UK REGULATION AFTER BREXIT REVISITED -- PUBLIC PROCUREMENT

‘Negotiating the Future’ and ‘UK in a Changing Europe’ have published a second edition of their interesting report on ‘UK Regulation after Brexit - Revisited’. I had contributed a procurement chapter to the first edition (which has recently been cited in this interesting report for the European Committee of the Regions on the impact on regions and cities of the new trade and economic relations between EU-UK). So I was invited to update the analysis, paying special attention to the (slow) progress of reform of the UK procurement rulebook with the Procurement Bill.

The procurement analysis is below, but I would recommend reading the report in full, as it gives a rather comprehensive picture of how regulation is moving in the UK. For more targeted analysis on regulatory divergence with the EU, this other UK in a Changing Europe ‘Divergence Tracker’ (v5.0) will be of interest.

Public procurement

Public procurement regulation is the set of rules and policies that controls the award of public contracts for works, supplies, and services. Its main goal is to ensure probity and value for money in the spending of public funds – to prevent corruption, collusion, and wastage of taxpayers’ money. It does so by establishing procedural requirements leading to the award of a public contract, and by constraining discretion through requirements of equal treatment, competition, and proportionality. From a trade perspective, procurement law prevents favouritism and protectionism of domestic businesses by facilitating international competition.

In the UK, procurement rules have long been considered an excessive encumbrance on the discretion and flexibility of the public sector, as well as on its ability to deploy ambitious policies with social value to buy British products made by British workers. The EU origin of UK domestic rules, which ‘copied out’ EU Directives before Brexit, has long been blamed for perceived rigidity and constraint in the allocation of public contracts, even though a ‘WTO regime’ would look very similar.

Capitalising on that perception during the Brexit process, public procurement was ear-marked for reform. Boris Johnson promised a ‘bonfire of procurement red tape to give small firms a bigger slice of Government contracts’. The Johnson Government proposed to significantly rewrite and simplify the procurement rulebook, and to adopt an ambitious ‘Buy British’ policy, which would reserve some public contracts to British firms. However, although one of the flagship areas for regulatory reform, not much has changed in practical terms. Reforms are perhaps on the horizon in 2023 or 2024, but the extent to which they will result in material divergence from the pre-Brexit EU regulatory baseline remains to be seen.

Post-Brexit changes so far, plus ça change…

To avoid a regulatory cliff edge and speed up its realignment under international trade law, the UK sought independent membership of the World Trade Organisation Government Procurement Agreement (GPA) from 1 January 2021 on terms that replicate and give continuity to its previously indirect membership as an EU Member State. The UK’s current individual obligations under the GPA are the same as before Brexit. Moreover, to maintain market access, the EU-UK Trade and Cooperation Agreement (TCA) replicates obligations under EU law that go beyond the GPA in substantive and procedural elements (‘GPA+’), with only the exception of some contracts for healthcare services. The Free Trade Agreements (FTAs) with Australia and New Zealand, and the envisioned accession of the UK to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) foresee further GPA+ market access obligations and increasingly complicated constraints related to trade.

These commitments prevent the adoption of an expansive ‘Buy British’ policy and could in fact restrict it in some industries, although healthcare is explicitly excluded from procurement-related trade negotiations. Despite misleading claims to the contrary in UK governments reports, such as the January 2022 Benefits of Brexit report, which gives the impression that Brexit ‘enabled goods and services contracts below £138,760 (central government), £213,477 (sub-central authorities) and £5.3 million (construction throughout the public sector) to be reserved for UK suppliers’ (art 8), official procurement guidance makes clear that the situation remains unchanged. Contracts above the values quoted above – those covered by the GPA, the TCA, and Free Trade Agreements – remain open to international competition. In other words, the government has not achieved its stated Brexit aspiration of reserving ‘a bigger slice’ of procurement to domestic businesses.

A similar picture emerges in relation to procedural requirements under procurement law. While the UK Government declared that its aim was to ‘rewrite the rulebook’ (as discussed below), the pre-Brexit ‘copy out’ of EU procurement rules remains in effect as retained EU law. Brexit required some marginal technical adjustments, such as a change in the digital platform where contract opportunities are advertised and where high value contract opportunities are published in the Find a Tender portal rather than the EU’s official journal, or the substitution of the European Single Procurement Document (ESPD) with a near-identical Single Procurement Document (SPD). The main practical change following Brexit is the UK being disconnected from the e-Certis database. The lack of direct access to documentary evidence makes it more difficult and costly for businesses and public sector entities to complete pre-award checks, especially in cases of cross-border EU-UK tendering. However, TCA provisions seek to minimise these documentary requirements (Art 280) and could mitigate the practical implications of the UK no longer being part of the e-Certis system.

With Brexit, the Minister for the Cabinet Office assumed the powers and functions relating to compliance with procurement rules. Even if the bar was already quite low before Brexit, since virtually no infringement procedures had been opened against the UK for procurement breaches, this change is likely to result in a weakening of enforcement due to the lack of separation between Cabinet Office and other central government departments. The shortcomings of current oversight mechanisms are reflected in the proposed reforms discussed below, which include a proposal to create a dedicated Procurement Review Unit.

Future change

The government has been promoting the reform of the UK’s procurement rulebook. Its key elements were included in the 2020 Green Paper Transforming Public Procurement. The aim was ‘to speed up and simplify [UK] procurement processes, place value for money at their heart, and unleash opportunities for small businesses, charities and social enterprises to innovate in public service delivery’, through greater procedural flexibility, commercial discretion, data transparency, centralisation of a debarment mechanism, and regulatory space for non-economic considerations. The Green Paper envisaged the creation of a new Procurement Review Unit with oversight powers, as well as measures to facilitate the judicial review of procurement decisions. Despite the rhetoric, the proposals did not mark a significant departure from the current rules. They were ‘EU law+’, at best. However, a deregulatory approach that introduces more discretion and less procedural limitations carries potential for significantly complicating procurement practice by reducing procedural standardisation and increasing tendering costs.

