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Public Bill Committees

Debated on Thursday 2 February 2023

Procurement Bill [ Lords ] (Third sitting)

The Committee consisted of the following Members:

Chairs: † Clive Efford, David Mundell

† Bhatti, Saqib (Meriden) (Con)

† Blackman, Kirsty (Aberdeen North) (SNP)

† Burghart, Alex (Parliamentary Secretary, Cabinet Office)

† Clarke-Smith, Brendan (Bassetlaw) (Con)

Duguid, David (Banff and Buchan) (Con)

† Eshalomi, Florence (Vauxhall) (Lab/Co-op)

† Evans, Chris (Islwyn) (Lab/Co-op)

† Fletcher, Nick (Don Valley) (Con)

† French, Mr Louie (Old Bexley and Sidcup) (Con)

† Gibson, Peter (Darlington) (Con)

Greenwood, Lilian (Nottingham South) (Lab)

† Jones, Gerald (Merthyr Tydfil and Rhymney) (Lab)

† Marson, Julie (Hertford and Stortford) (Con)

† Randall, Tom (Gedling) (Con)

† Russell-Moyle, Lloyd (Brighton, Kemptown) (Lab/Co-op)

Tracey, Craig (North Warwickshire) (Con)

Whitley, Mick (Birkenhead) (Lab)

Sarah Thatcher, Huw Yardley, Christopher Watson, Committee Clerks

† attended the Committee

Public Bill Committee

Thursday 2 February 2023


[Clive Efford in the Chair]

Procurement Bill [Lords]

Before we begin, I remind Members that Hansard colleagues would be grateful if they could send their speaking notes via email to hansardnotes@ Please switch all electronic devices to silent. No tea or coffee is to be consumed during the sitting.

Clause 16

Preliminary market engagement

I beg to move amendment 20, in clause 16, page 12, line 35, after “suppliers” insert

“, including small and medium-sized enterprises,”.

This amendment, with Amendment 21, seeks to ensure preliminary engagement explicitly refers to SMEs.

With this it will be convenient to discuss the following:

Amendment 21, in clause 16, page 12, line 38, after “suppliers” insert

“, including among small and medium-sized enterprises,”.

This amendment, with Amendment 20, seeks to ensure preliminary engagement explicitly refers to SMEs.

Amendment 25, in clause 21, page 16, line 29, at end insert—

“(6A) Subject to subsection (6D), subsection (6B) applies where a tender notice or associated tender document indicates that a public contract is suitable for small and medium-sized enterprises.

(6B) If no small or medium-sized enterprise submits a tender, the contracting authority must withdraw the tender notice, and may not republish the tender notice until it has fulfilled the condition in subsection (6C).

(6C) The condition is that the contracting authority has conducted preliminary market engagement (see section 16) with a view to engaging with suppliers who are small and medium-sized enterprises.

(6D) Subsection (6B) does not apply if the contracting authority can demonstrate that it fulfilled the condition in subsection (6C) before the tender notice was published.”

This amendment would require contracting authorities to engage with small and medium-sized enterprises before describing a contract as suitable for SMEs. The requirement would only apply if no SME submits a tender.

It is a pleasure to serve under your chairship this morning, Mr Efford. Taken together, amendments 20 and 21 would specify that small and medium-sized enterprises should be considered when carrying out preliminary market engagement. These amendments are the first of a number that we have tabled to try to improve the Bill’s support for SMEs, and we are pleased to see the progress made on SMEs in the other place. As I mentioned previously, Labour supports the amendments made in the Lords; we want SMEs to have fair access to public procurement, and the amendments would make a positive impact by including SMEs in the procurement system. Baroness Neville-Rolfe’s amendments in Committee have added a depth of support for SMEs. I believe the Bill will be a step forward even if those amendments are not accepted, but we should not have a poverty of ambition in this place, which is why we want to go further. The Government talk about improving SMEs’ chances when it comes to procurement, but for far too long that has been just talk. We have not seen enough action.

The statistics on SMEs and procurement are truly shocking. Analysis by the Spend Network found that big corporations still win the lion’s share—almost 90%—of contracts, worth £30 billion a year, that are deemed suitable for bids from smaller businesses. Research from the British Chambers of Commerce and Tussell found that over £1 in every £5—around 21%—spent by Government on public sector procurement in 2021 was awarded to small and medium-sized enterprises. The British Chambers of Commerce also found that SMEs are now receiving a relatively smaller amount of reported direct Government procurement spending than they were five years ago. As a proportion of the overall procurement budget, direct spend with SMEs by local government bodies was the highest, at 38%. NHS bodies across England spent 22% of their procurement budgets with SMEs, while the figure for central Government was significantly lower than the average—they awarded only 11% to SMEs.

That point was addressed in written evidence to this Committee. Anthony Booth from Bromford Housing Group stated:

“Please note that many SMEs do not have the capacity, IT capability, resource or knowledge to participate in the proposed single supplier onboarding / contract portals. Housing associations do rely on the use of smaller regional and local suppliers and a more effective and simplified process would be welcome to allow them to participate. The use of email trails and traditional spreadsheet analysis for simple tender exercises would support these instances rather than involving complex procurement systems such as precontract. This would encourage the flexibility in the supply chain that the Bill is…designed for and also allow an improved competitive position in order to achieve VFM which is also a core requirement of the bill.”

I think we would all agree with that. It is the kind of insight that pre-tender engagement could gather and feed into a more efficient procurement system.

Labour does not feel that SMEs are getting their fair share under this Government, and we believe that we must go further. Our amendments 20 and 21 would address some of the problems that SMEs face. By ensuring that they are engaged during the pre-tender market engagement, our amendments would help to break down some of the barriers that SMEs face in accessing procurement. Early engagement is vital. It can help with efficient contract design, to avoid any bias towards big and established firms that know how the system works. It also means that SMEs will feel more involved in the process and have the confidence they need to bid for programmes.

The shadow Minister is making a powerful and well-researched case that builds on the case she made in Committee on Tuesday. I do not want to test the Committee’s patience by making a speech on this, but I want to let her know that I am willing to support her amendment should she push it to a vote.

I thank the hon. Member for her support.

At the moment it is clear that SMEs find the process frustrating and time-consuming. In his written evidence to the Committee, Colin Cram, who set up the conference company Open Forum Events Ltd to run conferences to support the delivery of improved public services, outlined his experience of the procurement system for SMEs. He stated:

“Tendering is expensive and time consuming. The way the UK’s public sector operates all too frequently inadvertently discriminates against SMEs, which will include the most innovative of suppliers on which the UK’s economy and future global competitiveness will depend. Many SMEs—which means most businesses in the UK—do not know how to tender properly and they don’t have the time to do so. According to the Federation of Small Businesses, at the end of 2021 there were 5.5 million SMEs employing fewer than 50 people each. Their average turnover was £1.25 million. However, only half were registered for VAT, so most will have a turnover well below that. Many of these will be capable of delivering contracts greater than the thresholds”.

He continued:

“Having to tender for every contract that might interest a small business would prove prohibitively expensive. To illustrate the point, a mid-cap business sought my advice. It was winning just 1 tender in 20 and was thinking of withdrawing from the public sector. I suggested that it should employ 2 full time tenderers. It took my advice, and its win rate went up to 1 in 4—without changing either the products or services that it was providing...To put together the simplest of tenders will cost not less than £1000 if properly costed. So, 4 attempts at tendering for the simplest of contracts would cost £4000 and 20 in order to win at least 1 contract would cost £20,000.”

I am pleased that we have made progress on SMEs, but Labour Members fear that, without more clarity and market engagement, SMEs will still be put off by the cost of applying for contracts that they think they have little chance of getting.

SMEs should not have to employ two full-time tenderers to improve their chances of winning contracts that they know they can do. Pre-tender marketing engagement can help to establish contracts that are more easily digested through the bidding process. We understand that some contracts will not be suitable for SMEs, but early engagement can help in figuring out where that is the case and hopefully open up more contracts to a variety of companies. I thank the hon. Member for Aberdeen North for supporting our amendment, and I hope other Members and the Government will support our amendments 20 and 21.

It is a pleasure to serve under your chairmanship, Mr Efford. Amendments 20 and 21 seek to ensure that preliminary market engagement explicitly refers to SMEs.

I thank the hon. Member for Vauxhall for her support of the changes that Baroness Neville-Rolfe made in the House of Lords. We are all committed to improving options and opportunities for small and medium-sized enterprises to take advantage of the substantial amount of public procurement that exists in this country. We fully agree that preliminary engagement is an important part of that. That is why we have included the new duty to have regard to SME participation in the procurement objectives.

The duty will apply in relation to pre-market engagement just as it will cover the whole of the procurement life cycle. Consequently, we do not consider it necessary to clarify in the pre-market engagement clause that the word “suppliers” captures SMEs. It clearly does, and in view of the broad application of the general duty to support SMEs, there is no need for any drafting changes to be made.

To be clear, the new SME duty will lead contracting authorities to consider not only whether they have engaged with SMEs in their preliminary market engagement, but whether their procurement process and timelines are accessible to smaller businesses, supporting them to win and deliver more public contracts. It is nice to hear the hon. Member for Aberdeen North support small and medium-sized enterprises in England—would that the SNP in Scotland had supported the Bill, giving those same opportunities to SMEs in Scotland. I once again extend my invitation to her and the Government at Holyrood to join us on this journey.

The Minister keeps talking as if Scotland does not have procurement legislation, and will not have procurement legislation going forward. It is absolutely the case that we will continue to have procurement regulations and rules, and a fairer procurement system—one in which we do things such as mandate the real living wage, for example.

The hon. Lady has previously given some good examples of things that are going wrong with current procurement. The SNP has not tabled any reform to procurement in Scotland, and I am afraid that, without reform, Scotland will be stuck with the old regime, whereas from spring next year, small and medium-sized enterprises in England, Wales and Northern Ireland will be taking advantage of the regime set out in the Bill.

I hope the Minister is not suggesting that when the Scottish Parliament passes procurement legislation, the UK Government will again levy a section 35 order to stop us changing our procurement legislation.

Certainly not, because I am sure that there would be no need, whereas it was very clear that there was a need in the case to which the hon. Lady refers. She will know that the Government used that constitutional power reluctantly, but very well advisedly.

Amendment 25 would require contracting authorities that have stated in the tender notice that a contract is suitable for small and medium-sized enterprises to, in the event that no SMEs submit a tender, withdraw that tender notice and engage with small and medium-sized enterprises prior to republishing it, unless they can show that such engagement took place prior to the original publication. The Bill supports—indeed, it actively encourages—buyers to conduct preliminary market engagement. We have gone further than existing regulations: clause 17 requires the publication of a preliminary market engagement notice, and clause 12 contains a duty to have regard to reducing barriers facing SMEs. That should lead to increased openness and greater inclusion of SMEs in preliminary market engagement.

However, amendment 25 would add an extra layer of bureaucracy and delay for procurers to manage, and could well frustrate suppliers who have prepared a tender, only for it to be withdrawn if no qualifying bids are received. It is far better for us to increase SME participation in procurement by reducing barriers and highlighting the many benefits they bring to the public sector. I respectfully request that the amendment not be moved.

The Minister has said that there is no need for amendment 25, but it would cover similar grounds to those that we are discussing and would go further, ensuring that SMEs are given access to suitable tenders. When a contracting authority tags a tender as suitable for SMEs, it is only right that due diligence is carried out to ensure that SMEs have the opportunity to come forward. Unfortunately, tagging a contract as suitable for SMEs does not make it particularly accessible to them: it bears repeating that analysis by the Spend Network found that big corporations still win 90% of contracts, which we know are worth over £30 billion.

“Suitable for SMEs” cannot be another buzzword like “affordable housing”—one that does not mean anything to those SMEs that already say they are struggling to win these tenders. Amendment 25 would help to address that. If a contracting authority thinks that a contract is suitable for SMEs, it should be doing the work to engage those SMEs, ensuring that that contract is truly suitable. Under our amendment, contracting authorities would not have to go through that unnecessary bureaucracy. They will have had to engage with SMEs prior to offering the contract, but if none came forward, that would not hinder the contracting authority’s ability to award it. The purpose of the amendment is to help small businesses. Again, I hope the Minister will consider it carefully and support it.

Minister, I realise you have given your response, but do you have anything to add?

I will just repeat what I said, very briefly. I understand the desire behind the amendment, but we believe that there are sufficient measures for preliminary market engagement for SMEs already in the Bill. In the case described by the hon. Member for Vauxhall, there is a danger that, if no SME came forward, we would be adding unnecessary process and cost to a procuring authority.

Question put, That the amendment be made.

Amendment proposed: 21, in clause 16, page 12, line 38, after “suppliers” insert

“, including among small and medium-sized enterprises,”.—(Florence Eshalomi.)

This amendment, with Amendment 20, seeks to ensure preliminary engagement explicitly refers to SMEs.

Question put, That the amendment be made.

Amendment proposed: 91, in clause 16, page 13, line 17, at end insert—

“(6) In carrying out preliminary market engagement, a contracting authority must consider potential barriers to participation by small and medium sized enterprises and charities, and take steps to mitigate any barriers identified.”.—(Florence Eshalomi.)

This amendment, together with Amendment 90, would ensure that the barriers to charities are considered by contracting authorities during the procurement process.

Question put, That the amendment be made.

Question proposed, That the clause stand part of the Bill.

Clause 16 covers preliminary market engagement and is followed by clause 17, which includes provisions on related notice requirements. We want to promote and encourage contracting authorities to conduct preliminary market engagement. The information gathered during this stage can be invaluable for the authority as it clarifies its requirements, assesses the market’s capacity and develops its procurement strategy. This is even more important in the new regime, within which contracting authorities are given more flexibility to design their own competitions that are tailored and fit for purpose.

Clause 17 makes provision for contracting authorities to publish a preliminary market engagement notice prior to publishing a tender notice. The purpose of this preliminary market engagement notice is to advertise the fact that the contracting authority intends to conduct or has conducted preliminary market engagement. It is another great example of there being greater transparency and greater opportunities both for suppliers and authorities as a result of this Bill.

