Julian Blake

Partner, Stone King LLP

The EU procurement rules are often held to have imposed burdensome obligations that inhibit commissioning good sense. Yet the true villain is to be found much closer to home: domestic, bureaucratic institutionalism.

Commissioners can and should embrace the possibilities within our current regulations to prioritise social purpose and social value; and build strong partnerships with the local community.

 

How a local authority should commission a public service has a proper, simple answer – by identifying the “best value” service. It also has a distorted, standard answer – by following established public procurement internal protocol and prescribed procedure, which inverts the proper relationship between process and purpose.

The misconceived answer promotes concepts of scrupulous detachment, objective assessment, transactional contracting, legal protection of the commissioner and holding the provider to account. The simple answer promotes community need, multi-stakeholder perspectives, relational collaborative partnership, mutuality and working relationships.

The misconceived answer starts with the technical presumption that the potential provider may come from anywhere within the European Union. The simple answer applies practical reality and embraces the premium social value in local knowledge and engagement.

For two decades the misconceived answer has prevailed. Why? How may the damage to our local social economies be repaired?

The scapegoat, until recently, was the European Public Procurement regime, now enacted in the UK as The Public Contracts Regulations 2015. A tenacious myth became entrenched in the public service environment, that the remoteness and impersonality of European law had imposed burdensome obligations that inhibited, or even prohibited, commissioning good sense. The opposite is the case. The regulations are, by design, enabling, permissive and flexible. What’s more, the principle of “subsidiarity” means public sector decisions should be made at the lowest level of competence.

The true villain is domestic, bureaucratic institutionalism. This has allowed procurement to bloat into a statist industry, distorting and swamping clarity of purpose in public services.

There is good practice as well as bad, of course, but it is less conspicuous. Due process also has its place, of course, but it should be a servant, not a master.

So how can commissioners embrace the “art of the possible”?

The true villain is domestic, bureaucratic institutionalism. This has allowed procurement to bloat into a statist industry, distorting and swamping clarity of purpose in public services

Pre-conditions for accepting a tender and assessment criteria often prejudice local small businesses, and community and voluntary organisations. For example, demands for “parent guarantees” are made – where a parent company provides a legal guarantee for a subsidiary – when providers have no parent companies.

“Proportionality” is a fundamental principle of procurement law. This is violated in formulaic, over-long, dense, unprioritised invitations to tender. These seek to include everything that may decrease theoretical risk to the commissioner. Focus is thereby diverted from the characteristics of a service that will deliver – by reference to actual need – requisite quality, coverage, affordability, sustainability and long-term development and improvement.

The Light Touch Regime” was newly introduced to the EU regulations in 2015. It is a core application of the proportionality principle, under which a range of services –  including health, social care, educational, cultural, community, personal, youth, prison-related, public security and rescue services – are placed outside the mainstream procedural requirements of procurement. The general exemption, from prescriptive process, of all service contracts with a total value up to €200,000, is extended to the specified types of social service contract up to a total value of €750,000 – and all prescriptive process, apart from notice obligations, above that figure. So complex process is not necessary in social and personal community services.

The Light Touch Regime, simply, requires compliance with the general principles of European law: “equality of treatment/non-discrimination”, “transparency” and (as mentioned), “proportionality”. That provides full discretion to commission: simply; collaboratively; locally; objectively; creatively; and innovatively, with social purpose paramount.

Indeed, rigidity and exaggerated risk aversion in commissioning contributes to violation of the fundamental non-discrimination principle.

Prohibitive “performance bonds” – where an insurer guarantees satisfactory delivery of a contract – and commercial scale insurances can be required. Or large corporations, with, seemingly, commercially strong balance sheets are judged inherently “secure”, in contrast to, supposedly, inherently “insecure” smaller organisations – which can, nevertheless, demonstrate track records of successful delivery, on lower margins, with fewer resources, with local sensitivity and equal operational efficiency.

The insolvencies of the large commercial providers, Carillion and Interserve, demonstrate the need for more enlightened commissioning. So too do a catalogue of egregious commercial service failures, such as Serco’s out of hours GP service in Cornwall, damned as “disgraceful” by the British Medical Association. Commissioning should not assume big and commercial are best and not preclude engagement of a community provider, meeting community need. It should also look towards traditional grant-support, as an alternative to a service contract.

The European Commission and the UK Government have both placed strategic priority on accommodating small and medium enterprises within public service provision. They have done this, for example, by promoting smaller contract lots, discouraging pre-qualification conditions and promoting socially-responsible procurement. Local commissioning policy may and should pursue such objectives.

In recent decades the commissioner’s function has been seen as detached, dispassionate, lowest-price purchasing. This has set up an ideological polarity between the prevailing commercialised “outsourcing” and a reversion to public sector “direct delivery”.

