Public procurement: what do contractors need to know about the Modern Slavery Act?

Written on 15 Mar 2016

The Modern Slavery Act 2015 (MSA) came into force on 1 October 2015 and from 31 March 2016 businesses will need to start publishing annual “Transparency in Supply Chain” (TISC) statements. Businesses contracting with the public sector will need to ensure that they have complied with the fundamental requirements of the MSA, or risk facing exclusion at the qualification stage.

What do businesses need to do to comply?

The MSA requires all commercial organisations carrying on a business, or part of a business, in the UK, and which have a total annual worldwide turnover of £36m or more, to produce an annual TISC statement. The TISC statement should set out the steps that the organisation has taken to eradicate slavery and trafficking in its supply chains (see our previous article here for more information on what organisations need to do to comply).

Organisations whose current financial year ends before 31 March 2016 will not need to publish a TISC statement covering this financial year. For financial years ending on or after 31 March 2016, organisations will need to publish a TISC statement following the end of that year (government guidance suggests within 6 months).

Where does compliance with the MSA fit into the tender process for public contracts?

Contracting authorities are able to integrate the compliance requirements for potential suppliers under the MSA into two areas of the public procurement tender process:

  • at the gateway stage, within the government’s revised Pre-Qualification Questionnaire (PQQ) under the Public Contracts Regulations 2015 (PCR 2015);
  • within the evaluation criteria used to choose the winning tender.

For bidders, non-compliance also raises the possibility of exclusion from being able to bid for future public sector contracts.

At the PQQ stage

As noted in the government’s guidance (here), at the PQQ stage, contracting authorities have the discretion to exclude a supplier who answers “yes” to any of the discretionary exclusion questions set out in the PQQ.   This discretionary power originates from regulation 56(2) and regulation 57(8)(a) PCR 2015.  The discretionary questions include whether the bidder has “violated applicable obligations… in the fields of environmental, social and labour law” (3.1(a)).

If a bidder is obliged by the MSA to publish a TISC statement, but has not done so, the bidder would likely be acting in violation of social and labour law and therefore need to answer “yes”, which could therefore lead to exclusion.

If a bidder were to answer “no” to 3.1(a), but in actual fact had not complied with the MSA, this would amount to a misrepresentation. If this was discovered before the contract was signed, the contracting authority would be permitted to exclude the bidder from the tender process (regulation 57(8)(h)).  If the contract had already been signed, and this misrepresentation were to later come to light, then the contracting authority would likely be able to rely on a contractual ground for termination.

At its most basic level, compliance with the MSA is not necessarily onerous.   Organisations to which the MSA applies simply need to ensure that they have published a TISC statement in a prominent place on their website.  The MSA does not prescribe what information needs to be contained in a TISC statement (for example, what steps an organisation is required to take to eradicate slavery and trafficking), although government guidance sets out the type of information that an organisation may want to include. Indeed, an organisation may simply state that it has taken no steps at all, but the potential for negative PR for businesses that take no or inadequate steps is intended to be one of the key drivers for change introduced by the MSA.

When completing the PQQ “discretionary questions” bidders will therefore need to:

  • be clear as to whether they are obliged to comply with the MSA, and if so whether they have done so;
  • be prepared for exclusion at this stage if they are required to comply with the MSA but have not;
  • be prepared for competitor challenge following an award, if they were to falsely declare that they had complied with the MSA; and
  • as a point of good practice, check whether other bidders have complied with the MSA (by checking for a TISC statement on their websites), and be prepared to challenge if those bidders have not.

At the evaluation stage

Contracting authorities may also integrate compliance with MSA within the evaluation criteria. Contracting authorities have a reasonably wide discretion as to what to include within the criteria, provided that the criteria relate to the subject matter of the contract. Regulation 67(3)(a) PCR 2015 provides that:

“Such criteria may comprise, for example, quality, including technical merit, aesthetic and functional characteristics, accessibility, design for all users, social, environmental and innovative characteristics and trading and its conditions”.

Regulation 67(5) PCR 2015 also provides that:

“Award criteria shall be considered to be linked to the subject-matter of the public contract where they relate to the works, supplies or services to be provided under that contract in any respect and at any stage of their life cycle, including factors involved in:

(a) the specific process of production, provision or trading of those works, supplies or services, or

(b) a specific process for another stage of their life cycle, even where those factors do not form part of their material substance.”

Award criteria which related, for example, to the steps taken to ensure the absence of forced labour or trafficking from the supply chains of goods to be supplied under the procurement, would be likely to be sufficiently linked to the subject matter of the contract.

Therefore, alongside the usual questions relating to health and safety, and the usual requirement to produce a copy of a bidder’s anti-bribery and corruption policy, authorities may request evidence of compliance with the MSA, in the form of a bidder’s TISC statement, if the MSA applies to it.  If so, a bidder that did not supply sufficient evidence would lose points accordingly.   If contracting authorities were unsure of the evidence provided, under regulation 67(8) PCR 2015, the authority may seek to verify the evidence (although given that TISC statements are required to be published on an organisation’s website, this should be a simple step).

In theory, a contracting authority may go beyond the simple pass/fail criteria, for example by scoring the content of a TISC statement.   One method to do so might be to compare the contents of the statement against (non-binding) government guidance as to the type of information that should be included in a TISC statement (such as the organisation’s anti-slavery policies, a risk assessment of its supply chain and details of any training given to staff).

However, given that risks and compliance functions will vary greatly according to factors such as the size of an organisation and the jurisdictions and sectors that it operates in, any meaningful scoring of a bidder’s TISC statement may be difficult to carry out objectively. This may deter authorities from attempting such an exercise, or leave those that do open to potential challenge by unsuccessful bidders.

What does this mean for businesses contracting with the public sector?

The MSA has a wide application. All businesses operating in the UK, whether or not they are UK-based, should be aware of whether the MSA applies to them, and if so, what they need to do to comply with it. For those that contract with the public sector, a failure to comply could lead to exclusion at the qualification stage.

It remains to be seen whether contracting authorities will go a step further, to including this within evaluation criteria, either as a pass/fail or by scoring the content of a TISC statement. Whether or not they do, reputational or other considerations (such as the influence of ethical investors) will for many prove a powerful driver to ensure that compliance functions address the risks of forced labour or trafficking, as part of an integrated approach to managing supply chain risk.