NHS Procurement and Subcontractor Exclusion

Ivan Lewis Excerpts

Thursday 4th July 2019 Commons Chamber

[Mr Ivan Lewis (Bury South) (Ind)]

I requested this debate this afternoon not only to put right a wrong that has been done to a long-established business in my constituency, but to highlight wider issues about Government procurement policy, particularly in relation to the national health service. The Government rightly talk about delivering a Brexit that supports UK businesses, jobs and our standard of living. However, this sorry story illustrates how, even before Brexit, we are unable to create a level playing field for our companies, let alone back them up. In this case, the EU cannot be blamed for a lack of transparency or fair competition, or for the exclusion of a UK company from an NHS preferred supplier list.

Under NHS ProCure22, the Department of Health and Social Care appointed Kier as a tier 1 provider to decide who should be the preferred providers for floor covering in NHS facilities. In May 2018, without any competitive tendering or other transparent process, it was announced that three overseas companies would be on the preferred supplier list—two French companies, Tarkett and Gerflor, and a Swiss company, Forbo. James Halstead, a UK plc from my constituency with a 50-year track record of supplying NHS institutions was not on the list or even given the opportunity to tender or participate in dialogue with Kier.

Halstead is highly successful global business that we are proud of in Radcliffe, with a global turnover of £250 million and a UK turnover of £83 million. The NHS currently accounts for approximately 15% of that UK turnover. A significant proportion of that is now at risk, and there is the also potential reputational damage of being excluded from the list for unstated reasons. Many NHS organisations are understandably asking Halstead why it is not on the list. That would be bad enough in any circumstances, but things have been made worse by the recent track record of the three overseas companies.

In October 2017, the three companies were found guilty of price fixing over a 23-year period in France, and the French competition authority fined them a total of £302 million. They were found to have discussed minimum prices, price increases, sales policy and other sensitive information, such as their trading volumes. The French regulators discovered that the companies had also exchanged confidential, recent and detailed information on their sales volumes and commercial forecasts. That information was exchanged through the SFEC, a sectoral trade union in France, which was in charge of collecting the information and sharing it with manufacturers. It is surprising—some would stay staggering —that seven months later these same companies were given a monopoly as preferred suppliers for the NHS. In addition, it is worth noting that Tarkett pays no UK taxes whatsoever. To be clear, it is not breaking any laws in doing so, but that does not mean that there are no ethical and fairness issues.

I have several questions for the Minister, and if he is unable to answer them today, I would be grateful if he wrote to me in detail. What criteria did Kier use to draw up the preferred supplier list? In the absence of competitive tendering, what process did it use? Why were Halstead and other suppliers not included on the list or given the opportunity to put their case? What consideration was given to the probity of the three overseas companies in view of the sanctions imposed on them in France?

Will the Minister assure me—this is incredibly important—that Kier will be instructed to add Halstead, and any other appropriate company, to the list as a matter of urgency? Will the Minister initiate a review of all such NHS contractor lists with a view to identifying how many are drawn up without a competitive tendering or transparent process? Finally, will the Minister issue an instruction in due course that NHS staff and third parties, such as tier 1 providers, appointed on the NHS’s behalf to commission goods and services should have a duty to be proactive in encouraging UK companies to apply or bid, depending on the relevant process?

I believe that this case has wider implications for UK Government and NHS procurement policy than simply the effects on the business in my constituency. I want to make it clear that this is not about saying that, in an unlawful manner, the NHS or the Government should favour UK companies over foreign companies. That is not the case whatsoever, so officials should not try to deflect us away from the substantive issues here. The issue is that a UK company with a good track record, a history of financial probity, and quality goods and services should be on this list. It has never been sanctioned by any regulatory authority. In contrast, these three overseas companies were significantly sanctioned, less than a year before the NHS’s decision, for price fixing—basically operating a cartel in France—over a 23-year period.

