Procurement Law and Principles (Public Services)
Page explaining the terminology, principles, law and policy the shape procurement by public bodies in England. (Local and national Compacts also provide frameworks for best practice in procurement between the statutory sector and the voluntary and community sector.)
What Influences Public Sector Procurement
Procurement is governed by legislation, policy and principles at EU and UK level, and by internal regulations within statutory commissioning bodies themselves. The process of procurement makes a lot more sense when you realise a) its about making transparent and effective decisions, and b) it's based on a set of agreed principles to ensure fairness for everyone involved. Procurement law hasn't been developed to ensure the best result - but to ensure a fair process.
The Office for Government Commerce say that good procurement matters because:
- The sheer scale of the purchasing public bodies undertake - over £150 billion spent on goods and services every year
- Public bodies are responsible to their funders and communities - the citizens of England - and have to spend the money they get as wisely as possible
- Treasury rules dictate that procurement must be made to secure Value for Money in the purchasing of services
It's also always timely to remind ourselves that procurement by competitive tendering for contracts isn't the only way public authorities can secure the services of VCOs - grant-funding of services is still vitally important to develop innovation.
This page explains
The Legal Framework
- Who has to follow the Framework?
- TUPE (opens a new page)
- The Public Services (Social Value) Act 2012 is explained on Commissioning Outcomes and Social Value (opens a new page)
Procurement in Practice
- Ensuring Good Procurement: regulatory bodies
- Government Evaluation of Local Authority Practice
- NCVO Members Comment 2012
Making a Challenge
- Challenging a Procurement Decision (information) (opens a new page)
- Compact Advocacy Programme (practical support) (opens a new page)
- Contracts Training from NCVO (opens a new page)
- Recommended Reading
The Legal Framework
The EU and UK rules apply to those organisations that on our NCVO pages we're calling 'statutory commissioning authorities'. These are those public bodies who are typically likely to grant or contract fund VCOs. People use other terms for these organisations, but whatever term you use, it is the following organisations that public services procurement law applies to:
- regional and local authorities;
- associations formed by one or more local or regional authorities;
- the State, which under EU procurement directives includes ‘the administration of the State. However, where an organisation without legal personality does not form part of the State's administration in the traditional sense but carries out functions which would normally fall within the competence of the State, it is also to be considered as part of the State for the purposes of the Directive.
'According to the Court's interpretation [...] "the state" must be interpreted from a functional point of view so as to include a body which, although not formally part of the State administration, is a vehicle which depends on, and through which, the state acts.' (From 'Guide to the community rules on Public Procurement of Services' (656KB), European Commission.)
- Bodies governed by public law, meaning any body
- established for the specific purpose of meeting needs in the general interest;
- not having an industrial or commercial character, and having legal personality;
financed, for the most part, by the State, or regional or local authorities, or other bodies governed by public law; or subject to management supervision by those bodies; or having an administrative, managerial or supervisory. (From 'Guide to the community rules on Public Procurement of Services' (656KB), European Commission.)
It is often said that EU procurement regulations are a barrier to sensible and proportionate procurement of VCOs. This is not true. EU procurement regulations do not apply to the overwhelming majority of service areas (eg welfare services) that VCOs are likely to be contracted under. (See below.)
Instead, it is the principles of the EU treaty that apply to all acts of procurement by statutory commissioning bodies.
These four principles all act to make procurement fair and effective:
- Equal treatment: that all processes of commissioning and procurement are fair, and don't exclude potential providers. Breach of this would be if you are discriminated against based on location, nationality or any other bias.
- Transparency: a duty to ensure all commissioning and procurement processes are transparent, so that all potential bidders can easily see and understand the procurement process and the purpose and broad activity of the subsequent contract. As a part of this, public bodies must make available the criteria on which they will be evaluating bids/tenders - so that potential suppliers can respond accordingly. For example, a breach of this would arise if an Invitation to Tender had not been advertised where likely suppliers would look.
