Those aficionados of the silver screen will remember comedians Laurel and Hardy and in particular their catchphrase ‘Well here’s another nice mess you’ve gotten me into’.
Well that seems to be an appropriate ‘epitaph’ for the challenges and issues that UK procurement legislation faces after Brexit.
Most of the complex laws and regulations around the tendering of major public contracts derive from EU law. Removing the supremacy of EU law and the binding nature of the Court of Justice of the European Union (CJEU) rulings, as well as abandoning a number of enforcement and transparency mechanisms designed at a European level, is likely to play havoc with legal certainty after Brexit.
So in the aftermath of Brexit, will current UK public procurement legislation be swept away? Or if retained what will it look like?
Not much is going to change … at least initially!
The legislation and the current legal framework for enforcing the public procurement rules will not change before the UK leaves the EU as the UK still retains its full membership rights and obligations.
However the form of post-Brexit UK public procurement legislation could be a lot different.
Much, of course, will depend upon the terms of any future trade agreements between the UK government and the remaining 27-member-state trading bloc, as well as the extent to which the UK wishes, and is able, to maintain access to the EU’s single market.
If we exit the single market, which seems likely given Theresa May’s Lancaster House speech on 17 January 2017, the UK may have to rely upon World Trade Organization (WTO) membership and its participation in the Government Procurement Agreement (GPA) to gain access to key EU and other markets.
The Great Repeal Bill (the main piece of legislation which will turn EU law into UK law on Brexit) is likely to specifically confirm, with appropriate amendments, the UK-implementing procurement regulations, leaving the government the ability to review the legislation at its leisure at some future time. However, this re-enactment of the legislation in a post-Brexit world is going to produce a number of key practical and legal issues relating to the new legal framework and how if at all they interact with EU law.
There is no doubt that after Brexit the UK government will have more freedom to make changes to the UK regulations than it currently enjoys. However the GPA does contain rigorous rules on how procurements must be carried out and so remaining a signatory would therefore tie the UK government’s hands to a certain extent. Nevertheless with this greater latitude the government could look to amend the scope of the rules and simplify competitive tendering procedures, remedies and also rules on post-award contract modifications.
At the time of writing, the UK Parliament appears to be on course to approve the European Union (Notification of Withdrawal) Bill by early March 2017, and with it disappears the last obstacle to the start of the Brexit negotiations. It therefore looks likely that Theresa May will meet her self-imposed deadline of the end of March for the service of an Article 50 notice upon Donald Tusk, the president of the European Council, which will ‘sound the starting gun’ on the Brexit process.
From the date of service of the Article 50 notice there is a period of two years (or any extension agreed between the UK and the remaining 27 member states) during which the UK has to agree a new relationship with the EU. Although the government has signed up to achieving an agreement within this two-year period, it is likely that any agreement is going to take much longer to negotiate. This could take us well beyond 2019.
So what is likely to be the impact upon UK public procurement in the aftermath of the UK’s vote to leave the EU and what is likely to be the longer term impact following the actual implementation of Brexit itself?
The current impact of Brexit
Most of UK procurement legislation derives its legislative base from a series of EU Directives. These Directives are implemented into UK law through secondary legislation. So until such time as the UK leaves the EU it remains a full member of the currently 28-member trading bloc and it must obey the rights and obligations it has signed up to under the Treaty of the European Union and Treaty for the Functioning of the European Union (TFEU). Notwithstanding the referendum vote, the UK government still continues to implement EU Directives and obey EU law and will still continue to do so until its departure.
As such there is likely to be no immediate impact on the legislative position in the UK and all the same provisions continue to apply, including the EU Treaty principles of equal treatment, non-discrimination, transparency, mutual recognition and proportionality, as they remain part of UK law. The UK will still respect the supremacy of EU law and our courts will still be bound by rulings of the European Court.
Some have suggested that judges in the UK courts might feel less constrained by European Court rulings with the imminent prospect of withdrawal. However not only would such an approach be wrong in law but it also fails to appreciate the genesis of the system of UK procurement law as a body of EU law, the strength of which is its harmonised application. So this attitude is not going to change any time soon.
Great Repeal Bill
The Great Repeal Bill will confirm the UK-implementing regulations as part of UK law. This is an essential requirement as the regulations were made under the European Communities Act 1972 which is being repealed. Therefore generally speaking there will be no immediate impact on the main provisions in procurement legislation.
However in specifically incorporating the UK-implementing regulations in UK law there needs to be a number of amendments which reflect that we are no longer a member of the EU. Therefore references to the EU institutions, other EU legislation and EU transparency obligations referencing the OJELI will need to be removed and, where appropriate, substituted with English equivalents.
In addition certain other immediate practical issues will arise:
EU case law
What is the status of EU case law both before and after Brexit? Will the UK courts be obliged to follow pre-Brexit case law and will they turn their back on future EU jurisprudence? One of the key benefits for the UK as well as other member states of a pan-European system of public procurement was a harmonious interpretation of the law which emanates from the EU Directives. Cases often give insights into how the rules have been interpreted and what duties contracting authorities are under; for example the amount of details they must give unsuccessful bidders or what constitutes an abnormally low tender. It is highly unlikely that UK courts will be obliged to follow CJEU rulings post-Brexit. However in my view it is likely that given the origin of the rules, courts will be bound as a matter of law by rulings pre-Brexit and will find future rulings highly persuasive. For the most part they will follow them.