Before procurement became the main focus of public sector contracts, the problem for providers was dysfunction in one-sided contract formation. This gave rise to initiatives such as campaigns for “full cost recovery”, “fair contracts” and the “covenant”, between the public and community and voluntary sectors. That issue is now masked by procurement, but mutually agreed, balanced, working relationships remain the best practice approach. This is in contrast to the imposition of standard, non-negotiable terms and conditions designed to minimise public authority risk, while following the prevailing, misconceived, received assumption that the commissioner’s role is market purchasing.

Public services are not delivered in pure market conditions, where demand-driven price/quality elasticity is the determining factor. They are tax-funded services meeting legally and ethically required social needs. That obviously requires a budget and service specification equation, but not a lowest price imperative. The 2015 procurement reforms entrenched that truth by abolishing the alternative assessment basis of “lowest price” (only ever reasonably applicable to undifferentiated goods), leaving only: “Most Economically Advantageous Tender”, meaning the optimum balance between social value, quality and price.

Public services are, meanwhile, not the sole preserve of public authorities.

The first stage of any service commissioning process should be such local collaborative consultation and the conclusions of such community consultation should inform every later stage, maximising community co-design and co-delivery.

Providers most likely to understand local community needs will be purpose, not profit, driven, because that puts the quality factors first. Such providers are most likely to place a primacy on the personal values, commitment and care provided by their personnel, because that is what will deliver optimised quality. Such providers will seek to invest in service development. Such providers will wish to collaborate with commissioners, in the purpose-aligned, cost-efficient delivery of common public benefit objects, and the realisation of progressive public policy outcomes and impacts.

Social enterprises, being self-sustaining public benefit providers, thus offer an agility the public sector typically lacks, while providing operational business discipline. They may attract a range of funding, across the social/commercial spectrum, centred on a growing social finance sector, adding investor interests to the collaboration. This also, critically, may provide sector leadership that properly recognises the distinctive value of local community and voluntary sector providers, local employers and local educational and other anchor institutions. This can help shape a local ecosystem, so each type of organisation is able to fulfil its function through integrated, collaborative working.

All of this may be actively facilitated by the commissioner. The 2015 procurement reforms and parallel reforms of the state aid rules, which regulate public sector grants and other subsidies, emphasised that the public law rules may be used to promote social policy (not just to ensure fair competition).

Furthermore, commissioning includes a range of opportunities for developing and co-ordinating services, not limited to the procurement of contracts. These include: grants and other subsidies; investment; co-investment; community asset use and transfer; and community mobilisation and engagement. And this full range of collaborative, structural opportunities opens a full range of collaborative financing and resourcing opportunities, including through: the public sector; the public benefit sector; the local private sector; and the community itself.

Fundamentally, public services developed and delivered with such collaboration would naturally focus on meeting the big challenges faced by local public services: achieving cross-service integration, cost-saving prevention, and continuous improvement. Current market models, however, set-up the powerful counter-forces of: segregated budget-lines; short-term cost-cutting; and limited-duration service commitments.

The quality standard is the local community social enterprise and the best role for non-local providers is to assimilate and enhance the local community eco-system.

It is the community – the people who use and benefit from services – who have the direct stakeholder interest.

So public services must be developed and delivered in consultation with, at the first level, service users – and at the second level, those that closely engage with and so may legitimately represent service users, including local providers.

Some local authorities are already moving in this direction. This is partly in reaction to political over-centralisation in the UK and the post-financial crash austerity programme. It is also a recognition of the enabling nature of the applicable public law; and the notable progression in the purpose-aligned disciplines of social enterprise, social finance, social value, and social impact.

Prominent examples include; Wigan’s community covenant; Leicestershire’s pioneering Innovation Partnership; Durham’s systematic community asset transfer programme; Oldham’s and Croydon’s systematic, multi-level social value policies; Preston’s and Bristol’s local economy promotion; and the Co-operative Councils initiative.

Overall this movement is a corrective to the market/statist dichotomy in public services. It is elevating social value to the primary factor through which price and quality may be assessed and balanced in commissioning. And it is highlighting how social purpose, social enterprise and social impact may, relatively simply, be energised through community partnership.

These dynamic socio-economic features are, generally, inherent to local public benefit organisations and local small businesses, because they are stakeholders in, are integrated within, know about and care for their local communities. External and large organisations can organise themselves to present as if they offer such social value and when they are genuinely purpose-driven they can and do actually deliver it. But the quality standard is the local community social enterprise and the best role for non-local providers is to assimilate and enhance the local community eco-system.

 

Keep it Local is brought to you in partnership with Lloyds Bank Foundation for England and Wales which specialises in funding small, locally based charities tackling complex social problems.

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The Oldham Model