UK: Prime contractors to advertise public sector subcontracts

From 1 May 2018, 'in Scope Organisations' (i.e. Central Government Departments, their Executive Agencies and Non Departmental Public Bodies) must update their terms and conditions of contract with prime contractors to include the following obligations:

• a requirement to advertise, on Contracts Finder, any subcontract opportunities valued at £25,000 or above; and
• frequent submission of reports to provide detail of spend on sub-contracting, in addition to how much of that spend relates to SME or VCSE (voluntary, community and social enterprise) organisations.

However, such obligations only apply to public contracts with a value of £5 million or more per annum and only need to be factored into procurements which commence on or after 1 May 2018.  The PPN includes standard clauses for incorporating the above requirements.  The Crown Commercial Service has also published a suggested reporting template (a copy of which can be found here).

What is the key driver behind this?

The Government wishes to increase visibility of supply chain opportunities, primarily to assist SMEs and VCSE's in bidding for public sector work.  The Contracts Finder website aims to be a 'one stop shop' for those seeking public sector opportunities and facilitate easier access to public sector opportunities.  According to the PPN, 63% of the 25,000 entities registered with the website are SMEs.

Are there any exceptions?

Yes.  Firstly, there is no requirement to include the above requirements where subcontracts were arranged or existed prior to the award of the contract, i.e. when a prime contractor has established its supply chain as part of the tender process.

There are also other exceptions including:

• where there are issues of national security;
• where the contract is to be delivered overseas and the subcontracts can only be delivered by in-country partners and/or there are local laws, customs or security issues which mean subcontracts cannot be advertised; or
• where the supplier has confirmed there will be no subcontract spend.

The PPN also recognises that the relevance and proportionality of the above obligations should be considered in advance of any procurement process.  In short, this means that in-scope organisations have the ability to increase the £25,000 threshold up to a maximum of £100,000, if they consider the minimum threshold of £25,000 to be 'overly burdensome' to suppliers on a particular procurement.  For example, where feedback from suppliers during a procurement process strongly indicates that these requirements will be particularly onerous.  At this point, in-scope organisations may need to increase the minimum threshold and we would advise that the justification for this is documented as part of the audit trail.

What does this mean for contracting authorities?

• Applicability - as stated above, the PPN does not apply to all contracting authorities – only those organisations which are 'in-scope'.  However, the Crown Commercial Service actively encourages the use of Contracts Finder and subcontractors may potentially lodge complaints with the 'Mystery Shopper' scheme, if they feel that they are missing out on significant sub-contracting opportunities (albeit, this does not necessarily mean that a legal remedy could be sought by such complainants).  Contracting authorities may therefore wish to consider inclusion of the above clauses within their terms and conditions on a voluntary basis to maximise competition and increase SME participation; and
• Frequency of reports – the PPN does not prescribe the frequency by which prime contractors must provide details of their spend with sub-contractors.  It is ultimately at the discretion of the contracting authority to dictate this.  The question is therefore, what is reasonable here?  This will vary from contract to contract and may depend on the overall reporting obligations placed on the prime contractor within the contract.  Our view is that it may be helpful to indicate an indicative frequency within the contract terms distributed at commencement of the procurement procedure, as a means of obtaining feedback from prime contractors at an early stage.  This can then be revisited if it is clear that prime contractors will find this unduly onerous or this may have a notable impact on cost.

What does this mean for prime contractors?

• Prime contractors should familiarise themselves with the Contracts Finder website and consult the user guide (see here);
• If a sub-contract is advertised on Contracts Finder, details of the contract award should also be published (i.e. by updating the original notice); and
• The PPN does not dictate how sub-contracts are to be procured.  There is, however, a requirement to allow a reasonable and proportionate amount of time for sub-contractor bidders to respond.

Can we help?