T(hresholds!) minus two weeks and counting:

New public procurement thresholds apply from 1 January 2022

As of 1 January 2022, the minimum financial thresholds for the procurement regime to apply will change. This change has two key features:

• First, the minimum contract value threshold (in £GBP) is set to change for all types of public contracts except for threshold values for small lots, light touch regime services and below threshold contracts; and
• Secondly, these contract values are now expressed inclusive (rather than exclusive) of VAT.

In real terms, the result is a lowering of the net thresholds. Although the thresholds appear to be increasing by around 13%, the fact that the new thresholds are VAT-inclusive means that the net-of-VAT values in fact reduce.

The new rates only affect new procurements commencing on or after 1 January 2022. Ongoing procurements are unaffected.

These changes are imposed by the Public Procurement (Agreement on Government Procurement) (Thresholds) (Amendment) Regulations 2021. Procurement Policy Note 09/21 gives guidance on how to estimate contract values on the new VAT-inclusive basis, without making a deduction for any available VAT recovery.

Scope

The new thresholds apply to procurements conducted under the following Regulations:

• Public Contracts Regulations 2015 (“PCR 2015”);
• Concession Contracts Regulations 2016;
• Utilities Contracts Regulations 2016; and
• Defence and Security Public Contracts Regulations 2011 (“DSPCR 2011”).

The new thresholds

• £5,336,937 (from £4,733,252) for public works contracts under PCR 2015, DSPCR 2011 and Utilities Contracts Regulations 2016;
• £138,760 (from £122,976) for public supply contracts and public service contracts awarded by central government authorities, and their design contests under PCR 2015;
• £213,477 (from £189,330) for public supply contracts and public service contracts awarded by sub-central contracting authorities, and their design contests under PCR 2015;
• £426,955 (from £378,660) for public supply contracts and public service contracts under Utilities Contracts Regulations 2016 and DSPCR 2011; and
• £5,336,937 (from £4,733,252) for public concession contracts under Concession Contracts Regulations 2016.
• The stated threshold for small lots, below-threshold contracts and services contracts governed by the so-called “light-touch” regime under the Public Contracts Regulations 2015 will remain unchanged. However, the PPN states that contract values should be estimated inclusive of VAT for compliance with all thresholds.

Procurement Policy Note (PPN) 09/21 gives guidance on how to estimate contract values on the new VAT-inclusive basis. The PPN suggests, but does not prescribe, a default method for calculating VAT which is to add an equal amount to the standard rate of VAT (currently 20%) to the contract estimation net amount. It adds that this would remove any problems of underestimating the contract value.