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Survival Guide: Procuring Services

In the new world, GPs will need to know how to procure services as well as provide them. Hannah Chapelhow explains how it's done

The basics

Public procurement is the purchase of supplies, works or services by European governments and public bodies, including GP consortia. Procurement regime is designed to ensure free trade across the EU and prevent state-owned or state-related bodies from succumbing to pressure to ‘buy national'.

The EC Treaty lays down obligations to ensure free movement of supplies, services and establishments across the EU. Treaty principles – non-discrimination, equal treatment of potential providers and being transparent – apply to all public-sector procurement. These obligations have been transposed into UK law by way of the Public Contracts Regulations 2006.1 These regulations set out rules for procurement that govern how public bodies in the UK purchase supplies, works or services.

Understanding how the rules apply to commissioning

The regulations specify that only supplies, works or services that are valued above a certain financial threshold need to be procured in accordance with the rules set out in them – but, the rules are specific as to when related or repeat contracts must be aggregated together for the purposes of valuation.

Values must reflect a genuine estimate of the contract being tendered (excluding VAT), including the value of any options to extend even if it is uncertain whether such options will be exercised.

There are rules on aggregation of contracts and valuing long-term contracts which consortia should familiarise themselves with.[1]

The regulations do not apply to contracts valued below the financial threshold, although treaty principles will still apply.

A key issue for consortia will arise when services valued above the financial threshold are being commissioned. Unlike supplies and works, the regulations group services into two separate categories (part A and part B), and apply different rules to each category.

Part A services are treated in the same way as supplies and works – the full set of rules apply. These include services such as IT support, accountancy and most management consultant services.

Part B services have only limited rules that apply – these are deemed less likely to attract interest, and therefore competition, from suppliers in other EU member states. Part B will include community healthcare, acute healthcare and mental health services, catering and legal services.

Getting started

Before starting any procurement, you should be asking the following:

Establish what is being commissioned

Is it supplies, works or services? If it's a service, does it fall within part A or part B of the service categories?

Work out the contract value

The current threshold values (net of VAT) that apply to the NHS are:

• supplies – £101,323

• works – £3,927,260

• part A services – £101,323

• part B services – £156,442

If financial thresholds are met, then either the full rules set out in the regulations will apply (for supplies, works and part A services contracts) or a limited number of rules will apply (for part B services contracts.)

Applying the full rules

When the full rules apply, procurements by GP consortia will need to begin with an advert that must be placed in the Official Journal of the European Union.[2] This alerts all suppliers throughout Europe of the opportunity and gives them the chance to express interest in providing the contract. The opportunity should also, in accordance with principle 2 of the NHS Principles and Rules for Co-operation and Competition,[3] be advertised on the NHS Supply2Health procurement portal.[4]

The regulations set out a choice of procedures, one of which must be followed by consortia when carrying out a procurement. The most popular procedure used is the ‘restricted procedure', which is a two-stage tender process.

The first stage is a short-listing stage for all suppliers who responded to the advert to assess their general suitability to contract with the consortium in question. Only the shortlist of top-ranked suppliers from the first stage is invited to the second stage of the process, which involves a competitive tender between those suppliers in order to identify the best offering.

Tenders are evaluated against pre-published criteria and weightings (with no negotiation allowed) to choose who will enter into contracts with consortia. The decision should then be posted on the OJEU website and Supply2Health.

Applying the limited rules

When healthcare services and other part B services are being procured, there is no requirement to place an advert on the OJEU website or undertake a formal process. However, other rules apply – such as the treaty's stipulation for demonstrating transparency when procuring contracts.

Further, there is a specific duty that has been set out in the Health and Social Care Bill (section 63)[5] that places an obligation on consortia to follow good practice and promote competition when commissioning services. It is unclear exactly what the impact of this will be, but it will probably reflect the current requirements of the PRCC. In practice, it is likely that that consortia will have to undertake a proportionate level of advertising and observe the overarching treaty principles when carrying out the process.

Understanding where any willing provider fits in

Any willing provider (AWP) is an accreditation process that results in a list of suitable healthcare providers that patients may be referred to by their GP. One of the aims of the AWP model is to remove the need for a traditional procurement process to be carried out, thereby saving tendering costs.

Although the exact impact of AWP on the procurement of healthcare services will remain unknown until the Department of Health releases policy, it is likely to mean consortia will not need to procure healthcare services that are subject to AWP – as there will be no restriction on the providers who may become accredited and accordingly no restriction on competition. Patient choice will determine the amount of services purchased from a particular provider rather than the commissioner.

The recent letter from Sir David Nicholson[6] makes it clear that services that are subject to tariff will only compete on quality, not price – although negotiation on price will be allowed in certain exceptional circumstances. However, under AWP, it will be the patient that judges the quality on offer (above the requisite level required for accreditation) rather than the consortia making payment for the services.

Getting results

Focus on good design

Before undertaking any procurement, it is important to plan your commissioning and be clear about what is being bought and when you need it, what budget is available and the current offerings in the market in which you are going out to tender.

Be transparent

Not only is transparency required by the regulations and the treaty principles, but it is also key to getting exactly what you want.

If cost is your main driver rather than quality, design your process around that by weighting your cost criteria higher than any other criteria that you use. If quality is your main driver, design your process in a way that allows you to measure the quality being offered and apply weightings to your criteria accordingly.

Be pragmatic in your approach to part B services

When deciding whether to advertise a part B service and undertake a process to deal with the subsequent interest received, take into account the value of the contract and the market in which the subject matter of the contract sits.2 If a service is small scale and the contract is of low value, it may not be worth advertising.

Know where you stand if it all goes wrong

If the procurement rules are not followed in accordance with the regulations, consortia can be challenged by aggrieved suppliers in the courts. However, it is important to remember that a challenge can only be brought under the regulations by an aggrieved supplier. In respect of part B healthcare services, if all suppliers are offered the opportunity to provide services under AWP, the chance of a successful challenge is reduced.

Hannah Chapelhow is a specialist in healthcare and procurement law at Eversheds LLP

Procuring Services

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