Public Procurement Post Brexit – Where Next?

20th Jun 2017

Camille Slow examines the potential impact of Brexit on the public procurement regime in the UK. The key observations are that:

  • Transitional arrangements post Brexit will be necessary to enable to UK to continue to participate in the WTO’s Agreement on Government Procurement.
  • The UK is unlikely to dispense completely with its public procurement regime, especially since public bodies already operate self-imposed standards beyond the scope of the EU and WTO rules.
  • There are likely to be changes in the remedies regime for breaches of public procurement rules, moving towards a judicial review system based on common law principles. Threshold levels for the application of public procurement rules may also fluctuate with successive governments.

Public Procurement Rules

The UK’s public procurement regulations are a statutory regime governing the letting of contracts by public bodies (as defined by legislation to include quasi-public bodies such as utility companies in private ownership).  They implement the EU Procurement Directives’ rules of fairness and non-discrimination between economic operators, whether from different Member States or otherwise. The regimes are comprehensive and govern the whole process, from advertising the opportunity in the Official Journal of the EU (“OJEU”) to setting the remedies available to aggrieved economic operators.

The Impact of Brexit

Self-evidently, although subject to the prospect of the UK remaining part of the EEA (which presently appears unlikely although the minority government makes the position slightly more uncertain), the UK government will no longer be obliged to continue this regime in its current form post Brexit. Similarly, UK economic operators cannot expect to continue to enjoy the protection of the procurement regimes when tendering for EU projects.

Indeed, depending on the trade agreement the UK government reaches with the EU, if any, UK economic operators may be positively disadvantaged by the inability to submit sufficiently attractive bids for such projects (and vice versa) once any tariffs are accounted for. These changes will, however, result from the UK’s expected departure from the single market, rather than the loss of the procurement regulations which police the implementation of the principles underpinning the single market.

WTO Procurement Regime

Although its implications are often overlooked in the face of the more rigorous EU Procurement Rules, the UK also participates in the World Trade Organisation Agreement on Government Procurement (“GPA”). The GPA is a plurilateral agreement within the framework of the WTO, so not all WTO members are parties to the agreement.

World Trade Organization

The GPA, in common with the EU procurement regime, requires open, fair and transparent conditions of competition in government procurement. Although a less prescriptive regime than the EU procurement framework, the GPA is surprisingly detailed in its requirements.  The GPA applies to defined types of contract (and above certain financial limits) – it does not apply to the quasi-public bodies that are bound by the EU rules, expressly excludes defence and national security contracts, and is less rigid than the EU procurement rules in terms of remedies, notably not requiring the ineffectiveness and automatic suspension measures.

The UK is presently only a signatory of the GPA as a member of the EU, and it will be necessary (subject to agreeing some broader transitional arrangements for international treaties) for the UK to take steps to subscribe to this, and international agreements of a similar nature, in a different capacity. Failure to resolve these issues before Brexit would also cause the UK to lose its rights to trade in this broader market, as the other GPA members would no longer be obliged to trade with the UK on equal terms. It can, however, be expected that the necessary steps will be taken at some point, and that the UK will not only remain a party to the GPA, but its impact is likely to become more prominent as the GPA rights fill the void left by the EU procurement rules in a EU context, and as contractors look to new markets (see, for instance, the new markets created by the Belt and Road Initiative as discussed here).

Where Next – Legislative Changes and Policy Considerations

Whilst the procurement regime operates to ensure fairness to operators from throughout the EU, in a substantial majority of cases the bidding parties are all domestic. The existing rules could be maintained largely as they stand so that they continue to operate on a domestic stage. The anticipated Great Repeal Bill is expected to pick and choose what EU-derived law would be retained, amended or dispensed with. Even if the Government wished to keep the procurement regime in its entirety for domestic contracts (which will itself require legislative changes), there may be elements of the regime which it may not be possible to maintain post Brexit, such as advertising in the OJEU.

As the procurement regime restricts government bodies in the letting of contracts, it might be attractive for a future government to free itself of some of its constraints. It could, however, be a political hard-sell in the current economic climate to dispense with rules that ensure competitiveness and fairness between economic operators, as these rules also have the effect (if not objective) of promoting best value for the taxpayer. Indeed, many public bodies, such as local authorities, already voluntarily operate self-imposed best value tendering rules for contracts that fall outside of both the EU procurement regime and the GPA (which have broadly similar financial thresholds). Accordingly, it would seem likely that the existing framework will be maintained in some form as between domestic economic operators.

Similarly, where the GPA continues to apply, the basic principles of non-discrimination, transparency and procedural fairness will remain. However, the GPA is more focused on ensuring that international tenderers are treated no less favourably than domestic operators, leaving greater discretion to the UK Government to determine how to structure procurement arrangements once outside the EU, as long as those basic principles are respected.

Nevertheless, I would anticipate changes in the remedies regime, such as the removal of suspension periods and ineffectiveness, in order to reduce the extent to which public bodies are constrained from implementing contractual decisions pending disputes with dissatisfied bidders. I would anticipate a move towards a system more based on existing common law principles, where the decisions of public bodies will be subject to judicial review or a system of a similar nature, and damages will usually be an adequate remedy where financial losses can be demonstrated and injunctions might only be available in very limited cases. This can be contrasted with the current Francovich position, where the right to damages for sufficiently serious breaches is an additional remedy that exists alongside the right to take steps to prevent the tendering body from carrying its breach of duty into effect, as clarified in the recent decision of Nuclear Decommissioning Authority v Energy Solutions EU Ltd [2017] UKSC 34. It seems unlikely that this type of remedy, which, in its present form, is relatively alien to UK law, will be maintained in the long term.

These changes could be sold as removing unnecessary ‘red tape’, against a background of Brexit being seen more generally as an opportunity to make regulatory changes with this objective in mind (see for example, in a construction context, Oliver Letwin’s new Red Tape Initiative, which starts by focusing on construction-related regulations and aims to produce a report by Q2 of 2018). Whilst it can be expected that procurement rules in some form are here to stay, the UK will no longer be constrained by current and future EU Directives and the enforcement jurisdiction of the Commission and the CJEU.

As such, the Government has more flexibility, such as in balancing the considerations of value and minimising red tape. It is likely that governments from different ends of the political spectrum will have differing views on the relative importance of these objectives. It can therefore be expected that there will be greater volatility in any procurement regime once the post-Brexit dust has settled, and a possibility in particular that threshold levels for the application of any future UK procurement rules might fluctuate with successive governments. It remains to be seen what, if any, new international trade deals are struck, and whether they require additional procurement regulations (beyond those required by the GPA) to be introduced.

Camille Slow

Camille has a broad commercial disputes practice with particular focus on the construction and engineering, professional negligence, energy, fraud, insolvency, IT and telecommunications and sectors. She represents a wide range of clients including governments, contractors, private employers and their insurers and professional advisors all over the world, including in Africa, the Middle East and Asia.

She has impressive experience of all forms of dispute resolution including expertise in domestic and international arbitration, mediation, High Court litigation and adjudication. In relation to adjudication, her experience includes advising on the enforcement of awards as well as conducting adjudications including attending hearings before adjudicators. She carries out a considerable amount of advocacy, regularly appearing in the High Court and arbitration, conducting trials and other hearings.

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