Public procurement: minimising costs for healthcare providers
Whilst the Public Contracts Regulations 2015 may appear daunting they should be welcomed as a wide range of potentially confusing case law has now been codified. Healthcare commissioners frequently had to address significant risks when considering key procurement decisions but processes introduced by the new 2015 Regulations will help to remove much of this burden.
It is important to note that the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 remain in force. The 2013 Regulations and 2015 Regulations do not necessarily sit that easily together. For example, for above-threshold procurements the 2015 Regulations require clinical commissioning groups (CCGs) to advertise in the Official Journal of the European Union (OJEU). This is clearly in conflict with the 2013 Regulations, where CCGs are able to make an appointment based on the most capable provider regime. Any conflict would most likely be resolved in favour of the 2015 Regulations, however, since they are more recent and derived from a European Union (EU) directive.
The 2015 Regulations began to apply (with some exceptions) to procurements commenced on or after 26 February 2015.
Until April 2016, certain contracting authorities, including CCGs, had the benefit of a period of transition for certain types of procurement, during which they were still subject to the Public Contract Regulations 2006 rather than the 2015 Regulations. However, CCGs now need to comply with the 2015 Regulations and specifically the requirements of the ‘light touch regime’ (LTR).
When considering the changes set out below, CCGs should bear in mind that the EU principles of transparency, non-discrimination, equal treatment, proportionality and mutual recognition still apply and must underpin any decisions:
- Modifying existing contracts: provisions permitting the modification of existing contracts represent one of the most important changes brought about by the 2015 Regulations.
- Exclusion: under the 2015 Regulations it is possible to exclude bidders in certain circumstances. This assists in avoiding potential problems, for example where a bidder has scored well but has not performed well in previous contracts.
- Self-cleansing: it follows that if bidders can be excluded for poor performance then they must have the chance to put things right. Note that use of self-cleansing provisions is not without risk and the main EU principles must always be observed.
- Processes: available procurement processes now include open, restricted and competitive dialogue, competitive dialogue with negotiation and innovation partnerships (the last two being entirely new). The restricted dialogue process is likely to be of most interest to healthcare commissioners.
- Light touch regime: so-called Part A and Part B procurements have been replaced. Instead, the LTR will apply to all healthcare procurements above €750,000 (instead of a full-blown procurement process). Where procurements fall below the relevant thresholds the 2015 Regulations do not require them to be advertised by publication in the OJEU. Where the procurement falls above the threshold, the main mandatory requirements are:
- OJEU advertising.
- Publication of a contract award notice.
- Compliance with EU principles of transparency and equal treatment.
- Carrying out the procurement in accordance with the information provided in the OJEU advert.
CCGs can however use any process or procedure they choose to run the procurement.
- Other changes: these include new rules on the use of pre-qualification questionnaires and clauses that need to be included in contracts to address sub-contracting and payment terms. These changes may mean that standard invitation to tender documents need quite extensive revisions.
Modifying existing contracts
The 2015 Regulations set out circumstances where it is possible for contracting authorities to modify a contract without a new procurement process. These changes derive from the decision of the European Court of Justice in Pressetext Nachrichtenagentur GmbH v Austria  and exclusions under the 2006 Regulations. However, there are significant clarifications.
Contracting authorities should also be aware of the relevance of the modifications in the preparation of new contracts and agreements, which should include wording which, where appropriate, allows for future variations without the requirement to run a new procurement process.
Under Regulation 72, there are six potential relevant circumstances where a contract can be modified by a contracting authority without a new procurement process being required:
- Modification provided for in original documentation: modifications may be made without the need for a new procurement process where the modifications were envisaged in the original procurement documentation. To be able to rely on this exception, the variation clause must be “clear, precise and unequivocal”. The key is in the wording of the variation clauses. These must clearly state the scope and nature of the modifications which can be made and set out the conditions for their use.
- Additional services or supplies are justified: the 2015 Regulations allow a contract to be modified without a new procurement process where there is a need for additional works, services or supplies which were not included in the original contract. It is necessary to show that a change of contractor cannot be made for economic or technical reasons or would cause significant inconvenience or substantial duplication of costs for the contracting authority. The intention is to allow an authority to purchase additional works, services or goods from the same contractor where this is justifiable. For this to apply, any increase in the price must also not exceed 50% of the value of the original contract.
- Unforeseen circumstances: another further potential justification for a variation would be that it has been brought about by unforeseen circumstances. This is subject to the same restrictions as set out in the two points above. Again, there is a 50% value limit and the overall nature of the contract must not be changed.
- Variation is not substantial: this option is intended to allow for minor changes without having to go out to the market each time. The 2015 Regulations set out situations where a modification is considered to be “substantial”. These include cases where the modification:
- Renders the contract or the framework agreement materially different in character from the one initially concluded.
- Introduces conditions which, had they been part of the initial procurement procedure, would have allowed for the admission of other candidates than those initially selected, allowed for the acceptance of a tender other than that originally accepted, or attracted additional participants in the procurement procedure.
- Changes the economic balance of the contract or the framework agreement in favour of the contractor in a manner which was not provided for in the initial contract or framework agreement.
- New contractor replaces original contractor: this applies where a new contractor replaces the original contractor as a consequence of a review clause or where the new contractor is a successor to the old one because of insolvency, takeover, merger etc.
- Modification below applicable threshold: the 2015 Regulations allow for modification where the value of the modification is below the applicable procurement threshold as set out in Regulation 5 and below 10% of the initial contract value for services and supply contracts and 15% for works contracts. In addition, the modification must not alter the overall nature of the contract. An authority should also be aware that for successive modifications, the value is calculated cumulatively.
We have advised an NHS trust on whether it could vary the scope of its pathology services contract to widen it to include additional trusts which were not part of the original procurement. We identified within the 2015 Regulations the grounds on which the NHS trust could seek to rely. This saved the time and expense of having to re-procure the service.
Read other items in the Healthcare Brief - July 2016