Brexit briefing | Brexit, Competition |

Brexit: what does it mean for public procurement? - updated January 2021

Overview

This briefing was updated on 14 January 2021 to reflect the provisions of the UK-EU trade deal.

Public procurement rules affect the way that government and other bodies controlled or funded by the state award contracts to the private sector.  The current rules in the UK are heavily influenced by EU legislation. This briefing looks at what changes have been made to these rules following the end of the Brexit transition period. It also explains what Brexit means for access by UK firms to EU procurement markets from 2021 (and vice versa).

Has the trade deal agreed between the UK and the EU made any difference to public procurement?

On 24 December 2020, the UK and the EU came to an agreement on a new trade deal, the Trade and Cooperation Agreement ("TCA"), which governs the future relationship between the UK and EU on issues including, among others, trade in goods and services, law enforcement, transport, energy and most relevant here, public procurement.

Principally, the public procurement provisions of the TCA serve to incorporate and confirm the application of the World Trade Organisation Government Procurement Agreement ("GPA"), which the UK acceded to on 1 January 2021, in relation to the EU and UK's ongoing relationship regarding public procurement. Building on the foundations set by the GPA, the TCA extends the types of public procurement to which EU and UK businesses will have access (in each other's respective markets) from 1 January 2021.

UK ACCESSION TO THE GPA AND AGREEMENT OF THE TCA: WHAT DOES IT MEAN?

The main implications of the UK's accession to the GPA and the agreement of the TCA between the UK and EU are as follows:

  • Access to procurement markets of GPA signatories other than the EU will be preserved at the current level (e.g. a UK firm which regularly tenders for government business in the US or Canada should be treated in the same way as it was whilst the UK was part of the EU Single Market);

  • UK businesses will also continue to have access to EU public procurement markets; however, the level of guaranteed access will not be as extensive as it was whilst the UK was part of the EU Single Market (see Question 4 for more detail); and

  • As regards its own national rules, the UK will be free to diverge from EU public procurement rules but its GPA membership and the terms agreed between the UK and EU under the TCA limit the extent of that divergence. For example, the UK will be expected to continue to ensure that contracting authorities approach procurement within the scope of the GPA and TCA in a transparent, non-discriminatory manner (see Question 6 for more detail).

Wider market access issues

In addition to the provisions in the TCA that are specific to public procurement, which as outlined above grant access for UK businesses to EU procurement markets that is greater than that provided under the terms of the GPA, other aspects of the TCA relating to trade between the UK and EU are also likely to increase such access.   

Since the end of the Brexit transition period, UK businesses now face additional barriers when selling goods or services to the EU which may make it more difficult for them to compete with EU suppliers when bidding for contracts from EU contracting authorities. Whilst the TCA mitigates some of the potential loss of competitiveness (e.g. by providing for zero tariffs on qualifying goods) and is undoubtedly preferable to "no deal", the fact remains that non-tariff barriers in many areas are now higher than they were before 1 January 2021. 

What rules will apply to tenders issued by UK contracting authorities after 31 December 2020?

After 31 December 2020, the EU procurement rules will cease to apply to contracting authorities in the UK. However, most of the EU rules are based on Directives which have been implemented into UK law by national legislation, such as the Public Contracts Regulations 2015. That national legislation will remain in place and is only being modified in relatively minor respects, such as:

  • Replacing references to the European Commission with references to UK Ministers; and
  • Changing the requirement to advertise so that it refers to the UK's new e-notification service, Find a Tender, rather than the EU Official Journal.

NOT MUCH CHANGE FOR UK BUSINESSES

In the short term, therefore, most UK businesses tendering for public contracts in the UK are likely to notice very little change, as the procedures and financial thresholds will remain the same. Over the longer term, the UK could seek to diverge from the current EU-derived regime – but as explained in Question 6, its scope to do so is likely to be constrained by its membership of the GPA and the TCA it has agreed with the EU.

The end of the transition period has, however, meant some changes to the level of guaranteed access enjoyed by EU businesses wishing to tender for public contracts in the UK. See further Question 5.

What happens to tender processes or frameworks which were still ongoing as at 31 December 2020?

Under the Withdrawal Agreement, a tender process or framework agreement which was still ongoing at 31 December 2020 must continue to be conducted in accordance with the relevant EU rules applicable at its commencement. For example:

  • A UK contracting authority which issued a tender in December 2020 will need to continue to apply the EU procurement rules to that tender, even if the UK were to make changes to its own national procurement regime in say, early 2021 (i.e. while the tender was still ongoing).
  • A UK bidder for a tender issued by an EU contracting authority in December 2020 should be able to benefit from the same remedies as an EU bidder for the same contract, notwithstanding the UK's departure from the Single Market.

