Brexit: What does it mean for public procurement?

  • Insight

08 July 2016

EU procurement law is intended to allow businesses within the EU to access the EU’s public procurement market and create a level playing field for all businesses across Europe in bidding for public contracts above an agreed threshold.

During the referendum campaign one of the statistics quoted was that compliance with procurement rules cost the UK taxpayers £1.6bn per year which could be saved if the UK left the EU. It was also suggested that following Brexit the UK and Scottish Governments could take steps to improve the position for UK firms winning contracts let by UK Public Authorities. 

What could the position be for procurement post Brexit?

The answer to this will depend very much on what is negotiated between the UK and the EU post Brexit. It is likely that the UK will wish to continue to trade and enable its businesses to bid for public contracts across the EU and wider markets. The EU Commission has an ambition to put in place measures that enables the EU to close its public procurement markets to entities from states that do not offer enforceable reciprocal access to public procurement. On the basis that the UK will require to continue to trade there are a number of potential outcomes or options including:

  • being part of the European Economic Area (EEA) and a member of European Free Trade Association (EFTA) along with Iceland, Liechtenstein and Norway;
  • entering into a bilateral treaty or trade agreement and join EFTA in a similar arrangement to Switzerland;
  • entering into a bilateral treaty or trade agreement that does not involve joining EFTA in a similar arrangement to Canada; and
  • engaging in the existing world trade system through the World Trade Organisation (WTO)/Government Procurement Agreement (GPA).

What are the implications of these options?

If the UK was to consider arrangements similar to those of Norway and Switzerland, membership of the EFTA and any bilateral arrangements include a requirement to comply with the EU procurement legislation. The only key difference would be that if the UK became an EFTA Members, they would be subject to scrutiny by the EFTA Surveillance Authority (as opposed to the European Commission) to ensure that the UK abided by the EFTA rules including the rules on procurement.

Canada’s trade agreement with the EU (CETA) provides some access to the respective public procurement markets. The UK may negotiate a similar deal with the EU.

The GPA is a multilateral agreement between members of the WTO where the signatories agree to give certain limited rights of access to foreign suppliers to their government procurement markets. Members include EU Member States, EFTA Members, the US, Japan and Hong Kong– with a further 9 members in the process of acceding including China, Jordan and Oman. Even if the UK decided that it did not wish to access the EU single market through EFTA, it is likely that it would wish to be a party to the GPA.

At present the UK has signed up to the GPA as part of the EU and arguably the UK would require to accede to the GPA in its own right. The terms of the GPA require a simplified version of the EU procurement process/regime and whilst there may be some flexibility, a similar enforceable procurement regime would require to be adopted.

What does this mean for procurement in Scotland?

The Scottish Government is committed to “Delivering procurement that improves public services for a prosperous, fairer and more sustainable Scotland”. In addition to implementing the procurement Directives, it also introduced the Procurement Reform (Scotland) Act 2014 which provides a more structured regime for contracts over £50,000 for supplies/services and £2,000,000 for Works (well below the EU thresholds). The Public Contracts (Scotland) Regulations 2015, the Utilities Contracts (Scotland) Regulations 2016 and the Concession Contracts (Scotland) Regulations 2016 are now law.

Therefore even if the negotiated solution is to engage in trading through the WTO it is unlikely that replacing a system which currently complies with the requirements of the WTO with another (albeit slightly simplified) system would be a priority for any government moving forward.

Whilst there may be a number of potential models for trading with the rest of the world, it is likely that public procurement law will continue to be a feature for the public sector and business from Scotland or businesses wishing to trade within Scotland.

Scottish companies trading in the EU currently have the right to equal treatment when bidding for government contracts in other European countries which are enforceable – so they should not fear a short-term Brexit backlash when bidding for EU contracts. In the longer term, the nature of any right will very much depend on the position negotiated between now and final exit.

Further information

If you have any particular concerns please get in touch with your usual contact at Anderson Strathern or, alternatively, Audrey Cameron in our procurement team.