Would a Brexit significantly change the way the English public sector buys supplies and services?

With two months to go for the all important UK referendum on EU membership, I thought it was about time to open the Brexit can of worms. This is a blog post I wrote for wider dissemination through the University of Bristol engagement channels. Comments welcome!

There has been some serious thought put into the potential implications of Brexit for the ways in which the UK public sector buys supplies and services—or, in technical terms, on the Brexit implications from a public procurement perspective. Academics, such as Dr Pedro Telles, and practitioners such as Michael Bowsher QC, Peter Smith, Roger Newman or Kerry Teahan have started to reflect on the likely consequences from a legal and business case perspective.

The overwhelming consensus is that a Brexit is highly unlikely to result in any significant substantive changes of the rules applicable to the public sector’s buying activity and that existing ‘EU-based regulation’ (notably, the Public Contracts Regulations 2015, as already amended by the Public Procurement (Amendments, Repeals and Revocations) Regulations 2016) is very likely to be replaced by an almost identical ‘English-reimagined regulation’. Economic studies, such as that carried out by Global Counsel, have also considered the likely impact of Brexit on public procurement as moderate—although in the economic area there is less consensus, as pointed out by Procurious.

Overall, it may seem that public procurement is an area where a Brexit would be unlikely to create much more than legal uncertainty and some economic costs (which are for the UK population to evaluate) and that, after a suitable (possibly long) period of time, new rules would be in place and the sector would carry on as usual. Optimists may identify an opportunity to improve existing rules once the EU requirements are set aside and a distinct English-reimagined regulation can be adopted and implemented (if that is at all possible, which most commentators reject). I would like to entertain that possibility for a second and consider to what extent the creation of a significantly better English-reimagined public procurement regulation is likely to materialise.

At the risk of being considered a pessimist or excessively critical, I do not think this possible at all, much less in a tight time-scale of around two years. I think that the process of transposition of the most recent EU rules (notably Directive 2014/24/EU) into the Public Contracts Regulations 2015 is a cautionary tale. That process of transposition required a reform of UK public procurement rules and had a two-year timeline, so the regulatory reform scenario could not be more similar and timely.

When the modernisation of the pre-existing EU procurement rules was first proposed, the Cabinet Office set out a clear negotiation strategy with ambitious goals, which mainly revolved around the creation of space for employee led organisations/mutuals to enable employees to gain experience of running public services prior to full and open competition, the shortening of procedures and reduction of red tape, the flexibilisation of the rules in order to allow for better commercial practices, and measures to enhance SME access to public procurement. All of this was achieved and the Cabinet Office was clear in stressing that the ‘revised [EU] package represents an excellent overall outcome for the UK, with progress achieved on all of our priority objectives’.

After having successfully secured most of the UK desired reforms during the 2011-2014 negotiation process, and in order to benefit from them as soon as possible, the Public Contracts Regulations 2015 were very quickly adopted in under a year. However, in part as a result of such rush to secure the benefits mentioned above, and possibly also as a side effect of the self-imposed restriction derived from ‘the government’s policies on “copy-out” of European Directives (where available) and avoidance of “gold-plating”, [which] further limit[ed] the extent to which Cabinet Office can deviate from the wording of the EU directive when casting the national UK implementing regulations’, the new UK procurement legislation is rather defective (as discussed in this podcast).

The 2015 reform was a significant opportunity to improve the regulation of public procurement in the UK and to rethink a system based on the flexible alternatives now included in the 2014 EU public procurement package, but it was misused and is now lost. By not adding domestic detailed rules to the EU framework, or developing significant guidance (there is some in selected areas, such as public-public contracts or contract modification), and by rushing an insufficiently developed transposition, the Cabinet Office created a situation where procurement practice is very likely to carry on as usual unless old rules are now barred (most are still compatible with the revised framework, though) or the specific contracting authority identifies any clear advantage in adopting new practices. Piece meal legal reform, piece meal guidance and piece meal procedural innovation is unlikely to result in any deep transformation of the way the UK public sector buys supplies and services.

In my view, this is a cautionary tale because fundamentally rethinking the public procurement function and its processes, and then designing a coherent system of rules that effectively support them, is a very hard thing to do (and one to which I intend to dedicate significant effort in the coming years). Moreover, the policy priorities expressed by the UK during the process of modernising the EU framework are now embedded in the revised EU and UK procurement rules. This seems to leave nothing left for the UK to want to push for in any subsequent legal reform, so there is no actual public interest or clear public policy driver for any additional reform of current rules—bar the need for technical adjustments. Thus, overall, a Brexit is very unlikely to result in any significant change in the way the English public sector buys supplies and services. Not because of EU impositions—then as a trade requirement rather than a regulatory obligation—but due to the lack of internal drive and practical need for an English-reimagined public procurement regulation.