The 2021’s government response to the consultation mostly confirmed the approach in the Green Paper and, on 11 May 2022, the Procurement Bill was introduced in the House of Lords, the day after the Queen’s Speech. The Procurement Bill is hardly an exemplar of legislative drafting and it was soon clear that it would need very significant amending. As of 1 September 2022, the Bill had reached its committee stage in the Lords. Five hundred amendments have been put forward with over three hundred of those originating from the government itself. The amendments affect the ‘transformative’ elements of the Bill, and sometimes there are competing amendments over the same clause that would result in different outcomes. It is difficult to gauge whether the government’s proposals will result in a legislative text that materially deviates from the current rules. It is also unclear to what extent the new Procurement Review Unit will have effective oversight powers, or enforcement powers.

The Procurement Bill, moreover, contains only the bare bones of a future regime. Secondary legislation and volumes of statutory guidance will be adopted and developed once the final legislation is in place. Given the uncertainty, the government has committed to provide at least six months’ notice of the new system. It is therefore unlikely that the new rules will be in place before mid-2023. The roll-out of the new rules will require a major training exercise, but most of the government’s training programme is directed towards the public sector. Business can expect to shoulder significant costs associated with the introduction of the new rules.

These legislative changes will not apply UK-wide. Scotland has decided to keep its own separate (EU-derived) procurement rules in place. Divergence between the rules in Scotland and those that apply in the rest of the UK is governed by the 2022 revised Common Framework for Public Procurement. The Common Framework allows for policy divergence, and has already resulted in different national procurement strategies for England, Wales and Scotland, as well as keeping in place a pre-existing policy for Northern Ireland. It is too early to judge, but different policy approaches may in the medium term fragment the UK internal market for public contracts, especially non-central government procurement.

Conclusion

The process of UK procurement reform may be the ‘perfect Brexit story’. Perceived pre-Brexit problems and dissatisfaction were largely a result of long-lasting underinvestment in public sector capacity and training and constraints that mostly derive from international treaties rather than EU law. As an EU member state, the UK could have decided to transpose EU rules other than copying them, thereby building a more comprehensive set of procurement rules that could address some of the shortcomings in the EU framework. It could have funded a better public sector training programme, implemented open procurement data standards and developed analytical dashboards, or centralised debarment decisions. It decided not to opt for any of these measures but blamed the EU for the issues that arose from that decision.

When Brexit rhetoric had to be translated into legal change, reality proved rather stubborn. International trade commitments were simply rolled over, thereby reducing any prospect of a ‘Buy British’ policy. Moreover, the ongoing reform of procurement law is likely to end up introducing more complexity, while only deviating marginally from EU standards in practice. Despite all the effort expended and resource invested, a Brexit dividend in public procurement remains elusive.

Doing procurement differently after Brexit? [update]

The UK in a Changing Europe (UKICE) has published a new report: ‘Doing things differently? Policy after Brexit‘. The report provides an update on last year’s ‘UK regulation after Brexit', as well as additional analysis.

‘Doing things differently? Policy after Brexit’ brings together a number experts in their respective fields to investigate how policy and policymaking have changed in a range of sectors. UKICE asked them to consider how changes so far compare to what was promised before Brexit, and to analyse what changes lie ahead and what their impact might be.

I contributed a section on public procurement. For more details and broader developments in UK procurement regulation, you can also see my recent country report for EPPPL.

What changes were promised after Brexit?

Public procurement regulation is a set of rules and policies controlling the award of public contracts for works, supplies, and services. Its main goal is to ensure probity and value for money in the spending of public funds, to prevent corruption, collusion, and wastage of taxpayers’ money. As pandemic-related procurement has shown, the absence of procurement rules (or their disapplication due to an emergency), all too often leads to the improper award of public contracts. Nonetheless, the benefits of constraining discretion in the award of public contracts are easily forgotten in ‘normal times’, and procurement regulation is permanently challenged for creating an administrative burden on both the public sector and on companies tendering for public contracts, and for stifling innovation.

Procurement has long been heavily influenced by international and regional agreements, which constrain domestic choices to facilitate cross-border tendering for public contracts. Before Brexit, the UK was directly bound by the procurement rules of the European Union (EU), and indirectly by those of the World Trade Organisation’s Government Procurement Agreement (GPA), to which EU rules are aligned. As a result, UK regulatory autonomy was limited to the spaces left by general EU rules requiring domestic transposition. The UK decided not to exercise that limited discretion and consistently took a copy-out approach to the transposition of EU rules, so pre-Brexit UK procurement regulation was virtually identical to the EU’s.

During the Brexit process, public procurement was ear-marked for reform. Boris Johnson promised a ‘bonfire of procurement red tape to give small firms a bigger slice of Government contracts’ and his Government proposed to significantly rewrite the procurement rulebook, and to adopt an ambitious ‘Buy British’ policy to reserve some public contracts to British firms.

What has changed so far?

Despite those promises, the UK Government has made big efforts to replicate international and regional procurement agreements post-Brexit, which means it will continue to be hard to introduce an effective ‘Buy British’ policy. The UK gained GPA membership in its own right on 1 January 2021. This now directly constrains domestic choices on procurement regulation. The EU-UK Trade and Cooperation Agreement (TCA) also includes a chapter on public procurement that leaves mutual market access commitments virtually unchanged.

