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Outsource magazine: thought-leadership and outsourcing strategy | August 19, 2017

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Outsourcing opportunities in the UK public sector

Outsourcing opportunities in the UK public sector
Outsource Magazine

Changes to public procurement rules have made it easier for small and medium-sized businesses to compete for public sector contracts. The Public Contracts Regulations 2015 are intended to provide a more modern, flexible and streamlined regime. Contracting authorities will be able to run procurement exercises faster, with less red tape and with a greater emphasis on selecting the right supplier.

These changes should make the prospect of competing for public sector work more attractive to businesses that may previously have been deterred by the bureaucracy involved in the processes and have been concerned over whether the payment terms would be manageable. In a report on small businesses, published in February 2015, Lord Young observed that the public sector offered huge growth opportunities for small businesses but that in 2010 only 6.5% of the value of Central Government procurement went to SMEs, with a very mixed picture across the wider public sector.

Changes include:

Lower-value contracts. There are new requirements if their value is above a specified level, even if this is below the threshold for the Regulations to apply. These requirements were introduced in the UK to implement Lord Young’s proposals to open up more contracts to SMEs. The Regulations require that where such contracts are advertised publicly, they are placed on the government’s Contracts Finder website making it easier for SMEs to access opportunities. Adverts must specify deadlines, how to respond and any other conditions for participation. Pre-qualification questionnaires may not be used for such contracts and any questions about suitability must be relevant to the subject matter and proportionate.

Payment terms. Contracting authorities must now include in their contracts an obligation to pay contractors within 30 days of receipt of a valid and undisputed invoice and to ensure that this flows down the supply chain. Knowledge of the payment terms they can expect should help smaller businesses in their planning and financial management.

Lighter-touch regime. Although the distinction between Part A and B services has been abolished, the Regulations introduce a new light touch regime for health, social, education and certain other services which are listed in Schedule 3. The light touch regime is designed to give flexibility to contracting authorities allowing them to design the procurement process. For above-threshold contracts (now significantly higher than before at £625,000), a call for competition (setting out the process to be followed with reasonable and proportionate timescales) will need to be published as well as a contract award notice.

Mutuals and Social Enterprises. The Regulations include a new provision which allows contracting authorities to limit the procurement procedure for contracts for the provision of certain specified Schedule 3 services to qualifying organisations such as mutuals and social enterprises. The range of services to which this can apply is fairly limited but it could provide greater access for SMEs to particular services if they meet the conditions. Importantly, any contract awarded under this provision cannot exceed three years in duration.

Other changes include:

  • Encouraging contracts to be broken down into lots to facilitate participation by smaller organisations.
  • A turnover cap to facilitate SME participation which requires company turnover not to be set at more than two times the contract value except in certain circumstances.
  • Social and environmental issues may be considered during evaluation.
  • Greater freedoms in using the competitive procedure with negotiation and the competitive dialogue procedure.
  • A new innovation partnership procedure whereby suppliers bid to enter into a partnership with the contracting authority to develop innovative solutions.
  • Market engagement and consultation is permitted and encouraged to help facilitate better outcomes and specifications.

Further encouragement for smaller businesses to engage in outsourcing is contained in the Small Business, Enterprise & Employment Act, which received Royal Assent on 26 March 2015. It enables the government to make regulations to impose duties on contracting authorities relating to the exercise of their procurement functions. The government has published a policy statement on the potential use of this power, and draft illustrative regulations which include provisions relating to pre-procurement market engagement, lean sourcing principles, and reporting requirements.
Statistics published by Arvato in its outsourcing index have shown that there were £6.65 billion of UK outsourcing deals agreed in 2014, and that 55.5% of contracts were first-time outsourcing deals, rising from 33% in 2013.

The changes to the public procurement regime and the potential business available should make contracting with the public sector an attractive prospect for smaller businesses, which could in turn widen the range of contractors being used by public sector authorities.

About the Author

Rebecca Hazeldine 150Rebecca Hazeldine is a Solicitor with Geldards LLP.

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