As the Minister outlined, clause 16 gives local authorities the power to undertake pre-market engagement. Although it may be expedient for there not to be pre-market engagement in relation to a number of contracts, particularly small contracts or contracts that are pretty standard for the market, it is entirely sensible for there to be such engagement when an authority is dealing with novel markets or markets where there is innovation. Pre-market engagement can be a powerful tool to help contracting authorities to understand the nature of their contract, what terms are fair in a contract and the nature of the market in relation to a particular piece of work. When it is done correctly, it can also help businesses to get a sense of whether they should put in for particular tenders.

Of course, it is right that any company that receives an unfair advantage in preliminary market engagement is not included in the contract, and we support this addition to the clause. However, I will ask the Minister a couple of questions about this clause that are in a similar vein to the questions I asked during the stand part debate on clause 15.

How often can we expect contracting authorities to undergo preliminary market engagement? As I have said previously, I understand why it is impractical to carry out such engagement on every above-threshold contract. However, it is important that there is some level of consistent practice in the system. In addition, although I also understand the need for flexibility among contracting authorities, I know that businesses want certainty and some certainty can come from knowing that different authorities will follow a similar level of preliminary market engagement as standard.

However, I also have concerns about the burden that this process may place on already stretched procurement departments, a concern I have already raised in earlier debates. The written evidence this Committee received from John Lichnerowicz is telling. He says:

“In my experience Procurement Departments particularly those containing CIPS qualified professionals are extremely overstretched and a bottleneck to public sector organisations being able to deliver their services.”

So it is easy to envision that this clause, as well as lacking clear mandates for local authorities to carry out pre-market engagement, will also mean that stretched procurement departments will not have the resources to carry out such engagement.

If pre-market engagement is done proportionally, it could save the taxpayer a small fortune. Will the Minister be issuing clear instructions as to when he intends such engagement to take place?

Many forms of pre-market engagement will involve consideration of contracts that are already being carried out for other contracting authorities. Although every contract will have some bespoke elements, this does not mean that what we learn from one engagement round in one place has no relevance to similar engagement rounds or similar contracts in other places. Will the Minister confirm that information from pre-market engagement will be shareable across contracting authorities and indeed that sharing such data should be relatively common where it is possible to share it?

Regarding subsections (3), (4) and (5) of clause 16, can the Minister say what the threshold for an unfair advantage would be? Of course we cannot have suppliers writing contracts, but engagement will necessarily expose suppliers to some level of information about the planned tender. At what level will such activity be considered to constitute an unfair advantage? Will guidance be issued to decision makers about this matter?

Finally, on clause 17 will the Minister confirm that efforts will be taken to ensure that such notices are received as widely as possible? Again, we all know it is important that small and medium-sized enterprises, charities and social enterprises are made aware of these notices and can then take part in preliminary market engagement if we are to have a true picture of the market. What steps will be taken to ensure that it is not just those who have keen eyes on contracting authorities who engage with them?

Let me take the hon. Lady’s questions in turn. Effective preliminary market engagement is a great tool to improve procurement. It will improve contracting authorities’ ability to act as an intelligent customer—that very much came out in the engagement work we did in the construction of the Bill—because it benefits suppliers, as the potential customer understands the market’s capability, is exposed to industry best practice and learns of potential innovative solutions being designed or tested. That will lead to more effective and efficient procurement by reducing the burdens on suppliers during the competition, avoiding the customer considering an unrealistic bid and improving the drafting of contract terms. We will not dictate to authorities when to undertake preliminary market engagement—we think it is better that that is their decision—but we are obviously encouraging them to do so. Of course, as the hon. Lady will know from other discussions we have had, transparency runs throughout the Bill. Sharing the outputs from such engagements will be possible and essentially a great thing.

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.

Clause 17 ordered to stand part of the Bill.

Clause 18

Duty to consider lots

Question proposed, That the clause stand part of the Bill.

The clause requires the contracting authority, before advertising the opportunity, to consider whether the contract can be split into smaller chunks, or lots. That may be the right thing to do for a number of reasons. It could reduce supply risk by having numerous suppliers, or encourage smaller organisations to bid by making the opportunity more accessible and manageable—for example, breaking a large facilities management contract into regional contracts that local companies can deliver. Because that is important to provide opportunity, particularly for SMEs, clause 18(2) requires contracting authorities to either

“arrange for the award of…contracts by reference to lots”


“provide reasons for not doing so.”

As the Minister outlines, the clause obliges authorities to divide larger contracts into smaller lots where that is appropriate for the contract. That is a useful and necessary power, and it is one that we hope SMEs will welcome. Breaking down contracts is a good way of making them more accessible for smaller companies. I mentioned the evidence from John Lichnerowicz, who said that it can be difficult for all but larger suppliers to take on bigger contracts that are not broken down. His written submission states that

“overstretched Procurement Departments would lump requirements into a single large procurement which would go to only the biggest companies in their field who would then have the freedom to pick their favourite sub-contractors effectively eliminating the contribution of equally capable sub-contractors and adding a main contractor’s margin into the sub-contractor’s costs for little benefit”.

In a number of contracts awarded recently by my council, the overall contractor ended up subcontracting people who had made separate individual bids but did not have the capacity to take on the bigger contract and therefore were not awarded it on that basis. Having big contracts is just a way of diverting money away from the taxpayer and into shareholders’ pockets, is it not?

I thank my hon. Friend for that valuable point. What we want for SMEs, and what SMEs tell us they want, is fair access to Government contracts—public money that should be going back into local communities up and down the country. Unless we ensure that larger contracts can be broken up into smaller lots and awarded directly to smaller companies, there will be a repeat of what we see with those big contracts. No one wants those same practices to be employed all over the country. I want the Minister to stress what oversight will be put in place to ensure that the important provisions in the clause are carried out and to ensure that all our SMEs truly benefit from public contracts.

As the hon. Lady will see in clause 18(2), contracting authorities will be required either to arrange by lots or to report on that; they will be required to give a reason, so there will be transparency.

The hon. Member for Brighton, Kemptown characterised money from public contracts as going into shareholders pockets. Obviously, larger contracts are also going to very successful charities. I can think of lots of examples of that in areas where I have lived and areas where I work and live now, so I do not wish to give the impression that is always the case.

Even if it were going to these mega-charities, which are huge international organisations and firms, it surely is not right for them to come in and take a contract, and take the top slice off it if the work is still done by small, local organisations. Whether they be for profit or not, local, small organisations should have a chance of just getting the smaller elements of the contract directly, should they not?

It is wonderful to hear the hon. Gentleman supporting our Bill once more. Making contracts more accessible to small and medium-sized enterprises is a major purpose of the Bill. It is not always mega, international charities that are getting local contracts. In Essex, I see that is not the case.

I refer Members to my entry in the Register of Members’ Financial Interests, which states that I am an owner-shareholder of an SME. There are other benefits of working for a main contractor, and that should go on the record. The Bill should make it easier for small enterprises to gain that work, but if a contractor works directly for the client, it becomes the main contractor. When it becomes the main contractor, it becomes responsible for the health and safety and everything that goes with it, so there is an awful lot of cover for smaller contractors to work for a main contractor so that the main contractor takes some of those responsibilities away. I know what we are trying to do here and it is a good thing to do. If small and medium-sized enterprises work for the main authority, they become responsible, so there is a cover that main contractors provide. They are not just taking the top slice for nothing; they are actually taking on responsibility for the entire project.

My hon. Friend makes an excellent point.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Clause 19

Award of public contracts following a competitive tendering procedure

I beg to move amendment 95, in clause 19, page 14, line 16, at end insert—

“(aa) must disregard any tender from a supplier that does not guarantee the payment of at least the Real Living Wage to all its own employees and contracted staff and those of any sub-contractors;”

This amendment, together with amendments 96 to 99, is designed to ensure that no public contract can be let unless the supplier guarantees the payment of the Real Living Wage to all those involved in the delivery of the contract.

With this it will be convenient to discuss the following:

Amendment 96, in clause 41, page 28, line 36, at end insert—

“(3A) A contracting authority may not award a contract under this section to a supplier that does not guarantee the payment of at least the Real Living Wage to all its own employees and contracted staff and those of any sub-contractors.”

See explanatory statement to Amendment 95.

Amendment 97, in clause 43, page 30, line 12, at end insert—

“(5A) A contracting authority may not award a contract under subsection (1) to a supplier that does not guarantee the payment of at least the Real Living Wage to all its own employees and contracted staff and those of any sub-contractors.”

See explanatory statement to Amendment 95.

Amendment 98, in clause 45, page 31, line 14, at end insert—

“(aa) permit the award of a public contract to a supplier that does not guarantee the payment of at least the Real Living Wage to all its own employees and contracted staff and those of any sub-contractors.”

See explanatory statement to Amendment 95.

Amendment 99, in clause 119, page 77, line 41, at end insert—

“‘Real Living Wage’ means the hourly wage rates for London and for outside London calculated annually by the Resolution Foundation and overseen by the Living Wage Commission (or their successor bodies);”

This amendment inserts a definition of the Real Living Wage for the purposes of Amendments 95 to 98.

From July in Scotland, grants will require that the real living wage is paid, and it is already included in procurement rules. That has led to Scotland now having fewer, in percentage terms, workers earning less than the real living wage than in England. We in England and Wales deserve the same. It pushes up wages across the sector. For too long, public authorities have used procurement as a way to undermine salaries and salary rates. It is an ideological viewpoint that the private sector is always best but, in reality, far too often, what “best” means is paying poverty wages. Sometimes innovation from the private sector and the charity and third sector is important, but if it is on the back of paying wages that are below standard, it is not acceptable. That is why I beg to move amendment 95 and linked amendments 96 to 99. Hopefully, they will start to redress the balance.

My hon. Friend the Member for Leeds East (Richard Burgon) asked the Minister’s colleague previously about the Government’s position on this, and the Government said that they do not believe in dictating employees’ wages. The reality is that by not setting a minimum floor—no one is suggesting a maximum—we are undermining good companies that pay good wages. Decent employers can lose out from people playing fast and loose with wages. We have seen numerous scandals, including fire and rehire, TUPE rules not being enforced and collective bargaining being undermined.

Wages below the real living wage require universal credit support. Let me be very clear: if someone is paid below the real living wage, the Government subsidise them. That is, in reality, a subsidy for that piece of work—that procurement. That puts companies whose workers do not receive that subsidy in a worse situation. To create a level playing field, all should receive the real living wage. That would mean that no employees in those companies have to receive a state subsidy for their work. That basic principle—that level playing field—must be enforced in this Bill.

Procurement bodies can incorporate a number of tests relating to the real living wage, but they cannot require that absolutism in contracts. If a company does not fulfil the living wage requirements set out in its procurement tender, but it does fulfil the other requirements, it is required to be offered the contract. That directly undermines the small and medium-sized organisations that work hard to pay the real living wage.

In Brighton, we have a great collaboration between the chamber of commerce, which requires all its members to pay the real living wage, and the trade unions. That kind of collaboration between businesses and unions needs to be supported. People who are not members of a chamber of commerce-registered body should not be able to come in and undermine those contracts.

The Minister might say that this proposal endangers international obligations, or that it means that UK workers are more fairly treated, but because Scotland has already incorporated it, we know it is not a breach of international agreements. It is important to ensure that British workers are respected when British money is being paid out—I should say English and Welsh money, because that is what these rules will be for. We need to ensure they get their just desserts and are not undermined by offshoring with low wages, and companies that are paying their fair share must not be undermined by universal credit subsidies. I commend these amendments to the Committee.

I congratulate the hon. Member for Brighton, Kemptown on these excellent amendments. I am glad that he mentioned what is happening in Scotland, and I will talk a bit more about that.

It is interesting that the Government say they do not believe in dictating employees’ wages, given that they literally set the national minimum wage and they refuse to lift it to the level of the real living wage. They absolutely could lift it to a level people can afford to live on, but they refuse to do so. They chose to change its name, rather than changing the amount and sorting out the significant age discrimination in the national living wage.

The hon. Gentleman is absolutely correct that in Scotland, 91% of people are paid at least the real living wage, which is significantly higher than the minimum wage in the other UK nations. In October 2021, we started to routinely mandate payment of the real living wage in Scottish Government procurement contracts. In 2022 we published updated statutory guidance under the Procurement Reform (Scotland) Act 2014 to reflect the change and the extension of the Fair Work First criteria to include specific reference to provision of flexible working and no use of fire and rehire. We have gone even further than the real living wage; our public money must be spent in a way that requires fair work practices. That is incredibly important because we have the opportunity to spend public money in a way that supports workers and ensures people are best placed to manage the cost of living crisis that we currently face. It ensures that people are fairly paid.

We are not asking for much. Ensuring that people are paid a wage that they can live on and does not need to be subsidised quite so much by universal credit is not a big thing to ask for. We are asking for dignity and respect for people. We are asking for people to be paid a fair wage and to be treated fairly.

There is an alternative to these amendments, which is for the Government to adopt Labour’s policy to change the rules of the national minimum wage so that they take into account the cost of living in this country and therefore adopt the standard of the real living wage. I am sure the hon. Lady would support that Labour policy.

Absolutely. We have for a long time been calling for the UK Government to change their national pretendy living wage to an actual real living wage. We have also asked for the age discrimination to be removed, because it does not cost a 17-year-old with one child any less to run a house than it costs a 32-year-old with one child; people face exactly the same costs. The UK Government are trying to require people to live with their parents, which is exclusionary and discriminatory because not everybody has that option.

The Minister is right to say that the Bill applies in England and Wales and also in reserved functions carried out in relation to Scotland, so there will be some impact on Scottish procurement, or on procurement that affects Scotland or is in Scotland. But I fear that he misunderstands the devolution settlement and the constitution when he suggests that perhaps I, as a Scottish MP from a Scottish constituency, elected to this place that makes laws, should not express an opinion. I was elected to this place in the same way as he was. There are not two tiers of MPs in this place, or so we were told by the Conservative Government when they put through the English votes for English laws rules. There is no two-tier system, so it is appropriate for me to comment on these situations and support amendments, and to consider whether the impact on workers is important. Whether they are in England, Wales or Scotland, it is important.

It is also appropriate for me to consider the Barnett consequentials of any decisions made. For example, if there is a change in the way that procurement legislation works so that more people are paid the real living wage, we might see a situation where procurement ends up with slightly higher costs and universal credit ends up with slightly lower costs, meaning that we end up with more Barnett consequentials for the Scottish Parliament to spend and greater flexibility within our very limited budgets.

