Outsourcing, procurement and the NHS

Hospital iStock 000010501389XSmall 146x219There are a number of lessons that NHS organisations can learn from the Lloyd v Gloucestershire PCT case, writes David Lock QC.

The legal challenge by Michael Lloyd to the decision of the Gloucestershire PCT to outsource its community services to a Community Interest Company raised serious questions for NHS commissioners. The case was settled on day 2 and so there will not be a court judgment which explains how the law works in this area.

That may have been a great relief to some who may not have welcomed a Judge giving a clear ruling on the impact of EU procurement law on NHS (and possibly wider government) outsourcing decisions. Procurement law is now a big issue for the NHS and, on a purely personal basis, I would suggest that the following points can be drawn out of the arguments advanced in the case:

  1. Procurement issues need to be carefully considered every time a PCT is considering entering into a legally binding contract with a potential provider (including possibly NHS Foundation Trusts). EU based companies are now looking carefully at the NHS market and so it would be difficult if not impossible to argue that an NHS provider contract will not be of interest to any healthcare provider located in another EU country. Hence, even before the competition provisions in Part 3 of the Health and Social Care Act 2012 have come into force, contracts for the delivery of NHS services are already subject to EU procurement law.
  2. The duties of transparency, equal treatment and non-discrimination imposed by the EU Treaty and by Regulation 4 of the Public Contracts Regulations 2006 mean that all contracts placed with a body outside an NHS Trust should now be subject to a “degree of advertising” to allow healthcare providers located in another EU country the chance to bid for the contract. This obligation applies to every GMS and PMS GP contract as much as it applies to a large scale acute services contract.
  3. The special exemption from procurement rules for contracts with new employee-led social enterprise companies outlined "Social Enterprise – Making a Difference: a guide to the "right to request" appears to give rise to some substantial legal problems. First, the policy document is focused on “employee led” schemes, as opposed to management-led schemes. Where NHS management has led a proposal to create a CIC and, in effect, imposed the new structure on reluctant employees, it may be an unjustified and hence unlawful departure from the Guidance. Secondly, and perhaps more importantly, there appears to be no proper basis in EU procurement law to support the exemption from a tender exercise. In fact it could be argued (although this was not part of the Lloyd case) that this type of support for a CIC amounts to unlawful state aid and is in breach of the EU treaty. Hence any PCT that contracts with such a company without a tender process potentially acts in breach of EU and domestic law.
  4. However the real lesson from the case is that there is almost certainly a stage for NHS bodies to consider before they decide if they want to undertake a tender process. PCTs are (almost certainly) entitled to conclude arrangements with an NHS trust to deliver services without a tender because such a process is arguably entirely outside EU procurement law. The Secretary of State controls both bodies and these arrangements do not give rise to legally binding contracts, and so there is no “contract” on which the procurement process can bite. There are accordingly strong arguments that it is perfectly lawful for a PCT to make an arrangement with a local NHS Trust for the delivery of NHS services without a tender, and without procurement obligations impacting on the process. This is part of the first step that the PCT agreed to explore as part of the settlement in the Lloyd case.
  5. It is less clear whether this exemption applies where a PCT contracts with an NHS Foundation Trust because (a) this involves is a legally binding contract and not an “NHS Contract” under section 9 of the NHS Act 2006, and (b) the Secretary of State does not have effective control over the NHS Foundation Trust because it cannot give the Foundation Trust instructions by way of Directions.

No PCT likes having its processes opened up to the minutiae of Judicial scrutiny. In this case the PCT was rightly commended by the Judge for having listened to the legal objections raised to its process and for agreeing to start the process all over again. The PCT has now agreed to recommence the process of looking for the best arrangements for its community services, including the option of making arrangements with a suitably experienced NHS Trust.

David Lock QC is a barrister at No. 5 Chambers. He has long experience of advising acting for NHS bodies. He acted for the Claimant, Michael Lloyd, in the Judicial Review brought against Gloucestershire PCT. He can be contacted by This email address is being protected from spambots. You need JavaScript enabled to view it..