Public Contracts Regulations 2015 - Regulation 71

Regulation 71 - Subcontracting

Regulation 71 brings specific rules on how to deal with subcontracting situations, a (partial) novelty to the Public Contracts Regulations as the 2006 Regulations already included some rules. Here, they have been very much expanded.

By and large the contracting authority is left with the discretion to require information about the sub-contractors (and sub-sub-contractors...) and also to investigate their compliance with the requirements of Regulations 57, 59, 60 and 61. It may decide not to bother with requesting any information from sub-contractors but if it does check for the mandatory exclusion grounds and they are present, the affected sub-contractor must be excluded from the contract. This makes sense and it is a shame that the same conclusion has not been taken for abnormally low tenders (where even if a tender is found to be abnormally low, the contracting authority retains the discretion of excluding it or not).

The exception to the discretion of meddling into the sub-contracting swamp is for works contracts and some services contracts (paragraph 3), but not for supplies (paragraph 6). In these, the contracting authority must require from the main contractor the identity of the sub-contractors and the registry of sub-contractors needs to be kept up to date by the main contractor (paragraph 4). However, even in these situations, the contracting authority is not under the obligation of checking for grounds for exclusion.

The possibility of "spot checking" sub-contractors does raises the odds for non-compliant economic operators to be found out "hiding" as sub-contractors instead of appearing as main contractors where they would not be able to pass a selection stage. I have no idea how prevalent this is practice or if it is just a red herring but it appears to me that the "nudge" given to contracting authorities to keep on checking sub-contractors is a reasonable way to close a loophole for non-compliant economic operators. The alternatives would be to not have any rules whatsoever or to make the checks mandatory.

Having said that, I somehow doubt that many contracting authorities will bother in undertaking this work during contract performance as there is no incentive for them to do so. What do they have to gain to rattle a contract being performed to check if the sub-contractors are paying their taxes? Contract performance monitoring is spotty at best today and these rules will not change it. Albert?

Edit: I forgot to mentioning something on the original version of my post this morning which Albert mentioned. For all the noise about the benefits of direct payment to sub-contractors I am glad it did not make it to the Regulations. I am usually firmly in the camp of making procurement easier for SMEs and I am well aware that main contractors receive all the cash and then sit on it for quite some time before paying it downstream.

However, paying directly to subcontractors breaks the clear liability nexus that exists on the traditional payment mechanisms with two consequences. One, paragraph 2 would be incompatible with this idea. Two, if and when things go wrong on a project, contractors would always play the blame game against one another. Things get messy really quickly under the direct payment to sub-contractors system with the contracting authority holding the can. There is a reason why back to back liability clauses are so common on construction contracts...

PS: As an anecdote I was once acting as the lawyer for a main contractor whereas my father represented the sub-contractor. Fun times...