Paper on centralisation of procurement and competition law

Ignacio Herrera Anchustegui, from BECCLE - University of Bergen, and I have just completed a working paper on the new rules on centralisation and occasional procurement under articles 37-39 of Directive 2014/24. The paper assesses the risks, rationale and justification for the rules on centralisation and aggregation of public procurement in Directive 2014/24. The paper is entitled "Impact of public procurement aggregation on competition. Risks, rationale and justification for the rules in Directive 2014/24" and is now part of the University of Leicester School of Law Research Paper Series.
The paper explores the justifications advanced for the aggregation of purchasing and the countervailing risks it generates. In both cases, it focusses in economic and administrative aspects. It then proceeds to a summary overview of the new rules for the aggregation of public procurement in Directive 2014/24, and emphasised how the Directive is expressly recognising possibilities that clearly exceed the more modest approach in Directive 2004/18. Moving on, it then focusses on the potential justification for certain activities now permitted by the 2014 rules, and engages in a critical assessment of their competitive impact. The paper briefly highlights the far-reaching and not necessarily positive implications that a maximisation of the centralisation and aggregation possibilities under Directive 2014/24 could have, and proposes that strict competition law enforcement will be necessary to avoid undesired consequences. Some suggestions for further research are provided by way of conclusions.
The full paper is available for download on SSRN. Its full citation is:

Sánchez Graells, Albert and Herrera Anchustegui, Ignacio, Impact of Public Procurement Aggregation on Competition. Risks, Rationale and Justification for the Rules in Directive 2014/24 (December 5, 2014). University of Leicester School of Law Research Paper No. 14-35. Available at SSRN:  

Public buyers will self-protect against bid rigging

Another of the interesting developments included in the compromise text that reflects the current status of negotiations for the modernisation of  EU public procurement rules (http://tinyurl.com/modernisationcompromise) is the inclusion of a new Article 54(3) that clarifies that tenderers affected by any grounds for exclusion can be disqualified by contracting authorities at any time:
Contracting authorities may at any moment during the procedure exclude an economic operator where it turns out that the economic operator in question is, in view of acts committed either before or during procedure, in one of the situations referred to in Article 55(1) to (3).
This is a relevant clarification that prevents a rigid interpretation that would have limited the possibility to exclude tenderers at the beginning of the procurement process (ie only at selection stage).

Notwithstanding the above, and maybe most interestingly, this provision is coupled with a new Article 55(3)(d) in virtue of which a tenderer can be excluded
where the contracting authority can demonstrate that the economic operator has entered into agreements with other economic operators aimed at distorting competition.
This is an important development in terms of reducing the impact of bid rigging on procurement, which stresses the need for contracting authorities to cooperate closely with competition watchdogs (both at regional and national levels, and with the European Commission's Directorate General for Competition) and that opens the door to potential difficulties in terms of due process (eg what is the burden of proof to be discharged by contracting authorities?) and an eventual conflict of enforcement competences (both by administrative bodies and in terms of judicial review, particularly where competition matters are assigned to specialised courts).

Therefore, when the time to transpose Articles 54 and 55 of the new Directive (if adopted in the terms of the compromise text) comes, it will be interesting to revisit the institutional architecture of procurement authorities to ensure the appropriate collaboration channels with antitrust authorities (on this, see A Sanchez Graells, Public Procurement and the EU Competition Rules [2011] Hart Publishing 381-389).

Goodbye to the European Procurement Passport: Hello false claims and/or criminalisation rules?

According to the UK Cabinet Office's latest Progress Update on the Modernisation of the EU Procurement Rules  (http://tinyurl.com/modernisationupdate), the creation of a new European Procurement Passport (EPP) that the Commission had included in the December 2011 proposal for the modernisation of Directive 2004/18 has been dropped from the compromise text (http://tinyurl.com/modernisationcompromise).

This should be seen as a welcome development, since it will finally not increase the red tape involved in public procurement procedures (as anticipated in my  Are the Procurement Rules a Barrier for Cross-Border Trade within the European Market? A View on Proposals to Lower that Barrier and Spur Growth: http://ssrn.com/abstract=1986114).

Indeed, as the Cabinet Office stresses, since the information to be included in the EPP is now largely going to be provided by self-declaration with only the winning bidder submitting the documentary evidence (in case the rules of art 57 in the compromise text hold the rest of the EU legislative process), it now seems an unnecessary administrative burden.

However, it should be stressed that self declarations still present some issues, due to the risk of strategic behaviour on the part of bidders. Failure to submit the supporting evidence regarding the information included in a self-declaration is configured exclusively as a (discretionary) exclusion ground under Article 55(3)(f) of the compromise text (which comes to replace the suppressed provisions in article 68 of the December 2011 proposal), in the following terms:
Contracting authorities may exclude or may be required by Member States to exclude from participation in a procurement procedure any economic operator in any of the following situations: [...] (f) where the economic operator has been guilty of serious misrepresentation in supplying the information required for the verification of the absence of grounds for exclusion or the fulfilment of the selection criteria, has withheld such information or [is] not able to submit the supporting documents required pursuant to Article 57;
This is in, my opinion, the proper treatment of this circumstance (and clearly better than its treatment as a 'mere' awarding impediment, as initially proposed by the Commission). However, I think that it is worth stressing that this rule still leaves excessive uncovered risks in case of strategic behaviour by non-compliant bidders that would require second or ulterior awards (with the corresponding difficulties regarding the need to ensure that other bidders keep their offers open, new award notices, etc). Even if the buying body can (self)protect its interests by excluding the tenderer [and, possibly, by pushing for an extended exclusion from all procurement procedures, depending on the national rules on debarment--which will need to be developed to implement art 57(4) of the compromise text] there is a risk of uncompensated damages and, implicilty, scope for criminal proceedings for fraud (or related) offences.

Therefore, I still think that it is necessary to strengthen the consequences of failing to produce supporting evidence for the self-declarations (and, more generally, of providing false information), which should not only be a ground for exclusion, but also be reinforced by rules that set it as a head of damage that allowed contracting authorities to recover any additional expenses derived from the need to proceed to a second-best, delayed award of the contract (without excluding the eventual enforcement of criminal law provisions regarding deceit or other types of fraud under applicable national laws). Also, rules on annulment of the awarded contract and other sanctions are needed for those instances where the discovery of the falsity of the documents occurs after contract award, when exclusion does not seem to be an apropriate remedy.