Public Contracts Regulations 2015

Wednesday 25th March 2015 Lords Chamber

Motion to Regret

21:50

Moved by

[Lord Hunt of Kings Heath]

That this House regrets that the Public Contracts Regulations 2015 laid before the House on 5 February are being implemented with unseemly haste, will cause confusion as to which procurement regime is to be used for integrated health and care contracts, and do not implement the assurances given by Ministers to Parliament during the passage of the Health and Social Care Act 2012 that NHS commissioners would be free to commission services in the way they consider in the best interests of NHS patients. (SI 2015/102)

[Lord Hunt of Kings Heath (Lab)]

My Lords, I say at once that I welcome certain aspects of the regulations we will debate tonight, specifically the help for social enterprises. However, I am concerned about their potential impact on the NHS, the enforced tendering of services that will entail and the potential confusion between two different sets of procurement regimes for the health and social care sector.

These regulations implement the main public sector procurement directive agreed by the EU in 2014 but also introduce a number of UK-specific changes intended to open up public procurement, including for small businesses. The directive replaces the old system of type A and type B services, and the new light-touch regime will apply to health and social services—formerly Part B services.

Contracts in the category will fall under the new rules if they are valued at above €750,000. Above the threshold, commissioners will have to publicise in advance their intention to award contracts and announce the contract award decision after it has been made. This regime will sit alongside the healthcare-specific requirements in the NHS (Procurement, Patient Choice and Competition) Regulations 2013 and Section 75 of the 2012 Act, which we debated in your Lordships’ House on 24 April 2013. I am sure that the noble Earl will recall that lively debate.

The introduction of this new regime has been delayed for NHS-funded healthcare services until April 2016 to allow commissioners time to adapt. The Government have argued that this is necessary because of the need to ensure that commissioners and other key stakeholders are fully prepared. The Government have stressed that other contracting authorities, such as local authorities, are not subject to these additional domestic regulations and therefore need to follow the new rules for the light-touch regime as soon as they come into force. However, the Government have also been forced to acknowledge that there are concerns about the scope for potential confusion as a result of the existence of two regimes side by side for another 12 months.

The Opposition have sought two different legal opinions, both of which advised that these new regulations could force the tendering of NHS health and social care services to go beyond the requirements of the Section 75 regulations under the 2012 Act. Practically all health services will be above the €750,000 threshold. This would escalate the level of service tendering and privatisation of health and social care services as well as wasting vast amounts of money on pointless tendering procedures when the money would be far better spent delivering services for NHS patients.

At best, the new procurement regulations are confused and unclear. NHS services have an additional year because the new regulations do not come into force for health services until April 2016, whereas they came into force on 26 February 2015 for all other areas. Council social care services have to comply with these new regulations immediately so, in effect, two procurement systems will be operating for health and care until 2016. There will undoubtedly be confusion over the definition of some services, to do with whether they are strictly social care or include elements of healthcare as well, and therefore whether they are subject to these regulations and there is a requirement for them to be advertised and tendered. The advice we have—I think experience in the last three years shows that this will be the case—is that CCGs will understandably err on the side of caution to avoid legal challenge and therefore advertise or tender services in case the new regulations are found to apply to them.

What happens if an NHS body wishes to commission a contract that includes elements of clinical healthcare and social care? This will not be completely unknown, given the effort that we all support towards trying to integrate health and social care. The question arises: which regime will the NHS body have to follow? Will it not be driven to split out these elements in two separate contracts to comply with two separate legal requirements? What about the potential for legal challenge? Would it not drive a wedge between joined-up commissioning of health and social care?

The regulations also fail to take advantage of many of the flexibilities in the 2014 directive that could have exempted the NHS from having to run pointless tenders. They also fail to incorporate the flexibilities in the directive that would have allowed NHS bodies to decide not to tender when there are wider strategic interests that mean a comprehensive local health service must continue to be provided by a key NHS provider.

These missed opportunities reflect the Government’s political imperative to turn the NHS into a market and pave the way for private sector operators to deliver more NHS services. The imposition of market mechanisms when they are not needed, and the failure to allow CCGs flexibility to decide when tendering is the right approach for patients, will create wholly unnecessary additional cost and uncertainty at a time when NHS bodies should be focused on meeting the needs of an ageing population and improving services.

