A previous blog has provided a useful overview of the light touch regime in the draft Public Contracts Regulations 2015 (Draft Regulations) and its application to health care services.
In this post, Simon Taylor, barrister at Keating Chambers, considers a few key questions relating to NHS health care services which are hanging in the air.
Why is application of the light touch regime to NHS health care services contracts being delayed until April 2016?
Regulation 118(3) of the Draft Regulations provides that the Public Contracts Regulations 2006 (the 2006 Regulations) continue to apply to healthcare services within the meaning of the NHS (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 (the NHS Regulations) until April 2016. This means that contracts for NHS health care services let by NHS England and clinical commissioning groups (CCGs) will fall outside the new procurement regime in the interim period.
The Cabinet Office states in its consultation document that this delay is to give commissioners time to adapt. It may also reflect a certain tension between the Draft Regulations and the NHS Regulations.
The source of this tension is in the key question of whether and when NHS commissioners are required to go out to tender for healthcare services.
Despite concerns raised in Parliament when the NHS Regulations were adopted that they introduced compulsory competitive tendering, they do not in fact require all NHS healthcare contracts to be tendered. In fact, in some cases they enable or even require commissioners to avoid a competitive tender.
Commissioners must, under Regulation 3(3) of the NHS Procurement Regulations, procure the services from the provider(s) most capable of delivering their objectives (of securing patient needs, quality and efficiency) and providing best value for money. Regulation 3(4) of the NHS Procurement Regulations lists the strategies that commissioners must consider to improve service quality and efficiency. This includes the option of enabling providers to compete to provide the services but there are other options, including “service integration”.
Competitive tenders (or accreditation plus patient choice) may be an effective means of demonstrating that Regulation 3(3) and (4) have been complied with.
However, commissioners must also weigh up their duties of economy, effectiveness and efficiency and this may mean that a cost benefit analysis is undertaken before embarking on an advertised tender process. In some cases, the cost and resources required to tender a contract may not be justified by the potential gain from competition. Further, there may be wider cost and clinical implications if the incumbent provider loses a contract following a competitive tender. The mix of duties may then point commissioners towards not tendering even where there is more than one potential bidder. There is also a generous sole supplier exemption under Regulation 5(1) of the NHS Procurement Regulations, which has been interpreted widely by Monitor in its guidance (see Substantive guidance on the Procurement, Patient Choice and Competition Regulations of December 2013 at page 41).
The problem is that these NHS specific considerations do not sit easily alongside the light touch regime.
Regulations 74 and 75 of the Draft Regulations require above threshold healthcare services contracts to be advertised so that interested operators can express their interest and tender on a fair and transparent basis. While the light touch regime is flexible as to how to go out to tender and Regulation 76(7) allows for all relevant considerations to be taken into account in awarding contracts, the rules require a competitive tender process. This is subject to the exemptions or exclusions in the Draft Regulations, but there is no cost/benefit or wider clinical interests’ exemption and the sole supplier exemption (Regulation 32(2)(b)) is narrowly drawn. There will generally be more than one capable provider for a particular contract and no technical reason or reason based on exclusive rights to conclude that a tender is not possible.
There is therefore a risk of confusion between the two parallel regimes and concern that legitimate NHS and patient interests may be threatened by the Draft Regulations.
Does this issue already arise in the interim period?
It does to a degree as a result of European Union (EU) law.
Under the 2006 Regulations, health care services are classified as “Part B services”. For these services, there are few procedural requirements and no express obligation to advertise. The 2006 Regulations do therefore sit reasonably well alongside the NHS Regulations.
However, where a NHS healthcare service (or other Part B) contract is sufficiently large or has other features that may potentially attract cross border interest there is an obligation under EU single market principles to conduct an appropriately advertised tender process, unless there is an applicable exemption (Telaustria C-324/98, Germany v Commission Case T-258/06).
This means that NHS commissioners should consider whether, if tendered, a particular contract might attract bids from non-UK providers and thus trigger EU law principles.
There is therefore already a tension between EU law and the NHS Procurement Regulations. By virtue of the sovereignty of EU law, any national rules which conflict with EU law are automatically inapplicable (Simmenthal Case 106/77  ECR 629). If, therefore, the EU rules apply and there is an inconsistency with the NHS Regulations, an English court would resolve it in favour of the EU rules.
Similarly, being based on Directive 2014/24/EU, the Draft Regulations will take precedence over the NHS Regulations.
A possible solution
A purely legal response to the consistency problem would be to amend the NHS Procurement Regulations to state that these rules are subject to and should be interpreted in accordance with the obligations arising under the (Draft) Regulations.
This would still leave a tension where there could be cross border interest in a below threshold NHS service contract, though this may in practise rarely be the case even with the raised threshold of €750,000.
However, this legal response would fail to address the underlying NHS policy concerns.
One possible solution to the policy issue, which would take time to implement, is the use of “exclusive rights”.
This would involve entrusting (through a law, regulation or administrative provision) incumbent providers (either NHS or in some cases private) with “services of general economic interest”, the continuity and financial viability of which are essential to patient interests and granting exclusive rights to perform these services. If providers were granted exclusive rights, the service contracts would either be excluded from the Draft Regulations by Regulation 11 (where the provider is a contracting authority) or exempted from the obligation to publish a prior notice under Regulation 32(2)(b)(iii).
The grant of such exclusive rights would need to be consistent with EU law, notably Article 106 of the Treaty on the Functioning of the European Union (“TFEU”). However, it seems likely that a case could be made for these based on protecting the viability of essential healthcare services (such as A&E and a range of services which are clinically or financially interdependent with A&E).
Such a solution would give rise to controversial questions – the nature and duration of exclusive rights, the choice of providers, the legal mechanism used to grant the rights, how much top down control would be exercised over commissioners, what consultation requirements may apply etc. However, it would offer a strategic approach to determining the pace and direction of NHS competition.
In conclusion, it is difficult to disagree with the Cabinet Office that a delayed transposition is appropriate for NHS healthcare services. There are clearly matters to be resolved.