On 23 June 2016, the UK public voted to leave the EU. Under Article 50 of the Lisbon Treaty, the EU Treaties shall cease to apply to the UK:
- from the date of entry into force of the withdrawal agreement that the UK negotiates with the Union, acting through the Council; or
- two years after the UK has notified the European Council of its intention to withdraw, unless the European Council, in agreement with the UK, unanimously decides to extend this period.
The current expectation is that the UK will give notice in March 2017 and the whole of the two year period will be needed to negotiate the exit provisions. Therefore, in practice the British exit (Brexit) date is unlikely to be before March 2019.
This briefing considers the immediate impact of the Leave vote on public procurement in the UK, as well as the likely longer term impacts.
The immediate impact of a British exit from the EU on the public procurement regime
The UK procurement legislation arises in the majority from EU Directives, which have been implemented into UK law through UK Regulations. As a result, a British exit from the EU will have no immediate impact on the legislative position in the UK and all the same provisions would continue to apply. That would include the EU Treaty principles of equal treatment, non-discrimination, transparency, mutual recognition and proportionality, because they are enshrined expressly in the UK legislation.
Leaving would nonetheless have some impact, because the decisions of the European Courts would no longer be binding on the UK courts. The UK courts would therefore be free to interpret the legislation from a UK perspective, which has tended to be somewhat more authority-friendly, without having to observe the EU case law, which has tended to be more bidder-friendly. Some commentators have suggested that we may even see such an effect during the two years prior to the exit because the UK judges will simply feel less constraint from the EU courts in practice (notwithstanding that in theory nothing will have changed).
What changes are likely in the longer term?
For obvious reasons, the public procurement legislation will be heavily influenced by the nature of any future trade agreements between the UK and the EU.
If the UK were to participate in the EEA then the procurement regime would very likely remain the same, and continue to evolve as the EU regime does, including continuing to be influenced by the case law of the European Courts and the requirements of the EU treaty principles. That is looking very unlikely at present.
If instead, the UK were not to participate in the EEA, and relied on WTO membership and its participation in the Government Procurement Agreement, change is likely in the long run. It is worth noting that there is some debate amongst commentators as to whether or not the UK would automatically remain a member of the World Trade Organisation and the Government Procurement Agreement because it currently participates only by virtue of its membership of the EU. It seems most likely that the UK would remain a member but that some renegotiation would be necessary.
The GPA contains surprisingly rigorous rules on how procurements must be carried out. Indeed it was a key influence for the public procurement packages passed by the EU in 2014. However, the UK government would have more freedom to make some changes. Obviously we are to some extent crystal ball gazing but we think change would be likely in the following areas:
- the GPA does not cover private utilities or defence procurement. It seems very likely that there would be some liberalisation for private utilities. Defence procurement rules have always been contentious for Member States and we think it is unlikely that the UK would accept open access to non-UK bidders for defence and security-related contracts if it were not obliged to. That said, there has been an increasing drive by the current government to regulate single source contracts and increase competition, so it also seems unlikely that there would be no requirement for competition at all.
- the GPA requires the implementation of a remedies regime but does not go into the same detail as the EU rules. It seems very likely that the UK would in time depart from the EU rules, which seem somewhat alien in the scheme of general UK law on judicial review and remedies. That would mean, for example, removing the possibility for automatic suspension and possibly also ineffectiveness. The judicial review regime would have to develop over time to fill the gaps left by the specific remedies regime.
- Generally, we think it is likely that the rules are likely to become simpler, retaining competitive procedures, but without the same level of detail that has been transposed as a result of the 2014 Directives. For example, some of the rules on contract modifications and on the requirements regarding transparency of evaluation may well be relaxed. The key focus of the UK government in recent years, and therefore what is likely to be retained, has been transparency of opportunities and contract documents as a way of ensuring best value (rather than transparency during the process, the purpose of which has largely been to ensure non-discrimination, and in particular prevent national favouritism).
- it is possible that we will see more variance in the public procurement rules as governments change. As legislation has been founded in EU law there has been little change in the law itself when governments have changed, although there have often been significant practical changes (the exception being the additional Lord Young reforms that were implemented with the 2014 Directive). It is certainly possible that we will see greater variation in the rules themselves due to policy changes.
Finally, it is possible that the UK would withdraw from the WTO as well. In such circumstances it would not be bound by specific public procurement rules and could largely rewrite the rule book (noting that other trade agreements are likely to specify some equality of access to competitions for their suppliers, if the UK joined EFTA for example, or concluded other bilateral agreements). What does seem clear is that there are many policy reasons why some form of public procurement legislation will remain. Competitive, transparent tendering processes are very important in the fight against corruption for example, and for ensuring best value. Indeed, many UK bodies have internal rules that require them to observe competitive tendering processes even for much lower value contracts (Local Authority Standing Orders for example). However, if the UK were to leave the WTO, a somewhat more protectionist, ‘Buy British’ approach to procurement seems likely, curbed by any bilateral trade treaties concluded.
Is there anything you should consider right now?
For the time being, the rules apply as they always have done. The key thing to consider now is whether any contracts are affected by European Commission grants and/or State aid and determine what effect Brexit will have on that funding. Another key consideration is whether long term government projects that are currently being procured will rely on free movement (of people or goods), and, if so, what contractual provisions could be inserted to provide for a scenario where there is no free movement.
We are also being asked about force majeure and contract changes in the context of currency fluctuations. Our commercial contracts Brexit note looks further at this point. However, in the context of public contracts, it is important to remember that the rules preventing material contract changes will still apply (for the time being at least).
Finally, if it starts to become clearer that the UK will not remain part of some form of free trade arrangement with the EU, UK companies may need to consider setting up an entity within the EU to ensure that they continue to benefit from access to those markets, whilst they still have the unrestricted freedom to do so.
This article is part of our Brexit series