The new Provider Selection Regime

Introduction

The draft regulations for the Provider Selection Regime (PSR) were published by the Department of Health and Social Care on 19 October 2023. The PSR is anticipated to come into force on 1 January 2024. The regulations extend to England and Wales and apply in relation to England only.

The PSR removes “Relevant Authorities”, (being NHS England, Integrated Care Services boards, NHS Trusts and Foundation Trusts and local and combined authorities), from the Public Contracts Regulations 2015 (PCR) when procuring health care related services, instead implementing a regime that is intended to be more flexible and proportionate, encourage collaboration, and ensure procurement decisions are made in the best interests of patients and service users.

The PSR will apply to health care related services only — for other services, the PCR will continue to apply, although the PCR will be replaced when the Procurement Bill is enacted and brought into effect, which is expected to be in October 2024. Mixed procurements can be procured under the PSR as long as the main subject matter is health care.

The PSR is being introduced following consultation with NHS England which established that current procurement rules are not suited to the NHS healthcare system. The regime is intended to move from competition towards collaboration in the health care system.

Here is a link to the proposed legislation — Health Care Services (Provider Selection Regime) Regulations 2023 and the draft statutory guidance, which provides further detail.

New Provider Selection Processes

The PSR will provide three “Provider Selection Processes” that Relevant Authorities can use.

1. Direct award processes, (A, B, and C). These involve awarding contracts to providers when there is limited or no reason to seek to change from the existing provider; or to assess providers against one another, because:
   1. there is an existing provider for the services and that provider is the only capable provider, (direct award process A);
   2. patients have a choice of providers and the number of providers is not restricted by the Relevant Authority, i.e. it will offer contracts to all providers to whom an award can be made because they meet all requirements in relation to the provision of the relevant health care services, (direct award process B); and
   3. the existing provider is satisfying its existing contract, will likely satisfy the new contract to a sufficient standard, and the proposed contracting arrangements are not changing considerably, (direct award process C).
2. Most suitable provider process. This involves awarding a contract to a provider without running a competitive process because the relevant authority can identify the most suitable provider.
3. Competitive process. This involves running a competitive process to award a contract or a framework agreement where none of the above criteria apply. 

Decisions are still subject to scrutiny and Relevant Authorities will need to comply with defined processes in each case to evidence their decision-making, including record keeping and the publication of transparency notices.

Key criteria

When making decisions under direct award process C, and when conducting a most suitable provider process and a competitive process, Relevant Authorities will need to consider five key criteria:

1. quality and innovation;
2. value;
3. integration, collaboration, and service sustainability;
4. improving access, reducing health inequalities and facilitating choice; and
5. social value. (Regulation 5).

Modifying contracts

Regulation 13 sets out the grounds within which a contract or framework agreement can be varied without following a new procurement process, for example where:

• the modification is made in response to external factors which are beyond the control of the Relevant Authority and the provider including, but not limited to, changes in patient or service user volume, or
• the modification is attributable to a decision of the Relevant Authority and the cumulative change in the lifetime value of the contract or framework agreement since it was entered into is below either £500,000 or 25% of original contract or framework value, or
• direct award process A or direct award process B were followed for the original award of a contract, 

and, in each case, where the modification does not render the contract or framework agreement materially different in character. These are similar to the existing permitted modifications, although do provide greater clarity.

Urgent award or modification

Regulation 14 provides that where a Relevant Authority considers that:

• a contract award or modification must be made urgently, and
• the reason for the urgency was not foreseeable by, and not attributable to, it, and
• delaying the award of the contract or modification to satisfy the requirements for the provider selection processes would be likely to pose a risk to patient or public safety,

then it can proceed to award or modify a contract. Again this is very similar to the existing position. 

Other procedural matters

Regulation 12 makes provision in respect of the period, (the standstill period), after a decision is made but before a contract is entered into or framework agreement concluded, in which aggrieved providers may make representations to the decision-makers, and those representations are considered by the Relevant Authority. Unlike the PCR, this is the only prescribed means of challenging decisions. Although suppliers could still seek a judicial review through the courts, these claims are difficult and expensive to bring.

Part 5 sets out requirements in respect of the records and summaries which must be kept and published and the monitoring requirements for Relevant Authorities. Part 5 also makes provision, in regulation 23, relating to advice from independent experts.

Transition period

Until 1 January 2024, Relevant Authorities should continue to follow the current regime. As the PSR deadline approaches Relevant Authorities should assess if they have started a procurement exercise before 1 January 2023. If they have, these contracts will be covered by, and can be concluded under, the PCR.

Following the date of introduction, Relevant Authorities should consider which procurement process to adopt for the procurement of relevant health care services and, if need be, seek advice on which is the most appropriate to use in that particular case. The modification rules set out in the regulations will apply to all contracts irrespective of when they were entered into.

Concluding remarks

The PSR is currently in draft form and subject to amendment on its way through Parliament. We will monitor its progress and provide further updates in due course.

Overall, we welcome the clarity that the new Provider Selection Processes bring and, in our view, they strike a good balance between and the need for Relevant Authorities to have flexibility and the requirement to test the market and leverage competition. We also welcome that the key criteria that procurement decisions must be based on expressly refer to integration, collaboration and service sustainability, which is particularly important in today’s healthcare market.