Both the mandatory and discretionary grounds include bases relating to national security. The Act includes no definition of “national security,” and therefore there is discretion on the part of the decisionmaker to determine whether it applies. However, if a contracting authority (e.g., public authorities, public undertakings, or private utilities) intends to disregard a tender on the basis that the supplier is a threat to national security under the discretionary ground, it must first notify a Minister of the Crown, and the Minister must agree with the decision.
A supplier may also be excluded from a procurement by reference to the status of their associated suppliers and subcontractors, not just their own performance (this is also a point of difference from the current regime). However, the supplier must first be given the chance to replace the excluded/excludable subcontractor before itself being excluded.
The Debarment List
If a Minister of the Crown has conducted an investigation and is satisfied that the supplier is subject to either a mandatory or discretionary ground, the Minister may enter that supplier’s name on the debarment list, together with information about the relevant exclusion ground, when the exclusion ground will cease to apply, and, where the exclusion relates to national security, a description of the contracts in relation to which the supplier is excluded.
The effect of this will be as follows:
- Where a supplier is on the debarment list due to a mandatory exclusion ground, it is generally excluded from all procurements (save in relation to national security, where the supplier will be barred from just those particular types of contracts described on the list. It may bid for contracts falling outside of these particular types).
- Where a supplier is on the debarment list due to a discretionary exclusions ground, it may be excluded by a contracting authority without an opportunity to make representations prior to the exclusion.
The impact of being placed on the debarment list may therefore have serious implications for a supplier’s business (and reputation).
However, suppliers will be given notice of an investigation and have the opportunity to make representations. Further, a Minister must give notice to the supplier of their decision to enter that supplier on the debarment list and wait for a period of eight working days from the date of that notice before doing so. During this period, the supplier may apply to Court for interim relief, pending the outcome of an appeal against the decision (see below).
Appeals and challenges
The Act itself provides for the following routes of challenge and appeal:
- Application for removal: A supplier may do this in respect of an entry on the debarment list at any time. A Minister is required to consider the application, however, only if there has been significant new information or a material change in circumstances since the entry was made.
- Appeal against a debarment decision: A supplier may appeal to Court within 30 days of the date of notification of the decision to enter the supplier’s name on the list or of a decision to not remove or revise an entry made in respect of the supplier’s following an application for removal (as set out above), and only on the grounds that the Minister made a material mistake of law in making the decision. A mistake in law is a substantive ground on which to challenge the decision of a public decision-making body (e.g., if it acts in breach of fundamental human rights, acts for an improper purpose, or takes legally irrelevant considerations into account). However, the bar under the Act is arguably higher, with the inclusion of the word “material” suggesting that the mistake must have a substantive effect on the decision made.
It may also be possible to challenge a contracting authority’s decision to exclude a supplier on a mandatory or discretionary ground on the basis of a breach of statutory duty pursuant to part 9 of the Act or to challenge a decision to exclude a supplier by way of judicial review (although judicial review is a remedy of last resort, and a court may not grant permission for judicial review unless all alternative appeal avenues under the Act are exhausted).
The supplier exclusions regime under the Act is broader than under the current regime, with increased emphasis on transparency and national security. As well as the introduction of the mandatory national security ground in the Act, the government will introduce a new National Security Unit for Procurement, which will investigate suppliers who may pose a risk to national security and assess whether companies should be barred from public procurements.
Furthermore, under the Procurement (Transparency) Regulations to be enacted under the Act, suppliers will be required to register on a central digital platform in order to participate in procurements covered by the Act. Registration will include submitting information about the supplier’s economic and financial standing, the supplier’s connected persons (including persons with significant control over the supplier), and whether any exclusion grounds may apply to the supplier or its associated and connected persons. Once enacted, this regime could create efficiencies for suppliers bidding for more than one government contract, as all core information will need to be submitted upfront, reducing the need for duplicative documentation on subsequent bids.
Each of these new measures may present increased risk to suppliers, who may wish to consider what information they may need to disclose in advance (noting the six-month notice period set out above), and the potential effect of this on their business. Suppliers who are part of larger groups will also need to conduct due diligence on their corporate structure to ensure that none of their parents or subsidiaries or any connected persons fall foul of the discretionary and/or mandatory grounds of exclusion under the Act.
The Government has promised to issue statutory guidance to assist contracting authorities in considering and applying the exclusion grounds, and we will update this note once it has done so in due course.
Thank you to Victor Hugo P. Pianowski, trainee for Sidley, for his significant contribution to this Sidley Update.
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