My Lords, the noble Lord, Lord Coaker, is right that the challenge is to make the shift to SMEs a reality. I will take that away as my homework. I thank all noble Lords who have spoken, especially the noble Lord, Lord Aberdare, who progressed matters with me and saved me from a further group of amendments.
I was also very interested in the real-life experience of my noble friend Lord Maude as to the difficulties of getting potential small suppliers to apply for government contracts, because in my experience SMEs can represent very good value for money. They do not have the same costs and scale of central services that some of the bigger operators have, and that can feed through into great prices and great service.
7.30 pm
I turn first to Amendments 37 and 53, tabled by my noble friend Lady McIntosh. These both seek to ensure that, when food is procured, 50% of the purchases must be from the UK. The second amendment goes further and stipulates that the purchases must be locally from within the UK, with “locally” meaning within 30 miles of the contracting authority. Under the WTO’s government procurement agreement, and a number of international free trade agreements, the UK has legal obligations not to discriminate against suppliers from a country that is party to one of those agreements, for procurements over certain thresholds. So, requiring quotas for buying local UK food and drink produce at a national level would be a breach of those obligations.
There is, however, the potential for contracting authorities to develop local purchasing strategies. First, authorities may take advantage of the policy of December 2020, that below-threshold procurements may be reserved to UK suppliers only, or to UK SMEs, or VCSEs, in a particular region or county of the UK. While the Local Government Act 1988, Section 17, currently precludes local authorities from awarding public supply or works contracts by supplier location, we intend to use Clause 107 of this Bill, once enacted, to make secondary legislation to disapply that legislation in respect of this policy, so that local authorities, as well
as government departments, can take advantage of this flexibility under the Bill for lower-value contracts; I hope this will be welcome.
Contracting authorities are also free to buy the food and drink that best meets their needs, meaning that they can specify foods that can be grown in the UK, rather than opting for produce that UK growers will be unable to produce. I think that we were all interested and amused to be taken back to the summer, and to hear of the letter written by the then Mr Rishi Sunak to the National Farmers Union. In line with our commitment in the food strategy published earlier this year, Defra has been carrying out a consultation on potential changes to public sector food and catering policy. That is now closed, and Defra will carefully consider the responses before setting out its next steps; I am not in a position to pre-empt the outcome of that process, but we continue to drive progress.
We remain fully committed to supporting our British food producers and farmers on food and, as the noble Lord, Lord Coaker, said, local sourcing is increasingly important—although I would say as a farmer’s daughter that food has to be grown where it makes sense from a weather point of view, so it is important to be able to move food around. I do not think that we can yet grow olives in the UK, but it will come with climate change.
Amendments 41 and 123, in the names of the noble Lords, Lord Fox and Lord Wallace, who introduced it, would extend the new obligations with regard to SMEs to cover social enterprises and not-for-profit companies, particularly in areas such as social care. I am glad to say that the duty I have included in the Bill will apply in respect of any small and medium-sized enterprises that meet the relevant definition, including any social enterprises, not-for-profit organisations and mutuals—to pick up a point made by my noble friend Lord Maude. I am glad to say that, in terms of numbers, the vast majority of organisations will meet the definition—but not, of course, the very biggest, and I think that it is right that they should be subject to normal procurement rules.
Amendment 54, from my noble friend Lord Lansley, would emphasise that contracting authorities should use preliminary market engagement to build capacity among SMEs. I fully agree with my noble friend that preliminary engagement should be used to help build SME capacity. However, the duty to have regard to SMEs contained in the procurement objectives will cover this, and much more. For example, not only do I want to see capacity building for SMEs in preliminary market engagement; I want public sector teams to learn via this engagement about new solutions and ways of working from SMEs, which are often, as we have heard, at the cutting edge of innovation. Further existing provisions in the Bill, such as pipeline notices, and separating contracts into lots, also help with SME capacity-building—and as such this amendment is not required.
As regards Amendment 73, the Bill allows for contracts to be awarded without competition in limited circumstances, and these were outlined in Clauses 39 and 41, with detail in Schedule 5. This is the route to making a direct award under the Bill; it is different from a so-called “direct award” under a framework.
