Brexit & Procurement: Transitioning into the Void?

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Dr Pedro Telles and I are putting the last touches to a new paper on Brexit and procurement (see here for an earlier analysis). In this working paper, we concentrate on the implications of the draft transition agreement of March 2018, as well as some of the aspects of a potential future EU-UK FTA. The abstract of the paper, which is available on SSRN and on which we sincerely invite any feedback, is as follows:

On 29 March 2017, the UK notified its intention of leaving the EU. This activated the two-year disconnection period foreseen in Article 50 TEU, thus resulting in a default Brexit at the end of March 2019. The firming up of a draft agreement on a transition period to run until 31 December 2020 can now provide a longer timescale for the Brexit disconnection, as well as some clarity on the process of disentanglement of the UK’s and EU’s legal systems. The draft transition agreement of 19 March 2018 provides explicit rules on public procurement bound to regulate ‘internal’ procurement trade between the UK and the EU for a period of over 15 months. However, the uncertainty concerning the future EU-UK relationship remains, and the draft agreement does not provide any indication on the likely legal architecture for future EU-UK trade, including through public procurement. The draft agreement has thus not suppressed the risk of a ‘cliff-edge’ disconnection post-Brexit, but rather solely deferred it. The transition is currently not into an alternative system of procurement regulation, but rather into the void. There have also been very limited developments concerning the UK’s and EU’s repositioning within the World Trade Organisation Government Procurement Agreement (WTO GPA), which creates additional legal uncertainty from the perspective of ‘external’ trade in procurement markets due to the absence of a ‘WTO rules’ default applicable to public procurement.

Against the backdrop of this legal uncertainty, this paper critically assesses the implications for public procurement of the March 2018 draft transition agreement. In particular, the paper identifies three shortcomings that would have required explicit regulation: first, the (maybe inadvertent) exclusion from the scope of coverage of the of the draft transition agreement of procurement carried out by the EU Institutions themselves; second, the continued enforcement of the rules on contract modification and termination; and third, the interaction between procurement and other rules. The paper also and flags up some of the areas for future EU-UK collaboration that require further attention. The paper then goes on to revisit the continued uncertainty concerning the EU’s and UK’s position within the WTO GPA. It concludes that it is in both the UK’s and the EU’s interest to reach a future EU-UK FTA that ensures continued collaboration and crystallises current compliance with EU rules, and to build on it to reach a jointly negotiated solution vis-a-vis the rest of WTO GPA parties.

The full details of the paper are as follows: P Telles & A Sanchez-Graells, 'Brexit and Public Procurement: Transitioning into the Void?' (April 20, 2018) SSRN working paper https://ssrn.com/abstract=3166056.

Legal Archaeology: Timing of Brexit, CJEU case law & substantive public procurement rules

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At the extremely thought-provoking conference "Trade Relations after Brexit: Impetus for the Negotiation Process", I had the chance to present some thoughts on the regulatory challenges that Brexit poses for EU public procurement regulation, and to explore potential solutions that could/should be designed in the context of an agreement regulating future EU-UK relationships. I already posted my general views here. However, the discussions at the conference made me think in more detail about the specific challenge of fostering substantive coordination post-Brexit--which is an unavoidable challenge if the UK is to have any sort of meaningful access to the EU internal market, and all the more in the context of an ambitious FTA.

Of course, this challenge is not all that peculiar to the area of public procurement, and the general problems that section 6(2) of the European Union (Withdrawal) Bill (EUWB) creates concerning the non-bindingness of the future case law of the Court of Justice have been extensively discussed by others. Indeed, by establishing that 'A court or tribunal need not have regard to anything done on or after exit day by the European Court, another EU entity or the EU but may do so if it considers it appropriate to do so', if unchanged, the EU (Withdrawal) Act would create a level of legal uncertainty that nobody desires--first and foremost, prominent UK Judges such as Lord Neuberger.

However, it seems to me that, should Brexit day come some time in 2019 or 2020, the effects of the EUWB could be rather undesirable--unless, of course, UK courts decided to systematically (and voluntarily) keep a close eye on the CJEU future case interpreting the 2014 Public Procurement Package. Why is that?

