Corporate law specialist, Vaughan Jones, explains the impact of EU legislation on UK procurement and how Brexit may affect it.
EU procurement law is intended to create a level playing field for all businesses across Europe in bidding for substantial public contracts. It has been estimated that 20% of UK GDP is spent on contracts which are subject to public procurement, and, during the referendum campaign it was said that compliance with procurement rules costs the UK taxpayer £1.6 billion each year.
Our domestic procurement legislation arises in the majority from EU Directives, which have been implemented into the law of this country by statutory instrument. After Brexit, there will no longer be any obligation to implement them, so our regulations could be repealed. However, the procurement rules are intended to ensure openness and fairness in public procurement, goals which are not necessarily tied to the EU, and as the mood music in this country at present favours transparency and accountability, it is not necessarily the case that even if the UK were not required to follow EU or other international procurement obligations, our procurement regulations would necessarily change. I think it is very unlikely that the government would create a position where no rules regulated the procurement of goods and services by public authorities.
The impact of Brexit
Until Parliament decides otherwise, the public sector will be required to comply with the Public Contracts Regulations 2015. What is more, if the UK negotiates continued membership of the European Economic Area (EEA), European Free Trade Association (EFTA) and/or the Government Procurement Agreement (GPA), it will still be necessary to comply with their procurement rules covering openness, fairness, transparency and non-discrimination. However, decisions of the European Courts would no longer bind our courts, which would be free to interpret the procurement rules from a British perspective (which some see as more inclined to favour public authorities): the EU case law has tended to be seen as more bidder-friendly.
Options to continue trading in the EU
The European Commission intends to implement rules which would enable the EU to close its markets to businesses from non-EU states which do not offer reciprocal access to public procurement. There are therefore a number of potential options which may be available, principally:
- being in the European Economic Area (EEA) and having membership of the European Free Trade Association (EFTA) (this is sometimes called the “Norwegian model”). If the UK joined the EEA, our procurement rules would in all probability remain the same as those which apply within the EU;
- entering into a bilateral treaty or trade agreement with the EU, and joining EFTA, as Switzerland has done;
- entering into a bilateral treaty or trade agreement (this would mirror Canada’s arrangements with the EU) which provides some access to public markets in Europe, without being a member of EFTA;
- using the rules of the World Trade Organisation (WTO)/GPA to conduct trade. The GPA is an agreement between members of the WTO under which GPA members agree to give limited rights of access to their public procurement market to foreign businesses. GPA Members include EU member states, the members of EFTA, the US, Japan and Hong Kong. If the Government does not want the UK to access the EU single market through EFTA, it is likely that it would still want join the GPA, especially as China is at present applying to join it (we currently participate in the GPA through our membership of the EU). The GPA provides for what can be described as a short form of the EU procurement rules, and so if we stay in the GPA, a similar system would have to be implemented here.
Preferential treatment for UK-based companies
Even if Britain were not in the EEA, we could use the mechanisms of the World Trade Organisation (WTO), which are also rooted in transparency and fairness in terms of procedure. The government cannot at present allow preferential treatment to UK-based companies but following Brexit, the government could legislate to improve the position for UK firms in winning public contracts at home: however, discussions are at present being held within the EU regarding how the Union might ensure that its members enjoy equal access to the markets of non-member states which are granted access to EU markets, and if we tried to implement protectionist measures, that might result in the EU preventing UK businesses from bidding for contracts within Europe.
Thus, if the UK were not to participate in the EEA, and we were to rely on WTO membership and participation in the GPA, legislative change would be likely to follow.
It is possible that the UK might withdraw from the WTO also. We would then not be bound by any international public procurement rules, but some form of public procurement legislation would almost certainly remain: transparent tendering processes play a substantial role in deterring corruption and in ensuring best value. However, if we left the WTO, that would allow a protectionist approach to procurement, although it would be qualified by any bilateral trade agreements which we entered into with individual countries and trading blocs.
Perhaps, post-Brexit, procurement regulation may become simpler, and dispense with the level of detail found in the 2015 regulations. One point to keep in mind is that while until now (because our procurement law is EU-based) it has not been a political football, in future changes in domestic public procurement rules could follow changes of government.
For the present, and probably until 2019 at the earliest, the EU-derived rules still apply. I mentioned in my earlier article here, some issues to consider in respect of entering into contracts now: as time passes, if it becomes clear that the UK will not enjoy a free trade arrangement with the EU in future, it may be sensible to consider setting up a subsidiary or joint venture based inside the EU, to try to ensure continued access to European markets.
About the author
Vaughan Jones is Partnership Chair and a specialist in Corporate Law.