Supplier exclusions and debarment

Ethically compromised and poorly performing suppliers are part of every country’s public procurement system. The UK has had its fair share of supplier problems. High profile incidents involving contractors failing to fulfil the basic terms of the contract e.g., G4S not providing enough security personnel for the London 2012 Olympics or consultants accused of professional misconduct e.g., Bain & Company implicated in “state capture” in South Africa, are easy to find. The government response in such cases has usually been to ban suppliers from competing for future contracts for a defined period.

An important question today is whether Brexit has changed how the UK government manages supplier risks in public procurement? The simple answer is yes. The Procurement Act 2023, which establishes the post-Brexit dispensation for public procurement, strengthens the rules on supplier exclusion [1]. Under previous European Commission-derived regulations, contracting authorities and ministers had the right to exclude suppliers on grounds like fraudulent conduct, tax evasion and grave professional misconduct. The Procurement Act 2023 puts this right on a firmer footing by creating a single exclusion regime [2].

Excluding suppliers is foremost about risk management. The UK government and its contracting authorities want to be assured that suppliers are capable of providing products or delivering services as agreed and in ways that do not undermine competition law, jeopardise national security or negatively impact society and the environment. If suppliers are identified as posing a risk, they can be excluded from public contract competitions. The intention is not to punish suppliers per se, but rather to protect the interests of the State and, by extension, taxpayers.

The five main changes that the Procurement Act 2023 makes to supplier exclusions are as follows:

1. Introduction of new mandatory exclusion grounds e.g., corporate manslaughter, national security threats;
2. Introduction of new discretionary exclusion grounds e.g., labour rights abuses;
3. Making exclusion grounds UK-specific whilst allowing for extra-territorial offences to be taken into account if there is an equivalent offence in UK law;
4. Formulation of clearer rules for exclusion based on “connected persons” e.g., parent company and “associated persons” e.g., specialist sub-contractor
5. Flexibility for contracting authorities to consider a range of “self-cleaning” actions by suppliers i.e., suppliers attempting to redress problematic behaviour or events.

The single regime establishes grounds for mandatory exclusion and discretionary exclusion. In respect of the former, contracting authorities must exclude suppliers from covered[1] contract competitions if they or a person/entity connected to them has a conviction for any of the following offences: corporate manslaughter, terrorism, theft/fraud/bribery, modern slavery and human trafficking, organised crime, tax offences and cartel offences. It is also permissible for contracting authorities to terminate a live contract when a supplier is found to have committed any of the above offences, or indeed those which are referred to next.

Mandatory supplier exclusions apply in some other cases where there are no recorded convictions, but suppliers are presumed guilty of misconduct e.g., tax violations or competition law infringements. National security is another new ground for mandatory exclusion. National security has moved centre stage in debates over public procurement of late; evident in a ban on the use of Huawei’s technology in 5G networks in the UK and other jurisdictions [3]. The decision to exclude suppliers on national security grounds rests solely with Ministers, however, not contracting authorities.

In other scenarios, contracting authorities have discretion over exclusions where there is no criminal conviction, but suppliers are believed to pose a risk. Here we are talking about labour rights infringements e.g., receiving a Labour Market Enforcement Order (LMEO), environmental damage e.g., pollution of surface water, bankruptcy, professional misconduct, breach of contract and poor contract performance, and improper behaviour during the procurement process e.g., canvassing. The contracting authority gets to decide whether or not to exclude a supplier by weighing up the particularities of the case.

Discretionary grounds for exclusion have expanded under the single regime. There is, for example, greater emphasis on excluding suppliers if they have not performed a public contract to a satisfactory level or have breached contract terms and conditions. Poor performance or breach of contract with a private sector organisation is not relevant to such considerations, interestingly. There is also greater emphasis on labour rights abuses as a discretionary ground for exclusion. This complements UK government efforts to clamp down on serious employment and human rights abuses in supply chains through the Modern Slavery Act 2015.

It is not only the conduct of the supplier that can result in its exclusion. The single regime empowers contracting authorities to act based on the behaviour or circumstances of persons/entities connected to or associated with the supplier. “Connected persons” in this context is anyone with significant influence or control over the supplier (or vice versa) e.g., beneficial owners, directors, parent companies, subsidiaries. “Associated persons” is anyone whom the supplier relies on to participate in a contract competition e.g., sub-contractor, consortium partner. Suppliers must be given the opportunity to replace associated persons before an exclusion order is finalised, but this does not apply where connected persons are under suspicion.

When deliberating on exclusions, contracting authorities are expected to consider evidence of “self-cleaning” by suppliers. Self-cleaning denotes action that the supplier has taken to remedy an identified problem and address the underlying circumstances that gave rise to it. Self-cleaning could mean the adoption of an enhanced screening and inspection process where a firm’s supply chain has been compromised by child labour, for instance, or a change in company policies and procedures after findings of professional misconduct against its staff.

Contracting authorities should notify the relevant authority within 30 days of excluding a supplier. The relevant authority for English contracting bodies is the responsible departmental Minister. Welsh and Northern Ireland contracting bodies report to their devolved assemblies in the first instance. The purpose is to collate information on exclusions and allow Ministers to investigate a supplier for debarment, more of which in a moment. It is important to note that decisions on exclusion are limited to incidents that occurred within the previous five years. Anything longer is deemed inadmissible.

Debarment is a new feature of the single regime that is designed to inject consistency into exclusion decisions [4]. Government ministers get to decide if suppliers are placed on the debarment list. Debarment can only happen after a full investigation has been carried out and suppliers are given the opportunity to present a defence and lodge an appeal. Suppliers can be debarred from public contracting on mandatory or discretionary grounds. The former means automatic exclusion. The latter means possible exclusion, depending on the judgment of the contracting authority and the relevant facts at the time of the competition.

As with contract award decisions generally, suppliers are allowed to appeal their debarment. This is done through the courts, and suppliers have eight working days to legally challenge a debarment decision from the time notification is first received – termed the “debarment standstill period”. Assuming a Minister’s decision is not overturned, suppliers remain on the debarment list for up to five years. This means a total ban on competing for UK public contracts if the exclusion is on mandatory grounds. During the ban period, suppliers can petition a Minister to remove or re-categorise their debarment.

The single regime brings clarity and coherency to the question of supplier exclusions in public procurement where it didn’t always exist before. Moreover, it updates the rules to reflect contemporary challenges in public procurement, especially to do with national security and labour rights abuses. Will the single regime be more effective in safeguarding public procurement from risky suppliers? Only time will tell. Much depends on the ability of contracting authorities to identify offenders early on in the procurement process and the subsequent willingness of Ministers to debar the worst ones.

1. Government Commercial Function. 2023. The Procurement Act 2023: A short guide for suppliers. 13 November 2023. Available at: https://www.gov.uk/government/publications/procurement-act-2023-short-guides/the-procurement-act-2023-a-short-guide-for-suppliers-html
2. Cabinet Office. 2024. Guidance: Exclusions. 25 September 2024. Available at: https://www.gov.uk/government/publications/procurement-act-2023-guidance-documents-procure-phase/guidance-exclusions-html
3. Department for Digital, Culture, Media and Sport. 2022. Press release: Huawei legal notices issued. 13 October 2022. Available at: Huawei legal notices issued – GOV.UK (www.gov.uk)
4. Cabinet Office. 2024. Guidance: Debarment. 25 September 2024. Available at: https://www.gov.uk/government/publications/procurement-act-2023-guidance-documents-procure-phase/guidance-debarment-html

[1] Covered contracts are equivalent to above-threshold contracts. Below-threshold contracts are not covered by the exclusions regime.