The Tender Wants Audited Accounts. You Don’t Have Any. Are You Out?

A small company can be profitable, solvent and perfectly capable of delivering a public contract while lacking one apparently important thing: audited accounts.

There is nothing unusual about that. Many smaller companies are not required to have their annual accounts audited in the first place.

The trouble starts when a tender asks for them anyway.

At that point, the paperwork presents a wonderfully efficient little illusion. The bidder does not have the requested document; therefore, the bidder appears not to satisfy the requirement; therefore, somebody closes the tender and moves on.

Under the Procurement Act 2023, that conclusion can be wrong.

For procurements governed by the Act, a contracting authority may use conditions of participation to check whether a supplier has the legal and financial capacity, or technical ability, to perform the contract. Those conditions must also be proportionate to the nature, complexity and cost of what is being bought.

But there is an explicit limit. A buyer cannot require audited annual accounts as a condition of participation from a supplier that was not otherwise required to have those accounts audited under the Companies Act 2006, or an overseas equivalent.

The distinction is important: the buyer is allowed to test your financial capacity. It is not always allowed to insist on that particular piece of paper as the only way of proving it.

The test is financial capacity, not possession of an audit#

This is where tender language can be misleading.

A requirement may be written around a document:

But the underlying procurement question is usually broader:

Those are not the same question.

Cabinet Office guidance is explicit that where a supplier is not required to have audited accounts, alternative evidence must be considered when assessing financial capacity. Official training material makes the same point and says the wider regime was designed, in part, so that SMEs, voluntary-sector organisations and recent start-ups are not disadvantaged simply because they cannot provide a particular form of evidence.

That does not make the financial test disappear.

It changes the evidence.

A buyer might still look at turnover, cash flow, liquidity, debt, parent-company support or other information relevant to whether the business can carry the contract. Government guidance specifically identifies measures such as turnover, cash flow, debt-to-equity and liquidity ratios as possible financial tests.

So the useful question is not:

It is:

That question is considerably less likely to kill a viable bid by accident.

“Accounts” and “audited accounts” are not interchangeable#

Tender packs are not always generous with distinctions.

A business may have statutory accounts, filed accounts, management accounts, accountant-prepared figures, forecasts or other financial information without having audited annual accounts.

Accordingly, one of the first jobs is almost embarrassingly simple: read the noun properly.

If the tender asks for “accounts”, do not silently upgrade that into “audited accounts”.

If it specifically asks for audited accounts, check whether the requirement recognises suppliers that are exempt from audit.

And if it does not, the discrepancy is worth raising.

A clarification might be as straightforward as:

That is a much better question than:

The first identifies the actual issue. You are not saying that the company cannot demonstrate financial capacity. You are saying that the requested form of proof does not exist for this supplier, and asking what equivalent evidence should be used instead.

Unfortunately, this does not make every financial problem disappear#

There is a tempting but incorrect second conclusion:

Not quite.

The authority may still impose proportionate conditions concerning financial capacity. A supplier that cannot be required to produce an audit may still fail because it does not meet a turnover requirement, lacks sufficient liquidity or cannot otherwise demonstrate the capacity the contract reasonably demands.

This creates two separate checks:

• Document check: are they entitled to demand this particular evidence from us?
• Capacity check: can we satisfy the underlying financial requirement anyway?

The first can rescue you from a document-shaped dead end.

The second determines whether the tender is actually viable.

Keeping those questions separate is useful well beyond accounts. Procurement documents regularly blur the thing being tested with the evidence requested to prove it. Certificates, insurance, experience records and financial documents can all acquire an authority slightly larger than the underlying requirement deserves.

Sometimes the document is mandatory.

Sometimes an equivalent is possible.

Sometimes the tender has simply failed to explain the distinction very well.

Before abandoning the bid#

If audited accounts appear to be the blocker, check four things before writing the opportunity off:

1. whether the procurement is governed by the Procurement Act 2023;
2. whether your business is actually required to have its accounts audited;
3. what financial capacity the buyer is trying to test;
4. whether the tender already provides for alternative evidence.

If the last point is unclear, ask.

The Act does not require buyers to pretend financial risk does not exist. It does, however, stop a particular evidential shortcut from becoming an unnecessary barrier to suppliers that were never required to produce the document in the first place.

Which means that occasionally, the missing document is not evidence that you fail the test.

It is evidence that somebody needs to ask a better question.