This guide was last updated in April 2015
Under the new directive, mandatory grounds for debarment apply following conviction for a greater range of criminal offences. However, the punishment for debarment is less severe. This guide sets out the changes to the law on debarment introduced by the 2015 Public Contracts Regulations (‘2015 regulations’), which transposed the new directive into law in England. The 2015 regulations came into force on 26 February, and apply to all new tenders starting on or after that date.
Under the previous regime, companies convicted in any EU member state of certain economic offences faced mandatory debarment from the tendering process for UK public contracts, subject to a very narrow exception exercised under discretion. The Office of Government Commerce suggested that this exception would be used “only in the most serious circumstances, for example in the case of national emergency”. Discretionary debarment arose where a business had been convicted of any offence concerning professional conduct.
The same rules applicable to companies also covered the conviction of directors, or others with powers of representation, decision or control of the company, of such offences. They applied to offences based on economic misconduct including corruption and bribery, certain types of fraud, and money laundering.
In relation to both mandatory and discretionary debarment, the UK was one of several EU member states that did not allow companies to be able to regain eligibility for public contracts by demonstrating sufficient evidence of the implementation of compliance measures, known as the ‘self-cleaning’ principle.
The 2015 regulations: an end to permanent debarment
The 2015 regulations extend the number of criminal offences to which mandatory debarment applies following conviction. These include more dishonesty offences, offences under the Companies Act and Fraud Act, and terrorism and people trafficking offences. Discretionary debarment continues to apply in respect of professional misconduct and non-payment of tax, and now also extends to distortion of competition and matters of insolvency.
However, the severity of the punishment that debarment brings has been reduced and companies can no longer be permanently debarred. Instead, a company will face a term of debarment that can be no longer than the maximum statutory term of exclusion. Public authorities are also obliged to bring debarment to an end when the company can satisfactorily demonstrate ‘self-cleaning’.
Where the period of debarment is not set by the convicting court, a company can only be debarred for five years from the date of the conviction in mandatory debarment cases, and for three years from the date of the relevant cause or event in discretionary debarment cases.
The most fundamental change to the rules governing debarment is the introduction of 'self-cleaning'. This allows companies to recover eligibility to bid for public contracts following a debarment by demonstrating sufficient evidence of the following:
- payment of, or undertaking to pay, compensation in respect of any damage caused by the criminal offence or misconduct;
- clarification of the facts and circumstances of the offence in a comprehensive manner, for example by actively collaborating with the investigating authorities; and
- the introduction of concrete technical, organisational and personnel measures, which are appropriate to prevent further criminal offences or misconduct.
The gravity and particular circumstances of the criminal offence or misconduct will be relevant when determining whether the evidence of the measures taken is sufficient. Accordingly, the more serious the offence, the greater the need to ensure the steps taken are comprehensive. Where the measures implemented are considered to be insufficient by the relevant public authority, the company will be provided with a written statement detailing the reasons for that decision.
Debarment and convictions under the Bribery Act
Under the 2015 regulations, a 2010 Bribery Act conviction in respect of active bribery (section 1), passive bribery (section 2) or bribery of foreign public officials (section 6) gives rise to a mandatory exclusion from participation in public tenders. The offence of 'failure of commercial organisations to prevent bribery' (section 7) will not trigger mandatory exclusion, but may give rise to grounds in support of a discretionary exclusion.
In March 2011, the Director of Public Prosecutions (DPP) and Serious Fraud Office (SFO) issued joint guidance for prosecutors on the Bribery Act. The guidance confirmed the view of both prosecuting bodies that there is an inherent public interest in bribery being prosecuted in order to give practical effect to the UK parliament's criminalisation of such behaviour.
In respect of prosecutions under section 7 of the Bribery Act, the additional factors set out in the guidance will also be particularly relevant in determining whether or not it is in the public interest to prosecute. According to the guidance, considerations should also include "not just the value of any gain or loss, but also the risk of harm to the public, to unidentified victims, shareholders, employees and creditors and to the stability and integrity of financial markets and international trade".
Public interest factors against prosecution include "that a conviction is likely to have adverse consequences for the company under European Law, always bearing in mind the seriousness of the offence and any other relevant public interest factors". This is a specific reference to the debarment principles deriving from EU law and implemented in the UK by the previous Public Contracts Regulations, in 2006.
In theory, a company convicted of a bribery offence and thereafter subject to an exclusion period, whether mandatory or discretionary, could 'self-clean' to the effect that the period of debarment is in reality limited and low impact: a company focused and committed to cleaning up its act could be back in business within a matter of months. Arguably, the adverse consequences detailed above may no longer be borne in mind by a prosecutor when making a final decision on whether to prosecute. Ultimately a period of debarment will no longer be considered in the same way and will not act as a shortcut to potential ruin.
The UK's National Anti-Corruption Plan prepared by the government in December 2014 notes that it will consider whether further steps would be useful to ensure that information is readily available to public bodies if and when suppliers have been convicted of offences attracting exclusion from public contracts. In reality, however, unless the 2015 regulations are applied consistently, the impact of any changes is likely to be low.