Guidance

DSPCR Chapter 3: financial thresholds

Updated 24 July 2024

Purpose

1). This guidance explains how procurers assess whether a contract falls within the financial thresholds of the Defence and Security Public Contracts Regulations (DSPCR) 2011.

2). Specifically, the guidance explains the legal framework, what a financial threshold is and how you calculate the estimated value of a contract or framework agreement.

What are financial thresholds?

3). If the requirement falls within the scope of DSPCR, the financial threshold is the point when the estimated value of the proposed contract or framework agreement is at a level that requires procurers to apply the DSPCR.

What is the legal framework?

4). Regulation 9 (Thresholds) of the DSPCR establishes the financial threshold values, and the method for calculating the estimated value of contracts and framework agreements.

What are the financial threshold amounts in the DSPCR?

5). In sterling, the financial thresholds (inclusive of VAT) in the DSPCR, valid from 01 January 2024, are:

Type of contract (s)	Amount (£)
Supplies and services	429,809
Works	5,372,609

6.). The values of the financial threshold are revised every two years and take effect from 1 January on an even numbered year.

When does the DSPCR apply?

7). The DSPCR applies to all contracts (or series of related contracts) and framework agreements within its scope where the award procedure for the contract or framework agreement:

      a. is not subject to an exemption (see Chapter 4 – Exemptions and exclusions) and

      b. has a total value (inclusive of VAT) estimated to be equal to or greater than the financial threshold.

Contracts below the financial threshold

8). The UK’s exit from the EU means you can exercise additional freedoms in relation to contract spend on Goods and Services contracts with a value below the applicable thresholds. Procurement Policy Note (PPN 11/20) sets out information and associated guidance specific to the PCR on the options available to streamline and simplify procurement under these thresholds, these principles (set out in paragraphs 8 to 12 of the PPN) can equally be applied to the DSPCR. It also tackles economic inequality, creating new businesses, jobs and skills, as well as increasing supply chain resilience, encouraging entrepreneurship, and attracting new entrants to government markets.

9). Where appropriate, you can consider the following options for the procurement of below threshold contracts:

a. Reserve the procurement by supplier location; or

b. Reserve the procurement for Small and Medium sized Enterprises (SMEs) / Voluntary, Community and Social Enterprises (VCSEs).

Northern Ireland Protocol

10). There are exceptions to the ability to reserve procurements by supplier location where procurements involve the provision of goods into Northern Ireland. EU Treaty rights relating to the free movement of goods continue to apply in Northern Ireland under the terms of the Northern Ireland Protocol. Consequently, procurements for supplies, services or works where goods are to be provided into Northern Ireland and where the contract would be of cross-border interest to the EU market, must be opened up to competition in EU Member States.

11). When assessing whether such a contract will be of cross-border interest to the EU market, the principles followed before the end of the EU Exit Transition period will still be relevant. The assessment is to be taken on a case-by-case basis.  There are no formal rules governing whether a contract will attract cross-border interest but a number of factors such as the subject matter of the procurement, place of performance, size and structure of the relevant market and the value are relevant.

12). For Contracts above the financial threshold, EU Treaty rights relating to the free movement of goods continue to apply in Northern Ireland under the terms of the Northern Ireland Protocol. Consequently, for supplies, services or works procurements where goods are to be moved into Northern Ireland to provide the requirement under the contract, economic operators from the EU Member States should not be prevented from tendering, your procurement must be opened up to competition in EU Member States. Procurement documents must clearly state that even if competition is opened up to economic operators from EU Member States , it is not an admission that rights under the DSPCR are being extended to those economic operators from outside the UK or Gibraltar.

How do you estimate the value of contracts?

13). You must base the calculation of the estimated value of the contract on the total amount payable to the supplier, including VAT. This must include:

      a. any form of option that can be validly exercised, i.e. where either the procurer or contractor has a legal right to purchase or sell more and includes where both parties need to agree on the continuation of the contract. However, where the parties must negotiate the terms of the continuing contract, this is not an option for these purposes;
      b. any likely renewal of the contract;
      c. any prize or payment awarded by the procurer to the supplier, any premiums or other payments for insurance services; and
      d. any fees, commission or other payments for design services.