If the Minister is going to continue criticising the Scottish Government’s and the Scottish Parliament’s approach to procurement—he is within his rights to do so—he has no high ground in talking to me if I talk about the England and Wales approach to procurement. I am perfectly entitled to do so. In fact, he has not been elected to the Scottish Parliament, which has power over procurement in Scotland; he has been elected to this Parliament, which does not.

I completely agree with the hon. Lady that there are not two tiers of Members in this House. She mentioned a 17-year-old. Can she expand on that? I am looking at the Living Wage Foundation website, which states:

“Living Wage accreditation does not require employers to pay the Living Wage to volunteers or apprentices.”

What impact, if any, has the introduction of a real living wage as part of the procurement rules in Scotland had on apprentices in Scotland?

The hon. Gentleman is absolutely right that there is an issue with that, because the national living wage is set differently for apprentices. He is correct that the Living Wage Foundation’s rules on apprenticeships are different. I do not have the figures on whether the wages of our apprentices have risen as a result of the changes that have been made. However, I am sure that the fair work procedures and the rules around that—the inability to fire and rehire, for example—are applicable to apprentices and ensure that they have a higher level of protection than they did previously. In exactly the same way, we have greater requirements with respect to flexible working requests.

Although I cannot give the hon. Gentleman the exact details on figures and wages, I can say that working conditions are, as standard, better as a result. I am sure that many people who were putting procurement contracts out to tender required the real living wage and great working conditions. The amendments would mandate that, so that it is set in stone and everyone is brought up to that minimum standard, although some will well exceed that.

I thank my hon. Friend the Member for Brighton, Kemptown and the hon. Member for Aberdeen North for their remarks. The amendments are important because so many people are having to take the difficult decision to take strike action as their wages cannot sustain them. We are seeing situations where people are unable to feed their children and heat their properties. People who work in our core public services are relying on food banks. Instead of demonising those people, we as politicians, and the Government, should be looking at how we can help them.

I am proud to be a member of GMB and Unison. We should remember that trade union members are ordinary people. They pay their union subs, yet they are losing a day’s pay by going on strike to show the Government that their wages cannot sustain them. People are effectively on poverty wages. During this cost of living crisis, it is important that we listen to their valid concerns.

We see a number of employers still not doing the right thing by recognising the issues that their employees are going through, while still making millions of pounds in profits. As I said in my remarks on amendment 107, Labour is committed to delivering fair treatment for all workers, and that must include fair pay and conditions, workplace wellbeing and the development of workers’ skills. We believe that procurement offers a great opportunity to increase social value. Our later amendments will make it clear that we do not want to see those who are breaching the rights of their workers awarded public contracts.

Our ambitions on the minimum wage should not be limited to workers in procurement. Instead, Labour believes we should increase the minimum wage for everyone across the economy. An incoming Labour Government would want to ensure that everyone across the economy is paid a fair day’s wage. We would instruct the Low Pay Commission to factor in living costs when it sets the minimum wage, ensuring that it covers the cost of living.

The cost of living continues to increase for many people and, as inflation continues to rise, their salaries are not keeping pace. These measures would put hundreds of pounds into the pockets of the lowest-paid workers. We would also scrap the low pay category for workers aged 18 and 19.

Amendments 95 to 99, tabled by the hon. Member for Leeds East, would place legal requirements on contracting authorities in respect of the Resolution Foundation’s real living wage in their procurements. That would ensure that no public contract could be awarded unless the supplier guaranteed the payment of the real living wage to all those involved in the delivery of the contract, including subcontractors.

While the principle behind the amendments is admirable, the Government cannot support them. It is imperative that all contracts are awarded on the basis of the best value for money for the taxpayer and that staff employed on the delivery of public contracts are paid fairly, in line with existing legal requirements. But using procurement rules to compel private sector employers to pay their workers beyond minimum legal requirements would be disproportionate.

The hon. Member for Brighton, Kemptown talked about a floor. There is a floor: for this Government, it is the national minimum wage, or the national living wage for workers over 23. He also mentioned insourcing. Obviously, procuring authorities are completely at liberty to insource if they so wish, and the Bill does nothing to prevent that. If procuring authorities feel that they can get better services, a better deal or better conditions by insourcing, they are entirely at liberty to do so.

I should also let hon. Members know that when constructing a contract, a procuring authority can stipulate pay and conditions as part of that contract. Procuring authorities have big levers at their disposal.

Can the Minister give me an assurance that the terms and conditions that procuring authorities can issue can be the sole reason for not awarding a contract, if a supplier does not fulfil that sole clause?

I cannot give the hon. Gentleman an absolutely categorical answer, but I can tell him that procuring authorities have it within their power to use that as part of a suite of conditions.

I am not quite clear whether the Minister is unable to give me an assurance from his position, or because procuring authorities cannot do so. If he just cannot give me an assurance from his position, I would appreciate his writing to me to confirm whether procuring authorities have the ability to put in a clause that says, “We can disregard contracts that do not fulfil our wages and conditions requirements.”

I will certainly let the hon. Gentleman know.

The hon. Member for Aberdeen North raised a number of general points; I encourage her to go back and read Hansard. I am delighted that she is here; I am delighted that Scottish MPs are in the UK Parliament, and that the Scottish people voted to keep them here at the last referendum. I am very pleased that she is on the Committee and bringing her experience to it.

The hon. Lady will have heard me say in the Westminster Hall debate the other day that I wish the SNP was more involved in the running of the constitution of the United Kingdom. I wish, for example, that it was prepared to take up its seats in the House of Lords, in order to engage with debate there and further the interests of the people of Scotland. Alas, it would seem that the SNP has better things to do.

The hon. Lady said that I have said that she should not be talking about these matters. I really do not mind at all if she talks about these matters, but obviously, some amendments have Barnett consequentials and others do not. As long as she is happy for me to discuss what goes on in Holyrood and in Scotland, I am very happy for her to discuss what goes on in Westminster and in English authorities. I have no problem with that at all.

Returning to the issue at hand, as I say, it remains open to contracting authorities to include conditions or criteria around pay and remuneration in their tenders. Should they feel it is appropriate in the individual circumstances, they can design a procurement around those criteria. I respectfully ask that the amendment be withdrawn.

I would have been willing to withdraw the amendment if the Minister had been able to give me a cast-iron guarantee that procuring authorities could reject a contract solely on the basis of a failure to meet a wage level. He has not been able to give me that guarantee—although I welcome that he will be writing to me to confirm the position—so I do want to test the water on amendment 95. I will not move the other amendments.

Question put, That the amendment be made.

I beg to move amendment 30, in clause 19, page 14, line 21, at end insert—

“(ba) may disregard any tender that offers a price that the contracting authority considers to be abnormally low for performance of the contract;”.

This amendment would allow contracting authorities to disregard tenders offering an abnormally low price.

We tabled amendments 30 and 31 to ensure that contracting authorities can assess and disregard abnormally low tenders where the supplier cannot demonstrate to the buyer’s satisfaction that it will be able to perform the contract for the proposed price. We are committed to delivering value for money and the amendments will provide helpful safeguards against suppliers that seek to undercut the competition with unrealistic tenders.

While our response to amendments 30 and 31 is lukewarm, we think that they are important. We want all contracting authorities to consider value for money for the taxpayer when making procurement decisions, but there is a substantial risk of accepting below-value tenders for bids. Procurement has to be sustainable, and we know too well the risks when we get that wrong.

When considering the Bill, we must all remember 15 January 2018 and the collapse of Carillion. When it went into liquidation, it employed 42,000 people, including nearly 20,000 people in the UK. It also had a liability of £2 billion to some 30,000 suppliers and subcontractors, some of which sadly fell into insolvency themselves as a result of the collapse. While there are excludable grounds relating to poor procurement practices set out in later clauses of the Bill, I do feel that these amendments provide another check against the reckless behaviour of companies such as Carillion.

In 2018, following the collapse of Carillion, the then Chair of the Public Administration and Constitutional Affairs Committee, the hon. Member for Harwich and North Essex (Sir Bernard Jenkin), said:

“It is staggering that the Government has attempted to push risks that it does not understand onto contractors, and has so misunderstood its costs. It has accepted bids below what it costs to provide the service, so that the contract has had to be renegotiated. The Carillion crisis itself was well-managed, but it could happen again unless lessons are learned about risk and contract management and the strengths and weaknesses of the sector.”

To some extent, has that not already happened again on the east coast franchise? Twice, unrealistic bids have been accepted and then collapsed, requiring the Government step in. It is not unusual for that to happen, so the amendments are good but probably not strong enough.

I thank my hon. Friend for highlighting that those lessons do not seem to have been learned.

The hon. Member for Harwich and North Essex went on to say:

“Public trust requires that outsourcing better reflects public service values. The Government must use this moment as an opportunity to learn how to effectively manage its contracts and relationship with the market.”

The amendments will not fully solve the problems associated with Carillion, or the problem just mentioned by my hon. Friend the Member for Brighton, Kemptown, and a culture shift in procurement should have taken place following the collapse of Carillion. However, they do provide a safeguard for authorities to use against abnormally low and unsustainable bids.

Finally, will the Minister outline the wider impact of changing “most economically advantageous tender” to “most advantageous tender”?

I will respond as part of the clause stand part debate.

Amendment 30 agreed to.

Amendment made: 31, in clause 19, page 14, line 23, at end insert—

“(3A) Before disregarding a tender under subsection (3)(ba) (abnormally low price), a contracting authority must—

(a) notify the supplier that the authority considers the price to be abnormally low, and

(b) give the supplier reasonable opportunity to demonstrate that it will be able to perform the contract for the price offered.

(3B) If the supplier demonstrates to the contracting authority’s satisfaction that it will be able to perform the contract for the price offered, the authority may not disregard the tender under subsection (3)(ba) (abnormally low price).”—(Alex Burghart.)

This amendment would require contracting authorities to notify suppliers of the fact that the contracting authority considers the price to be abnormally low and give suppliers reasonable opportunity to demonstrate that it is workable before disregarding their tender.

Question proposed, That the clause, as amended, stand part of the Bill.

Clause 19 describes the rules that apply to the award of a public contract following the conclusion of a competitive tendering procedure. Contracting authorities are able to award a contract only to the supplier that submits the “most advantageous tender”, which is the tender that satisfies the authority’s requirements and best meets the award criteria when assessed in reference to the assessment methodology and the relative importance of the criteria. The clause describes the circumstances that would either require a contracting authority to exclude a supplier or disregard a tender, or give the authority the discretion to do so.

Contracting authorities are required to disregard tenders when the supplier does not satisfy the conditions for participation, and may disregard a tender that materially breaches a procedural requirement. Contracting authorities are also permitted to disregard tenders from suppliers that are not treaty-state suppliers, or when the supplier intends to subcontract the performance of all or part of the contract to a subcontractor that is not from such a country.

The clause also refers to provisions elsewhere in the Bill that allow for contracts to be reserved for supported employment providers, for contracts for particular services to be reserved for public-service mutuals, and for tenders from suppliers that are not members of a dynamic market to be disregarded. It also deals with when suppliers must or may be excluded. I will come to those specific provisions later.

The Government have a moral obligation to spend taxpayers money efficiently. These rules, which provide better flexibility for procurers, will help to ensure that every pound goes further for our communities and our public services.

The clause contains a small change, which could have significant ramifications, but it is one that we support. Moving from “most economically advantageous tender” to “most advantageous tender” can make a significant difference to the reality of how contracts are awarded. Throughout this process, we have heard of many people who apply for contracts, and have a lot to offer, but fail the most economically advantageous tender test. The new wording gives them a fighting chance at winning contracts.

Charities may also benefit from that. However, the National Council for Voluntary Organisations is cautious about the power of the new term. I hope the Minister is aware of some of the concerns that it raised. It says, in its submission that

“this alone will not have the desired effect. This was already possible under current regulations and guidance, as contracting authorities are meant to account for the wider benefits of any bid, but in reality, it has rarely been applied, with decisions continuing to be dominated by lowest unit costs.

The change in language to assessing for the MAT will not be sufficient to change practice and culture. Further clarity and expectations are needed so that assessing the MAT includes placing more emphasis on the importance of social value and recognising the different ways this can be delivered.”

I think it is important to get clarity on how this will be applied. With the right instruction, this new rule can open up how authorities judge applications, but if the Government get it wrong, it could lead to confusion and be little better than the status quo.

It is worth considering the advice from Colin Cram, which I mentioned earlier. He said that it costs £1,000 for all the effort that goes into that tender, so SMEs need to know how much things such as the social value will matter in this new test, and whether it is worth them tendering for contracts. Everyone needs clarity to help them to understand that, and to make economic decisions about how to bid. I would therefore welcome a firm commitment from the Minister and the Government on how we could plan for clarity on that term, and a timetable on how that will be published widely to SMEs.

I am very pleased to hear the Opposition’s support for this clause and for our significant shift from MEAT to MAT—from most economically advantageous tender to most advantageous tender. That framing sends a very clear signal to contracting authorities to take a broader view, beyond price, of what can be included in the evaluation of tenders—wider social and environmental considerations, for example. We think that the clause will make a significant difference and that, partnered with the national procurement policy statement—NPPS—it will open the way for new thinking about public procurement. I commend it to the Committee.

Question put and agreed to.

Clause 19, as amended, accordingly ordered to stand part of the Bill.

Clause 20

Competitive tendering procedures

Question proposed, That the clause stand part of the Bill.

A key proposal in the Green Paper was simplification of the existing procurement procedures in the public contracts regulations, and clause 20 is the enactment of that proposal. It sets out how competitive tendering procedures should be run. The first option is an “open procedure”. That is a single-stage procedure whereby any supplier can submit a tender in response to the tender notice. The second option is a “competitive flexible procedure”. That will allow contracting authorities to design the procedure that works best for their procurement, allowing them to engage with suppliers, negotiate, and undertake numerous phases such as for research and development and prototype delivery. Once determined, that procedure will be set out in the tender notice and associated documents.

This clause is an important one. Again, it relates to the competitive tendering process. Although the mechanisms of these procedures are an incredibly important element of the Bill, many aspects of the procedure are addressed later in the Bill. Those are also referenced in the latter part of this clause. I will cover that later, but I do want to address some aspects of the clause now.

