EU procurement rules
A very important aspect of European Union law rules and principles are the common EU rules on procurement. At the most basic, they allow companies and businesses around Europe to compete for most public contracts over a low minimum amount in any EU state. They contain powerful rights and remedies which can be directly enforced in court in the state concerned.
In addition, procurement rules are underpinned by EU non-discrimination rules, which outside of a handful of very sensitive sectors, means that non-domestic service providers, must be treated in the same way as domestic service providers (in this context the Northern Ireland/UK).
As set out in other sections, these specific rules, as well as more general principles on doing business, are underpinned by the EU framework of courts and laws. It is hard to overstate the importance of the fact that the EU comprises a single common system of rules almost like a federal country in relation to trade issues.
The EU has evolved to a situation where these rules are very effective and state bodies are subject to rules with which they comply. They are subject to immediate sanctions and court remedies and therefore must be meticulous in following the rules.
The significance of the system by which EU law overrides domestic law and must be enforced in domestic courts together with the system whereby a governmental like organisation, the EU Commission can directly enforce and administer the rules cannot be overstated. Almost all other trade agreements and importantly the type of trade agreement that the UK is likely to enter with the EU provide for much less effective enforcement in the event of a breach.
There is some possibility that there would be a deep and special EU UK agreement in several years’ time which might have these types of remedies due to its unique nature. This would not apply in a hard Brexit. Such an agreement would take years to negotiate. There is a possibility that the UK will remain in the EU during this negotiation period.
On the other hand, the UK might find a prolonged transition agreement during which it would be bound by the whole of EU rules while negotiating a trade agreement, which often takes very many years to be a very uncomfortable place. They would be subject to all EU rules, contributing to the EU budget but have none of the benefits of membership such as decision-making input. Therefore, even if there is a withdrawal agreement and transition agreement, it should not be presumed that there would be plain sailing until there is a deep and comprehensive free trade agreement.
EU public procurement rules
The EU procurement rules are, in a sense, a subset of the EU treaty right of freedom of establishment and freedom to provide services into other EU states. This more general right is set out in other chapters. It encompasses taking up and pursuing business activities from one state into another or forming a branch or subsidiary in another state and undertaking business from there.
The EU wide procurement rules oblige public bodies and other bodies in the broad public sector (in particular utilities) to follow very specific requirements that are designed to ensure that businesses around Europe can compete on an equal footing for public sector work and without discrimination. There are two blocks of similar but separate EU legislation one dealing with public sector bodies and one with utilities.
The procurement rules are based on principles of transparency, equality and non-discrimination. The transparency rules require prior publication of the notice of tender. They require a verifiable audit trail to show compliance. Classically procurement took place in secrecy or in a very opaque fashion in former times.
The above general principles are expressed in many detailed rules which give effect to them. For example, public authorities must generally accept professional and vocational qualifications in other EU states to be equivalent. They must not design procurement procedures in a way that would exclude companies from other states which would otherwise qualify.
Tthere are requirements for prior information notices to be published in respect of upcoming contract awards. The must contain certain information. Contract notices must be published to contain the prescribed information. The award criteria must be published.
The contract is awarded within a certain timeframe and reasons are given. Non-successful tenderers have an opportunity to challenge the award within a certain timeframe. Unsuccessful candidates must be given reasons in relation to very specific matters.
The above is just a brief flavour of some of the many detailed rules that make up EU procurement legislation. It is not hard to see how in the absence of these types of rules, the UK outside the EU could either expressly or simply covertly favour UK suppliers.
As mentioned below, there are other general and specific procurement antidiscrimination principles under WTO rules, but they are weaker and more difficult to enforce. There is no equivalence between the WTO rules and the EU rules. There are mechanisms for enforcing WTO rules are weaker.
Effect of Brexit on Existing Contracts
Businesses need to examine the specific contracts in order to consider whether the UK leaving the EU in itself or together with the legal consequences that follow, would impact the existing contracts. There would be a strong presumption that this would not be the case.
It may be that the express wording of the contract states or by necessity provides that the contract can no longer take effect in circumstances of the post Brexit environment. It may not be expressed in these terms, but a particular clause may have this effect even if it is not clear from an immediate reading. Equally, without there being anything in the express wording of the contract, there may be some circumstances or fact, which by way of necessity or implication means that the effect of Brexit would be to discharge and release the contract.
