My Lords, it has been an interesting and important debate, which we will reflect on as we go forward in the normal way between Committee and Report. I was asked a couple of definitional questions again, including: what is a public undertaking? Clause 1(2) defines a public undertaking as
“an undertaking that is not a public authority but … is funded wholly or mainly from public funds, or … is subject to contracting authority oversight.”
Public undertakings differ from bodies that are also funded wholly or mainly from public funds, or are subject to public authority oversight but which are considered to be public authorities, in that public undertakings do not have functions of a public nature, which means their activities may be more economic and commercial in nature—these are some of the things we have been discussing. For example, although it is no longer a public undertaking, before the Government sold their share in 2015, Eurostar International was a public undertaking. I am sure that people will examine that definition in Hansard. I will come on to some other points shortly.
On the question of what a private utility is, utilities are public sector bodies—public authorities or public undertakings—that carry out utility activities, or certain private organisations carrying out utility activities, which are the private utilities. The Bill covers private utilities only where they have been granted a “special or exclusive right” to carry out a utility activity. Rights are “special or exclusive” where they have been granted by a statutory, regulatory or administrative provision, and the granting of that right in itself substantially limits other utilities from carrying out those activities—it is a competition issue. This effectively puts them in a position of a natural monopoly and therefore they could, however unlikely it may be, engage, for example, in preferential treatment that favours their own affiliates or strategic partners and discriminates against other suppliers bidding for contracts, which could negatively impact the market and customers. That would not be good for the industry or consumers.
Furthermore, though I listened with great interest to what the noble Baroness opposite said in relation to international agreements, the UK is required by various international agreements to ensure that private utilities do not discriminate against foreign suppliers with rights under international trade agreements, known in the Bill as “treaty state suppliers”, and that they adhere to the rules we have agreed for utilities procurements. This is why the Bill regulates private
utilities but only to the extent required by those international agreements and where we consider it appropriate or necessary to make the regime work.
There has been a lot of debate in relation to the extent of coverage; I will come on to that. A philosophical question was posed by the noble Earl, Lord Lytton, and the noble Lord, Lord Fox: what is in and what is out? I am sure that we will debate and discuss this in our engagement as the Bill goes forward. There was a slight difference of opinion. Behind me, I have been hearing, “Everybody out”, whereas, on the other side, the noble Lord, Lord Fox, seemed at one time to stray towards a definition of private delivery of public service. That sounds like the kind of concept that might have led Mr Benn or Mr Corbyn to say, “Let’s have them all in. They provide food, the banks and all these things”. I do not think that one would want to go that far but obviously there is a question of how far; indeed, my noble friends behind me have posed the question of “if at all”.
I was alarmed by what my noble friend Lady Neville-Rolfe said, with her immense experience both in the public sector in Europe and in business. She said that, as it is drafted, she would find the Bill a deterrent to applying for public business. That is certainly not what the Government intend at all.
I will come back to the question of coverage shortly but we have included a number of measures that will reduce the regulatory burden for private utilities. For example, the Bill contains a number of provisions unique for all types of utilities, such as the higher financial thresholds and the utilities dynamic markets, which are available only to utilities. In framework agreements, public utilities can let closed frameworks for up to eight years and there is no maximum term for frameworks entered into by private utilities. In addition, with contract amendments, there is no 50% financial cap on the value of permitted modifications.
Obviously, the Bill seeks to reduce the regulatory burden on private utilities in terms of transparency. The transparency requirements for private utilities are the minimum required by international agreements—that is, the tender notice, the transparency notice in cases of direct award and the award notice. Regarding mandatory and discretionary exclusions, the Bill retains the flexibility under the current regime where the application of mandatory exclusions is discretionary for a private utility. Private utilities are not restricted in the duration of closed frameworks, which is generally four years for non-utilities. The terms of any closed framework are their commercial decision. Private utilities will also not be subject to oversight by the procurement review unit, which we will come to discuss later in the Bill.
I was asked about broadband and drainage. I am not sure that I have an answer on drainage except to say that I always evoke the great spirit of Bazalgette. Schedule 4 sets out that the Bill covers utilities operating in the water, energy and transport sectors that are regulated in our international trade agreements to minimise the burdens on utilities. Broadband is not covered by those trade agreements so we have not chosen to regulate public or private utilities in that area.
In relation to that, I was asked about private bus companies and Transport for London. Private utilities that run transport services, such as private bus companies, are regulated as they operate services where they have special or exclusive rights to do so. That limits competition and is reflected in international trade agreements; for example, the World Trade Organization government procurement agreement specifically lists Transport for London as being covered by that agreement. The Bill exempts it under paragraph 17 of Schedule 2 as it will be regulated by Department for Transport regulations.
The noble Lord, Lord Berkeley, asked about the reasons for excluding certain utilities. I will turn to his amendments now. Schedule 4(8) includes certain utility sectors that are exempt from the regulations. As they have proved to the European Commission, they are exposed to competitive forces. Schedule 4(8) provides an exemption determination for those decisions. If other sectors can do similarly, we will be able to exempt them from procurement regulations.
Regarding the amendments tabled by the noble Lord, Lord Berkeley, Schedule 4 sets out the scope of utilities activities, largely mirroring the coverage of the existing regime domestically. I repeat: this reflects our commitments in trade agreements such as the WTO’s GPA. Amendment 25 would extend the exclusion for the supply of gas and heat produced as a consequence of carrying out a non-utility activity to all contracting authorities where this is currently available only to private utilities and public undertakings. This would breach our commitments in the WTO government procurement agreement and other international agreements where this exemption applies only to private utilities and public undertakings. It does not apply to contracting authorities that are public authorities.
Amendments 26 and 27 seek to remove from the scope of the Bill utility contracts related to public transport services and contracts associated with activities for the provision of airports and ports, as was discussed by the noble Lord, Lord Berkeley, and my noble friend Lord Moylan. Both activities are covered under the existing regime, and are required by our international commitments under the WTO GPA and other international agreements that require access to utility contracts in the transport, ports and airports sectors. The Bill therefore regulates these utility activities to comply with our international obligations.
As my noble friend Lady Neville-Rolfe said, the Bill provides for a mechanism in Schedule 4(7); this was alluded to in a different context by the noble Lord, Lord Fox. This will be developed to permit an appropriate authority to exempt utilities operating in these sectors where they are exposed to competition. This would apply to all utilities and is permissible under our international obligations.
I will reflect carefully on—