Public procurement, Brexit and the WTO GPA

Kamala Dawar
Kamala Dawar

In a recent briefing paper, I illustrate that the sheer value of public procurement contracts makes them important both economically and for providing society with essential public goods, services and infrastructure. In 2013/14, the UK public sector accounted for 33% of UK public sector spending and 13% of GDP3 – so ensuring good public procurement policy is beneficial to markets and taxpayers.

Currently, the UK’s procurement laws fall under the application of the EU’s 2014 Procurement Directives for Goods and Services, Utilities and Concessions. The EU has also negotiated the coverage of the WTO Government Procurement Agreement (GPA) on behalf of all 28 EU Member States and various PTAs, most recently the EU-Canada CETA, which includes a comprehensive chapter of public procurement provisions. The Great Repeal Bill aims to revoke the European Communities Act 1972 and to incorporate current applicable EU law into an Act of Parliament. Additionally, following the Devolution Settlement of 1998, certain competences – including public procurement – were devolved to Northern Ireland, Wales and Scotland . So, unless the laws affecting devolved issues are unilaterally scrapped by Westminster as a consequence of Brexit, the Great Repeal Bill will result in decentralising government procurement legislation. This could potentially fragment a coherent UK-wide procurement strategy towards the WTO GPA, as well as in its PTAs.

From a negotiator’s perspective, a prerequisite to repositioning the UK’s trade terms post-Brexit is therefore going to involve establishing the UK’s Most Favoured Nation commitments under
the GATT and GATS, with all the other 164 or more Members – including the EU. Some commentators have argued otherwise – that the UK is already a WTO Member with independent rights and obligations, including those relating to its MFN coverage in goods and services. This seems an optimistic and overly simplistic interpretation
 in the case of services markets committed under the GATS schedules, where the UK’s commitments are set out both independently
and jointly with the EU. The UK will need independently to set out its GATS Schedule whether or not it is certified by other WTO Members, because the UK needs a schedule upon which to trade. So, it is not until the UK has formally determined its MFN coverage under the WTO that the UK can seek to negotiate a more favourable trade agreement with the EU or other 3rd parties. After Brexit, a pragmatic short-term solution would be
to retain current regulations for the award procedures under the Great Repeal Act, but without conferring their benefits to suppliers from third parties without reciprocal arrangements. The freedom from the imposition of EU Procurement Directives will have implications for the
 UK’s internal procurement policy.

As a consequence of
the devolution settlement of 1998, public procurement became an area of responsibility for the devolved governments of Northern Ireland, Scotland and Wales. Following Brexit, the different parts of the UK will no longer be forced to apply the same public procurement rules, and different policy objectives are likely to appear in the award of procurement contracts, promoting different local economic development and social goals.

In 2013/14, the UK public sector spent a total of £242 billion on procurement of goods and services. There is political pressure to use this sum to pursue a variety 
of public policy aims, such as promoting small and medium-sized enterprises (SMEs) or encouraging local growth. Indeed, both of these objectives were stated
aims of the UK’s coalition government of 2010-2015, which in 2013/14, set a target for central government to procure 25% of goods and services by value from small and medium-sized enterprises. The 2015 Conservative manifesto included a pledge to increase the percentage spent with small and medium-sized enterprises to a third.

Recent WTO disputes indicate that procurement policies promoting industrial or environmental policies are actionable under various multilateral agreements, even if they have been exempted from the WTO GPA commitments. The UK will need to ensure that horizontal policy objectives implemented through devolved procurement awards are in compliance not only with the WTO GPA, but also under other multilateral rules including the WTO Agreement on Subsidies and Countervailing Measures, the GATT, GATS and the TRIMs.

The Court of Justice of the EU (CJEU) also issued a revised interpretation of the concept of an undertaking for the purposes of the application of EU competition law to encompass economic agents engaging in a combination of both economic and non-economic activities. In the EasyPay case, the CJEU determined that an activity will be considered as economic – unless it has links with another activity that fulfils an exclusively social function – based on the principle of solidarity and entirely non-profit making. Moreover, such an activity must, by its nature, aims and the rules to which it is subject, be ‘inseparably’ connected to its social function.

The EasyPay Judgment was significant in departing from existing case law to confirm that for the purposes of
the application of EU competition law, an undertaking is
any entity – even a procurement agency – engaged in an economic activity, irrespective of its legal status and the
way in which it is financed. And further, that any activity consisting in offering goods and services on a given market is an economic activity. Of additional relevance here is
the 2014 High Court in England ruling on the application of the UK competition rules to tender design of an exclusive concessions contract tendered to Luton Operations to run
a bus service between the airport bus terminal and central London. In this case, the contracting authority was found to have abused its dominant position by negotiating a seven- year deal with the successful bidder when there would have been sufficient capacity for a second operator after three years. The long exclusivity generated a higher return for Luton Operations, which was held to be bad for consumers and an abuse of dominance in the buying market.

Promoting this integrated approach to implementing competition and public procurement law and policy may also be helpful in counterbalancing the centrifugal forces of devolution, undermining the benefits of competition
in public procurement. For example, this could involve centralised monitoring of horizontal policy objectives through procurement awards in the different regions of
the UK, following a similar assessment and surveillance system. This would also provide a more transparent, coherent and competitive framework for potential bidders, which would be of particular benefit to SMEs that wish
to enter these lucrative markets. Currently the EU has 
one of the most developed State aid control systems
in the world. The UK is likely to continue to apply some form of State aid control following Brexit. Providing the
 UK competition authority with the mandate to oversee 
the monitoring and enforcement of competition law, State aid control and public procurement rules would help to ensure that decentralised legislation conforms to WTO commitments towards non-discrimination and subsidy control. Such centralised supervisory powers could also act as a counterweight against legal fragmentation, which could disproportionately undermine economies of scale
as well as the benefits of competition and value for money in public procurement following the devolution of these competencies.

The briefing paper concludes by hoping that what could be a relatively straightforward discussion concerned with improving transparency, competition and value for money when awarding public procurement contracts, is not overshadowed by complex sequencing of negotiations, intra-UK jurisdictional divergences, and intractable political legacies with the EU.

Kamala Dawar is a Lecturer in Commercial Law at the University of Sussex. The briefing paper was published for the UK Trade Policy Observatory on 28 March 2017. The opinions expressed are those of the author alone and do not necessarily represent the opinions of the University of Sussex or the UK Trade Policy Observatory.

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