We are already seeing the impact because many CCGs undoubtedly believe that there is no alternative to full-scale tender. A vast amount of resources is being consumed, with no benefit to patients. The evidence is clear. Commissioner spending on private providers has increased from £4.1 billion in 2009-10 to £6.3 billion in 2013-14. The proportion by value of community health services provided by private sector providers has increased from 12% in 2010-11 to 18% in 2012-13. Private provider spending on mental health services increased by 12% between 2010-11 and 2012-13. Overall, the Department of Health’s annual accounts suggest that some £10 billion of the total NHS budget of £113 billion is spent on care from non-NHS providers.

Some large contracts have attracted particular attention and concern. For example, in Staffordshire, CCGs are seeking bids for a 10-year contract worth £1.2 billion for cancer and end-of-life care, which is potentially likely to significantly involve private sector providers. Then there is the Bedfordshire case. The Bedfordshire CCG awarded a five-year contract to Circle as prime provider, assuming a total risk for musculoskeletal services worth £120 million. A local NHS provider has subsequently refused to sign the contract under which it would provide some of those services because it would see a referral drop of 30%, thereby putting at risk its trauma services, which are cross-subsidised by musculoskeletal services. There are other examples of bizarre decisions being made by clinical commissioning groups because they feel that they must put services out to tender, and by doing so they seem to have no analysis of what that would mean for the viability of the whole health service system.

A recent study by the British Medical Journal found that one-third of contracts to provide clinical services awarded in the year from 2013 were secured by private providers. A study by the NHS Support Federation found that, of 80 contracts awarded, 54 went to non-NHS providers. We have also seen what I can describe only as a ludicrous intervention by the competition authorities in sensible service changes in Dorset and then Bristol.

I am sure that the noble Earl will want me to refer to the recent King’s Fund study, which concluded that any benefits from competition,

“can be outweighed by costs and difficulties of competitive process”.

As the study says, it is also clear that CCGs remain very uncertain about procurement and tendering rules. They are spending a lot of money on legal advice. A lot of that legal advice is very risk-averse, which is why so many services are being put out to tender.

22:00

We have debated these matters on a number of occasions, both in the passage of the 2012 Act and in the debate on regulations. Every time we have debated them, the noble Earl has been clear. In the debate on 24 April, he said that,

“it is NHS commissioners and no one else who will decide whether … and how competition in service provision should be introduced”.—[Official Report, 24/4/13; col. 1508.]

Again, in my noble friend Lord Turnberg’s debate on competition, I quoted him as saying that clinicians will be free to commission services in the way they consider best. I have no doubt that he will say the same again tonight. The point I put to him is that it simply does not feel like that in the National Health Service. We know that there has been pressure from NHS England on CCGs relating to some services. I come again to the advice that CCGs often get. They are spending millions of pounds on legal advice where they are being advised to tender out services.

In conclusion, we welcome aspects of these regulations. They could have gone further on opportunities for social enterprises and employee-controlled organisations, but we have very great concerns about the impact of these regulations on the National Health Service. The point I put to the noble Earl is: why are the Government proceeding at such an unseemly pace? I have had the great joy of being at Question Time most days during the last five years. The noble Earl and I are rather alone tonight, but when issues about Europe come up at Question Time there is not unalloyed enthusiasm for European directives on the part of the noble Earl’s colleagues. Yet the Government have rushed in to implement this directive a year before they had to. Doing so creates the confusion of two different sets of regulations operating for the health and social care sector. Given the uncertainty that these new regulations cause, and the total lack of consultation over their potential impact on the NHS, there is a strong case for deferring implementation until after the next general election. I earnestly hope that the noble Earl might be able to announce he will do that tonight. I beg to move.

[The Lord Bishop of Peterborough]

My Lords, I am grateful to the noble Lord, Lord Hunt, for bringing this Motion. I will speak only very briefly because he has given most of the detail and said most of what I want to say, particularly about the confusion in the tendering and commissioning process. Integrating health and social care is obviously right—I very strongly support it—but why the rush? Why not do it slowly and carefully? If I understand aright, Scotland has entered a lengthy, considered stakeholder consultation and will finalise its regulations on health and social care at the same time, by April 2016, along with the majority of EU member states. So why do we have to go so quickly? I do not understand the rush in one-half of the equation, which unbalances the whole thing.