FRAMEWORK AGREEMENTS

In many instances, the obligations in the Withdrawal Agreement to continue to follow the EU procurement rules will not have an impact much beyond the end of 2021. However, many contracting authorities in the UK make use of framework agreements. For example, a UK contracting authority which entered into a 4 year framework in 2019 will need to continue to conduct any call offs under that agreement in accordance with the EU procurement rules until 2023.  If the UK were to simplify its own national requirements for framework call-offs, the contracting authority would not be able to take advantage of those measures until the expiry of the agreement. In practice, it may be that if contracting authorities wish to take advantage of such simplifications, they will look to terminate the framework and re-tender.

What access will UK businesses have to EU procurement markets from January 2021?

As explained in Question 1 above, in late December 2020 the UK came to an agreement on a trade deal (the TCA) with the EU. The public procurement provisions of the TCA incorporate and then build on the terms of the GPA, extending the types of public procurement to which EU and UK businesses will have access (in each other's respective markets). In broad terms, this should preserve much of the access that UK firms currently have to EU procurement markets. However, the scope of the GPA and TCA is narrower than the EU procurement regime – and where the GPA and TCA do not apply, EU contracting authorities would be under no obligation to allow UK businesses to tender. Areas where GPA and TCA coverage is narrower include:

  • A number of services covered by the EU's "light touch" regime: this includes health and social services, administrative social,  healthcare and cultural services, compulsory social services and benefit services. Had the UK exited the Brexit transition period without a trade deal with the EU, all of these services would have been outside the scope of UK-EU commitments on access to each others' procurement markets. However, under the TCA, the EU and the UK have agreed that public procurement in the educational, hotel and restaurant sectors should be subject to the same commitments as are set out in the GPA.

  • "Below threshold" contracts: under the EU procurement regime, tenders for contracts which fall below the thresholds in the relevant Directives but are of "cross border interest" are still required to be advertised and any competition must be conducted in a transparent, non-discriminatory manner. These general EU legal principles do not apply under the GPA and TCA to below threshold contracts, subject to one exception which is set out in the TCA. This applies where the EU or UK bidder is established in the UK or EU, as the case may be i.e. a supplier incorporated and based in the UK which is owned by an EU business must be allowed to bid for a below threshold contract in the UK – and vice versa.

  • Services concessions: a concession typically involves offering the private sector the right to, for example, run a leisure centre at its own risk i.e. the concessionaire would not be paid by the contracting authority but rather would be remunerated through fees charged to customers of the facility, with a proportion of that revenue being paid to the contracting authority.

  • Defence and utilities procurement: although the GPA and TCA has some application to these areas, its coverage is narrower in a number of respects.

IN PRACTICE, HOW MUCH MARKET ACCESS WILL UK BUSINESSES LOSE?

As noted above, a significant proportion of EU public tendering activity is likely to be covered by the TCA. Where this is the case, EU contracting authorities will not be able to exclude UK bidders purely on the basis that they are from the UK. While EU contracting authorities will be able to exclude UK bidders from contracts not covered by the TCA, whether they will actually choose to do so in practice remains to be seen. In some cases, the contracting authorities may welcome the extra competition and be happy to continue to deal with UK suppliers, provided the latter can continue to offer the best value for money.  However, if other aspects of Brexit make it more difficult or expensive for UK businesses to operate in the EU, even with the trade terms agreed under the TCA, then demonstrating continued value for money may prove more challenging for UK businesses in the future.

Remedies

In relation to contracts covered by the TCA, EU Member States are required to ensure that businesses from the UK have the same remedies as EU bidders. For example, if a UK bidder considered that it had been unfairly treated in relation to a TCA-covered contract, it would be able to challenge that in court. In that respect, the position from January 2021 should be the same as it was whilst the UK was within the EU Single Market. Further, the TCA sets out the types of remedies that may be available to parties challenging a TCA-covered contract, including termination of the contract and/or compensation.

In relation to contracts which are not covered by the TCA, the position is likely to vary between EU Member States. The risk for UK bidders is that although they may be allowed to bid, when it comes to challenging the way the tender has been conducted, they will not have access to the same remedies as EU businesses. That said, we understand that some EU Member States take the view that once a contracting authority has allowed a non-EU business to tender, that business should be given access to the same remedies as those based in the EU. In view of this, we would recommend seeking advice from local counsel in this regard, which we can help you source.

