Are there any gains to be had from the proposed new provider selection model for NHS commissioning?


By Prof Albert Sanchez-Graells, Professor of Economic Law (University of Bristol Law School). 

One of the relatively recent developments in the post-Brexit review of UK public procurement law is the February 2021 proposal for the replacement of the current rules on the commissioning of healthcare services for the purposes of the English NHS (for background, you can watch here), with a new provider selection regime (‘the proposal’). This proposal forms part of the broader set of proposed reforms contained in the Health and Care Bill 2021-22 (on which the House of Commons Library has published a useful research briefing). 

This is an area of hot political contestation, despite the fact that more than 90% of NHS commissioning contracts (representing over 95% of expenditure) are already awarded without any competition and, consequently, the need to reform a system that only marginally controls NHS commissioning can be doubted, in particular as the proposal intends to reduce the need for competitive tendering even further 

In this blogpost, I reflect on the proposal and conclude that, in seeking to deregulate NHS commissioning, the proposal can generate very negative unwanted effects, create an additional ex ante layer of accountability that (while welcome in principle) would further burden commissioners, and in most cases result in the tendering of contracts anyway, but subject to under-specified rules. None of this is conducive to the increased levels of legal certainty and reduction in red tape and dispute risk that the proposal sets to unlock.


By way of background, it is worth saying that NHS commissioning is a peculiar procurement activity resulting from the creation of an NHS internal market in the 1990s with the aim of harnessing market incentives and competition-based governance to improve the efficiency of the English healthcare system (see here). NHS commissioning takes place in a largely in-house environment where NHS buyers commission services primarily from NHS suppliers, but also with mixed private participation by both for-profit and third sector providers. Discussion of the rules on NHS commissioning is always tarnished by the linked controversy on the privatisation of the NHS (for a good explainer, see here). 

NHS commissioning is currently subjected to both the Public Procurement Regulations 2015 (PCR2015, aka the UK’s copy-out transposition of Directive 2014/24/EU) and the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013. The proposal seeks to take NHS commissioning out of the scope of application of the PCR2015 — which is possible, given the exclusion of healthcare services from the UK’s schedules of coverage under the WTO GPA, as well as the explicit exclusion of healthcare services from the EU-UK TCA (see Annex 25) — and to repeal the 2013 Regs. NHS Commissioning would then be subjected to a new provider selection regime described (at a high level of generality) in the proposal. 

The proposal thus continues with the de-regulatory approach already taken in the 2019 legislative proposals to implement the NHS Long-term Plan, and seeks to dismantle large chunks of the market-based regulation of the NHS internal market, which is a political aspiration of both current UK Government and opposition and, to some extent, is also seen as a Brexit dividend — though I have argued it is not, and that the proposal is undesirable, not least because most of what it seeks to achieve is possible under the current EU-based procurement rules of the PCR2015 (see here). It should be noted that the proposal runs in parallel to the also de-regulatory approach underpinning the December 2020 green paper Transforming Public Procurement [on which see herehere, and here, while we wait for the Government’s response to the public consultation]. 

Key elements of the proposal 

In a nutshell, the proposal seeks to debunk tendering as the sole (or rather, primary, for there are exceptions in reg.32 PCR2015) mechanism for the award of healthcare contracts, and to create three routes to contract award (for a quick overview see e.g. here, or here). This is the first fundamental area of change in the proposal, which would create an ‘NHS-specific’ set of procurement rules. Those ‘new’ routes would be: (route 1) contractual extension/renewal with the incumbent provider; (route 2) NHS commissioner’s non-competitive unilateral determination of the most suitable provider; and (route 3) competitive procurement. Competitive procurement would not necessarily be tightly regulated in detail, but rather subjected to some principles or basic requirements detailed in the proposal (point 5.9), which would require decision-making bodies to:  

  • have regard to relevant best practice and guidance; for example, HM Treasury’s managing public money guidance 
  • ensure the process is transparent, open and fair (original emphasis) 
  • ensure that any provider that has an interest in providing the service is not part of any decision-making process (…)
  • formally advertise an opportunity for interested providers to express interest in providing the service 
  • compare providers against the criteria set out in the regime and any other relevant factors, and according to any hierarchy of importance they decide is necessary – which must be published in advance 
  • publish their intention to award the contract with a suitable notice period (eg 4–6 weeks unless a shorter period is required due to the urgency of the case). 

