Felicity Zakers is an associate at the law firm Browne Jacobson
The government recently announced further measures to protect national security through the procurement bill, which has reached the remaining stages of the report, with amendments to be debated in Parliament this week. In addition to this bill, the increase in the volume of entities sanctioned by the UK has resulted in the need for companies to strengthen their control over this matter and ensure that procedures are in place to comply.
“Many contractors have stopped all business activities with companies linked to the invasion of Ukraine and have ensured the same for their suppliers and subcontractors”
It is already known that the construction industry is navigating difficult economic conditions, with many contractors facing difficult decisions about how to survive. The invasion of Ukraine has been a contributing factor to market volatility and has also led to a review of national security risks as well as the origin of materials.
new powers
Consequently, it is not surprising that one of the amendments to the Procurement Act introduces new powers to ban suppliers from certain sectors, although this does not preclude suppliers from winning purchases in “non-sensitive areas”. It is increasingly important in UK-based tenders and projects that contractors demonstrate how they will maintain clear and good quality systems to ensure that regulatory procedures are followed.
If the amendments to the Procurement Bill remain as proposed, it will be a mandatory exclusion from public procurement if a supplier (or any associated person) has been convicted of a sanction evasion offense or is considered a threat to to national security.
While consideration is being given to whether the Procurement Project will apply to contract management, this will not prevent contracting authorities from requiring contractors to demonstrate compliance and adaptability throughout the project lifecycle in order to continue working and operating in all areas of the public sector. On some major projects, contractors will occasionally be asked to demonstrate what steps they are taking to comply with international sanctions and supplier bans.
Many contractors have stopped all business activities with companies linked to the invasion of Ukraine and have ensured the same for their suppliers and subcontractors. We have also seen related commercial obligations within contracts and associated measures to manage moral duties, including how these requirements are managed in the supply chain.
However, there are suggestions within the construction industry that more can be done, for example a plan to evidence the origin of all materials so that contractors can keep clear records of the provenance of all parts and how this includes provisions to mitigate the risks of sanctions.
It is a common requirement of construction contracts that the contractor, consultant or other body in the supply chain is required to comply with all applicable laws (which incorporate any trade restrictions). It often covers all trade or economic sanctions (including embargoes), export/import controls and/or anti-boycott regulations, including those of the UK and the EU and its member states. In addition, there is often a requirement for contractors to demonstrate how they continue to comply with these clauses and all other obligations in their contract.
Prime contractors should ensure that any contracts they enter into with suppliers or subcontractors contain provisions that reduce (mirror image) the prime requirements of the contract. Each supplier contract will need to be carefully reviewed so that the entire supply chain understands and fulfills the same contractual obligation to comply with applicable laws.
Compliance throughout the supply chain can be monitored by including the right to audit quality assurance processes in the main contract and the right for all parties in the supply chain to audit any matters relating to supply chain agreements. Alternatively, contracts may incorporate an obligation to provide a written certificate or any form of written undertaking by the contractor or supplier to demonstrate compliance with laws and trade restrictions.
The formal publication of the Procurement Project report will shed more light on these requirements. Until this is in the public domain, contractors and companies should use the current procedures around procurement and navigation penalties as interim guidance on whether to amend their own procedures or existing forms of contract.
