Health secretary Andy Burnham’s “preferred provider” policy is unravelling in the face of Cabinet concerns and the danger of breaching European procurement law.

Fellow Cabinet ministers are concerned the preferred provider policy conflicts with their plans for the election manifesto, HSJ has been told.

Andy Burnham only realised it at that Cabinet discussion - maybe he should have realised earlier - the term ‘preferred provider” wasn’t a good idea

Sources report Department of Health civil servants have been attempting to “save Andy Burnham’s face” by including the phrase “preferred provider” in the long overdue new procurement guidance, without any of its implied substance.

Last week the DH also intervened in an NHS cooperation and competition panel investigation into NHS Great Yarmouth and Waveney’s decision to exclude non-NHS providers from a £25m procurement to run its community services arm.

The primary care trust said its decision was justified by Mr Burnham’s September speech to the King’s Fund when he said the NHS was the “preferred provider” of NHS services.

In a letter to the panel’s chair, DH director general of commissioning and system management Gary Belfield said the department had told the PCT to cease its procurement, as it had failed to meet a technical requirement.

Association of Chief Executives of Voluntary Organisations head of policy Ralph Michell said the DH move was “sneaky”, “circuitous” and “underhand”, designed to avoid an embarrassing ruling that the procurement - and the health secretary’s stance - was illegal.

HSJ can reveal Mr Burnham has also faced opposition within the Labour Party and was asked to defend his stance during a “substantive” Cabinet discussion on public service reform.

A source close to Number 10 told HSJ Cabinet ministers had questioned how Mr Burnham’s position “fits with our commitments on mutualism” - a theme the Cabinet has been keen to develop in its election manifesto.

The source said: “It would be overplaying the significance of that discussion to say he [Mr Burnham] was isolated, but people had questions.”

The source said much of the concern was based on accounts of the policy that were “not what Andy Burnham had in mind” and the Cabinet had agreed that “in practice, there is no practical change in policy”.

The discussion had involved Mr Burnham reassuring the Cabinet there was a “growing role” for the private and third sectors in the NHS.

But that is not how trade unions viewed the statement. At the time, Unison senior national officer for health Mike Jackson told HSJ there was now “clarity that the NHS is the preferred provider and there ought to be cooperation before competition”.

Even after the Cabinet was reassured Mr Burnham was not changing government policy, it remained concerned about the impact his use of the term “preferred provider” could have on NHS organisations reluctant to engage with the private sector.

The source said: “Andy Burnham only realised it at that Cabinet discussion - maybe he should have realised earlier - the term ‘preferred provider” wasn’t a good idea.”

The Cabinet agreed Mr Burnham would have to get detailed involvement and sign-off for his new procurement guidance from other ministers, including those at the Department of Business, Innovation and Skills and the Office of Government Commerce as well as the Treasury.

Another indication of unease with Mr Burnham’s position is prime minister Gordon Brown’s letter to ACEVO in January - seen by HSJ - which directs ACEVO to Mr Brown’s senior policy adviser on health Greg Beales, not Mr Burnham.

The letter says: “I have asked Greg Beales [to] ensure you are fully involved in the development of these detailed proposals.”

The revised procurement guidance is now expected next week. Mr Michell said many ministers involved in its drafting had told ACEVO they were “minded to not let it go with any reference to preferred provider”.

He said the latest draft seen by ACEVO had included only scant reference, but said unions were pushing for these to be increased.

Write you own manifesto

Have you ever felt so frustrated with the political parties’ health policies that you wished you could write your own? Now your chance has come.

On we have set up two wikis - websites that allows users to easily (and anonymously) create and edit content - to enable managers and clinicians to develop their own policy ideas. At the time of writing they are blank, awaiting the collective wisdom of HSJ readers.

Managers: set out your policy agenda here

Clinicians: this is your policy wiki to craft as you see fit

Preferred provider policy: unions jilted, Burnham jolted, competition wins the day