Public Contracts (Amendment) Regulations 2022

Debate between Baroness McIntosh of Pickering and Lord Scriven

Tuesday 13th December 2022 Grand Committee

[Baroness McIntosh of Pickering (Con)]

My Lords, I welcome this opportunity to raise an issue that arose during the passage of the Procurement Bill through the House. I congratulate my noble friend the Minister on introducing the regulations before us, which I support.

All I seek is an assurance and confirmation from my noble friend that, with these limits being lower than the limit to which we are subscribed under our independent membership of the GPA, produce from local growers, farmers and agricultural producers will be accepted in preference to those coming from the EU or other countries. Basically, it is about trying to support home-grown food and our farmers as they embark on a more sustainable way of farming.

I understand that, because the Procurement Bill is very specific, we are signed up in the same way as we were to the EU’s thresholds when we were part of it and cannot bid for such contracts over $136,000. Can my noble friend commit to the fact that we will be able to encourage our farmers to supply local hospitals, as in this case, but also military defence establishments, schools, prisons and all other public procurement contracts to ensure that we source more of our food for these establishments locally than has previously been the case?

[Lord Scriven (LD)]

My Lords, I thank the Minister for presenting this set of regulations in such a clear, concise and understandable way to try to make sense of the existing situation post the situation that she talked about.

These Benches support the thrust of and details in the statutory instrument but I want to ask a couple of questions. First, I am somebody who is not an expert in statutory instruments, but the dates on which the SI is to be made and come into force have three asterisks next to them. Is that normal? When is this statutory instrument intended to come into force?

The second issue is to do with the thresholds and the use of VAT. Some goods are exempt from VAT while some have a VAT level of 5%. The effect of putting in the statutory instrument the figures of £12,000 and £30,000 will be that some contracts, for example in printing, will by default have a slightly different total value than those with a 20% rate of VAT because they are exempt from VAT. Would it not be more sensible to use the figures of £10,000 and £25,000 and include a provision that the threshold for the contract will be at the rate of VAT for the goods and services being procured, rather than having a blanket rule when some goods and services do not have a VAT rate of 20%?

With those questions, as I say, these Benches support the thrust of and reasoning for this statutory instrument.

Procurement Bill [HL]

Debate between Baroness McIntosh of Pickering and Lord Scriven

Committee stage
Wednesday 26th October 2022 Grand Committee

[Lord Scriven (LD)]

My Lords, as I was saying before I was so rudely interrupted by the Division Bell, the concept of Amendment 272 is to ensure that the KPIs support in more detail the public benefit test. There will be economic, social and environmental factors that provide sustainable local improvement. The reason for this is that many times when a provider goes in and provides a service—I speak as a former leader of a council and I have seen it in some of the work I do in public sector reform—the public good that happens, whether it be social or environmental, lasts only while that provider is there: that is, the jobs are dependent on that provider providing that service, or are adjacent to or an adjunct to the work it is providing. This amendment tries to ensure that when public sector contracting authorities are writing their KPIs, they have a view that they should be economic, social or environmental but also sustainable—that is, when the contract ends or the contractor leaves, the things it has put in place are sustainable, rather than being for just a limited period. That is reason behind Amendment 272.

I shall take a little time to speak to Amendment 353AA in the name of the noble Baroness, Lady Hayman of Ullock, to which my noble friend Lord Fox has added his name, which is about the public sector interest test being applied when a service is at present provided by a public sector body and is being outsourced. I want to be clear that this amendment does not stop outsourcing. I do not subscribe to the view that public is good and private is bad, or vice versa. In a mixed market you can get good and bad in both providers. This amendment stops the sometimes very narrow view of public sector contracting authorities that they will outsource without thinking about the wider implications for citizens and the economy of the area.

Let us look at some of the issues in this amendment. Paragraph (c) of subsection (2) of the proposed new clause refers to

“implications for other public services and public sector budgets”.

I have seen outsourcing in social services that has no assessment of what it will mean for working with the NHS. A contract that is purely for one part of what the citizen goes through could fragment the citizen journey or the service.

The other issue is the effect on employment conditions. If, for example, the contract is on lowest price, particularly in a deprived area, it could have the disastrous result, which I have seen, of reducing wage rates, which works against the wider public benefit of increasing prosperity and having better jobs in the area.

While the amendment would not preclude outsourcing, it is important for the wider public benefit test and for ensuring that services, which in many cases join up with another part of the organisation or a different organisation, think through the implications for that service and the citizen’s journey through the service being provided, whether by a public provider or private provider, if part of it is going to be outsourced. I therefore commend this amendment, which, if accepted, would not preclude outsourcing. It would simply get public sector bodies to think more widely about why outsourcing needs to take place.

[Baroness McIntosh of Pickering (Con)]

My Lords, Amendments 370ZA and 370ZB are tabled my name and I thank the noble Baroness, Lady Hayman of Ullock, and the noble Lord, Lord Coaker, for their support which is much appreciated.

