In answer to an interesting question in the Chamber yesterday, I implied that my noble friend Lady Wheatcroft had not been present in Committee. I had not noticed that she was here and I personally apologised to her afterwards. But, as my remark lies in Hansard, I thought it appropriate to correct the record. My noble friend Lady Wheatcroft graciously said that she did not expect me to do this, but I think that it is the proper thing to do.
In moving Amendment 10, I will speak to this group of government amendments. Monday was difficult and, on behalf of the Government, I candidly acknowledged the contrition and sympathy that we felt about the number of amendments that were put down. I think that we have arrived at a better place. As noble Lords know, we arranged a briefing for noble Lords on today’s amendments and I am grateful to the officials who gave this at short notice. I hope that noble Lords who were not able to be there have had the chance to consider the supplementary information on the government amendments that was circulated. Officials will be available again tomorrow to provide a technical briefing for your Lordships on the remaining government amendments.
The government amendments in this group refer only to Schedule 2, which lists what is an “exempted contract”. The exemptions are not mutually exclusive and a contract can be an exempted contract if it falls under multiple paragraphs of this schedule. If a contract is exempted, its award and management will not be subject to any of the legislation, unless it is an international organisation procurement, where some obligations apply.
Amendment 10 to Schedule 2 would ensure consistency with similar drafting elsewhere in the Bill. For any of the exemptions in this schedule to apply, the subject of a contract must represent the main purpose and cannot reasonably be supplied under a separate contract. The amendment would add “reasonably” to this description and is consistent with drafting elsewhere in the Bill—for example, on mixed procurements, the duty to consider lots and estimating the value of a contract.
My Lords, I shall speak to Amendment 11A, which is an amendment to government Amendment 11. Amendment 11A is really only a place- holder to discuss some broader concepts about this Bill and about paragraph 2 of Schedule 2 in particular.
I confess that I paid little attention to the government amendments ahead of our first day in Committee. Like other noble Lords, I was completely overwhelmed by the huge groupings and the lack of explanation that arrived before they were tabled—hence, I tabled Amendment 11A only yesterday. I am certainly grateful for the explainer that was circulated yesterday. I have not yet read all 60 pages, but a reasonable summary is something like this: “We are trying to keep the new UK procurement code as close as possible to EU rules.”
This is at the heart of one of my main problems with this Bill: we have not created a UK code at all. The Bill may well have simplified or reduced the number of different sets of rules, but that has not achieved a significant simplification of the rules to any meaningful degree. Furthermore, it uses terms and concepts that are comprehensible only to procurement practitioners and in a way that is often alien to the way in which we do things in other areas. It has few principles and a whole load of pernickety rules, of which this schedule is one. In short, this is the EU way of doing things and not the UK way of doing things. I believe that we have missed an opportunity to create something that would have worked better for UK businesses and, indeed, for the UK public authorities that have to comply with it.
I turn to the specifics of Amendment 11A. The amendment would delete new sub-paragraph (2A) in Schedule 2, which is contained in my noble friend’s Amendment 11. Sub-paragraph (2A) is not new, as it rewrites sub-paragraph (2)(c) of the existing Bill. The effect of sub-paragraph (2A) denies the vertical arrangements exemption that my noble friend has just described if the body concerned has even one share held by other than a public authority. I think that this is nonsense. Holding one share or any other kind of minority holding does not change the nature of control, which is what paragraph 2 purports to base the vertical exemption on. It would restrict the exemption to bodies that are wholly owned by the public sector, in effect, and I can see no economic rationale for that.
My Lords, I rise to speak to Amendment 11 only. It carries over into our new domestic legislation what is referred to in the European Union legal context as the Teckal exemption. To that extent, it illustrates and gives force to the point made by my noble friend Lady Noakes that we are very much replicating European Union law here. The reason I rise to address it is that I wish to seek a point of clarification from my noble friend the Minister. It arises from my experience—this is an interest that I once declared but I think has now expired—of chairing Urban Design London, a body that benefited from the Teckal exemption. So I have some experience of how it works.
