1. Localism Act 2011 Community Right to Challenge Public Procurement Considerations Round Table Discussion 5 July 2012

2. WELCOME & EVENT OBJECTIVES  Overview of requirements under the Act  Potential issues / implications  Practical considerations / strategy

3. AN OVERVIEW OF THE LOCALISM ACT – DEALING WITH THE RIGHT TO CHALLENGE  Policy increase community involvement in service provision increase (from 2%) third sector participation and success in public procurement reduce cost of service provision through competition  Localism Bill Dec 2010  Consultation Feb 2011  Summary of responses August 2011  Policy Statement Sept 2011

4. AN OVERVIEW OF THE LOCALISM ACT – DEALING WITH THE RIGHT TO CHALLENGE  Came into force on 27 June 2012  Part 5 Chapter 2 Localism Act 2011  The Community Right to Challenge (Expressions of Interest and Excluded Services) (England) Regulations 17 May 2012  The Community Right to Challenge (Fire and Rescue Authorities and Rejection of Expressions of Interest ) (England) Regulations 26 June 2012 (and Explanatory Memorandum)  Statutory Guidance - mandatory [85(2)]

5. OVERVIEW OF THE RIGHT TO CHALLENGE  “Relevant Body” may make an “Expression of Interest” in providing or assisting in providing a “Relevant Service” on behalf of a “Relevant Authority [81]  Authority must accept unless it can reject [83(11)]  If accepted, Authority must carry out a procurement exercise [83(2)]

6. OVERVIEW OF THE RIGHT TO CHALLENGE  “Relevant Body” [81(6) and 26 June 2012 Regs]  “Expression of Interest” [81(4) and 17 May 2012 Regs]  “Relevant Service” [81(5) and 17 May 2012 Regs]  “Relevant Authority” [81(2) and 26 June 2012 Regs]

7. OVERVIEW OF THE RIGHT TO CHALLENGE

8.  Expression of Interest Received  Authority must specify (and publish) a maximum period between date of receipt of Expression of Interest and notification of decision [84(3), (4) and (5)] – not clear if this is in response to receipt or generically in advance of receipts  Authority must notify the relevant body of the period within which it expects to notify its decision [84(6) and (7)]  Consideration of Expression of Interest OVERVIEW OF THE RIGHT TO CHALLENGE

9.  If the Authority could reject the expression, the authority may modify it, if the relevant body agrees [84(1) & (2)]  Authority must notify relevant body of decision to accept / reject / modify and give reasons for rejection or modification [84(8)]  Following an acceptance, authority must carry out a procurement exercise [83(2)]  Authority must specify max and min period between acceptance and commencing procurement [83(4)] - not clear if this is in response to a receipt or generically in advance of receipts OVERVIEW OF THE RIGHT TO CHALLENGE

10.  Authority may specify periods for Expressions of Interest [82]  To enable authorities to align the Right to Challenge with their commissioning cycles  Authority can refuse to consider an expression received outside a specified period [82(4)]  Specification can be generic or specific  Must be published [82(3)] OVERVIEW OF THE RIGHT TO CHALLENGE

11. OVERVIEW: ESTIMATES FROM IMPACT ASSESSMENT  Approximately 500 expressions of interest per year  Cost to local authorities £2.8 - £3m per year  1.5 days staff time to process and respond to each expression of interest  60% of expressions will lead to procurement process  Average cost per procurement process £9,100  Average saving per procurement 20%  Expressions of interest to decline after 2014-15 50% reduction 2015 - 2018 75% reduction 2018 – 2021  How many procurements will be won by Relevant Bodies – NO MENTION

12. HOW A LOCAL AUTHORITY WILL REJECT A CHALLENGE  Authority may only reject an expression of interest on one or more grounds specified by SoS by regulations [83(11)]  Regulations 26 June 2012  The expression does not comply with S81(1) or Regs [dated 17 May 2012]  Any information in an expression is inadequate or inaccurate in a material particular  The Relevant Body or any consortium member or sub-contractor is not suitable  The authority has already decided to stop providing the service  The service is integrated with an NHS service and integration is critical to recipients well being

13. HOW A LOCAL AUTHORITY WILL REJECT A CHALLENGE  The service is already subject to a procurement exercise  The authority is already in negotiations with someone for provision of the service  The authority has published its intention to consider service provision by 2 or more specified authority employees  The expression of interest is frivolous or vexatious  Acceptance is likely to lead to a contravention of law or statutory duty

14. HOW A LOCAL AUTHORITY WILL REJECT A CHALLENGE  “A relevant authority must, in considering an expression of interest, consider whether acceptance of the expression of interest would promote or improve the social, economic or environmental well-being of the authority´s area.” [83(8)]  Effectively the same as Public Services (Social Value) Act 2012 S1(3)(a)  So is this also effectively a ground for rejection? Seems to be contrary to exhaustive nature of 83(11).  DCLG policy (unpublished) is that the right to reject where the relevant body is not suitable could be used to reject an expression of interest that does not satisfy S83(8). It is hard to see how. And this is not supported by the Statutory Guidance (see para 6.4).  DCLG contact is Angela Harrowing 0303 4441349

