Public Contracts Regulations 2015

Lord Hunt of Kings Heath Excerpts

Wednesday 25th March 2015 Lords Chamber

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.

--- Later in debate ---

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.