The Health Care Services (Provider Selection Regime) Regulations 2023 came into force on 1 January and represent a fundamental change to the way that certain healthcare services will be procured by the “relevant authorities” (such as ICBs, NHS England, Trusts and Foundation Trusts). 

In this bulletin, we look at one of the new award mechanisms – Direct Award C. 

We have also published guidance on Direct Award A and Direct Award B.  

For guidance setting out how to decide which PSR award processes are available, please see our PSR flowchart on choosing the right award process here. 

Overview: Direct Award Process C

A relevant authority may use Direct Award Process C under the Health Care Services (Provider Selection Regime) Regulations 2023 (the “PSR”) to award a new contract to an existing provider where an existing contract is due to expire.

In order for Direct Award Process C to be used, relevant authorities must be satisfied that all five of the below criteria are met:

First criterion: The relevant authority is not required to follow Direct Award A or Direct Award B. 

Second criterion: The relevant authority proposes to replace an existing contract which is due to expire with a new contract upon the existing contract expiring.

Third criterion: The considerable change threshold is not met.

Under the PSR the considerable change threshold will be met where:

• the proposed contracting arrangements are materially different in character to the existing contract when that existing contract was entered into (“Change 1”); or
• where:
• changes in relevant health care services to which the proposed contracting arrangements relate are attributable to a decision of the relevant authority;
• the lifetime value[1] of the proposed contracting arrangements is at least £500,000 higher than the lifetime value of the existing contract when that contract was entered into; and
• the lifetime value of the proposed contracting arrangements is at least 25% higher than the lifetime value of the existing contract when that contract was entered into (“Change 2”).

Relevant authorities should be aware that the considerable change threshold will not be met where:

• The change between the proposed and existing contracting arrangements is solely due to a change in the identify of the provider and the relevant authority is satisfied that the provider meets the basic selection criteria and Change 2 is not met.
• Change 1 does not apply and any Change 2 is in response to external factors beyond the control of the relevant authority for example, changes in patient or service user volume.

Fourth criterion:

The relevant authority is of the view that the existing provider is satisfying the existing contract and will likely satisfy the proposed contract to a sufficient standard.

As part of this consideration, the relevant authority is required to take into account the key criteria[2] and apply the basic selection criteria. 

Fifth criterion:

The procurement is not to conclude a framework agreement.

If a relevant authority is satisfied that the above criteria is met it can opt to use Direct Award Process C. Alternatively, it is open to relevant authorities to use the Most Suitable Provider Process or the Competitive Process where the criteria for Direct Award Process C is met if for example, it wishes to test the market. 

Entering into a contract under Direct Award Process C:

Where a relevant authority awards a contract under Direct Award Process C it is required to submit a notice of intention to make an award to an existing provider via the UK e-notification service which must contain the information set out in Schedule 3 of the PSR.

The relevant authority will need to observe a standstill period of eight (8) working days which will begin the day after the notice of intention is published. Following the end of the standstill period, and providing that no written representations are made during the standstill period the relevant authority can enter into the contract.

The relevant authority will need to submit a contract award notice via the UK e-notification service which complies with Schedule 4 of the PSR within 30 days of the contract award.

Our view:

• We expect Direct Award C to provide a useful tool for relevant authorities to retain best-in-class providers rather than conduct new procurement procedures. It will be important for authorities to document their clear reasons that the provider in question is likely to “satisfy the proposed contract to a sufficient standard." 
• For well-performing incumbents, this is likely to be good news and the likelihood of being awarded new contracts on expiry is likely to increase.  
• For the authority, it will be important to clearly document how the relevant authority has ensured that it understands the “provider landscape”  so that it has the necessary level of knowledge to determine if Direct Award C is appropriate or not. If the relevant authority does not have the necessary knowledge of the provider landscape, then it is unclear how it can comply with its obligation to act with a view to improving (i) the quality of the services, and (ii) the efficiency in the provision of the services, as they are required to do under Regulation 4. This is an interesting tension in the exact wording of the PSR and one that we would welcome more clarity on. 
• The question is, is delivering a service to a “sufficient standard” enough to satisfy the obligation to ensure that the authority is acting in a way to improve the quality and efficiency in the provision of the services?

More information:

If you have any questions, please contact our Patrick.Parkin@burges-salmon.com, Richard.Binns@burges-salmon.com or your usual Burges Salmon contact. 

Article written by Lisa Mulholland and Patrick Parkin.
 

[1] The Statutory Guidance issued by NHS England clarifies that the lifetime value of a contract means the total value of the contract over the full length of the contract. See: NHS England » The Provider Selection Regime: statutory guidance

[2] The key criteria under regulation 5 of the PSR are (a) quality and innovation, (b) value, (c) integration, collaboration and service sustainability, (d) improving access, reducing health inequalities and facilitating choice and (e) social value.