New rules raise fresh problems on procurement

Procurement law is developing at a more rapid pace in the health sector than in any other area. Commissioners in the new 2013 architecture will need to comply not only with EU-based law but also with health specific regulations.

Just a few years ago, those involved in commissioning health services did not need to think about procurement law. There is a presumption under procurement law that health services can only be provided locally. As a result for many years there have been limited legal requirements for those placing health contracts to worry about.

Enforcement powers

This began to change under the last government. For the first time the concept of contestability was applied to health with the publication of the Principles and Rules of Cooperation and Competition and the PCT Procurement Guide for Health Services. Failure to comply with the concepts set down in these documents could result in an aggrieved provider complaining to the Cooperation and Competition Panel.  

However, this panel had and continues to have no legal powers – although a recommendation to the secretary of state has in most cases been sufficient to ensure a sea change in the way in which commissioners undertake their activities.

In a significant move in the Department of Health’s journey of increased competition in the sector, April 2013 will see the introduction of new rules regarding commissioning health services. These will be set out in legally binding Regulations and the Cooperation and Competition Panel will have new enforcement powers – in its new home within Monitor.

Broad principles

The department is currently out to consultation on the content of the regulations. It is proposed that the regulations will focus on five areas: good procurement practice, protecting patient choice, preventing anti-competitive behaviour, managing conflicts of interest and Monitor’s powers.

‘There is a real risk that the principles will simply be at too high a level. The government does not want to be overly prescriptive’

My concern with the proposals is that they primarily set out a series of principles that must be complied with rather than being prescriptive about actions that are to be taken. The principles regarding good procurement practice are ones that underpin effective procurement generally and are around transparency, non discrimination and equality of treatment as well as a requirement to assess the costs and benefits of different procurement options.

There is a real risk that the principles will simply be at too high a level. The government does not want to be overly prescriptive. Instead it wants to enable commissioners to retain autonomy and flexibility to commission most effectively for local circumstances.

Rerunning procurements

But as all lawyers know, broad principles require tried and tested cases to set out the parameters of acceptable behaviour. Awaiting the outcome of complaints, may result in significant delays in the implementation of service reconfiguration and increased internal costs in rerunning procurements.

‘One area of particular concern is around what is commonly referred to as “single action tender”: in other words not running a competition’

One area of particular concern is around what is commonly referred to as “single action tender”: in other words not running a competition. The consultation document states that this is acceptable where services are capable of being provided only by one provider. Yet, the issue is far more complex than acknowledged by the consultation. There can be many other circumstances when it is just not appropriate to run a tender.

For example, the benefits to patients of tendering may not justify the transaction costs of tendering. Under the rules as they are currently proposed adopting this approach is open to challenge. Is this really in the interests of patients and taxpayers? And what should commissioners do about their contract with their acute provider?

Many providers could run different aspects of the services provided by the local hospital. But to tender all or a large part of such services could potentially have a hugely destabilising effect on the local health economy. Yet, without more guidance around running single action tenders, simply renewing the contract with the local acute provider each year could well fall foul of the proposed new regulations.

Restricting competition

A similar approach of setting out a broad principle is taken to the proposals around preventing anti-competitive behaviour. Where commissioners make arrangements that materially restrict competition then they will need to demonstrate that the restrictions are indispensable for delivering the intended benefits. Indispensable is a very high test indeed and in my view one that can rarely be met.

Let us take as an example s75 agreements with local authorities. The government is keen to promote partnership working between health and social care. Commissioners will therefore be considering which of their functions they should delegate to local government to enable joint commissioning by the council.

‘Would the s75 agreement be regarded as restricting competition in a way that is not in the interests of service users?’

Joint commissioning by a council may result in the council providing the service itself rather than competing the contract. In these circumstances the clinical commissioning groups (CCGs) will effectively have “given” the service to the local authority as provider. Would this be seen as indispensable for delivering the service or would the s75 agreement be regarded as restricting competition in a way that is not in the interests of service users?

This will of course depend on the details of any individual case, but s75 agreements certainly have the potential to fall within the category of anti competitive arrangements unless they are clear as to the outcomes they seek to achieve and the extent to which local authorities when carrying out delegated functions of CCGs will compete these opportunities.

Questions for Monitor

Without detailed guidance on how the new regulations will apply in practice, we will only understand their full reach through the decision made following complaints to Monitor.

And what about Monitor’s powers? These will be wide and include the power to direct commissioners to remedy a breach or withdraw or vary a tender. The proposals raise three key questions for me. First, how quickly will Monitor be able to address complaints and what happens during an investigation? Will a procurement be suspended while a complaint is investigated? If so for how long as this has the potential to impact on the speed of change.

‘And what about Monitor’s powers? These will be wide and include the power to direct commissioners to remedy a breach or withdraw or vary a tender’

Secondly, how will Monitor deal with vexatious complaints? Under current proposals no costs are incurred as a result of bringing a complaint. It is of course important to facilitate challenges to anti competitive behaviour. But looking at this from the other side, how will Monitor curb unfounded complaints which are subsequently dismissed, particularly where they have a direct impact on commissioners being able to implement changes to services.

Thirdly, under the Health and Social Care Act 2012 Monitor could have the right to set contracts aside once made if they are found to be in breach of the regulations. This could have significant implications for commissioners and for patients. It is important to understand the circumstances in which Monitor can exercise the right and how Monitor will do so if for example a provider has changed and staff have already transferred to the new provider at the point a contract is set aside.

The development in procurement law for health services is of paramount importance for commissioners. I hope that those drafting the detail of the regulations consider the potential impact they could have on service delivery and provide a sufficient level of guidance to empower commissioners when making decisions around competition and cooperation.

Gill Thomas is a partner at Mills & Reeve LLP.
gill.thomas@mills-reeve.com