Procurement in a Nutshell – Procurement Act 2023 Guidance: Exclusions Associated Persons
29th November, 2024
This Nutshell will evaluate how the exclusion regime under the new Procurement Act, applies to associated persons, connected persons and sub-contractors, with reference to the guidance. Our next Nutshell will explain how contracting authorities should verify whether an exclusion ground applies, as well as how to approach 'self-cleaning' evidence.
Introduction
The Procurement Act 2023 is expected to come into force on 24th February 2025.
The Act will, in particular, revoke the following:
- Public Contracts Regulations 2015 (PCR)
- Concession Contracts Regulations 2016
- Utilities Contracts Regulations 2016
Overview
For a contracting authority to be satisfied that a supplier should be allowed to participate in a procurement and potentially awarded a contract, it should not only consider whether the exclusion grounds apply to the prospective supplier, but also to associated persons, connected persons and any subcontractors.
Associated Persons
An associated person is defined in Section 26(4) as a person the supplier is relying on in order to satisfy the conditions of participation (other than a guarantor).
The guidance notes that guarantors are included as an associated person for the conditions of participation provisions but not for the exclusions provisions. This is to avoid the need for contracting authorities to check entities such as banks for potential exclusion grounds.
An example of an associated person for the purpose of exclusions is a specialist subcontractor in which the supplier is relying on to deliver particular technical elements of the contract.
If a supplier is an excluded supplier or an excludable supplier by virtue of an associated person (and the circumstances giving rise to the exclusion ground are continuing or likely to occur again), the supplier must be given the opportunity to replace the associated person before being excluded.
The guidance advises that contracting authorities include within their tender documents the process to be followed if the supplier is determined to be an excluded supplier or an excludable supplier by virtue of an associated person. Contracting authorities should note that the re-assessment of the tender should avoid any any changes to the tender beyond those directly linked to the replacement of the associated person.
Connected Persons
A connected person is defined in Schedule 6 of the Act. The guidance summarises the definition as follows:
- persons with significant influence or control over the supplier, including for example majority shareholders;
- directors and shadow directors;
- parent and subsidiary companies (sister companies of the supplier, i.e. a company with the same parent, are not connected persons unless they fall within one of the other categories of associated persons).
- predecessor companies (companies which have become insolvent and ceased to trade and the business has effectively been transferred to the supplier);
- other persons who can reasonably be considered to stand in an equivalent position to the above categories.
A supplier may be an excluded supplier or an excludable supplier if certain exclusion grounds apply to a connected person. For example, a supplier may be an excluded supplier if any offence in Schedule 6 has been committed by a connected person and the circumstances giving rise to that ground are continuing or are likely to occur again.
Where a supplier is an excludable supplier because of the misconduct of a connected person, contracting authorities may factor in the strength of the connection between the connected person and the supplier when exercising their discretion on whether or not to exclude.
There is no requirement to give a supplier a reasonable opportunity to replace a connected person before exclusion as they cannot be replaced for the particular procurement like an associated person.
Sub – Contractors
Contracting authorities must ask for the details of all sub-contractors a supplier intends to use as part of the procurement (as required by Section 28(1)(a) of the Act). The guidance states that this is not restricted to sub-contractors that the supplier is relying on to meet the conditions of participation (who will in any event be associated persons) but applies to all sub-contractors the supplier intends to sub-contract the performance of all or part of the contract to.
If a sub-contractor is unknown at the start of the procedure (or is brought in during the procurement), this should be shared with the contracting authority as soon as possible and at least by final tenders. The guidance advises that, in a competitive flexible procedure, which is likely to include multiple stages, it is best practice to seek updated details of sub-contractors at each stage.
If a supplier is an excluded supplier or an excludable supplier by virtue of a sub-contractor, the supplier must be given the opportunity to replace the subcontractor before being excluded. The contracting authority should check that the newly appointed sub-contractor is not subject to an exclusion ground and also confirm that the supplier still meets any conditions of participation following the change.
As with associated persons, contracting authorities may wish to include within their tender documents the process to be followed if the supplier is determined to be an excluded supplier or an excludable supplier by virtue of a sub-contractor.
Contracting authorities should note that a supplier can also be considered an excluded or excludable supplier by virtue of a connected person of a sub-contractor.
What does this mean?
A key change to the exclusion regime under the Procurement Act is the fact that not only do the provisions apply to prospective suppliers, but also to those associated or connected to the supplier and any sub-contractors.
This widens the applicability of the regime, increasing the burden on contracting authorities to conduct thorough due diligence throughout the procurement process. In light of this, we would reiterate that contracting authorities review, and update, their internal processes to ensure they adequately review whether suppliers are excluded or excludable. As previously mentioned, our next Nutshell will address how to verify whether an exclusion ground exists following a due diligence exercise and how to evaluate self-cleaning evidence.
For further information please contact Melanie Pears or Tim Care in our Public Sector Team
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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