Implications of the Public Contracts Regulations 2015 for healthcare service commissioners

We have recently seen changes to the procurement rules that govern procurement and contracting for healthcare services. Is your organisation prepared for these changes?

Danny Haq, Senior Manager in the Attain Commercial Team, explains the major implications of the Public Contracts Regulations 2015 for health care service commissioners…

Previously when NHS organisations were looking to commission healthcare services, they had to simultaneously comply with two principle regulatory regimes:

  1. The Monitor enforced, NHS (Procurement, Patient Choice and Competition) (No 2) Regulations 2013 often referred to as the section 75 regulations.
  2. Part B service contract under the Public Contracts Regulations 2006 (PCR 2006), which are enforced via the courts.

However, the temporary exemption for NHS heath service contracts[1] from the new Public Contract Regulations 2015 (PCR 2015)[2], expired on 18th April 2016 and now the PCR 2015 regulations replace the PCR 2006 regulations as a regulatory regime that NHS Health Service Commissioners and CCGs have to comply with.

For health care service procurements that commenced before the 18th April, the PCR 2006 regulations will still apply. For clarity a procurement is essentially considered to have commenced if the contracting authority has either[3];

  1. Published any form of advertisement (including an OJEU[4] contract notice), seeking offers or expressions of interest for proposed contract.
  2. Sought expressions of interest or offers for a proposed contract.
  3. Responded to an unsolicited expression of interest or offer received from a potential supplier in relation to a proposed contract.

There are many process, reporting and technical changes between PCR 2006 and PCR 2015 some of which will be familiar to procurement professionals as the new regulations seek to codify some of the principles already established by the Courts in recent years.  Here are some of the major changes:

The Light Touch Regime

For healthcare service commissioners and CCGs perhaps the most significant change is the listing of health and social care services (amongst others services), under Schedule 3 of PCR 2015 regulations. The procurement of all Schedule 3 services are subject to the requirements of Section 7 – Social and Other Specific Services, (these requirements, are referred to as the Light Touch Regime – LTR). This change means that commissioners and CCGs will now need to adopt a procurement process for health care service contracts that meet the principle of transparency and equal treatment.

Duty to advertise contract notices

Fundamentally, commissioners will now how have to advertise nearly all healthcare services it intends to contract for that are above the LTR threshold of £589,148. This will mean appropriate contract opportunity or ‘call to competition’ notices at the start of a commissioning process, as well as contract award notices once the process is completed.

Previously there were occasions where a contracting authority would assume, due to the nature of certain health service contracts, they could justify an assumption the contract would have no cross border interest[5] without having to advertise the requirement and as health care services were classed as Part B services under the PCR 2006 regulations there was no explicit requirement to advertise required by these regulations.

Additionally, the Procurement, Patient Choice and Competition Regulations provided commissioners with a certain amount discretion about the advertisement of contracts. In Monitor’s guidance[6] document there are explicit statements, such as the one below, to this effect:

“There is no requirement in the Procurement, Patient Choice and Competition Regulations for commissioners to publish a contract notice before awarding a contract to provide services.”

Commissioners could previously use discretion in selecting the ‘Most Capable Provider’ from a limited pool of known suppliers or select a single capable supplier using the discretion implied in under Regulations 5(1) of the NHS Procurement Regulations (where a CCG could award a contract without advertisement if it is satisfied that there is only one provider capable of providing the service (single capable supplier).

The previous discretion on advertising heath care service contract opportunities now seems to have been removed in order for commissioners to fully comply with the new explicit advertising requirements in the PCR 2015 LTR regulations.

Light Touch Regime Threshold

There may be some compensation for purchasers of Part B services as the LTR threshold of £589,148 (€750,000), is much higher than both the previous Part B services threshold of £106,047 (€134,000) for contracting authorities that are central government authorities and £164,176 (€207,000) threshold for sub-central government authorities. Also it should be noted this new higher LTR threshold is also not dependent on the type of contracting authority. In addition to the higher threshold there is a recognition, as also articulated in the Crown Commercial Services[7] (CCS)  guidance[8], that a contracting authority can now safely assume there is no cross border interest for sub-threshold contracts (so long there are no tangible indications there is cross border interest), and so may choose not to advertise in the OJEU.

The PCR 2015 LTR regulations do allow contract authorities not to advertise prior to a contact award in the situation where services can only be provided by one supplier in accordance with the   negotiated procedure without prior publication process[9]. However under the PCR 2015 regulations there are strict circumstances where this exception is permitted, such as, the protection of intellectual property rights or technical reason and in the past the courts have been fairly strict over the use of this type of exception.

