In this blog we look in  more detail at the proposals for a debarment list, centrally maintained by the Cabinet Office.  This blog does not consider the related topic of grounds for exclusion, which themselves will be streamlined and modernised from the current regime under Regulation 57 PCR: this is a topic in its own right and will be the subject of a later blog.

Back to the Future: The topic of debarment  from UK government contracts dates at least back to the days when Margaret Thatcher furiously banned auditors Arthur Andersen from UK government work ( as a result of their audit of the failed  De Lorean Motor Company in Belfast). It resonates to this day: witness, the recent demands ( by the Labour Party)  for Bain + Co to be removed from UK Government contracts as a result of the alleged associations of its South Africa affiliate with wrongdoing there.

So what is “debarment”?  Debarment is a system-wide exclusion of a contractor from the award of public  contracts for a period of time and  differs from “ exclusion ” which is on a contract by contract basis.   The Green Paper floated the idea of a “centrally maintained debarment list”,  and the Consultation Response confirms that the Government will proceed with these proposals –  which is hardly a surprise given the political capital attached to it.

Much thinking to be done: the proposals in the Response are  still somewhat sketchy ( at the moment we are left to divine intention by parsing a page of text) and much needs to be done to flesh out the detail of the proposed approach.    The title of “ centrally maintained list” makes the proposal sound administrative: but suppliers should not take their eye off the ball on this: as the Consultation Response itself makes clear, debarment from government contracts could be an effective death knell for some suppliers.

International perspective:   the Government says it will be informed by “ international best practice” in developing its approach.  However, aside from the very mature regime in the USA ( which we will consider later) I am not aware of any other major economy which operates a debarment list: and the proposed approach is not  an explicit  feature of the EU regime ( although it is not prohibited either and some EU Member States such as Germany and Hungary have already  gone some way down this path).  Perhaps readers can point me to some other examples?

Debarment and Exclusion : under the proposals any contracting authority can exclude a supplier ( assuming the new exclusion regime are met) but only the Minister for the Cabinet Office ( MCO)  can debar a supplier.  The important distinction between these two concepts is confused by the fact that (i)  the grounds for both regimes are the same ( see below) and (ii) the routes to debarment overlap with those of exclusion.

Routes to Debarment: there will be  three potential routes to debarment: first, after exclusion by a contracting authority; secondly, after determination by MCO upon referral from a contracting authority ( most probably only central Government to start with), whether or not an exclusion has occurred,  and thirdly, upon instigation of the MCO himself/herself.  Whatever the route, ultimately the  debarment decision will rest with MCO.

Grounds for Debarment:  the new exclusion regime will retain the current distinction between mandatory and discretionary grounds , albeit the grounds will be streamlined and modernised.  This has some important consequences for the debarment regime  as the grounds would seem to be the same ( even though the consequences are greater). Where mandatory grounds apply to a supplier ( e.g. organised crime, terrorism etc) the effect of being on the debarment list is perhaps largely administrative and will enable contracting authorities to be made aware centrally of the existence of grounds for exclusion from any procurements they are conducting.  That said, there will still be an element of central determination involved, for example as to which entities in a supplier group are affected by debarment and whether self-cleaning has occurred ( to the extent relevant, see below).

Where discretionary grounds apply, the proposals need further thought. Firstly, some of the grounds for exclusion do not automatically lend themselves to debarment. Under the current and new regimes a supplier can be excluded from a procurement, for example, where there is an unmitigatable conflict of interest [ Reg 57(8)(e)PCR as currently stands].  “ Conflict of interest “ does not necessarily reflect badly on a supplier and is certainly not a systemic issue meriting debarment.

Generally there is  arguably a big difference between a supplier being systemically “ unreliable” and being “ unreliable” in relation to a particular contract opportunity.

Consistency.  The second point is one of consistency: this is given as one of the main reasons for the debarment list in the first place.  Yet where a supplier is “ debarred” on discretionary grounds it seems that authorities will have a discretion as to whether or not to apply the list.  It would also seem that contracting authorities can still exclude a supplier even it is not debarred ( assuming there  are grounds to do so).  This highlights one of the tensions in the overall policy – which is that exclusions are authority-led whilst debarment is centrally led.

Getting off the “naughty step”: a surprising part of the Consultation Response is that the period for both mandatory and exclusion will now be up to five years, subject to self-cleaning ( by comparison the US period is 3 years).  This would also seem to extend to debarment, although any company dependent on Government for business is unlikely to survive even a much shorter period of time, given the need to replenish pipelines of work.

This makes the opportunity for “self- cleaning” all the more important.   The current self-cleaning process allows a supplier to provide evidence that it has taken measures which demonstrate its reliability despite the existence of exclusion grounds.  The whole concept of “ self-cleaning “ needs a re-think, if it is to extend to debarment, as to which see further below.  Consideration should also be given to a more proportionate approach to the duration of any debarment: a binary 5 years  vs 0 certainly raises the stakes.