The thinking behind these amendments relates to the plight of the wholesale sector, which supplies food and drink to critical public service infrastructure on which we all depend, including schools, hospitals and care homes. According to the briefing I have received from the Federation of Wholesale Distributors, wholesalers are struggling to fulfil these contracts due to unfavourable contractual terms, which are resulting in these businesses making significant losses. That does not bode well for the future viability of the sector. They are facing rising costs and food inflation, which we know has hit 15.1% as of August 2022— this week it looked as though it could be higher still. It leaves the wholesalers unable to negotiate any price increases; or the smaller price increases they have negotiated on certain contracts have been well below inflation. This is an unsustainable circumstance going forward.

Given the situation where price reviews occur only every six months or, in some cases, only once a year, this gives wholesalers very little room for manoeuvre to negotiate price increases. This means that wholesalers are not making a profit on the product and service they provide to their customers. This is affecting the quality of the products they are able to serve to children and the most vulnerable, and the viability of providing catering services in the long term. They would argue that the quality of catering services is of paramount importance, as we have seen with Jamie Oliver’s campaign in hospitals and during the pandemic.

I support the fact that the Government’s food strategy is seeking to drive up standards of public sector food by requiring caterers to use more organic and locally sourced foods. This is not sustainable, however, without funding that matches inflation—it is just not viable going forward. In the federation’s view, small and medium-sized enterprises will be the most affected of all businesses. Without quarterly price reviews, the trend will continue towards market consolidation and homogenisation, driving standardisation not the localisation of publicly produced foods.

I expressed my disappointment previously that the public procurement contracts we signed up to under the European Union conditions have been replaced by the GPA; this is something we need to look at on an ongoing basis. Of course, it is right that the Procurement Bill aims effectively to open up public procurement to new entrants such as small businesses and social enterprises, so that they can compete for and win more public contracts. It is just the case that SMEs are more acutely affected by price increases. They are smaller in scale, less resilient and need to pass the increases on in real time. They do not have the capacity to absorb those increases and, as such, are more vulnerable to these pressures if price increases are not passed on. We can therefore envisage a situation where SMEs are either closing down or being sold to larger national conglomerates. If these conditions continue, the sector believes that this will undo competition and the diverse market that brings a number of benefits to the public sector.

To ensure that the targets in the Procurement Bill are met, to encourage more SMEs to supply contracts and to ensure the continued supply of public sector food—which I think the Committee would sign up to—I ask my noble friend the Minister to consider publishing guidance to instate quarterly price reviews to allow contract price increases more regularly than once a year or every six months, and only if a certain threshold is met—for example, inflation over 5%. This is what I have set out in Amendment 370ZA to Clause 69 and in Amendment 370B to Schedule 8, regarding a review when inflation is 5% or more.

The quarterly price reviews would allow contract price increases more regularly, as I have stated, than either once a year or once every six months, if the threshold is met. I propose that that threshold should be over 5%. I remind the Committee that we have seen record increases in the price of staple goods such as milk, dairy, bread and even pasta, and some of the cheaper products that these public sector wholesalers would seek to provide in the context of the contracts we are discussing this afternoon.

I put on record that public sector caterers are struggling to meet the food standards, being forced to reduce portion sizes and using less UK-grown and produced product, which is against both my better judgment and the Government’s aims. I would like to see the quality of the food used to service public sector contracts improve, under the amendments I have spoken to. Without these amendments, standards will continue to decline to mitigate the rising costs if the Government do not step in to support the industry. A number of wholesalers rely on profitable contracts subsidising loss-making contracts at the moment. However, with the ever-decreasing level of profitable contracts, the balance is tipping towards overall loss-making, which is unsustainable in the long term.

Other advantages of these amendments are that they would enable meeting the government targets which would otherwise not be met in the current climate, and would enable those in this sector to bid for more contracts, which would impact the supply of food and drink to public service infrastructure. Some 95% of wholesalers have said that the current climate and rising costs mean they are unlikely to bid for new contracts, especially ones with unfavourable terms, such as the long pricing review.

I ask my noble friend to respond to these issues to help SMEs and secure more bids for future contracts, in particular by a three-monthly review and a 5% review of inflation. The level of food inflation is pushing up the level of inflation across the piece. We are woefully short on food self-sufficiency, particularly fruit and vegetables. I hold the Minister’s feet to the fire, because we heard from her colleague the Minister for Agriculture in this place, my noble friend Lord Benyon, that the Government are seeking to do something to help produce more fruit and vegetables locally, even to increase production such that we can export. Nowhere is that more important than in the delivery of public sector contracts.

I really regret that we are going backwards, having left the European Union, and are relying on more imported and more expensive food. We should be sourcing more food, whether it is meat, bread or dairy—milk and butter—as all these staples have been hugely impacted by inflation. I urge my noble friend to look favourably on these two amendments.