14). The estimate must be valid when you send the contract notice to the Find a Tender service or, if the estimated value is below the financial threshold, when the contract award procedure starts.

15). Regulation 9 sets out how to calculate the estimated value of work, works, goods or services contracts. This includes rules on how to calculate the estimated value of contracts that do not have a fixed duration or specify a total price.

16). If the contract includes one or more options, you must estimate the value based on the highest possible amount that you would pay under the contract if you exercised all the options.

How do you estimate the value of a series of related contracts?

Method of calculation

17). If you intend to enter into several contracts to fulfil a single requirement for goods or services, the estimated value of the requirement is the value of the consideration that the procurer expects to pay under all those contracts. For goods and service contracts which are regular in nature (i.e. a series) or which you intend to renew within a given period, then you need to aggregate the value of the series or the renewals.

18). You may estimate the value of the series of contracts or the renewable supply or services contracts either:

      a. by looking back to similar contracts over the previous financial year or past 12 months, adjusted where possible for foreseeable changes in quantity or value over the coming year following the award of the initial contract; or
      b. by looking forward to the estimated aggregate cost in the year following first delivery or first performance of a service or during the financial year if that is longer than 12 months.

19). Where a procurer has a single requirement for goods, services or works and enters into several contracts to fulfil that requirement the estimated value is the aggregate value of all the contracts.

20). Subject to the small lots waiver (see below), you are not allowed to split a single requirement into separate contracts with the intention of circumventing the rules on estimating the contract value and, more widely, on applying the DSPCR.

21). You may not make the choice of valuation method described above, or any decision to enter into separate contracts, with the intention of excluding any contract from the application of the DSPCR.
Small lots waiver

22). If the requirement is divided into several lots, each one the subject of a contract, and their aggregated value equals or exceeds the financial threshold, the DSPCR must be applied to each contract, irrespective of whether its’ individual value is less than the financial threshold, subject to the waiver for small lots at Regulation 9(10).

23). Regulation 9(10) means that you may waive (i.e. choose not to apply) the DSPCR to any lots which have an estimated individual value inclusive of VAT of less than:

      a. £70,778 for a supply or services contract; or
      b. £884,720 for a works contract; if the total value of the excluded lot(s) does not exceed 20% of the total value of all the lots.

24). The exclusion of lots using Regulation 9(10) does not prevent you from considering their value to determine whether you must award in accordance with the Regulations.

How do you estimate the value of framework agreements?

25). The calculation of the estimated value of a framework agreement is the maximum estimated value, including VAT, of all the orders or tasks (contracts) envisaged for the total term of the framework agreement.

How do you estimate the value of contracts with third party revenue?

26). To determine the value of a contract for the purpose of Regulation 9, you must take account of the total value of the contract from the point of view of a potential tenderer.
This must include the total amounts paid by the procurer and all the revenue from third parties.

27). For example, in a three year contract for the production of a business magazine for the procurer, the contract value includes:

      a. any payments by the procurer to its contractor; and
      b. all third party revenue from the magazine, such as:
(1) subscriptions paid by magazine subscribers to the contractor; and
(2) advertising revenue paid by advertisers to the contractor.

28). If the contract is a concession contract and consists of, or includes, the grant of a right to exploit the service or works, the value of the contract is what the procurer would have expected to pay had it not granted such a concession.

What are the key points to remember?

1). You must use the DSPCR for all contracts within its scope where the contract:

      a. is not subject to an exemption or an exclusion; and
      b. has a total value (inclusive of VAT) estimated to be equal to or greater than the financial threshold of:
(1) £429,809 for supplies and services; or
(2) £5,372,609 for works.

2). You must use the calculation methods in Regulation 9 for estimating the value of the requirement. This will prevent artificially low valuations.

3). You must not disaggregate requirements into ‘penny packets’ to circumvent the DSPCR.