Understanding Public Procurement in the Health Services Market

1
Understanding Public Procurement in the Health
Services Market

• Ruth Smith, Partner
• Bevan Brittan LLP
• 22 November 2006

1634836
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Topics

• Basic principles - which Rules apply?
• Which principles apply to procuring health
  services?
• The tendering process
• from advertisement
• to contract award
• In house awards
• New features of the EU Rules (from 31st January
  2006)

3
The basics which rules apply?

• Local rules SOs, SFIs
• National rules v.f.m/best value, probity,
  accountability for public funds
• European rules

4
EU Rules legislation

• EU level
• Treaty of Rome (EC Treaty)
• EC Public Procurement Directive 2004/18/EC
• EC Remedies Directive 89/665/EC
• UK level
• Public Contracts Regulations 2006

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Contracts to which EU Rules apply

• Works
• Supplies
• Services
• or a mix of these elements

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Services contracts

• Two types of service contracts
• Part A services EU Rules apply in full
• Part B services EU Rules only apply to a limited
  extent
• (NB Health services are Part B services)
• See list of Part A and Part B services in packs

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EU Financial Thresholds (for NHS)

• Thresholds from 31 January 2006 to 31 December
  2007
• Works 3,611,319
• Supplies 93,738
• Services 93,738 (Part A) or 144,371 (Part B)
• Thresholds exclude VAT

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Obligations if EU Rules apply in full

• Advertise in OJEU
• Follow specified procedures/timescales
• Comply with rules on selection and evaluation
• 10 calendar day standstill prior to award of
  contract

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Obligations for Part B Services

• Part B services contracts (lighter regulation)
• EU Rules only apply to technical specifications
  and filing a contract award notice with OJEU
• e.g. Health and social services (primary medical
  services, dental services, care home services)
• (NB More on technical specifications later)

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Even where EU Rules dont apply or only apply to
a limited extent

• Must comply with own SOs and SFIs and
  accountability as public body to achieve v.f.m
• Must comply with EC Treaty principles

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Overriding principles EC Treaty

• Apply to all public sector contracting including
  Part B services and sub-threshold contracts
• Equality of opportunity and treatment/non-
  discrimination
• Transparency
• Proportionality
• Mutual recognition

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Procuring Health Services

• Focus for today
• Lighter EU regime
• But remember More stringent rules will apply
  when procuring
• Part A services,
• Works, and
• Supplies contracts
• over EU thresholds

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The Procurement Process
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Key Stages in the Procurement Process

• Preparation including consultation
• Advertising
• Pre-qualification / Short-listing (if necessary)
• Tender Stage
• Tender Evaluation
• Contract Award
• Contract Monitoring

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Preparation

• Consultation NOW A KEY CONSIDERATION
• Developing your Specification
• Choosing your tendering procedure
• Procurement timetable
• Preparing your advertisement / information pack /
  procurement documents
• Who should be on your tender evaluation team?

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Consultation

• Section 11 Health and Social Care Act 2001
• Duty to consult on
• Planning of the provision of services
• Development and proposals for change to
  services and
• Decisions affecting the operation of services.

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Consultation

• Local Authority (Health and Scrutiny Committee
  Health Scrutiny Functions) Regulations 2002
• Duty to consult Overview and Scrutiny Committee
  on any substantial development or variation of
  health services in the local authority area

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Smith v N E Derbyshire PCT

• Judicial review proceedings brought by Pam Smith
• Challenge to PCT decision to appoint United
  Health Europe as preferred bidder to provide APMS
  services
• Grounds failure to consult under Section 11 of
  HSC Act 2001

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Smith v N E Derbyshire PCT

• Court of Appeal HELD
• The outcome of the tender process may well have
  been different had proper consultation under
  Section 11 been carried out.
• PCTs decision to appoint UHE as preferred bidder
  quashed due to failure to consult.