The UK Government was slow to understand (or at least clearly communicate) the implications of this continuity in the trade-related aspects of procurement regulation. On 15 December 2020, the Cabinet Office issued a Procurement Policy Note (PPN) on ‘Reserving below threshold procurements’ that formulated the new ‘Buy British’ policy in terms of reserving contracts by supplier location (either UK-wide, or by county) and/or reserving them for small and medium sized enterprises (SMEs) or voluntary, community and social enterprises (VCSEs). Aggressive implementation could have contravened international agreements to which the UK had signed up. This led to the publication on 19 February 2021 of a new PPN on ‘The WTO GPA and the UK-EU TCA,’ stressing that the pre-Brexit limits on a ‘Buy British’ policy remain in place and virtually unchanged post-Brexit.

On 15 December 2020, the UK Government published the green paper ‘Transforming Public Procurement’ to consult on planned legislative changes to the procurement rulebook. The original timeline envisaged the introduction of a Procurement Bill in Parliament after summer 2021. However, the volume of responses to the public consultation (over 600) and the complex issues they raised, as well as the intrinsic difficulty in seeking to significantly change procurement law in a manner that is compliant with international obligations led the Cabinet Office to adjust the timeline. The 6 December 2021 Government response to the public consultation clarified that the new regime will not come into force until 2023 at the earliest.

So far, then, the Brexit-related changes have been modest. There have been some policy developments, such as the adoption of a National Procurement Policy Statement seeking to embed government goals such as growth and jobs and climate change in procurement decision-making; a push for a fresh approach to assessing social value in the award of government contracts; new requirements for firms applying for major contracts to have Carbon Reduction plans; and to also require those firms to have systems in place that ensure prompt, fair and effective payments to their supply chains. None of these will reduce procurement red tape and most, if not all, would have been possible pre-Brexit.

What are the possibilities for the future?

Given the commitments in the GPA and TCA, there is virtually no scope for a Buy British policy. The UK could be more aggressive in the exclusion of tenderers from non-GPA jurisdictions such as China, India or Brazil (something the EU is increasingly doing) as a practical way of seeking to boost contract awards to UK companies.

By contrast, the process of reform of the UK’s procurement rulebook is likely to result in a new set of streamlined regulations, as well as a voluminous body of guidance. Despite the Government’s prioritisation of simplification as a primary goal of legislative reform, the extent to which procurement can be significantly deregulated is unclear, as a result both of international commitments and, more importantly, the need to create a legislative framework fit for purpose that does not overwhelm the public sector in its complexity.

There is an opportunity for the Procurement Bill to make some progress on the modernisation and digitalisation of procurement systems, which has been slow in the UK despite it being a shared strategic goal with the EU. It is likely that the new rules will bring a clearer focus on open procurement data, which could enable a change of approach to the practice and management of procurement and offer some benefits from a red tape perspective. However, the green paper was criticised, among other things, for a lack of ambition in the automation of public procurement, so the extent to which tech will be a pillar of procurement ‘transformation’ in the UK remains unclear.

Overall, not much has changed and, rhetoric apart, there is limited scope for further change.

The institutional framework of the UK/EU Trade and Cooperation agreement — Public Procurement

The UK Parliament’s European Scrutiny Committee is conducting an inquiry into the ‘The institutional framework of the UK/EU Trade and Cooperation agreement’, which will remain open until 24 September 2021. In July, I submitted the written evidence below, which has now been published by the Committee. As always, comments or feedback most welcome (a.sanchez-graells@bristol.ac.uk).

I look forward to further outputs of this inquiry, as the functioning and effectiveness of the governance mechanisms (rushedly) created in the EU-UK TCA will take some time to fully understand.

Written Evidence to the House of Commons European Scrutiny Committee on “The institutional framework of the UK/EU Trade and Cooperation agreement”

Submitted 20 July 2021
By Professor Albert Sanchez-Graells
Professor of Economic Law
Co-Director, Centre for Global Law and Innovation
University of Bristol Law School
a.sanchez-graells@bristol.ac.uk

Submission

This document addresses some of the questions formulated by the House of Commons European Scrutiny Committee in its inquiry on “The institutional framework of the UK/EU Trade and Cooperation agreement” and, in particular:

• What are the most important powers of the Trade and Cooperation Agreement (TCA) Partnership Council and the different Specialised Committees and what could the practical impact of the exercise of these powers be?

• "What are the key features of the dispute resolution procedures provided for in the TCA and what are the likely legal and policy implications of these for the UK? How closely do they follow precedent in other trade agreements and do they raise any concerns with respect to the UK’s regulatory autonomy?

• How could the UK/EU TCA institutions be utilised by the UK and EU to raise and, where possible, address, concerns about legal and policy developments on the other side which are of importance to them respectively (e.g. for the UK, changes in EU regulation in key areas like financial services, pharmaceuticals and energy)?

• What should the Government’s approach to representing the UK in meetings of the TCA’s joint bodies be? Should the Devolved Administrations be involved in discussions that relate to devolved competences?

1. Background

01. This submission focuses on the field of public procurement, which is of primary economic interest to both the UK and the EU. According to a recent report for the European Commission,[1] cross-border procurement from the EU27 represented on average 20% by value of the UK’s total procurement expenditure for the period 2016-2019.[2] In turn, cross-border procurement from the UK represented on average 15% by value of EU27 procurement expenditure for the same period.[3] Most of this cross-border procurement was indirect (17.6% for EU27 in UK, and 9% for UK in EU 27), meaning that tenders were won by companies located in the same country as the contracting authority but controlled by companies in a foreign country[4]—in most common cases, this meant that public contracts were awarded to subsidiaries of large foreign corporate groups, or to SMEs controlled by those groups. Direct cross-border procurement—where contracts are awarded to companies located in a foreign country, which are either independent or controlled by companies in the same or a third foreign country—had a smaller but still relevant economic scale (2.3% for EU27 in UK, and 6% for UK in EU 27).

