Article 76a of the final compromise text for a new Directive on public procurement creates a significant risk of abuse in the award of contracts for social services that may be of particular concern when read side by side with the UK Government's public sector mutualisation strategy.
Article 76a allows contracting authorities to reserve for the
participation of given types of organisations (such as ‘public sector mutuals’,
for instance) the award of contracts for certain services included in specific
categories of the Common Procurement Vocabulary
in the areas of health, social and cultural services—which
basically comprise all or the most relevant medical services, personal services,
educational and training services (including eLearning), sports and cultural
In such cases, the contracting authority will need to make sure that the
(type of) organisation chosen to be awarded the contract meets the following requirements:
(a) its objective is the pursuit of a public service mission linked to the
delivery of the services to be contracted; (b) its profits are reinvested with
a view to achieving the organisation’s objective (and where profits are
distributed or redistributed, this should be based on participatory
considerations); (c) the structures of management or ownership of the
organisation performing the contract shall be based on employee ownership or
participatory principles, or shall require the active participation of employees,
users or stakeholders; and (d) the organisation shall not have been awarded a
contract for the services concerned by the contracting authority concerned
pursuant to this Article within the past three years. Moreover, the maximum
duration of the contract shall not be longer than three years and the call for
competition shall make reference to this Article. There is no (maximum) value threshold for this exclusion to be effective.
Given that the Mutuals Taskforce has clearly recommended that the UK Government use the (direct) award of contracts as a tool to support, foster and consolidate the creation of public sector mutuals (Recomm 9), there is a risk that the carve-out (negotiated?) in the new EU public procurement rules leaves the award of such 'start-up contracts' fundamentally unchecked, since there will basically be no EU rules applicable in this case, regardless of the value of the contracts [which is also valid in relation to the EU rules on the control of State aid, which exclude health care and other social services from their scope of application; see art 2 of Decision 2012/21/EU].
Therefore, there is a clear risk that the public sector reform strategy ends up creating (3-year long, local) monopolies for the provision of those services in the hands of the newly spun-off public sector mutuals, which may extend their dominance beyond that point in time as incumbency advantages pile up. That would result in distortions of competition similar to those just identified by the Competition Commission in the market enquiry on private health care services and, in my view, is an undesirable prospect.
In that regard, then, the OFT (and, soon enough, the CMA) seems to have a mounting amount of pressure to uphold its commitment in the 2013-14 Annual Plan to "focus on IT and local government issues in particular and work with government partners on a range of issues relating to the public sector reform agenda to ensure that government interventions maintain competitive markets. In addition to advocacy and influencing, [the OFT] will consider using the full range of tools at our disposal to tackle any breaches of competition law identified in public service markets" (emphasis added).