In choosing across routes and in making decisions within a given route, commissioners would have to ‘ensure that services are arranged in the best interests of patients, taxpayers and the population’, and would have to follow the ‘key criteria’ of: (a) Quality (safety, effectiveness and experience) and innovation; (b) Value; (c) Integration and collaboration; (d) Access, inequalities and choice; and (e) Service sustainability and social value. Each of these criteria are explained in more detail in the proposal’s Annex. 

Other than compliance with the above key criteria, the regime would primarily only impose transparency (and standstill) obligations on NHS commissioners (see part 8 of the proposal). This is the second fundamental area of change in the proposal. Notably, ‘Where contracts are being continued or rolled over, or a change in providers is being considered, decision-making bodies must publish their intended approach in advance’ (point 8.2). Specifically, commissioners have a duty to publish their intended decisions ‘with a suitable notice period (eg 4–6 weeks unless a shorter period is required due to the urgency of the case)’ in all cases, save (apparently) in the rollover of contracts to incumbent providers where the type of service means there is no alternative provision (point 5.5.A), or where the alternative provision is already available to patients through other means such as the exercise of patient choice (point 5.5.B).  

During that notice (and standstill) period, ‘representations can be made to the decision-making body once it has published its decision. Judicial review would be available for providers that want to challenge the lawfulness of the decision’ (point 8.3). The proposal further establishes that ‘If representations objecting to the process or outcome are received from other providers in that time, the decision-making body must: i. discuss the issue with the providers or their representatives[; and] ii. publish a response to the objections before the award, setting out its decision to either: (a) not to proceed with the contract award as intended and reconsider its process and/or decision; or (b) award the contract as intended and publish reasons for so proceeding as part of the contract award procedure’ (point 8.6). Presumably, the avenue to judicial review challenges open up here — as disappointed providers can reasonably be expected to exhaust the possibility of complaining to the commissioner before launching legal proceedings.

Comments on the ‘three route’ model 

Tendering optionality. Under the proposal, competitive tendering would become optional for NHS commissioners: ‘It would be for the decision-making body to decide when a competitive procurement is the most appropriate means to select a provider‘ (point 5.9). Further, in general, there is a strong anti-tendering narrative underpinning the proposal that somewhat comes to make competitive tendering the mechanism of last resort — to be applied only where ‘after considering the key criteria the decision-making body does not identify a single candidate that is the most suitable provider, and/or concludes that the most suitable provider can only be identified by carrying out a competitive procurement‘ (ibid). This seems to leave open the possibility for a commissioner unable to identify a single best candidate to still consider that tendering is not the way to identify it — in which case there could be space for a ‘fourth’, completely unregulated, route to contract award (surely that is not the intention, though!). Additional, clear (and restrictive) criteria supporting a decision not to use competitive tendering seem necessary.  

Rolling out contracts. Why create such a regulatory black hole? From a practical perspective, the main problem with route 1 (direct award of a contract extension/renewal) is that it covers two very different sets of circumstances. One where the optionality of tendering is uncontroversial, and one where it can be extremely problematic.  

Regarding the first set of circumstances, it should be stressed that two of the grounds for the use of direct contractual extension/renewal with the incumbent provider (route 1) already exclude the need for a tender under the current rules. Where there there is no alternative provision (route 1A), there is no obligation to tender (see reg.32(2)(b)(ii) CR2015). Where the service is to be provided under a patient choice mechanism (ie where specific choice is not exercised by the commissioner), the inclusion of providers in the relevant ‘any qualified provider’ list is not covered by the scope of the procurement rules (reg. 2 PCR2015, incorporating the definition of “procurement” in Art 1(2) Dir 2014/24, as interpreted by the CJEU in Falk Pharma and Tirkkonen). Moreover, the proposal includes specific rules on the management of such lists (points 7.7 and 7.8). 