There is a principle of frustration which would apply where the purpose and function of the contract are rendered wholly pointless redundant or negated by some extraneous intervening unanticipated event. This would seem unlikely to apply in most circumstances.
The strong presumption would be that the contract would continue and that risks are more likely to arise on re-tendering.
Ongoing Public Procurement in the Transition Period
The Withdrawal Agreement provides legal certainty on public procurement procedures pending before the end of the transition period, which should be completed in accordance with EU law, hence under the same procedural and substantive rules as the ones under which they were launched.
If the contracts were retendered this time, the same EU laws would apply. Depending on the circumstances it might be legitimate in these cases for tendering authorities to take account of a forthcoming Brexit. It is hard to speculate. Even though EU law would apply, there would be an obviously changed landscape coming, and this might well be a consideration in the tender process
Northern Ireland Protocol
The NI Protocol contains detailed provisions on areas relevant to trade in goods. However, it does not apply the EU procurement rules. In this regard, NI is in the same position as the rest of the UK and the EU procurement rules will cease to apply.
A special exception relates to the market in electricity, reflecting the very particular circumstances of the all-island electricity market. The backstop provides that EU law governing wholesale electricity markets is to apply during the backstop period. However, the core rules which are stated to continue to apply only to the following
- common rules for the internal market in electricity
- access to the network for cross-border exchanges in electricity
- governmental cooperation in electricity
- measures to safeguard the security of electricity supply and infrastructure investment
- wholesale energy market integrity and transparent
- emissions control
- emissions trading issues
While the regulations provide for the integrity of the market and competition in relation to the electricity market, there does not appear to be any express provisions that would require service providers to participants in those markets to have access to those markets on the same basis as at present. The general procurement agreement mentioned below is the most that are likely to apply.
The protocol provides level playing field conditions in relation to state aid rules on Northern Ireland. There are provisions designed to ensure that the UK does not provide state aid in a manner that distorts competition. In broad terms, this limits the ability of the UK to blatantly subsidise public authorities and private bodies in a way they could compete unfairly with EU businesses. It goes nowhere near providing rights of access to provide services to those businesses.
Hard Brexit Scenarios
Although the position is uncertain, many studies and commentators assume that the WTO GPA agreement would apply even in the event of a hard Brexit. It is significantly more limited than the EU rules.
The UK has published notes as to what the position would be for tendering in a sudden hard Brexit if there was no deal. All contract opportunities will be republished in a new UK notification service. It would be similar to the present EU service. The EU in its hard Brexit notes has said that businesses in the UK will have the same status as third country tenderers
The UK is currently a part of the GPA only through its EU membership. The UK Government has stated that is taking steps to ensure that the UK continues to be part of the GPA – becoming an independent member – as the UK leaves the EU.
The Government has said it is working with GPA members to find a way that the UK remains a member of the GPA on the same terms that currently apply (out of a number of options for doing this).11
In a joint letter, representatives of the EU and UK stated that:
The UK and EU will work together on the UK’s objective of remaining, upon leaving the EU, subject to the rights and obligations it currently has under the Government Procurement Agreement as an EU Member State on the basis of the commitments currently contained in the EU schedule of commitments.12
Possible but Unlikely Longer-Term Options EEA – Nothing Changes
Norway and the other EEA countries are members of the single market, including being fully subject to the EU procurement rules. It is possible that the UK may choose a soft Brexit comprising customs union plus single market in which event the EU procurement rules would be likely to continue to apply.
It appears, however, that this course is unlikely at present. In particular, it seems likely to be open to the criticism that it is Brexit of name only. The UK would be subject to all the obligations of the EU without participating in the rule-making institutions.
Possible Long-Term Options for the UK Going it alone
Conceivably the UK might choose not to enter any arrangements with the EU regarding access to public procurement opportunities. One of the criticisms of the EU in the UK has been the rigidity of the procurement system and the formality involved. If the UK did not join the WTO Agreement, the UK would be entitled to allow its government agencies and utilities to discriminate against non-UK providers. It could provide that even domestically incorporated companies that were controlled by foreign companies could be discriminated against in procurement matters.
On the other hand, taking such an approach would be likely to lead to UK contractors subject to the discriminatory practices abroad. Economic commentators have stated that the UK has an incentive to enter procurement agreements with the EU for this reason.