Urban Design London was—I mean “is”; it still exists and operates—an unincorporated association established between Transport for London, the Greater London Authority and London Councils, representing the London boroughs. Its purpose is to generate training for the benefit of local government officers, Transport for London officers and others in good practice in planning, urban design and transport design. I am very proud of it—it is a successful little body—but it was set up as an unincorporated association, meaning that it is not incorporated and not a company.
I am anxious because there are two versions of the legislation that I can look at: the one that was originally circulated and the one that has replaced it. I might say that the one that has replaced it is a great deal better than the original; it clearly shows the influence of the Local Government Association and people who understand these things. The version in the amendment is generally much better. However, I am concerned about the references to the Companies Act in sub-paragraph (2B), to be inserted by Amendment 11. The clarification I seek is that this is sufficiently broadly drawn that the controlled body that benefits from the Teckal exemption does not have to be incorporated and read in a Companies Act structure. I see my noble friend looking round; I will understand entirely if he is not able to give a firm direction to me on that point today. I simply reserve the right, depending on what he says, to bring something back on Report. I am not pressing him too far on that, but it is something that I would like to know.
My Lords, I want to address the change in relation to Scottish law. Before doing that, I will pick up the point made a moment ago by the noble Baroness, Lady Noakes, with regard to the influence of European terminology. She will not be surprised to know that I have no problem with the influence of European terminology; if we are to hunt all European influences out of our legislation, it will take a very long time and leave quite a lot of uncertainty around the place. None the less, I take the point she makes with regard to the substance of the implications, and the question of a capacity to influence is a very important consideration. If a capacity to influence exists, that may have an ongoing impact without it being written in black and white. That has to be taken on board.
I want to ask the Minister about the change to get in line with Scottish law. If there is in future a change in Scottish law or a change in the ruling in the courts in Scotland, presumably that could have an implication for the way in which the Bill, when enacted, works out. Does that mean there will have to be a review every time there is a change in Scotland that might impact on this, because we are working within one market and we need to make sure there is consistency running through this? Perhaps I can park that question with the Minister, as it is a relevant one that arises from what he said.
My Lords, at the beginning of the Committee the Minister had a teaser with his announcement. It is very clear that he is not going to resign, because no Minister would put himself through this process and then resign. We can be clear about his intentions.
The noble Baroness, Lady Noakes, said that she was interested in this and that perhaps some of us might not be. I am interested. Both the noble Baroness, Lady Noakes, and the noble Lord, Lord Moylan, have made important contributions to this group of amendments.
Since Monday, much industry has proceeded. We have new groups of amendments and, as the noble Baroness, Lady Noakes, pointed out, we have explanations for those amendments and what they seek to achieve. We thank the Bill team and the Government Whips’ Office for that hard work, which cannot have been easy. We also had a meeting with the Bill team this morning, which has helped us somewhat.
This is progress, although I always like to spoil praise by saying that we really should not have been starting from here in the first place. This is vital legislation that will set the scene for procurement right across our country, and the details need to be correct. We have started to hear that, in just one area, the details remain very much open to question.
Some of the amendments in this group are relatively small changes, including Amendments 10, 12, 16 and 17; others are trying to do a bit more. As we heard from the Minister, Amendment 11 rights a problem that was identified by both my noble friend Lord Wallace and the noble Lord, Lord Coaker, of groups of local authorities working in tandem.
I welcome that the Government have taken the advice of the LGA, but it seems slightly strange that it was sought or delivered after Second Reading rather than some time before it. One of the problems we sometimes have with the Government is that they forget the central role of local authorities, particularly in something like this. Local authorities should have been front and centre in the process of writing this legislation, but, far from it, it seems that they are something of an afterthought. That is where some difficulties are emerging, because, in a sense, we are trying to bend things back to fit local authorities when they should have been framed for local authorities in the first place. This amendment is welcome, with the caveat that we need clarity.
My Lords, I shall add some questions to those posed so far on this group. Before I do, I thank the Bill team for the technical briefing this morning that I took part in remotely and for the further information that the Minister promised and which was provided and circulated with the explanatory statements. They were helpful. Of course, they do not answer all the questions, but that is the purpose of Committee.
