Procurement after Brexit

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

In 2018/19, UK government spent £292 billion^[1], more than a third of all public spending, on procuring goods, works and services from external suppliers. The total public procurement market in the EU, to which UK firms have access as part of the transition period, was worth £1.5 trillion in 2015.

The rules that govern public procurement will change after the UK leaves the transition period. 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?

While the UK has left the EU, it is bound by the terms of the Withdrawal Agreement which requires it to adhere to EU rules until the transition period ends. Even after the transition period ends, EU rules, which have been transposed into UK law, will still be in force until the government decides to change them.

EU rules cover 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 seen by someseen as overly bureaucratic and unpopular. They can also be controversial. 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.

For the duration of the transition period, the UK will have 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 on the UK–EU future relationship?

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.^[2]

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 had as an EU member.

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 could contain provisions on public procurement that would limit the ability of the UK to diverge from EU procurement rules but would improve post-transition access to EU markets for UK companies.

The government did not include procurement in its mandate for a future relationship with the EU. This implies it would prefer its relationship to be governed by the GPA. The GPA is simpler and less prescriptive than EU regulations, providing greater flexibility in how public bodies conduct procurement.

The EU’s mandate seeks to go beyond the GPA by including utilities and supplementing the GPA with additional rules and commitments, as has been pursued in the EU–US trade negotiations. The UK would still have freedom to pursue its own procurement policy within the limits of those rules if this were agreed.

What changes to public procurement rules are the government proposing?

The prime minister stated back in 2019 he would “fundamentally change” public procurement rules to “back British business”. This suggests the rules could be modified to allow greater scope for prioritising British companies over international suppliers. The government is also considering changes to rules on remedies, transparency, procedures and evaluation criteria.

The Cabinet Office has consulted with other departments, local authorities, major suppliers and SMEs and plans to publish a green paper later this year providing more detail on what specifically might change.

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 European Commission has 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 for procurement.

This could lead to greater divergence between the procurement rules in different parts of the UK. 

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.