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).