Procurement proposals put forward by the EU could have significant implications for health service commissioners if they are passed, as Irfan Ullah and Jessica Kohler explain.
New proposals have been published by the EU which, if accepted by the European Parliament and council of ministers, will significantly change the way commissioning bodies procure services.
EU law requires that all public authorities in its member states award contracts in an open, competitive and non-discriminatory basis. EU Procurement Directives from 2004 put flesh on these requirements by prescribing rigorous competitive procedures which must be followed in respect of the procurement of most services.
While this may have led to an increase in competition within the EU, it has also led to a mandatory focus on technical compliance, which is both expensive and restrictive for public sector bodies.
The EU has recognised that the complex technical scope of the current EU laws sometimes appears to result in “risk-averse circumvention” and “box-ticking” behaviour by public purchasers. The knock on effect is that procurement can be expensive for public sector organisations, which require advice at the outset on how to achieve compliance and find themselves accruing legal bills in dealing with challenges and defending claims from unsuccessful bidders based on technical arguments relating to non-compliant processes.
There are still discrepancies in the way procedures are conducted and a lack of cross border procurement (over 98 per cent of contracts awarded are still won by national bidders).
The proposed reforms are intended to simplify and modernise current EU procurement laws. They attempt to return to the principles of transparency, fairness and non-discrimination, and create greater flexibility in the way these principles are applied.
They relax the rules for using negotiated procedures and propose certain measures to increase innovation and cost–efficiencies. They also seek to improve legal certainty by codifying certain case law that has been widely recognised and applied across the EU law courts.
However, the main impact of the proposed directives for CCGs relates to the changes to the rules applicable to the award of contracts for health and social care services. The EU believes that there is very limited cross border interest in these types of contracts and therefore it is not necessary to impose uniform procedural obligations on their procurement across the EU.
Therefore, the proposed directives removes all procedural requirements for such contracts with a value under €500,000, and imposes extremely limited requirements for contracts with a value over €500,000.
In this article we focus on the application of the proposed directive to the procurement of health services, but CCGs should also bear in mind that procurement law also applies to contracts for support services such as facilities management, payroll services, and procurement advisory services.
Contracts for the latter will be subject to the full regime of the new Directives, and this may well be a relevant factor when CCGs are deciding where and how they will secure commissioning support, whether through the National Commissioning Board or separately.
Summary of key changes
- The distinction between ‘Part A’ and ‘Part B’ services has been removed
- Less prescriptive rules around the inclusion of negotiated procedures and the introduction of new tools to facilitate and encourage innovation
- Increased simplicity, shorter timescales and lighter publication requirements for mandatory procurement processes.
- Facilitate entry into competition by SMEs and significant reduce costs of participation (e.g. self certification at pre qualification)
- Measures to allow contracting authorities to factor in social and environmental policy goals.
- Electronic publication of certain procurement documents will become mandatory
- Special, lighter regime for health and social services contracts
- Each EU member state will be required to appoint a national oversight body to ensure monitoring and compliance.
The European Parliament internal market committee will vote in June/July this year and, if there is agreement between the parliament and council, the directives may be adopted in autumn. Once adopted, the EU directive will have to be transposed into UK law, probably in 2014.
The EU Parliament has identified five areas, scope, procedures, strategic procurement, access and governance, where it hopes to implement changes to the current regime.
The abolishment of the distinction between “Part A” and “Part B” services, to encompass all public procurement under one legislative rule. However, it is recognised that health and social services have specific characteristics in each country, which will make it inappropriate to apply rules aimed at ensuring open and fair competition in a European-wide market.
The directive requires that any procurement of health services over €500,000 is advertised by way of a ‘contract notice’ (setting out certain prescribed information) and that the award of the contract is advertised subsequently.
Each country must legislate for the actual procedure to be followed between these two prescribed publications as it sees fit. This allows real flexibility to be introduced into the procurement process for health services, allowing processes to reflect local needs and context.
At the moment, the Principles and Rules for Co-operation and Competition (PRCC), and the PCT Procurement Guide for NHS funded Services are two pieces of published guidance which set out the rules for such procurements, largely implementing EU case law and principles of transparency .
The Health and Social Care Bill contains power to make regulations which, it is proposed, will be used to place the guidance onto a statutory footing, when the CCP’s jurisdiction becomes statutory.