Conversely, route 1C encompasses a set of circumstances that makes the possibility of a direct award quite worrying and potentially very problematic. Indeed, route 1C foresees that ‘If a decision-maker wants to continue with existing arrangements, they may do so where: … C) The incumbent provider/group of providers is judged to be doing a sufficiently good job (ie delivering against the key criteria in this regime) and the service is not changing, so there is no overall value in seeking another provider’ (point 5.5, emphasis added). The test for establishing that a provider is ‘doing a sufficiently good job’ not only seems too open-ended (it may be the informality with which this part of the proposal is drafted), but also defies logic.  

If the incumbent’s contract was designed to deliver against the regime’s key criteria (and it should otherwise not be in place, to begin with), compliance with the contract cannot be grounds for its renewal. It should be the other way around: failure to meet the contractual requirements should lead to contract renegotiation or termination. But the mere fact that a contract is being complied with should not generate legal grounds for its (indefinite) extension. Not least because the opportunities for rent-seeking and corruption that this option generates are precisely the reason why public contracts cannot be perpetual and why there have to be external checks on both the commissioner and the provider. 

Moreover, given the transparency and standstill obligations controlling the rollout of contracts, it is very likely that any such arrangement will be challenged by potential alternative suppliers (leading to a waste of time, see below). It is hard to see how a system that is premised on the need for potential alternative suppliers to have to actively challenge (and litigate?) contract rollout benefitting the incumbent provider can be considered a ‘decision-making process that makes space for real collaboration to happen; that does not frustrate integration by creating adversarial relationships’ as the proposal claims to intend (point 1.5). It is hard to see how the judicial review of this type of decision could be effected, as the relevant test (the provider is ‘doing a sufficiently good job’) seems to lay squarely within the technical discretion of the commissioner. If that is true (or once that is established in case law), then there may be no point in challenging or litigating contract rollout, which would simply result in a regulatory black hole. 

Are there really alternatives to tendering where there is service change or the incumbent needs to be replaced? Where rolling out contracts is not an option, the optionality of tendering can be doubted in practical terms.  

The only way to avoid competitive procurement where ‘the decision-making body is changing a service/existing contract considerably; a brand new service is being arranged; the incumbent no longer wants to or is no longer able to provide the services; or the decision-making body wants to use a different provider’, is for ‘the decision-making body [to have] reasonable grounds to believe that one provider/group of providers is the most suitable provider (which may or may not be the incumbent), they may award the contract directly’ (point 5.8). Reaching this reasonable determination requires the commissioner to ‘be satisfied that they can justify that the provider they are proposing to select is the most suitable provider by reference to the criteria set out in the regime and any other relevant factors, and according to any hierarchy of importance the decision-making body decides is necessary’ and ‘have carefully considered other potential options/providers within the relevant geographical footprint’ (ibid). 

How exactly this is possible without the information-revelation process of a competitive tendering is quite difficult to fathom. The proposal seems to presume a level of (dynamic, updated) market intelligence on commissioners that seems quite an implausible standard. Further, such an approach is at odds with the proposal’s stated goal of wanting to promote innovation (indeed, one of the key criteria requires ‘Ensuring decision-making bodies seek to innovate and improve services delivered by either existing or new providers, proactively developing services that are fit for the future’). Innovation must necessarily be co-produced (if not market-led) in this context — as recognised in the Annex to the proposal: ‘Decision-making bodies should give due consideration to any particular innovative approaches offered by providers that could help to deliver better outcomes, and avoid assuming that what is currently provided will match current or future need’. Unless commissioners have a crystal ball, this can only be done through proper market engagement and there is no clear reason why that engagement cannot be effectively channelled through competitive procurement. 

