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Breaches of Contract, Poor Performance and Excludability: Schedule 7 of the Procurement Act

January 2026

On 1 October 2025, the UK High Court handed down a landmark judgement in Department of Health and Social Care Limited PPE Medpro v Department of Health and Social Care, where the defendant suffered a crippling award of £121.9m in damages. PPE Medpro Limited has since entered administration, highlighting the high stakes of poor performance in public contracts. In this article, we discuss this case and the wider risks of poor performance in public contracts following the widening of debarment and exclusion grounds under the Procurement Act 2023.

Key takeaways

• Landmark PPE Medpro case – the UK High Court awarded £121.9 million in damages against PPE Medpro for supplying non-compliant PPE gowns, underscoring the severe consequences of poor performance in public contracts.
• Expanded exclusion regime under PA 2023 – the Procurement Act 2023 introduced stronger discretionary grounds for excluding suppliers, including serious breaches, failure to improve performance, and published poor performance notices.
• Broad scope and ambiguity – Schedule 7 Paragraph 12 applies widely and covers all contracts with contracting authorities.
• Performance standards and due process – authorities must set clear KPIs and give suppliers a fair opportunity to rectify issues before exclusion.
• Risk mitigation for suppliers – settlement agreements should avoid admissions of liability and frame payments as ex gratia to reduce exclusion risk.

PPE Medpro v DHSC

In 2020, PPE Medpro Limited was awarded a contract worth approximately £122 million by the Department of Health and Social Care. It obtained the contract through the then Conservative Government’s “VIP Lane”, a fast-track process for suppliers of PPE with connections to members of the Government.

The VIP Lane was introduced to accelerate the procurement of personal protective equipment (“PPE”) during the COVID lockdown, when demand was high and many health institutions faced shortages. During this time, the Government relied on exemptions from mandatory competitive procurement.

On 1 October 2025, the High Court upheld a claim from DHSC. The judgment made the following findings:

• Contractual interpretation: The gowns had to be sterile to SAL 10⁻⁶ and produced via a validated process. Compliance with EN 556 or equivalent was required, and CE marking obligations applied.
• Breach: Medpro failed to demonstrate a validated process (no evidence of bioburden testing or dose setting) and supplied gowns without proper CE marking. Thus, the gowns were not contractually compliant.
• Right to reject: DHSC lost its contractual right to reject because it did not inspect and reject within a reasonable time after delivery. However, this did not bar a claim for damages.
• Damages: DHSC recovered the full contract price (£121.9m). Medpro’s argument that gowns could have been repurposed or sold elsewhere failed as there was no realistic market or mitigation route. The £8.6m storage cost claim was dismissed for lack of proof.
• Counterclaims: Certain counterclaims made by Medpro for rectification and negligent misstatement were rejected; the court found no duty on DHSC to advise and no clear representations overriding the contract terms.

The Court’s judgment highlights the importance of exercising proper quality control before the appointment of a supplier, particularly for a role of high responsibility such as the provision of PPE during a pandemic. The Court agreed with DHSC that PPE Medpro had failed to comply with its contractual obligations. Those obligations had been critical to ensuring that the products provided would be safe and fit for purpose.

If PPE Medpro were to continue competing for public contracts, contracting authorities would need to consider this failure to perform and retain the right to exclude the company from the tender process. Without this safeguard, there could be significant risk of recurrence, potentially wasting public funds or endangering patients and medical professionals. Because many contractual breaches will be less serious than those encountered in the PPE Medpro case, it is critical to ensure due process and protect the supplier’s right to be heard before exercising any power of exclusion against it.

In the event, the question is somewhat academic when it comes to PPE Medpro, which looks unlikely to be trading again any time soon. Two days after the judgment was handed down, it sought protection from its creditors. But in law, what protection is afforded to public bodies from underperforming suppliers?  And how is the right of exclusion balanced against the supplier’s rights to a proper procedure and its ability to make representations?

Procurement Act 2023: dealing with non-performing suppliers

The Procurement Act 2023 (PA 2023) came into force on 24 February 2025 and introduced an expanded, stronger exclusion regime. The regime enables and, in some circumstances requires, the removal of tenderers where they are considered to pose particular risk to the effective or safe delivery of publicly funded projects. As we have covered in earlier articles, the grounds break down between mandatory and exclusionary grounds.

Schedule 7 of the PA 2023 sets out the discretionary exclusion grounds, under which a contracting authority can exclude a supplier. The most ambiguous procurement ground is arguably Schedule 7 Paragraph 12, which relates to breach of contract and poor performance.

This ground applies where suppliers have a poor track record of delivering on contracts and includes a) where a supplier has significantly breached a contract, b) where a supplier fails to improve poor performance despite being given the opportunity to do so, and c) where there is a breach of contract resulting in termination, damages or a settlement agreement. It is important to clarify that “having a poor track record” may accrue from a single instance of a supplier getting it wrong. It does not require multiple examples of this.

The new provisions therefore have the potential to have a significant impact on suppliers due to the ambiguity and potentially wide-ranging circumstances in which the grounds apply. These grounds are wider-reaching than other discretionary grounds and are not confined to ‘public contracts’ as defined by the PA 2023, but apply to all contracts with a contracting authority. This can have a significant impact upon suppliers, who may find themselves excluded from future tenders as a result of previous contract performance.

Grounds 1 and 2: Sch 7 Para 12(1) and (2)

These grounds both relate to breach of contract. They are scoped out well and create little ambiguity. Para 12(1) provides for a discretionary exclusion ground if (a) the supplier has breached a relevant contract and (b) the breach was sufficiently serious. Para 12(2) provides for a discretionary exclusion ground where (a) a court has ruled that the supplier breached a relevant contract and (b) the breach was sufficiently serious. These grounds are similar to a ground under the PCR 2015, under which significant and persistent deficiencies in performance could lead to termination or comparable sanctions.

