Procurement Bill, Second Reading, House of Commons, 9 January 2023

• 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 proposed legislation and we are grateful for Cabinet Office officials’ ongoing engagement with us to improve the Bill. 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 can be interpreted as requiring the public sector to have to engage the market, even for arrangements wholly within the public-sector, such as one council wishing to work with an in-house company or collaborate with a neighbouring council(s). We remain concerned that the wording of this provision could close down the exemptions and certain models of collaborative public 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. We are pleased that the Government has committed to address this issue in secondary legislation, which would come into force at the same time as the Procurement Act. We would welcome early engagement from Cabinet Office on the secondary legislation.
• 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, whether under the Act or in sectoral legislation, should also make use of the platform.
• 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 to ensure the reforms deliver their intended improvements to the procurement regime.

Maintaining the current procurement exemptions

• 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). For example, awarding a waste contract to an ‘in-house’ company. The second, the ‘horizontal arrangements’ exemption, sometimes known as the ‘Hamburg’ exemption, relates to public-to-public cooperation arrangements. Public authorities cooperating to deliver waste services is one example of this.

• Both 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. 

• Despite helpful discussions with Government on this issue, we remain concerned that the Bill could significantly limit the use of these long-standing exemptions. Sub-Paragraph 1(2) of Schedule 2 introduces new wording 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 under a separate contract’ by a provider who is not a public entity. As a result, this provision, can be read as a requirement for the public sector to have to engage the market, even for arrangements that are currently being delivered wholly within the public-sector. If enacted, this new wording could close down models of collaboration and efficient service delivery which save public money. The sub- paragraph also opens up a new avenue of legal challenge against the public sector.

• At Report Stage in the House of Lords, the Minister, Baroness Neville-Rolfe agreed that these vertical exemptions need to be preserved but stated that the Government believes that Bill does not close them down. The Government’s view is that paragraph 1(2) of Schedule 2 serves to close a loophole, whereby contracts that are mixed (they contain both exempted activities and non-exempted activities) might, at present, be inappropriately exempted from tendering. While the Minister’s assurance is welcome, we remain concerned that the provision could be easily read in a way that will, in practice, close down the use of the exemptions.

• The LGA continues to engage with Cabinet Office to reach a resolution which will ensure councils and the rest of the public sector can continue to use these established exemptions to deliver shared services with confidence. We hope that government will be in a position to lay an amendment at Commons Report Stage to put the issue beyond doubt.

• 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 by ‘buying local’, 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.

• At the Bill’s Report Stage in the House of Lords, the Minister, Baroness Neville-Rolfe stated that the Government’s intention is to amend Section 17 (1) of the Local Government Act 1988 and rectify this issue in secondary legislation, which will become ‘live’ at the same time as the Act. We would welcome early engagement from Cabinet Office on the secondary legislation.

• The Bill will enable the creation of a single digital platform for public procurement, where all public procurement opportunities will be published and viewed in one place. This aims to simplify the procurement system, improve data sharing and transparency, and reduce barriers for SMEs which can struggle to navigate the public procurement system and win contracts.
• The LGA supports the Government’s intention to create a single digital platform. We hope that this proposal will simplify the system for both buyers and suppliers.

• There are long-standing requirements in existing legislation and statutory guidance, which specify where and how public bodies must publish procurement information. To meet the ambitions of the single digital platform, where all public procurement information is centralised in one place, this legislation and guidance will need to be updated.

• The LGA has been calling on the Government to amend the following legislation and guidance within the Bill to avoid duplication and inefficiency:

• Transport Act 1985: Section 89, subsection (4)(b) and subsection (5) should be disapplied. These sections require local authorities to individually issue notices of tender to all suppliers who have given written notice that they wish to be notified.
• Service Subsidy Agreements (Tendering) (England) Regulations 2002: Regulations 4 and 5 should be disapplied. These regulations require local authorities to publish tender information relating to transport service subsidies to the general public ‘at times and in places which are convenient to the public’ and publish notices of tender in local newspapers.
• The statutory Best Value Transparency Code also contains publication requirements about contracts that require information to be published in a different place, with different definitions and thresholds, which will need to be reviewed.

• At the Bill’s House of Lords Report Stage, the Minister, Baroness Neville-Rolfe, stated that her department is working with the Department for Transport to address the outdated procurement requirements in the Transport Act and Service Subsidy Agreements (Tendering) Regulations. We were pleased that the Minister said that the Government might bring forward a Government amendment in the Commons to address these issues.

• Any future legislation creating procurement publication requirements should also default to using the single digital platform.

• We welcome the Bill’s aim is to make the public procurement system more accessible to SMEs. In 2015 the Government committed to direct 33 percent of public spending to SMEs by 2020, however recent research shows that only 21 percent of public sector procurement spend went to SMEs in 2021.

• The Bill introduces a number of measures to remove barriers SMEs face in bidding for, and securing, public sector contracts. This includes allowing smaller suppliers to provide alternative evidence where the audited accounts are not available, and to only put the required insurance cover in place when a contract is awarded to them, rather than incurring the costs upfront.  

The Bill will also introduce a new duty on contracting authorities to have regard to the fact that small and medium-sized enterprises may face particular barriers to participation and consider whether such barriers can be removed or reduced. We are pleased that this duty will also cover a majority of voluntary, community organisations and social enterprises, which play a vital role in local service delivery.