Experience tells us—we have had examples from the noble Lord, Lord Hunt—that changes on this scale are highly complex, deeply disruptive to those involved and often much harder to implement than initially imagined. Is not proper consultation, careful decision-making and measured implementation the right way forward in such matters? I, too, urge the Government to take this more slowly and get it right, because it really is important and we want to support it.

[The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con)]

My Lords, I am grateful to the noble Lord, Lord Hunt, for initiating this debate on what is a very important subject. Let me begin by emphasising one key point. The main purpose of the Public Contracts Regulations 2015 is to implement the new EU procurement directive. There is no choice over whether the UK transposes that directive: it is mandatory to do so. It contains the new rules regime by which all European public authorities have to abide. The Government implemented this directive early to realise as soon as possible the economic benefits from the modernised rules regime. Both the noble Lord and the right reverend Prelate have expressed criticism to us for doing so, but the reason is that this should lead to more than £4 billion-worth of benefits to the economy each and every year. That could not be overlooked.

Since 2010, the Government have embarked on a radical programme of commercial reform as a lever to stimulating economic growth and reducing the deficit. In 2013-14 alone, this approach saved taxpayers £5.4 billion. As part of our ongoing commercial reform programme, the UK negotiated hard in the European negotiations on the new EU procurement directives in 2012-13, and we were successful in securing a number of key improvements to the European public procurement rules regime. The new rules support UK government priorities of economic growth and deficit reduction by making the public procurement process faster, less costly and more effective for business and procurers alike. The European Commission estimates that SMEs across the EU could save up to 60% of bidding process costs.

Aside from transposing the new public procurement directive, the regulations include a number of domestic reforms, instigated by my noble friend Lord Young of Graffham, to make it simpler for small businesses when bidding for public sector contracts. The Minister for the Cabinet Office, my right honourable colleague Francis Maude, and my noble friend Lord Young of Graffham have driven these reforms from concept through to implementation in these regulations. The changes include ensuring that all advertisements for public sector contracting opportunities appear in one place on a national website, the abolition of time-consuming and costly pre-qualification questionnaires for low-value contracts, and improving payment terms down the supply chain.

The statutory instrument was laid in Parliament on 5 February 2015. The regulations came into force, for most purposes, on 26 February 2015. I stress the words “for most purposes” because, although most public procurement activities will be subject to these rules from that date, there are special provisions in some areas. One such special area is the healthcare sector. The Government have delayed the coming-into-force date for procurements by NHS clinical commissioning bodies to the latest possible date allowed by the EU—18 April 2016—to give clinical commissioners more time to prepare for the rule change in recognition of the interplay between the new EU procurement rules and the UK’s existing healthcare procurement legislation.

I make it clear that the Public Contracts Regulations themselves were not foisted upon Parliament at the last minute or hidden until the regulations were laid but have been, in line with good practice, subject to formal public consultation over a period of time, over and above what had already taken place for the EU procurement directive.

The Government received more than 200 stakeholder responses to the public consultation on the draft regulations. Most respondents were supportive of the overall approach to early transposition, and the delayed transposition for NHS clinical commissioning services was welcomed by stakeholders in that sector. The government response to the consultation was published and publicly available from 30 January 2015.

I should now like to reflect on the concerns about potential confusion as to which procurement rules regime applies for integrated health and care contracts. To consider this, it is helpful to reflect not only on the regulations and the directive that they implement but on the pre-existing set of UK healthcare procurement rules. Those rules have existed in the UK since 2013, following the Health and Social Care Act 2012; the noble Lord, Lord Hunt, alluded to them in tabling this Motion. The new EU procurement directive includes a mandatory new provision for member states to put in place a new light-touch regime of procurement rules for health, social, education and certain other service contracts. In transposing that requirement, the UK has taken careful account of stakeholders’ concerns and has designed its national provisions to be as genuinely light touch as possible, within the parameters set by the EU. In the UK health sector, a set of healthcare-specific procurement rules has been in place for some time, covering arrangements for the purchasing of clinical services. The NHS Procurement, Patient Choice and Competition Regulations 2013 were put in place to drive improved quality and best value, which effectively put in place a light-touch regime for clinical services.