What access will EU businesses have to UK procurement markets from January 2021?

The level of guaranteed access to UK procurement markets for EU businesses from January 2021 will diminish to some extent. This is because while a trade agreement in the form of the TCA has been agreed, which incorporates the terms of the GPA, the coverage of those agreements is somewhat narrower than the EU public procurement regime (see Question 4 for more detail). That said, given the scope of the TCA regarding public procurement in the UK, we would expect EU businesses to continue to have guaranteed access to a very significant proportion of the total UK public procurement market.

For contracts not covered by the TCA, UK contracting authorities will not be obliged to allow EU businesses to tender but may choose to do so to intensify competition and help secure better value for money for taxpayers. In practice, therefore, EU businesses may notice relatively little change as regards their access to UK procurement markets. However, as noted below, the same remedies may not be available to EU businesses as they were prior to the end of the Brexit transition period.

Remedies

EU suppliers tendering for contracts covered by the TCA will have the same remedies as UK bidders. In that respect, the position from January 2021 should be the same as it was whilst the UK was within the EU Single Market. 

In relation to contracts which are not covered by the TCA, UK national procurement legislation does not guarantee access to the same remedies for EU (or other non-UK) bidders. As a result, EU bidders may find themselves at a disadvantage compared with UK bidders should they wish to challenge aspects of a tender.

To what extent could the UK diverge from EU public procurement rules in future?

From 1 January 2021, EU public procurement law will cease to apply in the UK, except in the fairly limited circumstances provided for in the Withdrawal Agreement (see Question 3). This means that in principle, the UK will be free to diverge from the EU's approach to procurement in the future. However, as noted in Question 1, in December 2020 the UK agreed a trade deal with the EU in the form of the TCA. In doing so, it committed to maintaining certain standards that as a minimum are in line with the GPA as regards its own national procurement regime. For example, any changes to UK national procurement rules in relation to procurement within the scope of the TCA would need to ensure that bidders from EU Member States are treated in a non-discriminatory manner and can bring challenges of UK public procurement procedures in UK courts. 

The UK Government is currently consulting on proposed changes to the UK public procurement regime following Brexit. However, such changes do not represent a radical departure from the current system, which is to be expected given the constraints of the TCA and GPA, as outlined above.

PROCUREMENT COMMITMENTS IN FREE TRADE AGREEMENTS OTHER THAN WITH THE EU

The recently agreed UK-Japan Free Trade Agreement contains a chapter on government procurement which commits both parties, as is the case with the EU, to going further than the GPA in a number of respects. For example, whilst the GPA requires signatory states to have effective review procedures to allow businesses to challenge procurement processes, the UK-Japan FTA goes further in requiring both parties to provide for a "standstill" period before the contract is actually entered into (so as to give unsuccessful bidders time to consider a challenge). The UK may well make similar commitments in agreements with other trading partners.

The UK's freedom to move away from EU procurement rules in future is therefore likely to be constrained by a web of obligations based around the TCA but reinforced by obligations in the GPA and other free trade agreements as well. That said, the UK may well look to simplify or streamline some of the more prescriptive or bureaucratic elements of the EU procurement regime (subject of course to compliance with the principles set out in the TCA). In addition, because the coverage of the TCA is narrower than the EU procurement regime, there would also be scope for the UK to roll back some of its existing regulation of procurement markets; for example, if it decided to regulate procurement solely to the extent required by its international obligations, it could remove regulation of services concession contracts.

COULD THE UK IMPLEMENT A "BUY BRITISH" POLICY?

It seems unlikely that the UK would be able to implement a "Buy British" policy for contracts covered by the TCA and GPA, as this would probably breach the commitment not to discriminate against bidders from EU Member States and other GPA signatory states.   

However, the UK could potentially implement such a policy for contracts outside the scope of the GPA and TCA which do not involve suppliers from EU Member States (see Question 4 for discussion of the GPA's coverage). In the main, this would be more likely to affect lower value contracts (i.e. below the thresholds in the UK procurement rules). It remains to be seen whether the UK will pursue this approach. Historically, the UK has tended to take the view that its priority should be value for money for taxpayers – and that this is best achieved by maintaining a relatively open procurement market with as much competition between suppliers as possible. However, Brexit may lead to pressure for a policy that puts more emphasis on supporting domestic suppliers.

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