The UK transposed the 2014 Public Procurement Package by copying it out, primarily into the Public Contracts Regulations 2015 [A Sanchez-Graells, 'The Implementation of Directive 2014/24/EU in the UK', in S Treumer & M Comba (eds), Implementation of Directive 2014/24, vol. 8 European Procurement Law Series (Edward Elgar, forthcoming). ]. Thus, barring any intervening 'fine-tuning' of the transposition, on Brexit Day (and until such time as the PCR2015 are reformed, or EU procurement law subject to further revision), the domestic UK rules will be perfectly aligned with EU public procurement law. However, and rather counterintuitively, this cannot by itself ensure substantive coordination in the foreseeable future. How come?

As things stand, and unless I have missed something, the CJEU is yet to issue any judgment interpreting the three Directives included in the 2014 Public Procurement Package (Dirs 23, 24 and 25/2014/EU). On occasion, the Court has indirectly taken into consideration some of the reforms the 2014 Package brought about, but most of the rules where there is a sharp distinction between the pre-2014 and the post-2014 rules (which sometimes involve a 'flexible recast' or implicit reform of case law that got incorporated to the new Directives) remain untouched. Enter the EUWB.

According to section 6(3) EUWB, "Any question as to the validity, meaning or effect of any retained EU law is to be decided, so far as that law is unmodified on or after exit day and so far as they are relevant to it—(a) in accordance with any retained case law and any retained general principles of EU law, ...". So, when confronted with the need to interpret the PCR2015 (identical to the 2014 Package), the UK Courts will only be able to rely on 'old' CJEU case law, which may or may not be a good proxy of the interpretation the CJEU would (will) make of the revised rules, in particular where there is a clash between such 'old' case law and the new rules [for extended discussion, see GS Ølykke & A Sanchez-Graells (eds), Reformation or Deformation of the EU Public Procurement Rules (Edward Elgar, 2016)].

Moreover, given the different techniques of statutory interpretation applicable in the UK and those the CJEU tends to follow, even the most willing UK court may find itself carrying out complex exercises in 'legal archeology' to ascertain the extent to which the 'old' case law buried under the new rules is of any use in the construction of the latter. Oddly enough, should the UK courts--willingly, due to convenience, or inadvertently--give more weight to the 'old' case law than the CJEU itself (which could decide to go by the literal tenor of the new rules, even if they deactivate previous jurisprudential positions, to show deference to the EU legislators) the UK could end up with 'purer' EU public procurement rules than the EU itself. Surely not what the drafters of section 6(2) and (3) EUWB had in mind.

Of course, this hypothetical scenario is bound to lose relevance as time goes by and the CJEU has the chance to engage in the direct interpretation of the 2014 Package--and a long transition period may do away with the peculiarity derived from the current 'estimated' timing of Brexit and the recent reform of EU public procurement law. More generally, all in all, this is probably highly theoretical or even absurd, but I think it militates in favour of a flexible mechanism for UK courts to (voluntarily, sure) send references on interpretation to the CJEU post-Brexit, if there is to be substantive coordination--not solely on procurement, but in all areas of 'regulatory allignment' of a flavour or other, in the context of the agreement for future EU-UK relationships. Will the next wave of negotiations raise to this challenge?

Examining Brexit Through the GPA’s Lens: What Next for UK Public Procurement Reform?

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Dr Pedro Telles and I have just published 'Examining Brexit Through the GPA’s Lens: What Next for UK Public Procurement Reform?' (2017) 47(1) Public Contract Law Journal 1-33 and, thanks to the permission of the American Bar Association, made it available through SSRN https://ssrn.com/abstract=3076543. This is the abstract:

The United Kingdom has formally started the process of leaving the European Union (so called Brexit). This has immersed the UK Government and EU Institutions in a two-year period of negotiations to disentangle the UK from EU law by the end of March 2019, and to devise a new legal framework for UK-EU trade afterwards. The UK will thereafter be adjusting its trading arrangements with the rest of the world. In this context, public procurement regulation is broadly seen as an area where a UK ‘unshackled by EU law’ would be able to turn to a lighter-touch and more commercially-oriented regulatory regime. There are indications that the UK would simultaneously attempt to create a particularly close relationship with the US, although recent changes in US international trade policy may pose some questions on that trade strategy. Overall, then, Brexit has created a scenario where UK public procurement law and policy may be significantly altered.

