Supplier exclusion and debarment

This blog is the third in our series of blogs on the Procurement Bill currently before Parliament in which we look at how the Bill deals with the question of supplier exclusion and debarment.

More than in some other areas, the Government has taken the opportunity in the Bill to implement a wide refresh of the rules on supplier exclusion and debarment to resolve with a number of ambiguities and inconsistencies in the present rules. The result is a much clearer but overall broader and more extensive framework for supplier exclusion, presenting potentially significant risk for suppliers bidding for Government contracts in England and Wales. 

Supplier exclusion and debarment

Mandatory exclusion

Under the Bill, suppliers must be excluded from public procurements where any of the following apply:

• Conviction of offences relating to participation in an organised crime group or involvement in serious organised crime
• Conviction of offences of bribery and blackmail
• Conviction of offences related to fraud and fraudulent trading
• Conviction of offences related to theft, robbery, burglary and stolen goods
• Conviction of offences related to terrorism
• Conviction of offences related to money laundering
• Conviction of modern slavery and labour market offences
• Conviction of the offence of corporate manslaughter/corporate homicide
• Conviction of offences related to tax evasion, civil penalties or HMRC decisions relating to tax evasion, fraud or avoidance
• Conviction for the cartel offence under the Enterprise Act 2002
• Decision by the Competition and Markets Authority or another regulator either in the UK or abroad fining the supplier for participation in a cartel
• 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

Discretionary exclusion

Grounds for discretionary exclusion are:

• 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

For both the mandatory and discretionary exclusion grounds there is a generally a five-year time limit, though for some grounds the time-limit is reduced to three years.

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

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 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.  This is fairly similar to the "self-cleaning" provisions in the current rules.

The Bill includes provisions for the Government to operate a centrally-managed and published debarment list of suppliers who are either subject to mandatory or discretionary exclusion. Prior to entry of a supplier's name on the debarment list, a Minister of the Crown must have conducted an investigation into whether the supplier was excluded or excludable and be satisfied that the supplier is either subject to a mandatory ground (excluded) or a discretionary ground (excludable) of exclusion. 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).

Finally, a supplier may be excluded from a procurement if it proposes to sub-contract all or part of the contract to a sub-contractor that is an excluded or excludable supplier. However, the prime contractor supplier must first be given the chance to replace the excluded/excludable sub-contractor.

In re-writing the rules on supplier exclusion, the Government set out to create a clearer and more consistent code than appears in the current procurement regulations. Broadly speaking, it appears to have achieved that.  However, the rules on supplier exclusion in the Bill also amount to significant expansion of the circumstances in which suppliers must or may be excluded from public procurements. For example, 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 be subject to mandatory exclusion from UK public procurements, even if the UK subsidiary had nothing to do with the cartel behaviour. In this scenario the "self-cleaning" provisions of the Bill might come to the UK supplier's rescue. However, it would still be incumbent on the UK supplier to disclose the existence of the mandatory exclusion ground and explain to the contracting authority why it should not apply.

The provisions on connected persons, combined with provisions on investigations to be undertaken by contracting authorities and Ministers into whether an exclusion ground applies, also imply that there will be a much greater need for transparency from suppliers as to their corporate structure and beneficial owners than there previously has been.