Moreover, once again, given the transparency and standstill obligations and the likelihood of challenge, is it reasonable to expect any commissioner to engage in such non-competitive unilateral determination with limited information? 

No time to waste, or risk aversion? In both routes 1 and 2, there is a presumption that ‘given that the commissioner knows best’, there is no need to subject contract award to competitive tendering. In the slightly more elegant words of the proposal:  

‘In practice, the bulk of current NHS services are arranged without competitive processes or tendering (though this approach is sometimes not without legal risk). There is a justifiable reason for this. … in many circumstances the choice of service provider will be constrained by the nature of the service and its interdependencies with other services. Our proposed regime explicitly recognises this reality and makes it clear that such core NHS services can be arranged without NHS decision-making bodies being pushed through valueless bureaucratic exercises’ (para 5.2, emphasis added). 

The real reason for the proposed approach is then not to avoid useless competitive tendering — which is not taking place anyway — but to rid NHS commissioners from legal risk. Well, two comments seem warranted here. The first one is that legal risk is not at all reduced in the proposal. Both routes 1C and 2 are riddled with open-ended legal concepts and commissioners willing to rely on them will have to accept legal risks no smaller than those implicit in findings that a service is to be directly awarded to a sole-source provider (which is presumably the legal risk the proposal indirectly refers to).  

The second one is that the way this legal risk is to be excluded — ie via transparency and standstill — can generate a significant delay (of 4 to 6 weeks) in the launch of a competitive tendering procedure where the commissioner’s approach is challenged. A competitive tendering procedure that could, by the way, last less than 6 weeks — were it not for the proposal’s double transparency requirement of advertising the contact opportunity and then also imposing a 4-6 week standstill prior to award (which much extends the current standstill obligation under the PCR2015).  

Of course, commissioner’s may decide to dismiss challenges, reaffirm their decisions, and carry on. The question then becomes what remedies are available to disappointed providers at the stage of judicial review. If damages enter the picture (and they may), the accumulated disincentive of delay and liability exposure can hardly provide a more comfortable mix than the current rules — or the foreseen cap on damages for procurement litigation under the green paper proposals, for that matter. 

There’s more than one way to skin a cat. Much like the green paper, the proposal is deceptively simple in the deregulation of route 3 and the subjection of competitive tendering to minimum principle-based requirements. Given the likelihood that route 3 becomes THE route (other than for 1A and 1B awards), it seems too open-ended for the proposal to solely require that commissioners  

  • have regard to relevant best practice and guidance; for example, HM Treasury’s managing public money guidance 
  • ensure the process is transparent, open and fair (original emphasis) 
  • ensure that any provider that has an interest in providing the service is not part of any decision-making process (…) 
  • formally advertise an opportunity for interested providers to express interest in providing the service 
  • compare providers against the criteria set out in the regime and any other relevant factors, and according to any hierarchy of importance they decide is necessary – which must be published in advance 

Unless the expectation is for a single competitive tendering procedure to be created in secondary legislation — but this is not the obvious implication of the proposal, and would run counter to the approach to eg transposing the rules on the award of social and special services contracts (see reg.76 PCR2015) — each commissioner would be free to create its own procedure. This would in fact subject NHS competitive tendering to the same ‘anti-procedure’ regulation envisaged for the competitive flexible procedure in the green paper. And it would thus open it up to the same criticism, on the basis of the explosion of transaction costs (as well as legal uncertainty) it would create. Allow me a cross-reference to the points made in my response to the green paper’s consultation. 


To put it simply, by following the lead of the green paper and seeking to deregulate NHS commissioning, the proposal can generate very negative unwanted effects in terms of the cost, complexity and exposure to challenge and litigation of the system. In my view, it would mainly create an ex ante layer of accountability that (while welcome in principle) would burden commissioners and in most cases result in the tendering of contracts anyway, but subject to under-specified rules. How this can be seen as an improvement over the current situation escapes my imagination. 

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