02. The economic relevance of both types of cross-border procurement is reflected in the bilateral market access commitments resulting from the UK’s accession to (and the EU’s continued membership of) the World Trade Organisation Government Procurement Agreement (WTO GPA),[5] and the additional bilateral market access commitments in the UK-EU Trade and Cooperation Agreement (TCA)[6]—which Annex 25 largely replicates the pre-Brexit reciprocal market access commitments between the UK and EU27,[7] with the only exception of the explicit exclusion of healthcare services. However, given that the pre-Brexit procurement-related import penetration for human health services had an average value close to null percent of public expenditure in both the UK and most EU27 countries,[8] this exclusion is unlikely to have significant practical effects.

03. The TCA contains several relevant provisions to facilitate direct and indirect cross-border trade through the award of public contracts in Title VI of Heading One of Part Two (Arts 276 and ff). Of those provisions, and particularly in view of the UK’s intended reform of domestic procurement rules,[9] the rules more likely to trigger practical implementation issues seem to be: Article 280 on supporting evidence; Article 281 on conditions for participation relating to prior experience; Article 282 on registration systems and qualification procedures; Article 284 on abnormally low prices, in particular as it relates to subsidy control issues;[10] Article 285 on environmental, social and labour considerations;[11] Article 286 on review procedures; and Article 288 on the national treatment of locally established suppliers, which is applicable beyond ‘covered procurement’ (Art 277) and of particular importance to indirect cross-border procurement. The TCA also includes specific rules for the modification and rectification of market access commitments (Arts 289 to 293), which can become highly relevant if new trading patterns emerge during the implementation of the TCA that show a rebalancing of previous trends (see above para 01).

04. Institutionally, in addition to being under the general powers of the Partnership Council (Art 7(3)), public procurement regulation falls within the remit of the Trade Partnership Committee (Art 8(1)(a)), and even more specifically within the remit of the Trade Specialised Committee on Public Procurement (Art 8(1)(h), the ‘TSC on Procurement’), which is specifically tasked with addressing matters covered by Title VI of Heading One of Part Two, under the supervision of the Trade Partnership Committee (Art 8(2)(d)).[12] The TSC on Procurement is meant as the primary forum for the Parties to exchange information, discuss best practices and share implementation experience (Art 8(3)(f)), and has the tasks of monitoring the implementation of the procurement title of the TCA (Art 8(3)(a)) and discussing technical issues arising from TCA implementation (Art 8(3)(e)).

05. It can be expected that any future disputes over the regulation of public procurement will first emerge in the context of the activities of the TSC on Procurement, with potential escalation to the Trade Partnership Committee so that it can exercise its function of exploring the most appropriate way to prevent or solve any difficulty that may arise in relation to the interpretation and application of the TCA (Art 8(2)(e)); further escalation to the Partnership Council in relation to its power to make recommendations to the Parties regarding the implementation and application of the TCA (Art 7(4)(b)); and, ultimately, the possible launch of a formal dispute under Title I of Part Six of the TCA. Therefore, this submission will be primarily concerned with the configuration and likely operation of the TSC on Procurement and will only touch briefly on the more general powers of the Trade Partnership Committee and the Partnership Council. Dispute resolution mechanisms are not considered, except in relation to the potential overlap with those of the WTO Government Procurement Agreement.

2. Powers of the TSC on Procurement and of the Trade Partnership Committee, and practical impact of their exercise

06. The powers of the TSC on Procurement, like those of all other Trade Specialised Committees, are detailed in Article 8(3) TCA. Other than the general powers to monitor the implementation of the TCA, discuss technical issues and provide an information exchange forum mentioned above (para 04), the most important practical power would seem to be that of adopting decisions where the TCA (or a supplementing agreement) so provides (Art 8(3)(d)). However, it should be noted that the TCA does not foresee this possibility and that the TSC on Procurement is only mentioned in the provision that envisages its creation (Art 8(1)(h)). Therefore, the TSC on Procurement is currently devoid of decision-making powers and it can only be seen as a consultative technical forum primarily geared towards information exchange and technical dialogue. This is reflected in eg the way the European Commission presents the role of the TSC on Procurement, which is only envisaged as a feeder mechanism towards discussions at the Trade Partnership Committee, seen as the ‘principal formation for trade matters’.[13] This is also reflected in the current UK Government’s view of the TSC on Procurement.[14] Logically, it should also be the forum for the setting of common approaches to the UK and EU’s cooperation in the international promotion of the mutual liberalisation of public procurement markets (Art 294(1)), and the most suitable forum for the mutual provision of annual statistics on covered procurement (Art 294(2)).

07. It should also be stressed that the TSC on Procurement and the Trade Partnership Committee are not involved in the procedures leading to the modification or rectification of the market access commitments of the UK and the EU under the TCA (Arts 289 to 293). Indeed, these procedures are foreseen as strictly bilateral. While it is possible (and likely) that any discussions and possible consultations launched by one of the Parties in relation to market access commitments are initially hosted in the TSC on Procurement, it is clear that the latter has no decision-making powers. It is also clear that the only power of the Trade Partnership Committee in relation to market access commitments is to formally amend the relevant Sub-section under Section B of Annex 25 once these have been mutually agreed, or as a result of a final decision ending a dispute (Art 293).

08. On the whole, the TCA does not grant any of its bodies with decision-making powers regarding the regulation of public procurement or their mutual market access commitments and, as a consequence, any future changes and any related disputes will remain strictly inter-governmental, with the TSC on Procurement and the Trade Partnership Committee simply serving as a forum for the discussion of the relevant issues and for the exploration of amicable solutions that could prevent the launch of a formal dispute under Title I of Part Six of the TCA.

3. Dual dispute resolution regime

09. In case disputes could not be solved, it should be considered that there is a dual regime applicable in case of the TCA’s procurement obligations that are ‘substantially equivalent’ to those resulting from the WTO GPA. Given that the TCA procurement rules are clearly based on the GPA (GPA+ approach), and that a significant part of the market access commitments directly derive from the UK’s and the EU’s GPA coverage schedules, this can be the case of the majority of potential disputes arising from the implementation of the TCA.

