Public Contracts Regulations 2015 - Regulation 57

Regulation 57 - Exclusion grounds

Regulation 57 brings us the rules governing the exclusion of candidates from a public procurement procedure, transposing Article 57 of Directive 2014/24/EU into England, Wales and Northern Ireland. This Regulation is divided into six parts: general rules leading to mandatory exclusion; mandatory and discretionary exclusions for non-tax payment; exceptions to mandatory exclusions; discretionary exclusions; exclusions during the procedure; and self-cleaning. In consequence, there is plenty to say about exclusions under the new Public Contracts Regulations 2015 as shown by Albert's long entry on Monday.

General rules leading to mandatory exclusion

Paragraphs 1 and 2 contain a number of general rules regarding the exclusions of candidates during the procedure, referring to a number of national laws such as the Criminal Law Act 1977 the or Public Bodies Corrupt Practices Act 1889 as sources of mandatory exclusions. In comparison with the Public Contracts Regulations 2006 (Regulation 23) it is possible to detect an expansion of these general rules leading to an automatic exclusion. As we shall see this mandatory exclusion may not be mandatory at all.

The content of paragraphs 1 and 2 is similar to what can be found in other countries, but an issue may occur when a foreign based economic operator has committed offences in another Member State as it technically would not have violated any of the national laws (common law included) mentioned here. I am not sure this is a real problem or just me creating problems where they do not exist in practice.

Under paragraph 12 the exclusions under these paragraphs, as the ones of paragraph 3 are valid for a period of 5 years, leaving me to wonder how this will pan out in practice. Is the exclusion valid from the moment the offence was committed, the final decision notified (if applicable) or the first procedure the economic operator subsequently try to enter into?

Mandatory and discretionary exclusions for non-tax payment

Paragraphs 3 to 5 are related to the non-payment of taxes which can be lead to either a mandatory or discretionary exclusion, with the possibility that some mandatory exclusions may not be that mandatory at all.

In a departure from the discretion given under Regulation 23(4)(g) of the Public Contracts Regulation 2006, paragraph 3 states that economic operators shall be excluded when the contracting authority is aware the economic operator is in breach of its obligations relating to payment of taxes or social security contributions by means of a final administrative or judicial decision either in the UK or another country where it is established. It would thus appear that only the entity presenting itself to the procurement procedure would trigger this exclusion and not others within the same group.

The following paragraph gives the contracting authority the possibility to exclude an economic operator if it can demonstrate said operator is in breach of its obligations relating to the payment of taxes or social contributions using "any appropriate means". This looks to me as problematic and I am not sure how it will be used in practice as it appears to be a novelty in comparison with the 2006 regime.

For the benefit of readers based outside the UK, I would add that for the last few years a campaign has been brewing to bar companies from taking part in public procurement unless they pay "their fair share" of tax. This is mostly based on a moral argument that it is unfair to award contracts to economic operators which aggressively avoid tax using schemes which, so far, have proved legal. My views on this are quite simple: exclusions can only occur when their is illegal tax avoidance (ie, violating of tax laws) and that procurement is not to be taken over to pursue interests that do not arise from legal obligations. In other words, said campaigns should focus instead in changing the tax laws (and treaties...) but that, of course, implies a political cost which some pulpit politicians are not keen to incur. I have the feeling that this new paragraph 4 may be used for those purposes.

Both exclusion grounds of paragraphs 3 and 4 however cease to apply (meaning they are no longer legitimate exclusion grounds) once the economic operator enters a binding agreement to pay the tax due. Note the reference to "entering an agreement" and not "actual payment"...Doubling down on my argument above: if politicians really wanted to increase tax compliance this should only occur when the tax debt was fully paid up. But those political costs...

The exclusions under paragraph 4 and 8 (see below) are valid for 4 years and the same comments as above apply.

Exceptions to mandatory exclusions

Paragraphs 6 and 7 undo all the good compliance work demanded by paragraphs 1 and 3 by transforming what were mandatory exclusions into discretionary ones based on grounds of public interest (public health or the environment). Call me a cynic, but I am sure any agency other than the HMRC is more interested in getting the best economic operator for its contract than the one with the best tax/criminal compliance record. Furthermore, mandatory exclusions under paragraph 3 can also be set aside when they are disproportionate, which seems reasonable as it can help economic operators going through difficult times.

Discretionary exclusions

Paragraph 8 includes a laundry list of situations whereby the contracting authority may decide to exclude an economic operator, but is under no obligation of doing so. Most of them were already present in Regulation 23 of the Public Contracts Regulations 2006. I find it interesting however that the lawmaker (and the Directive) qualify the exclusion due to a conflict of interest situation under Regulation 24 as a last resort but not as a mandatory exclusion when that happens. Therefore, even if the conflict of situation exists and could not be corrected by other means the contracting authority is still not under the obligation of excluding the economic operator. How this provision is compatible with the principle of equal treatment is beyond me...

Exclusions during the procedure

Under paragraphs 9 and 10 establish the principle that any exclusion ground can be used against an economic operator during the public procurement procedure and not only during the selection stage or whenever the grounds are first checked.

Self-cleaning

Finally, paragraphs 13 to 17 introduce the novelty of self-cleaning, or the possibility that economic operators can pro-actively solve the issues that would otherwise lead to the application of exclusions during a certain period of time. The leading case on this topic is the Siemens one from 2008 I think. Simone Davina from Siemens Netherlands gave an excellent talk in this year's Procurement Week about Siemens example. There is also a book from various authors on self-cleaning which came out in 2009.

The self-cleaning rules from Regulation 57 allow an economic operator falling under any of the circumstances of paragraphs 1 and 8 to show that it has taken measures to demonstrate its reliability. This may make sense when criminal offences were committed such as bribing, but extending these self-cleaning rules to other failings such as (real) tax avoidance appears to me to be a step too far. Having said that, the examples provided in paragraph 15 appear geared towards the first scenario and not the second. We will see how this will pan out.

Self-cleaning does not provide with a free and automatic "get out of jail" card to the economic operator. According to paragraphs 16 and 17 it is up for the contracting authority to decide (within its margin of discretion) if the self-cleaning is enough to guarantee the "reliability" mentioned above. In case the authority considers the cleaning insufficient it will have to justify its decision.