A breach is ‘sufficiently serious’ if it results in:

• termination or partial termination of the contract;
• the award of damages; or
• a settlement agreement between the supplier and the regulated authority.

For the purpose of (b), damages include liquidated and unliquidated damages (including on an indemnity basis) and damages awarded in arbitration, but not debts payable under the relevant contract.

Ground 3: Sch 7 Para 12(3)

This discretionary ground applies where a supplier:

1. has not performed a relevant contract to the regulated authority’s satisfaction,
2. was given proper opportunity to improve performance, and
3. failed to do so.

This is a new ground brought in by the PA 2023 and is intended to cover serious performance failures, as determined by the contract terms. Initially, the wording seems concerningly broad; who determines what level of performance is “satisfactory” and what constitutes “unsatisfactory performance”? Presumably, this ground does not require a breach of the contract, since breach is covered off as a separate heading.

Contracting authorities would be unwise to use this provision capriciously, as the legislation is not intended to upend the contractual balance of power between authorities and suppliers by allowing the former to stipulate after the event that performance has been unsatisfactory without reference to some pre-published and measurable standards. This would cut across the general objective of making procurements more transparent. Indeed, the Cabinet Office guidance in relation to exclusions makes clear that this ground interlinks with S 52 of the Act (Key Performance Indicators). Contracts should clearly set out at least three transparent and measurable performance standards, and suppliers must be given a proper opportunity to improve performance. Contractual mechanisms should be clearly set out to monitor and apply this ground. Poor performance includes but is not limited to a failure to meet a certain number of KPIs over a set period, or a certain level of KPI failure, as well as a failure to meet quality standards.

Importantly, contracting authorities should not designate the supplier as excludable unless it considers that poor performance is continuing/likely to recur, and does not apply unless the supplier has been given the requisite opportunity to rectify the failure first.

Ground 4: Schedule 7 Para 12(4)

This is a new ground and applies where a contracting authority has published information relating to a breach or poor performance under s 71(5) PA 2023. s 71(5) requires contracting authorities to publish information relating to non-performance or contractual breach. For all above threshold public contracts, the authority must publish information relating to circumstances of:

• breach or failure to perform where the supplier fails to improve poor performance despite being given the opportunity to do so, or
• a breach of contract resulting in termination, damages or a settlement agreement.

For subparagraph (a) above, the information must be published within 30 days of the breach or failure to perform. The information will be published in the form of a contract performance notice or a contract termination notice.

Time Limits

The PA 2023 provides a general five-year rule with regard to previous breaches of contract and adverse judgments against a government supplier. However, in the case of failure to improve performance or the publication of poor performance information, authorities must ignore events occurring before 24 February 2025.

Concluding remarks

The PPE Medpro judgment illustrates the serious contractual ramifications that can flow from poor performance of a public contract. Under the provisions of the PA 2023, any adverse damages awards may be compounded by an inability to compete for future work opportunities with the public sector.

As the PA 2023 only went live on 24 February 2025, these provisions have not yet been tested by the courts. The best information to go on is government guidance, however there is no guarantee that judges will interpret the law in line with the guidance. These excludable grounds are significant and wide-reaching and will apply during the period of a wrongful termination challenge. Therefore, if a tender arises while a challenge is still ongoing, the supplier may be excluded.

Suppliers should be aware of the risk of having a contract terminated during the contract term. s 78 PA 2023 allows for the contracting authority to remove a supplier that becomes an excludable supplier during the term, subject to the contracting authority having requested the relevant information related to the supplier during the procurement process. If this ground is met, then the supplier can be removed. This termination right is implied into each public contract and framework under the PA 2023.

There is significant discretion for the contracting authority to determine a satisfactory level of performance. Suppliers should therefore ensure that they have adequately assessed the risk of onerous terms, in particular strict or fitness for purpose obligations in consultancy appointments. The key trigger for discretionary exclusion is the existence of significant or persistent deficiencies in contract performance that resulted in contract termination, damages, or other comparable sanctions.

Subject to the caveat that the provisions have not been tested by the courts, our stance is that settlement agreements reached out of court will not, by themselves, necessarily give rise to an exclusion risk. The key consideration is whether the settlement agreement acknowledges or implies a breach of contract that could be interpreted as evidence of serious performance deficiencies. If the settlement agreement includes an ex gratia payment (as opposed to damages for a breach) and states that it is made without admission of liability, this reduces the risk of exclusion.

Case law states that it is not irrational for contracting authorities to take decisions motivated by a desire to avoid litigation, including terminating a procurement process, regardless of the rights and wrongs of the claim brought. We consider it fair for suppliers to be open to settling on a pragmatic no-fault basis to avoid the costs of protracted litigation without necessarily being deemed to be accepting fault. However, if the settlement agreement expressly recognises failures in performance, then the procuring authority could consider this as relevant evidence for exclusion/excludable purposes.

To mitigate risks, parties should:

• ensure that any settlement does not contain an admission of liability related to contract performance;
• where possible, frame any payments as ex gratia (not damages) and explicitly state that they are made without prejudice and without admission of fault; and
• maintain internal records that support the commercial rationale behind the statement, rather than implying contractual failure.

For further insight, please download the Beale & Co guide to the Procurement Act 2023, available on our website here, and a summary of the key changes arising from the Act, available here.

If you require any advice on the Procurement Act debarment and exclusion regime, or if you are impacted by anything mentioned in this insight, please contact Paul Henty and Charlie Bayliss.

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