New information suggests that Direct Award C, one of the new direct award mechanisms created by the new NHS Provider Selection Regime, is being used predominantly to make short-term contract awards to existing providers. 

Background:

The new Direct Award C mechanism under the NHS Provider Selection Regime allows NHS and local authority Commissioners ("relevant authorities") to award a new contract to an existing provider, without competition, if:

• The relevant authority is not required to follow Direct Award A or Direct Award B;  
• The relevant authority proposes to replace an existing contract which is due to expire with a new contract upon the existing contract expiring; 
• The considerable change threshold is not met; and
• 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.

Our guide on Direct Award C can be viewed here: Direct Award C can be viewed here. 

Duration of Contract Awards

Based on information available via the Find a Tender portal at the time of writing (March 2024) the majority of Direct Award C contract awards have been short term – either for up to 1 year (84% of awards), or up to 2 years (13%), up to 3 years (12%) and only 8% of awards for 4-year contracts of more. 

What might this indicate?

As noted in our blog post last week when we considered the relative use of the new PSR procedures (here: The NHS Provider Selection Regime: Ten weeks in) these are the early days for the PSR and there is only a small data sample. As such, no firm conclusions should be drawn at this stage. 

However, a figure of 84% for contract awards of up to 1 year is notable. 

It suggests that for existing providers, there is a good chance that a Commissioner may extend existing arrangements if existing performance is “sufficient”. The need for the new contract not to represent a “considerable change” places a limit on the value of a new contract, which in turn lends itself to short term awards to fall beneath the 25% price increase threshold.  

This also means that whilst certain total contract values may appear to be relatively low (with the majority of contract awards using Direct Award C in the sub £500,000 category), this figure would be higher if those contracts were awarded for a more standard multi-year term. It would be overly simplistic to say that Direct Award C is only being used to extend low value contracts. 

It will be interesting to note in early 2025 whether these one-year extensions become the norm and what the impact on services will be. Could one-year awards incentivise providers to perform to a high standard so that they secure further awards, or might it lead to a level of uncertainty and lower investment, due to the short-term nature of the contract? 

Contributors: Patrick Parkin, Partner; Ben Blackburn, Legal Apprentice.