10. In connection to the dual dispute resolution regime, it should be noted that Article XX of the GPA provides that the WTO's Understanding on Rules and Procedures Governing the Settlement of Disputes also applies to disputes under the GPA. Therefore, as foreseen in Article 737 TCA, the party seeking redress would be able to select the forum in which to settle the dispute and, once chosen, it would be barred from initiating procedures under the other international agreement, unless the forum selected first failed to make findings for procedural or jurisdictional reasons. It is difficult to establish which of the two available routes is more likely to be used in case of a dispute under the TCA procurement rules, but it would seem that the TCA-specific dispute resolution mechanism would allow the UK and the EU to have their interests taken into account within the specific context of their bilateral relationship, rather than in the broader context of the multilateral relationships emerging from the WTO GPA. In that regard, this could be the preferable route.

4. How to best utilise these fora to address legal and policy developments

11. Like in most other trade areas, one of the challenges in keeping open trade in procurement markets across the UK and the EU concerns non-tariff barriers. This is clearly recognised in the TCA, for example in relation to documentary requirements applicable to the participation in tenders for public contracts (Art 280),[15] or concerning conditions for participation such as prior experience (Art 281).[16] One of the main risks going forward is that, in seeking to leverage public expenditure to achieve environmental and social goals (but also economic recovery goals, post-pandemic), both the UK and the EU are likely to create both mandatory and discretionary requirements that will increase compliance costs for economic operators seeking to tender for public contracts both in the EU and in the UK, as well as potential (implicit) preferential treatment for domestic suppliers. A clear recent example can be found in the UK’s policy on ‘net zero’ for major government contracts, which seeks to impose ‘as a selection criterion, a requirement for bidding suppliers to provide a Carbon Reduction Plan (using the template at Annex A) confirming the supplier’s commitment to achieving Net Zero by 2050 in the UK, and setting out the environmental management measures that they have in place and which will be in effect and utilised during the performance of the contract’.[17] This could disadvantage tenderers with no specific plans coming from jurisdictions without such a requirement, as well as those with net zero plans with a different time horizon, or with a different geographical concentration, which could nonetheless be in compliance with the requirements applicable in the EU. It is easy to imagine alternative scenarios where the disadvantage could be against UK-based tenderers, or their EU subsidiaries. Therefore, one of the main roles of the TCA fora, and in particular the TSC on Procurement, should be to minimise trade friction resulting from this type of initiatives, ideally by discussion of options and the co-creation of acceptable common solutions ahead of their adoption in law or policy. There is a potential overlap between the work on general standardisation issues, covered by other parts of the TCA, and procurement-specific standardisation. However, given the current trend of leveraging procurement to achieve environmental, social and economic/industrial goals, it is likely that a large number of non-tariff barriers will be procurement-specific.

12. Conversely, another of the challenges in procurement regulation going forward will be tackling challenges that exceed the regulatory capacity and purchasing power of a single State, or which are much more likely to be successful if undertaken as part of an international collaboration. The development of adequate frameworks for the procurement of Artificial Intelligence (AI), and for the deployment of AI in the management of procurement are clear examples, where the UK has positioned itself as a frontrunner.[18] In these fields, seeking regulatory collaboration would be to both the UK and EU’s advantage, as their united approach to procurement regulation should not only encompass market liberalisation (Art 294), but also broader issues.

13. As emerges from the previous two paragraphs, it seems that the best use of the institutional mechanisms created by the TCA is one premised on a proactive approach to maintaining and developing regulatory convergence. This could work well, given the starting point of almost complete alignment of UK and EU procurement regulation and policy,[19] and pre-empt the emergence of disputes resulting from uncoordinated legislative and policy reforms.

14. By contrast, one of the worse possible uses of the TCA institutional framework would be to use it to channel disputes concerning single tender procurement disputes, which would likely unavoidably lead to a quick escalation of highly politicised disputes. Both parties should be able to resist political pressures to bring to these fora issues that must be adjudicated through the domestic review procedures implementing the obligations resulting from Article 286 TCA (and equivalent WTO GPA obligations).

5. UK position and participation of the Devolved Administrations

15. There is a Provisional Public Procurement Common Framework of March 2021 that sets out proposed four-nation ways of working for domestic and international public procurement policy and legislation. It is intended to guide the actions of policy officials of all four nations as they develop policies on public procurement.[20] Notably, there were two sections of the Common Framework that were still under discussion at the time of its publication: one on UK Government engagement with the Devolved Administrations on WTO GPA business; and another one to reflect International Agreements.

16. It seems impractical to have different arrangements for the participation of the Devolved Administrations on WTO GPA and on UK-EU TCA business, in particular given the significant overlap between both sets of regulatory instruments. A common approach should be developed for both situations and included in the final version of the Public Procurement Common Framework. It would seem advisable to have a flexible system whereby the standard procedure is for a single four-nations position to be agreed ahead of the UK’s engagement in discussions with the EU in the context of the TCA institutions, but where it should also be possible for a representative of a Devolved Administration to directly participate in discussions concerning nation-specific matters. This could be the case, for example, where one of the four nations took a different approach to a specific issue and that was queried by the EU.

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Biographical information

Professor Albert Sanchez-Graells is a Professor of Economic Law at the University of Bristol Law School and Co-Director of its Centre for Global Law and Innovation. He is also a former Member of the European Commission Stakeholder Expert Group on Public Procurement (2015-18) and of the Procurement Lawyers’ Association Brexit Working Group (2017), as well as a current Member of the European Procurement Law Group.