It is welcome that we are seeing a two-stranded procedure system in the Bill. We are aware that some contracts will attract very few bids and are suited to a single-stage tendering process. We are also aware that some tenders will attract many bidders and it is necessary to have a multi-round process to come to a conclusion as to who the best bidder is. Although this provision is welcome, there is discontent from some stakeholders about how the bidding processes will work in practice.

In written evidence, which we all received the other day, Zurich Insurance stated:

“As currently set out, it appears the ‘Competitive Flexible Procedure’ could be the most suitable approach for the Risk and Insurance services. However, it would be useful if more detail on how each of these procedures will operate could be provided within the Bill.”

I therefore have some questions regarding the nature of the multi-round process and how it will work in practice. First, how much effort will be required from contractors at an early stage of the competitive flexible procedure, before putting in a bid? Earlier I referenced and highlighted the evidence from Colin Cram, and we have also heard from him that the cost of putting in a tender can, for some small businesses, be in four figures. For contracts that could attract a large number of bidders—for example, a relatively small contract that can be carried out anywhere—that would mean that many bidders would in effect be entering a really expensive lottery with little chance of winning with their bid. That is particularly off-putting for SMEs, which do not want to spend a significant amount of their budget bidding for these contracts. Mr Cram, who supports the current system of restricted procedure, says that although that system is not perfect, it is much better than what is proposed. He says that the current system

“has a formal and very simple, easily understood and low cost approach to shortlisting businesses/organisations before asking them to tender. Typically, this might result in just 4 being invited to tender. That gives each one a decent, though still expensive, chance of winning.”

We all know that the new system will have advantages over the old, restricted procedure, but I hope that the Minister can address some of the concerns and outline how the new system will not be expensive for SMEs.

In answer to the hon. Lady’s question, the new competitive flexible procedure will allow procurers to design the procurement best to deliver their outcome , rather than being constrained by a rigid and bureaucratic process, which is often the case at the moment. That is good commercial practice.

We plan to provide templates and guidance for contracting authorities to use, so that there is consistency of application without stifling their ability to innovate. That flexibility will benefit suppliers, who will be able to negotiate and offer more innovative solutions. Additionally, when a contracting authority publishes an initial advert, it will have to set out the procedure it intends to run. The contracting authority, in setting out the procedure, will have to ensure that it is proportionate and takes into account the nature, complexity and cost of the contract. The procedure set out will then have to be followed. There is scope to modify the procedure, but that must be in a transparent way and only in so far as it would not have changed the market response.

I feel that we have planning and precautions in place to deal with the concerns expressed by the hon. Lady.

Question put and agreed to.

Clause 20 accordingly ordered to stand part of the Bill.

Clause 21

Tender notices and associated tender documents

Amendment proposed: 25, in clause 21, page 16, line 29, at end insert—

“(6A) Subject to subsection (6D), subsection (6B) applies where a tender notice or associated tender document indicates that a public contract is suitable for small and medium-sized enterprises.

(6B) If no small or medium-sized enterprise submits a tender, the contracting authority must withdraw the tender notice, and may not republish the tender notice until it has fulfilled the condition in subsection (6C).

(6C) The condition is that the contracting authority has conducted preliminary market engagement (see section 16) with a view to engaging with suppliers who are small and medium-sized enterprises.

(6D) Subsection (6B) does not apply if the contracting authority can demonstrate that it fulfilled the condition in subsection (6C) before the tender notice was published.”—(Florence Eshalomi.)

This amendment would require contracting authorities to engage with small and medium-sized enterprises before describing a contract as suitable for SMEs. The requirement would only apply if no SME submits a tender.

Question put, That the amendment be made.

Question proposed, That the clause stand part of the Bill.

The clause describes the requirement for contracting authorities to publish a tender notice in order to advertise and commence a competitive procedure. A tender notice may act as an invitation to submit a tender for the contract under the open procedure, or an invitation to suppliers to submit a request to participate in a multi-stage tender process under the competitive flexible procedure. In either case it must be published on the central platform, the publishing location for all notices required throughout the procurement cycle.

The central digital platform will contain public sector procurement information, allowing the citizen to understand the authorities’ procurement policies and decisions and to see how much money the Government, local authorities and the NHS spend on purchasing essential goods and services, and who is really benefiting from the public purse. Contracting authorities will also be required to provide any relevant associated tender documents, which will provide further details of the procurement. Transparency runs through the Bill like sunlight.

The Bill gives contracting authorities significant freedom to choose a procedure that will best deliver their requirement, but they must set out the process to be followed at the outset. While there is some limited ability to modify those—as we will see in clause 31 —contracting authorities must follow the processes set out in their tender notices or associated tender documents, and failure to do so will leave them at risk of challenge. Further details on the contents of the tender notice and associated tender documents await us in clause 93.

As the Minister said, the clause pertains to tender notices and all the associated documents. It is crucial to get this right. We cannot just expect measures to be in the Bill—they have to be in there.

The existing Contracts Finder function is the central functioning database for companies to find public contracts that are open for tender. With the Bill, the Government have talked about a new digital platform that will go much further than Contracts Finder, making the finding of contracts even easier. I wish the Government well in that goal, and it is important for a number of reasons.

We have spoken at great length about the need for SMEs to have easy access to that database and be able to navigate and find those contracts easily. The reality is that some of those very small businesses—often a one-man or one-woman outfit—will not have procurement experts. They will not have time to navigate and understand the database and may miss out on contracts they would be more than able to cover. It is important that we have that transparency. This is taxpayers’ money after all and we need to see how it is being spent so, yes, we need that sunlight shining deep on it so that it offers value for money.

Unfortunately, as we all know, we saw big gaps in the transparency and procurement system during the covid-19 pandemic. The National Audit Office investigation into Government procurement during the pandemic found that

“General guidance issued by the Crown Commercial Service recommends that awarding bodies publish basic information about the award of all contracts within 90 days of the award being made. Of the 1,644 contracts awarded across government up to the end of July 2020 with a contract value above £25,000, 55% had not had their details published by 10 November”

—that is not good enough—

“and 25% were published on Contracts Finder within the 90-day target.”

I hope the Minister will accept that that is not acceptable. The Government must ensure that the new system is backed by strong standards to ensure that the publication of contracts on the new digital database is carried out to a good standard. I hope the Minister will outline how that will be done in his response.

One of the real advantages of having our online digital platform is that everyone, particularly the very small businesses that do not have much capacity, as the hon. Lady mentioned, will know where to go. Everyone will know where to look, and that will be an enormous convenience for all involved. It will help us to fulfil one of the major functions of the Bill, which is to help new entrants into the system and help fresh suppliers take advantage of the £300 billion pot of public procurement money.

Question put and agreed to.

Clause 21 accordingly ordered to stand part of the Bill.

Clause 22

Conditions of participation

Question proposed, That the clause stand part of the Bill.

Clause 22 enables contracting authorities to set conditions on suppliers’ participation in a procurement process. They are the conditions that a supplier must satisfy to be awarded a public contract. The current regime has often described these as the selection criteria. Conditions of participation must relate only to the legal and financial capacity and the technical ability to fulfil the requirements of the contract. Any conditions of participation set for those purposes must also be proportionate to the nature, complexity and cost of the public contract. That means the conditions should not be unnecessarily onerous for the supplier. A contracting authority can include qualifications, experience or technical ability but, to ensure fair treatment of suppliers and equality of opportunity, they cannot relate to a particular prior award of a public contract or contravene the rules on technical specifications in clause 56.

Clause 22 gives contracting authorities the power to set conditions of participation for contracts where necessary to get the suppliers to fulfil their full terms of contract. This is an important clause because it allows contracting authorities to put checks and balances in place to ensure that suppliers are fit to carry out the contract. That gives contracting authorities the confidence to engage with novel suppliers, providing a certifiable window into procurement. It ensure that checks can be carried out against the kind of collapse we saw with Carillion. This is a proportionate and necessary measure, so I would welcome assurances from the Minister that the guidance will be provided to contracting authorities on how to impose conditions of participation.

I thank the Opposition for their support of the clause. Obviously, we will set out a whole range of guidance around the Bill, but the conditions of participation set out in the clause speak for themselves.

Question put and agreed to.

Clause 22 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Julie Marson.)

Adjourned till this day at Two o’clock.

Procurement Bill [ Lords ] (Fourth sitting)

The Committee consisted of the following Members:

Chairs: Clive Efford, † David Mundell

† Bhatti, Saqib (Meriden) (Con)

† Blackman, Kirsty (Aberdeen North) (SNP)

† Burghart, Alex (Parliamentary Secretary, Cabinet Office)

† Clarke-Smith, Brendan (Bassetlaw) (Con)

Duguid, David (Banff and Buchan) (Con)

† Eshalomi, Florence (Vauxhall) (Lab/Co-op)

† Evans, Chris (Islwyn) (Lab/Co-op)

† Fletcher, Nick (Don Valley) (Con)

† French, Mr Louie (Old Bexley and Sidcup) (Con)

† Gibson, Peter (Darlington) (Con)

Greenwood, Lilian (Nottingham South) (Lab)

† Jones, Gerald (Merthyr Tydfil and Rhymney) (Lab)

† Marson, Julie (Hertford and Stortford) (Con)

† Randall, Tom (Gedling) (Con)

† Russell-Moyle, Lloyd (Brighton, Kemptown) (Lab/Co-op)

Tracey, Craig (North Warwickshire) (Con)

Whitley, Mick (Birkenhead) (Lab)

Sarah Thatcher, Huw Yardley, Christopher Watson, Committee Clerks

† attended the Committee

Public Bill Committee

Thursday 2 February 2023


[David Mundell in the Chair]

Procurement Bill [Lords]

Clause 23

Award criteria

I beg to move amendment 12, in clause 23, page 18, line 4, at end insert—

“(3A) Where—

(a) the contracting authority is the Ministry of Defence, and

(b) the contract concerns defence or security,

the award criteria must be weighted so as to advantage United Kingdom suppliers.”

This amendment would give advantage to UK based suppliers in the case of defence or security contracts under the Ministry of Defence.

As has been said during the Committee’s proceedings, when done well, defence procurement strengthens our UK economy and UK sovereignty. Labour in government would make it fundamental to direct British defence investment first to British businesses, with a higher bar set for any decisions to buy abroad. That is the objective behind the amendment.

The Government really have missed an opportunity in the Bill to put British businesses first. We should be using it to ensure that we buy, make and sell more in Britain. Across the country, we have amazing British businesses, with the capability to support all the country’s defence and security procurement needs. Our steel, shipbuilding, aerospace and material industries are national assets and treasures. We need to support them.

If we want to use legislation to empower British business, we need to ensure that British business has the first bite of the cherry of the investment on offer. For the good of our country, we should want to see as much as possible of our equipment designed and built here in the United Kingdom. There are those who think that putting that in the Bill is not necessary, and that being a British business that supports jobs and industry in the UK should speak for itself. Sadly, as we have seen, that is not true.

I draw attention to the recent signing of the contract for fleet solid support ships, which was awarded to a Spanish-led consortium. The Government claim that the contract will support 1,200 jobs across the UK and 800 at Harland & Wolff in Belfast, but it is worth noting that the Government have included no guarantees of those jobs in the contract itself. Under the terms of the contract, the Spanish company will do the majority of the complex manufacturing of the ships, which requires most of the expertise and technology transfers that underpin the project. Instead of investing in the UK’s own abilities in design and technology, we are paying Spain to strengthen its abilities.

To return to my point, the Government chose that Spanish state-subsidised bid over a bid that would have sustained more than 2,000 jobs directly in the design and building of the FSS ships and about 1,500 jobs in the wider UK supply chain, and supported about another 2,500 in local communities around the UK—not insubstantial figures. The award of that contract comes at a critical time for the UK shipbuilding industry. Today, we have already had a statement on the Floor of the House about British Steel. The GMB union has released research to show that shipbuilding and ship repair employment in Great Britain has fallen by 80,000 jobs since the early 1980s. Not only is that a massive decline in skills in the UK industry, but it poses a threat to the UK sovereign defence manufacturing capability at a time of international uncertainty.

I do not need to tell the Committee that this country has a skills gap that desperately needs to be fixed. According to the National Audit Office report on the digital strategy for defence published in October 2022, the Ministry of Defence is having difficulties recruiting and retaining the necessary workforce, because its pay rate cannot compete with the private sector. Some defence companies are actively trying to resolve the issue by recruiting through apprenticeship programmes, such as that at Rolls-Royce, which announced 200 new apprenticeships at its new nuclear skills academy in Derby, and the apprenticeship scheme at Leonardo, where I went last year to speak with the apprentices in Yeovil about their hard work.

Apprenticeships, however, cannot exist without the work to do. One of the main issues that defence companies come to me with is the sustainability of workflow. That makes employers reluctant to take on apprentices for fear that they will not have enough work or money to support them. For apprentices themselves it does not make the defence industry look like a stable place to grow their career. We need long-term investment in apprenticeships and skills development in the UK. There needs to be a culture change in Government to put the growth of local industries first and to review the pipeline of all major infrastructure projects to explore how to increase the materials made in Britain and to upskill the workers to get the jobs of the future.

Such concerns are spread across the whole United Kingdom. The Scottish Affairs Committee has raised those concerns regarding Scottish shipyards. In its report, “Defence in Scotland: military shipbuilding,” which was published on 23 January, the Committee said:

“Recent developments have introduced uncertainty about some orders in the pipeline and whether it sets out a clear ‘drumbeat’ of orders needed to sustain Scottish shipyards.”

UK workers deserve better than that uncertainty.

When discussing the UK defence industry, we must not forget the importance of small and medium-sized enterprises in the supply chain. We know that shipbuilding contracts can help to deliver benefits for the wider economy and in shipbuilding communities. If contracts keep going abroad, work for SMEs will also go abroad, and the skills will go with them.

Public money should be spent for the public good. We should always consider the wider value to society. Our smaller local businesses are at the heart of that. The amendment would advantage British businesses in bidding for defence and security contracts. As a result, it would also advantage UK businesses in the supply chain.

If we are serious about defence procurement, we must commit to buy, sell and make more in Britain. It is crucial, now more than ever, that we have a procurement system that supports our sovereign capabilities, ensuring that UK businesses have the advantage when it comes to securing defence and security contracts.

