On 29 March 2017, the UK Government served formal notice under Article 50 of The Treaty on European Union to terminate the UK's membership of the EU (following the June 2016 UK referendum on EU membership). Based on Article 50, the EU Treaties shall cease to apply to the UK and the UK exit will take effect in March 2019 (subject to the unlikely possibility of the withdrawal agreement being concluded sooner and unless all Member States agree to extend the period). Negotiation of a new trade agreement with the EU could take several years beyond 2019 although the Prime Minister has declared the objective of achieving such an agreement within the two-year period.
This briefing considers the immediate impact of Brexit on public procurement in the UK, as well as the likely longer term impacts.
The current impact of the Leave vote on the UK 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, the Leave vote had no immediate impact on the legislative position in the UK and all the same provisions continue to apply, including the EU Treaty principles of equal treatment, non-discrimination, transparency, mutual recognition and proportionality, because they are enshrined expressly in the UK legislation (and in any event still apply in law).
The decisions of the European Courts continue to be binding on the UK courts. Some commentators have suggested that we may see the UK courts paying less deference to the European Courts during the two years prior to the exit, because the UK judges will simply feel less constraint in practice (notwithstanding that in theory nothing will have changed). There have been no good test cases yet for this theory and in general the UK has not referred cases to the European Courts on public procurement matters anyway.
The immediate impact of a British exit from the EU
Assuming the Great Repeal Bill is passed along the lines indicated, there will be no immediate impact on the procurement legislation itself. However, certain immediate practical issues will arise. For example:
- the status of the recitals to the procurement directives may not be clear. The recitals to the 2014 Directives are currently used for interpretation of the Directive and in practice they actually contain important additional obligations. By way of example, they specify that the award criteria for the competitive procedure with negotiation must remain stable throughout the process, a requirement which is not as clear from the wording of the Directive itself.
- the status of European case law will change. Currently EU case law on key issues, such as the amount of detail that you must give an unsuccessful bidder, or as to what constitutes an abnormally low tender, or grave professional misconduct, is binding - in future it will carry the same weight as a Supreme Court decision.
- it may no longer be possible for UK authorities to publish notices in the Official Journal (OJEU), meaning that the procedures for contract notices, contract award notices, VEAT notices etc. become difficult practically to comply with.
- the Treaty principles are enshrined in the UK legislation but are currently interpreted in light of EU law. What do the principles mean in a post-Brexit world?
- it is unclear whether non-UK bidders would still be able to claim protection under the Regulations.
Some clarity as to how these matters should be treated would be most welcome. Given that some of the answers will be dependent on what, if any, trade deal is concluded, it may be that such matters have to be left for resolution after Brexit, relying on the amendment powers in the Great Repeal Bill.
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, but that is looking very unlikely at present. If instead, the UK relied on WTO membership and its participation in the Government Procurement Agreement, as Theresa May has indicated it might do, change is likely in the long run. It is worth noting that some renegotiation is likely to be necessary, to create a UK-specific schedule to the GPA, so even the shape of the UK's WTO membership is somewhat unclear.
The GPA contains surprisingly rigorous rules on how procurements must be carried out. Indeed its provisions were a key influence for the public procurement packages passed by the EU in 2014. Remaining a signatory would therefore tie the UK government's hands to a certain extent.
However, the UK government would have more freedom to make some changes than it currently does. 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, defence procurement or concessions. 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.
It now seems unlikely that the UK would withdraw from the WTO as well, but if it did it would not be bound by specific public procurement rules and could largely rewrite the rule book, although other trade agreements are likely to specify some equality of access to competitions for their suppliers, which may be the case if the UK enters into some form of free trade agreement with the EU. In any event 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).
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.
One area where we have seen an immediate effect is in a closing off to UK bidders of certain European Union-led projects, particularly those which require an ongoing EU presence, for example, or for projects that are strategically significant.
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