- Proportionality: a duty to ensure procurement process, evaluative criteria for bids and contract terms are all proportionality to the size and technicality of the service and goods being purchased. For example, they cannot ask for financial standing well above the necessary level required to deliver the contract, or insist on qualifications and accreditations not necessary, or above national standards
- Free movement and non discrimination: a duty not to discriminate between suppliers of member states. As a result of this, contracts cannot be awarded on the basis of a potential supplier being 'local'.
EU law applies to contracts over a certain financial value. These it divides into two types of service - Part A and Part B - depending on the type of service being purchased.
Below we explain the implication of this distinction, as well as the legal implications for contracts not covered by EU Law.
Part B services
Part B services are those of the type most supplied by VCOs, including:
- legal services
- health and social care services
- recreational and cultural services
- 'other' services eg those that do not fit in Part A services (see below)
EU regulations only apply to Part B services however if they are over an agreed financial threshold. This is currently £101,323 for central government purchasing, and £156,442 for other statutory commissioning bodies. This threshold is reviewed every two years.
What regulations do apply to Part B services?
The regulations that do apply to Part B services over threshold are limited, and include:
- "A contracting authority shall … (a) treat economic operators equally and in a non-discriminatory way; and (b) act in a transparent way." This means that the basic principles that underpin EU procurement law of equality of treatment, transparency and non discrimination apply to Part B services just as they apply to all other types of procurements;
- Technical specifications are sufficiently generic so as not to discriminate against suppliers in other countries or SMEs and do not put in place unjustified barriers to competition;
- Notice of contract award must be placed in the OJEU (NB initial advertisement of the contract doesn't have to be on the OJEU);
- Reports on publication of notices, confidentiality, means of communication and subcontracting must be supplied to the Office of Government Commerce;
- Challenge and enforcement through the courts is the same as for Part A services.
Even when regulations don't apply though, many statutory commissioning bodies consider it best practice to use some of the procurement procedures laid out in the EU regulations, including:
- Following one of the four procurement procedures explained on this page;
- Implement the Alacatel standstill period after a contract has been awarded, so unsuccessful providers can submit challenges;
- Contracts are to be put out to open tender (open to all interested parties) or restricted tender (open only to selected candidates), at the choice of the authority placing the contract. Authorities may have recourse to negotiated tendering only in specified exceptional circumstances;
- Interested parties may only be excluded from participating (in restricted or negotiated tenders) or from final selection (in open, restricted or negotiated tenders) on certain specified qualitative criteria;
- Contracts may be awarded only on economic or technical criteria, namely either the lowest price or the economically most advantageous tender overall.
If you want the authoritative explanation of EU Procurement Law and the VCS, please see our NCVO/NAVCA 'Pathways through the Maze: A Guide to Procurement Law'.
Part A services
NB - the overwhelming majority of VCO services are not Part A so this doesn't apply.
Services deemed to be 'Part A' are subject to the full process and regulation of EU procurement law. Part A services are those that are:
- asset based (like construction; highways)
- maintenance (like refuge; vehicle repairs)
- technical (like computers; management consultancy; publishing and printing)
If the contracts for these services are above a certain financial threshold, then these Part A services are subject to the full process and regulation of EU procurement law.
[Note that throughout 2012 proposed changes to the EU procurement regulations are being discussed. NCVO is leading this work for the voluntary sector in England. For details of our campaign contact firstname.lastname@example.org.
The public sector is not a homogenous body, but a series of sub-sectors, authorised to deliver specific duties on behalf of the population. The way in which they achieve this is bound by responsibilities of equality, transparency, and achieving best value for money on behalf of their funders - the taxpayer.