During the Government’s recent public consultation on the Public Contracts Regulations 2015, it became apparent that stakeholders in the field of clinical services procurement were concerned about the interplay between the new light-touch procurement rules regime and the existing healthcare procurement rules. The Government acted upon this feedback and agreed to allow more time for clinical service commissioners to adapt. Consequently, the Government decided to take the sensible and pragmatic decision to delay the application of the new regulations on clinical services procurement by clinical commissioning groups and NHS England until the transposition deadline of April 2016. Such procurements will continue to be governed by the pre-existing procurement regulations—that is, the Public Contracts Regulations 2006—until that time.

The delayed implementation in respect of clinical procurement is clearly defined, and rests on the identity of the commissioning body. Commissioners of healthcare services are exempt until 18 April 2016. Local authorities are not. Integrated commissioning plans, joint commissioning or arrangements for a CCG or local authority to commission on behalf of the other will all remain available. The decision about which rules regime applies will depend on which commissioner leads the procurement and the service in question. The Government’s response to the public consultation on the draft regulations acknowledged the potential for short-term complexity.

The Government have since published guidance on the new light-touch regime, in addition to providing a wide variety of training and guidance materials on the new procurement rules overall. In the health sector, work is also under way to bring greater clarity in the system about how health commissioners, both from NHS bodies and local authorities, can work together under the respective legal regimes. NHS England and Monitor have, and continue to, run a successful series of joint workshops for commissioners and continue to provide advice and support to clinical commissioners in individual cases, where appropriate.

Turning to the concerns about the freedom of NHS commissioners to commission services in the best interests of patients, I would like to reassure noble Lords that these regulations respect those freedoms. As I have already set out, these regulations do not apply to the procurement of clinical services procured by NHS England or clinical commissioning groups yet. But even when they do apply in April 2016, they will not force commissioners to tender NHS services automatically.

Advertisements for competitively procured contracts will have to be placed in the official journal of the EU where the contract is worth more than €750,000, unless an exemption applies. Commissioners can consider whether there is, in the circumstances, an obligation to go to the market or not under the terms of the directive and implementing regulations. The requirement to advertise if no exemption exists is a mandatory feature of the new EU procurement directive. The Government have no option but to implement it in national legislation but, as I have already said, we are delaying implementation of that requirement to the latest date possible.

The Public Contracts Regulations 2015 and the Procurement, Patient Choice and Competition Regulations 2013 are consistent in requiring contracts to be procured fairly and transparently. They also both contain appropriate exemptions that apply to contracts that need not be advertised—for example, where there is only one possible provider.

It is perhaps helpful at this stage to delve deeper into the issue of when to tender, in particular to address some of the incorrect commentary that is often perpetuated suggesting that all services have to be put out to tender. The Public Contracts Regulations, when implemented for health, contain a number of flexibilities that can, where justified, be utilised by commissioners to dispense with the need for an open competition. Importantly, the Public Contracts Regulations require a fair and transparent process once the commissioner has decided to go out to competition. The major change introduced by the directive relates to the need ordinarily to advertise in the Official Journal of the European Union—or OJEU, as it is generally known—rather than to the decision on which procurement process to follow.

22:20

It is important to note that this requirement to advertise does not equate to an absolute requirement to tender all services above that threshold. Indeed, it is important to note that the NHS 2013 procurement regulations, despite the misleading headlines often attributed to them, do not require CCGs—and never have required CCGs—to tender all services. Monitor’s substantive guidance on the Procurement, Patient Choice and Competition Regulations makes absolutely clear:

“There is no default process that commissioners should use to secure services. In particular, the Procurement, Patient Choice and Competition Regulations do not establish a competitive tender process as the default mechanism that commissioners should use to buy services ... This guidance gives commissioners a framework for taking such decisions”.

When the Public Contracts Regulations apply in April 2016 it will not force the tendering of services. Rather, it will impose a particular kind of advertising obligation for services where a decision has already been taken to go to market. The Public Contracts Regulations and the NHS 2013 procurement regulations are consistent in requiring contracts to be procured fairly and transparently. They also both contain appropriate exemptions that allow certain contracts not to be advertised—for instance, where there is only one possible provider. Prior to the application of the Public Contracts Regulations to health, we will consider how commissioners can make best use of such flexibilities.

