Public procurement

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What is public procurement and why does it matter?

Public procurement – how public sector organisations buy goods, works and services – is a big business and is currently governed by EU rules.

In 2015, the UK’s public procurement market was valued at over £260 billion – 13.6% of gross domestic product – excluding expenditure on utilities. The total public procurement market in the EU, to which UK firms have access as part of our membership of the EU, was worth £1.5 trillion in 2015.

The rules that govern public procurement will change after the UK leaves the EU. That will in turn change how much market access UK businesses will have to procurement markets in the EU, and EU businesses to the procurement market in the UK.

What is the current procurement regime?

Public procurement in the UK is regulated by EU rules, covering different types of procurement, such as public contracts, utilities, and defence and security. These common rules are designed to prevent member states discriminating in favour of their own companies and help ensure a level playing field across the EU.

These rules are often seen as controversial because they appear to prevent the UK Government from “buying British”. For example, a row erupted in 2011 when Siemens, a German company, won a £1.6 billion public contract for Thameslink trains over Bombardier, a Derby-based train maker. On the other hand, they help ensure that UK companies can bid for lucrative government contracts in other member states on a level playing field.

EU membership not only gives UK access to public procurement markets in 27-member states of the EU, but also other non-EU countries. The EU has free trade agreements with third countries which allow UK business to participate in procurement markets in countries, such as Canada and South Korea, and it is also a signatory to the World Trade Organization (WTO) Government Procurement Agreement (GPA) – a voluntary trade agreement within the WTO.

What happens to procurement rules if there is no deal?

In June 2018 the Government began negotiations for the UK to become an independent signatory of the GPA, and in February 2019 the WTO announced that the UK would become a party to the agreement in its own right.

This means that even if the UK leaves the EU without a deal, UK businesses will have some access to the public procurement markets of not only the 27 EU member states, but also the United States, Japan, and 18 other countries worldwide. However, while membership of the GPA opens up procurement above certain value thresholds, it does not give the UK the same level of access to procurement markets that it currently enjoys as an EU member.

What would happen to procurement rules if there is a deal?

Under the proposed Withdrawal Agreement, the Government has confirmed that public procurement regulations will “remain broadly unchanged” for the duration of the transition period. How public procurement regulations will then change after the transition period – and whether UK businesses will have access to public procurement markets beyond that guaranteed by the GPA – will be determined by the negotiations on the future relationship between the UK and the EU.

What would happen to procurement rules if the UK negotiates a free trade agreement with the EU?

If the UK negotiates an ambitious free trade agreement with the EU, this would probably contain provisions on public procurement that would improve post-transition access to EU markets beyond that guaranteed by the WTO GPA agreement.

The Political Declaration accompanying the proposed Withdrawal Agreement states that the UK and the EU “should provide for mutual opportunities in the parties’ respective public procurement markets beyond their commitments under the GPA”.

The European Parliament report identified two options for procurement within a future EU-UK agreement. One would be a so-called ‘EEA-minus model’, whereby the UK continues to apply current EU procurement directives, as has been done in an EU trade agreement with Ukraine. This would maintain the UK’s access to public procurement across the EU, but with no more flexibility than now – and with no say over how the rules develop in the future.

Another option it identified was a ‘GPA-plus model’ that would use the WTO Agreement on Government Procurement as a basis, supplemented with additional rules and commitments, as has been pursued in the EU-US trade negotiations. This would give the UK the freedom to pursue its own procurement policy within the limits of those rules.

Does anyone apart from business care about public procurement?

Yes. Public procurement provisions can have wider policy implications that governments need to take into account.

Much of the debate about the proposed EU-US trade deal, known as the Transatlantic Trade and Investment Partnership, has been about the potential impact of its procurement provisions on public services, and particularly the NHS. Opponents have argued that including healthcare services in the agreement will force the privatisation of the NHS. However, the Commission insisted that this agreement would include a carve-out for public health services that would prevent any foreign privatisation.

What will these changes mean for the devolved administrations?

The 1998 devolution settlement means that public procurement is an area of responsibility for the devolved governments in Scotland, Wales, and Northern Ireland. Devolved governments are likely to have greater freedom to set their own policy objectives in the award of procurement contracts.

This could lead to greater divergence between the devolved procurement legislation in the UK. Perhaps more importantly, this risks undermining competition and transparency in the procurement markets within the UK and detracting from a unified external strategy in the negotiations with the EU.

The UK Government has therefore said it expects public procurement to be covered by the ‘common frameworks’ being developed between itself and the devolved administrations. However, it has also said that “the outcome of this process will be a significant increase in the decision-making power of each devolved administration”, so it appears to be committed to ensuring public procurement remains a devolved competence.

Update date: 
Wednesday, May 22, 2019