The Public Procurement (Agreement on Government Procurement) (Thresholds) (Amendment) Regulations 2021 (the Regulations) were published on 1 November 2021 and will come into force on 1 January 2022.
The Regulations provide for two important changes to the public procurement regime in the UK:
- Firstly, they update certain financial thresholds, which govern the procedures for the award of public contracts for goods, works and services. This is a scheduled update as the thresholds are reviewed every two years.
- Secondly, they change the calculation of the estimated value of a procurement so that it is based on the total amount payable inclusive of VAT (currently, the value is based on the total amount net of VAT).
The Public Procurement (Agreement on Government Procurement) (Thresholds etc.) (Amendment) (Scotland) Regulations 2021 have also been published, which amend the equivalent regulations in Scotland to make the same changes.
Update to financial thresholds
The Regulations amend the thresholds for the purposes of the Public Contracts Regulations 2015 (the PCR), the Utilities Contracts Regulations 2016 (the UCR) and the Concession Contracts Regulations 2016 (the CCR).
The financial thresholds are laid down by the World Trade Organisation's Agreement on Government Procurement (the GPA). The GPA defines the thresholds in the form of Special Drawing Rights (SDRs), which is an asset established by the International Monetary Fund. Prior to the UK's withdrawal from the EU, the European Commission (the Commission) was responsible for reviewing the thresholds for its Member States (including the UK) every two years to ensure they corresponded to those in the GPA. This was calculated in euros in accordance with the calculation method set out in the GPA and then converted into Pounds Sterling (GBP) for the UK by the Cabinet Office and notified to contracting authorities via a Procurement Policy Note (PPN).
Following the UK's withdrawal from the EU and subsequent succession to the GPA in its own right, this review requirement is now the responsibility of the Minister for the Cabinet Office as set out in regulation 5A of the PCR, 16A of the UCR and 9A of the CCR. Those provisions require the Minister for the Cabinet Office to review the relevant thresholds every two years to ensure that the domestic thresholds (in GBP) correspond to the thresholds laid down in the GPA (in SDRs). This is the first time the thresholds have been reviewed by the Minister for the Cabinet Office since the UK's withdrawal from the EU.
As set out above, prior to the UK's withdrawal from the EU, the Cabinet Office notified the update in thresholds through publishing PPNs. This was because the PCR set out the relevant thresholds by reference to those set by the European Commission in regulation 5. Regulation 5 was updated (pursuant to the Public Procurement (Amendment etc.) (EU Exit) Regulations 2020) to remove that reference, and instead set the specified values (already in place at that time as set out in PPN 06/19).
The new thresholds which will have effect from 1 January 2022 are set out below:
Public Sector (PCR)
| From 1 January 2022 |
|
| Public works contracts | £5,336,937 |
| Public supply contracts and public services contracts (Central Government) | £138,760 |
| Public supply contracts and public services contracts (Sub-Central Government) | £213,477 |
| Public service contracts for social and other specific services (Light Touch Regime) | £663,540 (unchanged) |
Utilities (UCR)
| From 1 January 2022 | |
| Supplies and Services | £426,955 |
| Works contracts | £5,336,937 |
| Social and other Specific Services | £663,540 (unchanged) |
Concessions (CCR)
| From 1 January 2022 | |
| Concession contracts | £5,336,937 |
As noted above, the Light Touch Regime threshold remains unchanged (save for the fact that it is now inclusive of VAT). Our understanding is that the rationale for this remaining unchanged is due to the fact that there is no equivalent for the Light Touch Regime in the GPA (and so there is no updated threshold in SDR with which to align).
For completeness, it is worth noting that the "relevant threshold" under Regulation 9(2)(a) and (b) of the Defence and Security Public Contracts Regulations 2011 (the DSPCR) is set by reference to the thresholds for supplies and services contracts and works contracts under regulation 16(1)(a) and 16(1)(b) of the UCR respectively. Accordingly, the relevant threshold for the DSPCR is amended in line with the amendments to the thresholds under the UCR.
Changes to calculating VAT
The Regulations also amend the PCR, UCR, CCR and the DSPCR to change the calculation of the estimated value of a procurement based on the total amount payable without making a deduction for VAT. This means that the amounts referred to above will be inclusive of VAT for the purposes of calculating the threshold. This change has been made in order to fully implement the UK's obligations under the GPA and is likely to be helpful for contracting authorities for budgetary purposes.
The practical effect of this change means that for public contracts where VAT is applicable, there has actually been a decrease in the new thresholds compared to those currently in place because the new amounts include VAT (generally charged at 20%).
