Procurement Bill – Problems with exempted contracts

Schedule 2 of the Procurement Bill contains a list of exemptions to the procurement rules that are very similar to those found in Regulations 7 to 17 of the Public Contracts Regulations 2015 (PCR 2015).

So far so good. BUT there is a sting in the tail.

Paragraph 1(2) of Schedule 2 stops all of these contracts from being exempted contracts where, ‘the goods, services or works representing the main purpose of the contract could be supplied under a separate contract’ (where that contract would not be an exempted contract).

Applying this restriction would mean that the only goods, services and works that can be obtained through an exempt contract are those that cannot be obtained in any other way. This would mean restricting the goods, services and works that can be obtained through vertical and horizontal arrangements in paragraphs 2 and 3 (the ‘Teckal’ group structure exemption and the ‘Hamburg’ exemption for public sector co-operation), to those that only the subsidiary or public sector collaboration arrangements can deliver.

We do not believe that this is what is intended. Otherwise, it would represent a significant narrowing of the flexibility that is currently given by regulation 12 of the PCR 2015. Under that regulation, there is no restriction on the types of goods, services or works that can be obtained from a regulation 12 (Teckal) subsidiary or delivered co-operatively between contracting authorities. It is the nature of the relationship alone that leads to the exemption.

Similar concerns apply to the exemption for land transactions under paragraph 4. It is not clear how this exemption interacts with the definition of a ‘works contract’ in Schedule 1. The wording could be interpreted to prevent a contracting authority from relying on the exemption to buy properties at a specific site if there is a reasonable alternative site that the contracting authority could acquire and then advertise for a construction contract to construct properties on it. This wording could therefore force contracting authorities down a particular procurement route, rather than creating the additional flexibility that the Government has promised under the new procurement rules.

Similarly, with employment contracts under paragraphs 14 and 15, instead of employing a person to provide services, a contracting authority could pay a contractor to provide those services (with the contractor employing that person). The fact that the services could be procured under a contract that is not an exempted employment contract should not prevent the authority from relying on the exemption to employ an individual to provide the services and instead having to contract for them. We would be surprised if these consequences were intended. We are therefore urging the Cabinet Office to consider the removal of paragraph 1(2) from Schedule 2 of the Procurement Bill as a general provision applying to all exempted contracts. This would avoid the presumably unintended consequences highlighted. If it is then to be applied to specific types of exempted contracts, this should be done within the paragraphs to which it is to apply.

For more information

If you would like to find out more about the problems with exempted contracts in the Procurement Bill, please contact Andrew Millross.

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