Procurement Bill, Report Stage, House of Lords, 28 November 2022

Our primary concern is that the Bill will significantly limit public bodies from using the current vertical and horizontal procurement exemptions, which enable councils and public sector bodies to enter into collaborative arrangements to run efficient public services.


Key messages

  • The LGA broadly welcomes the Government’s proposed reforms to public procurement including enshrining in law the objectives of public procurement.
  • Following the publication of the Green Paper, Transforming Public Procurement, we have been engaging with Government to help them to understand the way that councils procure goods, works and services, to help design the new regime in a way  that is effective and reduces unnecessary costs and administrative burdens for local government.
  • We are pleased that many of our concerns arising from the Green Paper have been resolved in the legislation as it was introduced in Parliament. However, there are several important issues for local government that we are still seeking to resolve.  
  • Our primary concern is that the Bill will significantly limit public bodies from using the current vertical and horizontal procurement exemptions, which enable councils and public sector bodies to enter into collaborative arrangements to run efficient public services. Shared service arrangements enabled by these exemptions help to drive significant efficiencies in local government through achieving economies of scale and by pooling resources. Previous LGA research revealed that in 2018/19 these arrangements contributed in part to saving the taxpayer nearly £200 million. 
  • However, the Bill introduces a new ‘reasonableness’ test which stipulates that these exemptions can only be used if the contract ‘could not reasonably be supplied under a separate contract’. It will often be the case that public services, whether front-line or back-office, could ‘reasonably be supplied’ by a provider that is not a public entity. As a result, the legislation would require the public sector to have to engage the market, even for arrangements wholly within the public-sector, such as one council wishing to collaborate with a neighbouring council(s) for example. The change comes to the detriment of efficient service delivery and closes down certain models of service delivery which save public money.
  • Section 17 (1) of the Local Government Act 1988 currently prohibits local authorities from reserving contracts, whatever their value, to local suppliers, SMEs and voluntary, community and social enterprises (VCSEs). In the public sector this restriction is unique to local government, placing councils at a disadvantage. This ability is vital to support councils’ place shaping role, drive economic growth and achieve wider objectives such as reducing carbon emissions and boosting supply chain resilience. Whilst we understand that Government is likely to act on this, we are nevertheless calling on Government to be required to address this issue in the Bill.
  • We strongly support the aims of the single digital platform to simplify the public procurement system for both buyers and suppliers and enhance transparency. It is important that the Government now acts to bring differing procurement requirements in existing legislation (the Transport Act 1988 and Service Subsidy Agreements (Tendering) (England) Regulations 2002) into line with the single digital platform to avoid duplication and inefficiency. Any future legislative requirements in relation to procurement should also make use of the platform.
  • We welcome the Government’s amendments which aim to support SME participation in public contracts. A similar focus to supporting VCSE’s should also be considered, as proposed by amendment 41 tabled by Lord Wallace of Saltaire. 
  • We also welcome the Government’s amendments which aim to reduce bureaucracy such as amendment 80 on publishing procurement contracts. We also welcome the proposed flexibility for contracting authorities to only set performance indicators (amendment 78) and only publish modifications for public contracts over £5 million instead of £2 million (amendment 104), and revise the obligation to publish information about mitigating perceived conflicts to only apply only to those that the contracting authority considers are likely to arise (amendment 116).
  • We want to see Government go as far as possible to reduce red tape for both the public sector and businesses, and will continue to work with Government, as the Bill passes through the Commons in the new year to ensure the reforms deliver their intended improvements to the procurement regime.

Amendment 9

Maintaining current procurement exemptions: Amendment 9, tabled by Baroness Noakes and supported by Lord Moylan

This amendment would disapply the new ‘reasonableness’ test in sub-paragraph 2 (paragraph 1 of Schedule 2) to vertical and horizontal contracts, to preserve the exemptions which currently public service collaborations.

LGA view on on Amendment 9

The LGA supports this amendment, which seeks to address the most significant remaining issue in the Bill for local government. 

There are two important procurement exemptions under Regulation 12 of the Public Contracts Regulations 2015, which facilitate cooperation and shared services between entities within the public sector. These exemptions are being carried into the Procurement Bill at Schedule 2 on exempted contracts. 

The ‘vertical arrangements’ exemption, widely known as the ‘Teckal’ exemption, enables public bodies to award contracts to entities that, though legally distinct, are ‘in house’ to the awarding authority (or authorities). The second, the ‘horizontal arrangements’ exemption, sometimes known as the ‘Hamburg’ exemption, relates to public-to-public cooperation arrangements, for example where public authorities cooperate in the delivery of waste services.   

These long-standing exemptions allow public authorities to enter into collaborative arrangements with each other and/or with other public bodies for the efficient delivery of public services. Shared service arrangements, enabled by these exemptions, such as one council wishing to collaborate with its neighbour(s), help to drive significant efficiencies in local government through achieving economies of scale and pooling of resources. Previous LGA research demonstrated that in 2018/19 they contributed in part to saving the taxpayer nearly £200 million. 

We are concerned that the Bill will significantly limit the use of these long-standing exemptions. Sub-Paragraph 1(2) of Schedule 2 introduces a new test which stipulates that these exemptions can now only be used if the contract ‘could not reasonably be supplied under a separate contract’. It will often be the case that public services, whether front-line or back office, could ‘reasonably be supplied’ by a provider who is not a public entity. As a result, the legislation would require the public sector to have to engage the market even for arrangements wholly within the public-sector. This change comes to the detriment of efficient service delivery and closes models of collaboration which save public money. The sub- paragraph also opens up a new avenue of legal challenge against the public sector.