It is a pleasure to serve under you this afternoon, Mr Mundell. Before I turn to amendment 12, I would like to refer back to our previous sitting. I said that I would get back to the hon. Member for Brighton, Kemptown, who is not in his place at the moment but will have the advantage of being able to read Hansard later. His question was whether a procuring authority can reject a bid if it requires a supplier to pay the real living wage. The short answer is yes. That option is very much open to procuring authorities. I am sorry that I could not provide him with that information earlier, because I know that he would have been happy to hear it.

Amendment 12, tabled by the Opposition, seeks to ensure advantage to UK-based suppliers for defence or security contracts. Defence contracting authorities will determine the right procurement approach on a case-by-case basis. That ensures the delivery of the most effective solution for the armed forces while ensuring value for money, taking into consideration factors including the markets concerned, the technology we are seeking, our national security requirements and the opportunities to work with international partners, before deciding the correct approach to through-life acquisition of a given capability.

The defence and security industrial strategy sets out a strong commitment to maintaining onshore industrial capability in key capability segments, such as those that are fundamental to the UK’s national security. That commitment does not always preclude the involvement of foreign-based firms, as long as they conduct the work in the UK and comply with certain security conditions.

I understand that the Labour party wishes to burnish its patriotic credentials—that is all for the good, I am sure—but to listen to the speech by the hon. Member for Islwyn, one could be forgiven for not understanding that 90% of defence spend is already within the UK. Indeed, the fleet support ships that he referred to will be built to a British design, with the majority of the construction at the Harland & Wolff shipyards in Belfast and Appledore and all the final assembly being completed at the Harland & Wolff shipyard in Belfast, bringing shipbuilding back to Northern Ireland. In our Westminster Hall debate the other day, it was good to hear the hon. Member for Strangford (Jim Shannon) praising that, and saying what a difference it would make to people and businesses in his community.

We must understand that there is already a good tradition of this approach. The Bill, though stipulations elsewhere, will actually make it easier for British small and medium-sized enterprises to bid for these contracts. We will also have better publication of pipelines, which will help them too.

While I appreciate what the hon. Member for Islwyn is trying to do with his amendment, there is a real risk that, if it was passed, we would see some defence authorities occasionally being forced to accept much more expensive contracts, perhaps with lower capability, and that would be to the detriment of both taxpayers’ money and, more significantly, the capability of our armed forces. I therefore respectfully ask, on those practical grounds, that the amendment be withdrawn.

The Minister mentioned the hon. Member for Strangford, whose nickname is the hon. Member for Westminster Hall, he speaks in so many Westminster Hall debates—I think he lives there. I listened to what the Minister said, and I appreciate that 90% of contracts are in this country. However, the amendment would be a shot in the arm not only for our defence industries, but for our steelmaking capabilities, so I will press it to a vote.

Question put, That the amendment be made.

Question proposed, That the clause stand part of the Bill.

The clause explains what we mean by “award criteria”. They are the criteria against which contracting authorities assess tenders under a competitive tendering procedure, and the clause sets out the rules that apply to them.

The clause requires that award criteria are clear, measurable and specific, comply with the rules on technical specifications, are a proportionate means of assessing tenders, and relate to the subject of the procurement. The clause requires that the way in which tenders are evaluated is transparent and set out in the assessment methodology, and that contracting authorities set out the relative importance of the criteria.

The clause makes it clear that award criteria can cover a wide range of things, from price to how things are produced to what happens at the end of the solution’s lifecycle, provided criteria relate to the subject matter of the contract. The rules allow a contracting authority to limit the number of lots that it wishes to award to a single supplier, when it has broken down a larger procurement into smaller lots or components. Where the contract is for light-touch services, which are person-centred services, reference is made to additional matters that can be considered to be relevant to the subject matter of the contract.

We want contracting authorities to be confident when designing and running procurement procedures. An area that often causes confusion is how far award criteria can be iterated during the process. Given the flexibility afforded to contracting authorities under the new regime, clause 24 makes it clear that award criteria may be added to through greater detail, or tweaked to add clarity during a procurement procedure, but any such refinements to award criteria should be made at specified points. The clause does not allow for wholesale changes to award criteria. For example, during a procurement procedure that allows for a research phase, a design phase and a development phase, the overarching criteria will remain constant, but the specifics may evolve. That is what the clause seeks to achieve.

It is a pleasure to serve under your chairship, Mr Mundell.

Clauses 23 and 24, as the Minister highlighted, relate to the award criteria and their refinement before the invitation of tenders. Award criteria for procurement need to be finely balanced to achieve the best deal for the public. If they are too narrow, we risk missing out on innovative processes, and the potential to save the taxpayer money and deliver those services efficiently; if they are too broad, we risk delivering substandard and inappropriate services.

In the lead-up to our consideration of the Bill, I spoke to different groups and charities. They said that broad contract terms often mean that contracting authorities end up awarding the contract to the cheapest bidder. That is despite the charities offering more bespoke and important services that address the needs of procurement far more substantially.

I hope that the measures in the Bill will mean that those deciding on award criteria are given appropriate flexibility when making decisions. For example, the change from most economically advantageous tender to most advantageous tender should boost the ability of contracting authorities to consider matters such as social value when deciding on contract award criteria.

The importance of social value when considering procurement bears repeating. It is important not just for charities and social enterprises, but for the economy. The Confederation of British Industry stated in its submission:

“Social Value is an already proven tool for delivering social, economic, and environmental benefits as part of public-private partnership and suppliers to government are often well-versed in the requirements around social value. Good approaches to social value can maximise the impact of every pound spent and when done in genuine partnership with suppliers can have a significant positive impact for communities and the environment. Businesses welcome the renewed focus on social value both in the Bill and in proposed amendments”.

As I said previously, however, that has to be balanced against the need to set realistic targets, to create desirable contracts and to ensure value for money in procurement. Clearly, such decisions can be complex. I therefore have a few questions for the Minister about the help that contracting authorities will get when deciding on award criteria.

Will the Government issue guidance and provide a template for what they expect a set of award criteria for a certain service to look like to other contracting authorities? Will the Government ensure that good practice is developed across the country, and allow for the easy sharing of information on award criteria? Again, I highlight the fact that procurement officers are often stretched, and information on what has worked well in other areas could be vital to producing the greatest value for money. Information on things that have created headaches in other areas can be useful to avoid the same pitfalls happening across the country. I hope that the Minister will consider issuing such guidance and will ensure that different authorities talk to each other to establish best practice in the new system.

I am glad to be able to give the hon. Lady that assurance.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.

Clause 24 ordered to stand part of the Bill.

Clause 25

Sub-contracting specifications

Question proposed, That the clause stand part of the Bill.

The clause sets out a specific and somewhat technical provision, whereby a contracting authority can either permit or direct a supplier to subcontract the supply of goods, services or works to another supplier.

In certain procurements, circumstances exist where part of the contract needs to be subcontracted to a specified supplier. That could be due to economic or technical reasons relating to requirements of interchangeability or interoperability with existing equipment, services or installations. It could also be due to the protection of exclusive rights.

For example, a contracting authority might require the use of certain technical software that is owned by a single supplier. Therefore, in such procurements, a contracting authority may need to nominate a particular subcontractor that must be used. For direct award under clause 41, however, a contracting authority may only require a supplier to subcontract the supply of goods, works or services to a particular supplier where the justifications for a direct award set out in schedule 5 also apply to the subcontractor.

The clause states that where a contract could be supplied to a supplier under a direct award, the contracting authority can mandate that a supplier that wins a competitive tender process must subcontract the supply of those works, goods and services to the supplier that could have supplied the contract via a direct award. We have discussed the issues of subcontracting and of direct awards, and we will discuss them further under clauses 71 and 41 respectively. This clause is relatively uncontroversial, in that it seeks to ensure that the mechanisms for direct awards can apply via a subcontract. We therefore do not wish to oppose the clause and are happy for it to stand part of the Bill.

Question put and agreed to.

Clause 25 accordingly ordered to stand part of the Bill.

Clause 26

Excluding suppliers from a competitive award

Question proposed, That the clause stand part of the Bill.

We come to the clauses concerning the exclusion of suppliers. I appreciate that there is considerable interest in these clauses, and rightly so; they are an important part of the Bill.

Clause 26 sets out the basic principles governing the exclusion of suppliers from competitive award of contracts. Subsection (1) provides that contracting authorities must disregard tenders from suppliers that are “excluded”. Excluded suppliers are defined in clause 57 as those in respect of which a mandatory ground for exclusion applies, as set out in schedule 6, and the issues in question are likely to occur again, or that are otherwise treated as excluded suppliers under the Bill.

Subsection (2) provides that contracting authorities must consider whether a supplier is an “excludable supplier” before assessing tenders, and may, at their discretion, disregard tenders from such suppliers. Excludable suppliers are those in respect of which a discretionary exclusion ground applies, as set out in schedule 7, and the issues in question are likely to occur again.

Subsection (3) requires contracting authorities to give the supplier the opportunity to replace an associated person, such as a subcontractor that the supplier is relying on, to meet any conditions of participation, if the exclusion situation pertains to such a supplier.

Clause 26 is essential to give effect to the exclusions regime set out in the Bill with regard to the assessment of tenders, which protects contracting authorities and the public from suppliers that may not be fit to compete for public contracts. However, the clause does not provide the detailed grounds for exclusion and the process for how authorities should apply them. Those are set out in clause 57 and in schedules 6 and 7, which we will come to on a future day.

Clause 27 sets out the basic principles governing the exclusion of suppliers from competitive, multi-staged procurements. Those provisions are needed in addition to clause 26 to ensure that contracting authorities consider the exclusions at the start of multi-stage procedures, as well as when considering tenders.

Subsection (1) provides that contracting authorities must apply the exclusions regime to interested parties at the outset of all multi-staged procurements. For those procurements, authorities should consider whether each interested supplier meets any of the grounds for exclusion and, if so, whether the issues in question are likely to occur again, and whether that supplier is to be treated as an excluded supplier under the Bill for other reasons.

If a supplier is an excluded supplier under subsection (2), the authority must prevent the supplier from participating in, or advancing any further in, the procurement. Where the supplier is an excludable supplier under subsection (3), the authority may, at its discretion, permit the supplier to participate. That has the effect of making exclusions a gateway into the procurement.

Subsection (4) requires contracting authorities to give the supplier the opportunity to replace an “associated person”, such as a subcontractor the supplier is relying on, to meet any conditions of participation, if the exclusion situation pertains to such a supplier.

Clause 27 is essential because it gives effect to the supplier exclusion regime set out in the Bill, which protects contracting authorities and the public from suppliers that may not be fit to compete for public contracts. However, as with clause 26, clause 27 does not provide the detailed grounds for exclusion and the process for how authorities should apply them. Those are set out in clause 57 and schedules 6 and 7.

Clause 28 deals with exclusions and subcontractors. It sets out the circumstances in which contracting authorities must, or may, consider whether the exclusion grounds apply to subcontractors that the bidder in question intends to work with, and how to apply the exclusion regimes where that is the case. Importantly, that is not limited to direct subcontractors of the bidder but includes other subcontractors further down the supply chain.

Subsection (1) requires contracting authorities to request information from suppliers about all intended subcontractors and to check that they are not on the debarment list. Subsection (2) then allows contracting authorities to request additional information about any subcontractors and consider whether they are excluded or excludable suppliers. Contracting authorities may choose to do that for particular types or categories of subcontractors, such as all first-tier subcontractors or service-critical subcontractors.

If a subcontractor is an excluded supplier under subsection (3), the contracting authority must disregard their tender and exclude them from taking part in a competitive tendering procedure. If the subcontractor is an excludable supplier under subsection (4), the contracting authority may disregard their tender or exclude them from the procedure. Before disregarding a supplier’s tender or excluding them from a procedure under this clause, under subsection (5), the contracting authority must give the supplier the opportunity to replace the subcontractor in the supply chain in order to avoid itself being excluded.

We know that some of the worst corporate misconduct and unlawful behaviour occurs deep in supply chains to Government. That is particularly true with respect to forced labour and other modern slavery abuses. This clause is essential to ensure that the same standards to which we hold bidders for contracts can be applied all the way down the supply chain.

Clauses 26 to 28 concern the exclusion of suppliers on the grounds listed in schedules 6 and 7 related to mandatory and discretionary grounds for exclusion. We support the inclusion of exclusion grounds in the Bill. In the Green Paper “Transforming Public Procurement”, the Government said:

“The current procurement regulations allow contracting authorities to take into account the past performance of a supplier on only very limited grounds and commercial teams often have to rely on bidders’ self-declarations rather than objective, evidence-based information. We can act now to raise the bar on the standards expected of all suppliers to the public sector and ensure that outstanding small suppliers are able to secure more market share, increasing productivity and boosting economic growth.”

I am sure that there is complete agreement on that in the Committee today. There can be no question but that we should not give public money to those convicted of wrongdoing or acting in a way that damages the country and our communities.

Clauses 26 to 28 put into place terms to bring the mandatory exclusion grounds from schedule 6 and schedule 7 into force by using the language of “excluded” and “excludable”, as defined in clause 57. Of course, the strength of this clause is heavily determined by the strength of the grounds for exclusion.

We are pleased to see some steps forward from the system inherited from European Union directives, which was brought into power in this country via the Public Contracts Regulations 2015. In particular, we are pleased to see environmental misconduct implemented as a discretionary exclusion ground. Our environment is a key natural asset that provides us with the building blocks for living in this country. Those who seek to damage our environment—for example, by dumping waste and causing significant damage to plant or animal life—should not be given Government contracts. We are also pleased to see national security within the system, although, as the Minister can guess from our planned amendments, we feel that this could have a stronger presence in the Bill, with some of the ambiguity removed.

When reading through the clause, we had some concerns about how it will be applied and some of the doors that it leaves open on discretionary exclusion grounds. Although the Bill is clear that those excluded on mandatory grounds must be disregarded from a tendering process, it is not clear on the fate of suppliers that fall foul of the discretionary grounds. Here, the Bill says that contracting authorities “must consider” whether a supplier is excludable on discretionary grounds but “may disregard” their tender, as the Minister said. This discussion may seem similar to ones we have already had, but this could have far more serious consequences.