Clearly this is not a matter of direct ministerial responsibility and, having been a Health Minister, I do not hold the Minister personally responsible for individual procurement and tendering decisions, but Ministers are responsible for policy and oversight in this area. There has either been incompetence by those charged with these responsibilities or, frankly, something stinks in Kier’s decision-making process in this case.

I would be incredibly grateful if the Minister responded to my substantive points, considered the wider implications for UK Government and NHS procurement and put right, as a matter of urgency, the wrong done to Halstead plc in my constituency.

--- Later in debate ---

[Stephen Hammond]

I want to speak about the overall process later in my speech. Having been to Nottingham to open the national procurement centre for the NHS last week, I am clear that we should have the best procurement processes in place to ensure that money from the public purse is spent wisely. That is even more important in the health service than it is in almost any other part of the public sector, because money spent wisely means better patient care, and that is key.

I hope that I will be able to prove to my hon. Friend and the hon. Gentleman that the problem with this contract was not with the framework itself, but with how one particular company chose to apply the criteria. I am not saying that the company necessarily applied the criteria inaccurately or wrongly, but it did not do so in a way that we would normally encourage.

[Mr Ivan Lewis]

I thank the Minister for the openness and frankness of his response so far. His last comment was very telling, because he acknowledged that in these circumstances, Kier perhaps did not behave in accordance with best practice or what would usually be expected, even if it did not do anything unlawful. If possible, I want clarity on whether the Minister or his officials have had, or will have, strong words with Kier about what the situation has exposed and the unfairness that has been applied to the company in my constituency. Will he or his officials have that conversation with Kier about what is expected of it, or have they done so already?

[Stephen Hammond]

To be absolutely clear, I was not suggesting that Kier had not necessarily followed best practice, and it certainly had not acted unlawfully. I was suggesting that, as I said a moment ago, we would encourage all the people who use the frameworks to ensure that there are opportunities for UK firms to be on those frameworks.

Let me try to answer directly some of the hon. Gentleman’s questions. He asked what criteria Kier used to draw up the supplier list. As I explained, in respect of how the framework is set up, the Department ensures that the principal supplier on the framework is there correctly, appropriately and legally. It is not for the Department to comment on the criteria that private sector organisations use to draw up their supplier lists. The Department sets out the expectation of the principal supply chain partners, and our expectation on them is to ensure that supply chains provide value-for-money, quality services for the public sector. Understandably, because of the nature of what is being procured, each supply chain partner will have its own processes and prequalification criteria.

The hon. Gentleman asked me directly what processes were used in the absence of competitive tendering. Again, it is not for the Department to comment directly on the specific processes, but I can confirm that each of the supply chain partners needs to follow its own internal policies, and those policies and procedures must align with the requirements of the framework.

The hon. Gentleman asked directly why Halstead and other suppliers that were not included on the list were not necessarily given the opportunity to put their case. The Department does not have visibility of which suppliers were given the opportunity to put their case; however, Halstead is now discussing that with the supply chain partners. As I said, Halstead has spoken to officials at my Department, and that communication goes back as far as March 2018. I understand that Halstead is now using that feedback and is bidding to form part of the supply chain. We give the undertaking that the application will be considered fairly and scored against the set criteria.

The hon. Gentleman asked me directly about what consideration was given to the probity of the three overseas companies, given that sanctions were imposed on them in France.

[Mr Lewis]

The Minister said that the application will be tested against the set criteria, but he cannot tell me what those criteria are. Is that a fair reflection of the situation?

[Stephen Hammond]

As I said earlier in my remarks, each principal supply chain partner must make sure that their internal policies and procedures align with the requirements of the framework, but it is not for the Department to tell each principal supply partner how to set out their criteria, nor the specific processes they should use. The hon. Gentleman rightly made the point that is my Department’s responsibility to ensure that the policy is correct. I hope he is hearing that my Department ensures that the right procedures and processes are in place and that the individual principal supply chain partner must choose the most appropriate one for the right framework it is on. I hope he will accept that.