An award without a further competitive process may or may not be provided for under the terms of the framework and, as I explained in my letter to the noble Lord, the framework itself is openly competed for, and the framework terms may provide for further competition between suppliers when a contract and/or a permit is awarded without further competition.
Clause 43 is clear that award without further competition between suppliers is permissible only where this is set out in that original framework, and that an objective mechanism for supplier selection is provided. While I appreciate that the noble Lord is concerned with some examples of problematic operation and consequences in respect of certain frameworks, such issues will not be addressed via this amendment. Additionally, the amendment would have the effect of limiting contracts to 18 months. This is unlikely to meet operational requirements, or deliver value for money in most cases, given the short-term duration. Suppliers are always able to raise specific issues with frameworks via the Government’s existing Public Procurement Review Service, which can investigate individual cases such as this one, and in future by the PRU. I believe that the issue of placing contracts without further competition under frameworks is best addressed through our training and guidance, which we will do as part of preparing procurance for the new regime.
Amendment 163 from the noble Baroness, Lady Bennett, would commit English and Welsh Ministers, within six months of the Bill becoming an Act, to make regulations to remove all the obligations on local authorities set out in Section 17 of the Local Government Act in respect of below-threshold contracts. We do not believe that this amendment is desirable. It goes much wider than required, disapplying all of Section 17, not just those provisions which prevent local authorities reserving below-threshold contracts to suppliers, or SMEs, or VCSEs, in a UK region or county. However, detailed secondary legislation will be laid before the new regime comes into force, and disapplication of Section 17 in this regard can be considered as part of that process.
Amendment 164, proposed by my noble friends Lady Noakes and Lord Moylan, would ensure that regulations made under Clause 107 can exclude below-threshold contracts from the duty in Section 17, but I hope that they are reassured by the remarks that I have made in respect of the amendments in the names of my noble friend Lady McIntosh and the noble Baroness, Lady Bennett.
I was glad to hear from the noble Lord, Lord Hendy, and to see his Amendment 162A, which seeks to immediately disapply provisions within Section 17 that prevent local authorities, when carrying out certain procurement functions, considering the terms and conditions of a supplier’s contracted employees, or subcontractor terms. As I have explained, the Government are confident that it is more appropriate to include a power for the disapplication of Section 17 on a case-by-case basis, in order to ensure alignment with current and future procurement policy; it is not therefore necessary to do this as a separate amendment. It is an important topic, and I want to reassure the noble
Lord, Lord Hendy, that there are other mechanisms to ensure that UK companies, and any company bidding for public sector work, are abiding by legal requirements in respect of employment conditions.
Finally, Amendment 189, tabled by my noble friend Lord Lansley, seeks to redefine “small and medium-sized enterprises” by considering only the business’s number of staff, not other factors such as turnover. UK government policy sometimes considers SMEs only in relation to staff numbers: for example, BEIS’s publication of business statistics. In other circumstances, for example in the Companies Act, alternative criteria are used; it depends on the purpose. However, we have substantially retained the current definition used for procurement, which is well recognised and established. If we lose the turnover and balance-sheet total criteria, we potentially include well-resourced businesses with significant capital that have acquired, or taken over, government contracts in their portfolio through acquisition, while playing a role in procurement. These are not the types of business we are looking to focus on in the duty to have regard to SMEs. We have, however, included an additional power, my noble friend will be glad to hear, in Clause 114 to ensure that we retain flexibility to amend this definition—for example, if we wish to align with other definitions in future.
Finally, my noble friend Lady Noakes asked why we had exempted the new duty from being enforceable in civil proceedings. We want to ensure that this new duty in the Bill drives cultural change in procurement and improves access for SMEs, as I have already said. However, we do not believe that it is appropriate to make this new duty subject to the remedies regime in Part 9. Any failure to comply will be better suited to a procurement review unit investigation under Part 10, or indeed to a judicial review. SMEs want the opportunity to win public contracts. We believe that this duty will achieve that, but the purpose of the new duty is to stimulate the market for SMEs, not facilitate a new avenue for creative court claims.
I am sorry to end on that slightly negative note; I feel that this has been a very useful debate. I look forward to the House’s support for the government amendments, and I respectfully suggest that noble Lords do not press their amendments.