Overall, it begs the question as to where we stand on the overall proportion of procurement that would be under covered and non-covered areas, and what is now under exempted areas. The Minister rejected my call for an updated impact assessment. At the moment, we have no information as to what level of procurement we are dealing with in these new areas. It would be helpful if the Minister could say what proportion of the procurement is now likely to be within the covered, non-covered and exempted areas.
With regard to ownership and persons, I posed a question to the technical team this morning, so I hope they have had time to provide some information to the Minister. There seems to be an assumption in the drafting that contracting authorities are either public or private bodies, but it is less clear on the other areas within the broad public sector, where there are, effectively, trust models for the delivery of services. These do not fall neatly into the category of a public or private body. Indeed, I am aware of procuring bodies that delivered services in the Scottish Borders, my former constituency area, that were hybrids between purely public authority bodies, charitable bodies, pension funds and public interest vehicles. I would be grateful if the Minister could confirm whether Amendment 11 will cover all these areas. If it does not, there will still be gaps when it comes to some of the consortia which are both traditional centralised bodies, as we discussed on Monday, and those that are other trust models.
The noble Lord has generously acknowledged, as others have, that the officials have been extremely busy. There will be a response to the noble Lord’s question, as I undertook. With respect to the officials, it is unreasonable to complain that a letter has not been received, given all the other activities going on. I repeat the undertaking. The noble Lord will receive a letter, but I must defend my officials.
My Lords, I hope the Minister will reflect on his comments. At no stage did I criticise officials for not receiving a letter. This is a ministerial responsibility. A Minister gives an undertaking to write to a Member in Committee. A Minister brings forward and moves amendments in Committee which are pertinent to the issue I raised when the Minister said that he would write to me. I was not criticising any officials. If any criticism to be laid, it is against the Minister. I simply said that, in the absence of the letter he promised to send me, I am asking these questions for clarification. That is reasonable.
On exemptions, there has been some reference to legal services. I understand the point that has been raised about making sure that there is a distinction from Scottish legal services as appropriate, and I certainly support the Government doing that. However, my understanding is that, for some of the treaty suppliers, there are obligations under some of the treaties on the mutual recognition of professional and legal qualifications. My understanding is that the exemption for legal services under this Bill will cover those other areas where the mutual recognition of professional qualifications in carrying out certain legal services will also be excluded. I understand that a body would be unable to procure legal services that are separate from those exempted, but they are then covered in other areas of professional qualifications. This will leave certain gaps in our treaty obligations.
I reviewed the Australia agreement on the carve-out on legal services. It is broadly the same, so I understand where the Government are coming from as far as these exemptions are concerned, but it is not exactly the same. Perhaps the Minister could give some further explanation as to what is likely to be allowed under the provision of legal services by certain providers of legal services that have mutual qualification recognition, because the position on legal services is still uncertain. If the Minister could respond to those points, I would be grateful.
My Lords, I start by thanking the noble Lord, Lord True, those who have been working with him and the officials for the briefing we received this morning and for listening to the anger, frankly, that there was on Monday about the situation. We were where we were; we are grateful to the Minister for doing what he could to degroup the amendments and sort things out as best he could. Clearly, there are still a number of issues, and many of us are still struggling to put together the various mountains of paper we have to try to make sense of it.
I congratulate the noble Baroness, Lady Noakes, on her extremely important Amendment 11A. I must say that, in my reading of Schedule 2, I had not picked that issue up, which shows part of the problem—I know that the Minister accepts this—of not having enough time. The noble Baroness’s point was on decisive influence and what that means. As the noble Lord, Lord Fox, said, the definition of particular words and phrases bedevils us at the present time. I pray in aid because, later on, I will point out one word in a couple of phrases that I think makes all the difference; I hope the Committee will bear with me and recognise that I am not being trivial—changing one word would make a significant difference to the meaning in the Bill. As well as pointing something out to us, the noble Baroness has made an extremely important point about what “decisive influence” means in paragraphs 2(2) and 2(3) of Schedule 2.