A ‘lighter regime’ for procurement generally will be applied to contracting authorities who are not central contracting authorities. For instance, they may replace the publication of individual contract notices (i.e. in the OJEU) for each procurement, with one general notice for all their planned procurements in a year.
For instance, currently PCTs have to publish their ‘commissioning intentions’ for the year, and it is possible that something of this nature will be published by CCGs. Such document could form the basis of a single annual publication signalling the intention to procure certain services during the course of the year. It is not clear however, how that might work in practice at this stage.
Changes will enable CCGs to include societal policy goals into their procurement. Contracting authorities may make their choice of provider on a wider range of factors and have a wider and more flexible procurement ‘toolbox’ at their disposal. The UK may look to extend the application of some of these changes and availability of some of these procurement tools to contracts for health and social care services.
Changes are intended to facilitate entry by small and medium sized businesses to the market. For example, certain rules have been introduced in relation to allowing bidding for large contracts in lots, and there is a reduction in the documentary requirements for entry /qualification as a bidder, which should lead to less burdensome processes for SMEs and cross-border bidders.
While these rules are not relevant only to the procurement of health and social care services, they seem to reflect the general direction of travel within the UK health care sector and therefore the UK may choose to extend their application to the procurement of health and social care services.
Changes will allow more flexibility in the way member states conduct high value procurement and require central governing bodies to be established with responsibility for implementing, monitoring and reporting compliance with public procurement law. The Co-operation and Competition Panel has already begun to carry out this function in the UK in respect of health and social services.
Under the proposals the UK government would be obliged to provide support structures offering advice, assistance and training to the CCGs as contracting authorities in the preparation and conduct of procurement procedures. This will be done through Commissioning Support Services, which are currently being set up. The NHS Commissioning Board will set the procedural direction for procurement, using the NHS Standard Contracts.
The effects on tendering
It seems that the EU Procurement Directives will bring more transparency and openness into the public procurement market throughout Europe.
However, it is still not known how the UK government will legislate for procurement of health and social care services. We know that currently the guidance provides the framework but the Department of Health might opt to impose the same or lighter rules in respect of procurement or competition for health and social care services.
There is also potential for confusion around the extent to which the rules established by current case law will continue to apply to “out of scope” procurements - such as those which fall below the €500K threshold.
The principles of non-discrimination, transparency and proportionality will still be applicable to those procurements. For example, advertising is currently widely acknowledged as the only way to satisfy the requirement of transparency, even for below threshold procurements.
Until there is clarity through EU guidance or further case law, there will remain certain risks in these areas, albeit balanced out somewhat by the apparent pragmatism of the new directive.
Overall the changes to the commissioning of health services have the potential to bring a welcome new flexibility and pragmatism to the procurement process which will be subject to a much simpler regime. CCGs may find they have far more flexibility for the procurement of healthcare services, provided they comply with a few core legal requirements and the overarching EU principles of transparency.
In practical terms, the true value of the benefits of an open market and “flexibilisation” will be seen once there is more clarity from the Department of Health. However CCGs should liaise with CSOs and the NCB in order to better prepare for the changes ahead.
Practical steps for CCGs
- Seek to understand the obligations in respect of procurement of services early on
- Engage with relevant cluster / NCB / CSOs to ensure you know the scope of services that will need to be procured and when
- Make sure you are ready to begin the relevant procurement process in good time to comply with the minimum timescales
- Advertise your contracts in good time
- Seek legal advice at an early stage in order to ensure compliance and minimise the potential expenses of a challenge later
Three CCGs in a certain area have agreed to jointly procure a pathology services contract with an estimated value of £600, 000. The CCGs are aware that there are several providers already interested in the contract, and there are probably others who would be interested in bidding if they were made aware of the tender.
Due to this being greater than EUR 500,000, a formal electronic tender advertisement will be needed to be placed in the OJEU.
The procurement must be conducted in accordance with UK legislation and guidance in a manner and process which ensures transparency and equal treatment of potential bidders (whether based in the UK or other parts of the EU). The Procurement Guide currently requires engagement with potential providers in order to determine the level of interest on the market and the most appropriate procurement procedure. Where provider interest in the contract is high, an open procedure should used because, although it is not mandatory according to UK law, is recommended by DH guidance.
A contract award notice will also need to be placed on OJEU subsequently and a copy of the completed contract provided to the national procurement authority.