The Provider Selection Regime: To direct award or not to direct award?

Written by Kyle Duggan and Greg Beavis

The Independent Patient Choice and Procurement Panel has handed down its first ruling considering the availability and use of the Direct Award C procurement process under The Healthcare Services (Provider Selection Regime) Regulations 2023 (“the PSR”). The Panel was asked to consider the use of Direct Award C to award a contract for non-emergency patient transport services to Yorkshire Ambulance Service (“YAS”) following a complaint from another supplier of these services, EMED Group, and concluded that the awarding ICB had made a series of errors in its procurement process. The effect of these errors was that there may have been a material effect on the provider selection decision meaning that the Panel recommended the ICB return to the very first stage of the process and revisit its decision about which provider selection process could be used. 

As the first ruling on the Direct Award C process, the Panel’s comments will make important reading for all commissioners and providers. Direct Award C is the direct award process that is likely to be most capable of being applied widely to healthcare contracts given Direct Award A requires there to be a single capable provider and Direct Award B relates to patient choice contracts so a good understanding of the availability of the process, the constraints and the standard of diligence expected of commissioners is very important to ensure robust procurement decisions that survive panel scrutiny are made. In this article we draw out some of the key findings.

Key finding one

Commissioners must explicitly consider and document their position on the considerable change test. 

Direct Award C is available where:

• The relevant authority is not required to follow Direct Award Process A or B
• The term of the current contract is about to expire and the relevant authority plans to replace it with a new contract at the end of its term
• There is no considerable change between the current and proposed contracts
• The relevant authority believes that the current provider is satisfying the current contract and will satisfy the proposed contract to a sufficient standard, and
• The procurement is not to conclude a framework agreement. 

If each of the above are met, then the relevant authority must follow one of the following: Direct Award Process C, the Most Suitable Provider Process, or the Competitive Process. 

Here, the Panel found that the ICB was in breach of the third limb – whether the new arrangements were considerably changed compared to the existing. The main issue identified by the Panel was that it simply could not tell whether that was the case or not because the ICB had no record of any assessment of material difference. The Panel noted that three existing contracts were being merged into one new contract and that a Service Development Improvement Plan was to be incorporated (although the scope of this was not made clear). The Panel reached no conclusion that these factors in themselves meant that the considerable change threshold was met but in the absence of any contemporaneous reasoning from the ICB at all the Panel had no hesitation in finding that it could not be satisfied that it was reasonable for the ICB to conclude the considerable change threshold was not met. 

This is a key and often repeated fundamental: the PSR governs decisions made by public bodies. For those decisions to withstand scrutiny there should be a contemporaneous audit trail evidencing that the decision makers followed a proper process.  

Key finding two

The Panel expects that reasonable and robust assessment will be carried out to decide whether the existing provider is satisfying the existing contract and will likely satisfy the proposed contract to a sufficient standard.

At the heart of the Direct Award C process is the question of whether the existing provider is satisfying the existing contract and will likely satisfy the proposed new contract. However, again, the ICB’s analysis and audit trail of its decision-making on this point was lacking. EMED Group’s representations included allegations that YAS could not be satisfying the existing contract by reference to publicly available KPI data which appeared to show performance failures. The Panel did not agree that this, in itself, was sufficient for a determination that Direct Award C was not available – the factors taken into account in determining performance are, within reason, for the commissioners to decide and it was not unreasonable for the ICB not to consider performance data from other contracts as relied upon by EMED. However, the Panel did identify a number of substantial shortcomings in the ICB’s assessment of current and future performance. 

These included:

1. Lack of critical analysis of the incumbent’s performance against the 5 key criteria set out in the PSR. The Panel acknowledged that the ICB’s assessment reflected that considerable effort had been put into an analysis however it was largely descriptive;
2. A depth of analysis that did not appear proportionate to the value of the contract being awarded (worth c.£82m); and
3. Decision-making in relation to the proposed contract award that was inconsistent with the ICB’s own rules. 

