New Year, new procurement thresholds: what does this mean for the health sector?

Procurements advertised on or after 1 January 2022 will be subject to new thresholds.

Now the UK has left the EU, the revision is implemented not by way of a communication from the European Commission, but rather by means of a UK statute, and the various sets of procurement regulations will be amended with effect from 1 January by the Public Procurement (Agreement on Government Procurement) (Thresholds) (Amendment) Regulations 2021 (SI 2021/1221).

Although in most cases the thresholds themselves will increase, a key change is that the thresholds stated will operate as inclusive of VAT, as opposed to exclusive of VAT as is currently the case.

We set out below the new thresholds but wanted to take a moment here to talk about the changes to the threshold for procurements which come under the heading of “Social and Other Specific Services” in Schedule 3 of the Public Contracts Regulations 2015 (PCR). These types of services, which include healthcare services, are only subject to what is generally called the “Light Touch Regime” or “LTR”. 

There is no change to the threshold value for LTR services. “Oh good!” we cry. Sadly though, the joy of being able to continue as usual is short lived as we realise we now have to take VAT into account. 

Therefore, for services to which VAT is applicable, the threshold for LTR services has effectively been lowered. Anyone preparing towards the end of this year to award a contract which was not subject to the LTR as it did not meet the LTR threshold should take care here. Where the contract value is just under the LTR threshold, if everything is not signed before the new year, you will need to check the threshold adjustment for VAT does not bring the contract within the scope of the LTR

And in case you are wondering why we suddenly have to start thinking about VAT, this is due to the UK’s departure from the EU. Members (which includes the UK and the EU) of the Global Procurement Agreement (GPA) must ensure that procurement thresholds meet certain values referred to in the GPA. The EU had an arrangement under the GPA not to include VAT in its thresholds given the variation in VAT rates between EU member states. Now that the UK is signed up to the GPA in its own right, the EU’s arrangements no longer apply, and so we must take VAT into account.

This will effectively revise thresholds downwards for those contracts to which VAT is applicable. This will mean a new approach for procurement teams when calculating contract value, and remembering to take account of any VAT payable when assessing whether the appropriate threshold is reached.

New thresholds

Public Contracts Regulations 2015

The threshold for central government authorities (including since August 2021 NHS Foundation Trusts) procuring services or goods will rise from £122,976 to £138,760.  For sub-central authorities, that threshold will rise from £189,330 to £213,477.

The threshold for works contracts for all authorities will rise from £4,733,252 to £5,336,937, while the threshold for all authorities procuring contracts subject to the LTR remains at £663,540.

Concession Contracts Regulations 2016

For concession contracts, the threshold for all authorities will increase from £4,733,252 to £5,336,937.

Utilities Contracts Regulations 2016

The threshold for goods and services contracts will increase from £378,660 to £426,955, with that for works increasing from £4,733,252 to £5,336,937. The threshold for LTR services remains at £884,720.

For more on the latest developments in procurement, head over to our Procurement Portal.

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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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