Getting contract valuation wrong is the quietest compliance failure in public procurement

The estimate is a ceiling, not a forecast

The single most common mistake is valuing what you expect to spend rather than what the contract could cost. The guidance asks for the maximum value payable, taking account of variables such as options to supply additional goods, services or works and options to extend or renew. That is a deliberately unforgiving formulation. If the contract lets you spend it, the estimate carries it.

The second most common mistake is arithmetic that predates 2021. Values are estimated inclusive of VAT, a change that followed the United Kingdom becoming an independent member of the WTO Government Procurement Agreement. Plenty of internal templates and delegation schedules were written on a net basis and never revisited. A requirement that looks safely below a threshold on a net figure can be comfortably above it once VAT goes on.

Then there is the value nobody invoices. If the authority is providing goods, services or works to the supplier other than for payment, premises, equipment, data, staff time, that forms part of the contract value. It rarely appears in the business case, because no money moves, and it is exactly the kind of omission that only surfaces when someone reads the contract properly.

Aggregation is where good intentions meet bad optics

Schedule 3, paragraph 4 requires aggregation where possible, and deliberate subdivision to evade the Act is unlawful. But the rule allows requirements not to be aggregated where there are good reasons, and the guidance recognises real ones: delegated budgets, separate operational units, and situations where not aggregating produces a better value outcome, such as lotting a requirement so that smaller suppliers can bid.

The problem is that lawful non aggregation and unlawful subdivision can look identical from the outside. Three similar awards, made in the same quarter, each below a threshold, tell an auditor nothing about why. The only thing that distinguishes them is what was written down at the time.

So the practical rule is simple. Whenever you decide not to aggregate, write the reason before you go to market, not after someone asks. A paragraph is usually enough. The absence of that paragraph is what turns a commercial judgement into an allegation.

Frameworks and concessions are where the numbers get big

Frameworks are valued as the value of all contracts that could be awarded under them, not as the volume you currently anticipate. Authorities that publish a modest framework ceiling and then call off far beyond it end up in an awkward position, because the market was told one thing and experienced another. Set the ceiling honestly at the outset, then manage call off activity against it.

Concessions are valued by their own method rather than the general rule, because at least part of the value lies in the right to exploit the works or services. Treating a concession as low value because little cash flows from the authority misreads what is actually being awarded, and it is a mistake that tends to be made on exactly the arrangements that attract most public attention.

And when you genuinely cannot estimate a value, the answer is already written for you. Schedule 3, paragraph 5 deems such a contract above threshold. Uncertainty does not buy you a lighter regime.

What to do about it this quarter

Pull the last twelve months of awards that landed just below a threshold and check two things: whether options and extensions were included in the estimate, and whether VAT was. That single exercise usually tells an organisation whether it has a systemic problem or a handful of one offs.

Then fix the record going forward. Capture the estimate, the assumptions, the option periods, the VAT inclusive total and the aggregation reasoning as part of the procurement file at the define phase. It costs minutes at the start and it is the only thing that helps you years later.

None of this requires heroics. It requires valuing the contract you are actually letting, in the currency the rules use, and writing down why you split what you split.

The takeaways

• Estimate the maximum value payable, including every option to extend, renew or add volume.
• Values are inclusive of VAT, and must include anything the authority provides other than for payment.
• Frameworks are valued at the total of all contracts that could be awarded under them.
• Non aggregation can be lawful, but only if the good reason is recorded before you go to market.
• If the value cannot be estimated, the contract is deemed above threshold.

Want the full breakdown?

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