15. HOW A LOCAL AUTHORITY WILL REJECT A CHALLENGE An alternative analysis  An Expression of Interest must include, in particular, how the provision or assistance will promote or improve the social, economic or environmental well-being of the relevant authority's area [para 5(a) sched 1 May 2012 Regs]  Ground for rejection if expression of interest does not comply with Regulations [para 1 of sched to June 2012 Regs]  Also ground for rejection if the relevant body provides information in the expression of interest which, in the opinion of the relevant authority, is in a material particular inadequate or inaccurate [para 2 of sched to June 2012 Regs]

16. BIDS FROM EMPLOYEES  How can a Local Authority lawfully assist an employee-led bidder to give them the best chance possible against commercial bidders?  Perhaps an authority would rather not expose the service to competition if the relevant body is unlikely to win!  Ground for rejection if the relevant body “does not demonstrate that it will be able to partake in a procurement exercise” [Statutory Guidance para 6.4]  Can the authority help? in relation to awareness and exercise of the right of challenge cannot assist in the procurement process general procurement law principles apply – non-discrimination and transparency

17.  Likely to be similar barriers to entry as for SMEs  Package the contract to below threshold value if possible less widely advertised of less interest to large contractors  Offer bid training open to everyone prior to the procurement process  Set pre-qualification criteria appropriate to the contract and not excessively onerous e.g. Dispense with need for membership of organisations unless essential Set insurance requirements realistically Set financial requirements proportionately  Minimise the need for complex document processing during the process BIDS FROM EMPLOYEES

18.  Localism Act provides that Secretary of State can give advice and assistance to a relevant body: to prepare and submit an expression of interest [86(1)(a)] to participate in the procurement process [86(1)(b)] to provide the services following a procurement process [86(1)(b)]  “assistance” can include the provision of finance by any means (including loans, guarantees and indemnities) [86(3) and 86(5)]  £16m up to 2015 : £14.5m training and £1.5m grants/loans  Authority has no influence over SoS exercise of these powers  Financial assistance might amount to unlawful state aid BIDS FROM EMPLOYEES

19. EU PROCUREMENT LAW AND THE LOCALISM ACT  “A relevant authority must, in carrying out [the procurement exercise], consider how it might promote or improve the social, economic or environmental well- being of the authority´s area by means of that exercise.” [83(9)] – but “only so far as is consistent with the law applying to the awarding of contracts...” [83(10)]  Analogous to Public Services (Social Value) Act 2012 Section 1(3)(b)  Under procurement law: Must not take into account use of local labour / suppliers / subcontractors in selection or award Must not take into account social, economic or environmental considerations unrelated to the service  Localism Act does not require an authority breach procurement law [83(10)]  BUT factors may have been taken into account under Section 83(8) in relation to social, economic or environmental well-being that CAN NOT be taken into account in the procurement process.

20. DOES A LOCAL AUTHORITY HAVE TO MAKE AN AWARD?  Include usual provision that Authority is not obliged to award contract  Localism Act does not expressly require a contract to be awarded  But clearly the policy intention is to award contracts  If an authority failed to award a contract after a relevant body had been eliminated: bad procurement practice reputational risk – could be very dramatic risk of damages under implied contract?

21. DOES A LOCAL AUTHORITY HAVE TO MAKE AN AWARD?  Stresses importance of: considering rejecting an expression in the first place based on the suitability of the relevant body setting selection and award criteria appropriately  In some cases, is there a duty NOT to award? eg where VFM has not been demonstrated  No obligation on relevant body to bid

22. POTENTIAL EFFECT ON SERVICES ALREADY LET ON CONTRACTS?  September 2011 Policy Statement said DCLG would include a right of rejection  This has been omitted and no explanation given  DCLG say that if an authority is concerned about existing contracts they should nominate periods for expressions of interest under section 82  This can be generic (e.g. by reference to a register of contracts) BUT what about rights to extend existing contracts? different windows appropriate for different contracts?

23. POTENTIAL EFFECT ON SERVICES ALREADY LET ON CONTRACTS?  Setting a specific window for each existing contract is an administrative burden  Some discretion to delay procurement process – Section 83(4) to enable the relevant body to prepare its bid to enable authority employees to consider if they also want to bid but DCLG do not expect “a lengthy period” before the procurement process starts [Statutory Guidance para 8.3]

24. COMMERCIAL SUPPLIERS COERCE EMPLOYEES/3RD SECTOR BODIES INTO CALLING FOR COMPETITION  Commercial profit-making bodies do not have right to challenge  Commercial supplier could influence a Relevant Body – legally  Relevant Body CAN join in partnership members / subcontractors [see Sched 1 para 1 Regs 17 May 2012]  And the other partnership members do not have to be Relevant Bodies [Statutory Guidance paras 1.14 and 1.15]  Information on partnership members / subcontractors must be included in expression of interest [17 May Regs]  Apparently no requirement for majority participants to be Relevant Bodies!  If a company vehicle is used, it must qualify as a relevant body [statutory guidance para 1.15]

25. COMMERCIAL SUPPLIERS COERCE EMPLOYEES/3RD SECTOR BODIES INTO CALLING FOR COMPETITION  Might an undisclosed commercial supplier persuade a Relevant Body to initiate a procurement?  Grounds for rejection if the expression of interest is frivolous or vexatious [June Regs] – coercion may not be obvious  Potential criminal sanctions if done for payment  Include anti-corruption clause in contract with financial implications

26. ANY ADDITIONAL ISSUES, ROUND UP & THE WAY FORWARD