What does Brexit mean for public procurement? Short remarks on Arrowsmith's White Paper

Prof Arrowsmith has published a White paper on the implications of Brexit for the law on public and utilities procurement, where she briefly considers the alternative models for the future regulation of public procurement in the UK after an exit from the EU. A fuller academic version of the paper is bound to appear in a Brexit special issue of the Public Procurement Law Review. In her White Paper, Arrowsmith provides the skeletal implications that different UK-EU relationships would have in terms of public procurement regulation, most of which point towards a clear need for (broad) continuity of the existing EU-based model.

Along the same lines already drawn by previous commentators (see here), her White Paper stresses the limited scope (and incentive) for a change of regulatory model if the UK is to have full access to the EU single market (under either the 'Norwegian'/EEA model, or the slightly more flexible 'Swiss' approach). She indicates that there is a (theoretical) possibility for the UK to reach a bespoke agreement with the EU that softens the requirements under the current EU Directives, but she also stresses that the stronger indication is that the EU would rather push for a consolidation of existing rules, both because that is the obvious 'off-the-shelf' solution, and due to the different negotiation dynamics between previously unrelated parties (the EU and Switzerland, for these purposes) and between the UK and the EU, which render arguments based on the need to 'learn' about the EU procedures or to reform internal rules to ensure approximation and consistency moot.

She then also assesses two scenarios that, in my view, are only interesting from a theoretical perspective. First, the strict application of the WTO GPA, which leads her to suggest that this option would allow the UK to develop a more flexible procurement regime but, realistically, only in the long run because access to the WTO GPA (of which the UK is not a Member in its own right, but only as part of the EU) would be significantly facilitated by keeping the existing EU-based regulations in place. She also mentions that this option would require the UK to agree on coverage with the EU and all other GPA members, and that 'there ... seems to be no reason why the other GPA parties would want to reopen the existing detailed coverage arrangements with the UK, or vice versa'. She is right to stress that business as usual would be the best way of ensuring quick accession to the GPA by the UK, but the question then arises of what is the advantage of such loose relationship with the EU compared to full access to the single market?--and the simple answer is that, in procurement terms, there is none in the short run and that any long run advantage seriously depends on the way the GPA itself evolves, which is not something we can include in our analysis with any meaningful level of predictability.

Second, and maybe in the only controversial or provocative point of her White Paper, Arrowsmith entertains the idea "that Brexit [c]ould see the UK throw off the shackles of EU procurement law, leaving it free to design its own system", in what she labels "the freedom option", which would derive in case the UK was not able to commit to any trade agreements covering public procurement. Arrowsmith rightly considers this situation unlikely and, as far as I can assess her qualitative comments on its implications, probably undesirable. I think that Arrowsmith's assessment of this situation is however partial because it fails to stress the losses in terms of trade that would derive from such "freedom solution", that I would rather label "the self-destructive, isolationist option".

Beyond the possibility of creating a superior public procurement system, which is by no means guaranteed (as Arrowsmith stresses herself), this solution of "absolute regulatory freedom" would not be viable unless the UK had no intention of keeping a meaningful level of international trade in public procurement markets. This scenario would come together with the possibility for any third country to discriminate against UK producers and exporters in their own procurement, as well as reduced incentives for international suppliers to participate in tenders where their ability to enforce individual rights was more reduced than in other jurisdictions. In general, it does not seem far fetched to consider that there would be less overall competition for contracts tendered by the UK government and, in the end, this would harm the UK taxpayer via higher prices and/or reduced quality of supplies, services and works needed to run public services.

I guess that my broader point is that, in this area of economic regulation, as in any other, arguments based on the possibility to develop a (theoretically) better system from a legal / technical perspective need to be considered together with their economic implications. And, from this perspective, any option that implied limited access to the EU single market and, even more, to the international markets, would impose a very heavy burden on UK's public expenditure. That is why it is important not to isolate technical legal analysis from its broader context in this important debate.

Moreover, and this is not a perspective generally included in Brexit assessments, multilateral investment banks also have a stake in the domestic regulation of public procurement. In case the UK wanted to have any chance of securing international funds for large infrastructure projects (which it may well want to preserve, in order to retain some possibilities of, for instance, EBRD investment in the country), it would still need to have a domestic regulation that complied with standards very close to those of the current EU-based regulatory mechanisms. Otherwise, it could not be out of the question that internationally-funded projects would need to be tendered under special rules in the future, thus not leaving the "freedom option" completely unconstrained.

Similarly, these issues of reduced international competition (with its negative economic effects) and difficulties in continuing to attract procurement-related international investment would arise in case Arrowsmith's proposal for a transition period between Brexit (ie, 2 years after the trigger of Art 50 TEU, which now seems likely to happen in early 2017) and the moment trade agreements were reached, in which she considers that a "sensible and likely interim solution would be to retain the award procedures of the regulations in place, but without provision for enforcement by non-domestic suppliers, pending eventual confirmation, modification/replacement, or total repeal of the regulations, depending on the outcome of trade negotiations and other decisions on how procurement will be regulated after Brexit". In my view, this is a bad idea and the UK would be better off by completely keeping the status quo ante Brexit (including remedies for international tenderers and investors) if it wants to preserve its (diplomatic) options of a swift conclusion of procurement-related trade agreements, as well as preventing disruption in investment and infrastructure projects.

Once again, from a broader perspective and like in most other areas of Brexit-related renegotiation, strategies that not only do not consolidate or grandfather rights, but also seek to (temporarily) restrict rights and guarantees, seem not to be conducive to productive future relationships and there is no reason to believe that such moves would not severely damage the UK's chances of reaching satisfactory agreements for the future. Thus, in my view, Arrowsmith's proposal for a transition period of reduced enforcement rights for non-UK bidders should not be followed.