Continuity or Change? Procurement Rules after Brexit

Following on from the last edition of Trade Truths examining the effects of Brexit and the election for the Director-General of the WTO on the UK’s relationship with the WTO, this week we look at how the UK’s accession to the WTO’s plurilateral procurement agreement is likely to change the UK’s procurement regime at the end of the Transition Period.

What is the Government Procurement Agreement?

The Government Procurement Agreement (GPA) is a voluntary trade agreement within the WTO. It aims to “ensure open, fair and transparent conditions of competition in the government procurement markets”. The GPA consists of the text of the Agreement setting out its general rules, and an annex to the Agreement setting out the procurement activities that apply to each signatory state. The signatories to the GPA include the EU Member States and 19 other countries across the world such as the US, Australia and Canada (together, the GPA States).

The GPA contains a general principle guaranteeing non-discrimination in the process of awarding public sector contracts to suppliers based in different GPA States, in relation to the annex of procurement activities. For example, Article IX(3) of the GPA requires that GPA States do not “adopt or apply any registration system or qualification procedure with the purpose or the effect of creating unnecessary obstacles to the participation of suppliers of another Party in its procurement.” Fairness is also upheld by the general principle requiring that the procuring entity conducts procurement in a transparent and impartial manner (Article IV(4)).

The current state of play

The EU procurement regime

The current EU procurement regime covers a variety of areas of procurement and is designed to ensure that Member States do not discriminate against providers from other countries, ensuring a level playing field. This enables EU-wide competition on public procurement, with all public contracts advertised throughout the EU through the Official Journal of the European Union (OJEU). The legislative framework governing EU procurement rules consists of a number of Regulations and Directives including Regulation 966/2012 (EU institutions as contracting authority), and Directive 2014/24/EU (EU member states as contracting authority). Key provisions include the stipulation that businesses established in EU Member States are eligible to participate in all tenders launched, for example, the Financial Regulation 966/2012, which regulates the procurement procedures of the European Commission and EU Agencies, specifies that:

• "Participation in procurement procedures shall be open on equal terms to all natural and legal persons” within the jurisdiction of the EU Member States.

Where an economic operator is established in a GPA State, the Financial Regulation provides for access to tenders launched by the EU institutions or agencies, but subject to conditions:

• "Where the plurilateral Agreement on Government Procurement concluded within the World Trade Organisation applies, the procurement procedure shall also be open to economic operators established in the states which have ratified that agreement, under the conditions laid down therein."

The Directive on public procurement, which regulates Member State contracting authorities, provides for similar access to economic operators in a GPA State.

How does the procurement regime apply during the transition period

Until the end of the Transition Period ending on 31 December 2020, the EU procurement procedures will continue to apply to UK-based businesses applying for tenders within the EU.

Where a UK based entity has participated in a tender launched by a contracting authority in the UK or an EU Member State during the Transition Period, but not finalised before 31 December 2020, it would still be allowed to continue to participate in the tender process if carried out using the EU procurement rules (Article 76 of the Withdrawal Agreement).

The UK procurement regime post-Brexit

How things will change

At the end of the Transition Period, the UK’s new Procurement Regulations¹ will come into force, though the rules will remain largely the same. One change that will come into force is the move from the OJEU notices system to the UK e-notification service (Find a Tender).

What about the GPA…

As an EU member and during the Transition Period the UK has taken part in the GPA via the EU’s membership of the Agreement, implemented as part of the EU’s procurement regime. The WTO has now confirmed that it will permit the UK to join the GPA as an independent member from 1 January 2021 (access the press release), ensuring that the UK retains access to a GBP1.3 trillion international public procurement market after the Transition Period.

British businesses will be able to continue bidding for public sector contracts overseas covered by the GPA, and this is likely to be on the same basis as they do now, whilst, equally, foreign businesses can continue to bid for UK public sector contracts covered by the GPA.

Whilst this will continue to enable the UK benefit from a large international procurement market, the UK will lose its current level of access to the EU procurement market as a member of the EU since the GPA schedules cover a narrower range of procurement activities than the EU regime. However, there is a potential that the UK could include further procurement activities in its GPA schedule in order to increase market access in the UK. Based on a 2019 UK Government statement, it seems that initially the UK will accede to the Agreement on the same terms as are currently in place for the UK as an EU Member State. Furthermore, it should be noted that the WTO principle of Most Favoured Nation does not apply here, so the UK and other signatories could include further procurement activities between themselves without having to do so for all GPA States. However, the UK will need to make such agreements with the EU as a single GPA member, rather than negotiating with separate EU Member States.

... and what about a deal?

If the UK and EU agree a deal on their future trading relationship, the UK has made it clear that it seeks to develop its own separate and distinct policy for public procurement using the GPA, and did not include membership of a joint public procurement regime in its UK-EU future relationship mandate. However, the EU wants its public procurement relationship with the UK to go beyond the terms of the GPA, although it remains to be seen whether the UK and EU will come to an agreement at all before the expiration of the Transition Period, and whether this agreement will include any further rules on procurement.

Given the short time remaining for an agreement to be reached between the bloc and the UK, UK businesses should prepare for public procurement rules governing their access to the EU market, to be derived from the GPA. In any event, the GPA will become a more important part of the UK’s public procurement regime at the end of the transition period. Whether the EU and UK reach a deal before the end of the year, UK businesses will nevertheless continue to have access to markets for public sector contract in GPA States including the EU Member States, the US, and Japan, under the terms of the GPA.

What difference does the GPA make?

In the past the EU procurement process has been described as inefficient. In 2019, Boris Johnson announced that the UK Government would fundamentally change the UK’s public procurement regime in order to “back British businesses”.

The GPA is based on similar principles to the EU regime but is less prescriptive as to how authorities meet these principles. For example, the GPA rules on remedies are more limited than the EU rules under the EU’s procurement regime. Additionally, under the GPA there is no standstill period after the award of a contract to allow for challenges to decisions. It has been argued that this could theoretically enable the UK to implement a more streamlined procurement process than that in force at present.

It seems that, in the near future the UK’s procurement regime will remain similar to that which existed whilst a member of the EU. However, given the UK Government’s stated policies regarding the future direction of the public procurement regime, and the UK’s ability, as an independent signatory to the Agreement, to agree or amend the scope of its procurement activities with other countries, the landscape is likely to change over the coming years.

Why must businesses understand these changes?

• Public procurement regimes set the rules which determine which public contracts businesses are eligible to tender for around the world, and key conditions that they must meet in order to do so.
• Future changes in this area could give UK businesses further access to the global (non-EU) public procurement market, whilst the UK’s leaving the EU’s procurement regime could result in reduced access for UK and EU businesses seeking to bid for contracts in the UK and EU respectively, though the details of any procurement related arrangements as part of any UK-EU free trade agreement remain to be seen.
• If the UK Government is successful in its stated aim of streamlining the UK’s procurement regime, this could also bring efficiencies and increased ease of access for tenderers to take part in the procurement process.

¹ The Public Procurement (Amendment etc.) (EU Exit) Regulations 2019 and Public Procurement (Amendment etc. (EU Exit) (No.2) Regulations 2019