Considerations after advertising a health care service contract opportunity

Once a contacting opportunity has been advertised, if the contracting authority receives more than one expression of interest, the contracting authority must then use some form of competitive procurement procedure. There is clear requirement that the procurement procedures methodology in selecting the winning supplier must be both transparent and fair.

The PCR 2015 LTR regulations do permit a great deal of flexibility for contracting authorities in the procurement process to be used. The regulations do not require contracting authorities to follow any of the full regime procedures (e.g. open, restricted, competitive dialogue etc.,) if it chooses not to.

Bespoke procedures or modified full procedures are allowed (and encouraged by the CCS), additionally as stated in regulation 76 (7) Contracting authorities are able to consider additional criteria such as;

  1. the need to ensure quality, continuity, accessibility, affordability, availability and comprehensiveness of the services;
  2. the specific needs of different categories of users, including disadvantaged and vulnerable groups;
  3. the involvement and empowerment of users; and
  4. innovation.

However, contracting authorities do need to ensure that potential suppliers are given sufficient time[10] to undertake the process and that the process is fully transparent.

Summary

As things stand there is a tension between the two set of regulations as result of their different aims. The Procurement, Patient Choice and Competition Regulations aim to ensure commissioners procure efficient health care services that meet patient needs, protect patient choice and prevent anti-competitive behaviour unless this is in the interest of health care service users[11]. Whereas the PCR 2015 and the LTR regulations seek to ensure nearly all public contracts are awarded in a transparent manner which is non- discriminatory and fair to all suppliers.

It is hoped that Monitor and/or the CCS will issue guidance about this tension in the coming weeks, but it is unlikely this is issued before the June referendum on EU membership. (Even though membership is unlikely to have a direct effect, due the nature of the international trade agreements which seek to up open trade and often apply to counties outside the EU membership, governmental departments may wish to avoid issuing any guidance around EU law at this time.)

In the meantime as the PCR 2015 regulations are based on EU law they will likely take precedence over the Patient Choice regulations in the courts. For this reason CCGs and Commissioners will need to ensure they are fully prepared to follow the new regulation requirements which will mean the advisement of future health care service contracts. This will require some prior preparation in order to define such things as the scope of services, activity levels, contract term, contract value and the outline of the procurement process to be used, all required in an OJEU advertisement. Also following an advertisement there will need for appropriate resource and time to be allocated for the subsequent competitive procurement/ selection processes if multiple suppliers respond.

Our Commercial team consists of commercial experts working across the country to support the development of New Models of Care. Our team consist of senior commercial advisors, senior healthcare procurement managers and contract managers who have the passion, experience and abilities to work proactively with clients designing compliant commercial interventions and delivering meaningful outcomes whilst improving efficiencies.

If you would like more information on our commercial services please contact Chris Walker, Director and Lead for the Attain Commercial Team.

[1] The exemption under Regulation 120 of PCR 2015 covers procurement of health care services, started before 18 April 2016, for the purposes of the NHS within the meaning and scope of the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013(b).

[2] These regulations came into force on 26th Feb. 2015 for many public sector goods and service contracts.

[3] See PCR 2015 regulation 120 (2) which also cross references regulation 118 (2) (a) to (c).

[4] The Official Journal of the European Union (OJEU) is a Europe wide publication in which all tenders from the public sector which are valued above a certain financial threshold, must be published in order to meet transparency requirements and inform potential suppliers.

[5] Potentially a risky assumption as in the Telaustria case where the ECJ held that although the contract was excluded from the EU Directives on procurement law, it was still caught by the fundamental TFEU treaty principle. This included an obligation of transparency i.e. advertisement.

[6] Monitor’s “Substantive guidance on the Procurement, Patient Choice and Competition Regulations”.

[7] The CCS is an executive agency and trading fund of the Cabinet Office of the UK Government.

[8] See CCS Guidance: The Public Contracts Regulations 2015 – Guidance on the New Light Touch Regime for Health, Social, Education and Certain Other Service Contracts last update Oct 2015.

[9] See PCR 2015 regulation 75 (2) which references regulation 32. Regulation 32 also allows for no prior advertisement is cases of extreme ungently as a result of unforeseeable events.

[10] Regulation 76 (6) All time limits imposed on economic operators should be reasonable and proportionate.

[11] See forward to Monitor Publication “Substantive guidance on the Procurement, Patient Choice and Competition Regulations