Fujitsu: excluding bidders for poor performance

Amongst the anger directed at Fujitsu and the Post Office, the Central Government face scrutiny for awarding Fujitsu contracts despite knowledge that Fujitsu’s faulty Horizon IT software was instrumental in the prosecution of more than 900 individuals and which has been described as not fit for purpose.

In recent weeks Fujitsu voluntarily agreed not to bid for any further public contracts until the Post Office inquiry concludes, unless the Government asks them to.¹ This was following calls by some that companies such as Fujitsu, who have been subject to scandal or performed poorly, should be blocked from bidding for contracts. Cabinet Office minister Alex Burghart commented, “There are clearly defined circumstances in which the Government can exclude companies from bidding for contracts”. 

This article sets out those existing ‘defined circumstances’, as well as what the position will be when the Procurement Act 2023 comes into force.

In what circumstances can the Government and other contracting authorities exclude bids due to poor past performance?

Discretionary exclusion under the Public Contracts Regulations 2015 (PCR 2015)

The PCR 2015 sets out several mandatory and discretionary grounds under which bidders must or may be excluded from a procurement process. The list of discretionary grounds includes: ‘where the [bidder] has shown significant or persistent deficiencies in the performance of a substantive requirement under a prior public contract, a prior contract with a contracting entity, or a prior concession contract, which led to early termination of that period contract, damages or other comparable sanctions’²

In other words, a breach or failure under a public contract which resulted in significant sanctions, can be grounds for exclusion. 

Commonly, contracting authorities will ask bidders to self-declare whether this ground exists as part of the Standard Selection Questionnaire. They would usually only go on to vet the responses of the winning bidder. 

The PCR 2015 also allows contracting authorities to seek references from past contracts as evidence that bidders have sufficient experience.³ However, this is focused on the level of experience rather than performance, and naturally, bidders will put their best foot forward by providing details of successful contracts and projects.

Restrictions and considerations

Contracting authorities may exclude a bidder based on discretionary grounds such as poor prior performance, but there is no obligation on them to do so. 

In exercising their discretion to exclude, contracting authorities need to act reasonably and proportionately, considering matters in the round. Other points to note when a contracting authority is considering excluding a bidder due to poor prior performance include:

• Poor performance alone is insufficient – it must have resulted in termination, damages or similar sanctions in order for the Contracting Authority to rely on this ground. Notices of default or performance management would likely be insufficient, and settlement agreements under public contracts may not be caught.
• The ground only applies to the specific bidder named in the bid, not their parent company or other connected entity.
• There is a regime of self-cleaning⁴ which allows bidders to evidence that they are reliable and suitable to participate in the procurement, by demonstrating that measures have been implemented to avoid poor performance reoccurring. 

How will this differ under the Procurement Act 2023?

The Procurement Act 2023 similarly includes mandatory and discretionary grounds for exclusion. Interestingly, it provides separate discretionary grounds⁵ where:

a) a bidder has not performed to an authority’s satisfaction, having been given a proper opportunity to improve performance and failed to do so;

b) a bidder has committed a ‘sufficiently serious’ breach of a relevant contract; 

c) a notice is published under the Procurement Act 2023 detailing a breach or poor performance⁶;

and, in any case, the circumstances of the ground is continuing or likely to occur again.

The Procurement Act 2023 expands the definition of ‘sufficiently serious’ to also include where a consequence of the breach is that a settlement agreement was entered into. 

More significantly, the Procurement Act 2023 lowers the threshold for exclusion, as a breach of contract may not be required at all if the authority is not satisfied with its performance. It also links into the wider obligations of contracting authorities to publish KPIs and performance against them for certain contracts and the publication of contract assessment notices under Section 71⁷. This intends to provide greater transparency for contracting authorities, contractors and the general public about past performance failures. Bringing performance into the spotlight may also see bidders utilising the information to question whether its rivals ought to be excluded from processes. 

When assessing whether a mandatory or discretionary exclusion ground applies to a bidder, the Procurement Act 2023 also expressly sets out the factors to be taken into account when considering whether the relevant ground for exclusion is continuing or likely to occur again, including:

• evidence the circumstances have been taken seriously by the bidder;
• steps taken or planned to prevent a continuation or repetition e.g. change of staff or management, or putting procedure and training in place;
• the time elapsed since the circumstances occurred; and
• other appropriate evidence, explanation or factor.

Before deciding on exclusion, the bidder must be given a reasonable opportunity to make representations and provide evidence in relation to the above factors.

Debarment list

In addition, a bidder may be excluded where it, or an associated person, is on the new debarment list to be set up under the new regime. 

There is a process whereby an appropriate authority may investigate where a bidder has been excluded under mandatory and/or discretionary grounds. Although the full process to be followed is outside of the scope of this article, the outcome of the investigation may be the bidder being added to a debarment list held by the Minister of the Crown and available for review by all contracting authorities. The list is an effort to avoid circumstances where contracting authorities are unknowingly allowing bidders to participate in procurement processes and awarding contracts to bidders who may be excludable.

Where a bidder is added to the debarment list as a result of a discretionary ground such as poor performance, authorities will need to exercise their discretion as to whether to exclude a particular supplier for that particular procurement. 

Final thoughts

Although the Public Contracts Regulations 2015 provide a route for excluding bidders for poor past performance, the scope is narrow and generally, there is little public transparency of where performance issues have arisen. It may therefore be understandable how Fujitsu continued to be awarded contracts despite its performance and central involvement in the Post Office scandal.

On the face of it, the Procurement Act 2023 provides a much wider scope and enables contracting authorities to consider excluding even where issues have not resulted in termination or damages but rather fail to meet the satisfaction of the contracting authority and/or by utilising the performance assessment provisions for higher value contracts. Time will tell as to whether the debarment list provides the intended additional transparency, and if the investigation process results in many bidders being added to it. 

We may therefore see more instances of exclusions on this basis, and potentially more bidders raising concerns about the poor contract performance of rivals. In the short term, it will also be interesting to see how contracting authorities utilise the provisions of the Procurement Act 2023 in relation to performance issues for contracts procured under and performed during the life of the PCR 2015.

For more information

For more information, please contact Amy Callahan-Page.

Footnotes

<sub>1. This appears quite the caveat, given that some important government software under existing Fujitsu contracts will likely be proprietary and bespoke in nature. Therefore, the Government may have to decide between inviting Fujitsu to bid for contracts (to the ire of the public) or awarding contracts to alternative IT companies which may not be practicable or feasible considering the cost and time implications of switching suppliers.
2. Regulation 57(8)(g)
3. Regulation 58(16)
4. Regulations 57(13) – (17)
5. As detailed in Schedule 7 paragraph 12
6. Under section 71(5) (Assessment of contract performance)
7. For contracts with an estimated value of over £5 million.</sub>

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