Buyers warned on framework deals

8 September 2004
More legal news

09 September 2004 | Mark Whitehead

Big public-sector purchasing deals could be illegal, a lawyer has warned.

Rosemary Mulley, a public-sector lawyer at law firm Nabarro Nathanson, said that "framework" agreements and other deals in which local authorities and other public bodies combine their spending power could fall foul of competition law.

"If purchasers distort competition, their deals could be illegal," she said.

"Purchasers need to tread carefully because if they are in a position where they are arguably capable of distorting competition in, say, a geographical area, they could be held to account."

Combined buying, such as for the NHS national programme for IT and the countrywide Airwave police radio deal, is a major plank in the government's efficiency strategy.

The intention is to save money and improve front-line services, but it could reduce competition and push up prices in the long term, said Mulley.

She told SM: "You might make savings in the short term but in the longer term you've reduced competition as the unsuccessful suppliers have disappeared.

"It's a question of balancing economies of scale on one hand and maintaining competitiveness in the marketplace over the long term on the other."

The Office of Fair Trading is expected to announce shortly the results of a study into the effects of public-sector purchasing on the supplier market.

It follows a warning last December by the Office of Government Commerce, the government's main procurement advisory body, that big purchasing deals could "lock out" unsuccessful suppliers for several years and reduce competition.

In its report, Smaller Supplier: Better Value?, the OGC said the result of such deals was often "large monolithic contracts that make it difficult for small and medium-sized enterprises to get involved and tie the client to a single supplier, with no continuing competition or fallback in the case of underperformance".

Recent legal challenges, one in Northern Ireland and the other in Spain, were unsuccessful, but they raised fears of further cases with potentially costly penalties for public bodies.

Nonetheless, the public-sector efficiency report by Sir Peter Gershon, published with the government's spending review in July, said framework contracts and regional purchasing consortia should be encouraged.

But John Scowen, chairman of the Society of Procurement Officers in Local Government, said small companies were already being squeezed out by big deals in the office supplies market.

He added: "The government's policy is contradictory. On the one hand it says small local firms should be encouraged, but on the other it's pushing the idea of collaborative buying, which favours big companies."

SMsep2004

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