Overview

With the entry into force of the new Public Contracts Regulations on 26 February 2015, the UK became one of the first in Europe to implement the EU Public Procurement Directive 2014 to bring in new rules relating to exclusion from public contracting opportunities.

The new rules:

  1. provide for mandatory exclusion if a bidder or one of its officers is convicted of a specified criminal offence, including bribery, fraud and money laundering for a maximum of 5 years; and
  2. set out a list of circumstances in which a contracting authority may exercise a discretion to exclude a bidder for a maximum of 3 years, including where the bidder has a conflict of interest that cannot be adequately remedied, or has underperformed under a prior contract which resulted in early termination, damages or other equivalent sanctions. 

The details

Previously, in the UK at least, a conviction leading to mandatory exclusion appeared to spell permanent debarment from public-sector business. Under the new Regulations there is a route to re-entry to allow bidders that fall within the mandatory or discretionary grounds for exclusion to be admitted to tendering processes – if they can demonstrate to the satisfaction of the contracting authority (on a tender-by-tender basis) that they have restored their reliability as a contractor. For this route to re-entry to be available, the Regulations require a bidder to prove that it has:

  1. paid or committed to pay compensation for any damage caused by the offence or misconduct;
  2. actively collaborated with any investigating authority to clarify the facts; and
  3. implemented concrete measures to prevent future misconduct.

The policy drivers are clear: to encourage companies to adopt rigorous compliance programmes to address wrongdoing going forwards whilst coming clean and making suitable reparation for wrongdoing. Much has been made of this apparent relaxation of the rules on exclusion, but it is important to recognise that the new regime at the same time expands the grounds that give rise to exclusion.

The mandatory grounds now include a catch all for any offence under the law of any jurisdiction outside England and Wales and Northern Ireland, which would appear to bring non-EU convictions within the scope of the mandatory exclusion (previously non-EU offences fell within the discretionary category only). In addition, a final and binding decision regarding non-payment of taxes or social security contributions now also mandates exclusion, at least until any outstanding payments are made.

The list of discretionary grounds has been expanded as well and, significantly, now expressly includes situations where:

  1. a bidder has participated in an agreement aimed at distorting competition;
  2. a conflict of interest, or the prior involvement of a bidder in the preparation of the procurement procedure, cannot be adequately remedied; or
  3. a bidder has significantly and persistently underperformed under a prior contract, which led to early termination, damages or other comparable sanctions.

What does this mean for bidders?

These changes to the scope of the exclusion grounds are likely to mean that bidders for public contracts will need to expand the internal checks and audits they perform in order to verify that none of the grounds apply to them – not least because misrepresentation in any tender process as to the non-existence of grounds for exclusion provides a self-standing basis for exclusion.

The implications for investigations and engagement with Regulators including the SFO are important. The UK government’s guidance on corporate prosecutions and the SFO’s code of practice on deferred prosecution agreements identify the exclusion consequences of a relevant conviction as a factor to be taken into account in determining whether to prosecute at all. Prosecutors may well afford less weight to the potential for disproportionate harm arising from exclusion given the availability of a route to re-entry and the prescribed maximum time limits for exclusion.