For example, let us say that a supplier is decided to be a national security risk following an assessment by a contracting authority and that is confirmed by the Government via the provisions in clause 29. That supplier then applies for a tender to another contracting authority. What is stopping that contracting authority awarding this contract, should it so wish? There does not seem to be any mechanism to permanently exclude an excludable supplier in the Bill. Even when the Government consider a threat so severe that it should go on the debarment list, the Bill would still allow authorities to apply the “may” rather than the “must” exclude part.

I am sure the Minister will say that he will issue clear guidance on this and that contracting authorities should, of course, exclude a supplier in this case, but these are serious grounds for exclusion; we all agree on that. We cannot leave it to chance that a contracting authority uses the powers as they are written in the Bill, rather than as the Minister wishes. At the very least, that creates ambiguity around the whole system.

Even if the Government want to give contracting authorities some flexibility, why should a supplier that is found to have violated one of these exclusionary grounds so seriously in one area that it is to be disregarded then be granted another contract? Surely a risky supplier is a risky supplier in any public procurement. Is it not better for the Minister to create a clear system of exclusion that removes suppliers that violate these grounds from the procurement system entirely?

We thought long and hard about tabling an amendment to replace this provision—there is a “must” in the Bill—but we thought that the best mechanism was to raise it in Committee today, so will the Minister answer on some of these issues? If we are not satisfied with his response, we will not hesitate to look at how to explore this later on in the Bill. If the reason for the “may” is to allow contracting authorities to have smaller hurdles for using their exclusionary powers, surely he must see that that creates a big problem for suppliers. If some authorities can use their powers sparingly and others use them tightly, how can suppliers tell whether they will be excluded before putting in an application?

We are clear that we do not want suppliers with serious breaches of the excludable grounds to have public contracts but, equally, we do not want them to waste their time and money due to uncertainty about whether they will be disregarded. We do not want suppliers to be put off bidding because they are unsure whether they will be disregarded on some of the more minor parts of the discretionary system.

These are serious matters with wide-ranging implications, and there cannot be the ambiguity that currently exists in the Bill. That is also important for the scope of the Bill and the scope of the discretionary exclusion regime in schedule 7. If the powers will be used quite liberally by contracting authorities, we should be careful about what we put in on the discretionary exclusion grounds. It is surely not the intention to see companies excluded for minor breaches that may fall under some of those grounds. However, if the powers are to be used sparingly, we should be more ambitious in schedule 7 and perhaps more prescriptive to ensure that we capture everything that we think should be excluded. For example, we may want to put in a clause on issues such as discrimination, workers’ rights and not considering the public good to capture particularly egregious forms of abuse in this area. The truth is that we do not know in the drafting of the Bill as it stands, and it does not make for good legislation for contracting authorities to be going in blind on how they should apply the clauses. I hope that the Minister agrees on that.

Finally, on a more minor point, I hope that the Government will publish an easy-to-follow guide to the exclusion system. I understand why legislation sometimes requires references to different parts of the Bill, but it felt particularly difficult to work out the specific meaning of the clause and how it applies to suppliers. Using “excluded” and “excludable” suppliers as near-synonyms for mandatory and discretionary grounds for exclusion further adds some level of muddiness around what the clause means. I do not doubt the competence of procurement professionals in this country, but the Government should not make the comprehension of such an important part of the Bill more difficult than it needs to be. This is particularly true as the current system is pretty self-contained in one part of the Public Contracts Regulations 2015.

I hope the Minister will assure me that there will be adequate and easy-to-follow training and guidance from the Government by the time that the system is in place. That would help to put our minds at ease, and the minds of all the businesses that come forward.

On that final point, the hon. Lady will have heard me say that we intend to introduce a major programme of training and guidance across many areas covered by the Bill, as part of breathing new life into procurement in our country.

On the hon. Lady’s previous points, this part of the Bill deals with the creation of the mechanism, the details of which are dealt with subsequently in the Bill. The mechanism is that there are some discretionary grounds for exclusion and some mandatory grounds for exclusion. When we get to the relevant clauses and schedules, we will be able to put our arguments, and she and her party can say whether they think that certain issues should be mandatory or exclusionary. I think she will see, when we get there, that sometimes there are grounds for mandatory exclusion on particular issues, but sometimes, on a different version of the same issues, there can be grounds for discretionary exclusion. As I say, we will get into the detail of that as we progress.

Question put and agreed to.

Clause 26 accordingly ordered to stand part of the Bill.

Clauses 27 and 28 ordered to stand part of the Bill.

Clause 29

Excluding a supplier that is a threat to national security

I beg to move amendment 18, in clause 29, page 20, line 42, leave out

“paragraph 14 of Schedule 7”

and insert

“paragraph 42A of Schedule 6”.

This amendment is consequential on Amendment 15.

With this it will be convenient to discuss the following:

Amendment 15, in schedule 6, page 104, line 25, at end insert—

“National security

42A A mandatory exclusion ground applies to a supplier if a decision-maker determines that the supplier or a connected person poses a threat to the national security of the United Kingdom.”.

This amendment, together with Amendment 16, would move national security from among the discretionary exclusion grounds in Schedule 7 to the mandatory exclusion grounds in Schedule 6.

Amendment 16, in schedule 7, page 110, leave out lines 28 to 31.

See explanatory statement to Amendment 15.

Amendment 17, in schedule 7, page 111, line 39, leave out sub-sub-paragraph (e).

See explanatory statement to Amendment 15.

Amendment 19, in clause 78, page 53, line 38, leave out

“paragraph 14 of Schedule 7”

and insert

“paragraph 42A of Schedule 6”.

This amendment is consequential on Amendment 15.

New clause 1—National Security Procurement Committee

“(1) The Secretary of State must establish a committee, chaired by the Minister for Resilience, to consider (a) national security and (b) cyber security within the Government’s supply chain.

(2) The committee must consider whether suppliers should be excluded on the basis of the discretionary exclusion ground in paragraph 14 of Schedule 7 (threat to national security).

(3) The committee must review ongoing major government contracts, with focus on threats to national and cyber security.

(4) The committee must meet no less than once every three months.”

This new clause will mandate that a new committee must be set up with a view to proactively identifying potential security threats within the Government’s supply chain.

New clause 4—Dependence on high-risk states

“(1) The Secretary of State must within six months publish a plan to reduce the dependence of public bodies upon goods and services which originate in whole or in part in a country considered by the United Kingdom as a high risk sourcing country.

(2) For the purposes of this section, a country is considered a high risk sourcing country by the United Kingdom if it is defined as either a systemic competitor or a threat in the latest Integrated Review of Security, Defence, Development and Foreign Policy.”

Amendments 18 and 15 to 19 relate to the discussions that we just had—on clauses 26 to 29 stand part—on exclusion and excludable grounds. Taken together, the amendments would move the national security ground for exclusion from schedule 7 to schedule 6. In practice, that would mean taking the consideration that a supplier is a threat to national security from being a discretionary to a mandatory ground.

As I mentioned, we considered removing the distinction between mandatory and discretionary grounds entirely in the Bill, and to some degree, the amendment serves as the first step towards considering wider reform of these parts of the Bill. However, we believe there is a particular case for national security to be a mandatory, not a discretionary ground.

Perhaps the Minister can cast his mind back to Second Reading, over a month ago. During that debate, Members on both sides of the House raised a number of valid concerns about national security in procurement. We in the Opposition share those concerns. Procurement deals with our basic infrastructure and offers a million doors into our country to those who represent a security threat. We cannot be too arrogant to believe that those who represent such a security threat cannot think of innovative ways to get access to critical and sensitive information.

Just last month, we heard how SIM cards capable of tracking location were found in ministerial cars, which was very concerning. We need to think about all the data that could be revealed and the sensitive information that could end up in the hands of malign actors. Even for minor contracts, important information about the country could be extracted without our knowledge. It is worth reiterating that we cannot be too arrogant about knowing what information is sensitive and what is not.

As we enter the age of the internet, our data and the strength of our infrastructure become more valuable and at even greater risk. There is no room to open up the operating strands of the country to national security risks. Doing so confers unnecessary risk on the state.

Let me take the Minister’s mind back to the speech from his hon. Friend the hon. Member for Rutland and Melton (Alicia Kearns). He can look at some of the points she highlighted if he doubts the severity and importance of the issue. She made a powerful case, and the test for what constitutes a national security threat should be strong, as it is in the Bill.

Clause 29 provides that suppliers may be excluded on those grounds only with the express permission of a Minister. It is right to have that test in the Bill, as no one wants contracting authorities making decisions on such important matters. However, it makes no sense for there to be such a high-level test in the Bill if no high-level response comes with it. It also makes no logical sense to the path of decision making in the Bill. It also makes no logical sense for the path of decision making in the Bill. If the matter is so important that the decision to exclude cannot be left to authorities, why do contracting authorities have discretion to decide whether to disregard a tender? Surely at the very least the decision to disregard a tender should also be taken at Secretary of State level. Under the Bill, even when the Secretary of State decides to place a supplier that is deemed to be a national security threat on the debarment list, contracting authorities still have discretion over whether to award the contract.

It does not take much imagination to see that an under-resourced contracting authority might decide that national security issues were not relevant to a small contract, and that could inadvertently open a door to sensitive information being shared. We are clear that there are no circumstances where a national security threat should be awarded a Government contract.

There is an unacceptable and unknown threat associated with having suppliers that are considered a national threat in our procurement system. I welcome the positive Government amendments that go in the direction of acknowledging that; the Bill is a step forward on national security. However, amendments 15 to 19 are the only way to close the loopholes in our procurement system.

In the Select Committee, the hon. Member for Rutland and Melton said that

“we must ensure we do not end up in a relentless whack-a-mole trying to hunt down the companies responsible for such things. We need to focus on the components within sensitive industries or sensitive items, and to ensure that any public body procuring such components or companies within relevant industries must come to someone for a second review. That means we are not attacking a specific country and saying China’s products are bad or saying that certain companies are awful; we are doing due diligence in sensitive areas. That is why we need a SAGE-style committee on public procurement specifically looking at national security.”

We completely agree with that sentiment. New clause 1 is an attempt to bring to life that committee in the style of the Scientific Advisory Group for Emergencies. As I said on amendment 11 to clause 13, there are a multitude of examples from the past decade of procurement giving rise to national security concerns, the latest of them involving SIM cards being found in ministerial cars; I mentioned that earlier. We are seeing the same questions arise throughout our debates. What damage has already been done? How much will it cost to repair? How did we not spot this earlier? These are all good questions. Without fail, the answer to all those questions is that the cost and damage is far greater than if we had acted earlier and prevented concerns from arising.

I hope the Minister will agree that new clause 1 aims for a cultural change in national security and procurement. We cannot afford to be reactive when it comes to national security threats. The sooner we act, the less valuable information we lose, and the less risk we are at from the threats that we identify. The SAGE-style committee could consider whether a supplier could be excluded on national security grounds. It could also consider wider threats across the supply chain. In his closing remarks on amendment 11, the Minister said:

“National security is, of course, of paramount importance.”––[Official Report, Procurement Public Bill Committee, 31 January 2023; c. 63.]

That being so, I hope that he will support new clause 1.

Clause 29 adds provisions relating to exclusion on national security grounds; it ensures that the grounds for exclusion are verified by the Secretary of State. Declaring that a supplier is a threat to national security is serious, and it is right that there be scrutiny in the system to ensure that contracting authorities do not do it lightly, or without due care. I hope the Minister can inform me how that will interact with the debarment test that he mentioned. Given the scrutiny and certification that is needed if a supplier is to be disregarded on the grounds that they are a national security threat, it is logical that the great bulk of those suppliers will end up on the debarment list. Can the Minister confirm whether that is the case? If it is not, what circumstances relating to national security would lead to a supplier not being added to the debarment list?

New clause 1 would legislate for the establishment of a committee to consider the threat to national security and cyber-security from suppliers in supply chains delivering public contracts. The Government take national security considerations extremely seriously, and we understand the importance of countering threats to our security throughout our supply chains. We recently demonstrated that through our action to remove Chinese surveillance equipment from sensitive sites across the Government estate. The inclusion of the national security exclusion ground in schedule 7 to the Bill will bring about a significant improvement to the existing EU-derived regime. It will allow a supplier to be excluded on national security grounds, even when the procurement does not meet the bar for exemption on those grounds.

We understand the intention behind the hon. Lady’s new clause, but it duplicates aspects of the new procurement regime underpinned by the Bill. I have already mentioned the ability to exclude a supplier on grounds of national security. The Bill requires any contracting authority that wishes to rely on those grounds when excluding a supplier or rejecting their tender to first notify a Minister of the Crown, who must be satisfied that the supplier should be excluded.

The notification not only ensures that the Minister agrees to the exclusion, but serves to alert them, if they are not already aware, that there may be security concerns about the supplier. The Minister may accordingly decide to investigate the supplier under clause 60, which could lead to the supplier being placed on the debarment list under clause 62. Furthermore, if a supplier already holds a public contract and is found to meet any exclusion ground, clause 77(2)(b) enables the contract to be terminated. Clause 77(2)(c) extends that to subcontracts. As with exclusion, any proposed termination on the grounds of national security must be brought to the attention of the Minister for a decision; again, that could trigger debarment from future procurements.

Under the new clause, the proposed committee would also consider threats to cyber-security. Existing policy in this area is detailed in procurement policy note 09/14. That mandates that where contracts have certain characteristics, suppliers must meet the technical requirements prescribed by the Cyber Essentials scheme. That applies when ICT systems and services supplied by the contract either store or process data at official level. In addition, the MOD, through the defence cyber protection partnership, has developed the cyber-security model that is to be applied to its procurements to ensure cyber-security-related risks are adequately managed throughout the life of the contract.

In short, contracting authorities are already alive to the need to consider national security, including cyber-threats, when procuring public services, and are well placed to review their contracts and supply chains for such threats, bolstered by the provisions of the Bill. However, I am mindful of the concerns raised by colleagues on Second Reading, and those concerns will continue to inform Government thinking as we move forward.

Amendments 15 to 19 seek to make exclusion on national security grounds mandatory, rather than discretionary. Any risk to national security should of course be taken very seriously indeed, but it is right that we leave some scope for nuance and flexibility in the application of the exclusion ground. Suppliers may pose a risk in some contexts, but not in others. For instance, in a relatively innocuous procurement, the exclusion of a supplier might not be merited if the contracting authority was confident that there was no potential for harm. A company that might raise concern in the manufacture of one technical device might also produce paper clips, which would not be a threat to national security.

