In a previous post, BLOMSTEIN has discussed the Brexit plan that UK Prime Minister Theresa May has recently presented to the public. In this note, we take a closer look at the Brexit implications for public procurement law.
During the referendum campaign, Brexiteers publicly claimed that, free of EU law influences, simplified public procurement regulations could save the UK up to GBP 1.6 billion. With Brexit now a reality, it remains to be seen whether the prospect of an autonomous UK public procurement system will materialise. While leaving the EU will release the UK from its requirement under EU law to allow foreign firms to participate in public tenders, domestic law will continue to grant European firms access to public tenders in the UK unless the British legislator decides to change current regulations.
However, it is expected that for the sake of legal clarity and predictability the UK and the EU will put mutual access to its procurement markets on a new basis under international law. The most likely option is the conclusion of a comprehensive bilateral free trade agreement comprising rules on market access in public procurement.
Everything will remain the same for the duration of the negotiations. There will be little change immediately after the UK leaves the EU unless the British or the European legislator expressly intervenes.
British companies will continue to be eligible for tenders in EU Member States. This is because current EU directives on public procurement do not differentiate between tenderers from EU Member States and from third countries – the sole exception being the Utilities Directive (Directive 2014/25/EU) which provides for the possibility to exclude a third-country bidder under narrow conditions. Yet this has hardly played any role in practice to date. The European Commission recently presented a revised proposal for a regulation that would allow it to impose a price surcharge on tenders originating in third countries that unduly restrict access to their own procurement markets. This might provide the Commission with leverage to ensure reciprocity in trade negotiations between the EU and third countries such as the UK. Until further notice, however, UK firms will maintain access to the procurement markets of EU Member States.
The same is true for European companies seeking to participate in post-Brexit public tenders in the UK. This is because EU legal standards have been transposed into domestic regulations under the laws of England, Wales, Scotland, and Northern Ireland. For as long as these regulations are not expressly repealed (e.g. by a Great Repeal Bill), they remain in force as they form part of domestic law. At the time of writing, there are no publicly known plans for a Repeal Bill. Rather, the British government appears keen to maintain the acquis communautaire. Thus, for the time being, European companies continue to be eligible for public tenders in the UK. However, these domestic regulations need no longer be interpreted in accordance with the relevant EU directives. British courts thus may deviate from the existing case law of the Court of Justice of the European Union (CJEU) and can no longer submit questions to the Court. In addition, existing UK domestic statutes (e.g. regarding the publication of tender offers) that are based on EU law will become inoperable. As leaving the EU will release the UK from its commitments under EU law, it is likely that the EU and the UK are going to engage in negotiations on a new basis under international law.
The Canadian Model: Free Trade Agreement
As May recently announced, the UK seeks a bilateral free trade agreement as the future form of cooperating with the EU. Agreeing on a separate public procurement chapter as part of a comprehensive free trade agreement thus seems to be the most likely option for enshrining mutual access to public tenders in international law. The Comprehensive Economic and Trade Agreement (CETA) recently concluded between the EU and Canada can serve as an example in this regard as it includes a full chapter on mutual access to public procurement markets.
Such a bilateral agreement would provide the opportunity to regulate access to public tenders either based on the model of the EU directives or on a sector-by-sector basis. Likewise, sensitive areas could be excluded from the coverage. Moreover, the UK and the EU could individually negotiate judicial remedies against infringements on the rights of foreign bidders. This flexibility might allow the parties to agree on some procedural simplifications as compared to the current EU directives that would meet the UK’s desire to cut back on red tape.
Accession to the WTO Government Procurement Agreement
If the UK and the EU fail to conclude a bilateral agreement on public procurement, the rules of the World Trade Organisation (WTO) do not provide a fallback option. This is because there is no multilateral WTO agreement on public procurement that comprises all WTO members. Unlike most other WTO treaties, the plurilateral WTO Government Procurement Agreement (GPA) requires a separate membership. While the agreement grants foreign bidders access to public tenders in the states of other parties, a party is only bound by the commitments it has undertaken in its own annex to the agreement. These commitments are itemised by individual goods and services.
The EU and some of its most important trading partners including Japan, Canada, and the US are parties to the GPA. The scope of the commitments undertaken by the EU is more or less equivalent to the scope of the relevant EU directives. The UK, however, is only a party by virtue of its EU membership. The EU’s international legal rights and obligations under the GPA will cease to apply to the UK after its withdrawal from the EU. It is thus very likely that the UK will rapidly seek to accede to the GPA in its own right.
To accede to the GPA in its own right under international law, the UK requires the consent of the GPA’s current parties, including the EU. There is no indication that the European Commission will accept the UK’s accession without imposing additional conditions. It may well be that the Commission refuses to give its consent if negotiations on a bilateral agreement fail, or at least delay its consent until the Brexit negotiations have been concluded. Yet, eventually, the UK’s accession to the GPA is also in the interest of the EU as the access of European companies to the British public procurement market would thereby be enshrined in international law even in the absence of bilateral rules.
GPA membership entails a few disadvantages compared with EU membership. Other than under EU law, there are no general principles in the GPA that apply to public tenders falling below the EU/GPA thresholds. In certain sectors, such as defence and security, postal services, and private utilities, the EU’s commitments under the GPA fall short of the EU directives’ coverage. What is more, the GPA lacks effective judicial remedies. It does not create subjective rights that could directly be invoked by unsuccessful bidders in court. Dispute settlement proceedings under the WTO Dispute Settlement Understanding are rather lengthy and can only be instigated by member states.
Should the European and the British legislator remain inactive, current domestic UK law transposing the EU public procurement directives would remain in force. This would mean little change for British and European companies. Yet with the UK’s withdrawal from the EU, there would no longer be an obligation under international law to grant foreign bidders access to public tenders. Given the current degree of cooperation between the UK and the EU, it is hard to imagine that the provisions of the GPA will form the sole basis for relations between the two. Currently, the most likely option is the conclusion of a bilateral agreement on public procurement between the EU and the UK that would allow for the right amount of flexibility and sector-specific commitments. Should this be the case, one might expect intense negotiations on the inclusion of certain sectors such as defence or private utilities.
Should you have any questions on the implications of Brexit for your business, please do not hesitate to contact Roland Stein or Pascal Friton.