The forthcoming Queen’s Speech is expected to outline changes to the UK’s rules on public procurement. Sources close to the Government have reportedly said the speech will outline plans for bills focused on procurement, which will give small and medium-sized companies greater opportunities to secure government contracts and allow the public sector to buy British when the deals are not subject to international trade rules.
The detail of these alleged bills remains to be seen. Already though, we have seen moves from the UK Government to use public procurement as a tool to support British businesses in the post-Brexit era. In 2015 the UK’s public procurement market was valued at over £260 billion – 13.6% of gross domestic product.
From 1 January 2021, the Government has applied a policy to reserve “below threshold” procurements to UK incorporated companies. This policy has only become possible as a result of the UK’s departure from the European Union. The EU Directives on Public Procurement apply only to contracts above a prescribed value threshold (generally £4,733,252 for works contracts and £189,330 for contracts for goods and services). However, the EU Treaty applies certain requirements to “below threshold” opportunities which may be of interest to operators in other EU states. These obligations include advertising the opportunity and carrying out some form of non-discriminatory competitive tender process.
These principles continued to apply to the United Kingdom during the “Transition Period” under the EU-UK Withdrawal Agreement. The Transition Period expired on 31 December 2020.
The impact of the new “below threshold” policy should perhaps not be overstated. Pursuant to the EU-UK Trade and Co-operation Agreement (“TCA”), the UK has undertaken not to exercise discrimination against entities that are incorporated in the UK but are owned by an EU national or entity. That means that below threshold opportunities will still be open to UK incorporated subsidiaries of EU businesses.
By definition, below threshold procurements are less likely to attract cross-border interest anyway. Commercially, it is less likely that a smaller value contract can be carried out as profitably or competitively by an entity based overseas, particularly if transport costs need to be factored in to tender prices and reimbursed by the customer. Overseas operators may therefore find themselves at a natural commercial disadvantage.
There are exceptions for certain procurements involving the provision of goods into Northern Ireland. EU Treaty rights relating to the free movement of goods continue to apply in Northern Ireland beyond the end of the Transition Period under the terms of the Northern Ireland Protocol (part of the EU-UK Withdrawal Agreement). Below threshold procurements involving the provision of goods into Northern Ireland will therefore continue to be subject to a cross-border interest test (which would need to take into account whether businesses in the Republic of Ireland may wish to tender for the opportunity).
The policy focus on assisting SMEs is therefore potentially more interesting. This section of the business community, an important source of employment and economic productivity, has frequently complained that the procurement practices favour larger enterprises. For example, SMEs may feel shut out where the contract tendered is too large for a smaller company to perform. Previous reforms to the EU Public Procurement Directives in 2014 sought to address this specific problem by requiring public bodies to consider breaking up larger contracts into smaller, bite sized lots. For many, this “duty to consider” simply did not go far enough. It will be interesting to see if the UK Government is willing to propose more concrete measures to assist the cause of SMEs.
More far-reaching changes to UK public procurement law are likely to be laid before Parliament by the end of 2021. On 15 December 2020, the Government published a Green Paper on “Transforming Public Procurement”. A consultation on the Government’s proposals closed on 10 March 2021. Lord Agnew, Minister of State, has said that the Government intends to review the responses to this exercise as quickly as possible with a view to introducing a Public Procurement Bill by September 2021. Within the Green Paper, the Government has proposed reforms such as capping the level of damages available to claimants for violations of public procurement law.
Any changes implemented by the Government will ultimately need to be compatible with the UK’s obligations under the TCA, as well as the Government Procurement Agreement (GPA), a plurilateral WTO agreement to which the UK acceded in December 2020.