EU Directives as an aid to interpretation
Where there is ambiguity as to the meaning of the UK regulations, the underlying EU Directive is consulted and to assist in its interpretation the Directive’s recitals are particularly important. For instance the recitals to the 2014 Directives are currently used for interpretation and in practice they actually contain important additional obligations. For example, they specify that the award criteria for the competitive procedure with negotiation must remain consistent throughout the process. This requirement is not obvious from the wording of the Directive itself. The interpretation and/or definition of these concepts may no longer be clear without recourse to the source legislation. So how are the courts going to react? My hunch is that it will probably be business as usual.
Depending upon the terms of the exit treaty it may no longer be possible for UK authorities to publish contract notices, contract award notices and VEAT notices in the OJELI. This really seems to defeat the object of widest possible transparency. We may have to settle with more localised transparency in Contracts Finder. This may be an issue which the UK government pushes for in negotiations as it would be to its benefit to advertise in the OJELI and receive competitive bids from throughout the EU. However all this seems somewhat incongruous for a non-EU member state.
Do Treaty principles have a place post-Brexit?
The key EU Treaty principles are enshrined in UK legislation (ie see Reg 18 of Public Contracts Regulations 2015) and are currently interpreted in light of EU law. Will the UK courts develop separate jurisprudence or will they continue to track and follow the EU enforcement of these principles in a post-Brexit world?
Post-Brexit implications and likely changes
UK public procurement legislation will be heavily influenced by the nature of any future trade agreements between the UK and the EU. It looks like the UK will be exiting the single market and therefore the UK will have to rely on WTO membership and its participation in the GPA. There is likely to be the need for some renegotiation to create a bespoke UK-specific schedule to the GPA and to agree specific rules for the UK’s WTO membership. Therefore the position is unclear.
However the GPA contains some rigorous rules on how procurements must be carried out, although many of them are familiar as they were a key influence behind the new EU public procurement package in 2014. So being a signatory of the GPA ties the UK government’s hands to a certain extent.
There is no doubt that in this scenario the UK government would have more freedom to make some changes than it currently does even over and above gold-plating EU Directives.
Scope of the rules
The GPA does not cover private utilities or defence procurement. At the present time there are specific EU rules which cover some utilities and defence procurement. It seems very unlikely that the UK government would want to remove utilities from competitive tendering procedures. There may be more room for manoeuvre with defence procurement, which has always been a sensitive subject among EU member states. Less access for non-UK bidders for defence and security-related contracts could be a distinct possibility. Mind you, all that appears counter-intuitive when viewed against the current government’s increasing drive to regulate single-source contracts and increase competition. The government is therefore unlikely to take steps which would remove welcome competition for these types of contracts.
Less stringent remedies
The GPA requires the implementation of a remedies regime but doesn’t prescribe quite the detail of the EU regime. It therefore appears likely that given time the UK would materially alter the remedies regime. There are certain concepts, alien to English law, which are the hallmark of the EU remedies regime. It would not be a surprise therefore if, in time, we see the UK turning its back on automatic suspension for contested awards and possibly also ineffectiveness. The judicial review regime may in time take over from the specific EU-based remedies regime.
Membership of the GPA will allow the government to simplify many of the public procurement rules transposed from the 2014 Directives while at the same time retaining the benefit of lighter touch competitive procedures. Many UK bodies have internal rules that require them to observe competitive tendering processes even for much lower value contracts such as local authority standing orders, so the government is unlikely to turn its back in any meaningful way on competitive tendering procedures. Examples of how the regime could be simplified could include relaxation of the rules on contract modifications and on the requirement relating to transparency of evaluation. However we are likely to still see the government procedures to promote transparency of opportunities and contract documents to ensure effective competition as a way of driving best value. This is to be contrasted with many of the EU rules which focused on transparency during the procurement process, the principal reason for which was in order to promote non-discrimination and prevent national favouritism.
State aid rules
Are we going to see a surge of government support for UK industry once we leave the EU? This is unlikely. Although we will be free of the state aid rules in the TFEU, any free trade agreement with the EU is likely to impose similar obligations upon the UK to stop an unjustified distortion of trade and competition. However, dependent upon the terms of the deal, the rules might be more limited in scope than the current ones, especially if certain specified sectors are granted free-trade access to the EU but not others. Even if EU state aid rules or a variant in a free-trade agreement were not to apply to the UK post-Brexit, there will still be some restrictions on the ability of the state to subsidise UK companies as a result of WTO rules. But the remedies available to challenges subsidies would be weaker if the current WTO rules were applied to the UK. However a key consideration right now will be whether any contracts are affected by European Commission grants and/or state aid and to determine what effect Brexit will have on that funding.
This article first appeared in the Procurement & Outsourcing Journal