Procurement round-up

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The Cabinet Office has published four Procurement Policy Notes in 2013 so far. The two on tax compliance in procurement are covered in our separate article. The other two are on Public Procurement and the Public Sector Equality Duty (PPN 01/13) and Supplier Financial Risk Issues (PPN 02/13).

Public procurement and the public sector equality duty
This Note is to remind departments of their legal obligations under the Public Sector Equality Duty (PSED) when conducting their public procurement activities, but is not a comprehensive guide to the PSED. It summarises how the duty can be taken into account when conducting a procurement, and there is an annex that gives examples of how equality issues might be incorporated at the different stages of a procurement.

The note points out that the degree of relevance of equality will vary depending on the individual procurement and gives examples of the types of services, goods and works contract where is it likely to be more relevant, such as where there is direct contact with the public.

It also advises that a public authority should keep formal records showing how it has considered the equality duty.

See our detailed article for more on the PSED and procurement.

Supplier financial risk issues
This note is borne out of two things: issues frequently raised by suppliers through the Cabinet Office’s ‘Mystery Shopper’ scheme; and the recommendation of the Mutuals Taskforce Report that there should be guidance for commissioners setting out clear expectations in respect of the assessment of financial standing, including on the use of any requirements for performance bonds. It reminds public bodies that the financial assessment of potential providers should be done in a way that is proportionate, flexible and not overly risk averse, while protecting taxpayer value and safety and complying with relevant EU procurement law. It stresses that all potential providers should be treated fairly and no SMEs, public service mutuals or third sector organisations should be inadvertently disadvantaged by the financial assessment process.

The note gives guidance on:

  • financial information required – accounts for the past two (rather than the traditional requirement of three) years of trading, with flexibility for SMEs and public service mutuals that may have been recently formed
  • use of credit rating reports – these should not be used as the sole assessment tool for above-threshold procurements and are not a substitute for accounts and other documentation that a bidder might provide to confirm their financial capability
  • setting contract limits by reference to turnover – this means setting the size of contract considered ‘safe’ to award to a potential provider based on a comparison of the annual contract value to the provider’s annual turnover. This might bar new businesses from bidding. Financial position, capacity, capability and dependency should all be considered, in addition to turnover
  • business insurance requirements – authorities should not take a blanket approach to levels of cover but should base it on the risk inherent in the contract
  • deeds of guarantee – the note explains the difference between guarantees and bonds and stresses that authorities should seek professional advice on the best choice, use and drafting of these. They should be used proportionately as they are burdensome requirements for small value contracts
  • other methods to mitigate risk – as the point of doing an assessment of a potential supplier’s finances is to assess the risk to the public purse of them going out of business during the life of the contract, the Note stresses that there are other ways to ensure the supplier complies with its contractual obligations, without recourse to financial instruments, such as contract management and monitoring procedures, step-in rights and escrow arrangements
  • public service mutuals and the LGPS Regulations – the final part of the Note deals with the difficulties that a newly-formed public service mutual with staff who transfer to it under TUPE might have in securing admission to the existing pension fund if it does not have the finance for an indemnity or bond. The Note sets out the greater flexibility that the Local Government Pension Scheme (Miscellaneous) Regulations 2012 give for new admission bodies to enter the LGPS, as they can now provide a guarantee where it is not possible or desirable to obtain an indemnity or bond.

The thrust of the Note is that authorities should be more flexible in what they require potential providers to show in terms of financial standing, so that SMEs and fledgling public service mutuals are not disadvantaged.