Brexit: the end of public procurement rules or business as usual?

By Chris Murray, Stuart Cairns, Claire Gamage

01-2020

The UK left the European Union on 31 January 2020. This is followed by a transition period until at least 31 December 2020 during which EU law will apply as if the UK continued to be a Member State. During the transition period, the UK and EU will seek to negotiate the terms of their future trading relationship; however, unless agreement can be reached in this ambitious timescale, or the transition period is extended, the UK still faces the possibly of a 'No Deal' Brexit in December 2020.

This briefing considers the immediate impact of Brexit on public procurement in the UK, as well as the likely longer term impacts.

The immediate impact of a British exit from the EU

UK procurement legislation arises on the whole from EU Directives, which have been implemented into UK law through UK Regulations. As a result of these rules being expressly enshrined in UK law (unlike, for example, EU Regulations which do not require implementation in Member States), the rules will continue to apply after the exit date regardless of the terms of any agreement in place (unless, of course, they were to be repealed). As a result of Boris Johnson's Withdrawal Agreement (WA), however, we know that most EU law, including the public procurement rules, will continue to apply in the UK during the so called 'transition period' which is currently due to expire on 31 December 2020.

Articles 75-78 of the WA confirm that this will be the case in respect of public procurement. Indeed, the arrangements under the WA extend the application of EU rules up to the point of contract award for any procurement processes initiated before the end of the transition. This means, for example, that some complex procurements which typically involve a more lengthy timetable (e.g. Competitive Dialogue, Competitive Procedure with Negotiation or Innovation Partnership) could be governed by EU rules well into 2021 or possibly beyond. The EU rules will also apply to all framework agreements, and any call-off contracts made under them awarded (or being awarded) before the end of the transition period. As frameworks can (as a general rule) last for up to four years, it is clear that the EU laws will have at least some relevance for the foreseeable future.

So, in the short-term, it is very much 'business as usual' for public procurement in the UK as the current rules, including for example the requirement to advertise contracts, the procedures that are followed by authorities/utilities and the application of the EU Treaty principles of equal treatment, non-discrimination and transparency, etc. will continue to apply.

What changes are likely in the longer term?

For obvious reasons, public procurement legislation will be heavily influenced by the nature of any future trade agreement between the UK and EU.

At the same time as negotiating the WA, the UK and EU agreed the terms of the Political Declaration (PD) which broadly sets out the framework, although certainly not the detail, of this future relationship. Part II of the PD states that, with respect to procurement, the UK and EU will go "beyond" their commitments under the WTO's Government Procurement Agreement (GPA) which, as explained below, would be the default regime if the UK left the EU without an agreement. This suggests that, as well as covering high value public and utility sector works, services and supplies contracts, the future trading agreement may also cover certain other utility contracts (including those let by privately owned utilities), defence contracts, concession contracts and contracts relating to certain services (including, for example, health and other social related services). These latter sectors are either wholly or largely excluded from the scope of the GPA.

However, despite the aspirations of the PD the UK Government, most notably the Prime Minister's chief adviser, Dominic Cummings, has called into question possible future alignment of UK and EU procurement rules. In a blog titled "Government procurement – 'the horror, the horror'", Cummings criticises the current system as being "complex, slow and wasteful" favouring "large established companies with powerful political connections". The Chancellor, Sajid Javid, has also more recently suggested that generally there will be no regulatory alignment with the EU post-transition and that the UK must "adjust" to new regulation. Accordingly, it is not guaranteed that the future UK and EU procurement systems will be as close in the longer term.

What is the GPA?

It is therefore possible that a future trading agreement does not in fact turn out to be as ambitious as the, admittedly vague, aspirations set out in the PD. We do know for certain, however, that whatever procurement system replaces the current regime, it will have to comply with the terms of the UK's access to the WTO's GPA.

The GPA is a non-mandatory, plurilateral agreement under the auspices of the WTO which commits members to open up their public procurement markets to contractors from other member countries. There are currently 20 signatories to the GPA, covering 48 countries, including the EU, US, Canada, Japan and New Zealand. The UK is currently a member of the GPA, but only by virtue of its membership of the EU. However, after Brexit, the UK will continue to be a member of the GPA following steps taken by the UK Government to negotiate its individual membership.

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 will therefore tie the UK government's hands to a certain extent.

However, the UK 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 may be likely in the following areas:

• As noted above, 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 could 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 will become simpler, retaining competitive procedures, but reducing the number of procedures and making tender processes less prescriptive than is currently the case. 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 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 also 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.

Is there anything you should consider right now?

For the time being, and during the transition period, 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 post-transition, 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

 
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