Public Procurement & Brexit

Effectiveness of EU Procurement Law

The EU has enacted procurement legislation which is applicable to most public works above a certain value. The EU procurement rules apply above a relatively low project threshold for capital projects. Contracts above the threshold must be advertised in the Official Journal of the European Union. There are requirements for award criteria, qualification and disqualification.

The legislation applies to states, regional and governmental bodies, local authorities and bodies governed by public law. In effect, all bodies that spend public money are covered.

The directives have been criticised for being burdensome and particularly difficult for small and medium-sized enterprises. As part of the Europe 2020 Strategy, the directives were revised, particularly with a  view to facilitating the participation of small to medium-sized enterprises in public procurements.  The 2014 directives cover public contracts, public utilities and concession contracts.

Evidence suggests that the public procurement rules have relatively little effect in practice.  Only 1.5 percent of UK public contracts are awarded to public foreign contractors with an even smaller percentage of public contracts in the EU being secured by EU contractors.  However, this does not take account of indirect procurement involving subcontractors.  Some parts of the contract may be performed by a non-EU firm including subsidiaries.  When these are added the percentage becomes slightly rises to about 13 percent.

Award Criteria

The Public Contracts Directive requires the contract to be awarded to the most economically advantageous tender.  It must be based on price or cost, using a cost-effectiveness approach.  This may be a life cycle cost. Regard may be had to the consumption of energy, end of life recycling and environmental externalities where a monetary value can be identified.

The cost-effectiveness approach may embody a best price-quality ratio which may be based on qualitative environmental and/or social aspects, quality and training of staff.

The UK has implemented the directives and also included a provision under the Public Services Social Value act requiring the consideration of social value in procurement.

A contracting authority may reject the most economically advantageous tender if it fails to comply with economic social and employment legislation.  It is obliged to exclude an undertaking from participation if it is aware that it had been convicted of certain crimes including fraud, corruption, child labour abuse, taxation and other breaches.

Procurement and Brexit

In principle post-Brexit,  the UK can create its own procurement regime. However, it is likely that any trade agreement between EU and UK would require that broadly the same procurement regime should apply.

Membership of the EEA requires compliance with the EU law on procurement. I the case of contracts of cross-border interest outside the directives’ coverage, transparency and equality obligations continue to apply.  In practice, the EEA has been required to adopt all EU procurement and state aid rules. Monitoring and enforcement are by the EFTA court, rather than the European Union.  This court follows the European case law.

Similar provisions apply under the EU Swiss bilateral agreement by which Switzerland has access to most of the single market under approximately 120 agreements. The agreement provides in relation to procurement (to which WTO rules do not apply) that the contract be awarded in accordance with the principles of transparency, non-discrimination and fairness.

Under the EU Canada Comprehensive Agreement, the dis[pute resolution mechanisms in relation to procurement is arbitration.

WTO Procurement Agreement

The WTO promoted GPA agreement already applies between the EU and other major countries including the United States, Japan and Canada.  It appears that it would be relatively easy in principle, for the UK to join the GPA agreement under the same terms and schedules as the EU. The current GPA procurement agreements reference EU procurement law.

Joining the GPA may be more complicated if there are changes in the current EU based procurement law.  Other WTO members may be required to agree.

The GPA requires states to establish an independent administrative or judicial tribunal for complaint.  The  UK could, in theory, remove jurisdiction from courts and replace it with administrative bodies.

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