Public Contracts Regulations: Government getting it badly wrong on public procurement

This blog, written by Matt Dykes, was first published on Touchstone.

With around £230bn spent by the government on goods and services and with outsourcing increasing across the public sector, getting the commissioning and procurement framework right is of vital importance in shaping the future of our public services.

So it is concerning to see the way the government has rushed through the Public Contracts Regulations 2015, that transpose the new EU Public Procurement Directive into law in England, Wales and Northern Ireland.

Laid before Parliament in February, following a very brief consultation process, over a year ahead of the April 2016 deadline for EU Member States to comply, the regulations cause significant concerns for unions, NGOs and others with an interest in securing a sustainable and socially responsible procurement strategy.

The EU Directive agreed last year provided some genuine, though somewhat limited, improvements on previous procurement legislation and yet the Cabinet Office chose a deliberately minimalist approach to implementation which means that a real opportunity has been missed.

Our three main concerns about the current regulations as they have been laid can be summarised as follows:

• Price only competition:  The Regulations fail to make use of the option provided by the Directive to prohibit or restrict the use of price only or cost only as the sole award criterion. The use of price / quality ratios in the evaluation and award of contracts has been left as a voluntary option, ensuring that price-based competition can be left unchanged fuelling the race to the bottom that we see with so much public service outsourcing.
• Promotion of environmental, social and labour standards:  The government has opted to avoid regulation and use guidance and standard contract conditions instead in order to ensure compliance with Article 18(2), which makes it mandatory for Member States to ensure that contractors abide with relevant social, environmental and labour law, collective agreements and ILO conventions.
• Reserved contracts:  Article 77 of the Directive, promoted by the UK government, aims to reserve contracts for mutuals and co-operatives without the need for open competition for periods of up to 3 years. However, far from reserving contracts for tightly defined co-operatives, mutuals or social enterprises, the wording is so ambiguous that it would allow a contracting authority to reserve a contract for a wide variety of hybrid and private sector organisations who could arguably qualify.

In relation to point two above, the government response to the consultation states that they opted to use guidance backed up by standard contract conditions, in line with their stated policy of taking a “minimalist approach”. However, the response also says that they have decided to maintain a “suitably flexible approach.  Imposing duties through regulations would remove that flexibility”. 

It is not clear how this statement is consistent with the Directive which states it is mandatory on Member States to take “appropriate measures to ensure that in the performance of public contracts economic operators comply with applicable obligations in the fields of environmental, social and labour law established by Union law, national law, collective agreements or by the international environmental, social and labour law provisions listed.”  As such, there is no scope for flexibility, the UK government has to be confident that the issuing of guidance will ensure full compliance by contractors – partial or optional compliance is not sufficient.

There is also concern as to how the new regulations will potentially impact the NHS. Procurement regulations governing the NHS, passed in the wake of the Health and Social Care Act, do not sit comfortably with the new regulations, particularly current safeguards in place that do not require CCGs to put NHS services out to tender. As a result, the Cabinet Office has delayed application of the new Public Contracts Regulations to the NHS for the period of one year to allow commissioners “time to adapt”. At some point, the NHS regulations will need re-visiting to ensure compliance with the EU Directive.

But in the meantime this will give rise to a degree of confusion as commissioners are faced with two parallel procurement regimes, one governing healthcare and the other covering all other areas of public services, including social care which is supposed to be integrated more closely with health – a potential headache for the likes of Greater Manchester Combined Authorities and others looking to commission integrated health and social care services.

And with the Public Contracts Regulations setting certain precedents, will this have the effect of shaping the NHS procurement regime, undermining some of the guarantees provided?

All of this points to the need for careful and considered implementation, subject to full parliamentary oversight and proper consultation with relevant stakeholders, an approach that the Scottish Government seems to have chosen.

At this late stage, there still remain parliamentary procedures that can delay the Public Contracts Regulations, should Labour choose to pray against. It would be our view that there are sufficient risks contained in the Public Contracts Regulations for the opposition to make such a stand.