The long arm of the law : the exclusions framework and the debarment framework will apply to misconduct overseas and the new exclusions/ debarment regime will tighten “directly connected” persons whose behaviour will affect the exclusion of a supplier.  This will also not be straightforward but will be vitally important given the global nature of public procurement marketplaces. For example :  if an overseas arm of a professional services business were convicted of a bribery offence, will the overseas arm  be directly connected to the UK supplier and can the UK supplier “ self-clean” by demonstrating that the misconduct in its sister organisation is not systemic but localised?

Back to basics : like a number of other aspects of the reform proposals, the proposals in this area graft a potentially good idea onto the existing UK/EU framework ( in this case Reg 57, which itself is to be streamlined).

The linkage between the exclusion and debarment regimes need to be more clearly thought through.  Most importantly, the purpose of the debarment and exclusion regime needs to be explicit and placed at the centre of it.

Across the pond.  A comparison with  the US approach is instructive and for these purposes we will consider briefly the US Federal Acquisition Regulation ( FAR) which governs federal  civilian and military procurement, and in particular subpart 9.4 which deals with exclusion and debarment.

At the heart of the US approach to qualification/ debarment and exclusion lies the concept of the “ presently responsible contractor” (encompassing concepts of honesty, integrity, trustworthiness and reliability).  Whilst the FAR stipulates a number of grounds for debarment ( in some cases alarmingly wide through the lens of the UK public procurement market, in particular the catch-all: “any other cause so serious or compelling in nature that it affects an entity’s present responsibility)  there is no obligation to debar a contractor and indeed a presently responsible contractor should not be debarred.  Instead agencies are required to take into account a number of factors such as the seriousness of the acts or omissions, any remedial measures and mitigating factors ( such as cooperation, introduction of controls, training, disciplinary action) to assess the reputational and performance risk issues posed by the contractor and whether debarment is in the “Government’s interest” [ note, not the same as the “ public interest”].

UK policy-makers would do well to study this approach, which has the merit of putting the purpose of the policy at the heart of a risk-based assessment.  In contrast, if the current EU regime is merely adapted ( as would seem to be the suggestion)  officials and  contractors will be saddled  with an obligation to determine whether the contractors have “ self-cleaned”, an awkward expression at the best of times and one which will certainly require further refinement.

A second (and complementary)  aspect of the US approach is the adoption of administrative agreements which may  specify remedial measures  and oversight as an alternative to debarment or exclusion. Such agreements are already in informal use in the UK where there are performance or other issues with major government contractors: it would be positive to see these arrangements given a more formal and explicit role in the future.

A third aspect of the US system is the central role of the Suspension and Debarring Official (SDO), a role which is reflected in terms of FAR  itself, and indeed sits with the administrative nature of the process.  One advantage of this is that the US debarment regime is, perhaps unexpectedly, not a frequent source of litigation as such ( although there is clearly some), since much of the focus is on the pre-decision making evidence gathering “ dialogue”  and the official has very wide discretionary powers.

In contrast, the intention in the current UK proposals is that  any debarment decision will rest with MCO upon recommendation of the Procurement Review Unit (PRU), and there is an express right of appeal to the Courts. In the UK context, and given the political aspects of this topic, it is perhaps  not surprising that the final decision is Ministerial.  However, as with any procurement decision, a political decision ( for example to ignore a recommendation from the PRU) will bring legal risk of its own and could well mean that the UK system gets  quickly clogged up with legal challenge.  As Professor Yukins explains in the article cited below, the US system works because there is a cadre of SDOs and so this topic once again highlights the systemic changes which will be required ( and also  a further interesting tension with  the latest policy desire to reduce Whitehall headcount).

Conclusion

It would be a mistake to take the EU rules as a starting point and then graft onto them aspects of the US system. Instead, policy makers should consider what is fit for purpose in the UK marketplace (in particular whether we want an EU rules -based approach or a more risk-based approach)  and design a set of rules and systems accordingly. It is hard to imagine the Minister for the Cabinet Office disagreeing with that proposition.

Further reading  and topics

I am grateful for the insight of my colleague Richard  Rector who leads  our US Government contracting practice.

I have also found the following sources most helpful: Yukins & Kania, “ Suspension and Debarment in the U.S. Government: Comparative Lessons for the EU’s Next Steps in Procurement”, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3422499# ; Joseph D. West, Timothy J. Hatch, Christyne K. Brennan, and Lawrence J.C. VanDyke  “ Suspension and Debarment” and  Susan Hawley: “What makes a good debarment regime? Keeping corrupt and fraudulent companies out of post-Brexit public procurement”, PPLR  2021 Number, pages  124-132.  

Finally, the US regime’s mature approach also addresses further topics  which we have not covered in this blog such as :

• Suspension from government contracts pending a finding of debarment or exclusion
• The impact of debarment on extant contracts with debarred organisations
• The circumstances in which a contractor should be excluded or debarred for violation of or poor performance of Government contracts.

More material for a further blog as this topics develops!