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EU Rules on Specifications

• Specify in generic technical or performance terms
  (i.e. NOT brand specific terms)
• When referring to standards
• Refer to European standard or national standard
  which implements a European standard
• If no European standard or implementing national
  standard may refer to national standards but must
  include or equivalent
• If in doubt add or equivalent

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EU Rules on Specifications

• Cannot reject a tender which
• does not comply with a technical
  specification/standard IF the tenderer can prove
  that its proposal meets the contracting
  authoritys functional requirements in an
  equivalent way OR
• meets a technical specification/standard which
  (although not specified by the contracting
  authority) addresses the contracting authoritys
  specified performance or functional requirements
  

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Choosing your tendering procedure

• Procedures available if EU Rules apply in full.
• Open
• Restricted
• Competitive dialogue (new)
• Negotiated
• More flexibility over choice of procedure and the
  process itself for Part B service contracts

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Choosing your tendering procedure

• Must first consider
• Open no shortlisting, no negotiation
• Restricted can shortlist, no negotiation

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Choosing your tendering procedure

• If cannot award using open or restricted,
  consider
• Competitive dialogue
• Can shortlist, flexible dialogue phase,
  limitations after final tenders submitted
• Must be a particularly complex project
• Negotiated
• Can shortlist, very flexible
• Only available in exceptional cases

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Preparing your tender documents

• Advertisement
• Information Pack
• Pre-qualification questionnaire
• PQQ selection criteria scoring and weighting
• Invitation to Tender
• Tender evaluation criteria scoring and
  weighting
• Contract and Specification
• Collecting relevant information (e.g. staff /
  TUPE information premises)

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The tender evaluation team

• Small / focussed group
• Knowledge of service requirements
• Financial expertise
• Representative from PBC group / consortium?
• Patient and public involvement / consultation?

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Tender evaluation team

• Be aware of potential conflicts of interest /
  bias
• PBC group both advising on and bidding for
  service
• Safeguards to ensure independent evaluation /
  level playing field

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The Procurement Process

• See flow-chart in packs

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Advertising is this required for Part B
services or sub-threshold contracts?

• Background
• Commission action against Member States for
  failure to advertise Part B service contracts,
  service concessions and low value contracts
• Emergency ambulance services, car parking
  contracts and others
• Based on principle in Telaustria case EU
  internal market opened up to competition

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Commission Interpretative Communication New
24.7.2006

• Community law applicable to contracts not or not
  fully subject to the EC Public Procurement
  Directive
• Part B service contracts
• Sub threshold contracts

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EC Interpretative Communication

• Must ensure a degree of advertising sufficient
  to enable the services market to be opened up to
  competition and the impartiality of the
  procedures to be reviewed
• UNLESS
• Economic importance of contract is such that it
  will not be of interest to organisations in other
  Member States

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EC Interpretative Communication

• For each contract, now need to ask
• Could the contract be of interest to
  organisations in other Member States?
• If yes, then the opportunity must be advertised
  in such a way that it is sufficiently accessible
  to such organisations to enable them to respond
• Not acceptable to limit the opportunity to a
  pre-determined list

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EC Interpretative Communication

• This assessment is the responsibility of the
  procuring authority
• Consider subject matter, value, specifics of
  market
• concerned (size, structure), geographical
  location and
• place of performance

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EC Interpretative Communication

• Procuring primary medical services will there
  be cross border interest?
• Likely if
• Services required across the whole of the PCT
  patch
• New contracts (e.g. following retirement of GP)

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EC Interpretative Communication

• Procuring primary medical services will there
  be cross border interest?
• Arguable that less likely for
• Extension of existing contract (e.g. addition of
  locally enhanced services for existing practice
  patients)

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EC Interpretative Communication

• If advertising is required where to advertise?
• Own web site if easily accessible e.g. portion
  of site dedicated to contract opportunities
• National or international newspapers, specialist
  journals, and journals dedicated to contract
  opportunities
• Link to a UK wide portal
• Voluntary OJEU notice
• Local advertising??