The extent to which this is a real possibility crucially depends on the framework for the future trading relationship between the UK and the EU. Whereas ”EU-derived law” will not restrict the UK’s freedom to regulate public procurement, the conclusion of a closely-knit EU-UK trade agreement covering procurement could thus well result in the country’s continued full compliance with EU rules. Nonetheless, this is not necessarily a guaranteed scenario and, barring specific requirements in future free trade agreements between the UK and the EU or third countries, including the US, the World Trade Organisation Government Procurement Agreement (GPA) seems to be the only regulatory constraint with which future UK public procurement reform needs to conform. However, the position of the UK under the GPA is far from clear. We posit that the UK will face a GPA accession process and GPA members may see Brexit as an opportunity to obtain new concessions from the UK and the EU, which could be both in terms of scope of coverage or regulatory conformity. Further, given the current trend of creating GPA plus procurement chapters in free trade agreements, such as the US-Korea FTA, the GPA regulatory baseline will gain even more importance as a benchmark for any future reform of public procurement regulation in the UK, even beyond the strict scope of coverage of the GPA. Given the diversity of GPA-compliant procurement systems (such as the EU’s and the US’), though, the extent to which the GPA imposes significant restrictions on UK public procurement reform is unclear. However, we argue that bearing in mind the current detailed regulation in the UK might itself limit deregulation due to the need to comply with the international law principle of good faith as included in the 1969 Vienna Convention on the Law of Treaties and, to a certain extent, the United Nations Convention Anti-Corruption. 

The aim of this paper is to try to disentangle the multi-layered complexities of Brexit and to explore the issues that Brexit has created in the area of international public procurement regulation, both from the perspective of ‘internal’ EU law-related issues and with regard to broader ‘external’ issues of international trade regulation, as well as to assess the GPA baseline regulatory requirements, and to reflect on the impact these may have on post-Brexit public procurement reform in the UK.

Some comments on Robinson (2013) "Social Public Procurement: Corporate Responsibility Without Regulation"

In a recent paper entitled "Social Public Procurement: Corporate Responsibility Without Regulation",  John Robinson Jr., a student at the University of Utah College of Law, 'explores the EU’s framework for achieving [...] social goals and suggests that the US should undertake many of the same policies. In the US, public procurement accounts for over 10% of GDP. Therefore, using the marketplace rather than regulation to achieve positive change offers a powerful tool: the upside of social good without the downside of increased regulatory burden' (emphasis added). 
 
Even more specifically, the paper claims that 'EU’s position on CSR, specifically that expenditure of public funds provides a powerful mechanism with which to drive corporate responsibility. Essentially, this reflects a collective EU decision (sic) that market forces are superior (eg., more efficient) to regulation in terms of promoting socially responsible business practice' (emphasis added). However, the superiority or efficiency of the mechanism is not an issue that can simply be agreed upon or opted for, but an empirical question. And, difficult as it may be to measure, economic theory does not support the premise that exercising buyer power is a more efficient mechanism than (adequate) regulation when it comes to the pursuit of social (or any other) regulatory goals.

In my view, the whole argument in the paper and the final policy recommendation (as, more generally, the use of public procurement to pursue secondary considerations) is problematic because it does not duly take into account the short-term, static competitive distortions
and the (implicit) higher costs of procurement based on non-economic considerations, nor the undesirable dynamic distortions that can be created by the public buyer. Readers may be bored already with my argument, but I cannot help stressing that using public buyer power to achieve regulatory goals is an inefficient strategy [for further discussion, see my Distortions of Competition Generated by the Public (Power) Buyer].
 
