Removing red tape or creating new red tape?

It is a great concern of successive governments that small and medium-sized businesses are the engine of the UK economy but not enough grow to the next level. And so it was that Lord Young was appointed as Adviser to the Prime Minister on Enterprise, on 1st November 2011, with a view to ensuring that the economic contribution that small and medium-sized businesses make and the issues they face are recognised at the very heart of government.

For his first task, the Prime Minister asked Lord Young to write a “brutally honest” report examining how government departments interact with and affect small businesses. In May 2012 Lord Young published the report Make business your business: supporting the start-up and development of small business. It reports on the enterprise environment in the UK and the range of support available to individuals starting or developing a business. It gives examples of new approaches to entrepreneurship, where technological developments like social media have brought about new opportunities. It covers the rise of social entrepreneurship, ethical and environmentally friendly consumerism, and private sector help to small firms.

In May 2013, Lord Young published a second report titled Growing Your Business in which he looked at, amongst other things, public Sector procurement with regards to SMEs.

There was a consultation on making public sector procurement more accessible to SMEs at the end of 2013 and responses were received from 155 organisations representing a broad range of suppliers, industry bodies and procuring authorities and an analysis was published.

In the analysis the Government accepts Lord Young’s recommendations that the government develop a set of “single market” principles to be applied by all public bodies in their procurement.

It announced the next steps on key reforms in Small Business: GREAT Ambition published on 7^th December 2013. In summary, legislation will be introduced to:

• cut down on process by abolishing Pre-Qualification Questionnaires (PQQs) for low-value contracts;
• mandate the use of a standard core PQQ for high-value contracts and ensure that small business needs are taken into account in the design of procurement processes;
• make contract opportunities easier to find by making them all accessible on a single online portal; and
• make sure small firms get treated fairly by mandating prompt payment terms all the way down a public procurement supply chain.

Rather controversially the Government has seen fit to implement these reforms through the Public Contracts Regulations 2015, which have been prepared principally to transpose into UK law the latest EU Directive to coordinate public procurement in the UK. The consultation period on the draft regulations closed on 17th October 2014.

Fundamentally, we are not sure these reforms can be introduced through the proposed 2015 Regulations. We have concerns as to whether regulations made under section 2(2) of the European Communities Act 1972 can include matters that are nothing to do with the implementation of the Directive. There is therefore a question as to whether these particular Regulations are ultra vires.

The preamble to these Regulations reads:

“The Minister for the Cabinet Office is designated (a) for the purposes of section 2(2) of the European Communities Act 1972 (b) in relation to public procurement.

The Minister for the Cabinet Office makes these Regulations in exercise of the powers conferred by section 2(2) of, as read with paragraph 1A(c) of Schedule 2 to, that Act.

These Regulations make provision for a purpose mentioned in section 2(2) of that Act, and it appears to the Minister for the Cabinet Office that it is expedient for certain references to provisions of EU instruments to be construed as references to those provisions as amended from time to time.”

However, we do not see how this legislation cited can be the basis for Part 4 (Below-threshold procurements) and Part 5 (Miscellaneous obligations) of the 2015 Regulations being enacted. Consequently there is a risk that an unlawful reliance on the European Communities Act 1972 for these Parts puts into question the legal validity of the whole of the Regulations.

Section 2(2) of the European Communities Act 1972 provides:

“Subject to Schedule 2 to this Act, at any time after its passing Her Majesty may by Order in Council, and any designated Minister or department may [by order, rules, regulations or scheme], make provision— .

(a) for the purpose of implementing any [EU obligation] of the United Kingdom, or enabling any such obligation to be implemented, or of enabling any rights enjoyed or to be enjoyed by the United Kingdom under or by virtue of the Treaties to be exercised; or

(b) for the purpose of dealing with matters arising out of or related to any such obligation or rights or the coming into force, or the operation from time to time, of subsection (1) above;

and in the exercise of any statutory power or duty, including any power to give directions or to legislate by means of orders, rules, regulations or other subordinate instrument, the person entrusted with the power or duty may have regard to the [objects of the EU] and to any such obligation or rights as aforesaid.

In this subsection “designated Minister or department” means such Minister of the Crown or government department as may from time to time be designated by Order in Council in relation to any matter or for any purpose, but subject to such restrictions or conditions (if any) as may be specified by the Order in Council.”

We are concerned that Parts 4 and 5 contain provisions that are not under (b) “arising out of or related to” (under (a)) “any such obligation to be implemented”. We would therefore suggest that, as they deal with additional issues that are not part of the Directive, they should be enacted through separate primary legislation.

In addition we do not believe that the Young reforms will have the desired impact because:

• these provisions are unlikely to have any practical positive effect on the accessibility of public procurement to SMEs, since they fail to address the main barriers to entry of contracts being packaged in increasingly large bundles and the increased use of buying clubs;
• the abolition of just the “prequalification” provisions in PQQs is irrelevant, since the purpose of a PQQ is also to reduce the potential tender list; and
• the strict time limits on procurement challenges means that a SME faced with poor procurement practice and clear breaches of the regulations is not practically in a position to do anything about it. SMEs simply cannot afford to bring challenges in the middle of a procurement process, and by the time they have found out that they have lost the challenge period will have expired.

We are also concerned that the practical implications of these proposals have not been properly thought through. The proposals also demonstrate a fundamental misunderstanding of how the prequalification and selection processes operate in practice.

For more details of what we wrote about these reforms in our response to the consultation on the draft Regulations, do get in touch with Mark Cook, Andrew Millross and Gayle Monk.

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