Changes to Procurement Thresholds from 1 January 2022

From 1 January 2022, two key changes have taken effect, as follows:

1. As happens every 2 years, the financial thresholds above which a regulated tender process is required (in accordance with the Public Contracts Regulations 2015, Utilities Contracts Regulations 2016 or Concession Contracts Regulations 2016) have (with the exception of “small lots” and “light touch” services”) been increased, but more significantly;

2. The value of the procurement must now be calculated inclusive of VAT, reflecting a change in approach following Brexit and the UK’s (now independent) membership of the World Trade Organisation’s Agreement on Government Procurement (GPA).

In practical terms, the change to include VAT effectively lowers the thresholds at which the procurement regulations will apply and thus a higher number of contracts than was previously the case are likely to fall within the relevant regulations. The new thresholds will only affect any new procurements from 1 January and are as follows:

These changes take effect by virtue of the Public Procurement (Agreement on Government Procurement) (Thresholds) (Amendment) Regulations 2021 and are helpfully summarised in Procurement Policy Note 10/21 – Thresholds and Inclusion of VAT (PPN).

The PPN provides guidance on how to estimate contract values based on the new VAT - inclusive process. In particular, the PPN suggests, but does not prescribe, that the estimated value should be calculated based on the total amount payable including VAT (without any deduction for VAT recovery) and using the (currently 20%) standard rate for VAT. The aim being that this should remove any problems of underestimating the contract value. The PPN also states that for the purposes of advertising (and award notices), the estimated contract value will continue to be provided exclusive of VAT.

If you have any queries, or for further advice, please contact a member of the Procurement team at Carson McDowell.