UK principles support the EU principles (outline above). UK law expects public bodies to behave properly in how they conduct their business and to consider the impact of their actions on equality of opportunities. Therefore, they follow core values in their relationships with others and the way they allocate their resources (spend) through the procurement process. These principles are designed to enable:
- a fair and effective market of competition for providers, driven on quality, not cost;
- governance and accountability to the taxpayer;
- management or risk for service users; and assurance that their needs will be met
The key principles public sector procurement must follow are:
All the actions of a public sector body should be about achieving good value for money for the public purse. We believe that this is by providers competing on the full 'social value' of a service, rather than who can deliver activities at the lowest price. HM Treasury has long published (2004) rules which demand public procurement achieves 'Value for Money' and sets out ways in which this can be achieved. It recommends achieving Value for Money through:
- reducing the bureaucratic overheads of the procurement process - by keeping it streamlined and prompt
- ensuring services and goods are both of good quality, and purchased at good prices
- improving project and contract management
- a three-fold challenge to: utilise competition; manage risk; use 'innovative ways of procurement'
- drawing on electronic procurement tools and best practice
- using a range of tools to promote and ensure financial efficiency gains
Further detail on value for money is published by the Office for Government Commerce. They stipulate that 'value for money should be the primary driver for public procurement'. The OGC advises that public bodies achieve Value for Money when:
- taking into accounts the costs of the whole length of the contract (including decommissioning); and to account for wider societal and environmental costs of the contract, not just the costs directly relating to the purchaser
- assessment of bids must be based on published and available criteria, and must be relevant to the value a purpose of the contract
- that 'strong competition will generally deliver a Value for Money outcomes', and that where there is lack of market competition to deliver certain services, the contracting body should consider market development activities
The National Audit Office evaluation 'value for money based on the following three criteria:
- Economy: minimising the cost of resources used or required (inputs) – spending less;
- Efficiency: the relationship between the output from goods or services and the resources to produce them –spending well; and
- Effectiveness: the relationship between the intended and actual results of public spending (outcomes) –spending wisely.
And occasionally a fourth criteria:
- Equity: the extent to which services are available to and reach all people that they are intended to –spending fairly.
This applies specifically to local authorities and was set out in the Local Government Act 1999. It has been amended a number of time over the years, with the latest statutory guidance released in September 2011.
According to the Local Government Improvement and Development Unit,
"Best Value provides a framework for the planning, delivery and continuous improvement of local authority services. The overriding purpose is to establish a culture of good management in local government for the delivery of efficient, effective and economic services that meet the users’ needs.
"Under best value, each local authority has a duty to "make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness". This improvement involves consideration of costs, making the most of money spent, and making sure that services meet the needs of communities and authorities' priorities."
Explaining Best Value are:
- Best Value Guidance and how to use it (PDF 396KB) by NCVO, NAVCA, Locality, and Volunteering England
- Legal status of Best Value guidance by Melanie Carter, a partner at Bates Wells Braithwaite
- Read the good practice guidance (PDF, 168 KB) from October 2011 by NCVO
Or see NCVO's full page on working with local government.
We all know the public sector is under pressure to be more efficient. Inevitably they are looking to their procurement to make efficiency savings by:
- Making the actual process of procurement more efficient, for example, by writing fewer and larger contracts. This will squeeze out many VCS from the market because we are too small to compete. A second and better way, is for the public sector to purchase services collaboratively, so they share responsibility and costs for the delivery of effective services.
- Procuring more efficient services, by decommissioning less efficient services, and seeking to procure more efficient ones.
Fair treatment of all providers in a single market
Public bodies have a responsibility to make sure all providers have fair access to compete through the procurement process. It the process is not seen to be transparant and accessible, they can be challenged on it. The market should be open to call to bid and win business. All bidders should be treated the same and given the same information. It is wrong to directly or indirectly give one bidder or potential bidder an advantage.
Probity and transparancy of decision making
It should be clear what process the statutory commissioning authority has followed, and how it has reached decisions about procurement.
Management of Risk
PSOs have a duty to make sure they procure sustainable services. The 2011 crisis at Southern Cross is an example of a provider whose position is putting at risk 30,000 vulnerable adults places in their care. It is the responsibility of public bodes to make sure public money isn't spent - and service users aren't placed - in risky situations such as this.
A continual complaint by VCOs is the lack of proportionality in public sector procurement (and grants). The process and the criteria used to award contracts should be relevant and proportional to the size and value of the contract. VCOs often complain that procurement processes use up huge resources without justification.
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The above principles, alongside the EU procurement Directives have been translated into UK law in the
Because of the EU legislation to create an EU-wide single market for competition, EU law stipulates that no tenders by public bodies are allowed to stipulate they want local providers by stipulating nationality of provision. These objections to local purchasing were set out in the Treaty of Rome, in 1957, the first Treaty setting out founding principles for the EU single market.
