Supplier exclusion and debarment under the Procurement Act

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.