The UK government has set out its thinking on how the forthcoming beneficial ownership register for bidding on public contracts will work ahead of the draft legislation which is due to be published by July 2018.

On 22 March 2018, the government published its response to its 2017 call for evidence. The response confirmed a number of policy decisions about the new register for contractors.

Scope

  • All legal forms that can hold properties will be within the scope of the new register’s requirements although trusts will be outside scope. There may also be exemptions for entities which already publish their beneficial ownership information. Under the UK’s PSC regime, on which this register is based, the only exemptions are for entities with voting shares listed on certain stock exchanges in the EEA, USA, Israel, Japan and Switzerland.
  • The requirement will only apply to contracts valued at more than £10 million.
  • The regime will be mandatory for procurements by central government, and voluntary for local government and other public sector bodies.

Disclosures

  • The definition of beneficial owner will follow the definition used in the PSC regime, which itself is derived from international anti-money laundering definitions. There will be adaptations for overseas entities which are not similar to UK companies limited by shares.
  • As a backstop, entities “unable” to provide their beneficial ownership information will have to provide information on their managing officers instead. This is not a feature of the PSC regime, which sometimes results in no information being disclosed when no beneficial owner information can be identified. It is being introduced for this register because the government considers it important to ensure that there will always be at least some additional information on the control of overseas entities. It remains to be seen whether this becomes the de facto disclosure requirement, and whether the concept is imported into the PSC regime.
  • The government has confirmed that the information will be made public, as with the PSC register. However it is open to protections around the disclosure of residential addresses and will consult further on what those protections should be. Under the PSC regime, there is a limited protected disclosure regime which applies if the publication of information would result in a serious risk of violence or intimidation.
  • Beneficial ownership information will have to be updated periodically. The government’s initial proposal was for updates to be made every two years but it now considers that updates should be made more frequently than that. There is no suggestion that bidders who are already registered would need to confirm the accuracy of the information on the register each time they enter into a contract, but it may be open for local authorities to require this.

Enforcement

During consultation, the government gave three options for the basis of the requirement to provide beneficial ownership information:

  • Requiring the information from the preferred bidder as a condition of being awarded the contract;
  • Excluding bids from entities that had not provided the information; or
  • Treating bids not including the information as non-compliant and rejecting them on those grounds.

The government has now confirmed that it will be proceeding with the first option, since requiring the information from all bidders (which would have been the case under either of the other two options) was considered disproportionate.

Osborne Clarke comment

The government’s decision to require the beneficial ownership information as a condition of the contract, rather than at the bid stage, is in line with the government’s desire not to impose unnecessary additional ‘red tape’. It also avoids creating a new automatic ground for challenge by unsuccessful bidders if the required information is not supplied in time. Depending on the final rules and the contractual terms, authorities may have more discretion if there appears to be a good reason for any delay in providing the required information.

Nevertheless, contractors to the public sector should now start planning now for the regime, which the government has confirmed will be operational in 2021 – just as the Brexit transition period comes to an end and the current UK government’s ‘Global Britain’ agenda comes to the fore.