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EC Interpretative Communication

• Content of the advertisement?
• Short description
• Essential details of contract
• Contract award method
• Invitation to express an interest
• Information on method for establishing short-list

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EC Interpretative Communication

• Is there a need for a tender process?
• No absolute obligation to have a formal
  invitation to tender
• BUT
• Ensure impartiality of procedure
• Non discrimination
• Equal access
• Mutual recognition
• Appropriate time limits
• Transparent/objective approach

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EC Interpretative Communication

• At contract award stage need to ensure
• Non discrimination/equal treatment
• Particularly important if negotiation involved.

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Short-listing / Pre-qualification

• Use of pre-qualification questionnaire
• Not essential but responses easier to assess
• How many should you short-list?

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Shortlisting/Pre-qualification

• What to assess at short-listing stage?
• Economic and financial standing
• Technical capability and experience
• Backward looking

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Deciding on your short-listing criteria

• Any minimum requirements or thresholds?
• NB Tenderers should be made aware of these
  (e.g. minimum turnover requirements)
• Care that not discriminatory (e.g. against
  providers in other Member States)
• Capability link to subject matter of contract

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Disclosure of short-listing criteria

• EBS case (based on EC Treaty principle of
  transparency)
• Where scoring and weighting of short-listing
  criteria have been determined in advance MUST
  disclose these

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Evaluating PQQs

• Compliance check has all information requested
  been supplied?
• Grounds for exclusion mandatory (new) and
  discretionary (taken from EU Rules)
• Application of agreed pre-qualification criteria
  scoring / weighting

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Interviews at short-listing stage

• Can have interviews to assist with short-listing
  BUT should only consider short-listing /
  pre-qualification issues (i.e. financial standing
  and technical capability)
• Feed outcome of interviews into overall PQQ
  evaluation

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Invitation to Tender Stage

• Seeks proposals from short-listed tenderers
• Important to provide all information tenderers
  will need to provide a comprehensive, fully
  priced, response
• Conditions of tender
• Contract
• Specification
• Staffing/TUPE details
• Premises details etc.
• Evaluation criteria and weighting

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Tender Evaluation Stage Award criteria

• Lowest price
• Most economically advantageous
• Where EU Rules apply in full
• Must state weighting applicable to each criterion
  in OJEU notice or tender documents
• May give weightings a range and specify max and
  min weighting
• If not possible to give weighting must state
  criteria in descending order of importance
• Good practice to follow these principles for Part
  B service contracts too.

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Deciding on your tender evaluation criteria

• Financial
• Technical response to the specification /
  quality
• Legal response to conditions of contract
• HR e.g. approach to TUPE (if applicable)
• Others?

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Testing your evaluation criteria

• Does it give the right result?
• What is important?
• How important is price do you have an
  affordability limit?
• Beware of false economies

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Developing an evaluation matrix
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Beware of discriminatory criteria

• Geographical location of tenderer
• Use of employees from local labour market
• Specifying use of particular brands

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Evaluation of tenders

• Hard copy tenders
• Initial assessment against criteria
• Site visits/inspections
• Adjust initial assessment (if necessary)
• Bidder interviews
• Further adjustment (if necessary)
• Final outcome most economically advantageous

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Contract finalisation

• Clarify any outstanding issues with selected
  Tenderer (aim to keep these to a minimum)

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Contract Award and Debriefing
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Alcatel Standstill (NB Currently does not apply
to Part B service contracts)

• 10 calendar day standstill between contract award
  decision and contract conclusion
• From date of notification in writing of award
  decision to all tenderers (day 0)
• Notification by most rapid means available (fax,
  email)

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Alcatel Standstill

• Notification to include
• Award criteria
• Winning tenderers score
• Unsuccessful tenderers score
• Name of winning tenderer

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Alcatel standstill

• Additional debriefing if requested within 2
  working days of start of standstill must
  provide debriefing no less than 3 working days
  before end of standstill period
• May need to extend standstill period
• Request made later than 2 working days after
  start of standstill must provide within15 days
  no extension to standstill period

