Subcontracting Threshold

The contract value or percentage above which a prime contractor must notify the contracting authority of intended subcontracting arrangements, enabling oversight of supply chain compliance and risk.

What It Is

A subcontracting threshold is a defined limit — expressed either as a monetary value or a proportion of the total contract value — beyond which a prime contractor is obliged to disclose, seek approval for, or comply with specific requirements regarding subcontracting. Once the threshold is breached, the contracting authority gains formal visibility of, and in some cases a veto over, supply chain arrangements.

Legal Basis

Under the Procurement Act 2023 (which replaced the Public Contracts Regulations 2015 for most public contracts), contracting authorities may include express contractual provisions requiring contractors to notify them before subcontracting above a stated threshold. The Act also introduces a statutory requirement for contracting authorities to include provisions protecting subcontractors' payment terms, with 30-day payment obligations flowing down the supply chain.

For defence and security contracts, the Defence and Security Public Contracts Regulations 2011 impose additional supply chain transparency requirements, particularly where security clearances or technical capability must be verified.

Common Threshold Structures

• Percentage-based: e.g., any subcontract representing more than 25% of the total contract value requires prior written notification.
• Monetary-based: e.g., subcontracts exceeding £100,000 must be disclosed to the authority.
• Tiered: different thresholds trigger different obligations — notification only at one level, formal approval at a higher level.

Thresholds are set in the contract itself; there is no single statutory figure that applies universally across all public contracts.

Why It Matters

Subcontracting thresholds serve several practical functions:

• Risk management: They prevent a prime contractor from silently transferring delivery risk to an unvetted or financially unstable subcontractor.
• Compliance assurance: Authorities can verify that subcontractors meet mandatory exclusion grounds, labour standards, or security requirements.
• SME visibility: Thresholds support transparency around whether SME commitments made at bid stage are being honoured during delivery.
• Payment chain oversight: They enable monitoring of prompt payment obligations flowing to lower tiers of the supply chain.

Practical Considerations

Contracting authorities should set thresholds proportionately — too low and the administrative burden becomes excessive; too high and material subcontracting activity goes unmonitored. Thresholds should be clearly defined in the contract terms, with consequences for non-disclosure (such as termination rights or financial remedies) explicitly stated.