Procurement contracts

Establishing and maintaining a workable and successful procurement strategy is one thing, but putting an effective contract in place is quite another. Primary care trusts therefore have an obligation to establish a procurement strategy designed to promote the needs of patients while also managing the market.

The increasingly wide range of NHS and independent or third sector providers available to choose from means sourcing from the local NHS Trust can no longer be taken for granted. While the contractual provisions of such a contract are key, there may, in certain circumstances, be overriding principles which must be borne in mind during the procurement process itself.

Overriding principles

In addition to the provisions of the contract itself, there are other factors of equal importance that warrant close consideration by the contracting party (PCT). These factors derive from the Public Contracts Regulations 2006 (‘the regulations’) which implement into national law the provisions of the relevant EU public sector procurement Directive (2004/18/EC).

However, there are further factors which still need to be taken into account. Although the regulations may wholly or partially exclude certain types of contracts from the procurement regime, there may still be overarching factors to consider. Primary care trusts should note, therefore, although they may be exempt or partially exempt from the procurement regime, other factors arising out of the fundamental principles of EC law may have an impact on how or to whom a contract is awarded (see detail of applicable case law below).

When do the regulations apply?

The regulations generally apply to procurements if:

• the procuring body is a ‘contracting authority’. This is widely defined and includes central Government, local authorities, associations formed by one or more contracting authorities and other ‘bodies governed by public law’ (for example primary care trusts);
• the contract is a public works, services or supplies contract. Sometimes the contract will be mixed (for example for the supply and maintenance of computers). Where it is, a contracting authority must determine, in accordance with the rules, the predominant element of the contract and, therefore, which set of rules will apply. This is important to get right as the rules vary slightly depending on the type of contract (lower financial thresholds apply to services and supplies contracts than to works contracts); and
• the estimated value of the contract (net of VAT) equals or exceeds the relevant financial threshold. The regulations expressly prohibit the deliberate splitting of contracts to bring them below the financial thresholds.

The current thresholds are: £3,927,260 for the procurement of works; £101,323 for the procurement of supplies and so called Part A services by central Government bodies, and £156,442 for the procurement of supplies and Part A services by other public sector bodies.

Where the three pre-conditions above are satisfied a contracting authority must normally advertise the contract in the EU’s official journal and follow the procedural rules set down in the regulations

Are all types of services caught?

The regulations divide services into so called ‘Part A’ (or ‘priority’) services and ‘Part B’ (or ‘residual’) services. Only Part A services are fully caught by the regulations. Part B services (in which health services are listed) are caught by a lesser regime, with only a few of the detailed rules of the regulations applying.

Generally, Part B services are those the EU considered would largely be of interest only to bidders located in the member state where the contract was to be performed.

Thus, as a ‘Part B’ service, healthcare procurements are not subject to the full rigour of procurement law. However, a sufficient degree of advertising and due process to satisfy EU principles of transparency, non-discrimination and equal treatment, mutual recognition and proportionality may nevertheless be required. This has been highlighted in a recent case heard in the Queen’s Bench decision, Federal Security Services (FSS) Ltd v Chief Constable for the Police Service of Northern Ireland.

Decision

This case (June 2009) involved the award of a contract for security, guarding, driving and associated services (Part B services under the regulations) for the Northern Ireland Police Service.

In the hearing it was noted one of the obligations from which Part B services are exempt under the regulations was the obligation to observe the 10-day standstill period; the period of time between award of the contract and commencement of the contract so a contract can be challenged by any party who considered the process to have been unfair. However, the judge set aside the contract and granted FSS an injunction restraining its implementation on the grounds a standstill period is required in ‘exceptional circumstances’ under the general principles of EC law noted above.

Two of the exceptional circumstances listed were:

• the high value of the contract; and
• cross border interest (how attractive the contract is to the market).

The new Remedies Directive, implemented in the UK in December 2009, (which amongst other things changes the requirements in relation to the standstill letter) also excludes Part B services contracts from its express standstill obligation, but the judge found this did not bar the need for a standstill period under the general principles of EC law.

What this case and a series of other challenges in the UK courts are tending to show is it is not so much about breaching specific rules but about failing to observe the broader general principles of EC law.

Prior to this judgment some public bodies had already chosen to award Part B services contracts as though the Part
A process applied, suggesting perhaps the two parts are becoming indistinguishable. Although clear differences still remain, it must be remembered the higher the value of the contract the more attractive it is likely to be to the market, and so it is more likely the procurement for such contracts might be required to mimic the Part A process.

The judgement emphasises how broader general principles of EC law can trump national laws which implement specific EU directives. The decision is highly relevant for health bodies because they can no longer assume standstill periods are not required and they will need to consider whether any ‘exceptional circumstances’ apply when awarding such a contract.

First published February 2010