This applies to all public sector contracts, whether or not they are subject to full EU procurement process.
The New Remedies Directive came into effect in 2008. It provides organisations with an opportunity to challenge the procurement process if they believe it has breached law and principles and the statutory bodies' own stated regulations.
The Directive means that:
- the contracting body is required to inform all organisations who have tendered when an award decision has been made the tenderer (competing organisation) as soon as the tender has been eliminated from the procurement process, what criteria the decision was based on, what organisation one, and their score against this criteria;
- unsuccessful bidders then have a specified window of time to challenge the process. This is commonly known as the 'Alcatel period'. We advise you to make your challenge as soon as possible;
- the procurement process has to be halted when there is a legal challenge, until the legal challenge has been resolved;
- public sector contracts may be considered 'ineffective' (and therefore void) if it can be demonstrated that a breech of the rules has occurred by either party.
- organisations making a challenge can sue for damages - but bear in mind damages relate to loss of profit, and for voluntary and community organisations, it is unlikely much 'profit' would have been achieved anyhow. Before you challenge, work out if you're doing it to receive financial damages, or to ensure proper process is upheld, or to win the opportunity to have the process re-started to have a second chance of bidding. Consider these issues before deciding whether to challenge.
The important thing to note is that all these rules apply even after the procurement process has ended and the contract is actually being delivered if the challenge has been made within the stated period.
A third layer of procurement rules exist: that stipulated by the public body itself. These rules will be published so it is clear to all potential and incumbent providers exactly how processes will be run eg how long the standstill period will be after a contract is awarded.
These will be published in their financial regulations. Here is an example - Nottingham City Council. To find the regulations of a particular organisation, contact them directly, or search their website. As well, organisations who have signed the local or national Compact will have regulations that reflect this agreement.
Some of the internal regulations they'll need to follow will be:
- Audit requirements. External and internal auditors will want to ensure that any contracts have been let in such a way that maximises value for money.
- Internal standing orders and financial regulations.
The financial regulations will also state:
- Commitment to payment schedules;
- What procurement methods will be used;
- Any financial thresholds that will determine the method of their procurement;
- Evaluation criteria and process; award and acceptance process;
- Comment on use of performance bonds, insurance, and other key clauses which will be set in contracts.
Who Manages this?
The financial regulations and procurement process will be run be specialist teams within the Council, either as part of a wider commissioning process, or as an individual exercise (eg for goods like stationary).
These procurement units (or 'teams') tend by their nature of having to uphold regulations and transparency tend to be very risk adverse - and therefore to try and implement all the regulations there are rather than just the ones which are relevant. This can be a real challenge for the VCS who find responding to lengthy and complex procurement processes a real drain on resources.
To know how a PSO runs its procurement, you need to ask them individually, and it will likely vary a lot between different contracts and different teams and organisations.
Procurement is subject to a number of regulators who ensure good practice. In some cases, these regulators can take action - or support action - where best practice and legal frameworks have been breached.
As well as these regulators, centrally-driven milestones have encouraged improved procurement practice. The 2005 Government report, 'Evaluation of the Local Government Procurement Agenda' explains the priorities and progress of procurement practice.
It's useful to be aware of the following:
Locally and nationally, the Compact (288KB) commits public bodies and the voluntary sector to better relationships. As part of this, they recommend good procurement practice. All national government bodies have signed the Compact (at national level, Compact Voice are the signatories on behalf of the voluntary sector). And every local authority (but four!) in the UK have signed a local Compact along with the public sector partners and local voluntary sector. You should use the relevant (national or local) Compact then to understand what is considered best practice procurement which you can expect.
Find details of local and national Compact on the Compact Voice website.
National Audit Office
The National Audit Office (NAO) audits the majority of public bodies on behalf of government. The NAO audits about 550 public body accounts every year, and publishes about 60 reports into Value for Money within public sector procurement. They commission and publish a range of reports and best practice guidance.
Public Accounts Committee
Made up of MPs and usually chaired by a member of the opposition party (often an ex-Treasury Minister) the 16 members of the committee are drawn from all parties and sit for the duration of a Parliament. Their role is to publically review cases and practice brought to them by the Treasury or other sources.
