On 26 February 2015, EU Directive 2014/24 on public procurement was implemented in the UK by the Public Contracts Regulations 2015.
One of the main changes introduced by the 2015 Regulations is that a company will no longer face permanent debarment (referred to as an ‘exclusion’ in the 2015 Regulations) from bidding for public contracts following a corporate conviction for certain economic crimes. Instead, a company will face a period of debarment and will be able to recover eligibility to bid for public contracts if it has undergone a ‘self-cleaning’ process.
We examine the changes to the rules on debarment brought in by the 2015 Regulations and consider whether these changes will be a positive step towards encouraging companies who rely on public contracts to be more willing to self-report a corruption incident to the authorities.
The Public Contracts Regulations 2006
The previous legislation governing these aspects of public procurement (the Public Contracts Regulations 2006 (which implemented the 2004 EU Procurement Directive)), mandated an automatic and indefinite exclusion from bidding for public contracts for companies convicted of offences such as bribery and money laundering. Other types of improper conduct, such as certain professional conduct offences, triggered the possibility of a discretionary exclusion. Accordingly, for companies engaged in tendering for public contracts in the UK faced with a corruption incident, one important consideration in the resolution and reporting of the incident was to consider the impact that any enforcement action might have on their eligibility to be selected as a contractor under the EU public procurement regime.
Unlike some other EU countries (for example, Germany), the UK did not allow a company to reclaim eligibility to bid for public contracts if it could show that it had implemented effective measures to (i) remedy the consequences of any criminal offences or misconduct and (ii) ensure that the prohibited conduct would not recur. This process, permitting a company to reclaim such eligibility, is known as ‘self-cleaning’.
Further, the fact that a convicted company might face such an indefinite exclusion is also listed as a public interest factor against prosecuting a company in both the UK’s Guidance on Corporate Prosecutions (issued in 2011) and the Code of Practice on Deferred Prosecution Agreements (issued in 2014). This may explain (at least in part) the lack of corporate prosecutions in the UK for corruption offences.
A softening of the rules on debarment – introduction of the 2015 Regulations
Three significant changes introduced by the 2015 Regulations are:
a widening of the scope of offences that can result in mandatory and discretionary exclusions;
the introduction of limits to the length of the exclusions that can be imposed; and
the introduction of a ‘self-cleaning’ regime in the UK.
A wider scope of offences
The 2015 Regulations widen the number of offences caught by the mandatory and discretionary exclusions (Regulation 57) as follows:
Mandatory exclusion – this has been extended to include more dishonesty offences, offences under the Companies Act and Fraud Act and convictions for terrorist, child labour and human trafficking-related offences.
Discretionary exclusion – a number of new grounds for exclusion have been introduced, such that a discretionary exclusion could be imposed where:
the contracting public authority can demonstrate violations of social, labour or environmental conventions;
the contracting public authority has ‘plausible indications’ of agreements aimed at distorting competition;
there are conflicts of interests, including those arising from the prior involvement of the supplier of the procedure (e.g. specifications) that cannot be remedied by other less intrusive measures (e.g. Chinese walls).
Limiting the length of exclusions
The second major change introduced by the 2015 Regulations concerns the consequences attached to a mandatory or discretionary exclusion. Under the new rules, a company will no longer face a permanent exclusion from tendering for public contracts. The debarment period has been capped to the following maximum periods:
Mandatory exclusion – the maximum period of exclusion permitted is 5 years from the date of the conviction (Regulation 57(11));
Discretionary exclusion – the maximum period of exclusion permitted is 3 years from the date of the relevant cause or event (Regulation 57(12)).
The new ‘self-cleaning’ regime
The most significant change to the rules relating to debarment is the introduction of the principle of ‘selfcleaning’ (Regulation 57(13)-(17)). The ’self-cleaning’ regime provides that a company convicted of an offence will not be precluded from participating in a procurement tender if it can demonstrate that it has put in place effective measures to remedy the consequences of any criminal offences or misconduct and ensure that the conduct will not recur. A company would need to provide sufficient evidence to prove that it has:
paid or undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct;
clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities; and
taken concrete technical, organisational and personnel measures that are appropriate to prevent further criminal offences or misconduct (Regulation 57(15)).
Effective self-cleaning measures are likely to require a company to invest a considerable amount of time and money into the process and may lead contracting public authorities to insist that companies appoint independent monitors to supervise the process.
The sufficiency of the measures put in place by a company will be assessed against the gravity and particular circumstances of the criminal offence or misconduct (Regulation 57(16)). Where measures are considered as insufficient by the contracting public authority, the company will be provided with a statement of the reasons for that decision.
The introduction of ‘self-cleaning’ under the 2015 Regulations acknowledges the fact that under the previous regime an uneven playing field had been created across the EU. Some member states recognised ‘selfcleaning’ and permitted rehabilitation for certain offences while others (like the UK) did not.
Impact of the changes
The 2015 Regulations introduce an important element of proportionality to the consequences of mandatory and discretionary exclusions.
Aside from the fact that companies are no longer debarred permanently, by introducing the ‘self-cleaning’ regime and by putting in place a process to comprehensively examine and remedy offensive conduct, it supports the objectives behind the exclusions and may be more effective in promoting those objectives than a permanent exclusion. Now that a company has the ability to ‘self-clean’ and avoid potential financial ruin by being permanently debarred from tendering for public contracts in the EU, there may be a credible incentive for companies to self-report.
Despite these positive changes, nongovernmental organisations such as Corruption Watch have pointed out that the ‘self-cleaning’ provisions in the 2015 Regulations leave it to the discretion of the relevant contracting public authority to determine whether a company has ‘self-cleaned’. This could lead to inconsistent application of the regime. To ensure uniformity of application (and, hence, that a level playing field operates), a potential solution they have submitted to the UK government is the creation of a centralised agency to assess whether the measures taken by a company convicted of corruption are sufficient.
Until this issue is addressed, companies will continue to face uncertainty as to the extent of measures that will be sufficient to satisfy a contracting public authority that they have complied with the requirements of the ‘self-cleaning’ regime.