I would add to what the noble Baroness said. This is really important because is it not only
“a decisive influence on the activities of the person”;
it is also “directly or indirectly”. You then really get into the question of what on earth it means. To be frank, when you get into “decisive influence” and “indirectly”, it becomes extremely difficult. Again, I thank the noble Baroness. Like her, I look forward to listening to the answer the Minister gives with respect to that.
20 of 202 shown
Amendment 11 clarifies the exemptions for vertical arrangements, which arise where a contracting authority enters into an arrangement with an organisation that is connected vertically with it—in other words, with an entity under its control, or what is called a “controlled person” in the legislation. A typical example might be a trading company set up by a local authority to fulfil a specific task, such as carrying out waste treatment and collection for the authority. We briefly discussed this on our first day, when I said that the Government would bring forward further facilitating amendments; I know that the Liberal Democrat Front Bench expressed an interest in that.
Amendment 12 deals with a consequential update to clause formatting following Amendment 11. These amendments to the definition of vertical arrangements have been tabled following some helpful feedback from stakeholders, including the Local Government Association, of which I believe I still may be a vice-president, in which case I should declare an interest. The feedback showed that the drafting did not properly provide for the fact that such arrangements may involve control by more than just one contracting authority. The government amendments therefore ensure that this exemption will continue to apply where there is joint control of the controlled person, as it does now.
Amendment 13 has two parts. The first part—the inclusion of new sub-paragraph (5)—is a result of the amendment to provide for joint control. It ensures that joint control may still be achieved where one person is representing multiple contracting authorities on the board—or similar body—of the controlled body. This continues the existing position in Regulation 12(6) of the Public Contracts Regulations 2015. The second part—the inclusion of new sub-paragraph (6)—stems from the updated definition of “contracting authority”, which means that the vertical arrangements exemption would unintentionally have allowed a wider category of organisations to access the exemptions than intended. This amendment ensures that the vertical and horizontal arrangements are available only to the intended public sector contracting authorities and not to public undertakings and private utilities, which have arrangements that reflect their more commercial nature.
Amendment 14 is a mirror of Amendment 13, for the same reasons. In this case, the purpose is to limit the availability of the horizontal arrangement exemptions to the intended public sector contracting authority recipients.
Amendments 15 and 16 remove the term “legal activity”, which is currently defined by reference to the Legal Services Act 2007, and replaces it with the term “legal services”. This is necessary because the definition in the 2007 Act is not appropriately applicable in a Scots law context. Leaving the term undefined allows the exemption flexibility to adapt to different legal systems within the confines of the remainder of the exemption.
I turn now to the final government amendment in this group. Amendment 17 adds a reference to legislation that explains the meanings of “contract of employment” and “worker’s contract” in Northern Ireland. This is a result of the talks with the Northern Ireland authorities. Adding the Northern Ireland reference again allows the exemption flexibility to adapt to different legal systems, provided that the remainder of the exemption is met. I beg to move.
I also want to challenge two other aspects of paragraph 2, arising out of new sub-paragraph (2B), which is a rewrite of the existing sub-paragraph (2)(b). There is one material change from the existing sub-paragraph (2)(b). It is similar to the issue that I raised in the context of Amendment 4, which we debated on our first day in Committee. The existing sub-paragraph (2)(b) refers to a person who
“exerts, or can exert, a decisive influence”.
The new version merely talks about a person who “exerts a decisive influence”. I explained on Monday that the conventional UK approach when looking at things such as control is to use a test based on the capacity to control rather than actual control. Curiously, paragraph 2 uses that concept of capacity to control because it uses the basic definition of control via the parent undertaking definition in Section 1162 of the Companies Act 2006. Under that section, control exists if a parent undertaking holds a majority of voting rights or has the right to appoint or remove a majority of the board. That is, control exists for the basic purpose of this clause if there is the ability to control, whether or not the right is used. Can my noble friend explain why the Government are using one approach to control but another for decisive influence, deliberately caused by the amendment that he has just moved?
