PM May's Speech has brought limited clarity of Brexit impact on procurement, but can consequences be significant?

In her Brexit speech of earlier today, Theresa May PM has clarified a few things, including that the model for a future relationship between the UK and the EU that she is "proposing cannot mean membership of the single market". She has also indicated that her Government would not consider an open-ended transitional arrangement because that could plunge Britain intopermanent political purgatory”. This seems to indicate a very clear direction towards a so-called hard Brexit that generates risks of an actual cliff edge (or a very short 'smoothing period') for UK and EU economic operators, including the public sector, businesses and consumers.

However, she has also expressed that her plan includes the priority for the UK to "seek the greatest possible access to [the EU's single market] through a new, comprehensive, bold and ambitious Free Trade Agreement". And that she hopes that this can be done in parallel to the Article 50 TEU negotiations, so that it is in place within 2 years. Prof Peers has aptly synthesised what came to mind.

It is difficult to anticipate the implications of all these contradictory goals in the area of public procurement regulation, but three main alternative scenarios seem now on the table:

  1. successful completion of a UK-EU FTA that can be in force at the time the UK leaves the single market, and which allows for continuity of EU and UK commitments under the WTO rules (notably, the Government Procurement Agreement, GPA) [FTA scenario];
  2. no UK-EU FTA (either at all, or because it is incomplete/in negotiation at the time the UK exits the single market), but agreement (not only between UK and EU, but also by their international trading partners) of  'workable' arrangements based on WTO rules (including GPA) [WTO/GPA safety net scenario]; and
  3. no UK-EU FTA and no workable agreement under WTO rules (including GPA) [unregulated international trade scenario].

The implications of each of these scenarios in the area of public procurement would, in my view, be as follows: 

  1. A tailor-made FTA would probably include features similar to the recent EU-Ukraine Deep and Comprehensive Free Trade Area (DCFTA), and this would require full compliance with the EU public procurement acquis. In short, this would imply the continuation of the status quo and no need for reform of the Public Contracts Regulations 2015 (although that would be possible because the current transposition followed an extremely restrictive copy-out approach that severely constraints its potential to unleash better procurement practices and results). 

    Access to GPA procurement markets would depend on the UK’s status under WTO GPA and the continued acceptance of the EU's coverage commitments by the other WTO GPA signatories, but this option could easily secure continued access to GPA markets because the UK and the EU could make a solid case that the trade reality in their procurement markets has not changed in a material way.

    This would be possible if the UK Government accepted the need for continuity in the public procurement area, which is something PM May hinted would be happening on a sectoral basis by stressing that the UK-EU FTA "... may take in elements of current Single Market arrangements in certain areas ... as it makes no sense to start again from scratch when Britain and the remaining Member States have adhered to the same rules for so many years." 
  2. Failure to complete an FTA could still allow for WTO GPA-based trade in public procurement markets, not only between the UK and the EU, but in the wider context of GPA markets (although in my view this would be less likely because a breakdown in the trade relations between the UK and the EU would most likely trigger calls for renegotiation, at least of coverage, from other GPA signatories).

    In that case, if the UK sought to rely on the WTO GPA only, it would need to clarify whether it can retain its status as a party in its own right or -- having lost derived membership linked to EU membership -- seek fresh accession to the GPA. Either way, the scope of coverage of the reciprocal commitments between the UK and the rest of GPA parties (including the EU) would need to be clarified and probably renegotiated, with the UK facing pressure to accept deeper commitments than currently negotiated by the EU en bloc (and the EU's commitments may at the same time be also under pressure to be renegotiated due the lower volume of the EU27 procurement markets as compared to the EU28). The main risk for the UK implicit in this option would concern the discontinuity of access to the procurement markets of GPA parties (including the EU), as well as having to make additional coverage concessions in order to retain (similar to) current access to those markets.  

    Additionally, the UK would still need to convince the rest of GPA signatories (including the EU) that its procurement system complies with the general (minimum) requirements of the agreement. The easiest way of doing so would be to retain current rules that implement the EU public procurement acquis, which ensure compliance with the EU’s (and UK's future) international obligations under the WTO GPA. In that regard, the possibility of introducing significant reforms to the Public Contracts Regulations 2015 would also be limited, or at least conditioned by the risk of triggering what could potentially be protracted negotiations on substance of procurement regulation, in addition to the above mentioned negotiations on (adjustment of) coverage.
  3. The implications of the final scenario of unregulated international trade are clear, at least from a legal perspective. "Hard Brexit", ie no trade agreement of any kind combined with loss of WTO GPA membership (or a workable arrangement ensuring continued reciprocal favourable treatment while access is (re)gained), would imply loss of access to EU and worldwide procurement markets (either totally or partially). Clearly, it would also provide the UK with an opportunity to close up its procurement markets to non-domestic bidders, but this would severely damage the UK public sector in many different ways, including potential higher prices, which does not seem like a desirable policy road to take. Either way, this would likely have a major impact both on the UK public sector and in its business community, particularly that reliant on cross-border direct and indirect procurement-related trade. At the same time, it would open the possibility of a complete overhaul of public procurement rules in the UK, including the repeal of the Public Contracts Regulations 2015, with or without a replacement. However, it would also imply complete isolation of UK (public procurement) markets and is clearly an undesirable state of things.

All in all, then, it seems that if the UK Government actually seeks to ensure that free trade remains a feature of the UK's economy, particularly through continuity of WTO (GPA) based trade and the conclusion of a "new, comprehensive, bold and ambitious Free Trade Agreement" with the EU, there is limited scope for reform of the Public Contracts Regulations 2015 other than to overcome the self-imposed limitations derived from the copy-out of a set of rules that is meant to be developed and fleshed out by the Member States. If that is seen as a worthwhile exercise, it can start tomorrow and irrespective of Brexit, because the regulatory space exists under currently applicable EU public procurement acquis. I am not optimistic that this will happen, though (and have not been since before the referendum).