To ensure councils and the rest of the public sector continue to use these established exemptions to deliver shared services with confidence, paragraphs 2 and 3 of Schedule 2 (relating to the vertical and horizonal arrangements exemptions) must be removed from the scope of application of sub- paragraph 1(2) of Schedule 2 (the new ‘reasonableness’ test). 

Amendment 163

Enabling councils to ‘buy local’: Amendment 163 tabled by Baroness Bennett

This amendment would commit (as opposed to simply enable) English and Welsh Ministers to lay regulations to amend section 17(1) of the Local Government Act 1988 relating to below-threshold contracts, to enable local authorities to reserve below-threshold contracts for UK suppliers, local suppliers (e.g. within the county), SMEs or Voluntary, Community, and Social Enterprises (VCSEs), in line with the rest of the public sector, as laid out in guidance (Policy Procurement Note 11/20, Dec 2020).

LGA view on on Amendment 163

The LGA supports this amendment. In December 2020,  Procurement Policy Note 11/20 gave public sector bodies the right to reserve below-threshold contracts for local suppliers (for example, county level), SMEs or Voluntary, Community, and Social Enterprises (VCSEs). The option to strategically reserve low value contracts in this way enables public sector bodies to support their local economies and businesses, as well achieving other important objectives such as increasing supply chain resilience, reducing carbon emissions in supply chains and attracting new entrants to public procurement markets.

Section 17 (1) of the Local Government Act 1988 currently prohibits local authorities from using this power and reserving contracts, whatever their value, to local suppliers and SMEs. In the public sector this restriction is unique to local government, creating an uneven playing field. 

The Government is aware of this issue and we understand that they plan to disapply Section 17(1) of the Local Government Act as it relates to below-threshold contracts in secondary legislation. Given how pressing the issue is for local government, as it restricts councils’ ability to shape their places and drive economic growth, we believe there should be a requirement, not just an option, within the Procurement Bill to resolve this issue. 

Amendments 166 and 168

Facilitating the single digital platform: Amendment 166 tabled by Baroness Noakes and supported by Lord Moylan

This amendment would bring existing procurement requirements in the Transport Act 1985 in line with the single digital platform, by omitting section 89, subsection (4)(b) and subsection (5) which require local authorities to issue notices of tender individually to anyone who has given written notice that they wish to be notified.

Facilitating the single digital platform: Amendment 168 tabled by Baroness Noakes and supported by Lord Moylan

This amendment would bring existing procurement requirements in the Service Subsidy Agreements (Tendering) (England) Regulations 2002 in line with the single digital platform, by removing regulations 4 and 5

Regulation 4 requires local authorities to publish information relating to tender invitations in accordance with Part I of Schedule 1 of the same Tendering Regulations 2002. Regulation 5 requires local authorities to publish tender information to the general public at times, in places and in a form which are convenient to the public; and publish notices of tenders in local newspapers.

A service subsidy in this context is where councils subsidise companies operating public passenger transport services to run services on routes which may not otherwise be economically viable, for example bus services in rural areas.  

LGA view on Amendments 166 and 168

The LGA supports amendments 166 and 168. The LGA supports the Government’s intention to create a single digital platform for public procurement, as outlined in the Government’s response to the Transforming Public Procurement Green Paper consultation, which will consolidate the publication of notices, documents and other information related to public procurement in one place. We hope that this proposal will simplify the system for both buyers and suppliers. 

However, we remain concerned that long-standing requirements in existing legislation and statutory guidance, which specify where and how public bodies must publish procurement information, will lead to duplication and inefficiency. Therefore, they need to be tidied up to achieve the ambitions of the single digital platform, where all public tenders are advertised in one way and one place to improve consistency and accessibility. Any future legislation creating procurement publication requirements should also use the single digital platform.

Amendment 2

Amendment 2 tabled by Baroness Neville-Rolfe

This amendment would change the definition of a contracting authority to differentiate between a public authority and a public undertaking. It also changes the definition of “public authority” to exclude certain bodies which operate on a commercial basis. 

LGA view on Amendment 2

We are concerned that local authority-owned central purchasing bodies (CPBs) may now be out of scope of the definition of 'public authority,’ if they are deemed to ‘operate on a commercial basis’. This would mean that CPBs could no longer operate in the same way to deliver savings of public money by buying at scale (often through framework agreements). It also creates a new area of legal uncertainty. 

We are seeking clarity on the issue with Government. 

 

Amendment 40

Amendment 40 tabled by Baroness Neville-Rolfe

This new clause would require a contracting authority to have regard to the particular barriers that SME’s may face in competing for a contract and remove or reduce them where possible. 

LGA view on on Amendment 40

We welcome the Government’s amendment which aims to reduce barriers to SME participation in public contracts. SMEs play a major role in creating jobs, they help foster economic growth, social stability, are a source of innovation and contribute to the development of a dynamic private sector. 

However, it is equally important that there is a focus on VCSEs to access public contracts. VCSE organisations can play a critical and integral role in providing a range of frontline services, including health and social care. A similar focus to support VCSEs should also be considered, as proposed by amendment 41 tabled by Lord Wallace of Saltaire.

Contact

Megan Edwards, Public Affairs and Campaigns Adviser

Email: megan.edwards@local.gov.uk