Elaborating on these points, the Panel felt that there were three significant gaps in the ICB’s assessment of the incumbent’s performance, notably against the Value Criterion. For example, without explaining how, the ICB said that having a block contract and one single provider of non-emergency transport were beneficial, but referring to the benefits of economies of scale for the latter was not sufficient. Further, without providing reasons, the ICB said that where YAS scored poorly, there was an action plan in place to manage the service, but the ICB was unable to locate this plan. In its place, YAS referred to a Service Development and Improvement Plan (SDIP), but did not provide any details of its contents and how it might address concerns.  

Further the Panel felt that not enough consideration was given to the assessment of whether the incumbent would be able to continue to provide the contract satisfactorily in the future. Whilst there were some forward-looking elements in the ICB’s assessment it failed to take account of factors such as future increases in demand, expectations about the financial environment and other pressures or trends that could impact on the incumbent’s performance. 

The Panel also felt that the ICB had not complied with its own rules. The ICB had adopted a scoring system to assess current performance in which a score of 2 meant Meets requirements with some reservation – action plan in place. A score of 2 was therefore only available where an action plan was already in place. However, scores of 2 were awarded where this was not actually the case. The ICB instead intended that a Service Delivery Improvement Plan would be annexed to the contract outlining the required steps. The Panel was critical of this approach as it meant that the scores awarded to YAS did not align with the scoring scale and, given the lack of detailed analysis to explain why scores had been awarded, could not be reconciled with what was required to carry out a reasonable assessment of performance. 

The Panel also fed back that the ICB only provided descriptive conclusions when assessing non-value criteria. The Panel outlined that a critical analysis was required to evaluate the performance of the incumbent provider, such as including a discussion on the strengths and weaknesses of the to-date performance and reasons for under and over performance and, when looking forward, the potential for improvement. 

Key finding three

Information sharing is part and parcel of the provider selection regime, and its importance should not be underestimated.

A theme running through a number of Panel decisions to date is that the Panel places a high value on compliance with information sharing requirements: commissioners should be prepared to engage with suppliers and share their audit trail. 

Here, the Panel again found shortcomings in the ICB’s approach. The ICB refused to provide any substantive response to EMED Group’s request for information. The Panel noted that some of the requests from EMED Group were outside of the remit of the Regulations and that those that were within it may have been difficult for the ICB to comply with given – as is noted elsewhere – a lack of documentation of decision making. As a result, the Panel held that the ICB failed to meet its obligations as to information sharing following the submission of written representations. That breach was the result in part of the ICB breaching its recordkeeping obligations under Regulation 24. The Provider Selection Regime builds in opportunities for internal review and scrutiny before the Panel can be accessed. Here those processes do not seem to have brought about any meaningful change in the ICB’s position. These can be seen as missed chances to change course and revert to an earlier step. Commissioners should be aware that there are opportunities to acknowledge shortcomings and return to earlier steps in the process or rectify failures to share information.  

Final note

Overall, the Panel found that there were enough shortcomings in the ICB’s assessment that it warranted the ICB starting again from the very beginning and revisiting which selection process to use. 

The common thread throughout the Panel’s decision is that there was simply not enough documented evidence that the ICB had accurately applied the tests as to whether Direct Award Process C was suitable. What was documented lacked a proper degree of rigour and critical analysis to adequately explain the ICB’s decision making. In the absence of appropriate documents, the Panel did not think it safe to conclude that the tests had been appropriately considered and applied.  

It is not all doom and gloom. Commissioners should take comfort that the Panel found that this work should be proportionate to the value of the contract and there can be a virtuous circle in which the material to assess whether Direct Award C is available is contained in contract monitoring records. ICBs are stretched for capacity, however the message from the Panel is that decision making needs to be documented.  

As a firm, we are able to help commissioners and providers understand the nature of the requirements under the Provider Selection Regime and with both making and defending challenges.