Albert is a specialist in European economic law, with a focus on competition law and procurement. His research concentrates on the way the public sector interacts with the market and how it organises the delivery of public services, especially healthcare. He is also interested in general issues of sectorial regulation and, more broadly, in the rules supporting the development and expansion of the European Union's internal market, as well as the EU’s trade relationships with third countries, including the UK.

His influential publications include the leading monograph Public Procurement and the EU Competition Rules, 2nd edn (Bloomsbury-Hart, 2015). He has also co-authored Shaping EU Public Procurement Law: A Critical Analysis of the CJEU Case Law 2015–2017 (Wolters-Kluwer, 2018), edited Smart Public Procurement and Labour Standards. Pushing the Discussion after RegioPost (Hart, 2018), and coedited Reformation or Deformation of the Public Procurement Rules (Edward Elgar, 2016), Transparency in EU Procurements. Disclosure Within Public Procurement and During Contract Execution (Edward Elgar, 2019) and European Public Procurement. Commentary on Directive 2014/24/EU (Edward Elgar, 2021). Most of his working papers are available at http://ssrn.com/author=542893 and his analysis of current legal developments is published in his blog http://www.howtocrackanut.com.

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Notes

[All websites last visited on 20 July 2021.]

[1] Prometeia SpA, BIP Business Integration Partners – Spa, Economics for Policy a knowledge Center of Nova School of Business and Economics Lisboa, Study on the measurement of cross-border penetration in the EU public procurement market. Final report (Mar 2021), available at https://op.europa.eu/s/pmUR.

[2] These figures aggregate direct and indirect procurement as reported in Table 2-5 of the Report (n 1).

[3] These figures aggregate direct and indirect procurement as reported in Tables 2-6 and 2-8 of the Report (n 1).

[4] Report (n 1) 18.

[5] WTO, Revised Agreement on Government Procurement and WTO related legal instruments (2012) available at https://www.wto.org/english/docs_e/legal_e/rev-gpr-94_01_e.pdf.

[6] Trade and Cooperation Agreement between the United Kingdom of Great Britain and Northern Ireland, of the one part, and the European Union and the European Atomic Energy Community, of the other part, made in Brussels and London, 30 December 2020. Treaty Series No.8 (2021), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/982648/TS_8.2021_UK_EU_EAEC_Trade_and_Cooperation_Agreement.pdf.

[7] In part, this is a result of incorporating the UK’s and EU27’s market access commitments under the WTO GPA; Article 277(1) UK-EU TCA. See A Sanchez-Graells, ‘Public procurement regulation’, in H Kassim, S Ennis and A Jordan (eds), UK Regulation after Brexit (Feb 2021) 23-24, available at https://ukandeu.ac.uk/wp-content/uploads/2021/02/UK-regulation-after-Brexit.pdf.

[8] See Table 1-6 of the Report (n 1).

[9] Cabinet Office, Green Paper Transforming Public Procurement (15 Dec 2020), available at https://www.gov.uk/government/consultations/green-paper-transforming-public-procurement. For analysis, see A Sanchez-Graells, “The UK’s Green Paper on Post-Brexit Public Procurement Reform: Transformation or Overcomplication?” (2021) 16(1) European Procurement & Public Private Partnership Law Review 4-18, pre-print version available at https://ssrn.com/abstract=3787380.

[10] Subsidy control issues are not covered in detail in this written submission, as they are the object of parallel regulation in the UK-EU TCA.

[11] Environmental, social and labour considerations are not covered in detail in this written submission, as they are the object of parallel regulation in the UK-EU TCA.

[12] For a general description of the governance and dispute resolution mechanisms in the TCA, see House of Commons Library (S Fella), The UK-EU Trade and Cooperation Agreement: governance and dispute settlement (19 February 2021) Briefing Paper Num. 9139, available at https://researchbriefings.files.parliament.uk/documents/CBP-9139/CBP-9139.pdf, and idem, ‘Governing the new UK-EU relationship and resolving disputes’ (24 Feb 2021), available at https://commonslibrary.parliament.uk/governing-the-new-uk-eu-relationship-and-resolving-disputes/.

[13] European Commission, Trade Policy, UK fact sheet (undated), available at https://ec.europa.eu/trade/policy/countries-and-regions/countries/united-kingdom/.

[14] See eg answer to written question UIN 25876 of 1 July 2021, available at https://questions-statements.parliament.uk/written-questions/detail/2021-07-01/25876.

[15] ‘Each Party shall ensure that at the time of submission of requests to participate or at the time of submission of tenders, procuring entities do not require suppliers to submit all or part of the supporting evidence that they are not in one of the situations in which a supplier may be excluded and that they fulfil the conditions for participation unless this is necessary to ensure the proper conduct of the procurement.’

[16] ‘Each Party shall ensure that where its procuring entities require a supplier, as a condition for participation in a covered procurement, to demonstrate prior experience they do not require that the supplier has such experience in the territory of that Party.’

[17] Procurement Policy Note 06/21: Taking account of Carbon Reduction Plans in the procurement of major government contracts (15 Jun 2021), available at https://www.gov.uk/government/publications/procurement-policy-note-0621-taking-account-of-carbon-reduction-plans-in-the-procurement-of-major-government-contracts.

[18] Office for Artificial Intelligence, Guidelines for AI procurement (8 Jun 2020), available at https://www.gov.uk/government/publications/guidelines-for-ai-procurement.

[19] Subject to changes derived from the Government’s response to the green paper consultation, above (n 9).

[20] Available at https://www.gov.uk/government/publications/public-procurement-provisional-common-framework.