I now turn to the concept of decisive influence itself. If someone other than a controlling authority exercises decisive influence, the vertical arrangement exemption does not apply, so it is important to find out what it means. I expected to find a definition of the term “decisive influence” in the Bill, because it is not a term that is found in general use related to companies or the control of organisations, but I cannot find a definition.
Interestingly—I say “interestingly” as I find it interesting, but I am a bit of an anorak on these things—Section 1162 of the Companies Act contains the concept of dominant influence, which is an alternative way of establishing whether a parent undertaking exists. A dominant interest is defined in Schedule 7 to that Act and requires a right to give directions to a board of directors that the board of directors has to comply with. The Companies Act does not use “decisive influence”; it uses “dominant interest”.
How then do we establish whether decisive influence exits? Do we assume that because the Bill does not use the Section 1162 definition it means something different? That might imply that it is something below the level of control, but precisely what it is getting at seems unclear. As far as I can tell, decisive influence is not a term used in English law, which comes back to my point that we are still rooting ourselves in EU law. It is found in EU competition law and, in that context, it is used as part of a rebuttable presumption of control, so that if a majority of shares are held the parent undertaking is assumed to exercise decisive influence on the subsidiary undertaking.
If it means a variant of control, we end up saying that vertical arrangements will not be exempt even if a contracting authority can control a body. If another body in fact controls that body, it does not matter if the other body can control it but does not do so; it just looks at whether it exercises control. However, the exemption is denied if a tiny fraction of the shareholding of the undertaking is held outside the public sector. There is another leg, which is if less than 80% of the activity is carried out for the contracting authority. There is a confusing set of thresholds for denying the exemption. It is even more complicated if joint control is involved, but I will not go into that. I submit that logic and common sense have somehow gone missing in paragraph 2 and that it needs a rethink.
I have one other point, which is that I am delighted to see that what was a provision in the originally circulated version of the Bill—whereby an appropriate authority may by regulation make provision about how to calculate the percentage of activities of the controlled body—has been dropped. The percentage of activities is relevant, because one of the qualifiers under the Teckal exemption is that 80% of your activities have to be carried out for the controlling party or parties, but “activities” is not defined. In the case of UDL, which was largely a body which employed staff who did things, we took the view as a board that the appropriate measure was staff time, but there might be bodies where “activities” should be measured by turnover, size of contracts or income and expenditure. I want my noble friend to confirm that the clause enabling an appropriate authority to make regulations on this topic has been dropped in the new amendment.
It should be, because these bodies need to be left to make their own responsible decisions about the best and appropriate means of deciding how to measure their own activities. I see no reason for the Secretary of State to be involved in making regulations about it, and if they behave perversely, they will of course be subject to potentially being sued by a contractor who had failed to achieve business that they might otherwise reasonably have thought they would have obtained.
At the risk of being a little tedious, I seek clarification from my noble friend on those two points, and if he is able to provide it not today but after the Committee, that would be more than welcome.
The noble Baroness, Lady Noakes, brought up the issue of clarity and the lack of definition. We heard the result of one of the legal cases that went to the European Union, the Teckal exemption, set out by the noble Lord. Most of the controversy of the European legislation has been hammered out in courts. As I said on Monday, we are spoiling for lots of legal fights in this legislation because of the loose definitions, absence of definitions and cross-definitions. I completely take the point made by the noble Baroness, Lady Noakes, that if we try to write across something using terms which do not appear in the UK lexicon of company law, we will be starting from first principles in the court in order to define them. That will not be in the interests of any government business or of local authorities. We need a clear and legally binding understanding of what all these terms mean. The Minister must use either the Dispatch Box or the legislation—preferably the latter—to clear up that ambiguity.
The second part of Amendment 13 is an example of what the Government giveth the Lords taketh away. Having cut across the public contracts regulation and removed exemptions for public undertaking and private utilities, as I understand it the Government are, with this amendment, replacing those exemptions and focusing this vertical exemption only on public utilities. As far as we are concerned, that is perfectly fine, but again, this is an example where the Bill has had to be corrected because of missing points that cut across. There are so many cross-cuts in this legislation.
