Public procurement after Brexit

Simon Randall CBE has written a paper for the Society of Conservative Lawyers on public procurement after Brexit. Here he puts forward some of the key points.

One of the great prizes of the UK’s EU departure is the opportunity to introduce our own public procurement rules. This will reduce overall procurement costs, introduce simplified rules and speed up the process.

The nadir of the European Union’s public procurement regime was reached with the introduction of Directive 2014/24/EU (the “2014 Directive”), as incorporated into UK legislation. The European Commission suggested that the 2014 Directive was intended to simplify the regime, it did precisely the reverse.

The three significant features of the Public Contracts Regulations 2015 No. 201 (the “2015 Regulations”) are as follows:

• The former subdivision between Part A and Part B Services in the 2006 Regulations [1] was eliminated with a new “light touch” regime for a wide range of services, reflecting the original Part B requiring limited OJEU advertising (Regulations 74-76).
• Restricted range of services (including libraries, museums, certain cultural and sporting services) reserved for mutuals, with a contract of only three years (Regulation 77).
• Direct awards permitted to entities wholly owned by contracting authorities (with no private sector equity participation) and the entity must undertake at least 80% of its activities for such authority (Regulation 12)

The current regulations have been criticised for:

• Need for clarity and disclosure of the criteria for selection and contract award plus full disclosure of criteria
• Inappropriate use of framework agreements (Regulation 33 of 2015 Regulations)
• Permitting situations where a public body advertises a tender with few specifications to gain ideas for re-tendering
• Use of complex and, often, subjective scoring arrangements on award

The way forward

There are three principal choices for public procurement after our EU departure:

• Revert to the pre-1972 procurement arrangements
• Options for procurement under the European Economic Area (“EEA”), as applies to Norway, or seeking a similar status to Switzerland, which is a member of the European Free Trade Agreement (“EFTA”)
• Seeking membership of the WTO, which is considered to be the most appropriate

There is current discussion [2] on the possibility of the UK opting to remain in the EU customs union, possibly as part of a transitional arrangement. Whilst this has some disadvantages, it would enable the UK to adopt its own public procurement rules under the WTO’s auspices.

The Government, thus, intends that EU Member States would continue to have access to UK public sector contracts through any future procurement regulations. However, the Government might be tempted to adopt a different attitude as the European Commission has recently adopted unreasonable conditions for the UK–based private sector competing for EU-based contracts [3].

Membership of the WTO

The proposal to join the WTO as a full member after we leave the EU has support from Professor Sue Arrowsmith of Nottingham University in her important publication “The implications of Brexit for the law on public and utilities procurement" [4]. She writes that “It [the Revised Agreement on Government Pocurement (“GPA”)] would also provide an opportunity for the UK to use more flexible award procedures, more akin to the EU’s utilities model than the public sector model and for a less burdensome system of remedies. This greater freedom of action would present an opportunity to improve the national procurement system”.

The Government, in their 2017 White Paper, have indicated that the existing procurement regulations are simply adopted into UK law – perhaps with some modest changes, as suggested below – with a firm commitment that new regulations will be forthcoming when our WTO membership has been confirmed. Whilst ideally it would be better to adopt new regulations immediately after our departure this two-stage approach may be inevitable, particularly if, as has been suggested [5], there is to be a transitional arrangement between departure and conclusion of trade discussions. The interim regulations issued immediately upon commencement of the European Union (Withdrawal) Bill (“Withdrawal Bill”) could incorporate amendments without involving significant issues of principle:

(a) Housing associations, as private sector entities, should be exempted from the public procurement rules entirely as the UK will no longer be obliged to observe (dubious) opinions from the European Commission. The National Housing Federation considered some years ago that the additional cost of EU procurement equated with 9,000 homes per annum. [6] These additional homes would make a significant contribution to the UK’s current housing needs.

(b) Amendments to delete references to OJEU, the European Commission and other vestiges of the EU (including the ECJ).

(c) The temporary regulations could embrace more fully the principles of the Public Services (Social Value) Act 2012 (the “2012 Act”) which currently requires public bodies, to consider how such procurement for services would “improve the economic, social and environmental well-being of the relevant area”. The scope of the 2012 Act should be widened to apply to services, goods and works throughout the procurement process.

(d) Subject to ensuring that it does not breach any binding international guidelines, the Government should substantially increase the existing thresholds for goods and services and confirm automatic dispensation from the existing Treaty of Rome obligation to advertise below threshold contracts whether or not there was considered to be “cross border interest”.

The new public procurement regulations

The key elements in the GPA would provide a shorter and less complex procurement regime.

The new regulations should incorporate the best aspects of the existing 2015 Regulations, the four proposals referred to above and on the basis of simplification, ensuring value for money and incorporating award criteria emphasising the importance of social, economic and environmental issues. These include:

1. Need for greater flexibility in procurement options on the basis that, where appropriate, there is either preferential treatment for certain options or some of them are reserved for specified types of contractors.
2. Encouragement to SMEs by the adoption of full recommendations in the Lord Young report [7]. The Government should, also, use its powers under the Small Business, Enterprise and Employment Act 2015 [8] to stimulate and assist SMEs tendering for public sector contracts.
3. All contracting entities (or their associated companies) who have in the past five years been subject to successful criminal or health & safety proceedings, default in payment of taxes and national insurance or serious discrimination cases should automatically be disqualified unless there are exceptional circumstances.
4. The UK should reduce the number of procurement options and, in particular, abandon the “competitive dialogue” and “innovation” approaches entirely.
5. Encouraging a partnership approach to procurement with both longer terms for framework agreements, subject to good contractor performance and more flexible provisions to lengthen contracts on such performance. Such arrangements would encourage greater loyalty between the parties rather than seeing the procurement process as a means to an end.
6. A more flexible approach to land transactions involving elements of public works, whether or not required as a condition of the planning consent.
7. Permitting a public body, at its discretion, to undertake procurement for a wider range of services, on the basis of either the light touch or the mutuals regime. Such services should be reserved for both charitable entities or public service mutuals and local voluntary bodies and (subject to certain safeguards) the relevant public body could negotiate direct with their chosen contractor. The requirement to “carry out a procurement exercise” under Section 83 of the Localism Act 2011 in respect of the Community Right to Challenge should be deleted.
8. Dispute resolution during procurement has always been an expensive process and is particularly daunting for SMEs. Thus, government needs to devise a simpler and speedier method of resolving disputes without creating a new obese bureaucracy, perhaps with a new ombudsman and/or specialist tribunal.

Conclusion

Public procurement of goods, services and works needs to be simplified. The UK’s EU departure provides an opportunity to be grasped eagerly by the public sector.

Simon Randall’s publication can be accessed here.