Changes applying to the thresholds for public procurements

On 1 November 2021, the government laid the Public Procurement (Agreement on Government Procurement) (Thresholds) (Amendment) Regulations 2021 (SI 2021/1221) (Regulations) before Parliament. The Regulations will come into force on 1 January 2022 and will only apply to procurements commenced after the Regulations come into force.

Impact 

The Regulations update certain financial thresholds in the following:

• Public Contracts Regulations 2015 (SI 2015/102) (PCR 2015)
• Concession Contracts Regulations 2016 (SI 2016/273)
• Utilities Contracts Regulations 2016 (SI 2016/274)
• Defence and Security Public Contracts Regulations 2011 (SI 2011/1848).

We set out each of the changes in detail below. The key change to note is that the applicable thresholds are now inclusive of VAT whereas they were previously net of VAT. Contracting Authorities will therefore need to carefully consider the way in which they calculate contract value after 1 January 2022. The effect of the change is that the applicable thresholds are increased for contracts where VAT does not apply but are, in comparative terms, lowered in respect of contracts where VAT will apply.

The applicable thresholds for Schedule 3 services under PCR 2015 and Schedule 2 services under UCR 2016 are unchanged in terms of numeric value. However, each threshold is now inclusive of VAT.

Public Contracts Regulations 2015

Concession Contracts Regulations 2016

Utilities Contracts Regulations 2016

Defence and Security Public Contracts Regulations 2011

Background to the change

The change from net of VAT to inclusive of VAT arises as a result of the United Kingdom's (UK) accession to the WTO Agreement on Government Procurement (GPA) as an independent member, following the UK's withdrawal from the European Union (EU). The GPA is silent on whether contract value should be calculated net or inclusive of VAT, resulting in a dispute arising between the EU (formerly ECC) and the United States on interpretation. It was found by the WTO Panel on Value Added Tax that contract value should be calculated inclusive of VAT (GPR/21 – 31S/247) but, as this was not clear from the outset of the adoption of the GPA, the EU had continued its pre-existing practice of calculating contract values exclusive of VAT. By way of a "once and for all" resolution, it was agreed that the EU would calculate its thresholds based on a unilateral reduction of 13% to the applicable GPA thresholds across its Member States (GPR/M/25). A unilateral rate was required due to the lack of harmonisation of indirect taxation between EU Member States. Therefore, as the UK is now an independent member of the GPA, it is required to calculate contract value in accordance with the standard applied by other independent GPA members i.e. inclusive of VAT.

Key takeaways

1. Contracting Authorities will need to carefully consider whether or not VAT will apply to relevant contracts.

2. When calculating the value of a contract, if VAT does apply, this must be included in the assessment of contract value in order to establish whether or not the relevant contract will be 'captured' by the applicable threshold.

3. It is also important to remember that, as of 16 August 2021, NHS England and NHS Foundation Trusts are classified as Central Government Authorities.

If you require assistance in respect of the thresholds or procurement law generally, our specialist team is available to help.