Last week the Department for Education notified schools it had updated its guidance in relation to Buying Procedures and Procurement Law for Schools.

This reflects the changes to the procurement thresholds under the Public Procurement Regulations 2021 and contains a notable change around how the value of contracts are calculated that anyone with buying and budget responsibilities in schools or multi-academy trusts (MATs) needs to know.

Who does the guidance cover?

Both maintained schools and MATs are covered by Public Contract Regulations (PCR) and so must carry out any procurement above the set thresholds in line with public procurement procedures when entering into contracts for works, services and goods. 

It is worth noting that trusts are the legal entity when it comes to making decisions and entering into contracts, rather than the individual academy or school, so those at the centre of these organisations are the ones that must ensure the PCR is adhered to.

What has changed?

The thresholds for where the PCR public procurement procedure kicks in is reviewed every two years and as of 1 January 2022, the procurement thresholds have changed.

Under the previous regime, the threshold for goods and services contracts and purchases that need to be procured under a fully compliant PCR public procurement procedure was £189,330 exclusive of VAT.

Under the new regime, from 1 January 2022, the threshold under the PCR increased to £213,477, however, this figure is now inclusive of VAT.

Ultimately, the threshold value has decreased when VAT is deducted and is now £177,897 exclusive of VAT.

More contracts will therefore ultimately be caught under the procurement regime.

Indeed, due to the effective lowering of the threshold value, we are already seeing trusts seek legal advice on how to proceed with contracts, particularly given the length of time it takes to run a compliant tender process and the notice requirements under their current contracts, which would not allow enough time for a fully compliant tender process.

How should schools proceed?

The Procurement Policy Note Action PPN 10/21 (“PPN”), published in December 2021, sets out that the suggested - not prescriptive - default for calculating VAT for this purpose is to add the standard rate of VAT (currently 20 per cent) to the contract estimation net amount.

This means the overall contract value should be taken as the value of the contract rather than an annual amount for the purposes of calculating the overall contract value.

However, when a contract for goods or services is advertised, the guidance confirms that the estimated contract value will continue to be provided exclusive of VAT.

Therefore, when considering a contract value, you need to ensure that VAT is added to the contract value before considering if the contract would fall above the procurement threshold.

For example, if a school was looking to enter into a new cleaning contract and the value was estimated to be £180,000 excluding VAT, this would now fall within the procurement threshold whereas previously, it would have been under the threshold.

If contracts are above the threshold, maintained schools and MATs as contracting authorities will need to ensure that they use a PCR compliant bidding process.

In some instances, there may be suitable frameworks available for use.

Contracts below threshold

It is worth noting too that current guidance from the DfE still states that it considers any contracts worth over £40,000 to be a high-value contract and that its guidance suggests the contract should be awarded either through a framework or following a competitive, advertised procurement process. 

The DfE recommend getting legal advice before any high-value spending.

Be aware

For schools then, what is key is to be aware that even though they may be tendering for contracts on services that fall under what was the former procurement threshold, they may now actually be caught in the PCR and need to act accordingly.

It is also worth being aware that this change has come at a time when the government is considering an overhaul of the current procurement legislation following Brexit.

As such, we are anticipating a new Procurement Bill to be published later in the spring that may well move the goalposts again for schools - although there will at least be some time to get prepared for whatever changes that may bring.

Graham Burns is partner at law firm Stone King