Nonetheless, Robinson completely ignores the fact that imposing regulatory requirements through the backdoor of public procurement decisions significantly muddles the working of the market. Such ommission is clear in the argument that 'Using their already-existent presence in the market, governments may encourage corporate social responsibility through favoring those corporations, goods, and services that produce better social outcomes. The EU terms this as socially responsible public procurement, and has actively engaged in SRPP for some time'. In passing, it is worth stressing that the CJEU has created some important limitations as to what can be done in terms of pursuing CSR objectives through procurement (see case C-368/10 and my comment, in Spanish, though).

In my view, the foundations of the logic behind the proposals to 'use' the market (ie buyer power) to achieve regulatory objectives (which Robinson borrows from McCrudden's 'Buying Social Justice') are essentially flawed. Remarkably, it can hardly be supported that 'Although not perfect, markets constitute the best method yet found for “optimizing the use and distribution of scarce resources.” Traditionally, society placed social justice and equality outside of the market, but within the sphere of government influence. However, the movement towards [socially responsible public procurement], particularly within Europe, signals a recombination of the two—integration of social justice into the marketplace'. In my view, such a recombination is simply not possible, as the preference for social (or other) regulatory requirements distorts the market mechanism and, consequently, there can be no guarantee that it can still optimize the use and distribution of scarce resources.
 
Contracting authorities are clearly in a position to decide what to buy and to require that the products or services they purchase or hire meet certain technical specifications that include environmental or social requirements. They will be able to do so as long as there is a market for such products or services. Equally, they are free to decide to what social or environmental projects they give preference and where the money should be spent. And, once they do that, they should aim to take full advantage of the undistorted market mechanism to maximise the value of their expenditure or investment to achieve those goals. However, they are in a very bad position to attempt to regulate the market through purchasing decisions, and they should refrain from doing so. Otherwise, they may see how their own efforts are in vain as a result of their unforeseen impact in the market.
 
The boundaries of what can and what cannot be done in terms of promoting social and environmental goals through procurement still require some further clarification (particularly in light of the novelties in the new public procurement directives), but it should come with some sound understanding of the economics underpinning procurement mechanisms. Bottom line: public procurement needs to take place in properly functioning markets and any (pseudo-regulatory) strategies that distort the market will be inefficient, however appealing it may seem to exploit buying power in the short term.

Whatever is left of the #EUCouncil? #CJEU 'Pringle' and the 'single European patent' judgments set a moving target

The CJEU dismissed Spain's and Italy's actions against the Council’s decision authorizing enhanced cooperation in the area of the single European patent. 

This should not come as a surprise, since the bottom line criterion to take into consideration (as stressed by the CJEU in its Judgment) is that, despite the unanimity requirement in Council decision-making in certain areas of competence, recalcitrant Member States cannot block the development of initiatives that have been sufficiently discussed (in this case, for more than 10 years) and that, in the end, does not damage the internal market or the economic, social and territorial cohesion of the EU. Fair enough.

This Judgment, however, raises two sets of issues that I consider relevant. 

On the one hand, and in a general context, taken together with the recent Pringle Judgment, the Single European Patent Judgment questions the role of the Council as the true political arena and stage for the development of key areas of EU Law. Particularly in view of the growing deference given to less than fully inclusive decisions--which, however, are bound to have a clear effect (and not necessarily a positive one) on the non-included (or self-excluded) Member States. This may completely alter the negotiation dynamics within the Council, since vetoes do not seem to be that effective anymore and, consequently, second-best settlements seem ever more desirable than jumping from a moving wagon.

On the other hand, and in the specific field of the single European patent mechanism, it remains to be seen at what cost will Spain and Italy join the system they have so far opposed--since, at least in terms of credibility, there is clearly a premium to be paid. It seems clear that the disadvantages of not participating are too high for these two Member States to continue refraining to join in (although political stubbornness may have no limits). Again, it seems that, in the future, Member States will need to consider the effort required to jump onto a moving train in case they consider not participating in 'threatened' enhanced cooperation initiatives.


All in all, these are interesting developments in EU law that seem to reopen the never-ending debate about institutional design and balance in competence allocation. It remains to be seen whether Pringle and Single European Patent will be outliers, or if there is a stronger underlying trend that will prompt future changes.