Ensuring compliance with environmental, social and labour laws: SPPN 09/2016

Purpose

1. This note is to promote measures in the Public Contracts (Scotland) Regulations 2015 (PC(S)R 2015) and the Procurement (Scotland) Regulations 2016 (P(S)R 2016) aimed at ensuring contractors compliance with environmental, social, and labour laws when performing public contracts and provide contract conditions that contracting authorities may wish to adapt for their own use.

Key points

• by applying exclusion grounds and relevant and proportionate selection criteria in the procurement process, a contracting authority is better placed to ensure that contractors who deliver public contracts do so in compliance with social, environmental and labour law
• contracts must not be awarded to a contractor where its tender price is abnormally low due to breaches of social, environmental or labour law
• contracts should include relevant clauses to allow for termination in the case of breaches of social, environmental or labour law

Background

2. Regulation 19(4) of PC(S)R 2015 places a legal obligation on contracting authorities to include in each public contract or framework agreement such conditions relating to the performance of the contract or framework as reasonably necessary to ensure that the contractor complies with environmental, social and employment law.

Exclusion

3. Under regulation 58(8)(a) of PC(S)R 2015 and regulation 9(5)(a) of P(S)R 2016, a contractor may be excluded from a procurement process where a contracting authority can demonstrate that the contractor has breached any obligations in the fields of environmental, social or labour law. Relevant questions have been included in section 3D of the European Single Procurement Document: https://www.procurementjourney.scot/node/134/

Abnormally low tenders

4. Under regulation 69 of PC(S)R 2015 a contracting authority must require a contractor to explain any tender which, in its view, could be regarded as abnormally low. In all instances any abnormally low bid must be rejected where it has been established that the tender is abnormally low because it does not comply with environmental, social or labour law. While this is not a requirement for procurements below the EU contract threshold values, this approach is considered best practice for those contracts within scope of the Procurement Reform (Scotland) Act 2014 i.e. contracts for goods and services with a value in excess of £50,000 and construction contracts with a value in excess of £2m.

Contract clauses

5. Under regulation 73 of PC(S) 2015 a contracting authority can terminate a contract in the event of failure by the contractor to comply with its legal obligations in the fields of environmental, social or employment law, or if any of the termination events of substantial modification of the contract, contract award despite the existence of exclusion grounds or a serious infringement of EU legal obligations occur.

6. The Scottish Government's standard terms and conditions have been updated to provide for termination under these circumstances. The new contract clauses are included in Annex A (see below), and the standard terms and conditions have been updated to include the new clauses.

Action required

7. Contracting authorities are asked to note the measures relating to social, environmental and labour law as described in this policy note and to consider adopting equivalent provisions in relevant contracts to those provided in Annex A below.

Dissemination

8. Please bring this SPPN to the attention of all relevant staff within your field of responsibility to whom it may be of interest.

Enquiries

9. Any enquiries in relation to this guidance should be sent to: scottishprocurement@gov.scot

Annex A

16. Termination
16.3   The purchaser may terminate the contract in the event that:

(a)  the contract has been subject to substantial modification which would have required a new procurement procedure in accordance with regulation 72(9) (modification of contracts during their term) of The Public Contracts (Scotland) Regulations 2015 

(b)  the Supplier has, at the time of contract award, been in one of the situations referred to in regulation 58(1) (exclusion grounds) of The Public Contracts (Scotland) Regulations 2015, including as a result of the application of regulation 58(2) of those regulations, and should therefore have been excluded from the procurement procedure

(c)  the Contract should not have been awarded to the Supplier in view of a serious infringement of the obligations under the Treaties and the Directive 2014/24/EU that has been declared by the Court of Justice of the European Union in a procedure under Article 258 of the Treaty on the Functioning of the European Union.
 
In this condition, ‘the Treaties’ has the meaning given in the European Communities Act 1972.

16.4 The Purchaser may also terminate the Contract in the event of a failure by the Supplier to comply in the performance of the Contract with legal obligations in the fields of environmental, social and employment law.  
 
16.5 In addition to the Purchaser’s rights of termination under Condition 16.2, 16.3 and 16.4, the Purchaser shall be entitled to terminate this Contract by giving to the Supplier not less than 30 days’ notice to that effect.
 
16.6  Termination under Condition 16.2, 16.3, 16.4 or 16.5 shall not prejudice or affect any right of action or remedy which shall have accrued or shall thereupon accrue to the Purchaser and shall not affect the continued operation of Conditions 10 (Patents, information and copyright), 15 (Official Secrets Acts, etc.) and 21 (Audit).
 
18. Assignation and sub-contracting

18.4 The Supplier shall also include in every sub-contract:
 
18.4.1 a right for the Supplier to terminate that sub-contract if the relevant subcontractor fails to comply in the performance of its contract with legal obligations in the fields of environmental, social or employment law or if any of the termination events (involving substantial modification of the Contract, contract award despite the existence of exclusion grounds or a serious infringement of EU legal obligations) specified in condition 16.3 occur

18.4.2 a requirement that the sub-contractor includes a provision having the same effect as 18.4.1 above in any sub-contract which it awards.

In this condition 18.4, ‘sub-contract’ means a contract between two or more suppliers, at any stage of remoteness from the Purchaser in a sub-contracting chain, made wholly or substantially for the purpose of performing (or contributing to the performance of) the whole or any part of this contract.