It may enable those providers with a longer-term vision to oblige authorities to treat them and their need for security and a profit margin with more respect than has been usual.
The Act prohibits both purchasers and sellers from anti-competitive conduct or price-fixing, and the European law from which it emanates sets various threshold indicators of what amounts to such conduct. Fines can be levied on wrongdoers who breach this edict, and sweeping investigatory powers have been given to the Competition Commissioner. It is not yet known whether it even applies to the purchase of community care services, by local authorities, pursuant to their statutory duties. We think on balance that it could apply, but that if a challenge was brought, that LA social care contracting might be made subject to an exemption from the Act’s provisions, on the basis that it is an activity of economic importance to the country.
Its main impact, if authorities’ social care functions are not exempt, is that it will require more overt negotiation with providers, and listening to their concerns about costings etc, rather than the more traditional approach to the setting of price known as ‘Take it or leave it’.
It must never be forgotten by authorities that they purchase care in the pursuit of a statutory duty to make arrangements for those who cannot obtain care by other means or those for whom the authority’s intervention is ‘necessitated’. Thus setting such low prices as discourages providers to start up or continue in the business must inevitably, at some stage, become an unlawful or unreasonable way of conducting the authority’s function of ‘making arrangements’ for social care – when there is no provider willing to contract on the terms the authority is willing to offer.
Take this example, for illustration of the problem:
The Extonshire County Council has contracts with local home owners for 46% of the beds needed in the county, by way of 5 small block contracts with homes. It also provides another 10% of the county’s beds in homes managed directly by the authority. It places people in all these homes according to their choices. The other 44% of the contracts made locally are purchases by the private sector, and because they cost more, per individual, they actually net the providers more money than the whole sum of money received by them on account of local authority placements. The Council has informed the providers that its fees for the next year are going to be capped at the fees set the year before, in spite of the further regulatory and employment costs faced by providers. The Council refuses to negotiate. Three homes in particular which have been running at a steady loss, are likely to have to close down. This will mean that on the basis of the current year’s statistics, there will be insufficient beds available in the county for the anticipated demand. The private beds are likely to go up in price. Private payers are therefore going to use up their capital more quickly and come to be the responsibility of the authority sooner than before. If the local authority has to meet need, it will have to pay the higher price of the non-block contracted beds, and not take a top-up, or else accommodate people away from home, where it is cheaper, but at some appreciable cost to the social welfare of the clients.
Even if we Ignore the detail of the Competition Act 1998, the authority ought to negotiate. Its obligation under the Choice of Accommodation Guidance is to set its ‘usual cost’ by reference to what it normally expects to have to pay’, not a figure plucked arbitrarily from the air (and then halved!).
Special situations need special policies, and it is an economic truth that smaller homes work on tighter margins than the large conglomerates. A prudent authority would realise that if these three homes collapse, the price fixing strength of all the other homes in the area will be increased, and that control comes from ensuring that there is a reasonable balance between supply and demand and inter-home competition in the area. To further that aim, it would be worth the authority having a different policy (or at least making exceptions to the usual price ceiling) for smaller homes. At the very least it must be seen to be actively considering the providers’ representations about their inability to provide a proper service at the fee sought by the authority.