They call witnesses and review evidence of government spending on the basis of probity and Value for Money. You can see their current and upcoming activity on the Public Accounts Committee webpage.
The 2005 Government report, 'Evaluation of the Local Government Procurement Agenda' revealed the following:
- Most councils (98%) responding to the survey have a procurement strategy either in preparation, or in partial or full effect. These strategies are likely to include e-government and sustainability policies with examples and targets for achievement, other policy areas are referred to in more general terms.
- Most of these strategies are ‘owned’ by political and managerial leaders and, to a large extent, have been put into effect in the authority.
- All local authorities responding to the survey have a procurement champion. In most cases there is a member procurement champion on the executive/cabinet (56%) and an officer procurement champion on the corporate management team (79%).
- Over three-quarters of respondents thought their authorities were ‘fairly’ (47%) or ‘strongly’ (39%) committed to supporting good procurement practice. Evidence of such commitment is the presence of a corporate procurement unit – 67% of responding authorities (but only 36% of Districts) reported having a corporate unit. The survey suggests a positive relationship between the presence of a corporate procurement unit and evidence of other good procurement practice.
- The main obstacles to effective procurement are:
– lack of staff ability (the most frequently cited obstacle across all authority types, and authorities with or without a corporate procurement unit);
– limited consideration of service delivery options;
– lack of investment in modern procurement systems.
- More than a third of authorities provide procurement training for both corporate and departmental staff. The most commonly cited areas for training were the EU regulations, general training in procurement, and the use of electronic procurement systems. More
formal procurement training (recognised through accreditation) remains rare for both corporate and departmental procurement staff. Just 50% of authorities have any staff with the most commonly held qualification – the CIPS graduate diploma.
- Nearly two thirds of authorities provide a procurement toolkit or manual for staff.
- Guidance on best value and procurement has stressed the importance of an unbiased ‘make or buy’ decision and a ‘mixed economy’ of service providers. Over three quarters of authorities include reference to the ‘mixed economy’ of supply in their procurement strategies.
The report showed the following level of progress by local authorities:
In 2012 NCVO informally surveyed Members on their current experience of local authority procurement. We received 100 responses, all of which have been edited down into this summary document which was submitted to the Department for Communities and Local Government.
Pathways Through the Maze 2nd Edition – the acclaimed - and only - guide on EU procurement regulations and the voluntary sector. Written by Anthony Collins Solicitors, and published by NCVO and NAVCA. Available to download.
Before Signing On The Dotted Line: all you need to know about procuring public sector contracts. A guide to enable small and medium sized organisations to navigate the complex rules, procedures and practices that constitute the public sector procurement process.
Introductory Pack on Funding and Finance: Guide to Procurement and Contracting (PDF 715kb) written by the NCVO finance hub, 2006.
See also the Public Service Delivery Network case studies for further examples.
From other organisations
The Gershon review of public sector efficiency (July 2004) placed an emphasis on collaborative purchasing; one result of which is that contracts are becoming larger.
Evaluation of the Local Government Procurement Agenda (August 2005) Report based on four year evaluation of Local Authority procurement, and policy impact on procurement. Useful to understand levels of quality and processes in procurement.
Financial relationships with the third sector (summary) (PDF 140kb) - published by the Treasury, this decision support tool provides government officials with practical support for real-life' decisions about the design of appropriate funding models. Download the full document (74 pages, PDF 680Kb)
Improving financial relationships with the third sector: Guidance to funders and purchasers by HM Treasury, May 2006.
Introduction to public procurement (PDF 1Mb) - published by the Office for Government Commerce - this guidance intended for public officials sets out the key concepts and principles of good procurement.
Think Smart, Think Voluntary Sector: good practice guidance on procurement of services from the voluntary and community sector June 2004, published by the Office for Government Commerce.
*Please note this costs £95 The CJC Guide to Buying from the Third Sector (2006). CIPFA produced guidance on relationships, contract and procurement legalities and directives and market management and commissioning practice. (Please note that some of legislative references will no longer be valid).
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