It is important to note that contracting authorities must consider all exclusion grounds, mandatory and discretionary, against every supplier in each procurement. Any decision not to exclude a supplier that poses a national security risk must be weighed against that risk, and I am confident that contracting authorities will do so carefully.

I understand what the Minister is saying, but if the contracting authority is spending public money on those paper clips, it is funding a company that can breach national security and do things that are against the national interest. The contract may not be a risk to national security, but the company is, so surely it should be a mandatory, rather than a discretionary, exclusion.

There would be a balance of risks. Not all security threats are proven. Of course, it is up to the authority to assess the concerns at the time.

Question put, That the amendment be made.

Clause 29 ordered to stand part of the Bill.

Clause 30

Excluding suppliers for improper behaviour

Question proposed, That the clause stand part of the Bill.

Clause 30 requires contracting authorities to exclude suppliers that have gained an unavoidable, unfair advantage in a procurement as a result of improper behaviour in relation to that procurement, and suppliers that have failed to provide an accurate and complete list of connected persons and associated persons when requested to by the contracting authority.

Subsections (1) and (2) are clear that exclusion as a response to improper behaviour, defined in subsection (4), is a last resort. It is to be used only where the supplier has gained an unfair advantage that cannot be remedied other than by exclusion. Subsection (3) requires contracting authorities to give suppliers the opportunity to remedy their improper behaviour. When suppliers seek to tilt the playing field in their favour via mis-representation or undue influence, and fail to remedy that, it makes fair and open competition for contracts impossible, and it is taxpayers who pay the price.

Transparency is another essential component of fair procurement, so subsections (5) and (6) are clear that suppliers that are not prepared to disclose full and accurate details of their connected persons, including beneficial owners and directors, or associated persons—for example, subcontractors that are relied on to meet conditions for participation in the procurement—are not fit to bid for public contracts. Contracting authorities must know who owns or has control over the suppliers with which they are contracting. The clause will support them in gaining that knowledge.

As the Minister has highlighted, clause 30 concerns the exclusion of suppliers who behave improperly during the procurement process. It is important that we do not tolerate improper behaviour in procurement. Many procurement contracts are public-facing and require a huge amount of trust, because the suppliers represent the contracting authority to the public. If there is evidence of misleading and improper behaviour that betrays a lack of integrity during the procurement process, it will raise doubts about whether such behaviour may flow through into how the company carries out the contract. Critical goods are procured via these processes, which are vital to the way our country functions, and we cannot let those who embellish their evidence during the tendering process have access to our supply chains.

The Opposition support the clause, but I have a few questions about how it will work. What steps will be taken to establish improper behaviour during the tendering process? What steps can be taken if information comes to light after the award of a contract? It is crucial that improper influence does not permeate into our procurement system; the measures in the Bill can prevent that, but there also needs to be transparency in the system so that we can spot things like undue influence and prevent improper behaviour from falling through the cracks. What steps is the Minister taking to ensure that undue influence, both formal and informal, is spotted during the procurement process?

I must also ask what consistent remedy is available to contracting authorities that find out about breaches following the award of a contract. Let me take hon. Members back to the covid-19 scandal, when billions of pounds-worth of unsellable personal protective equipment was written off. I know that that was not all due to fraudulent behaviour from suppliers, and that some fraudulent behaviour would not fall under the clause if a competitive tender were used. However, it is shocking that the Government admitted on 20 December 2022, in answer to a parliamentary question, that only £18 million of taxpayers’ money had been clawed back from PPE contracts.

There needs to be stronger clawback and remedies when suppliers act improperly. Perhaps that is a matter of culture more than legislation, as many contracts include such a clause, but it would still be helpful to hear what the Minister thinks needs to be done to ensure that more public money is clawed back from those who act improperly.

In answer to the hon. Lady’s final point, the Government are absolutely seeking to recover public money. The Department of Health and Social Care has been in a process of mediation, but obviously there will come a point at which mediation may need to lead to litigation. Contracts have been drawn up in a way that ensures that we can do the right thing by taxpayers.

On the hon. Lady’s earlier point, I can reassure her that we will publish guidance to support contracting authorities in this area, so that they can conduct due diligence on suppliers and their connected persons.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clause 31

Modifying a section 19 procurement

Question proposed, That the clause stand part of the Bill.

There will be times when changes need to be made to the terms of a procurement. Clause 31 sets the scope for such modifications, with the intention of striking a balance between permitting changes required by contracting authorities and preventing abuse of that flexibility, for example to suit a particular supplier. Modifications are allowed in all procedures, but—with the exception of light-touch contracts, which have greater flexibility—they must be confined to non-substantial changes. In essence, that prevents a change that would be likely to impact the market response to the procurement.

Where a permitted modification is made, the contracting authorities must, in consequence, consider revising the time given to suppliers to respond to the invitation to tender or request to participate. The making of modifications will also be transparent, as the contracting authority must provide revised documentation that highlights the changes.

Clause 31 relates to the modification of a section 19 procurement prior to the deadline for submitting a request to participate in the procedure, where there has been no invitation to submit such requests. This sensible clause has proportionate provisions relating to the alteration of contracts. It is right that contracting authorities should be able to modify terms early in the process and carry out later alterations where they are not substantial, or relate to light-touch contracts.

It is also right that contracting authorities consider timeframes when substantial alterations are made. This is useful for bidding suppliers, which may need time to reassess their bids. Again, I hope that contracting authorities will consider SMEs when they are making contracts, and I refer the Minister to some of the evidence we have received on the Committee.

Mr Cram mentioned that even a simple bid can run into four figures, so if an SME sees a contract that it feels is good and offers value for money, and that it believes it can win, it may invest a significant amount of money into developing the bid prior to the deadline for submitting a request to participate in a procedure or for submitting a tender. If the terms are changed and make the contract unattractive to an SME, it would simply lose the money that it has invested, despite the increased time limits. Will the Minister ensure that there is not a culture of contract changes, so that SMEs do not lose a disproportionate amount of money during the process?

As the hon. Lady will know, we have included provisions throughout the Bill to make sure that bids are more accessible for SMEs and that we have a level playing field. In that respect, the clause is no different from others in the Bill.

Question put and agreed to.

Clause 31 accordingly ordered to stand part of the Bill.

Clause 32

Reserving contracts to supported employment providers

I beg to move amendment 32, in clause 32, page 23, line 22, after “operates” insert “wholly or partly”.

This amendment would mean that an organisation could meet the test of being a “supported employment provider” if it only partly has the purpose of providing employment or support to disabled or disadvantaged individuals.

With this it will be convenient to discuss the following:

Amendment 92, in clause 32, page 23, line 23, leave out “or disadvantaged”.

This amendment, together with Amendment 93 would ensure that provisions related to supported employers are targeted at disabled individuals, in line with the Public Contract Regulations 2006.

Government amendment 33.

Amendment 93, in clause 32, page 23, line 25, leave out “or disadvantaged”.

This amendment, together with Amendment 92 would ensure that provisions related to supported employers are targeted at disabled individuals, in line with the Public Contract Regulations 2006.

Amendment 94, in clause 32, page 23, line 25, leave out “30” and insert “50”.

This amendment would increase the threshold for an employer to be considered supported from 30% of disabled or disadvantaged staff to 50%, in line with the Public Contract Regulations 2006.

Clause stand part.

Amendments 32 and 33 seek to ensure that the provision is applied widely and as intended, so as to support disabled or disadvantaged people who might otherwise struggle to find employment effectively. Many of the organisations that wish to provide that assistance through the delivery of public contracts do so via arrangements commonly referred to as “employment programmes”, which can be established by one organisation or a number of organisations working together. We need to ensure that those programmes can qualify for a reserved contract. Amendments 32 and 33 therefore seek to clarify that the 30% threshold for disabled or disadvantaged workers can be applied to the programme or part of an organisation, and not just to the organisation as a whole. Where a programme is established as a result of organisations working together, each organisation can contribute to the 30% threshold.

The amendments also seek to clarify that, in order to qualify, an organisation does not necessarily need to have been set up with the sole purpose of assisting disabled or disadvantaged people in employment, but the part of the organisation interested in delivering the contract must have that purpose. This may be a subsidiary or a specific project within an organisation. Where it is applied to a programme made up of a number of organisations working together, the purpose applies to the programme.

Clause 32 allows procurements to be reserved for organisations that provide employment and/or assistance in finding and retaining employment for disabled or disadvantaged people, allowing public procurement to support organisations that assist people who might otherwise struggle to access the labour market, while delivering public services to a high standard. Such companies are often not for profit and will therefore benefit from a more level playing field when competing for a reserved procurement than might otherwise be the case. In order to qualify, the organisation, or an arrangement between organisations, must have the aim of assisting disabled or otherwise disadvantaged people in employment, and at least 30% of the workforce must be disabled or otherwise disadvantaged.

I thank the Minister for his explanation of amendments 32 and 33. We support the use of supported employers and believe that they could go even further, as I will argue in relation to our amendments 92 to 94, but I will first touch on amendments 32 and 33.

We are concerned that Government amendments 32 and 33 expand the definition of supported employment provider so that it would apply where the part of the organisation delivering the contract would meet the relevant thresholds, which could potentially allow for a further watering down of the requirements. Has the Minister considered the potential of the amendments to limit the effectiveness of supported employment by allowing more providers that are not focused on the needs of disabled people to access reserved contracts, or even the potential for larger contractors to game the system? We do not intend to push the amendments to a vote, but I would welcome clarity from the Government and I hope that the Minister’s response will satisfy me. We reserve our right on that.

On amendments 92 to 94, supported employment is a long-established practice and plays an important role in increasing employment opportunities for disabled people. The principle of reserving contracts so that only supported employment providers can bid for them is welcome. However, there are concerns that the Bill does not set a sufficiently high bar for an organisation to be a supported employer, dilutes the aims of reserving contracts and potentially opens the system to abuse.

The Public Contracts Regulations 2006 required 50% of employees to be disabled people, which provided a greater focus on the specific aim of supporting the employment of disabled people. Clause 32 instead enshrines the weaker standard defined in the Public Contracts Regulations 2015, which require only 30% of workers to be disabled or disadvantaged. That potentially limits the impact of supported employment in providing employment opportunities for disabled people.

Concerns have been raised that that approach does not fully recognise the importance of deaf and disabled people’s organisations, or DDPOs, which not only provide supported employment but have a wider role in society. There are clear links between the work of DDPOs and social value. DDPOs protect and uphold disabled people’s rights, campaign for equality and inclusion, and provide a range of peer-led accessible services. Their services support disabled people in accessing services and entitlements, challenging discrimination and exclusion, and having choice, control and independence.

Amendments 92 to 94 would return to the broad definition of a supported employment provider set out in the Public Contracts Regulations by requiring 50% of employees to be disabled and placing a greater emphasis on the role of DDPOs. Inclusion London, a membership body for DDPOs in London, defines a DDPO as an organisation the management committee or board of trustees of which has at least 75% representation from deaf and disabled people, the staff of which is made up of at least 50% deaf and disabled people at all levels of the organisation, and that works to provide services for or works on behalf of deaf and disabled people.

Amendments 92 and 93 would remove “disadvantaged” from the definition. Disability is clearly defined in the Equality Act 2010, which provides a more robust definition that would ensure that the aim of reserving contracts is effectively targeted at the right providers. Did the Government consider the merits of the 2006 definition in preparing the Bill, and did the Government assess whether that definition more effectively targeted the measure of reserving contracts? Will the Minister consider engaging with DDPOs to ensure that the benefits of those organisations are considered in implementing the Bill?

Amendments 92 to 94, tabled by the hon. Lady, seek to reduce the scope of application of clause 32, which allows procurement to be reserved for supported employment providers. The clause is consistent with the requirements in regulation 20 of the Public Contracts Regulations 2015, which has functioned well since coming into force. Amendments 92 to 94 seek to revert to procurement rules from 2006, which have long since been repealed.

Amendments 92 and 93 seek to remove the support to disadvantaged people who may struggle to access the labour market. “Disadvantaged” is deliberately undefined in the Bill to enable contracting authorities, particularly local government, to address challenges in the employment landscape at any point in time. The underlying objectives could be to assist those who traditionally struggle to access the labour market, such as the long-term unemployed, prison leavers or care leavers. It is our intention that this clause be capable of broad application, at the discretion of the contracting authority. Amendment 94 would result in fewer organisations, including not-for-profit organisations, being able to qualify for a place in a reserved procurement.

Increasing the percentage of the workforce who must be disabled—or disadvantaged, as the clause is currently drafted—from 30% to 50% may at first appear as an incentive for organisations to have more disabled employees, and therefore appear laudable. However, in reality, it will reduce the competitive market. A threshold of 50% will be a very high target for most organisations looking to bid on their own. Similarly, employment programmes are often the result of collaboration between commercial and not-for-profit organisations, which contribute to meeting the threshold. We have taken steps to ensure those sorts of arrangements can qualify. Significantly increasing the threshold may put those collaborations at risk—we would not want to see that.

Suppliers might feel obliged to establish more complex supply chains to meet the threshold, which could hinder the quality of delivery and could drive up costs. Alternatively, suppliers might simply choose not to bid for Government contracts.

Ultimately, if a reserved procurement is to be successful, it requires competition. The smaller the pool of qualifying organisations, the less likely a reserved competition will be viable, meaning contracting authorities will not be able to use the provision, and the direct support to the people and organisations the clause aims to benefit will be lost.

Amendment 32 agreed to.

Amendment made: 33, in clause 32, page 23, line 24, leave out from “individuals” to end of line 26 and insert “where—

(a) disabled or disadvantaged individuals represent at least 30 per cent of the workforce of the organisation,

(b) if a particular part of the organisation is to perform the contract, disabled or disadvantaged individuals represent at least 30 per cent of the workforce of that part of the organisation, or

(c) if more than one organisation is to perform the contract, disabled or disadvantaged individuals represent at least 30 per cent of the combined workforce of—

(i) those organisations,

(ii) where a particular part of each organisation is to perform the contract, those parts, or

(iii) where a combination of organisations and parts is to perform the contract, those organisations and parts.”—(Alex Burghart.)

