Changes to Public Procurement Thresholds

The UK Government has laid Regulations before Parliament which will amend certain threshold values in procurement legislation from 1 January 2022.

The public procurement thresholds changed on 1 January 2022 when the Public Procurement (Agreement on Government Procurement) (Thresholds) (Amendment) Regulations 2021 (SI 2021/1221) came into force.  The Regulations have updated the thresholds in the Public Contracts Regulations 2015, the Concession Contracts Regulations 2016 and the Utilities Contracts Regulations 2016.

The new thresholds are expressed inclusive of VAT and, from now on, the estimated value of a procurement is to be the VAT inclusive figure.  Previously, the thresholds and the estimated value of a procurement were calculated net of VAT.

The new thresholds

The thresholds in the Public Contracts Regulations 2015 (PCR 2015) have increased to:

• £5,336,937 (inc. VAT) for public works contracts.
• £138,760 (inc. VAT) for public supply contracts and public service contracts awarded by central government authorities.
• £213,477 (inc. VAT) for public supply contracts and public service contracts awarded by sub-central contracting authorities.

The threshold for public service contracts for social and other specific services remains at £663,540, but this figure is now inclusive of VAT.

The limits on the value of individual lots awarded using the so-called small lots exemption in regulation 6(14) of the PCR 2015 remain at £70,778 for supplies or services and £884,720 for works, but these figures are now inclusive of VAT.

The threshold amount in the Concession Contracts Regulations 2016 for concession contracts has increased to £5,336,937 (inc. VAT).

There has been a de facto decrease in the value of each of these thresholds, once VAT is accounted for.

The UK Government’s Procurement Policy Note 10/21 confirms that, while the contract value is to be estimated inclusive of VAT for the purpose of determining whether the relevant threshold is met, the estimated contract value provided in the contract notice should continue to be expressed net of VAT, as should the contract value published in the contract award notice.

The changes do not impact procurements commenced before 1 January 2022.

Policy background

The financial thresholds must be reviewed every two years in order to comply with the UK’s obligations under the Agreement on Government Procurement (GPA). Prior to the UK’s withdrawal from the EU, the European Commission was responsible for reviewing these thresholds. As a member state of the EU, the UK had to use the EU’s methodology for calculating the financial thresholds and the value of procurements. The EU calculates the thresholds and values net of VAT, in order to harmonise differing VAT rates across the EU. Since this is the UK’s first review post-Brexit, the Government has decided to align with the standard GPA methodology used by non-EU GPA members.

For more information on these regulations or on Contracts and Procurement, please contact a member of our team below.