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Managing the procurement process

A recent survey revealed that those in charge of outsourcing many council contracts were concerned about a lack of procurement skills in the sector.

Of 100 human resources directors, 57% said negotiation and procurement skills needed to be improved, 44% feared contract disputes and 38% had already cancelled outsourcing agreements because of poor value for money, according to a the poll by

The potential returns outsourcing can bring are by no means guaranteed if the procurement process is not properly managed. Outsourcing to social enterprises that have been established from within a local authority is, for many authorities, an unfamiliar process. Those responsible need to take even greater care over procurement.

NHS Gloucestershire, for example, was set to transfer its community nursing to the newly created Gloucestershire Care Services Community Interest Company on 1 October, when lawyers representing a user of community services in Stroud threatened to begin a judicial review of the decision. They said the trust had notfollowed proper procedure.

It is a well-established principle of EU procurement law that the open advertising and tendering rules for public contracts do not apply when obtaining services from in-house sources. It is less clear, however, whether social enterprises created from within public bodies can be awarded contracts for a specified period of time before those contracts are out to tender. Cases like Gloucestershire PCT’s willput the issue to the test.

Chris Brophy, partner at law firm Capsticks, says: “Although the Department of Health’s ‘right to provide’ guidance refers to staff in social care and has no express requirement to carry out a tendering procedure, the ‘right to challenge’, in the Localism Bill refers to the need to carry out a procurement exercise if an expression of interest is accepted.”

If they survive these legal challenges, social enterprises and procurement professionals still face a host of practical issues.

Karen Cherrett, local government specialist at PA Consulting Group, says: “Additional burdens on spinouts include the cost of public sector terms and conditions, as well as pension provision comparative to existing commercial operators. If these are not addressed early and with sustainable fixes, the costs of operating under transferred terms will become a lead weight that sinks any initial spin-off.”

At many councils the debate is moving on to how to help social enterprises become competitive within a timeframe that makes sense for the public purse.

Debbie Medlock, assistant director of service delivery of adult social care at Surrey CC, says: “It takes time to shift from an uncompetitive model to a competitive one and our early procurement of social enterprises will need to recognise this.

“Our social work practice pilot goes before cabinet in December. If passed it will see the social enterprise maintaining the existing contract until it reaches its end in 20 months. Then it will be re-tendered following a review of the pilot arrangements,” she adds.

“This is the best way to take a pragmatic look at the issue, respecting other providers and continuing to get the best value for the people of Surrey.”

Alex Blyth

This is the second in a series of quarterly articles, sponsored by Capsticks, looking at the increased role of social enterprises in local government and the issues arising.

Visit our social enterprise section for more:

Managing the procurement process