Enterprise culture

In May 2013 the Government discussed the need to develop a set of principles to be applied by all public bodies in their procurements to make public sector contracts more accessible for small and medium-sized enterprises (SMEs). The Cabinet Office published a consultation in September 2013 on its proposals to implement changes and remove some of the barriers that SMEs face when bidding for public contracts.

On 7 December 2013, the Government published Small Business: GREAT Ambition which sets out the actions that it will take to assist SMEs to grow and have access to these contracts. This incorporated the Government's decisions following the September 2013 consultation.

The legislation now to be introduced into Parliament will have a significant impact upon how public authorities do business.

Local authorities will also need to address yet further transparency obligations in an additional development we report on in this briefing.

Decisions

The Government intends to legislate in 2014 to action the principles coming out of the consultation and provide SMEs with simpler and more direct access to the annual public sector spending in England. This will include:

Pre-Qualification Questionnaires

• Abolishing Pre-Qualification Questionnaires (PQQs) for low value contracts.
• Mandating the use of a standardised core PQQ for high-value contracts to reduce the complexity and cost in the process. The design process of the core PQQ will take into account the needs and resources of SMEs. Where a public body does not use the core PQQ then they would be expected to explain why they had used an alternative route.

Contracts Finder

• Making contract opportunities easier to find by having them on a single online portal (for example, the existing Contracts Finder portal). There was a consensus in the response to the consultation that the threshold for publishing contract opportunities should be increased from £10,000 so that, for very low value contacts, public bodies would retain the flexibility to carry out their own informal process, reducing bureaucracy and costs. We are yet to see whether the Government will take this suggestion on board.

Payment terms

• Requiring prompt payment terms all the way down a public procurement supply chain. This will ensure that SMEs have access to money when it is due. SMEs do not have the same access to credit that larger companies do and can be unfairly prejudiced currently when payments are not made within a reasonable period as this can impact on the company's cash flow.

Transparency

• Requiring all public bodies to report their procurement spend with small businesses.
• Developing a new rating service for small firms to judge public bodies on their procurement processes. Public bodies would also have the opportunity to rate their suppliers so that small businesses that win contracts can start to build up their reputations.
• Launching a new service "Solutions Exchange", to help public sector organisations go the market to ask for ideas and solutions to problems before they commence the formal procurement process. This would provide an opportunity for SMEs to pitch new proposals to public bodies and have the opportunity to understand what contracts the public bodies were considering procuring in the short to medium term.
• Extending the reach of the Mystery Shopper scheme so that it spot-checks public bodies, to make sure that their procurement is small business friendly. This scheme currently only investigates reports of unfair treatment.

For local authorities there is also the policy statement issued on 12 December declaring the previously voluntary Transparency Code now to be mandatory for most local authority bodies in England.

Comment

The elimination of the PQQ stage will be difficult for many public bodies initially as it is a good mechanism for creating a shorter list of suppliers to tender. Without the PQQ stage there could be a significantly higher number of tenders to evaluate. This could lead to a temptation to increase contract values so that the PQQ stage can still be used. There was a suggestion in the response to consultation that tenderers should be able to self-certify that they meet the minimum qualification levels and that due diligence checks would only be carried out on the winning bidder. This ties in with provisions in the new EU Procurement Directive that is currently due to be adopted by the Commission in January 2014. While this would reduce time and resource for public bodies, there could be a risk that the winning bidder was not appropriate and this would only be discovered at the final stage.

Contracts Finder is already used for all central government contract opportunities over £10,000. However in accordance with the government agenda for greater transparency, many NHS bodies are already choosing to advertise the tenders they issue and the contracts they award. In August 2013, the Department of Health ("DH") published a paper which looked at achieving better procurement within the NHS. Part of the scope for improvement will mean DH exploring opportunities for NHS bodies to increase transparency by requiring all providers of NHS healthcare to publish all procurement data, including opportunities, expenditure and contracts on their websites and Contracts Finder.

Many contracting authorities and suppliers will welcome new legislation which ensures that standard payment terms are passed down through the supply chain for all public contracts. However the use of a standard clause might remove the flexibility that private sector suppliers currently have to negotiate payment terms with their own sub-contractors. Contracting authorities should ensure that prompt payment is a key term of their contracts by making payment times a key performance indicator.

On 12 December 2013 the DCLG published its response to the Data Transparency consultation and Eric Pickles has pledged to make local government more transparent by making the Code compulsory to strengthen the public’s ability to hold councils to account. Adherence to it will now become mandatory for all councils in England with gross income or expenditure above £6.5m.

In addition to existing requirements the statutory code will now also require councils to publish:

• spending on corporate credit cards;
• greater openness on the money raised from parking charges, allowing residents to ‘go compare’ with neighbouring councils;
• subsidies given to trade unions, including union “facility time”;
• information on councils’ contract and tenders, to make it easier for small and medium firms to bid for work and introduce more competition to lower costs;
• details of local authorities’ property assets, to help drive better efficiency of the £220bn town hall estate;
• grants given to voluntary and community groups, to show how councils are backing the Big Society.

Local authorities will need to respond to these new requirements by updating internal procedures (including revisions to Contract Standing Orders and Financial Standing Orders/Procedure Rules and Instructions).

Local Government Secretary Eric Pickles said: "Councils need to make sensible savings to help freeze Council Tax and protect frontline services. This new wave of town hall transparency will empower armchair auditors to expose municipal waste - from surplus offices and corporate credit cards to trade union ‘pilgrims’, and help councillors drive down costs. Greater power for local government must go hand in hand with greater local transparency and local accountability.

"My own department has cut its corporate credit card spend by three-quarters since we placed it all online and has saved £400,000 a year from cutting trade union facility time. This openness will help drive council savings both big and small - and they all add up."

Judith Barnes is a Partner and Mary Mundy is an Associate at DAC Beachcroft. Judith can be reached on 0113 251 4712 or This email address is being protected from spambots. You need JavaScript enabled to view it..