Public procurement

Brexit Explained banner

What is public procurement and why does it matter?

Public procurement – how public sector organisations buy goods, works and services – is 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 with the UK leaving 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 “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 that 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 these procurement rules after Brexit?

That depends on whether the UK agrees a deal with the EU which covers public procurement. If not, and in a no deal scenario, the UK would revert to default procurement rules under the WTO.

What would the WTO default position mean on procurement?

In the absence of any deal with the EU after Brexit, the default position under WTO rules means no mutual rights of access to public procurement markets. We could favour British companies but our companies could face discrimination in supplying the much bigger European procurement market.

Could the UK avoid this cliff edge on procurement?

Yes. It would first need re-join the WTO agreement on government procurement – dubbed as "WTO GPA" – to which the UK is currently a signatory through its membership of the EU.

This would give UK businesses some access to the public procurement markets of not only 27 EU member states but also the United States, Japan, and 18 other countries worldwide. While membership of the WTO GPA opens up procurement above certain value thresholds, it would not give the UK the same level of full access to procurement markets that it currently enjoys as a member of the EU.

Rejoining the WTO Government Procurement Agreement would give the UK the freedom to set out its own procurement policy and negotiate carve-out protections and concessions from the GPA’s obligations, for example, for small and medium enterprises. However, it would not give the UK the same level of full access to procurement markets as a full member of the EU.

How easy would it be to join the WTO agreement on government procurement?

There is legal uncertainty as to whether the UK would need to formally reapply to join the WTO GPA, and how complex and lengthy this process would be. Membership requires the UK to disentangle its commitments from the EU schedule – a process that no other country has ever undertaken.

One view, as argued by Dr Kamala Dawar of the University of Sussex, is that the UK will have to reapply to join the agreement by following the same process as any new party to the agreement, which could potentially involve lengthy and complex negotiations with all 18 other countries that are signatories of this agreement.

Another view, as suggested in a recent report to the European Parliament, is that the UK might be able to succeed to its current rights and obligations as a member of the EU under the WTO GPA without having to reapply to join. That would depend on the views of current signatories to this agreement and the extent of consensus between them.

How might that change if the UK negotiates a free trade agreement with the EU?

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

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 TTIP has been about 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 devolved administrations?

The devolution settlement of 1998 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.

In the Great Repeal Bill White Paper, the UK Government made clear that it will “begin intensive discussions with the devolved administrations to identify where common frameworks need to be retained in the future”. It 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 maintaining the current devolution settlement of this area.