The noble Lord, Lord Hunt, referred to his perception that too many services were being contracted out to the independent sector. As a proportion of overall NHS costs, the total expenditure on private providers is small. In 2013-14, commissioners’ spending on private sector providers was about 6% of total NHS expenditure, which had risen from about 4.5% when the Government took office.

I emphasise that the regulations do not make it easier to privatise NHS services. They provide commissioners with the flexibilities to determine which provider is most capable of delivering high-quality care as safely and as cost-effectively as possible. That position has been unchanged for successive Administrations. The Government have no intention of privatising the NHS or deliberately seeking to increase the market share of any one type of provider. Instead, we accept that all providers, both NHS and non-NHS, have something to bring to the table to drive up the quality of care. Our pragmatic approach is based on local commissioners using their local knowledge to decide what services would be best for patients and using competition as one of the many tools to secure these services. I am sure that I do not need to remind noble Lords that that is competition based on quality, not price.

The noble Lord, Lord Hunt, mentioned end of life services in Staffordshire. Five of Staffordshire’s clinical commissioning groups are collaborating with Macmillan Cancer Support to transform the way people with cancer or those at the end of their lives are cared for and supported. The recently launched project that is clinically led while working together with Macmillan will look at commissioning services in a new way, so that there will be one principal organisation responsible for the overall provision of cancer care and one for end of life care. Yes, that would involve the independent sector, but I suggest that if we look at the totality of the service as it is rolled out, it is clearly one that is designed to give the best care possible for patients, with the expertise of Macmillan supporting it.

As time is moving on, I shall not dwell too much longer on the points raised: rather, I will write to noble Lords and to the right reverend Prelate. I will simply summarise by saying that I think very firmly that the economic benefits of the new procurement regulations provide a strong rationale to justify the UK’s rapid approach to implementation. We have delayed transposition for NHS England and CCGs until April next year in recognition of the special nature of the sector. This is the latest point available to allow NHS England and CCGs time to adapt to the new requirements. We believe that that is a sensible and pragmatic decision. I acknowledge the concerns around complexity over which legal regime applies in joint commissioning, but I can confirm that these issues are being addressed through the provision of guidance and support. I can also reassure noble Lords that the commissioners of clinical services continue to be free to commission services in the best interests of NHS patients. I hope that my response has gone some way to mollify the regret of the noble Lord, Lord Hunt, on these matters.

[Lord Hunt of Kings Heath]

My Lords, I thank the noble Earl for his response. He said that the imperative of the Government to introduce the regulations early is because of the economic benefits. Let me say at once that I have always accepted that there are some benefits in these regulations. I particularly welcome the social enterprises provisions, but my concern remains, rather like that of the right reverend Prelate, that the introduction of the regulations applying to care services now as far as local government is concerned, along with the existence of NHS regulations, will cause a great deal of confusion.

I also think that the noble Earl is underestimating the confusion out there in the health service about which services should be tendered and which should not. I do not believe that clinical commissioning groups accept the kind of view that he is putting forward. They are getting legal advice that actually makes them very risk averse. The noble Earl said that the requirement to advertise does not mean that people have to tender, but once you advertise you are inevitably on a route towards tendering.

Finally, on Staffordshire, my issue is that essentially the CCGs are outsourcing commissioning decisions which they as the statutory bodies ought to be taking for 10 years, and they are failing to engage with the public. They will not appear at public meetings to defend the position. The noble Earl will know from MPs in Staffordshire that there is a lot of concern about this, and if a Labour Government are elected we will certainly want to call in on what is happening.

Before I beg leave to withdraw the Motion, perhaps I may say to the noble Earl that he has been the Minister for Health in this Chamber for five years, and on behalf of my noble friend Lady Thornton and myself I would like to thank him for the courteous way in which he has responded to our many debates. I particularly thank him for the way he has agreed to meet a number of small charities over those five years on issues that I have raised. That is very much appreciated. I should also say that we have enjoyed working with the noble Baroness, Lady Jolly, as well.

Motion withdrawn.

House adjourned at 10.24 pm.