Amendments 15 and 16 are another example. Here, as the Minister set out and as the noble Lord, Lord Wigley, requested, “legal activity” has meaning in Scotland and not the meaning that the Government intended for this Bill. We now have to choose something that has no meaning at all, which is “legal services”. In the words of the Government, there is a flexible definition for this. We are being asked to put a flexible definition into the centre of a Bill. I am not keen on this sort of flexibility of language, and this is another example of flexible or misunderstandable language being put into legislation. We are looking for clarity from the Minister. If it is not Pepper v Hart clarity, we need clarity written into what we have. On some of the issues mentioned by the noble Baroness, Lady Noakes, the noble Lord, Lord Wigley, and others, we need to remove that “flexibility” from our language in the Bill.
I turn now to my second question, which I also posed to the technical team—to be fair to them, I got some form of answer. It relates to contracting authorities acting jointly when one is English and one is Scottish. What legal framework will they be operating under? The Bill team—I hope I relate this correctly; they have no right of reply, so I hope I am fair in what I say —noted that, later in the Bill, there are regulation-making powers to cover these areas. However, my concern is that, presumably, we would not be expecting regulations to be brought forward to suit individual contracting authorities acting jointly where one is Scottish and one is English. This is a slightly different point from which the Minister said on Monday he would write to me, because it relates directly to this amendment. I did not receive a letter clarifying these cross-border issues. The Minister may say that he was rather busy—
I agree with most of the remarks made by the noble Lords, Lord Purvis and Lord Fox, and others. I have decided not to read out my notes, because I want to try to get to the heart of this for the benefit of those who read our proceedings. If I get this wrong, the Minister will need to correct me. We need to understand where we are and what is happening.
My understanding is that the current procurement regime—not the regime envisaged by the Procurement Bill—operates under the existing Public Contracts Regulations 2015. Because we left the EU, the original Procurement Bill sought to transpose the 2015 regulations into British law. Unfortunately, in doing that, the Bill made a series of errors, and in particular around the Teckal exemption—however it is pronounced; I do not have the same mastery of languages as the noble Lord, Lord Moylan. That exemption was not actually in the original drafting. The Local Government Association and all the other bodies were horrified—from what I have seen of the statements they have made to the Government—because it meant that many of the things they were able to do under the 2015 regulations with the Teckal exemption would no longer be allowed and they would have to change their procurement processes. I apologise to the noble Lord, Lord Moylan, who gave the very good example of the transport initiative, of which he was proud, but the LGA and other bodies were worried that these sorts of arrangements would not be operational in the same way as was drafted in the original Procurement Bill.
The Committee will correct me if I am wrong, but this is the million-dollar question for me, and the reason I abandoned my notes: do the Government amendments in this group, led by Amendment 10, mean—as the noble Lord, Lord Moylan, other noble Lords, the LGA and many other organisations which have made representations to us are concerned it does—that the 2015 regulations have been transposed into the amended version of the Bill, along with the Teckal exemption to those regulations? That is what people will be looking for, because British law, as it will stand when this Bill becomes an Act, will mean that they can operate the various arrangements that they have either vertically with an entity in themselves, or horizontally with other local authorities or bodies.
If we look across the country, we see that in all the areas in which we live—including, I presume, Wales; I am not sure about Scotland, about which the noble Lord, Lord Purvis, may wish to say something—there are hundreds upon hundreds of models of procurement that have been adopted and worked on to deliver services in the way that a local authority, body or entity has decided to follow. The Minister will know this better than me, because of his experience. What they will be looking at is whether the Government’s amendments mean that their concerns have been met. That is why I decided to put down my amendment. I cannot debate lawas well as many other noble Lords, but if I were someone from the outside looking at this, I would ask whether this means that I can carry on procuring in the way that I have been able to procure previously. That was my concern with the way that the Bill was originally drafted. That is the million-dollar question for the Minister.