Health and social care commissioning: the procurement implications

Health iStock 000005083391XSmall 146x219Emma Trundle outlines the application of the public procurement regime to health and social care contracts and how forthcoming changes impact local authorities.

It has been difficult to miss the recent headlines relating to the proposed changes to the NHS and how it commissions goods or services. Where there is commissioning, procurement inevitably follows so with a change in law on the horizon now is a good time to refresh our memories on the applicability of the public procurement regime to health and social services.

The current position

The procurement of health and social care services fall outside of the strict auspices of the Public Contract Regulations 2006 as amended (the Regulations) through their categorisation as “Part B” services.

Although a public body will not fall foul of the Regulations by failing to tender a part B service in accordance with one of the four contract award procedures set out in the Regulations, the application of EU Treaty principles and guidance provided by the Commission Interpretative Communication on the Community law applicable to contract awards not or not fully subject to the provisions of the Public Procurement Directives (2006/C 179/02) prevent any uninhibited contract awards. Broadly speaking a contracting authority in an EU member state must abide by the EU Treaty principles of fairness, openness, non-discrimination and transparency (the Principles) and must undertake a degree of advertising appropriate to the market even where a contract falls outside the scope of the Regulations. This was established by the ECJ in the TelAustria case (ECJ C-324/98).

There has long been a tradition of partnership working between the NHS, Primary Care Trusts (PCTs) and local authorities for the delivery of health and social services where the function boundaries are blurred. One of the more common vehicles for partnership working is section 75 of the NHS Act 2006. The values of most section 75 agreements far exceed the thresholds at which the Regulations apply to contracts for services (currently £173,934) yet they are rarely tendered in accordance with the Principles. This is because most section 75 agreements will fall outside the scope of the Regulations due to the exclusive nature of the services being provided.

The justifications are as follows: 

Section 75 agreements

A section 75 agreement for the provisions of services to a local authority by a health authority (i.e. PCT, NHS etc) and vice versa will usually be excluded from the Regulations by virtue of regulation 6(2) (L) which states:

“[These regulations do not apply to the seeking of offers in relation to a proposed public contract…] under which services are to be provided by a contracting authority….because that contracting authority or person has an exclusive right-

(i) to provide the services, or

(ii) which is necessary for the provision of the services

in accordance with any published law, regulation or administrative provisions, which is compatible with the EC Treaty."

NHS Trusts fall within the definition of “contracting authority” by virtue of regulation 3(1) (v) which refers to entities specified in Schedule 1 of the Regulations. Schedule 1 includes “NHS Trusts”. A local authority is defined as a “contracting authority” under Regulation 3 (1)(i).  

The question is therefore whether the service provider (being either local authority or NHS Trust) has “exclusive rights” to provide the services. An exclusive right by definition restricts the freedom of other entities to provide services. It is clear from section 75 of the NHS Act 2006 and the NHS Bodies and Local Authorities Partnership Arrangements Regulations 2000 that there are restrictions as to which organisations can enter into partnership arrangements in relation to health related functions and the reasons for such arrangements. It would therefore seem that NHS bodies and/or local authorities are afforded exclusive rights to provide such services.

Excluded contracts

If a case can be made for exclusive rights, the contract would be excluded from the Regulations. Where such excluded contracts have a value in excess of the Regulation’s thresholds the Commission Interpretive Communication needs to be considered. The Interpretive Communication essentially states that the Principles must still be adhered to in procuring such excluded contracts.

Whilst the Interpretative Communication requires advertising of a contract, it recognises that the Regulations allow for a contract award without prior advertisement in certain defined circumstances.

The Interpretative Communication states at section 2.1.4: “In the view of the Commission, the relevant derogations [under the Directive] may be applied to the award of contracts not covered by the Directives. Therefore, contracting entities may award such contracts without publishing a prior advertisement, provided they meet the conditions laid down in the Directives for one or more of the derogations”.

The Interpretative Communication relates to Directive 2004/18/EC, being the EU Directives on public procurement, which have been incorporated into UK law by the Regulations. In the Regulations the “derogations” are encapsulated in Regulation 14 (Use of the Negotiated Procedure without prior publication of a contract notice).

The negotiated procedure is one of the contract award procedures established in the Regulations; it allows contracting authorities to negotiate with bidders before awarding a contract to the successful party. Regulation 14 outlines the circumstances in which the negotiated procedure can be used without first advertising the opportunity in the Official Journal of the European Union (OJEU). Regulation 14(1) (a) (iii) is one of a number of such circumstances but it is arguably the most relevant to this matter. It states:

[A contracting authority may use the negotiated procedure without prior publication of a contract notice…in the following circumstances-] when for technical or artistic reasons, or for reasons connected with the protection of exclusive rights, the public contract may be awarded only to a particular economic operator”.

The changes in law effective from 1 April 2013

The Health and Social Care Act 2012, which received Royal Assent on 27 March 2012, makes significant amendments to the National Health Service Act 2006 and transfers the responsibility for public health from the NHS to local government.

For procurement purposes the most significant change comes in the transfer of commissioning functions from PCTs to newly formed GP led Clinical Commissioning Groups (CCGs) and the NHS Commissioning Board. PCTs will cease to exist as of 1 April 2013 and CCGs will take on existing PCT contracts and will be responsible for future commissioning of secondary medical services in their area. Specifics as to the constitution and membership of CCGs is beyond the scope of this paper, but suffice it to say that CCGs are to be an individual body corporate and the majority of members will be GPs.

Working in conjunction with CCGs is the NHS Commissioning Board (NHSCB) which will regulate the commissioning activities of CCGs and will conduct commissioning services on behalf of those CCGs that are not authorised (or fully authorised) to commission services as at 1 April 2013.

How do the changes in law effect the current position with regards to section 75 agreements?

Section 75 of the NHS Act 2006 remains in force following commencement of the Health and Social Care Act. CCGs will fall within the definition of NHS bodies under section 75 so they will be able to enter into joint working arrangements with local authorities in the same way that PCTs currently do. The exemptions to the Regulations outlined above therefore continue to apply.

What relevance does the Health and Social Care Act have to procurement law?

CCGs will be contracting authorities for the purposes of the Regulations so they will need to abide by the Regulations when fulfilling their commissioning activities. Where CCGs commission services whose value exceeds the threshold the CCG will need to comply with the Principles and the Interpretative Communication.

Section 75 of the Health and Social Care Act requires commissioners to ensure that they adhere to good practice in relation to procurement and do not engage in anti competitive behaviour and protect and promote the right of patients to make choices about their healthcare.  

How will these changes effect local government?

PCTs will cease to exist as of 1 April 2013 and as such any contracts held with a PCT will need to be novated to either the CCG or the NHSCB. Such contracts will include section 75 agreements relating to pooled budgets and joint commissioning agreements. Local authorities should therefore begin identifying contracts to be novated and engage with the PCT as soon as possible to avoid the contract ceasing to have legal effect after 1 April.  

It may be tempting for both parties to see this as an opportunity to renegotiate some of the less favourable terms of the agreement however significant amendments should be avoided as to do so may amount to an illegal direct award of a contract in contravention of the Regulations. The ECJ ruled, in the case of Pressetext, that “amendments to the provisions of a public contract during the currency of the contract constitute a new award…when they are materially different in character from the original contract and, therefore, such as to demonstrate the intention of the parties to negotiate the essential terms of that contract”.

Emma Trundle is a Commercial Solicitor at Hertfordshire County Council. She can be contacted by This email address is being protected from spambots. You need JavaScript enabled to view it..

Useful Links and References