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08 March 2019 / news

Brexit Blog 8: Brexit Consequences in the procurement sector

As things stand, the United Kingdom (UK) will no longer be part of the European Union (EU) from 29 March 2019 as a result of the Brexit.

As the exit date quickly approaches, one question to consider is how Brexit will affect the EU and UK’s reciprocal access to procurement. In addition, what will happen to UK national procurement legislation that is based on European directives?

The exact impact on the public procurement sector will (at least in the short term) depend upon whether or not a withdrawal agreement is concluded between the EU and the UK. On the basis of the withdrawal agreement as it currently stands, (not yet approved and signed), there will be a transitional period until 31 December 2020, during which the parties will continue to have access to each other's public markets. Also, national procurement rules based on these directives will - in principle - continue to apply. In that case, not too much will change in the short term. The rules that will apply after this transitional period depend upon the subsequent negotiations between the UK and the EU.

If no withdrawal agreement is concluded and we are heading towards the so-called “hard Brexit”, initially this will actually not lead to much change. This is due in particular to the fact that the UK is unlikely to immediately change its national procurement legislation based on EU directives. In addition, the UK will accede as an independent member to the Government Procurement Agreement (GPA). On the basis of the GPA, to which EU Member States (by virtue of their EU membership) are automatically party, UK parties will be guaranteed access to the EU public market and vice versa, provided that no reservations are made and with a number of exceptions (including defence and special sector procurement).

GPA

Currently, contracting authorities or special sector contracting authorities established in the EU do not have to allow service providers and contractors established in third countries (i.e. non-EU countries) to tender. The exception to this rule applies to countries who are party to the GPA.

The GPA - despite being called an agreement - is a treaty (under the auspices of the WTO) which entered into force within the EU on 1 January 1996 (a revised version of the GPA entered into force on 6 July 2014). Parties to this agreement (including the EU, Canada, the United States, Japan, Israel, Norway, Switzerland, South Korea and others) should allow each other reciprocal access to procurement under certain conditions.

The GPA provides, inter alia, for procedural rules ensuring equal treatment and transparency, but also contains specific market access obligations. However, the scope of the GPA is narrower than the scope of the EU procurement directives. For example, certain types of contracts that are within scope of the EU procurement directives are not covered by the GPA, including defence and special sector contracts. Whether or not access to these specific public markets between the UK and the EU will remain after Brexit is an unresolved question. This will depend on further agreements that the EU and the UK may or may not conclude. Furthermore, the GPA (as well as the EU procurement directives) only applies to contracts above a certain threshold value. Threshold values are equal to the European threshold values.

Thus, since the UK joins the GPA after the Brexit as an independent member, access to the public market between the UK and EU Member States will in principle (with the exception of a number of specific types of contracts in areas such as defence and utilities) be guaranteed.

An EU political declaration on future relations with the UK states that in the light of the UK's intention to join the GPA, parties should provide reciprocal opportunities in each other's procurement markets beyond their commitments under the GPA in areas of mutual interest, without prejudice to their internal rules protecting essential security interests. In doing so, the EU is demonstrating its desire for wider reciprocal access to procurement than under the GPA.

Register with EU legal person

It is worth bearing in mind that UK companies can tender with legal entities incorporated under the laws of an EU Member State and vice versa an EU company may make use of a UK legal entity to tender for UK public contracts. Therefore, these parties may be able to maintain access to each other's public markets - and consequently not be dependent upon how reciprocal access to procurement will be regulated post-Brexit. After all, with an EU legal entity, a British company is in principle considered an 'EU national' and can therefore participate in EU tenders. Problems may arise if an EU subsidiary has to rely on its British parent company to meet the tendering requirements. But as long as the EU subsidiary can independently meet the tendering requirements, this seems a viable route. However, we note in this context that it may be important for the EU company being registered to have some connection with the EU. If the company is an 'empty shell' (i.e. without substantial activities in the EU) for the sole purpose of tendering, we cannot rule out the possibility that abuse will be assumed and access to the EU public market may be denied.

New notification service

Although the parties - even in the case of a hard Brexit - are likely to continue to have reciprocal access to procurement, the hard Brexit does seem to have practical consequences for access to digital procurement systems, particularly in the absence of a withdrawal agreement.

With a hard Brexit, UK contracting authorities may no longer have access to the EU Publications Office and the online supplement to the Official Journal of the EU which is dedicated to European procurement. For this reason, the UK government will amend the current legislation so that UK contracting authorities will be obliged to send the required information to a UK e-notification service. Tenderers wishing to access UK tenders will have to use the new UK e-notification service instead of the Tenders Electronic Daily.

Content of procurement rules

In addition to the question as to whether parties will have access to each other's government markets after the Brexit and which practical consequences this will have, the question is whether the content of the procurement regulations (for example: how to submit a tender, which procurement conditions apply, which contracts may be amended, what legal remedies an unsuccessful tenderer can rely on, etc.) will change. At present, the UK and (rest of the) EU rules on European public procurement are almost identical, as they are based on EU directives.

At the moment, it appears that the UK is not changing its procurement rules as a result of the Brexit. Given that the EU is not intending to amend the procurement legislation in the short term either, the procurement rules in the UK and the EU will most probably remain similar for the time being. In the future, however, these rules may diverge due to the implementation of new legislation or divergent interpretations by the EU Court of Justice on the one hand, and the British courts on the other (which will then no longer be bound by the interpretation of the former).

If you have questions about the consequences of Brexit for procurement, please feel free to contact our Competition & Regulatory department.



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