Public Contracts (Amendment) Regulations 2022

Baroness McIntosh of Pickering Excerpts

Tuesday 13th December 2022 Grand Committee

[Baroness Bloomfield of Hinton Waldrist (Con)]

My Lords, these regulations, which were laid before the House on 8 November, have two functions. First, they amend the domestic public procurement regulations to ensure that changes in calculation of VAT in the valuation of contracts do not place undue burdens on contracting authorities. Secondly, they will ensure that NHS trusts and NHS foundation trusts are treated consistently for the purpose of applying certain obligations which promote transparency.

Public procurement in the UK above certain financial thresholds is currently regulated by the procedures laid down in the Public Contracts Regulations 2015, known as the PCRs. These financial thresholds are set down in the World Trade Organization’s Agreement on Government Procurement, known as the GPA, and are revised at international level every two years to take account of currency fluctuations. Those revisions are subsequently implemented domestically, by amendment of the PCRs, to ensure that the UK complies with its obligations under the GPA. These thresholds for regulated public procurement are not altered by this SI.

The PCRs also outline specific, less prescriptive procedures for public procurement carried out below these thresholds in order to facilitate access to public procurement for SMEs. This takes place by requiring opportunities to be advertised on a portal called Contracts Finder and by prohibiting assessments of suitability where they are used to narrow the field, rather than as part of the assessment of bids. Below-threshold regulation also improves transparency by requiring the publication of details of the contract published. The thresholds are currently £10,000 for central government bodies, known as central government authorities, and £25,000 for wider public sector bodies, known as subcentral authorities.

This SI will implement changes only to the lower-value thresholds in the PCRs and therefore only impact on the regulation of lower-value contracts. The amendments are necessary in order to address the impact of the new requirement to include VAT in the assessment of contract value. The change to how VAT is considered in estimating the value of a contract is a result of the UK joining the GPA as an independent member following EU exit. When the UK was a member state of the EU, it was obliged to adopt the EU’s methodology for calculating the estimated value of contracts. The EU’s thresholds included a 13% unilateral VAT reduction agreed upon in 1987 as a solution to a dispute with the United States. As such, contract values were to be calculated exclusive of VAT. This was, and remains, an internal EU measure which it is no longer appropriate to apply in the UK now we are an independent member of the GPA. Last year, we therefore amended the 2015 regulations, such that contracting authorities are now required to include VAT in the estimation of contract values for the purposes of establishing whether a contract is above or below the threshold.

To ensure a consistent approach, this change was applied to all thresholds in domestic procurement regulations, including the lower thresholds. While the upper thresholds were increased to make allowance for this, the lower thresholds were not, which in effect has resulted in a reduction to those thresholds. This instrument will rectify this discrepancy by raising the lower thresholds for central government authorities from £10,000 to £12,000 and for subcentral authorities from £25,000 to £30,000. This will ensure the thresholds effectively remain the same once contract values are calculated inclusive of VAT, thus avoiding bringing additional low-value contracts within scope of the below- threshold regime.

Turning to the second function, this instrument also provides that NHS foundation trusts are to be treated consistently with NHS trusts and be regarded as subcentral authorities. By way of background, for the purpose of the below-threshold regime, subcentral contracting authorities, such as local authorities, are subject to the higher of the two contract value limits for the purposes of publishing notices on Contracts Finder. NHS trusts are considered central government authorities, being listed on Schedule 1 to the PCRs; however, following consultation it was agreed that NHS trusts would sit alongside subcentral authorities in applying the higher value limit to below-threshold procurement and this is reflected in these regulations. At the time, the term “NHS trusts” was taken to mean all NHS trusts, including foundation trusts.

NHS foundation trusts were added to Schedule 1 to the PCRs last year as a category distinct from other NHS trusts. The unintended consequence was that NHS foundation trusts must now follow the lower contract value limit of £10,000 in respect of publishing notices on Contracts Finder.

This has caused confusion within the NHS, particularly because NHS foundation trusts, being semi-autonomous organisational units within the NHS, were established to have more financial and managerial freedom than classic NHS trusts. It is therefore seen as inappropriate that they should be held to the central government threshold for publication when NHS trusts are not. This amendment will rectify that by applying the same threshold to NHS foundation trusts as is currently observed by NHS trusts.

There is no impact on the Procurement Bill; having just seen that Bill through its Third Reading, I am pleased to be able to say that. This SI simply amends the existing legislation. The regulation of below-threshold procurement in the Procurement Bill is intended to continue the position that will be reached by this SI and will set the lower value limits at £12,000 and £30,000 respectively.

I commend these regulations to the Committee and beg to move.

[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.