This amendment would mean that an organisation could meet the test of being a “supported employment provider” if part of the organisation meets that test and that part is to perform the contract, or the test is met by the combined workforce of organisations or parts of organisations that will together perform the contract.

Clause 32, as amended, ordered to stand part of the Bill.

Clause 33

Reserving contracts to public service mutuals

Question proposed, That the clause stand part of the Bill.

Clause 33 operates similarly to clause 32, but allows only specific procurements to be reserved for organisations that have spun out of the public sector to provide social services, with company decisions managed by company employees. Those companies are known as public service mutuals.

Public service mutuals play a vital role in supporting communities at a local level, delivering essential services and contributing to economic growth. However, they may struggle to compete with larger or more well-established suppliers, and it is therefore appropriate that we encourage these public service mutuals by enabling competition in certain limited circumstances among only those organisations that meet the requirements of this clause.

Subsection (6) provides a full definition of a public service mutual body for the purposes of applying this clause. For example, in order to qualify, the company must be run on a not-for-profit basis or restrict the distribution of profits to its members. The exact list of services that can be reserved under clause 33 will be provided in secondary legislation under subsection (8). All reservable services are also light-touch services; examples include adult educational services and rehabilitation services.

As the Minister has mentioned, clause 33 gives contract authorities the ability to reserve certain light-touch contracts for public service mutuals. I am pleased to discuss this matter; as a very proud Labour and Co-operative MP, I am happy to have another opportunity to talk about how fabulous co-operatives are and how they can benefit the public sector. It is fair to say that the Minister and I agree that public service mutuals have so much to offer in terms of innovation and how they can help the wider public sector. The running of services by people rooted in their community helps to bring an understanding of local needs to the heart of public service mutuals, and they can also improve both employee morale and the quality of services for users.

This clause hinges on the definition of the light-touch regime; however, the impact of the clause is directly linked to the impact of the light-touch regime. As I said in my speech on clause 19, there is concern about the definition of the light-touch regime. The Delegated Powers and Legislative Reform Committee has said of the Bill that:

“It does not explain why it is considered appropriate for the power to be so broad that the issue of which kinds of contracts are to be subject to the ‘light touch contract’ regime is left entirely to regulations. There is nothing of substance on the face of the Bill to limit the discretion afforded to Ministers to allow less rigorous regulation for contracts of a kind that they choose to specify in regulations. Clause 8(4) lists three factors which Ministers must consider but without saying what effect these factors are to have. The Memorandum suggests that the provision made in exercise of the power will simply be a list of CPV codes”—

that is, common procurement vocabulary codes—

“but the power need not be exercised in that way.”

In conclusion, the Committee said that

“the reasons given by the Government for leaving entirely to regulations the question of which contracts should be subject only to the ‘light touch’ regulatory regime are inadequate; and unless the Government can fully justify doing otherwise, the Bill should include criteria for determining which contracts should be subject to that regime.”

I am again concerned that the Government have not moved to justify their stance to a greater extent than simply pointing to the existence of CPV codes. Many people feel that that is inadequate.

I am going back to the concerns that I raised the other day about the light-touch regime, which the Minister did not fully respond to. I hope that he can explain the light-touch regime a bit further today and say how it will apply to this clause specifically and to the rest of the Bill in general.

The hon. Lady will have heard me say on Tuesday about the light-touch provisions that the Government are heavily hemmed in by our international obligations in this area. The codes to which she referred are very specific and they are not included in the Bill because they are extremely numerous. I think there are about 500 of them, so it would have been very difficult for us to put them all in the Bill. However, I am grateful that she supports the general thrust of the clause.

Question put and agreed to.

Clause 33 accordingly ordered to stand part of the Bill.

Clause 34

Competitive award by reference to dynamic markets

Question proposed, That the clause stand part of the Bill.

This substantial grouping of clauses is of considerable importance to the Bill.

Clause 34 relates to the awarding of contracts under the new concept of a dynamic market. This is a highly flexible commercial tool. Dynamic markets are established by contracting authorities and essentially are “live” lists of suppliers that are pre-qualified to deliver certain types of contracts.

Dynamic markets are similar to existing dynamic purchasing systems, in that they will allow for suppliers to be admitted to the market if they meet the conditions of membership. To maximise the benefits of this flexible purchasing tool, we have significantly broadened the type of contracts that can be awarded in dynamic markets. Dynamic markets will be available for all types of procurement and not just for commonly used goods and services, as was the case for dynamic purchasing systems.

Clause 34 is the first in a series of clauses relating to dynamic markets. It allows a contracting authority that has established a dynamic market to award contracts under the market by undertaking a competitive flexible procedure. The use of a dynamic market does not avoid the need to comply with the usual rules for a competitive flexible procedure under clause 20.

Subsection (1) allows contracting authorities to restrict procurements to suppliers that are members of a dynamic market or a part of the market, for example if the dynamic market comprises categories of works or services. A supplier will be a member of a dynamic market if the market allows for the award of the contract in question by that contracting authority and the supplier has been admitted to the market. Subsection (3) requires contracting authorities to disregard tenders from suppliers that are not members of the dynamic market.

Dynamic markets are open to new suppliers to join at any time, as long as they meet the conditions for membership, which is a substantial improvement on the way things have been done up to this point. For that reason, subsection (4) requires contracting authorities to consider membership applications from non-member suppliers before excluding them from the procedure or disregarding their tenders. Subsection (5) says that the only exception to that is where, due to the complexity of the procurement, the application for membership cannot be considered in the timescales set out by the contracting authority for requests to participate or tenders.

Clause 35 sets out how dynamic markets, including utilities dynamic markets, may be established. It allows contracting authorities to establish arrangements known as dynamic markets, which are essentially live lists of suppliers that are pre-qualified to deliver certain types of contracts for the purpose of contracting authorities awarding contracts to suppliers that are members of the dynamic market.

Subsection (2) defines a utilities dynamic market, which is a particular type of dynamic market for the award of utilities contracts by utilities. Subsection (3) allows utilities to award utilities contracts under a utilities dynamic market established by any person, as long as the market has been established in accordance with the rules applicable to utilities dynamic markets as established by private utilities.

Subsection (4) defines a utility as a public authority or public undertaking that carries out a utility activity or a private utility. Utility activities are set out in schedule 4; private utilities are defined in clause 2. Subsection (5) states that the establishment or modification of a dynamic market is not a contract for the purpose of the Bill, making it clear that all the rules on the award of contracts do not apply.

Clause 36 sets out the rules on how suppliers can become members of dynamic markets, including utilities dynamic markets. Subsection (1) allows contracting authorities to set conditions of membership that suppliers must meet in order to be admitted to a dynamic market. The conditions of membership must be a proportionate way of assessing suppliers’ legal and financial capacity and technical ability to deliver contracts that might be awarded as part of the arrangement.

Subsection (2) prohibits conditions of membership that require the submission of annual audited accounts by suppliers that are not already required by law to have their annual accounts audited. It also prohibits conditions of membership that require insurances to be in place before the contract is awarded. As hon. Members will be aware, this is a major boon to SMEs that are seeking to get involved.

The restrictions on the conditions of membership of a dynamic market, set out in subsection (3), are similar to those applicable to conditions of participation in a competitive tendering procedure under clause 22. They include limiting conditions to those that are a proportionate means of ensuring suppliers have the relevant qualifications, experience and technical ability to perform the contract, ensuring that the conditions do not break the rules on technical specifications, and requiring that equivalents must be allowed where particular qualifications are required.

Subsection (4) says that when deciding on what is proportionate, the contracting authority must have regard to the types, complexity and cost of contracts that will be awarded through the dynamic market. Subsection (5) ensures that contracting authorities can require evidence that a condition of membership is met to be independently verifiable by a person that is not the supplier.

Subsection (6) ensures that dynamic markets remain open to new suppliers as long as the dynamic market is in operation. Applications for membership must be considered within a reasonable period and suppliers must be informed of the outcome of their application, with reasons. Suppliers that meet the conditions of membership must be admitted to the market in a timely manner. This measure is another great innovation. Where these systems have been in place previously, once the list is set up, it has been closed to new entrants. Now, new entrants will be permitted throughout the operation of the market.

Subsection (7) says that the membership of a dynamic market cannot be limited to specific numbers of suppliers and the conditions of membership cannot be amended during the lifetime of the arrangement.

Clause 37 outlines the rules on removing suppliers from a dynamic market. Any supplier that is on the debarment list for a mandatory exclusion ground must be removed from a dynamic market under subsection (1). It would be entirely inappropriate for suppliers subject to debarment on that basis to remain on a dynamic market.

Subsection (2) allows contracting authorities to remove a supplier from a dynamic market if it is an excluded supplier or has become an excludable supplier, or it is discovered to have been an excludable supplier when it applied for membership. Additionally, if the conditions of membership are no longer met, the supplier may be removed from the dynamic market. That provides contracting authorities with flexibility to manage their dynamic markets as they best see fit. Subsection (4) states that, before being removed from a dynamic market, a supplier must be told in writing of the decision and the reasons why.

Clause 38 sets out when fees can be charged to suppliers that participate in dynamic markets, including utilities dynamic markets. Subsection (1) allows for fees to be charged when a supplier is awarded a contract under a dynamic market—other than a utilities dynamic market, which is addressed separately. That avoids “pay to play” arrangements and ensures that fees are only chargeable if the supplier is awarded work. The fees must be calculated as a fixed percentage of the estimated value of the contract awarded. For utilities dynamic markets, subsection (2) states that fees may be charged in connection with obtaining and maintaining membership of the market.

Clause 39 sets out the transparency requirements for the creation and management of dynamic markets. Subsection (1) states that the notices are referred to as dynamic market notices. Subsection (2) requires contracting authorities to publish a notice before they set up a dynamic market. The notice must detail the authority’s intention to establish the market. A notice is also required, under subsections (3), (4) and (5), once the dynamic market has been established or modified, or when the market ceases to operate. Additional content requirements for the various notices will be set out in secondary legislation under clause 93. Clause 39(6) states that private utilities are not required to issue a notice when a utilities dynamic market ceases to operate.

Clause 40 speeds up procurements and reduces the burden for utilities using a utilities dynamic market, or UDM, by only requiring utilities to provide tender notices for upcoming procurements to suppliers already on a UDM, or appropriate part of a UDM, instead of having to publish the notices. In practice, that means utilities can, for example, provide the tender notice to suppliers on the UDM as part of the associated tender documents as each procurement under the UDM is commenced.

In order to take advantage of that flexibility, the notice setting up the UDM must meet minimum information requirements, which will be set out in regulations under clause 88. Utilities must specify in the UDM notice that only members of the UDM will be provided with tender notices. The notice setting up the UDM will be published continuously and will remain open so that new members may join at any time. If accepted, they would then be entitled to receive future tender notices.

Clauses 34 to 40 relate to dynamic markets. Dynamic markets expand on the existing dynamic purchasing system scheme by allowing such markets to be used for all procurements. That means that a reliable and ready pool of bidders can be gathered, which the contracting authority has verified meets the conditions of participation for the contract. When used correctly, such market innovations help save contracting authorities significant amounts of money and time by requiring early scrutiny only once for similar contracts.

Labour does not oppose the proportionate use of that mechanism. However, we note that those who supplied written evidence to the Committee picked up on some concerns. The Local Government Association, in its submission, outlined concerns about terms that are present in the current system but missing in the Bill:

“Councils use dynamic purchasing systems to effectively deliver a range of services that need to be procured quickly, for example, adult’s and children’s residential social care, apprenticeship training, asbestos removal, cleaning services, home-based care services etc.

In particular, local authorities heavily rely on DPS for school transport procurement, where a significant number of contracts must be let quickly each summer as children are allocated school places. These contracts are straightforward, with pre-approved suppliers typically competing on price. These contracts have no cross-border implications so don’t disadvantage operators in other countries as no operator without a local base is likely to bid.

Regulation 34(12) of the Public Contracts Regulations 2015 states: ‘Sub-central contracting authorities may set the time limit for the receipt of tenders by mutual agreement between the contracting authority and all selected candidates, provided that all selected candidates have the same time to prepare and submit their tenders.’

The Bill no longer allows this, and should therefore be amended to reinstate this important flexibility, to ensure that everything from school transport to social care services can be delivered on time for the individuals who rely upon…them”.

I know that the Minister has worked closely with the LGA on some of its concerns regarding the horizontal and vertical framework, so I hope that he has given thought to its ideas in this area and is planning an amendment. Any clarity he can provide on that would be very welcome.

Clause 37 relates to the removal of members from dynamic markets. I do not particularly want to open up that discussion again, following my earlier remarks, but I want to return to the concerns about the exclusion system and the removal of suppliers. In his written evidence, Richard Bonnar, professor of public procurement law and practice at the University of Leeds school of law, states:

“Clause 37 governs removal from a dynamic market once it has been established. Here there seems to be a further potential muddle. An authority has to remove a supplier which has (subsequently) been debarred on mandatory exclusion grounds. But, if the authority considers that a supplier is an excluded supplier otherwise than as a result of debarment it may (but does not have to) remove that supplier from the market. In other words, an excluded supplier is not mandatorily excluded from dynamic markets. This seems to fly in the face of the definition and the schema which the Bill is trying to establish and the Committee should consider whether ‘may’ should turn to a ‘must’.”

I would be grateful if the Minister could explain the rationale for that.

Finally, some of those who provided written evidence—the Civil Engineering Contractors Association, for example—also expressed concerns about the expansion of the scheme to cover all procurements, as they were not familiar with it in their sectors. I hope that the Minister will ensure that all sectors are fully consulted and are made aware of the mechanisms involved, and that the use of these markets will be proportional per sector.

As I have said, we think that dynamic markets are a fantastic opportunity to speed up procurement and to bring SMEs into procurement opportunities that they have not previously had. Obviously, dynamic markets are themselves a dynamic new development and, as I mentioned, a lot of training and guidance will flow from the Bill. However, obviously, we will be working with partners throughout the system to ensure that this new way of working works.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Clauses 35 to 40 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Julie Marson.)

Adjourned till Tuesday 7 February at twenty-five minutes past Nine o’clock.

Written evidence reported to the House

PB 18 Local Government Association

PB 19 Hikvision


PB 21 Confederation of British Industry

PB 22 Zurich Insurance UK