I was just about to refer to the issue of the three overseas companies that were chosen and the sanctions that were imposed on them. As I said earlier, I am aware that the French authorities imposed the fine on the three companies at the end of 2017, but those convictions were imposed after the preferred supplier list was established. Clearly, the Department does not have sight of the contractual agreements between the supply chain partners and the suppliers. The supply chain partners are not within the scope of the Public Contract Regulations 2015.

The hon. Gentleman asked whether I could assure him that Kier would be instructed to add Halstead to the list as a matter of urgency. He will know, obviously, that it is not within my remit or my ability to instruct private sector organisations to engage with specific companies, but I can reassure him that Halstead is currently bidding as part of the refresh of the Kier supplier list and its application will, I know, be scored on the merit of the criteria set. I hope that that reassures him.

I want to turn briefly to how the Department supports and encourages small and medium-sized enterprises and subcontractors more generally. Clearly, we have been dealing with some very specific issues, and that underlines the complexity of the procurement landscape. The understanding of who exactly subcontractors are, and the work that they undertake, is, by its very nature, not well understood unless it is for a very major significant construction project. NHS organisations would usually expect the Crown Commercial Service or the regional procurement solution to identify and track the supply chain of the suppliers providing the goods, works or services. However, there is currently a limited understanding of the suppliers on locally negotiated contracts.

The Public Contract Regulations 2015 clearly allow public sector organisations to permit subcontracting within supply chains as long as the subcontractors meet the minimum standards set out, and the hon. Gentleman knows that I have just set those out. Where issues in subcontractor performance arise, the regulations also allow for the subcontractor to be excluded.

The Department’s SME action plan for 2019-20 highlights the actions that we are taking to make it easier for SMEs to work with the whole of the health supply system. The Department has a target of 23% of our direct and indirect spend with SMEs by the end of March 2022.

[Stephen Hammond]

I am happy to give my hon. Friend that assurance. It is absolutely the commitment of the Government to ensure that small and medium-sized enterprises are not excluded from any form of public sector procurement. I am pleased to say that the Department has published an action plan to that effect. I am actually the Minister in charge of ensuring that that action plan is implemented, and I am pleased to say that the Cabinet Office holds meetings of ministerial champions across Whitehall to ensure that, as a Government, we meet our targets.

[Mr Lewis]

May I ask the Minister about a really important point of clarification? Are Kier or similar organisations fulfilling that function required to publish the basis on which they make these decisions? The Minister has said that it is not for the Department to tell such organisations how to fulfil their responsibilities in drawing up these lists, but are those organisations required to publish, openly and transparently, the basis on which they make decisions about their preferred suppliers?

[Stephen Hammond]

What I can say to the hon. Gentleman—he has heard me say this twice, and I am happy to have a longer discussion with him outside this debate—is that there is a process in place whereby principal supply chain partners are on the framework. If they are on that framework, they have to ensure that their policies, procedures and the criteria they intend to use align with that framework. As private sector organisations that have been contracted by the public sector, they in turn have subcontractors, and they have to ensure that the processes they use to contract those subcontractors are compliant with the framework. I am happy to set that out in writing for the hon. Gentleman, if he would like me to. Clearly, the Department cannot and does not instruct principal supply partners to detail every aspect but, as I have said to him before, we have to be reassured that the processes and procedures they use are compliant with what we have set out in the framework.

This has been a fascinating debate because it gets to the heart of what we want to do. If we want to have a vibrant economy, we must have transparency regarding how companies contract for public sector contracts and the supply thereof. What the hon. Gentleman has rightly done on behalf of his constituents is to ensure that the Department is clear and has investigated that the processes and procedures being used were the correct ones, and that if, as he believes, his constituents were unfairly treated, the Department looks into the case. My officials have been in regular contact with Halstead since 2018 and I am pleased that it is now able to refresh its application for the subcontract list. I am also pleased to have had the chance briefly to set out the Government’s overall ambitions to ensure that all small and medium-sized enterprises are able to bid for Government contracts.

Question put and agreed to.