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It pays to pay for suppliers: tax compliance guidance for procurement published

27 February 2014

In a further reminder to those tendering for public contracts, on 7 February 2014 the Cabinet Office published a revision of its Policy Note on the government's policy promoting tax compliance through public procurement.

The Policy Note set out a policy of requiring bidders for work worth £5 million or more to self-certify in their responses to pre-qualification questionnaires their compliance with relevant taxation in the UK. 

The amended note confirms that compliance failures will only trigger mandatory exclusion from a tender if those failures relate to tax returns submitted on or after 1 October 2012. 

Furthermore, the exclusion will only be applied to procurements (and not the suppliers' tax affairs generally) to 'Occasions of non-Compliance' occurring after 1 April 2013. 

The revised note also clarifies a technical point as against the Public Contracts Regulations 2006 (as amended) (PCRs). 

The Policy Note generally provides that contracting authorities will have discretion whether or not to exclude a non-tax compliant candidate, taking into account mitigating factors such as having put in place a compliance programme or audit process.  

However, the revised note confirms that where an "Occasion of non-Compliance" concerning taxation also falls within the scope of the mandatory exclusion provisions in the PCRs, contracting authorities will have no discretion to take into account mitigating factors.

This development is part of a number of aspects of reform of qualification processes in public procurement. 

The new public procurement directives, adopted in January 2014, will make it easier for public authorities to disqualify contractors on the basis of defective performance under previous contracts. 

This widens the existing grounds on which exclusions can be made, which include professional misconduct, fraud and infringements of the Bribery Act 2010. 

On the other hand, purchasers must take account of any 'self-cleaning' measures put in place by contractors to remedy previous indiscretions before deciding whether or not to debar. 

Purchasers will therefore need to consider whether, for example, the bidder has cleaned up its act by instituting effective compliance programmes.

As practitioners, we have seen an upsurge in bidders keen to encourage the disqualification of their competitors from opportunities on the basis of past misconduct.

This has occurred as the business environment has become tougher, public spending has been reduced and opportunities have become harder to come by. 

We anticipate a continuance in this trend in the near future, as well as litigation arising from legal developments at a UK and EU level. It is clearly a good time for companies to ensure their houses are in order.

This article was written by Paul Henty.

For more information please contact Paul on +44 (0)20 7427 6506 or paul.henty@crsblaw.com