UK tenderers' access to procurement by EU agencies: when the EU is also protectionist

One of the often overlooked implications of Brexit is that, despite the UK’s accession to the WTO GPA and the procurement chapter of the EU-UK TCA, UK companies are practically left out of the procurement procedures carried out by the decentralised and executive EU agencies—despite the obligation of National treatment of locally established suppliers (Art 288), which would only apply to UK suppliers ‘established in [the EU’s] territory through the constitution, acquisition or maintenance of a legal person’. This is a result of the UK tenderers being treated as third country operators for these purposes.

The current advice of the European Commission (DG BUDGET) to those agencies is that participation by UK tenderers in public procurement procedures governed by Regulation 2018/1046 to which the EU-UK Withdrawal Agreement does not apply is to be treated as exceptional, as follows:

So it is fair to stress that the EU is as protectionist of its public funds as the next trading partner …

Short comments on the proposed regulation on foreign subsidies distorting the internal market, as it relates to procurement

The European Commission is currently consulting on its recent Proposal for a Regulation on foreign subsidies distorting the internal market (COM(2021) 223 final, 5 May 2021). The public consultation will be open until 15 July 2021. I have just submitted my views on chapter four of the proposal, which concerns the rules for the analysis of foreign subsidies distorting tenders for contracts with a value above €250 million. The feedback form only allows for 4,000-character submissions, so here are mine. As always, comments welcome: a.sanchez-graells@bristol.ac.uk.

The proposed Regulation on foreign subsidies distorting the internal market (RFSDIT) is both (1) undesirable and (2) problematic, in particular as it concerns the investigation of foreign subsidies linked to public procurement procedures. The following is limited to chapter 4.

1. Primarily, ch 4 RFSDIT is undesirable because it adds a layer of scrutiny and red tape that will affect high-value tenders submitted by tenderers from jurisdictions that have either signed up to the WTO Government Procurement Agreement, or that have a plurilateral or bilateral trade agreement covering procurement with the EU. Tenderers from other jurisdictions can already be excluded on the basis of the current rules (see Art 25 Dir 2014/24; Art 43 Dir 2014/25), as emphasised in the Commission's 2019 guidance on the participation of third-country bidders and goods in the EU procurement market. First, the (inadvertent) targeting of GPA- or FTA-originated tenders is in itself undesirable on trade policy terms and could erode third countries' bilateral relationships with the EU within the GPA framework, as well as under the relevant FTA (or the UK TCA) even if those already include subsidy-related provisions. Second, it is also undesirable due to the technical shortcomings of the proposal, as below, as there could be a basis for claims of unequal treatment concerning the non-scrutiny of EU-originated tenders that are tainted by illegal State aid. Finally, it is also undesirable because the ex ante nature of ch 4 screening can dissuade economic operators from participating in public tenders even if they think that subsidies they have received could overcome the tests in Arts 3-5 RFSDIT. Recipients of foreign subsidies may rather forgo their chances of being awarded a public contract than trigger an investigation they could avoid under the general motu proprio regime. Such loss of international competition is to the EU public buyers' detriment.

2. Ch 4 RFSDIT is also highly problematic because of its incompatibility with the mechanisms in the EU procurement Directives, as well as the inconsistency of approach with the rest of the chapters in the RFSDIT. First, the proposed rules are incompatible with the trigger for an investigation of the distortive effects of State aid granted to an EU-based tenderer, which derives from the prima facie abnormally low character of its tender (ALT) (see Art 69 Dir 2014/24). EU-generated non-ALT bids are not screened for receipt of (illegal) State aid, even if they can be 'winning tenders' in a given procedure. As above, this can trigger claims of discrimination against non-EU generated tenders. Second, procurement case law pre-empts tenderers from offering commitments related to the tender at hand to the Commission's satisfaction without materially altering their tenders. Such changes would be impermissible under EU procurement law. This is an inescapable limit, which is partly but insufficiently acknowledged in Art 30(1) RFSDIT. This means that any tender where the Commission found an unbalanced distortion of the internal market would lead to the inevitable exclusion of the tender. This is at odds with the appearance of 'correctability' created by Art 30 RFSDIT. This evidences the inadequacy of applying a merger or State aid control logic to the public procurement context. Third, the relative intensity of the foreign subsidy is much lower for procurement than for concentrations under the RFSDIT. Art 18(3) creates a safe harbour of up to 10% of the value of a concentration. Art 27(2) contains no parallel rule. Thus, Art 3(2) offers the only (soft) safe harbour for procurement, which means that subsidies of 2% or less of the tender value would be caught. The reason for this different treatment under RFSDIT opens it to challenge on proportionality grounds. Moreover, it is unclear how a 2% subsidy could create a situation comparable to that of an ALT, which further reinforces concerns of unequal treatment, as above.

UK regulation after Brexit -- Public procurement

‘Negotiating the Future’ – a part of ‘UK in a Changing Europe’ – together with the Centre for Competition Policy, and Brexit & Environment have published a very interesting report on 'UK regulation after Brexit' that maps the new regulatory settlement in the wake of the UK’s withdrawal from the EU. The report shows how Brexit has not resulted in significant regulatory divergence except in some areas (such as immigration or agricultural subsidies), how the potential for future deviation from the EU baseline is constrained by the EU-UK TCA and other international treaties, and how the UK regulatory infrastructure is now rather strained and faces significant challenges to ensure the effectiveness of important regulatory areas, in particular concerning environmental protection or the yet to be defined mechanism for the control of subsidies.

I was invited to contribute my analysis of the immediate regulatory changes on procurement (below), which I believe show similar trends to other areas of regulation discussed in the report by leading colleagues. I would recommend reading the report in full to get a good sense of where UK regulation may be headed in the next few years, as well as the more immediate regulatory gaps.

