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Introduction to procurement and competition

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In recent years, procurement and competition have become increasingly relevant to the commissioning of clinical services by the NHS. These areas remain important now that clinical commissioning has been implemented, with new rules applying from 1 April 2013. It is essential for commissioners to be aware of the rules and their application.

What is procurement?

Public procurement law regulates how public bodies buy services, goods and works. Generally, this is achieved through requirements to advertise and competitively tender certain contracts.

As CCGs are statutory public bodies, they need to comply with public procurement law.

The rules: commissioning clinical services

Health and social services are within a category known as Part B services. This is significant because the full procurement rules only apply to Part A services. For Part B services, fewer rules apply and there is no blanket obligation to run a tender process for all Part B services.

However, some important principles of public procurement do apply to Part B services. These include requirements to act transparently and to treat providers equally and in a non-discriminatory way. This means that it will often be appropriate, and beneficial, to run a tender process.

In addition, new rules specific to NHS funded clinical services now apply.  These are contained in the National Health Service (Procurement, Patient Choice and Competition)(No.2) Regulations 2013. Broadly, these regulations require commissioners:

  • to adhere to good practice in procuring clinical services
  • to protect the right of patient choice
  • not to engage in anti-competitive behaviour unless it is in the interests of patients

In relation to procurement specifically, the regulations include requirements to meet patient needs, improve quality and efficiency, act transparently and proportionately, treat providers equally and in a non-discriminatory way and procure services from those providers best placed to provide the services and who provide best value for money.

The new rules replace the Department of Health's Principles and Rules for Co-operation and Competition and the Procurement Guide for commissioners.  Those who were familiar with those documents will see that many of the same themes are covered by the new rules. Monitor is currently developing guidance on the application and enforcement of the new rules.

The risks of failing to comply with procurement law

Failure to comply with procurement law can lead to a legal challenge, usually in the High Court.

Failure to comply with the procurement requirements in the new regulations can be challenged by way of complaint to the Co-operation and Competition Directorate of Monitor (formerly the Co-operation and Competition Panel). Monitor has the power to investigate and enforce breaches. Possible enforcement action against commissioners includes declaring an arrangement ineffective, accepting undertakings from commissioners and directing a commissioner to put in place measures to prevent or remedy breaches and/or mitigate their effects.

Note that a complaint to Monitor cannot be made if action has also been taken in the courts for a breach of procurement law.

The benefits of procurement

An appropriate procurement process can produce considerable cost savings and quality improvements. In the current economic climate, CCGs face pressure to make considerable savings and efficiencies. Strategic procurement is a useful tool in achieving this. It can also open up the market to a wider range of providers. This in turn helps to drive up service quality and innovation.

What competition rules apply to commissioners?

The competition rules are set out in the National Health Service (Procurement, Patient Choice and Competition)(No.2) Regulations 2013. There are two key elements: 

  • commissioners must not engage in anti-competitive behaviour unless it is in the interests of patients 
  • commissioners must ensure that arrangements for clinical services do not contain any anti-competitive terms, unless they are necessary to achieve intended outcomes which benefit patients, or to meet the objective of securing patient needs, improving quality and improving efficiency

Anti-competitive refers to preventing, restricting or distorting competition. As noted above, Monitor is drafting guidance on the application and enforcement of the new rules.

Please be aware that although it was originally proposed that commissioners would have an obligation to promote competition, this requirement has not been included in the new rules. 

The risks of failing to comply with competition requirements

A complaint can be made to the Co-operation and Competition Directorate of Monitor (formerly the Co-operation and Competition Panel). Monitor is responsible for investigating and enforcing any breaches. Possible enforcement action against commissioners includes declaring an arrangement ineffective, accepting undertakings from commissioners and directing a commissioner to put in place measures to prevent or remedy breaches and/or mitigate their effects. 

The benefits of competition

A competitive market can increase choice, as well as improving prices, innovation and quality. It is also worth bearing in mind that competition rules apply to providers too (although not the specific rules referred to in this guide - they are for commissioners). This gives commissioners an opportunity to ensure that providers do not restrict competition or engage in conduct which may adversely affect patients or taxpayers.

How can you maximise the benefits of procurement and competition?

There are lots of ways to do this. These include using framework agreements or the “any qualified provider (AQP)” model, working together with other commissioners to reduce resource impact and increase economies of scale, putting in place robust policies and decision making processes or making use of external support.

Further information

You can obtain copies of the new regulations and the draft guidance by visiting our links page. Further information can also be found in our briefing on how the regulations affect you.

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