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Failure to follow standstill

• Proposals in draft Remedies directive
• Contracts awarded in breach of standstill
  requirements may be declared void

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Where Alcatel does not apply

• Still good practice to provide unsuccessful
  bidders with debriefing information
• For Part B services Remember to file contract
  award notice with OJEU once contract awarded

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Other ways that tenderers can obtain information
about the tender process

• Existing rules on right to request debriefing
  information still apply i.e. to provide this
  within 15 days of a written request (where EU
  Rules apply in full)
• Requests for information under the FOIA
  (irrespective of whether EU Rules apply)

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Contract Monitoring

• Dont forget it!
• Ensure your selected Provider performs
• Take steps to ensure failures are remedied

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Award of contracts in house
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In house contracts

• No obligation to comply with EU Rules if an in
  house award is made

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In house contracts

• A contract will not be regarded as in house if
  made between a contracting authority and another
  person or organisation which is legally distinct
• How should NHS contracts be treated (i.e.
  between two legally distinct NHS bodies)? Do
  they satisfy the in house test? What about
  legally enforceable contracts with FTs?

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In house contracts

• The in house rule may still apply to a contract
  between two legally distinct entities IF

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In house contracts

• The contracting authority exercises similar
  control over the party to whom it awards the
  contract as the control it exercises over its own
  departments AND
• The party awarded the contract carries out the
  essential part of its activities with the
  contracting authority
• This test will not be satisfied if there is any
  private sector shareholding in the party awarded
  the contract

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New Features of the EU Rules
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Central purchasing bodies

• Codifies common practice in some EU member states
  (including UK)
• Defined as a contracting authority which
  acquires goods or services, or awards contracts,
  or concludes framework agreements intended for
  one or more contracting authority

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Central purchasing bodies

• Other contracting authorities may purchase goods
  or services from, or works, goods or services
  through a Central Purchasing Body (CPB)
• Deemed to have complied with the
  Directive/Regulations if the CPB has complied

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Central purchasing bodies

• Note requirement for CPB to be a contracting
  authority in its own right
• Directive/Regulations do not expressly require
  that CPB
• states if acting in this capacity in OJEU notice
  (although the new OJEU notice includes a box for
  this) or
• specifies the contracting authorities on whose
  behalf it is purchasing
• BUT general principle of transparency suggests
  that both these points should be observed

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Framework Agreements

• Codifies/limits existing practice in some member
  states (including the UK)
• European Commissions Explanatory Note on
  frameworks published January 2006

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Framework Agreements

• Not a binding contract but an agreement which
  sets out the terms upon which contracts will be
  awarded
• Two types which can be set up by one or more
  contracting authorities
• Single supplier framework
• Multi supplier framework

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Framework Agreements

• Duration of framework agreement should not exceed
  4 years (other than in exceptional circumstances
  duly justified)
• At least 3 suppliers on a multi-supplier framework

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Framework Agreements

• Procedure for award of contracts under the
  framework
• Single supplier framework
• within limits and terms in the framework
  agreement
• Multi supplier framework
• within limits and terms in the framework
  agreement
• or
• by a mini-competition

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Reserved contracts

• Right to participate in an award procedure can be
  reserved to sheltered workshops or sheltered
  employment programmes
• i.e. where at least 50 of workforce are disabled
  and unable to take up work in open labour market
• Procedure must still be conducted in accordance
  with the requirements of the Directive/Regulations
  
• Must state the contract is reserved in the OJEU
  notice

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Shortened Time-Limits

• Electronic submission of OJEU notice - timescales
  for expression of interest can be reduced by 7
  days
• and
• If tenderers have full and direct access, by
  electronic means, to contract documents from date
  of publication of OJ notice timescale for
  return of tenders can be reduced by 5 days

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Contact Details

• Ruth Smith, Partner
• Email ruth.smith_at_bevanbrittan.com
• Tel [phone]
• Mobile [phone]
• Fax [phone]

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