Public procurement regulation

 EU public procurement law creates a regulatory regime that is best understood as comprising two tiers. The lower tier is largely procedural and creates specific obligations for contracting authorities running procurement procedures. The higher tier imposes substantive obligations on the member states that aim to ensure the proper functioning of the internal market for public contracts. EU procurement law also creates mechanisms for the gathering and sharing of information across Member States, such as the Single Market Scoreboard and, especially, e-Certis. While the lower regulatory tier is enforced domestically, though preliminary references can be made to the Court of Justice of the European Union for its interpretation of particular provisions, the higher regulatory tier and the system as a whole is monitored by the European Commission.The UK has transposed EU public procurement law through two sets of regulations: one applies in England, Wales and Northern Ireland, the other in Scotland. The UK Government has consistently limited the transposition of EU public procurement rules to a very strict ‘copy-out’ approach to avoid gold-plating, i.e. to avoid going beyond the minimum required by EU rules. The close alignment of UK and EU rules has the benefit of ensuring compliance with the World Trade Organisation Government Procurement Agreement (GPA), of which the UK was, until the end of the transition, a member through its membership of the EU.

 What changes after the end of transition?

The UK Government has attempted to keep the regulatory status quo as unchanged as possible. However, since the mechanisms for collaborating with EU member states have disappeared, the UK has introduced secondary rules to replace EU-wide platforms, and to reallocate powers and functions previously assigned to the European Commission. The Public Procurement (Amendment etc) (EU Exit) Regulations 2020 included the creation of a UK e-notification service to replace the current EU-wide publication of procurement notices through the Official Journal of the EU (TED), and the reallocation to the Minister for the Cabinet Office of the powers and functions of the European Commission.

The issue of the platform where contract opportunities are published has become less important in an age of open data, since a common standard will facilitate automated processing. Also, most of the powers of the Commission are limited to adjusting EU rules to changes in the GPA, which the UK will have to carry out as well, and to monitoring compliance with the EU rules. This has probably kept the reallocation of the Commission’s powers to the Cabinet Office relatively unnoticed, although it can result in diminished scrutiny of the exercise of ministerial discretion—which the Covid-19 crisis has already evidenced. The key operational change is the decoupling of the UK from e-Certis and the associated system of European Single Procurement Document (ESPD). The effect will be to raise the administrative costs of EU companies seeking to tender for contracts in the UK and UK companies wanting to tender for contracts in the rest of the EU—although the EU-UK TCA seeks to minimise this impact by providing that ‘procuring entities [should] not require suppliers to submit all or part of the supporting evidence … unless this is necessary to ensure the proper conduct of the procurement’ (Art PPROC.5). This opens the door to mutual recognition of the EU’s ESPD and the UK’s new Single Procurement Document (SPD).

 Limited change?

The UK gained GPA membership on its own right on 1 January 2021. To facilitate that process, the UK ‘Government has sought to replicate the EU’s coverage schedules under the GPA … in a form that is as close to the form of the EU’s agreements as possible’. The same strategy has been followed in other bilateral agreements between the EU and third countries, which the UK is also seeking to reproduce. Here, too, the UK Government’s approach is to minimise change, at least as it concerns its access to non-EU procurement markets, and the openness of its own markets to third countries.

The UK’s accession to the GPA already guaranteed a high level of continuity in EU-UK procurement-related trade (safe in utilities and defence)because the EU is also a GPA member. Beyond that, in the Political Declaration, the UK and the EU agreed that they ‘should provide for mutual opportunities in [their] respective public procurement markets beyond their commitments under the GPA in areas of mutual interest, without prejudice to their domestic rules to protect their essential security interests.’

The EU-UK TCA indeed creates GPA+ market access, as detailed in Section B of Annex PPROC-1, including a range of services but with the explicit exclusion of healthcare. That high level of mutual access to procurement markets can only be subjected to future modifications, but not reductions (Art PPROC.15). Crucially, the EU-UK TCA requires national treatment beyond covered procurement for ‘suppliers of the other Party established in [one Party’s] territory through the constitution, acquisition or maintenance of a legal person’ (Art PPROC.13), which effectively ensures a continuation of current requirements for procurement below EU/GPA-thresholds where there is a ‘domestic’ presence of suppliers engaged in EU-UK procurement-related trade. This may however trigger the need to legally incorporate existing business branches on both sides of the Channel, for those suppliers previously relying on general free movement rules.

Any disputes regarding market access will be dealt with by a newly created Trade Specialised Committee on Public Procurement (Art INST.2). The EU and the UK have also agreed to cooperate ‘in the international promotion of the mutual liberalisation of public procurement markets’ (Art PPROC.19), which is more likely to be productive if their own market access commitments remain aligned.

Lastly, there is the issue of the more detailed regulation of public procurement – the lower tier of EU procedural rules or ‘procurement law’. The wording of the commitment in the Political Declaration ‘to standards based on those of the GPA ensuring transparency of market opportunities, public procurement rules, procedures and practices’ had suggested that the UK might move away from the detail of EU procurement law, albeit within the narrow margin of variation allowed by the GPA. The UK Government repeatedly expressed a willingness to reform (and deregulate) UK public procurement law. There is nothing in the EU-UK TCA preventing that, save for some explicit procedural rules eg on the use of electronic means (Art PPROC.3), on selective tendering (Art PPROC.8), or procurement remedies (Art PPROC.11). The UK Government recently published a green paper laying out reform options that will be open to public consultation until early March 2021.

Although the green paper formulates some ambitious proposals and there have been calls from some involved in the shaping of the green paper to introduce a significant reform, it is uncertain whether the UK Government will end up pushing for a model significantly different from the existing one—not least because the green paper follows an ‘EU law+’ approach.(*) The current EU-based regime is highly flexible and the introduction of a radically different set of rules would raise barriers for companies looking to tender across borders. It could also lead to greater divergence between the four nations of the UK, even if the UK Government expects public procurement to be covered by the ‘common frameworks’ that it is developing with the devolved administrations.
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This was not included in the report but, for those interested in the Green Paper, there is further analysis here, here and here.