Valuation of a contract and current thresholds

A proposed tender will fall under the legislation if its estimated value (before the addition of VAT) is greater than the prescribed thresholds.

Thresholds for 1 January 2020 to 31 December 2021 applicable to sub central contracting authorities such as FE colleges, schools and academies:

Category

Threshold
Supplies £189,330
Services £189,330
Social & Other Specific Services
The services that fall into this category are listed in Schedule 3 of The Public Contracts Regulations 2015.
£663,540
Works £4,733,252
Concession contract
Works or Services
£4,733,252

The legislation provides guidance on how to estimate the value of the proposed tender.  If after calculation, the value of the contract exceeds the appropriate threshold, it will fall within the scope of the legislation.  The method of calculation used depends upon the type of procurement to be undertaken:

Supplies

  • If the contract is for a 'one-off' purchase, estimate the total value including all component parts, transport costs, installation and commissioning.
  • If the contract is regular in nature, the value of successive contracts of the same type should be estimated over 12 months (either based historically or in the future).  Note, however, requirements cannot be disaggregated in order to avoid the legislation.
  • Fixed term contracts for the lease, rental or hire purchase, should be estimated for the duration of the contract and where the term of the contract is greater than 12 months, the total value including the estimated residual value.  
  • Where the contract is part of a series, the whole series should be estimated over a 12-month period or longer, if appropriate. 
  • If a contract is for a fixed period, say one year, but has an option(s) to extend, for example, for a further period of one or two years. Then, regardless of whether or not there is uncertainty about exercising the extension options, the maximum duration, ie 3 years, is used when estimating its value.
  • In the case of contracts without a fixed term or the term of which cannot be defined, (e.g an indefinite or uncertain period), the monthly value multiplied by 48.
  • Where there is a single requirement for goods and a number of supplies contracts for similar requirements have been, or are to be, entered into, then the total value of all individual contracts must be calculated.
  • Where a proposal for the acquisition of similar supplies may result in contracts being awarded in the form of separate lots, then the total value of all the individual lots must be calculated.  Note: individual lots may be removed from the procurement exercise where they are valued at less than £62,842 and taken together they represent less than 20% of the total overall valuation.

Note: Where the proposed contract includes more than one of the above elements, the value must be determined by calculating its highest possible value. In addition, the contracting authority shall not enter into separate contracts with the intention of avoiding the application of the rules, nor use a valuation method that gives the lowest estimated value.

Services

  • If the contract is for a 'one-off' service, estimate the total value of that service
  • If the contract is regular in nature, the value of successive contracts of the same type should be estimated over 12 months (either based historically or in the future).  Note, however, requirements cannot be disaggregated in order to avoid the legislation.
  • Fixed term contracts for services should be estimated for the duration of the contract. 
  • Where the contract is part of a series, the whole series should be estimated over a 12-month period or longer, if appropriate. 
  • If a contract is for a fixed period, say one year, but has an option(s) to extend, for example, for a further period of one or two years. Then, regardless of whether there is uncertainty about exercising the extension options, the maximum duration, i.e. 3 years, is used when estimating its value.
  • If the contract, or series of contracts, do not indicate a total price, then in the case of fixed-term contracts where that term is less than or equal to 48 months, estimate the total value for their full term.  In the case of contracts without a fixed term (e.g. an indefinite or uncertain period) or with a term greater than 48 months, the monthly value multiplied by 48.
  • When calculating the value expected to be paid for public services, where appropriate take account of:
    • The premium payable for insurance services
    • The fees, commissions or other remuneration payable for banking and financial services, and
    • The fees or commissions payable for design services.
  • Where a proposed provision of services may result in contracts being awarded in the form of separate lots, then the total value of all the individual lots must be calculated.  Note: individual lots may be removed from the procurement exercise where they are valued at less than £62,842 and taken together they represent less than 20% of the total overall valuation.

Note: Where the proposed contract includes more than one of the above elements, the value must be determined by calculating its highest possible value. In addition, the contracting authority shall not enter into separate contracts with the intention of avoiding the application of the rules, nor use a valuation method that gives the lowest estimated value.

Works

  • Estimate the value of the whole works contract
  • The calculation of the estimated value shall take account of both the cost of the works and the total estimated value of the supplies and services that are made available to the contractor by the contracting authority provided that they are necessary for executing the works.
  • Where a proposed work may result in contracts being awarded in the form of separate lots, account shall be taken of the total estimated value of all such lots. Note: that individual lots may be removed from the procurement exercise where they are valued at less than £785,530 and taken together they represent less that 20% of the total overall valuation

Note: Where the proposed contract includes more than one of the above elements, the value must be determined by calculating its highest possible value. In addition, the contracting authority shall not enter into separate contracts with the intention of avoiding the application of the rules, nor use a valuation method that gives the lowest estimated value.

Aggregation

When determining the best procurement strategy aggregation should be considered with a view to maximising the institution's procurement power even where to do so would bring a proposed procurement within the remit of this legislation.

Under the legislation where there is a need for a single requirement that can be divided into a number of stages, or a number of similar or identical requirements, the total value must be used when assessing whether or not the legislation applies. Particular rules have been outlined in respect of each of the types of contract and it is stressed that it is improper to disaggregate the contracting authority's needs in order to avoid having to comply with public procurement legislation.

Where the estimated value of the product exceeds published thresholds, there is an obligation to advertise requirements in compliance with the Procurement Regulations.  The Regulations refers to the CPV codes in its definition of a product and these should be the first reference point.  A practical approach is to look to the market to see what makes economic sense.  Using tins of baked beans as an example, the market consists of suppliers that sell non-perishable foods, not suppliers that only sell baked beans.  The suggestion is, therefore, that when determining if, for example, baked beans should be subjected to tendering, it is the institution's total expenditure on non-perishable foods that should be used and not its expenditure on baked beans.

Likewise, when there is a requirement for, say, laboratory equipment, there may be merit in seeking to group items together where there is the likelihood of a number of suppliers being able to provide some or all of the items.  Here, it would be hoped that improved terms are obtained because the potential suppliers are tendering for the higher aggregated value of the required items.