How to Use the Threshold Values and Calculate Your Estimated Contract Value
How to Use the Threshold Values and Calculate Your Estimated Contract Value
The UK is an independent member of the World Trade Organisation Agreement on Government Procurement (WTO GPA).
A new Scottish Policy Note SPPN 5/2023 has been released to communicate the WTO GPA procurement thresholds that will be in place from 1st January 2024 until 31st December 2025.
When you calculate the estimated value of your contract you must include VAT (if applicable) at the appropriate rate for your contract (or apply the standard UK VAT rate of 20%). More information is detailed below.
The threshold values for regulated procurements remain at £50,000 for goods and services.
If you are unable to estimate the value of a contract that contract will be explicitly made subject to the procurement rules.
Unless you can show that your contract has no VAT or a lower rate of VAT, it is recommended best practice to add 20% to the net estimated value of your contract. 20% is the current standard rate of VAT. Adding this standard rate will:
- Reduce the risk of underestimating the contract value
- ensure you follow the correct procurement route and advertising requirements in line with the correct procurement thresholds
If VAT is applicable you must include an allowance in your calculation of the estimated value of the contract to determine whether the contract equals or exceeds the new threshold values.
How to Use the Threshold Values and Calculate Your Estimated Contract Value
Quickfire Guide
How to Calculate the Estimated Value of your Contract
The estimated value of your contract must include the full lifetime of your contract (including any possible extension periods) plus VAT (if applicable).
For example, if your contract is for 3 years plus a possible 1 year extension at an estimated value of £50k per annum, this is:
4 years (3 years + 1 year extension) x £50k = £200k estimated contract value
If your contract is subject to VAT add a 20% allowance for VAT i.e £200k + £40 = £240k
If your contract is not subject to VAT the total estimated value of your contract = £200k
In both instances the advertised contract value should be £200k i.e. exclude VAT.
WTO GPA procurement thresholds change every 2 years i.e. the next threshold change will occur on 1 January 2026, to allow for currency fluctuations.
Contract Notice and Contract Award Notices
Net values should continue to be used for Contract Notices and/or Contract Award Notices i.e. you should continue to exclude VAT in these circumstances.
How Do I Know if VAT Applies to my Contract?
If you have any queries about specific VAT rates for your contract you should seek advice from your own legal and finance departments.
Please find below some guidance on how this may apply to your contract:
VAT Exempt or Zero Rate VAT Contracts
If all of the contract’s subject matter is exempt from VAT or zero rated VAT, then you do not need to include VAT when calculating the estimated value of the contract.
You must be careful to ensure that this is the case for all elements of the contract.
VAT Recoverable Contracts
If VAT is initially payable but later reclaimed it must be included in the calculation of the estimated value of the contract.
EU Funded Projects
The thresholds for an EU funded procurement are the same as those listed in SPPN 5/2023
It is best practice to always refer to your funding provider for advice when using a contract that has EU funding.
Small Lots and Light Touch Regime Contracts
Small lot and light touch regime contracts should include VAT to ensure compliance with all thresholds.
For any queries you may have please refer to Frequently Asked Questions.
For guidance on works contracts please refer to SPPN 5/2023.